<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1996
REGISTRATION NO. 333-9863
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PRENTISS PROPERTIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
1717 MAIN STREET, SUITE 5000
DALLAS, TEXAS 75201
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
MICHAEL V. PRENTISS
PRENTISS PROPERTIES TRUST
1717 MAIN STREET, SUITE 5000
DALLAS, TEXAS 75201
(214) 761-1440
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
GEORGE C. HOWELL, III, ESQ. ROBERT E. KING, JR., ESQ.
MARK A. MURPHY, ESQ. ROGERS & WELLS
HUNTON & WILLIAMS 200 PARK AVENUE
951 EAST BYRD STREET NEW YORK, NEW YORK 10166
RICHMOND, VIRGINIA 23219 (212) 878-8000
(804) 788-8200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
AMOUNT AGGREGATE MAXIMUM
TITLE OF SECURITIES BEING BEING PRICE AGGREGATE
REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of beneficial
interest, $0.01 par value
per share................ 19,269,485 $20.00 385,389,700 $132,893(2)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 2,266,500 Common Shares issuable upon exercise of the
underwriters' overallotment option.
(2) $126,072 was previously paid in connection with the initial filing of the
Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated , 1996
PROSPECTUS
15,110,000 SHARES
Prentiss Properties Trust [LOGO OF PRENTISS
COMMON SHARES OF BENEFICIAL INTEREST PROPERTIES APPEARS
---------- HERE]
Prentiss Properties Trust (together with its subsidiaries, the "Company") is
a self-administered and self-managed real estate investment trust that has been
formed to continue and expand the national office and industrial property
acquisition, ownership, management, leasing, development and construction
businesses of Prentiss Properties Limited, Inc. and its affiliates (the
"Prentiss Group"). Upon the closing of this offering, the Company will own
interests in 87 office and industrial properties (the "Properties") with
approximately 8.9 million net rentable square feet. As of June 30, 1996, the
Properties were approximately 92% leased to 394 tenants. The Company intends to
continue the Prentiss Group's strategy of focusing its operations in select
markets throughout the nation and will initially operate in 21 markets
throughout the U.S.
All of the 15,110,000 shares of beneficial interest ("Common Shares") offered
hereby are being offered by the Company. In addition, 1,892,985 Common Shares
(representing an investment of approximately $37.9 million based on the initial
public offering price) are being concurrently placed with , and
(each as defined herein) in exchange for their interests in certain of the
Properties. No underwriting discounts or commissions will be applied to the
Common Shares issued to the Continuing Investors. See "Underwriting."
It is currently anticipated that the initial public offering price for the
Common Shares offered hereby will be $20.00 per share. Prior to this offering,
there has been no public market for the Common Shares. See "Underwriting" for
information relating to the factors considered in determining the initial
public offering price. Upon completion of this offering, management will own
approximately 17.15% of the Company on a consolidated basis. The Company
intends to apply to have the Common Shares listed on the New York Stock
Exchange under the symbol "PP."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON SHARES INCLUDING, AMONG OTHERS:
. The consideration to be paid for the Properties and other assets to be
acquired may exceed their fair market value; therefore, the market value of
the Common Shares may not reflect the fair market value of the Company's
assets;
. Conflicts of interest relating to the formation of the Company and the
operation of its business;
. Limitations on ownership of Common Shares initially to 8.5% of the
outstanding Common Shares, which may deter third parties from seeking to
control or acquire the Company;
. Taxation of the Company as a corporation if it fails to qualify as a REIT,
and the Company's inexperience in operating as a REIT; and
. Risks associated with reliance on major tenants including the risk of any
such tenant's inability to make rent payments.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
- --------------------------------------------------------------------------------
Total(3)................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at approximately
$3,100,000.
(3) The Company has granted the Underwriters an option to purchase up to an
aggregate of 2,266,500 Common Shares to cover overallotments. If all of
such shares are purchased, the total Price to Public, Underwriting Discount
and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
----------
The Common Shares offered by this Prospectus are offered by the Underwriters
subject to prior sale, withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to
certain further conditions. It is expected that delivery of the Common Shares
offered hereby will be made at the offices of Lehman Brothers Inc., New York,
New York on or about , 1996.
----------
LEHMAN BROTHERS
Alex. Brown & Sons
INCORPORATED
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
PRINCIPAL FINANCIAL SECURITIES, INC.
, 1996
<PAGE>
[INSERT PROPERTY LOCATION MAP AND PROPERTY PHOTOGRAPHS]
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 1
The Company.......................... 1
Risk Factors......................... 2
Business and Growth Strategies....... 3
Business Strategy.................... 3
Growth Strategies.................... 4
Properties........................... 6
Structure of the Company............. 8
Benefits to Related Parties.......... 9
The Offering......................... 10
Use of Proceeds...................... 10
Distributions........................ 10
Tax Status of the Company............ 11
Summary Financial Information........ 12
RISK FACTORS.......................... 15
Price to be Paid for Properties, Com-
mon Shares and Other Assets May Ex-
ceed Their Fair Market Value........ 15
Conflicts of Interests in the Forma-
tion Transactions and the Business
of the Company...................... 15
Maryland Business Combination Law and
Super-Majority Shareholder Votes Re-
quired Thereunder .................. 17
Anti-takeover Effect of Ownership
Limit, Staggered Board and Power to
Issue Additional Shares............. 17
Tax Risks............................ 18
ERISA Risks.......................... 19
Real Estate Financing Risks.......... 20
Reliance on Major Tenants............ 20
Geographic Concentration in Texas,
Dallas and Atlanta.................. 20
Changes in Policies Without Share-
holder Approval; No Limitation on
Debt................................ 21
Risks Associated with Rapid Growth;
Risks Associated with the Acquisi-
tion of Substantial New Properties;
Lack of Operating History........... 21
Dependence on Key Personnel ......... 21
Control of Management................ 21
Real Estate Investment Risks......... 22
Risks Associated With Acquisition,
Development and Construction........ 25
Risks Associated With Continuing En-
tities and Manager.................. 25
Risks of Third-Party Property Manage-
ment, Leasing, Development and Con-
struction Business and Related Serv-
ices................................ 25
Absence of Prior Public Market for
Common Shares....................... 26
Immediate and Substantial Dilution... 26
Possible Adverse Effect of Market In-
terest Rates on Price of Common
Shares.............................. 26
Possible Adverse Effect of Shares
Available for Future Sale on Price
of Common Shares.................... 27
THE COMPANY........................... 28
General.............................. 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
History............................. 28
Operations.......................... 29
BUSINESS OBJECTIVES.................. 31
Business Strategy................... 31
Growth Strategies................... 33
Third-Party Management.............. 37
Financing Strategies................ 38
USE OF PROCEEDS...................... 39
DISTRIBUTION POLICY.................. 41
CAPITALIZATION....................... 44
DILUTION............................. 45
SELECTED FINANCIAL INFORMATION....... 46
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 49
Overview............................ 49
Comparison of the Six Months Ended
June 30, 1996 to the Six Months
Ended June 30, 1995................ 49
Comparison of Year Ended December
31, 1995 to Year Ended December 31,
1994............................... 50
Comparison of Year Ended December
31, 1994 to Year Ended December 31,
1993............................... 50
Comparison of Pro Forma Six Months
Ended June 30, 1996 to Historical
Six Months Ended June 30, 1996..... 51
Comparison of Pro Forma Year Ended
December 31, 1995 to Historical
Year Ended December 31, 1995....... 52
Liquidity and Capital Resources..... 52
Inflation........................... 54
PROPERTIES........................... 55
General............................. 55
Location of Properties; Market Over-
view............................... 57
Los Angeles........................ 58
Austin............................. 59
Dallas/Fort Worth.................. 60
Detroit............................ 64
Kansas City........................ 64
Milwaukee.......................... 65
Washington, D.C. (including
Northern Virginia)................ 66
Baltimore.......................... 67
Atlanta............................ 68
Office Properties................... 69
Industrial Properties............... 78
Option Properties................... 85
Option Parcels...................... 87
Historical Non-Incremental Revenue-
Generating Capital Expenditures,
Tenant Improvement Costs and
Leasing Commissions................ 89
Historical Incremental Revenue-
Generating Tenant Improvement Costs
and Leasing Commissions............ 90
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prentiss Properties Service Business.................................... 90
Insurance............................................................... 90
Environmental Matters................................................... 91
Depreciation of Significant Properties.................................. 92
Real Estate Taxes on Significant Properties............................. 93
Legal Proceedings....................................................... 93
Prentiss Group Assets Not Acquired By the Company....................... 93
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES.............................. 94
Investment Policies..................................................... 94
Financing Policies...................................................... 94
Conflict of Interest Policies........................................... 95
Policies with Respect to Other Activities............................... 97
Working Capital Reserves................................................ 97
MANAGEMENT............................................................... 98
Trustees and Executive Officers......................................... 98
Board of Trustees....................................................... 101
Committees of the Board of Trustees..................................... 101
Compensation of Trustees................................................ 102
Executive Compensation.................................................. 102
Employment Agreements................................................... 103
1996 Share Incentive Plan............................................... 103
Incentive Compensation.................................................. 105
The Trustees' Plan...................................................... 105
Savings Plan............................................................ 106
Share Purchase Plan..................................................... 107
Indemnification......................................................... 107
FORMATION TRANSACTIONS................................................... 108
Formation Transactions.................................................. 108
Effects of the Formation Transactions................................... 109
Valuation of the Company and Properties................................. 110
CERTAIN RELATIONSHIPS AND TRANSACTIONS................................... 111
Benefits to Related Parties............................................. 111
Repayment of Termination Fee Note....................................... 111
Transactions with an Affiliate of Lehman................................ 112
PRINCIPAL AND MANAGEMENT SHAREHOLDERS.................................... 113
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST............................. 114
General................................................................. 114
Common Shares........................................................... 114
Preferred Shares........................................................ 115
Classification or Reclassification of Common Shares or Preferred
Shares................................................................. 115
Restrictions on Transfer................................................ 115
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF
TRUST AND BYLAWS........................................................ 118
Classification of the Board of Trustees................................. 118
Removal of Trustees..................................................... 119
Business Combinations................................................... 119
Control Share Acquisitions.............................................. 119
Amendment............................................................... 120
Limitation of Liability and Indemnification............................. 120
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Operations............................................................... 121
Dissolution of the Company............................................... 121
Advance Notice of Trustee Nominations and New Business................... 121
Possible Anti-takeover Effect of Certain Provisions of Maryland Law and
of the Declaration of Trust and Bylaws.................................. 121
Maryland Asset Requirements.............................................. 122
Transfer Agent........................................................... 122
SHARES AVAILABLE FOR FUTURE SALE.......................................... 122
OPERATING PARTNERSHIP AGREEMENT........................................... 124
Management............................................................... 124
Transferability of Interests............................................. 124
Capital Contribution..................................................... 124
Exchange Rights.......................................................... 125
Registration Rights...................................................... 125
Operations............................................................... 125
Distributions............................................................ 126
Allocations.............................................................. 126
Term..................................................................... 126
Fiduciary Duty........................................................... 126
Tax Matters.............................................................. 126
FEDERAL INCOME TAX CONSIDERATIONS......................................... 127
Taxation of the Company.................................................. 127
Requirements for Qualification........................................... 128
Failure to Qualify....................................................... 134
Taxation of Taxable U.S. Shareholders.................................... 134
Taxation of Shareholders on the Disposition of the Common Shares......... 135
Capital Gains and Losses................................................. 135
Information Reporting Requirements and Backup Withholding................ 135
Taxation of Tax-Exempt Shareholders...................................... 135
Taxation of Non-U.S. Shareholders........................................ 136
Other Tax Consequences................................................... 137
Tax Aspects of the Operating Partnership and the Noncorporate Subsidiar-
ies..................................................................... 138
Sale of the Operating Partnership's or a Noncorporate Subsidiary's Prop-
erty.................................................................... 141
Manager.................................................................. 141
ERISA CONSIDERATIONS...................................................... 142
Employee Benefit Plans, Tax-Qualified Plans, and IRA's................... 142
Status of the Company and the Partnership (and the Subsidiary Partner-
ship) Under ERISA....................................................... 143
UNDERWRITING.............................................................. 145
LEGAL MATTERS............................................................. 147
EXPERTS................................................................... 147
ADDITIONAL INFORMATION.................................................... 147
GLOSSARY.................................................................. G-1
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus. Unless otherwise indicated,
the information contained in this Prospectus assumes that (i) the transactions
relating to the formation of the Company (the "Formation Transactions") are
consummated, (ii) the Underwriters' overallotment option is not exercised and
(iii) the offering price (the "Offering Price") is $20 per Common Share. Unless
the context otherwise requires, all references in this Prospectus to the (i)
"Company" shall mean Prentiss Properties Trust and its subsidiaries on a
consolidated basis, including (a) Prentiss Properties I, Inc. (the "General
Partner"), (b) Prentiss Properties Acquisitions Partners, L.P. (the "Operating
Partnership") and its subsidiaries, (c) Prentiss Properties Run Deep, Inc. (the
"Manager"), and (d) entities through which the Operating Partnership owns
interests in certain of the Properties; (ii) "Prentiss Group" shall mean
Prentiss Properties Limited, Inc. ("PPL"), the companies and partnerships
affiliated with PPL and Michael V. Prentiss, Thomas F. August, Dennis J. DuBois
and Richard B. Bradshaw, Jr. (the "Prentiss Principals"); and (iii) "Common
Shares" shall mean the Company's common shares of beneficial interest, par
value $.01 per share. Capitalized terms used but not defined herein shall have
the meanings set forth in the Glossary.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust ("REIT") that has been formed to continue and expand the national office
and industrial property acquisition, ownership, management, leasing,
development and construction businesses of the Prentiss Group. Upon the closing
of this offering (the "Offering") of Common Shares, the Company will own a
diversified portfolio of 87 office and industrial properties (the "Properties")
with approximately 8.9 million net rentable square feet. The Properties are
located in 10 major U.S. markets and consist of 28 office buildings (the
"Office Properties") containing approximately 3.8 million net rentable square
feet and 59 industrial buildings (the "Industrial Properties") containing
approximately 5.0 million net rentable square feet. The Prentiss Group
developed 11 of the Office Properties containing approximately 2.0 million net
rentable square feet. As of June 30, 1996, the Office Properties were
approximately 95% leased to 274 tenants, and the Industrial Properties were
approximately 90% leased to120 tenants. The Company believes that upon the
closing of this Offering, it will be one of the 20 largest managers of office
and industrial properties in the U.S., managing approximately 39 million square
feet in 339 office and industrial properties that are owned by the Company and
by third parties, and that are leased to approximately 2,200 tenants. The
Company intends to continue the Prentiss Group's strategy of focusing its
operations in select markets throughout the nation and will initially operate
in 21 markets throughout the U.S.
The Company operates from its Dallas, Texas headquarters and its four other
regional offices (Los Angeles, Chicago, Washington, D.C. and Atlanta). The
Company is a full-service real estate company with approximately 600 employees
and in-house expertise in acquisitions, development, property management,
leasing, facilities management, corporate services, finance, tax, construction,
dispositions, marketing, accounting and real estate law. The 11 senior
executives, which include the four Prentiss Principals (Michael V. Prentiss,
Thomas F. August, Dennis J. DuBois and Richard B. Bradshaw, Jr.), Richard J.
Bartel (the Chief Operating Officer of Property Management), Mark R. Doran (the
Treasurer), and the managing directors of each of the Company's five regions,
have an average tenure of 11 years with the Prentiss Group and its
predecessors. Upon completion of the Offering, management will, in the
aggregate, own approximately 17.15% of the Company on a consolidated basis. See
"Management--Trustees and Executive Officers".
The Company will seek to maximize the profitability of the Properties by
continuing the Prentiss Group's success in renewing leases, maintaining high
occupancy rates, increasing rental rates and reducing operating costs. The
Company will also seek to grow through the acquisition of additional office and
industrial properties and through development, primarily on a build-to-suit
basis. The Company believes that its five regional offices, presence in 21
markets throughout the U.S., diversified base of approximately 2,200 tenants
and existing relationships with 45 management clients will provide it with a
competitive advantage in identifying and competing for new office and
industrial acquisition and development opportunities nationally. Additionally,
the Company expects that its existing infrastructure from its extensive
property management operation will allow it to grow in new and existing markets
without the substantial cost of opening new offices or hiring and training new
employees.
<PAGE>
RISK FACTORS
An investment in the Common Shares involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to an investment in the Company. Such risks include, among others:
. The valuation of the Properties was not based on third-party appraisals,
and the market value of the Common Shares may exceed the aggregate fair
market value of the Company's portfolio of Properties;
. conflicts of interests between the Company and the Prentiss Principals,
who will serve as executive officers, in relation to the Formation
Transactions and business decisions regarding the Company, which
conflicts of interest could result in decisions that do not fully reflect
the interests of all of the Company's shareholders;
. anti-takeover effect of limiting ownership of the shares of beneficial
interest of the Company initially to 8.5% of any class of shares (other
than for Michael V. Prentiss, for whom the ownership limitation initially
is 15%) and of certain other provisions contained in the organizational
documents of the Company, which could delay, defer or prevent a
transaction that might involve a premium price for the Common Shares;
. taxation of the Company as a regular corporation if it fails to qualify
as a REIT, and the Company's inexperience in operating as a REIT;
. risks associated with reliance on major tenants, of which the largest
accounted for approximately 22%, and five others accounted for
approximately 15% in the aggregate, of the Company's 1995 annual Base
Rent (as defined herein) from the Properties, including the risk of any
such tenant's inability to make rent payments;
. risks associated with borrowing, such as the possibilities that (i) the
Company's debt service on variable rate indebtedness could increase, (ii)
the Company may not be able to refinance outstanding indebtedness upon
maturity or refinance such indebtedness on favorable terms and (iii) the
Company's properties may be foreclosed upon if it cannot make required
debt service payments;
. risks arising from the ability of the Company's Board of Trustees to
change the Company's investment, financing, borrowing, distribution and
other policies at any time without shareholder approval;
. concentration of 27 of the 87 Properties in Texas, including 15
Properties located in the Dallas area, and concentration of nine of the
Properties in the Atlanta area, which concentrations subject the Company
to risks associated with local market conditions;
. real estate investment considerations, such as the effect of economic and
other conditions on property cash flows and values, the inability of a
property to generate revenue sufficient to meet operating expenses,
potential liability for costs of removal or remediation of hazardous or
toxic substances on a property, and the illiquidity of real estate
investments, all of which may affect the Company's ability to make
distributions to its shareholders;
. risks associated with the ownership, acquisition, development and
construction of office and industrial properties, including the risks of
abandonment of development, unexpected construction costs or delays,
newly developed or acquired properties' failure to perform as expected,
and failure to obtain or delays in obtaining governmental permits and
authorizations;
. absence of a prior market for the Common Shares, lack of assurances that
an active trading market will develop or that Common Shares will trade at
or above the initial public offering price, and potential negative effect
of rising market interest rates on the market price of the Common Shares;
and
. purchasers of the Common Shares offered hereby will experience immediate
and substantial dilution of $5.02 per share in the net tangible book
value of their Common Shares based on the Offering Price.
2
<PAGE>
BUSINESS AND GROWTH STRATEGIES
BUSINESS STRATEGY
The Company's primary objective is to maximize shareholder value through
increases in distributable cash flow per share and appreciation in the value of
the Common Shares. The Company intends to achieve this objective through a
combination of internal and external growth. The Company intends initially to
focus its growth activities in (a) the 10 major markets throughout the U.S.
where the Properties are located, (b) the other 11 U.S. markets where the
Company currently has property management, development or related operations
and (c) new markets with favorable investment environments. The following table
sets forth the distribution of owned and managed properties in each of the
Company's 21 current markets:
GEOGRAPHIC PROPERTY BREAKDOWN
<TABLE>
<CAPTION>
NET RENTABLE SQUARE
NUMBER OF FOOTAGE
PROPERTIES (IN THOUSANDS)
------------------- --------------------
MARKET OWNED MANAGED TOTAL OWNED MANAGED TOTAL
- ------ ----- ------- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
WESTERN REGION:
Phoenix, Arizona...................... -- 5 5 -- 534 534
Los Angeles, California............... 18 113 131 1,253 8,055 9,308
Oakland, California................... -- 16 16 -- 1,610 1,610
Sacramento, California................ -- 15 15 -- 1,510 1,510
San Francisco, California............. -- 10 10 -- 1,651 1,651
--- --- --- ----- ------ ------
Subtotal Western Region.............. 18 159 177 1,253 13,360 14,613
SOUTHWEST REGION:
Denver, Colorado...................... -- 1 1 -- 190 190
Amarillo, Texas....................... -- 3 3 -- 482 482
Austin, Texas(/1/).................... 7 1 8 1,112 389 1,501
Dallas, Texas......................... 15 31 46 2,027 6,071 8,098
Fort Worth, Texas..................... -- 1 1 -- 1,008 1,008
Houston, Texas........................ 5 4 9 75 955 1,030
--- --- --- ----- ------ ------
Subtotal Southwest Region............ 27 41 68 3,214 9,095 12,309
MIDWEST REGION:
Chicago, Illinois..................... -- 8 8 -- 618 618
Southfield, Michigan(/2/)............. 1 -- 1 242 -- 242
Kansas City, Missouri................. 7 -- 7 1,341 -- 1,341
Milwaukee, Wisconsin.................. 17 -- 17 1,218 -- 1,218
--- --- --- ----- ------ ------
Subtotal Midwest Region.............. 25 8 33 2,801 618 3,419
MID-ATLANTIC REGION:
Washington, D.C....................... -- 5 5 -- 1,316 1,316
Baltimore, Maryland................... 6 -- 6 731 -- 731
Northern New Jersey................... -- 1 1 -- 263 263
Northern Virginia..................... 2 23 25 337 2,482 2,819
--- --- --- ----- ------ ------
Subtotal Mid-Atlantic Region......... 8 29 37 1,068 4,061 5,129
SOUTHEAST REGION:
Orlando, Florida...................... -- 3 3 -- 523 523
Atlanta, Georgia...................... 9 12 21 530 2,626 3,156
--- --- --- ----- ------ ------
Subtotal Southeast Region............ 9 15 24 530 3,149 3,679
Total.............................. 87 252 339 8,866 30,283 39,149
=== === === ===== ====== ======
</TABLE>
- --------
(/1/The)Company owns a non-controlling 49.9% interest in the general
partnership that owns a leasehold interest in the seven owned Broadmoor
Austin Properties in Austin, Texas.
(/2/The)Company owns 100% of a leasehold interest in the One Northwestern Plaza
Property in Southfield, Michigan.
3
<PAGE>
GROWTH STRATEGIES
Internal Growth
The Company's internal growth strategies seek to increase cash flow at the
Properties and any future properties primarily by (a) renewing or replacing
expiring leases with new leases at higher rental rates, (b) operating in
markets with the potential for rental growth, (c) improving occupancy rates,
and (d) applying benchmarking and best practices methodologies to identify and
capitalize on cost reduction opportunities.
. Since 1993, the Prentiss Group has maintained average year-end occupancy
rates of approximately 94% and 93%, respectively, for those Office
Properties and Industrial Properties under its management during that
period.
. The Company will continue the Prentiss Group's use of benchmarking and
best practices methodologies to compare performance indicators at its
owned or managed properties to a variety of standardized measures. These
methodologies enable the Company to identify and replicate practices used
at the best performing properties, and reduce operating costs at other
properties. Based on publicly available statistics compiled by the
Building Owners and Managers Association, the Company believes that the
annual operating costs at each of the Properties it has managed since
1991 have been 11% to 19% less than the average annual operating costs
for comparable buildings.
External Growth
The Company intends to pursue an external growth strategy to enable
shareholders to benefit from potential value to be realized from opportunistic
investments in acquisitions, development and redevelopment and income and
business opportunities generated by the Company's property management
operations. The Company's external growth strategies include:
. acquiring office and industrial buildings priced lower than replacement
cost, with an emphasis onClass A suburban office buildings and industrial
buildings;
. redeveloping properties owned by the Company;
. developing office and industrial buildings primarily on a build-to-suit
basis; and
. expanding the Company's third-party property management, leasing and
facilities management business.
Acquisitions. The Company intends to continue the Prentiss Group's strategy
of opportunistic investment, particularly in assets that are (i) managed by the
Company and become available for sale, (ii) performing at a level believed to
be substantially below potential due to identifiable management weaknesses or
temporary market conditions, (iii) encumbered by indebtedness that is in
default or is not performing or (iv) held or controlled by short-term owners
(such as assets held by insurance companies and financial institutions under
regulatory pressure to sell). Since 1991, the Prentiss Group has acquired
approximately $265 million of office properties and approximately $103 million
of industrial properties, including approximately $98 million of office
properties acquired from third-party management clients. The Company believes
that its five regional offices, presence in 21 markets throughout the U.S.,
diversified base of approximately 2,200 tenants and existing relationships with
45 management clients will provide it with contacts and market knowledge that
will enable it to capitalize on favorable investment opportunities in its
markets throughout the U.S. as opportunities arise. The Company has options to
acquire one office building containing approximately 1.0 million net rentable
square feet, four industrial buildings containing approximately 268,000 net
rentable square feet, and interests in two office buildings containing
approximately 387,000 net rentable square feet. See "Properties--Option
Properties." The Company intends to fund future acquisitions with proceeds from
credit facilities, long-term secured and unsecured indebtedness and the
issuance of additional equity securities. The success of the Company's
acquisition strategy depends upon the Company's access to capital. See
"Business Objectives--Financing Strategies."
4
<PAGE>
Redevelopment. The Company will pursue selectively the redevelopment of its
Properties and of any other properties acquired as opportunities arise. For
example, the Company is currently implementing its redevelopment strategy at
the Cumberland Office Park Properties, which are situated in an under-utilized
development within the Northwest submarket of Atlanta. These Properties are a
mixture of low-rise and mid-rise buildings built between 1972 and 1980. Upon
acquiring the Cumberland Office Park Properties in 1991, the Prentiss Group
applied for and received approval to rezone the properties to permit up to 2.1
million square feet of additional office space. Although the Cumberland Office
Park Properties are currently fully leased, the Company believes that their
long-term value potential lies in the redevelopment of those sites currently
occupied by smaller, older, less functional buildings into new Class A suburban
office buildings. In 1995, the Prentiss Group began implementing this strategy
by demolishing a single-story 7,500 square-foot building on a site that will
accommodate up to 280,000 net rentable square feet of new improvements. The
Company is currently seeking future tenants for a 140,000 net rentable square
foot office building that the Company intends to build when it secures such
tenants. The Company makes decisions regarding any capital improvements after
performing a cost/benefit analysis based on projected long-term operating
efficiencies and savings.
Development. The Company intends to continue developing industrial and office
properties primarily on a build-to-suit basis, but will also consider selective
opportunities for speculative development of industrial properties and
development of office properties where significant pre-leasing is possible.
Since 1980, the Prentiss Group and its predecessors have developed for itself
or third parties 31 office buildings comprising approximately 16.3 million net
rentable square feet (including 11 of the Office Properties comprising
approximately 2.0 million net rentable square feet) and 25 industrial buildings
comprising approximately 3.2 million net rentable square feet. With landmark
projects such as Broadmoor Austin in Austin, Park West in Dallas, Fairview Park
in Northern Virginia, Burnett Plaza in Fort Worth, and Continental Executive
Parke in Chicago, the Company expects to benefit from the Prentiss Group's
national reputation as a leading developer that produces quality properties
within budget. The Company owns six development parcels comprising
approximately 28.4 acres that can support approximately 1.4 million square feet
of net rentable space. See "Business Objectives--Growth Strategies--
Development" and "Properties." The Company also has options to acquire six
development parcels comprising approximately 126 acres that can support
approximately 1.5 million square feet of net rentable space for industrial use
and one development parcel comprising approximately 6.4 acres that can support
approximately 200,000 net rentable square feet of office development. See
"Properties--Option Parcels." The Company also has an option to acquire an
interest in a development parcel comprising approximately 4.7 acres that can
support approximately 350,000 net rentable square feet of office development.
See "Business Objectives--Growth Strategies--Acquisitions" and "Properties--
Option Parcels."
Third-Party Management. The Company manages, in addition to the Properties,
approximately 30 million net rentable square feet of office and industrial
space owned by third parties. The managed properties are located in 17 markets
and contain over 1,800 tenants. In addition to property management and leasing,
the Company offers a full range of related services for a fee, including tenant
construction, marketing, insurance, accounting, tax, real estate law,
acquisition, disposition, facilities management, corporate services and asset
management (collectively, the "Prentiss Properties Service Business"). Fees for
these services are generally negotiated on a case-by-case basis and vary based
on the scope of the services. The Company believes that management and leasing
assignments will help it to expand its base of national tenants, achieve
economies of scale with its property management systems and provide access to
acquisition and development opportunities nationally without incurring the
substantial cost of opening new offices and hiring and training new employees.
The Company believes it will benefit from the increasing trend of institutional
owners of real estate retaining sophisticated national service providers for
their property management needs. Since 1989, approximately 60% of the Prentiss
Group's new third-party management business has come from existing customers.
The Company believes that its long-term customer base will continue to provide
a stable source of fee income and opportunities to expand on existing
relationships. The Company estimates that funds generated by its third-party
property
5
<PAGE>
management operations, after deducting all allocable expenses, will represent
approximately 10% of its estimated Funds from Operations (as defined herein)
for the 12 months ended June 30, 1997. See "Distribution Policy."
Financing Strategy
The Company intends to maintain a conservative debt policy (the "Debt
Limitation") limiting the Company's total combined indebtedness plus its pro
rata share of indebtedness of unconsolidated investments ("Joint Venture Debt")
to 50% of the Company's total combined equity market capitalization plus its
combined indebtedness and pro rata share of Joint Venture Debt ("Total Market
Capitalization"). However, the Company's organizational documents do not limit
the amount of indebtedness that the Company may incur. At the closing of the
Offering, the Company will have outstanding combined indebtedness of
approximately $82.0 million or 16.7% of total market capitalization (excluding
its pro rata share of Joint Venture Debt) and, together with its pro rata share
of Joint Venture Debt, will have outstanding total indebtedness of
approximately $152.0 million or 27.0% of Total Market Capitalization. The
Predecessor Company, as defined in "Selected Financial Information" herein, had
total outstanding indebtedness as a percentage of its total debt plus equity of
40.4% as of June 30, 1996 and 30.9%, 29.3% and 17.9% as of December 31, 1995,
December 31, 1994 and December 31, 1993, respectively. As of the Closing Date,
the Company will have the capacity to borrow an additional $258.5 million under
the Debt Limitation. The Company intends to obtain a commitment for a $100
million line of credit (the "Line of Credit") prior to completion of the
Offering. The Line of Credit is expected to be used primarily to finance the
acquisition and development of additional properties and the redevelopment of
properties owned by the Company. The Company believes that its access to
capital through the Line of Credit and other sources of private financing, as
well as its access to the public capital markets, will provide it with a
competitive advantage in acquisitions and developments over certain competitive
bidders which may have to qualify their bids with financing contingencies or
which have less access to capital.
PROPERTIES
The Properties consist of the 28 Office Properties comprising approximately
3.8 million net rentable square feet and the 59 Industrial Properties
comprising approximately 5.0 million net rentable square feet. All of the
Properties are wholly owned by the Company (through its subsidiaries), except
the Broadmoor Austin Properties, which are owned by a joint venture in which
the Company owns a 49.9% managing general partnership interest and One
Northwestern Plaza in which the Company owns a 100% leasehold interest. The
Company also owns six development parcels (the "Development Parcels") which can
support approximately 1.4 million net rentable square feet of development. The
Company has options to acquire one office building containing approximately 1.0
million net rentable square feet, four industrial buildings containing
approximately 268,000 net rentable square feet, six development parcels that
can support approximately 1.5 million net rentable square feet of industrial
development and one development parcel that can support approximately 200,000
net rentable square feet of office development (the "Options"). See
"Properties--Option Properties" and "--Option Parcels." The Company also has an
option to acquire interests in two office buildings containing a total of
approximately 387,000 net rentable square feet and a development parcel that
can support approximately 350,000 net rentable square feet of office space. See
"The Properties--Partnership Options." The Company also owns a 25% interest in
a general partnership that owns an industrial building containing approximately
71,000 net rentable square feet in Itasca, Illinois.
6
<PAGE>
The following chart contains certain information regarding the Properties:
<TABLE>
<CAPTION>
NET PERCENT
RENTABLE LEASED
YEAR BUILT/ NUMBER SQUARE AS OF
PROPERTY NAME MARKET RENOVATED OF BUILDINGS FEET JUNE 30, 1996
- ------------- ----------------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
Cumberland Office
Park.................. Atlanta, GA 1972-1980 9 530,228 97%
One Northwestern
Plaza/(1)/............ Southfield, MI 1989 1 241,751 93
Broadmoor Austin/(2)/.. Austin, TX 1991 7 1,112,236 100
Park West.............. Dallas, TX 1982-1989 3 727,545 100
5307 East Mockingbird.. Dallas, TX 1979/1993 1 118,316 80
Walnut Glen Tower...... Dallas, TX 1985 1 464,289 81
Cottonwood Office
Center................ Dallas, TX 1986 3 164,111 99
Plaza on Bachman
Creek................. Dallas, TX 1986 1 125,903 90
3141 Fairview Park
Drive................. Northern Virginia 1988 1 192,108 89
8521 Leesburg Pike..... Northern Virginia 1984/1993 1 145,257 93
--- --------- ---
Subtotal/weighted average for Office Properties....... 28 3,821,744 95%
--- --------- ---
INDUSTRIAL PROPERTIES:
Pacific Gateway
Center................ Los Angeles, CA 1972-1984 18 1,252,708 88%
8869 Greenwood......... Baltimore, MD 1986-1987 1 89,582 74
1329 Western Ave....... Baltimore, MD 1988 1 185,600 95
Deep Run 1&2........... Baltimore, MD 1988 2 169,112 100
4611 Mercedes Drive.... Baltimore, MD 1990 1 178,133 100
9050 Junction Drive.... Baltimore, MD 1989 1 108,350 100
Northland Park......... Kansas City, MO 1975-1980 4 925,007 100
North Topping Street... Kansas City, MO 1975-1980 1 119,118 100
Airworld Drive/(3)/.... Kansas City, MO 1975-1980 1 200,000 0
107th Terrace.......... Kansas City, MO 1975-1980 1 96,700 100
Nicholson III.......... Dallas, TX 1981 3 155,712 73
13425 Branchview....... Dallas, TX 1970 1 121,250 100
1002 Avenue T.......... Dallas, TX 1981 1 100,000 100
1625 Vantage Drive..... Dallas, TX 1984 1 50,000 100
West Loop Business
Park.................. Houston, TX 1986 5 75,231 92
Airport Properties..... Milwaukee, WI 1970-1980 12 572,953 98
Oakcreek Properties.... Milwaukee, WI 1970-1979 2 232,000 100
North West Properties.. Milwaukee, WI 1973-1987 3 413,371 83
--- --------- ---
Subtotal/weighted average for Industrial Properties... 59 5,044,827 90%
--- --------- ---
Consolidated total/weighted average for all
Properties........................................... 87 8,866,571 92%
=== ========= ===
</TABLE>
- --------
/(1)/The Company owns a 100% leasehold interest in this Property.
/(2)/The Company owns a 49.9% interest in the general partnership which owns a
100% leasehold interest in these Properties. The Company accounts for its
interest in this partnership under the equity method.
/(3)/On September 13, 1996 the Company executed a letter of intent with a
potential lessee for 100% of the space at the Airworld Drive Property.
Signing of the lease is subject to final documentation and it is expected
that the tenant will begin paying rent on the lease in the first quarter of
1997.
7
<PAGE>
STRUCTURE OF THE COMPANY
The following chart illustrates the structure of the Company and beneficial
ownership of the Company and its two principal operating subsidiaries, the
Operating Partnership and the Manager, after the completion of the Formation
Transactions and the closing of the Offering. See "Formation Transactions."
THE COMPANY
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
COMMON SHARES COMMON SHARES
BEFORE EXCHANGE AFTER EXCHANGE
OWNER OF UNITS OF UNITS
----- --------------- --------------
<S> <C> <C>
Public Investors.............................. 88.87% 73.62%
Management/(1)/............................... --% 17.15%
Continuing Investors/(2)/..................... 11.13% 9.22%
</TABLE>
THE OPERATING PARTNERSHIP
<TABLE>
<CAPTION>
OWNERSHIP INTEREST OWNERSHIP INTEREST
BEFORE EXCHANGE AFTER EXCHANGE
OWNER OF UNITS OF UNITS
----- ------------------ ------------------
<S> <C> <C>
Company/(3)/......................... 82.85% 100.0%
Management/(1)/...................... 17.15% --%
</TABLE>
THE MANAGER
<TABLE>
<CAPTION>
VOTING NON-VOTING TOTAL
OWNER COMMON STOCK COMMON STOCK EQUITY INTEREST
----- ------------ ------------ ---------------
<S> <C> <C> <C>
Operating Partnership/(4)/.... --% 100.0% 95.0%
Michael V. Prentiss/(5)/...... 100.0% --% 5.0%
</TABLE>
- --------
/(1)/Includes entities wholly owned by one or more Prentiss Principals, all of
whom are receiving units of limited partnership interest in the Operating
Partnership ("Units") in exchange for their interests in the assets that
are being acquired by the Operating Partnership in the Formation
Transactions. See "Formation Transactions.".
/(2)/The "Continuing Investors" are , , and each of whom will receive
Common Shares in the Formation Transactions in exchange for a portion of
their interests in the Operating Partnership. See "The Company--History."
/(3)/Includes a 0.2% interest owned by the General Partner.
/(4)/The Operating Partnership also owns a promissory note of the Manager with
an initial principal balance of approximately $26.95 million. See
"Formation Transactions." As a result of the Operating Partnership's
ownership of non-voting common stock and debt of the Manager, the Company,
through the Operating Partnership, expects to receive most of the after-tax
economic benefits of the Manager.
/(5)/The voting common stock of the Manager is owned by a corporation that is
wholly owned by Michael V. Prentiss.
8
<PAGE>
The value of the Company has been derived from (i) a capitalization of the
Company's adjusted pro forma consolidated cash flow available for distribution
to its shareholders, (ii) an analysis of the Company's potential for growth,
(iii) comparisons to other office and industrial REITs, and (iv) other factors
set forth in "Underwriting." The value of the Company has not been determined
on a property-by-property basis. The aggregate number of Common Shares and
Units was arrived at by determining the percentage of the equity of the Company
that was available after sufficient equity was allocated to the purchasers of
Common Shares in the Offering to enable the Company to pay initial
distributions on the Common Shares at an annual rate of 8.0% based on the
Offering Price.
BENEFITS TO RELATED PARTIES
The Prentiss Group, including the Prentiss Principals, will realize certain
benefits as a result of the Offering and the Formation Transactions (see
"Formation Transactions"), including the following:
. Members of the Prentiss Group will receive a total of 3,520,198 Units in
consideration for their interests in the Properties, the Development
Parcels, the Options and Prentiss Properties Service Business in
connection with the Formation Transactions. These Units (representing
approximately 17.15% of the Company on a consolidated basis) will have a
total value of approximately $70.4 million based on the Offering Price,
compared to a net tangible book value of the assets contributed to the
Operating Partnership by the Prentiss Group of approximately $4.7
million. The Company believes that the net tangible book value of the
individual assets contributed to the Operating Partnership by the
Prentiss Group (which reflects the historical cost of such assets less
accumulated depreciation) is less than the aggregate current market value
of such assets.
. Members of the Prentiss Group will realize an immediate increase of $48.0
million in the net tangible book value of their original $4.7 million
investment in the Company. The immediate increase is derived from the
difference between the net tangible assets per share before and after the
Formation Transactions multiplied by the 3,520,198 Units to be received
by the Prentiss Group as consideration for the assets transferred to the
Company. See "Dilution."
. Any time after two years following the date of the closing of the
Offering (the "Closing Date"), the members of the Prentiss Group holding
Units may, in accordance with the terms of the second amended and
restated agreement of limited partnership of the Operating Partnership
(the "Operating Partnership Agreement"), exchange all or a portion of
such Units for cash or, at the election of the Company, Common Shares on
a one-for-one basis. The Company currently expects that it will not elect
to pay cash for Units in connection with any such exchange request, but
instead will exchange Common Shares for such Units.
. Messrs. Prentiss and August will enter into employment agreements with
the Company. See "Management--Employment Agreements."
. The Company will grant to the Prentiss Principals, 41 other employees of
the Company and the five independent trustees of the Company (the
"Independent Trustees") options to purchase an aggregate of 1,291,439
Common Shares under the Company's 1996 Share Incentive Plan at the
Offering Price, subject to certain vesting requirements. See
"Management--1996 Share Incentive Plan."
. The Formation Transactions may provide the members of the Prentiss Group
with increased liquidity and, until the disposition of certain assets
contributed to the Company, with continued deferral of the taxable gain
associated with those assets.
. PPL currently manages 18 industrial buildings located in Torrance,
California (the Pacific Gateway Properties) that the Company will
purchase from an affiliate of the Prentiss Group, The Prentiss/Copley
Investment Group ("PCIG"). After the closing of the Offering, PPL will
receive approximately $500,000 of the seller's proceeds from the sale of
these Properties as partial repayment of a note from PCIG
9
<PAGE>
payable upon termination of certain management contracts (the "Termination
Fee Note"). The Prentiss Group will receive no other payments from the
proceeds of the sale of these Properties.
. The Company has agreed to maintain at least $1.3 million of indebtedness
secured by certain of the Properties outstanding for three years and to
permit certain Prentiss Group members to guaranty such debt through
December 31, 1998 in order to defer certain tax consequences associated
with the Formation Transactions.
Additional information concerning benefits to executive officers, trustees
and significant shareholders of the Company is set forth under "Formation
Transactions" and "Certain Relationships and Transactions."
THE OFFERING
All of the Common Shares offered hereby are being sold by the Company.
Shares Offered:
<TABLE>
<S> <C>
To the Public... 15,110,000
To the Continu-
ing Invest-
ors/(1)/....... 1,892,985
----------
Total........... 17,002,985
==========
Shares and Units
Outstanding After
the Offering..... 20,523,183/(2)/
Proposed New York
Stock Exchange
Symbol........... "PP"
</TABLE>
- --------
/(1)/Includes , and , each of whom is receiving such Common Shares in
the Formation Transactions as consideration for a portion of their
interests in the Operating Partnership.
/(2)/Includes 3,520,198 Units issued to the Prentiss Group in the Formation
Transactions. See "Formation Transactions." Excludes 2,266,500 Common
Shares issuable upon exercise of the Underwriters' overallotment option and
1,291,439 Common Shares reserved for issuance upon exercise of options to
be granted pursuant to the 1996 Share Incentive Plan upon completion of the
Offering.
USE OF PROCEEDS
The net cash proceeds to the Company from the Offering will be used for the
acquisition of a portion of the interests in the Properties and other assets,
the repayment of mortgage and other indebtedness (including prepayment
penalties), and for working capital. Approximately $54.0 million of the net
proceeds will be used to acquire interests in Properties from an affiliate of
Lehman Brothers Inc. ("Lehman") and approximately $64.5 million will be used to
repay an affiliate of Lehman certain mortgage indebtedness secured by certain
Properties.
DISTRIBUTIONS
The Company intends to pay regular quarterly distributions to the holders of
Common Shares. The first distribution, for the period commencing on the Closing
Date and ending on December 31, 1996, is expected to be approximately $ per
Common Share, which is equivalent to a quarterly distribution of $.40 per share
and an annual distribution of $1.60 per share, or 8.00% of the Offering Price.
The Company has established the initial annual distribution rate based on the
Company's estimate of cash available for distribution for the 12 months
following the Offering, which was derived from the Company's Pro Forma Funds
from Operations (as defined in Note 5 of "Summary Financial Information") for
the 12 months ended June 30, 1996 under present conditions. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income as an indication of the Company's performance or to cash flows as a
measure of liquidity or ability to make distributions. The expected
distribution
10
<PAGE>
for the 12 months following completion of the Offering will equal approximately
92.4% of the estimated cash available for distribution for that period. The
Company intends to maintain its initial distribution rate for at least 12
months following the consummation of the Offering unless actual results of
operations, economic conditions or other factors differ from the assumptions
used in calculating the estimate. The Company does not intend to reduce the
expected distribution per share if the Underwriters' overallotment option is
exercised. Based on the Company's estimated results of operations for the 12
months ending June 30, 1997, the Company estimates that approximately 18.1% of
the anticipated initial annual distribution to shareholders will represent a
return of capital for federal income tax purposes and that the Company would
have been required to distribute $22.3 million or $1.31 per share during such
12-month period in order to maintain its status as a REIT. If future taxable
income increases above or decreases below the estimated taxable income for the
12 months following the Offering, the percentage of the anticipated initial
annual distribution representing a return of capital will decrease or increase,
respectively. See "Distribution Policy" for the calculation of estimated pro
forma cash available for distributions and related assumptions.
Future distributions by the Company will be at the discretion of the Board of
Trustees and will depend on the actual Funds from Operations of the Company,
its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code (see "Federal Income Tax
Considerations--Requirements for Qualification"), and such other factors as the
Board of Trustees deems relevant. See "Risk Factors--Changes in Policies
Without Shareholder Approval."
TAX STATUS OF THE COMPANY
The Company intends to qualify and will elect to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), commencing with its short taxable year ending December 31, 1996. If
the Company qualifies for taxation as a REIT, the Company generally will not be
subject to federal corporate income tax on its taxable income that is
distributed to its shareholders. A REIT is subject to a number of
organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its annual taxable income. Although the
Company does not intend to request a ruling from the Internal Revenue Service
(the "Service") as to its REIT status, the Company will receive at the closing
of the Offering an opinion of its legal counsel that the Company will qualify
to be taxed as a REIT under the Code, which opinion will be based on certain
assumptions and representations and will not be binding on the Service or any
court. Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain federal, state and local taxes on its income and property.
Failure to qualify as a REIT would subject the Company to tax (including any
applicable minimum tax) on its taxable income at regular corporate rates, and
distributions to the Company's shareholders in any such year would not be
deductible by the Company. See "Risk Factors--Tax Risks" and "--Anti-takeover
Effect of Ownership Limit, Staggered Board and Power to Issue Additional
Shares" and "Federal Income Tax Considerations--Taxation of the Company."
11
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth (i) summary combined financial data for the
Predecessor Company on a historical basis, and (ii) pro forma financial data
for the Company at and for the six months ended June 30, 1996 and for the year
ended December 31, 1995. The combined financial statements of the Predecessor
Company include (i) 100% of the assets and results of operations from 47
Properties owned by the Operating Partnership for the periods presented; (ii)
100% of the assets and results of operations of the 3141 Fairview Park Drive
Property for the portion of the periods after a Prentiss Group member acquired
the Property, (iii) a 25% equity investment in the Broadmoor Austin Properties;
(iv) a 15% equity investment in the Park West C2 Property for the portion of
the periods in which the Prentiss Group owned its 15% non-controlling interest;
(v) a 25% equity investment in the industrial building in Itasca, Illinois; and
(vi) results of operations of the Prentiss Properties Service Business
(conducted primarily by PPL). The Properties owned by the Operating Partnership
prior to the Formation Transactions consist of Cumberland Office Park, 5307
East Mockingbird, Walnut Glen Tower, 8521 Leesburg Pike, all of the Industrial
Properties in Baltimore, Maryland except 9050 Junction Drive, and all of the
Industrial Properties in Kansas City, Missouri, Dallas, Texas and Milwaukee,
Wisconsin. The selected financial data at and for the six months ended June 30,
1996 and June 30, 1995 are derived from unaudited financial statements. The
unaudited financial information includes all adjustments (consisting of normal
recurring adjustments) that management considers necessary for fair
presentation of the financial position and results of operations for these
periods. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the entire year ending
December 31, 1996. The following data should be read in conjunction with (i)
the pro forma financial statements and notes thereto of the Company; (ii) the
historical financial statements and notes thereto for the Predecessor Company
and Acquisition Properties; and (iii) "Management's Discussion and Analysis of
Financial Condition and Results of Operations," each included elsewhere in this
Prospectus.
Historical operating results, including net income, may not be comparable to
future operating results. In addition, the Company believes that the book value
of the Properties, which reflects historical costs of such real estate assets
less accumulated depreciation, is not indicative of the fair value of the
Properties.
Pro forma information is presented as if the Formation Transactions and the
completion of the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds" had occurred at the beginning of the pro
forma periods presented with respect to the pro forma operating data and at
June 30, 1996 with respect to the pro forma balance sheet data. The pro forma
information is based upon certain assumptions that are included in the notes to
the pro forma financial statements included elsewhere in this Prospectus. The
pro forma financial information is unaudited and is not necessarily indicative
of what the financial position and results of operations of the Company would
have been as of the dates and for the periods indicated, nor does it purport to
represent or project the financial position and results of operations for
future periods.
12
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------------------------------------
HISTORICAL HISTORICAL
PRO FORMA ------------------ PRO FORMA ------------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
--------- -------- -------- --------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Rental income........... $ 31,888 $ 16,340 $ 14,527 $62,724 $ 29,423 $ 25,256 $ 14,412 $ 8,169 $ 5,194
Fee and other
income/(1)/............ 1,676 10,357 9,906 3,529 25,741 26,702 23,609 24,278 35,346
-------- -------- -------- ------- -------- -------- -------- -------- --------
Total revenues......... 33,564 26,697 24,433 66,253 55,164 51,958 38,021 32,447 40,540
Operating
expenses/(1)/.......... 10,996 14,790 14,176 21,610 31,272 33,178 28,667 31,925 35,848
Real estate taxes....... 2,694 1,709 1,547 5,456 3,030 2,691 1,631 712 428
Interest expense........ 3,300 3,306 1,944 6,599 3,882 3,191 1,444 491 60
Real estate depreciation
and amortization....... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Other depreciation and
amortization........... -- 4 53 -- 106 106 106 106 96
Equity in joint venture
and subsidiary/(1)/.... 1,460 19 29 6,101 11 13 (4) 2 211
-------- -------- -------- ------- -------- -------- -------- -------- --------
Income (loss) before
gain on sale of
property and minority
interest............... 11,585 3,338 3,305 25,871 9,825 7,354 2,857 (2,685) 3,598
Gain on sale of
property............... -- -- -- -- -- 1,718 -- -- --
Minority interest/(2)/.. (1,987) -- -- (4,437) -- -- -- -- --
-------- -------- -------- ------- -------- -------- -------- -------- --------
Net income (loss)...... $ 9,598 $ 3,338 $ 3,305 $21,434 $ 9,825 $ 9,072 $ 2,857 $ (2,685) $ 3,598
======== ======== ======== ======= ======== ======== ======== ======== ========
Net income per share.... $ 0.56 -- -- $ 1.26 -- -- -- -- --
Weighted average number
shares outstanding..... 17,003 -- -- 17,003 -- -- -- -- --
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before
accumulated
depreciation/(3)/..... $378,308 $173,439 -- -- $153,148 $151,673 $ 89,116 $ 42,561 $ 24,508
Real estate, after
accumulated
depreciation/(3)/..... 364,216 159,347 -- -- 141,368 144,366 85,549 41,182 24,082
Cash................... 8,302 1,936 -- -- 1,033 9,133 1,605 8,004 3,202
Total assets........... 404,267 175,108 -- -- 154,490 164,307 117,819 53,327 29,900
Debt on real
estate/(3)/........... 82,010 68,787 -- -- 46,442 46,732 20,473 10,186 717
Total liabilities...... 86,711 73,488 -- -- 50,769 51,713 23,773 11,480 1,759
Stockholders' equity... 263,095 101,620 103,721 112,594 94,046 41,847 28,141
OTHER DATA (END OF
PERIOD):
EBITDA/(4)/............. $ 16,466 $ 8,449 $ 7,216 $32,466 $ 17,284 $ 13,330 $ 6,399 $ (157) $ 3,533
======== ======== ======== ======= ======== ======== ======== ======== ========
Funds from
Operations/(5)/........ $ 15,839 $ 6,171 $ 6,035 $33,849 $ 14,887 $ 11,507 $ 6,009 $ 248 $ 4,060
======== ======== ======== ======= ======== ======== ======== ======== ========
Cash flow from
operations............. -- $ 8,011 $ 6,341 -- $ 16,238 $ 13,059 $ 6,115 $ (755) $ 4,241
Cash flow from
investing.............. -- $(22,014) $ (2,577) -- $ (4,301) $(40,909) $(71,977) $(20,133) $(25,541)
Cash flow from
financing.............. -- $ 14,906 $(10,886) -- $(20,037) $ 35,378 $ 59,463 $ 25,690 $ 24,502
PROPERTY DATA (END OF
PERIOD):/(6)/
Number of Properties.... 87 56 54 87 55 54 47 23 16
Total GLA in sq. ft..... 8,866 6,515 5,979 8,866 6,323 5,976 4,793 2,733 1,650
Occupancy %............. 92% 92% 97% 95% 97% 96% 95% 97% 94%
</TABLE>
- --------
/(1)/The Manager's operations are combined with the property operations in the
historical statements and are accounted for under the equity method in the
pro forma statements; therefore, the historical statements include the
Manager's revenues and expenses on a gross basis in the respective income
and expense line items and the pro forma statements present the Manager's
net operations in the line item titled "Equity in joint venture and
subsidiary."
Equity in joint venture and subsidiary includes the Company's 25% and 49.9%
interest in the partnership owning the Broadmoor Austin Properties (the
"Broadmoor Austin Partnership") on a historical and pro forma basis,
respectively, which is accounted for on the equity method for all periods
presented. For more information on the operations and accounts of the
Broadmoor Austin Partnership refer to footnote (12) in the footnotes to the
Predecessor Company's financial statements.
Equity in joint venture and subsidiary on a historical basis also includes
the 15% general partnership interest owned by members of the Prentiss Group
in the Park West C2 Property. The operations and accounts are combined on a
pro forma basis.
13
<PAGE>
/(2)/Represents the approximate 17.15% interest in the Operating Partnership
which will be owned by the Prentiss Principals and certain other members of
management.
/(3)/The pro forma balance sheet as of June 30, 1996 reflects the Company's
investment in the Broadmoor Austin Property using the equity method of
accounting. As a result, the Company's 49.9% share of the Broadmoor Austin
Partnership's real estate and related debt are not shown in the line items
titled "Real estate, before accumulated depreciation," "Real estate, after
accumulated depreciation" and "Debt on real estate." The following schedule
represents the Balance Sheet Data as of June 30, 1996 on a pro forma basis
as if the Company's share of the Broadmoor Austin Partnership's real estate
and related debt thereon were included. This presentation is provided for
informational purposes only:
<TABLE>
<CAPTION>
PRO FORMA 6/30/96 ADJUSTMENTS PRO FORMA 6/30/96
BALANCE SHEET FOR COMBINING BROADMOOR'S BALANCE SHEET DATA
DATA AS PRESENTED 49.9% OWNERSHIP BROADMOOR COMBINED
----------------- ------------------------- ------------------
<S> <C> <C> <C>
Real estate, before
accumulated
depreciation........... $378,308 $54,113 $432,421
Real estate, after
accumulated
depreciation........... $364,216 $48,662 $412,878
Debt on real estate..... $ 82,010 $70,000 $152,010
</TABLE>
/(4)/Does not include the Company's pro rata share of the operations in the
entities accounted for under the equity method; such amounts are $5,941 and
$16,377 for the pro forma six months ended June 30, 1996 and the pro forma
year ended December 31, 1995, respectively. EBITDA means operating income
before mortgage and other interest, income taxes, depreciation and
amortization. The Company believes EBITDA is useful to investors as an
indicator of the Company's ability to service debt and pay cash
distributions. EBITDA, as calculated by the Company, is not comparable to
EBITDA reported by other REITs that do not define EBITDA exactly as the
Company defines that term. EBITDA does not represent cash generated from
operating activities in accordance with GAAP, and should not be considered
as an alternative to operating income or net income as an indicator of
performance or as an alternative to cash flows from operating activities as
an indicator of liquidity. EBITDA does not include the amounts reflected in
"Equity in joint venture and subsidiary," nor does it add back the
depreciation, interest and taxes included therein. EBITDA for the
respective periods is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA --------------- FORMA ----------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------- ------ ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA
Net Income (loss)....... $ 9,598 $ 3,338 $3,305 $21,434 $ 9,825 $ 9,072 $2,857 $(2,685) $3,598
Add:
Interest expense....... 3,300 3,306 1,944 6,599 3,882 3,191 1,444 491 60
Real estate
depreciation and
amortization.......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Other depreciation and
amortization.......... -- 4 53 -- 106 106 106 106 96
Minority interest...... 1,987 -- -- 4,437 -- -- -- -- --
Less:
Gain on sale of
property.............. -- -- -- -- -- (1,718) -- -- --
Equity in joint venture
and subsidiary........ (1,460) (19) (29) (6,101) (11) (13) 4 (2) (211)
------- ------- ------ ------- ------- ------- ------ ------- ------
EBITDA.................. $19,874 $10,198 $8,710 $39,187 $20,862 $16,089 $7,723 $ (190) $4,264
------- ------- ------ ------- ------- ------- ------ ------- ------
EBITDA (Company's 82.85%
share)................. $16,466 $ 8,449 $7,216 $32,466 $17,284 $13,330 $6,399 $ (157) $3,533
======= ======= ====== ======= ======= ======= ====== ======= ======
</TABLE>
/(5)/The Company generally considers Funds from Operations an appropriate
measure of liquidity of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. "Funds from
Operations" as defined by the National Association of Real Estate
Investment Trusts ("NAREIT") means net income (computed in accordance with
GAAP) excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization on real estate assets, and
after adjustments for unconsolidated partnerships and joint ventures. The
Company's Funds from Operations are not comparable to Funds from Operations
reported by other REITs that do not define that term using the current
NAREIT definition. The Company believes that in order to facilitate a clear
understanding of the combined historical operating results of the Prentiss
Group and the Company, Funds from Operations should be examined in
conjunction with net income (loss) as presented in the audited combined
financial statements and information included elsewhere in this Prospectus.
Funds from Operations does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or
to cash flows as a measure of liquidity or ability to make distributions.
Funds from Operations for the respective periods is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA ------------- FORMA ---------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------ ------ ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FUNDS FROM OPERATIONS
Net Income (loss)....... $ 9,598 $3,338 $3,305 $21,434 $ 9,825 $ 9,072 $2,857 $(2,685) $3,598
Add:
Real estate
depreciation and
amortization.......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Real estate
depreciation and
amortization of
unconsolidated joint
ventures.............. 1,084 542 542 2,167 1,084 1,084 1,084 1,084 582
Minority interest...... 1,987 -- -- 4,437 -- -- -- -- --
Less:
Gain on sale of
property.............. -- -- -- -- -- (1,718) -- -- --
------- ------ ------ ------- ------- ------- ------ ------- ------
Funds from Operations... $19,118 $7,449 $7,284 $40,856 $17,969 $13,889 $7,253 $ 299 $4,901
------- ------ ------ ------- ------- ------- ------ ------- ------
Funds from Operations
(Company's 82.85%
Share)................. $15,839 $6,171 $6,035 $33,849 $14,887 $11,507 $6,009 $ 248 $4,060
======= ====== ====== ======= ======= ======= ====== ======= ======
</TABLE>
/(6)/The Property Data includes information on the Broadmoor Austin, Park West
C2 and 3141 Fairview Park Drive Properties only for the end of the periods
subsequent to the Prentiss Group's acquisition of an ownership interest in
the respective Properties.
14
<PAGE>
RISK FACTORS
An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making a
decision to purchase Common Shares in the Offering.
PRICE TO BE PAID FOR PROPERTIES, COMMON SHARES AND OTHER ASSETS MAY EXCEED
THEIR FAIR MARKET VALUE
No independent valuations or appraisals were obtained in connection with the
Formation Transactions except with respect to the Properties that were owned
by the Operating Partnership prior to the Offering, and it is possible that
the aggregate market value of the Common Shares may exceed their proportionate
share of the fair market value of the Company's assets. The valuation of the
Company has been derived from a capitalization of the Company's pro forma
adjusted Funds from Operations, estimated cash available for distribution, the
Company's potential for growth and the other factors referred to in
"Underwriting." There can be no assurance that the price paid by the Company
for its Properties and other assets will not exceed their fair market value.
The valuation of Prentiss Properties Service Business has been derived
primarily from a capitalization of the revenue derived from PPL's contracts
with third parties for management, leasing, development and construction
services. Upon consummation of the Offering, the Company, through the
Operating Partnership and the Manager, expects to provide these same services
to third parties. These contracts are generally terminable upon 30 days notice
by either party or upon sale of the property. In valuing the Prentiss
Properties Service Business, the Company has assumed that these third-party
contracts will remain in effect. In the event any of these contracts is
terminated, the Company's revenues would be adversely affected. Accordingly,
if all or a substantial portion of these contracts were to be terminated
following the consummation of the Offering, the initial value assigned to
Prentiss Properties Service Business by the Company would not be indicative of
its true fair market value.
CONFLICTS OF INTERESTS IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY
FORMATION TRANSACTIONS NOT AT ARM'S LENGTH. The Formation Transactions are
not the result of arm's-length negotiations. The Prentiss Principals
(including Messrs. Prentiss, August, DuBois and Bradshaw, who are founders and
owners of PPL and senior executive officers of the Company) have preexisting
ownership interests in certain Properties, the Prentiss Properties Service
Business and certain of the other assets to be acquired by the Company through
their direct or indirect interests in the Prentiss Group, and will receive,
directly or indirectly, Units in exchange for such interests in the Formation
Transactions. There will be no independent valuation or appraisal of the
interests contributed to the Company by the Prentiss Group in connection with
the Formation Transactions. Accordingly, there can be no assurance that the
price paid by the Company for the Properties does not exceed the value of the
assets acquired by the Company.
BENEFITS TO PRENTISS GROUP AND PRENTISS PRINCIPALS. The Prentiss Group and
the Prentiss Principals (including Messrs. Prentiss, August, DuBois and
Bradshaw, who are founders and owners of PPL and senior executive officers of
the Company) will receive material benefits from the Formation Transactions
that will not generally be received by other persons participating in the
formation of the Company. Because these persons were involved in structuring
the Formation Transactions, they had the ability to influence the type and
level of benefits they received. As such, these persons may have interests
that conflict with the interests of others participating in the Formation
Transactions and with the interests of persons acquiring Common Shares in the
Offering. The type and level of benefits the Prentiss Group will receive may
have been different if they had not participated in structuring the Formation
Transactions. These benefits include, but are not limited to, the following:
(i) receipt of an aggregate of 3,520,198 Units (valued at approximately $70.4
million, based on the
15
<PAGE>
Offering Price); (ii) realization of an immediate increase of approximately
$48.0 million in the net tangible book value of their original $4.7 million
investment in the Company; (iii) receipt by the Prentiss Principals, 41
employees of the Company and the Independent Trustees of options to purchase
an aggregate of 1,291,439 Common Shares under the Company's 1996 Share
Incentive Plan at the Offering Price, subject to certain vesting requirements,
which will have an aggregate purchase price of approximately $25.8 million
based on the Offering Price; (iv) deferral of certain tax consequences to
members of the Prentiss Group from the conveyances of their interests in the
Properties to the Operating Partnership; (v) entry by Messrs. Prentiss and
August into employment agreements with the Company; and (vi) receipt by PPL of
a payment of approximately $500,000 as partial repayment under the Termination
Fee Note from PCIG's proceeds of the sale of 18 of the Properties. See
"Formation Transactions--Benefits to Related Parties" and "Management--1996
Share Incentive Plan," "--Executive Compensation" and "--Employment
Agreements." The Company will have options on certain properties, development
parcels and partnerships owned by PCIG which, if exercised, would result in
additional payments to PPL under the Termination Fee Note. See "Properties--
Option Properties" and "--Option Parcels."
RISK OF LESS VIGOROUS ENFORCEMENT OF TERMS OF CONTRIBUTION AND OTHER
AGREEMENTS. The Prentiss Principals each, directly or indirectly, have
ownership interests in certain of the Properties and in the other assets to be
acquired by the Company. Following the consummation of the Offering and the
Formation Transactions, the Company, under the agreements relating to the
contribution of such interests, will be entitled to indemnification and
damages in the event of breaches of representations or warranties. Each of the
Prentiss Principals have entered into employment and/or noncompetition
agreements with the Company pursuant to which they have agreed not to engage
in certain business activities in competition with the Company. See
"Management--Employment Agreements." To the extent that the Company chooses to
enforce its rights under any of these contribution or employment and/or
noncompetition agreements, it may determine to pursue available remedies, such
as actions for damages or injunctive relief, less vigorously than it otherwise
might because of its desire to maintain its ongoing relationship with the
individual involved.
RISK OF DIFFERING OBJECTIVES BETWEEN PRENTISS PRINCIPALS AND COMPANY UPON
SALE, REFINANCING OR PREPAYMENT OF INDEBTEDNESS OF PROPERTIES. As holders of
Units, the Prentiss Principals and affiliates may have unrealized taxable gain
associated with their interests in certain Properties contributed to the
Operating Partnership. Because the Prentiss Principals may suffer different
and more adverse tax consequences than the Company upon the sale or
refinancing of those Properties, the Prentiss Principals and the Company may
have different objectives regarding the appropriate pricing and timing of any
sale or refinancing of such Properties. While the Company (through the General
Partner) has the exclusive authority as to whether and on what terms to sell
or refinance an individual Property, the Prentiss Principals through their
status as senior executives and/or Trustees of the Company and those members
of the Company's management and Board of Trustees who directly or indirectly
hold Units (i.e., Messrs. Prentiss, August, DuBois and Bradshaw) may influence
the Company not to sell, or refinance or prepay the indebtedness associated
with, the Properties even though such event might otherwise be financially
advantageous to the Company, or may influence the Company to refinance
Properties with a high level of debt. See "Policies With Respect to Certain
Activities--Conflict of Interest Policies."
RISKS THAT POLICIES WITH RESPECT TO CONFLICTS OF INTERESTS MAY NOT ELIMINATE
INFLUENCE OF CONFLICTS. The Company has adopted certain policies relating to
conflicts of interest. These policies include a bylaw provision requiring all
transactions in which executive officers or trustees have a conflicting
interest to that of the Company to be approved by a majority of the
Independent Trustees or by the holders of a majority of the Common Shares held
by disinterested shareholders. There can be no assurance that the Company's
policies will be successful in eliminating the influence of such conflicts,
and if they are not successful, decisions could be made that might fail to
reflect fully the interests of all shareholders. The Company's Declaration of
Trust includes a provision permitting each individual Trustee, including each
Independent Trustee, to engage in the type of business activities conducted by
the Company without first presenting any investment opportunities to
16
<PAGE>
the Company, even though such investment opportunities may be within the scope
of the Company's investment policies. See "Policies with Respect to Certain
Activities--Conflict of Interest Policies."
MARYLAND BUSINESS COMBINATION LAW AND SUPER-MAJORITY SHAREHOLDER VOTES
REQUIRED THEREUNDER
Under the Maryland General Corporation Law, as amended (the "MGCL"), as
applicable to real estate investment trusts, certain "business combinations"
(including certain issuances of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns ten percent or
more of the voting power of the trust's shares (an "Interested Shareholder")
or an affiliate thereof are prohibited for five years after the most recent
date on which the Interested Shareholder becomes an Interested Shareholder.
Thereafter, any such business combination must be approved by two super-
majority shareholder votes unless, among other conditions, the trust's common
shareholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously
paid by the Interested Shareholder for its common shares.
ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMIT, STAGGERED BOARD AND POWER TO ISSUE
ADDITIONAL SHARES
POTENTIAL EFFECTS OF OWNERSHIP LIMITATION. For the Company to maintain its
qualification as a REIT under the Code, not more than 50% in value of the
outstanding shares of beneficial interest of the Company may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code
to include certain entities) at any time during the last half of the Company's
taxable year (other than the first taxable year for which the election to be
treated as a REIT has been made).
To ensure that the Company will not fail to qualify as a REIT under this and
other tests under the Code, the Company's Declaration of Trust, subject to
certain exceptions, authorizes the trustees to take such actions as are
necessary and desirable to preserve its qualification as a REIT and to limit
any person to direct or indirect ownership of no more than (i) 8.5% (the
"Ownership Limit") of the number of the outstanding Common Shares, except for
Michael V. Prentiss, who may own initially no more than 15% of the number of
such outstanding shares or (ii) 9.8% of the number of outstanding Preferred
Shares of any series of Preferred Shares. The Ownership Limit will adjust
upward to a maximum of 9.8%, and the limit applicable to Mr. Prentiss will
adjust downward to a minimum of 9.8%, in proportion to any reduction in Mr.
Prentiss' direct or indirect consolidated percentage ownership of the Company
as a result of additional issuances of securities by the Company or the
Operating Partnership or dispositions or redemption of the Units held directly
or indirectly by Mr. Prentiss. The Company's Board of Trustees, upon receipt
of a ruling from the Service, an opinion of counsel or other evidence
satisfactory to the Board and upon such other conditions as the Board may
establish, may exempt a proposed transferee from the Ownership Limit. However,
the Board may not grant an exemption from the Ownership Limit to any proposed
transferee whose ownership, direct or indirect, of shares of beneficial
interest of the Company in excess of the Ownership Limit would result in the
termination of the Company's status as a REIT. See "Description of Shares of
Beneficial Interest--Restrictions on Transfer." The foregoing restrictions on
transferability and ownership will continue to apply until (i) if the Board of
Trustees determines that it is no longer in the best interests of the Company
to attempt to qualify, or to continue to qualify, as a REIT and (ii) there is
an affirmative vote of two-thirds of the votes entitled to be cast on such
matter at a regular or special meeting of the shareholders of the Company.
The Ownership Limit may have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a
premium price for the Common Shares or otherwise be in the best interest of
the shareholders. See "Description of Shares of Beneficial Interest--
Restrictions on Transfer."
POTENTIAL EFFECTS OF STAGGERED BOARD. The Company's Board of Trustees is
divided into three classes. The initial terms of the first, second and third
classes will expire in 1997, 1998, and 1999, respectively. Beginning in 1997,
trustees of each class will be chosen for three-year terms upon the expiration
of their current terms and each year one class of trustees will be elected by
the shareholders. The staggered terms of trustees may reduce the possibility
of a tender offer or an attempt to change control of the Company, even though
a
17
<PAGE>
tender offer or change in control might be in the best interest of the
shareholders. See "Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws--Classification of the Board of Trustees."
POTENTIAL EFFECTS OF ISSUANCE OF ADDITIONAL SHARES. The Company's
Declaration of Trust authorizes the Board of Trustees to (i) amend the
Declaration of Trust, without shareholder approval, to increase or decrease
the aggregate number of shares of beneficial interest or the number of shares
of beneficial interest of any class that the Company has the authority to
issue, (ii) cause the Company to issue additional authorized but unissued
Common or Preferred Shares and (iii) classify or reclassify any unissued
Common Shares and Preferred Shares and to set the preferences, rights and
other terms of such classified or unclassified shares. See "Description of
Shares of Beneficial Interest." Although the Board of Trustees has no such
intention to do so at the present time, it could establish a series of
Preferred Shares that could, depending on the terms of such series, delay,
defer or prevent a transaction or a change in control of the Company that
might involve a premium price for the Common Shares or otherwise be in the
best interest of the shareholders. The Declaration of Trust and Bylaws of the
Company also contain other provisions that may have the effect of delaying,
deferring or preventing a transaction or a change in control of the Company
that might involve a premium price for the Common Shares or otherwise be in
the best interest of the shareholders. See "Certain Provisions of Maryland Law
and of the Company's Declaration of Trust and Bylaws--Removal of Trustees,"
"--Control Share Acquisitions" and "--Advance Notice of Trustee Nominations
and New Business."
TAX RISKS
FAILURE TO QUALIFY AS A REIT. The Company intends to operate so as to
qualify as a REIT for federal income tax purposes. Although the Company has
not requested, and does not expect to request, a ruling from the Service that
it qualifies as a REIT, it will receive at the closing of the Offering an
opinion of its counsel that, based on certain assumptions and representations,
it so qualifies. Investors should be aware, however, that opinions of counsel
are not binding on the Service or any court. The REIT qualification opinion
only represents the view of counsel to the Company based on counsel's review
and analysis of existing law, which includes no controlling precedent.
Furthermore, both the validity of the opinion and the qualification of the
Company as a REIT will depend on the Company's continuing ability to meet
various requirements concerning, among other things, the ownership of its
outstanding stock, the nature of its assets, the sources of its income, and
the amount of its distributions to its shareholders. Because the Company has
no history of operating so as to qualify as a REIT, there can be no assurance
that the Company will do so successfully. See "Federal Income Tax
Considerations--Taxation of the Company."
If the Company were to fail to qualify as a REIT for any taxable year, the
Company would not be allowed a deduction for distributions to its shareholders
in computing its taxable income and would be subject to federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under certain Code provisions, the
Company also would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost. As a
result, cash available for distribution would be reduced for each of the years
involved. Although the Company intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Board of Trustees, with the consent of
shareholders holding at least two-thirds of all the outstanding Common Shares,
to revoke the REIT election. See "Federal Income Tax Considerations."
REIT MINIMUM DISTRIBUTION REQUIREMENTS; POSSIBLE INCURRENCE OF ADDITIONAL
DEBT. In order to qualify as a REIT, the Company generally will be required
each year to distribute to its shareholders at least 95% of its net taxable
income (excluding any net capital gain). In addition, the Company will be
subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any
18
<PAGE>
calendar year are less than the sum of (i) 85% of its ordinary income for that
year, (ii) 95% of its capital gain net income for that year, and (iii) 100% of
its undistributed taxable income from prior years.
The Company intends to make distributions to its shareholders to comply with
the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income will consist primarily of its share of the income of the
Operating Partnership, and the cash available for distribution by the Company
to its shareholders will consist of its share of cash distributions from the
Operating Partnership. Differences in timing between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of
such income and deduction of such expenses in arriving at taxable income of
the Company could require the Company, through the Operating Partnership, to
borrow funds on a short-term basis to meet the 95% distribution requirement
and to avoid the nondeductible excise tax. The requirement to distribute a
substantial portion of the Company's net taxable income could cause the
Company to distribute amounts that otherwise would be spent on future
acquisitions, unanticipated capital expenditures or repayment of debt, which
would require the Company to borrow funds or to sell assets to fund the costs
of such items.
FAILURE OF THE OPERATING PARTNERSHIP TO BE CLASSIFIED AS A PARTNERSHIP FOR
FEDERAL INCOME TAX PURPOSES; NEGATIVE IMPACT ON REIT STATUS. Although the
Company has not requested, and does not expect to request, a ruling from the
Service that the Operating Partnership (and each of its Noncorporate
Subsidiaries, as defined in "Federal Income Tax Considerations") will be
classified as partnerships for federal income tax purposes, the Company will
receive at the closing of the Offering an opinion of its counsel stating that
the Operating Partnership (and each Noncorporate Subsidiary) will be
classified as a partnership, and not as a corporation or an association
taxable as a corporation for federal income tax purposes. If the Service were
to challenge successfully the tax status of the Operating Partnership (or a
Noncorporate Subsidiary) as a partnership for federal income tax purposes, the
Operating Partnership (or the Noncorporate Subsidiary) would be taxable as a
corporation. In such event, the Company likely would cease to qualify as a
REIT for a variety of reasons. Furthermore, the imposition of a corporate
income tax on the Operating Partnership would reduce substantially the amount
of cash available for distribution from the Operating Partnership to the
Company and its shareholders. See "Federal Income Tax Considerations--Tax
Aspects of the Operating Partnership and the Noncorporate Subsidiaries."
ERISA RISKS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and section 4975 of the Code prohibit certain transactions that involve (i)
certain pension, profit-sharing, employee benefit, or retirement plans or
individual retirement accounts (each, a "Plan") and (ii) the assets of a Plan.
A "party in interest" or "disqualified person" with respect to a Plan will be
subject to (x) an initial 5% excise tax on the amount involved in any
prohibited transaction involving the assets of the Plan and (y) an excise tax
equal to 100% of the amount involved if any prohibited transaction is not
corrected. Consequently, the fiduciary of a Plan contemplating an investment
in the Common Shares should consider whether the Company, any other person
associated with the issuance of the Common Shares, or any affiliate of the
foregoing is or might become a "party in interest" or "disqualified person"
with respect to the Plan. In such a case, the acquisition or holding of Common
Shares by or on behalf of the Plan could be considered to give rise to a
prohibited transaction under ERISA and the Code. See '"ERISA Considerations--
Employee Benefit Plans, Tax Qualified Retirement Plans, and IRAs" herein.
Regulations of the Department of Labor that define "plan assets" (the "Plan
Asset Regulations") provide that in some situations, when a Plan acquires an
equity interest in an entity, the Plan's assets include both the equity
interest and an undivided interest in each of the underlying assets of the
entity, unless one or more exceptions specified in the Plan Asset Regulations
are satisfied. In such a case, certain transactions that the Company might
enter into in the ordinary course of its business and operations might
constitute "prohibited transactions" under ERISA and the Code. The assets of
the Company should not be deemed to be "plan assets" of any Plan that invests
in the Common Shares. See "ERISA Considerations--Status of the Company and the
Partnership (and the Subsidiary Partnerships) under ERISA" herein.
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REAL ESTATE FINANCING RISKS
RISING INTEREST RATES. The Company will obtain mortgage loans with an
initial principal balance of approximately $70.8 million in connection with
the Formation Transactions that will bear interest at a variable rate equal to
one-month LIBOR plus 165 basis points (7.15% per annum based on one-month
LIBOR in effect on September 10, 1996). In addition, the Company anticipates
that advances under the Line of Credit will bear interest at a variable rate
equal to one-month LIBOR plus between 150 and 250 basis points (7% and 8%,
respectively, per annum based upon the one-month LIBOR on September 10, 1996).
In addition, the Company may incur additional indebtedness in the future that
also bears interest at variable rates. Variable rate debt creates higher debt
service requirements if market interest rates increase, which would adversely
affect the Company's cash flow and the amounts available for distributions to
its shareholders. The Company may in the future engage in transactions to
limit its exposure to rising interest rates as appropriate and cost effective.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
DEBT FINANCING AND POTENTIAL ADVERSE EFFECTS ON CASH FLOWS AND
DISTRIBUTIONS. The Company will be subject to risks normally associated with
debt financing, including the risk that the Company's cash flow will be
insufficient to pay distributions at expected levels and meet required
payments of principal and interest, the risk that indebtedness on the
Properties (which will not have been fully amortized at maturity in all cases)
will not be able to be refinanced or that the terms of such refinancing will
not be as favorable as the terms of existing indebtedness. Upon consummation
of the Offering and the Formation Transactions, the Company expects to have
outstanding indebtedness, including the Company's pro rata share of Joint
Venture Debt (approximately $70.0 million), of approximately $152.0 million,
all of which will be secured by certain of the Properties, with maturities
ranging from 1999 to 2001, including approximately $70.8 million of
indebtedness due in 1999. If principal payments due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions, such
as new equity capital, the Company expects that its cash flow will not be
sufficient in all years to pay distributions at expected levels and to repay
all maturing debt. Furthermore, if prevailing interest rates or other factors
at the time of refinancing result in higher interest rates upon refinancing,
the interest expense relating to such refinanced indebtedness would increase,
which would adversely affect the Company's cash flow and the amounts available
for distributions to its shareholders. If a property or properties are
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the property could be foreclosed upon by or otherwise
transferred to the mortgagee with a consequent loss of income and asset value
to the Company.
CONSTRUCTION LOANS AND RISKS ASSOCIATED WITH SALE OR FORECLOSURE. If new
developments are financed through construction loans, there is a risk that
upon completion of construction, permanent financing for newly developed
properties may not be available or may be available only on disadvantageous
terms. In the event that the Company is unable to obtain permanent financing
for a developed property on favorable terms, it could be forced to sell such
property at a loss or the property could be foreclosed upon by the lender and
result in loss of income and asset value to the Company.
RELIANCE ON MAJOR TENANTS
On a pro forma basis during the year ended December 31, 1995, the Company's
largest tenant, International Business Machines Corporation ("IBM"), accounted
for approximately 22% of the Company's pro forma total 1995 annual Base Rent
on the Properties. The Company's two leases with IBM expire in 1999 and 2006.
See "Properties--Office Properties." In addition, five other tenants
collectively accounted for approximately 15% of the Company's pro forma total
1995 annual Base Rent. The Company would be adversely affected in the event of
bankruptcy or insolvency of, or a downturn in the business of, any such
tenants, which resulted in a failure or delay in the tenants' rent payments.
GEOGRAPHIC CONCENTRATION IN TEXAS, DALLAS AND ATLANTA
Twenty-seven of the Company's 87 Properties are located in Texas, including
15 Properties located in the Dallas area, and nine of the Properties are
located in Atlanta, Georgia. Like other real estate markets, these
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commercial real estate markets have experienced economic downturns in the
past, and future declines in any of these economies or real estate markets
could adversely affect the Company's cash available for distribution. The
Company's financial performance and its ability to make distributions to
shareholders are therefore dependent on the economic conditions in Texas,
Dallas and Atlanta. The Company's revenues and the value of its Properties may
be affected by a number of factors, including the local economic climate
(which may be adversely impacted by business layoffs or downsizing, industry
slowdowns, changing demographics and other factors) and local real estate
conditions (such as oversupply of or reduced demand for office, industrial and
other competing commercial properties). There can be no assurance as to the
continued growth of the Texas, Dallas and Atlanta area economies or the future
growth rate of the Company.
CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL; NO LIMITATION ON DEBT
The investment, financing, borrowing and distribution policies, including
the Debt Limitation, of the Company and its policies with respect to all other
activities, including growth, capitalization and operations, will be
determined by the Board of Trustees. The Company's Debt Limitation is a policy
limiting the Company's total combined indebtedness plus its pro rata share of
Joint Venture Debt to 50% or less of the Company's Total Market
Capitalization, but the organizational documents of the Company do not contain
any limitation on the amount of indebtedness the Company may incur. Although
the Company's Board of Trustees has no present intention to do so, these
policies may be amended or revised at any time and from time to time at the
discretion of the Board of Trustees without a vote of the shareholders of the
Company. A change in these policies could adversely affect the Company's
financial condition, results of operations or the market price of the Common
Shares. See "Policies with Respect to Certain Activities."
RISKS ASSOCIATED WITH RAPID GROWTH; RISKS ASSOCIATED WITH THE ACQUISITION OF
SUBSTANTIAL NEW PROPERTIES; LACK OF OPERATING HISTORY
The Company may experience a period of rapid growth. The Company's ability
to manage its growth effectively will require it to integrate successfully its
new acquisitions into its existing management structure. Ten of the Properties
have relatively short or no operating history under management by affiliates
of the Prentiss Group. The Prentiss Group has had limited control over the
operation of these Properties, and such Properties may have characteristics or
deficiencies unknown to the Company affecting their valuation or revenue
potential. The operating performance of these Properties may decline under the
Company's management.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly Messrs. Prentiss and August. The loss of their services could
have an adverse effect on the operations of the Company. Prior to the
consummation of the Offering, each of Messrs. Prentiss and August will enter
into an employment agreement with the Company. See "Management--Employment
Agreements." Certain assets of the Prentiss Group are not being contributed to
the Company and certain of the executive officers of the Company, including
Messrs. Prentiss and August, may devote some of their management time towards
those excluded assets. See "The Properties--Prentiss Group Assets Not Acquired
by the Company."
CONTROL OF MANAGEMENT
None of the trustees or officers of the Company is selling any Common Shares
in the Offering. Upon completion of the Offering, all trustees and executive
officers of the Company as a group will beneficially own approximately 17.15%
of the total issued and outstanding Common Shares and Units (which, after two
years from the Offering, will be exchangeable by the holders for cash or, at
the election of the General Partner, Common Shares on a one-for-one basis).
See "Principal and Management Shareholders." The Company currently expects
that the General Partner will elect to exchange such Units for Common Shares.
Mr. Prentiss will serve as Chairman and Chief Executive Officer of the
Company. Mr. August will serve as President and Chief Operating Officer of the
Company. Mr. DuBois will serve as Executive Vice President of the Company
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and Mr. Bradshaw will serve as Executive Vice President and National Director
of Corporate Development of the Company. In addition, Mr. Prentiss and Mr.
August will be on the initial Board of Trustees of the Company. Accordingly,
such persons will have substantial influence on the Company, which influence
might not be consistent with the interests of other shareholders, and may in
the future have a substantial influence on the outcome of any matters
submitted to the Company's shareholders for approval if all of their Units are
exchanged for Common Shares. See "--Conflicts of Interests in the Formation
Transactions and the Business of the Company."
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of income generated and expenses incurred. If the
Properties do not generate revenues sufficient to meet operating expenses,
including debt service, tenant improvements, leasing commissions and other
capital expenditures, the Company may have to borrow additional amounts to
cover fixed costs and the Company's cash flow and ability to make
distributions to its shareholders will be adversely affected.
The Company's revenues and the value of its properties may be adversely
affected by a number of factors, including the national, state and local
economic climate and real estate conditions (such as oversupply of or reduced
demand for space and changes in market rental rates); the perceptions of
prospective tenants of the safety, convenience and attractiveness of the
properties; the ability of the owner to provide adequate management,
maintenance and insurance; the ability to collect on a timely basis all rent
from tenants; the expense of periodically renovating, repairing and reletting
spaces; and increasing operating costs (including real estate taxes and
utilities) which may not be passed through to tenants. Certain significant
expenditures associated with investments in real estate (such as mortgage
payments, real estate taxes, insurance and maintenance costs) are generally
not reduced when circumstances cause a reduction in rental revenues from the
property. In addition, real estate values and income from properties are also
affected by such factors as compliance with laws, including tax laws, interest
rate levels and the availability of financing. Also, the amount of available
net rentable square feet of commercial property is often affected by market
conditions and may therefore fluctuate over time.
TENANT DEFAULTS AND BANKRUPTCY. A significant portion of the Company's
income will be derived from rental income on the Properties and, consequently,
the Company's distributable cash flow and ability to make expected
distributions to shareholders would be adversely affected if a significant
number of tenants of the Properties failed to meet their lease obligations. At
any time, a tenant of the Properties may seek the protection of the bankruptcy
laws, which could result in delays in rental payments or in the rejection and
termination of such tenant's lease and thereby cause a reduction in the
Company's cash flow and the amounts available for distributions to its
shareholders. No assurance can be given that tenants will not file for
bankruptcy protection in the future or, if any tenants file, that they will
affirm their leases and continue to make rental payments in a timely manner.
In addition, a tenant from time to time may experience a downturn in its
business which may weaken its financial condition and result in the failure to
make rental payments when due. If tenant leases are not affirmed following
bankruptcy or if a tenant's financial condition weakens, the Company's cash
flow and the amounts available for distributions to its shareholders may be
adversely affected.
OPERATING RISKS. The Properties are subject to operating risks common to
commercial real estate in general, any and all of which may adversely affect
occupancy or rental rates. The Properties are subject to increases in
operating expenses such as cleaning; electricity; heating, ventilation and air
conditioning; elevator repair and maintenance; insurance and administrative
costs; and other general costs associated with security, landscaping, repairs
and maintenance. While the Company's tenants generally are obligated to pay a
portion of these escalating costs, there can be no assurance that tenants will
agree to pay such costs upon renewal or that new tenants will agree to pay
such costs. If operating expenses increase, the local rental market may limit
the extent to which rents may be increased to meet increased expenses without
decreasing occupancy rates. While the Company implements cost-saving incentive
measures at each of its Properties, the Company's ability to make
distributions to stockholders could be adversely affected if operating
expenses increase without a corresponding increase in revenues.
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RISKS OF NON-RENEWAL OF LEASES AND NON-RELETTING OF SPACE. The Company will
be subject to the risk that upon expiration of leases for space located in the
Properties, the leases may not be renewed, the space may not be relet or the
terms of renewal or reletting (including the cost of required renovations) may
be less favorable than current lease terms. Leases on a total of approximately
4% and 9% of the total net rentable square feet in the Properties will expire
in the second half of 1996 and in 1997, respectively. The Company has
established initial and annual reserves for renovation and reletting expenses,
which take into consideration its views of both the current and expected
business conditions in the appropriate markets, but no assurance can be given
that these reserves will be sufficient to cover such expenses. Furthermore,
because PPL has managed four Properties for less than six months, its estimate
of projected leasing commissions and tenant improvement costs for renewing
leases at these Properties may be understated. If the Company were unable to
promptly relet or renew the leases for all or a substantial portion of this
space, if the rental rates upon such renewal or reletting were significantly
lower than expected rates or if its reserves for these purposes proved
inadequate, then the Company's cash flow and ability to make expected
distributions to shareholders may be adversely affected.
COMPETITION. Numerous office and industrial properties compete with the
Properties in attracting tenants to lease space. Some of these competing
properties are newer, better located or better capitalized than the Company's
Properties.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state, and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under or in such property.
Such laws often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the owner's ability to
borrow using such real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of hazardous substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for release of and exposure to hazardous
substances, including asbestos-containing materials ("ACMs") into the air, and
third parties may seek recovery from owners or operators of real properties
for personal injury or property damage associated with exposure to released
hazardous substances, including ACMs. As the owner of the Properties, the
Company may be potentially liable for any such costs. Phase I environmental
site assessments ("ESAs") have been obtained on all of the Properties. The
purpose of Phase I ESAs is to identify potential sources of contamination for
which the Company may be responsible and to assess the status of environmental
regulatory compliance. For a number of the Properties, the Phase I ESAs
referenced prior Phase II ESA's obtained on such Properties. Phase II ESAs
generally involve more invasive procedures than Phase I ESAs, such as soil
sampling and testing or the installation and monitoring of groundwater wells.
The ESAs for the Industrial Properties located in Milwaukee, Wisconsin,
revealed lead contamination near the property lines of two of the Properties
and the Development Parcel adjacent to those Properties. In addition, the ESAs
for Pacific Gateway Center detected certain ground-water contamination at the
site. The Operating Partnership, the owner of the Industrial Properties in
Milwaukee, Wisconsin prior to the Offering, and PCIG, the owner of the Pacific
Gateway Properties prior to the Offering, have entered into arrangements with
the prior owners or operators of these Properties that will inure to the
benefit of the Company and should limit the Company's exposure to losses from
the environmental contamination at those Properties. See "Properties--
Environmental Matters."
Except as noted above, the ESAs have not revealed any environmental
condition, liability or compliance concern that the Company believes would
have a material adverse affect on the Company's business, assets or results of
operations, nor is the Company aware of any such condition, liability or
concern. It is possible that the ESAs relating to any one of the Properties do
not reveal all environmental conditions, liabilities or compliance concerns or
that there are material environmental conditions, liabilities or compliance
concerns that arose at a Property after the related ESA report was completed
of which the Company is otherwise unaware.
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EFFECT OF AMERICANS WITH DISABILITIES ACT COMPLIANCE ON CASH FLOW AND
DISTRIBUTIONS. Under the Americans with Disabilities Act of 1990 (the "ADA"),
all public accommodations and commercial facilities are required to meet
certain federal requirements related to access and use by disabled persons.
Compliance with the ADA requirements could require removal of access barriers
and non-compliance could result in imposition of fines by the U.S. government
or an award of damages to private litigants. Although the Company believes
that the Properties are substantially in compliance with these requirements, a
determination that the Company is not in compliance with the ADA could result
in the imposition of fines or an award of damages to private litigants. If the
Company were required to make unanticipated expenditures to comply with the
ADA, the Company's cash flow and the amounts available for distributions to
its shareholders may be adversely affected.
CHANGES IN LAWS. Because increases in income, service or transfer taxes are
generally not passed through to tenants under leases, such increases may
adversely affect the Company's cash flow and its ability to make distributions
to shareholders. The Properties also are subject to various federal, state and
local regulatory requirements and to state and local fire and life-safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company's cash flow and
expected distributions.
UNINSURED LOSS. The Company will initially carry comprehensive liability,
fire, flood (where appropriate), extended coverage and rental loss insurance
with respect to the Properties with policy specifications and insured limits
customarily carried for similar properties. There are, however, certain types
of losses (such as from wars or earthquakes in Properties located outside of
California) that may be either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose both its capital invested in a property, as well as the
anticipated future revenue from such property, and would continue to be
obligated on any mortgagee indebtedness or other obligations related to the
property. Any such loss would adversely affect the business of the Company and
its financial condition and results of operations.
RISKS INVOLVED IN PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT
VENTURES. Following the completion of the Offering, the Company, through the
Operating Partnership, will own a 49.9% general partnership interest in the
entity that owns a leasehold interest in the Broadmoor Austin Office Property
in Austin, Texas. Through this general partnership interest, the Company will
act as managing partner and have the sole authority to conduct the business
and affairs of the Broadmoor Austin Partnership subject to certain
limitations. See "Properties--Office Properties--Description of Office
Properties." The Company will also own minority interests in a general
partnership that owns an industrial building in Itasca, Illinois. See
"Properties--Industrial Properties." To avoid a technical termination of the
Broadmoor Austin Partnership for tax purposes, the Prentiss Group will
continue to own a 0.1% interest, which the Company will have an option to
acquire beginning one year and one day after the Closing Date. IBM, the tenant
leasing 100% of the space at the Property, will own the remaining 50%
interest.
The Company may also participate with other entities in property ownership
through joint ventures or partnerships. Partnership or joint venture
investments may, under certain circumstances, involve risks not otherwise
present, including the possibility that the Company's partners or co-venturers
might become bankrupt, that such partners or co-venturers might at any time
have economic or other business interests or goals that are inconsistent with
the business interests or goals of the Company, and that such partners or co-
venturers may be in a position to take action contrary to the instructions or
the requests of the Company or contrary to the Company's policies or
objectives, including the Company's policy with respect to maintaining its
qualification as a REIT. The Company will, however, seek to maintain
sufficient control of such partnerships or joint ventures to permit the
Company's business objectives to be achieved. There is no limitation under the
Company's organizational documents as to the amount of available funds that
may be invested in partnerships or joint ventures.
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In addition, the Company may in the future acquire either a limited
partnership interest in a property partnership without partnership management
responsibility or a co-venturer interest or co-general partnership interest in
a property partnership with shared responsibility for managing the affairs of
a property partnership or joint venture and, therefore, will not be in a
position to exercise sole decision-making authority regarding the property
partnership or joint venture.
RISKS ASSOCIATED WITH ILLIQUIDITY OF REAL ESTATE. Equity real estate
investments are relatively illiquid. Such liquidity will tend to limit the
ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions. In addition, the Code limits the ability of a
REIT to sell properties held for fewer than four years, which may affect the
Company's ability to sell properties without adversely affecting returns to
holders of Common Shares.
RISKS ASSOCIATED WITH ACQUISITION, DEVELOPMENT AND CONSTRUCTION. The Company
intends to acquire office and industrial properties to the extent that they
can be acquired on advantageous terms and meet the Company's investment
criteria. See "Business Objectives--Growth Strategies--Acquisition
Strategies." Acquisitions of office and industrial properties entail risks
that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate. In addition, there are general investment risks associated
with any new real estate investment.
The Company intends to continue development and construction of office and
industrial buildings in accordance with the Company's development policies.
See "Business Objectives--Growth Strategies--Development." Risks associated
with the Company's development and construction activities may include:
abandonment of development opportunities; construction costs of a property
exceeding original estimates, possibly making the property uneconomical;
occupancy rates and rents at a newly completed property may not be sufficient
to make the property profitable; financing may not be available on favorable
terms for development of a property; permanent financing may not be available
on favorable terms to replace a short-term construction loan and construction
and lease-up may not be completed on schedule, resulting in increased debt
service expense and construction costs. In addition, new development
activities, regardless of whether they are ultimately successful, typically
require a substantial portion of management's time and attention. Development
activities are also subject to risks relating to the inability to obtain, or
delays in obtaining, all necessary zoning, land-use, building, occupancy and
other required governmental permits and authorizations.
RISKS ASSOCIATED WITH CONTINUING ENTITIES AND MANAGER. The Operating
Partnership and its subsidiaries, including the Manager, have been in
existence for varying lengths of time up to 10 years. See "The Company--
History." As a result, the Operating Partnership and its subsidiaries are
subject to all of the potential liabilities of an existing company. Although
the Prentiss Group formed the Operating Partnership and a member of the
Prentiss Group has served as its general partner since inception, there can be
no assurances that there are no current liabilities and will not be any future
liabilities arising from prior activities that are unknown and, therefore, not
disclosed in this Prospectus.
RISKS OF THIRD-PARTY PROPERTY MANAGEMENT, LEASING, DEVELOPMENT AND
CONSTRUCTION BUSINESS AND RELATED SERVICES
RISKS ASSOCIATED WITH TERMINATION OF MANAGEMENT AND LEASING CONTRACTS. The
Company, through the Operating Partnership, and the Manager, intends to pursue
the management, leasing, development and construction of properties owned by
third parties. Risks associated with the management, leasing, development and
construction of properties owned by third parties include the risk that the
related contracts (which are typically cancelable upon 30-days notice or upon
certain events, including sale of the property) will be terminated by the
property owner or will be lost in connection with a sale of such property,
that contracts may not be renewed upon expiration or may not be renewed on
terms consistent with current terms and that the rental
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revenues upon which management, leasing and development fees are based will
decline as a result of general real estate market conditions or specific
market factors affecting properties managed, leased or developed by the
Company, resulting in decreased management or leasing fee income.
ADVERSE CONSEQUENCES OF LACK OF CONTROL OVER THE BUSINESS OF THE
MANAGER. The capital stock of the Manager will be divided into two classes:
voting common stock, all of which will be owned by a corporation wholly-owned
by Michael V. Prentiss, and nonvoting common stock, all of which will be held
by the Company, through the Operating Partnership. The voting common stock and
the nonvoting common stock represent 5% and 95%, respectively, of the
ownership interests in the Manager. Michael V. Prentiss, as the indirect
holder of all of the Manager's voting common stock, will have the ability to
elect the directors of the Manager. The Company will not be able to elect
directors and, therefore, will not be able to influence the day-to-day
management decisions of such entity. As a result, the board of directors and
management of the Manager may implement business policies or decisions that
would not have been implemented by persons controlled by the Company and that
are adverse to the interests of the Company or that lead to adverse financial
results, which could adversely impact the Company's net operating income and
cash flow.
ADVERSE CONSEQUENCE OF REIT STATUS ON THE THIRD-PARTY BUSINESS. Certain
requirements for REIT qualification may in the future limit the Company's
ability to increase the third-party management, leasing, development and
construction operations conducted, and related services offered, by the
Operating Partnership and the Manager without jeopardizing the Company's
qualification as a REIT. See "Federal Income Tax Considerations --Failure to
Qualify."
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON SHARES
Prior to the Offering, there has been no public market for the Common Shares
and there can be no assurance that an active trading market will develop or be
sustained or that Common Shares will be resold at or above the Offering Price.
The Company intends to apply to list the Common Shares on the New York Stock
Exchange (the "NYSE"). The Offering Price of the Common Shares has been
determined by agreement among the Company and the Underwriters and may not be
indicative of the market price for the Common Shares after the Offering. See
"Formation Transactions--Valuation of the Company and Properties" and
"Underwriting." The market value of the Common Shares could be substantially
affected by general market conditions, including changes in interest rates.
Moreover, numerous other factors, such as regulatory action and changes in tax
laws, could have a significant impact on the future market price of the Common
Shares. There also can be no assurances that, upon listing, the Company will
continue to meet the criteria for continued listing of the Common Shares on
the NYSE.
IMMEDIATE AND SUBSTANTIAL DILUTION
As set forth more fully under "Dilution," the Properties and other assets to
be contributed by the Prentiss Principals in exchange for Units have a pro
forma net tangible book value of $1.34 per share and the interests in the
Operating Partnership to be contributed by the Continuing Investors in
exchange for Common Shares have a pro forma net tangible book value of $15.67
per share. As a result, the pro forma net tangible book value per share of the
assets of the Company after the Offering will be substantially less than the
Offering Price per share. Accordingly, purchasers of the Common Shares offered
hereby will experience immediate and substantial dilution of $5.02 per share
in the net tangible book value of the Common Shares based on the Offering
Price. See "Dilution."
POSSIBLE ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON SHARES
One of the factors that will influence the market price of the Common Shares
in public markets will be the annual distribution rate on the Common Shares.
An increase in market interest rates may lead prospective purchasers of the
Common Shares to demand a higher annual distribution rate from future
distributions. Such an increase in the required distribution rate may
adversely affect the market price of the Common Shares.
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POSSIBLE ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE SALE ON PRICE OF COMMON
SHARES
Sales of a substantial number of Common Shares, or the perception that such
sales could occur, could adversely affect prevailing market prices of the
Common Shares. In connection with the formation of the Company, 3,520,198
Units will be issued in addition to Common Shares offered by the Company in
the Offering. See "Formation Transactions." The Continuing Investors will not
be permitted to offer, sell, contract to sell or otherwise dispose of Common
Shares, except in certain circumstances, for one year after the closing of the
Offering, and the Prentiss Principals will not be permitted to offer, sell,
contract to sell or otherwise dispose of Units, except in certain
circumstances, for two years after the closing of the Offering. See "Shares
Available for Future Sale" and "Underwriting." At the conclusion of such
periods, Common Shares issued to the Continuing Investors will be freely
tradeable in the secondary market and upon the subsequent exchange of Units,
the Common Shares received therefor may be sold in the public market pursuant
to shelf registration statements which the Company is obligated to file on
behalf of limited partners of the Partnership (i.e., the Prentiss Principals),
or pursuant to any available exemptions from registration.
Options to purchase a total of 1,291,439 Common Shares will be granted to
certain executive officers, employees and trustees upon the closing of the
Offering. See "Management--Compensation of Trustees," "--Executive
Compensation" and "--1996 Share Incentive Plan." No prediction can be made
about the effect that future sales of Common Shares will have on the market
prices of shares.
27
<PAGE>
THE COMPANY
GENERAL
The Company has been formed to continue and expand the national, office and
industrial property acquisition, ownership, management, leasing, development
and construction businesses of the Prentiss Group. Upon the closing of this
Offering, the Company will own interests in a diversified portfolio of 87
office and industrial properties with approximately 8.9 million net rentable
square feet. The Properties are located in 10 major U.S. markets and consist
of the 28 Office Properties containing approximately 3.8 million net rentable
square feet and the 59 Industrial Properties containing approximately 5.0
million net rentable square feet. The Prentiss Group developed 11 of the
Office Properties containing approximately 2.0 million square feet. As of June
30, 1996, the Office Properties were approximately 95% leased to 274 tenants,
and the Industrial Properties were approximately 90% leased to 120 tenants.
The Company believes that upon the closing of this Offering, it will be one of
the 20 largest managers of office and industrial properties in the U.S.,
managing approximately 39 million square feet in 339 office and industrial
properties that are owned by the Company and by third parties, and that are
leased to approximately 2,200 tenants. The Company intends to continue the
Prentiss Group's strategy of focusing its operations in select markets
throughout the nation and will initially operate in 21 markets throughout the
U.S.
The Company operates from its Dallas, Texas headquarters and its four other
regional offices (Los Angeles, Chicago, Washington, D.C. and Atlanta). The
Company is a full service real estate company with approximately 600 employees
and in-house expertise in acquisitions, development, property management,
leasing, facilities management, corporate services, finance, tax,
construction, disposition, marketing, accounting and real estate law. The 11
senior executives, which include the four Prentiss Principals, Richard J.
Bartel (the Chief Operating Officer of Property Management), Mark R. Doran
(the Treasurer), and the managing directors of each of the Company's five
regions, have an average tenure of 11 years with the Prentiss Group and its
predecessors. Upon completion of the Offering, management will, in the
aggregate, own approximately 17.15% of the Company on a consolidated basis.
See "Management--Trustees and Executive Officers."
The Company will seek to maximize the profitability of the Properties by
continuing the Prentiss Group's success in renewing leases, maintaining high
occupancy rates, increasing rental rates, and reducing operating costs. The
Company will also seek to grow through the acquisition of additional office
and industrial properties and through development, primarily on a build-to-
suit basis. The Company believes that its five regional offices, presence in
21 markets throughout the U.S., diversified base of approximately 2,200
tenants and existing relationships with 45 management clients will provide it
with a competitive advantage in identifying and competing for new office and
industrial acquisition and development opportunities nationally. Additionally,
the Company expects that its existing infrastructure from its extensive
property management operation will allow it to grow in new and existing
markets without the substantial cost of opening new offices or hiring and
training new employees.
The Company is a Maryland real estate investment trust which expects to
qualify as a REIT for federal income tax purposes, and will be self-
administered and self-managed. See "Federal Income Tax Considerations." The
Company's principal executive offices are located at 1717 Main Street, Suite
5000, Dallas, Texas 75201, and its telephone number is (214) 761-1440.
HISTORY
In 1979, Michael V. Prentiss opened an office for The Cadillac Fairview
Corporation Limited ("Cadillac Fairview") in Dallas, Texas to conduct Cadillac
Fairview's U.S. operations. Under the leadership of Mr. Prentiss, the Dallas
office became the headquarters for Cadillac Fairview's largest business unit,
Cadillac Fairview Urban Development, Inc. ("Cadillac Urban"), which developed
and operated more than 35 million square feet of office buildings, mixed-use
centers, hotels and suburban office parks in the U.S. and Canada during the
early 1980's.
28
<PAGE>
In 1987, a Prentiss Group affiliate and Boston-based Copley Real Estate
Advisors, Inc. formed PCIG to acquire substantially all of the U.S. office and
industrial assets of Cadillac Fairview. PCIG's objective was to manage,
develop and sell the Cadillac Fairview portfolio over a 15-year period.
Initially, PCIG's portfolio included more than 100 properties and 17 million
square feet of office and industrial space. PCIG currently owns 6.6 million
net rentable square feet of office and industrial properties, all of which is
being marketed for sale. It is expected that by year-end 1996, only 1.3
million square feet, or approximately 4% of the assets currently under third-
party management, will remain under PCIG ownership. At the time of PCIG's
formation, Mr. Prentiss, along with Thomas F. August, Dennis J. DuBois and
Richard B. Bradshaw, Jr., also founded Prentiss Properties Limited, Inc. (PPL)
to manage all of PCIG's properties. Substantially all of Cadillac Urban's
officers and employees transferred to PPL. PPL also managed and leased
properties for unaffiliated third parties, and by 1996 had more than 30
million square feet under management. In 1989, PPL expanded its services to
include portfolio management and disposition services for government agencies,
including the Resolution Trust Corporation, the Federal Savings and Loan
Insurance Corporation and the Federal Deposit Insurance Corporation, as well
as ownership of properties for its own account.
In 1991, the Prentiss Group formed Prentiss Properties Acquisition Partners,
L.P. (the Operating Partnership), a closed-end commingled real estate
investment limited partnership capitalized with $102.5 million of equity, $100
million of which was raised from four U.S. pension funds and $2.5 million of
which was contributed by a PPL affiliate. The Operating Partnership's
objective was to acquire under-performing institutional quality office and
industrial properties throughout the U.S. Prior to the Offering, the Operating
Partnership owned 47 office and industrial properties, all of which will be
owned by the Company, through the Operating Partnership, after the completion
of the Offering and Formation Transactions. Three of the four original
investors in the Operating Partnership will continue as investors in the
Company.
OPERATIONS
The Company is organized into five regions with its headquarters in Dallas,
Texas and four regional offices in Los Angeles, California, Chicago, Illinois,
Washington, D.C., and Atlanta, Georgia. Managing Directors lead each region,
and each region has development, acquisition, property management,
construction and client development expertise. The following table summarizes
the operations and organization of the five regional offices and the Company's
headquarters office.
<TABLE>
<CAPTION>
NET RENTABLE
SQUARE FEET
NUMBER NUMBER NUMBER (IN THOUSANDS)
OF OF OF ------------------
REGION MANAGING DIRECTOR STATES OFFICES EMPLOYEES OWNED MANAGED ONLY
- ------ --------------------- ------ ------- --------- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
West.................... David C. Robertson 10 46 169 1,253 13,360
Southwest............... Jeffry T. Courtwright 6 47 183 3,214 9,095
Midwest................. Lawrence J. Krueger 14 14 17 2,801 618
Mid-Atlantic............ Robert K. Wiberg 13 15 65 1,068 4,061
Southeast............... James B. Meyer 7 13 52 530 3,149
Headquarters............ -- -- 1 114 -- --
--- --- --- ----- ------
Total......................................... 50 136 600 8,866 30,283
=== === === ===== ======
</TABLE>
West Region. In the Company's West region, which includes 10 states, the
Company has 169 employees and approximately 14.6 million square feet under
management at 46 locations. The Company has 10 locations under management in
the San Francisco Bay area, nine locations under management in Sacramento,
California, 20 locations under management in Southern California, and six
locations under management in Phoenix, Arizona. The Company's primary markets
are Los Angeles, Oakland, and San Francisco, California. The Company owns 18
industrial buildings containing approximately 1.3 million net rentable square
feet in Los Angeles (Torrance), California. The Company manages two office
buildings that PPL developed, the approximately 435,000 net rentable square
foot 6500 Wilshire Boulevard in Los Angeles and the approximately 271,000 net
rentable square
29
<PAGE>
foot World Savings Center in Oakland. The Company manages approximately 3.5
million net rentable square feet of industrial space in two major industrial
parks in Southern California--Los Angeles Industrial Center and Orange County
Industrial Center. The Company has three facilities management assignments for
major corporations and has multiple property management and leasing
assignments for pension funds, pension fund advisors, individuals and
corporations.
Southwest Region. In the Company's Southwest region, which includes six
states, the Company has 183 employees and approximately 12.3 million square
feet under management at 47 locations. The Company's primary markets in the
Southwest region include Austin and Dallas, Texas. The Company owns 16 office
buildings containing approximately 2.7 million net rentable square feet and 11
industrial buildings containing 502,193 net rentable square feet in this
region. The Company also has options to acquire the Burnett Plaza office
building in Fort Worth, Texas containing approximately 1.0 million net
rentable square feet, and a total of approximately 30.0 acres in the Park West
Commerce Center, on which 640,000 net rentable square feet of industrial space
may be built. See "Properties--Option Properties" and "Option Parcels." PPL
has developed more than 6 million net rentable square feet of office and
industrial space in Texas, including the approximately 1.1 million net
rentable square foot Broadmoor Austin Property in Austin, the approximately
1.5 million net rentable square foot Bank One Center in Dallas, the
approximately 1.3 million net rentable square foot 1700 Pacific Street
building in Dallas, and the approximately 1.0 million square foot Burnett
Plaza office building in Fort Worth. PPL also developed approximately 1.6
million net rentable square feet of office and hotel space at the Park West
Office Park in suburban Dallas, which the Company manages and in which the
Park West Office Property is located.
Midwest Region. In the Company's Midwest region, which includes 14 states,
the Company has 17 employees and approximately 3.4 million square feet under
management at 14 locations. The Company's primary markets in the Midwest
region include Milwaukee, Wisconsin; Kansas City, Missouri; Southfield,
Michigan; and Chicago, Illinois. The Company owns 17 industrial buildings in
Milwaukee, containing an aggregate of 1,218,324 net rentable square feet,
seven industrial buildings in Kansas City, containing an aggregate of
1,340,825 net rentable square feet and a leasehold interest in an office
building in Southfield, Michigan containing 241,751 net rentable square feet.
The Company also has options to purchase four industrial buildings containing
an aggregate of 265,085 net rentable square feet in Chicago, Illinois. The
buildings are part of the Continental Executive Parke, a high-end office and
distribution park in the northern suburbs of Chicago that was developed by PPL
and is managed by the Company. The Company also has options to acquire a total
of approximately 30.0 acres at Continental Executive Parke on which
approximately 600,000 net rentable square feet of industrial space may be
built. See "Properties--Option Properties" and "Option Parcels."
Mid-Atlantic Region. In the Company's Mid-Atlantic region, which includes 13
states and the District of Columbia, the Company has 65 employees and
approximately 5.1 million net rentable square feet under management at 15
locations. The Company's primary markets in the Mid-Atlantic region are
Northern Virginia; Baltimore, Maryland; Washington, D.C.; and Northern New
Jersey. The Company owns 3141 Fairview Park Drive, a 192,108 net rentable
square foot Class A office building in Fairfax County, Virginia; 8521 Leesburg
Pike, a 145,257 net rentable square foot Class A office building in Tyson's
Corner, Virginia and six industrial buildings in Baltimore containing an
aggregate of 730,777 net rentable square feet. The Company manages Fairview
Park, a 220 acre office park in Fairfax County, Virginia on which PPL has
developed 1.125 million net rentable square feet of office space and on which
the Company's 3141 Fairview Park Drive Property is located. The Company also
manages the approximately 762,000 net rentable square foot Techworld Plaza in
Washington, D.C.
Southeast Region. In the Company's Southeast region, which includes seven
states, the Company has 52 employees and approximately 3.7 million net
rentable square feet under management at 13 locations. The Company's primary
markets in the Southeast region are Atlanta, Georgia and Orlando, Florida. In
Atlanta, the Company owns the approximately 530,228 net rentable square foot
Cumberland Office Park and manages approximately 2.6 million net rentable
square feet of property owned by third parties. The Company's management
projects in Atlanta include the One Atlantic Center building in Midtown
Atlanta which PPL
30
<PAGE>
developed in partnership with IBM. PPL was named "Office Development Firm of
the Year" in 1995 by the Georgia Chapter of the National Association of
Industrial and Office Parks for PPL's role in developing the approximately 1.7
million net rentable square foot Atlanta Federal Center. The Company also
manages approximately 523,000 net rentable square feet in Orlando, Florida.
Headquarters. While the regional managing directors are responsible for
overseeing all management decisions in their regions, the Company's Chief
Executive Officer and President make all final decisions on capital
allocation, acquisition, development and financing and the Company's Chief
Operating Officer of Property Management supervises property management
operations to ensure quality and consistency throughout all of the Company's
regions. The Company's headquarters in Dallas, Texas supports the regional
offices by providing numerous services including accounting, information
systems, real estate law, insurance, human resources, and training. The
Company's central accounting and reporting group features 50 accountants and
20 Certified Public Accountants. It produces more than 50 quarterly reports
and 30 monthly reports for internal and external clients. The Company's
information systems group includes 15 employees who are designated to set
standards for the Company's information systems to maintain compatibility and
improve quality levels throughout the Company's regions. The Company's in-
house legal department reviews all legal documents relating to financing to
insure consistency in the Company's legal documents. The Company's insurance
group sponsors the MgmtPlus+ Preferred Risk Real Estate Insurance program
through which a leading insurance broker offers the Company's clients
insurance coverage specifically designed for real estate. See "Properties--
Insurance." The Company's human resources group manages employee benefits and
employment issues for all Company employees. The Company's training
organization, Prentiss Properties University, provides regularly scheduled
classes and seminars on subjects related to real estate and finance for the
Company's employees and clients.
BUSINESS OBJECTIVES
BUSINESS STRATEGY
The Company's primary objective is to maximize shareholder value through
increases in distributable cash flow per share and appreciation in the value
of the Common Shares. The Company intends to achieve this objective through a
combination of internal and external growth. The Company's strategy for
internal growth seeks to increase cash flow at the Properties and any future
properties primarily by (a) renewing or replacing expiring leases with new
leases at higher rental rates, (b) operating in markets with the potential for
rental growth, (c) improving occupancy rates, and (d) applying benchmarking
and best practices methodologies to identify and capitalize on cost reduction
opportunities. The Company's external growth strategies are to (i) acquire
existing industrial and office buildings that meet its acquisition criteria
and are located in markets where acquisition cost is less than replacement
cost; (ii) selectively redevelop existing office and industrial buildings that
it currently owns or acquires; (iii) develop new office and industrial
buildings primarily on a build-to-suit, and, where appropriate, speculative,
basis; and (iv) expand its third-party property management, leasing and
facilities management businesses.
The Company intends to focus initially its growth activities in the 10 major
markets throughout the U.S. where the Properties are located, in the other 11
U.S. markets where the Company currently has property management, development
or related operations and in new markets with favorable investment
environments. The following table sets forth certain information regarding the
properties that are owned or managed by the Company in 21 markets throughout
the U.S. The Company intends to pursue an external growth strategy to enable
shareholders to benefit from potential value to be realized from opportunistic
investments in acquisitions, development and redevelopment and income and
business opportunities generated by the Company's property management
operations.
31
<PAGE>
GEOGRAPHIC PROPERTY BREAKDOWN
<TABLE>
<CAPTION>
NET RENTABLE SQUARE
NUMBER OF FOOTAGE
PROPERTIES (IN THOUSANDS)
------------------- --------------------
MARKET OWNED MANAGED TOTAL OWNED MANAGED TOTAL
------ ----- ------- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
WESTERN REGION:
Phoenix, Arizona..................... -- 5 5 -- 534 534
Los Angeles, California.............. 18 113 131 1,253 8,055 9,308
Oakland, California.................. -- 16 16 -- 1,610 1,610
Sacramento, California............... -- 15 15 -- 1,510 1,510
San Francisco, California............ -- 10 10 -- 1,651 1,651
--- --- --- ----- ------ ------
Subtotal Western Region.............. 18 159 177 1,253 13,360 14,613
SOUTHWEST REGION:
Denver, Colorado .................... -- 1 1 -- 190 190
Amarillo, Texas...................... -- 3 3 -- 482 482
Austin, Texas/(1)/................... 7 1 8 1,112 389 1,501
Dallas, Texas........................ 15 31 46 2,027 6,071 8,098
Fort Worth, Texas.................... -- 1 1 -- 1,008 1,008
Houston, Texas....................... 5 4 9 75 955 1,030
--- --- --- ----- ------ ------
Subtotal Southwest Region............ 27 41 68 3,214 9,095 12,309
MIDWEST REGION:
Chicago, Illinois.................... -- 8 8 -- 618 618
Southfield, Michigan/(2)/............ 1 -- 1 242 -- 242
Kansas City, Missouri................ 7 -- 7 1,341 -- 1,341
Milwaukee, Wisconsin................. 17 -- 17 1,218 -- 1,218
--- --- --- ----- ------ ------
Subtotal Midwest Region.............. 25 8 33 2,801 618 3,419
MID-ATLANTIC REGION:
Washington, D.C...................... -- 5 5 -- 1,316 1,316
Baltimore, Maryland.................. 6 -- 6 731 -- 731
Northern New Jersey.................. -- 1 1 -- 263 263
Northern Virginia.................... 2 23 25 337 2,482 2,819
--- --- --- ----- ------ ------
Subtotal Mid-Atlantic Region......... 8 29 37 1,068 4,061 5,129
SOUTHEAST REGION:
Orlando, Florida..................... -- 3 3 -- 523 523
Atlanta, Georgia..................... 9 12 21 530 2,626 3,156
--- --- --- ----- ------ ------
Subtotal Southeast Region............ 9 15 24 530 3,149 3,679
Total.............................. 87 252 339 8,866 30,283 39,149
=== === === ===== ====== ======
</TABLE>
- --------
/(1)/The Company owns a 49.9% interest in the general partnership that owns a
leasehold interest in the Broadmoor Austin Properties in Austin, Texas.
/(2)/The Company owns 100% of a leasehold interest in the One Northwestern Plaza
Property in Southfield, Michigan.
32
<PAGE>
GROWTH STRATEGIES
Internal Growth
The Company will seek to maximize the profitability of the Properties by
continuing the Prentiss Group's success in renewing leases, maintaining high
occupancy rates, increasing rental rates, and reducing operating costs. The
Company intends to increase rental revenues by negotiating leases that include
increases in rent during the lease term, by replacing expiring leases with new
leases at higher rental rates and by improving occupancy rates. The Company
will seek to continue the Prentiss Group's success at renewing existing
leases, which reduces the cost of lease rollovers, reduces rental revenue
fluctuations and enhances long-term relationships with national tenants that
may have space needs in the Company's other markets. Since January 1, 1993,
the Prentiss Group has renewed approximately 66% of expiring leases with the
same tenants at those Properties that were owned or managed by the Prentiss
Group since January 1, 1993. Additionally, the Company has maintained average
year-end occupancy rates of approximately 94% and 95%, respectively, for those
Office Properties and Industrial Properties owned or managed during that
period.
The Company intends to continue the Prentiss Group's efforts to reduce
operating and administrative costs by performing many functions (e.g.,
engineering, tax and legal) in-house instead of hiring third parties and by
employing PPL's benchmarking and best practices methodologies. The Company's
benchmarking program compares operating costs and efficiencies of each
property with other Company properties and with other office and industrial
properties. Under the program, the Company conducts monthly evaluations of 40
key performance indicators at each building and compares the results to a
variety of benchmarks (e.g., specific buildings, portfolios, regions, the
industry). The Company's best practices methodology involves continuously
analyzing the benchmarking data, investigating properties that perform better
than the norm and regularly disseminating and sharing information with respect
to the best practices employed at the better performing properties throughout
the Company's management system. By employing these methodologies, the Company
believes that it can continue to capitalize on opportunities to reduce
operating costs and operate the Properties more efficiently and effectively.
Based on publicly available statistics compiled by the Building Owners and
Managers Association, the Company believes that the annual operating costs at
each of the Properties it has managed since 1991 have been 11% to 19% lower
than the average annual operating costs for comparable buildings.
Acquisitions
The Company intends to continue the Prentiss Group's strategy of
opportunistic investment, particularly in assets that are (i) managed by the
Company and become available for sale, (ii) performing at a level believed to
be substantially below potential due to identifiable management weaknesses or
temporary market conditions, (iii) encumbered by indebtedness that is in
default or is not performing or (iv) held or controlled by short-term owners
(such as assets held by insurance companies and financial institutions under
regulatory pressure to sell). Since 1991, the Prentiss Group has acquired
approximately $265 million of office properties and approximately $103 million
of industrial properties, including approximately $98 million of office
properties acquired from third-party management clients. The Company believes
that its five regional offices, presence in 21 markets throughout the U.S.,
diversified base of approximately 2,200 tenants and existing relationships
with 45 different management clients will provide it with a competitive
advantage in identifying and competing for new acquisition and development
opportunities in the office and industrial property sectors in major markets
in the U.S. The Company intends to fund future acquisitions with proceeds from
the Line of Credit, long-term secured and unsecured indebtedness and the
issuance of additional equity securities. The success of the Company's
acquisition strategy depends upon the Company's access to capital. See "--
Financing Strategy."
In evaluating potential acquisition opportunities, the Company will continue
to rely on the experience of its employees and on its internal research
capabilities in considering a number of factors, including: (i) whether the
property is strategically located within its market; (ii) the construction
quality and condition of the property; (iii) the occupancy of and demand for
properties of a similar type in the same geographic market; (iv) whether the
property is capable of increased cash flow after benefiting from the Company's
renovations, refurbishment
33
<PAGE>
and upgrades; (v) whether the property is priced below replacement cost,
thereby enabling the Company to operate the property at lower rents than those
realized from newly developed properties; (vi) whether the property is able to
generate returns at or above levels of expected growth and appreciation in the
property's value; and (vii) whether there is existing demand for the property
from one or more of the Company's tenants or customers. Further, the Company
believes its development expertise gives it the advantage of identifying the
potential for improvement in an acquisition opportunity which might not be
apparent to a buyer without similar development expertise.
In several instances, the Prentiss Group has purchased buildings with
substantial vacancies at reduced prices having first identified a particular
tenant that would occupy the space immediately. For example, the Prentiss Group
identified the 8521 Leesburg Pike Office Property in Tyson's Corner, Virginia
because of its location within one of Northern Virginia's best sub-markets, its
low occupancy (40%) and its functional design. Through its operations and
presence in the local market, the Prentiss Group identified several potential
tenants actively looking for large contiguous blocks of space in the market.
The Prentiss Group's research projected a significant decrease of supply and
consequently a significant near-term increase in rental rates. The prior owner
of the Property, an insurance company, was not motivated to spend the time or
capital required to reposition the Property. The Prentiss Group used its local
relationships, national reputation and proven ability to finance acquisitions
to acquire the Property. As part of its asset management strategy, the Prentiss
Group upgraded the common areas, garage, exterior walkways and entrances.
Additionally, the Prentiss Group installed an energy management system and made
other equipment upgrades which significantly reduced operating costs. Eighteen
months after the purchase, the Property was 94% leased, physically improved and
financially stabilized. Due to conservative assumptions in the acquisition
budget and improving market conditions, the largest lease in the building,
which covers more than 50% of net rentable square feet at this Property, is 25%
higher than original projections. See "Properties."
The Company has options to acquire the following: (i) office and industrial
properties (the "Option Properties") containing a total of approximately 1.3
million net rentable square feet and (ii) interests in two partnerships which
own two office buildings containing approximately 387,000 net rentable square
feet, all of which it currently manages:
OPTION PROPERTIES/(1)/
<TABLE>
<CAPTION>
1995 NET
OPERATING
NUMBER OF NET RENTABLE PERCENTAGE INCOME
PROPERTY LOCATION BUILDINGS SQUARE FEET LEASED/(2)/ ($000S)
- -------- -------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Burnett
Plaza........ Fort Worth, Texas 1 1,008,141 90% $11,551
Wood Dale 1 &
2............ Chicago, Illinois 2 116,076 100% 493
155 Alexandra
Way.......... Chicago, Illinois 1 110,000 100% 386
Lincolnshire.. Chicago, Illinois 1 42,009 100% 121
Seven Fairview
Park/(4)/.... Northern Virginia 1 115,992 100% 1,732/(5)/
World Saving
Center/(6)/.. Oakland, California 1 271,055 94% 3,159/(7)/
--- --------- --- -------
Total/Weighted Average.......... 7 1,663,273 93% $17,442
=== ========= === =======
</TABLE>
- --------
/(1)/Although the Company has executed option agreements with respect to the
Option Properties, the exercise of these options is subject to various
contingencies, including the determination of purchase price, certain lease
renewals and certain debt restructurings and therefore they cannot be
termed probable at this time. These properties are not reflected in the pro
forma financial statements. The option purchase prices or the manner in
which they would be determined if the options were exercised are set out in
"Properties--Option Properties."
/(2)/As of June 30, 1996.
/(3)/The Company has an option to acquire PCIG's 33% partnership interest in the
partnership that owns this office building. See "Properties--Option
Properties."
/(4)/In the event that the company exercised its option to acquire PCIG's
interest in the partnership, it would be entitled to 33% of the income from
the property.
/(5)/The Company has an option to acquire PCIG's 67% partnership interest in the
partnership that owns this office building. See "Properties--Option
Properties."
/(6)/In the event that the Company exercised its option to acquire PCIG's
interest in the partnership, it would be entitled to 67% of the income from
the property.
34
<PAGE>
Redevelopment
The Company will pursue selectively the redevelopment of its Properties and
of any other properties acquired as opportunities arise. For example, the
Company is currently implementing its redevelopment strategy at the Cumberland
Office Park Properties, which are situated in an under-utilized development
within the Northwest submarket of Atlanta. These Properties are a mixture of
low-rise and mid-rise buildings built between 1972 and 1980. Upon acquiring
the Cumberland Office Park Properties in 1991, the Prentiss Group applied for
and received approval to rezone the properties to permit up to 1.1 million
square feet of additional office space. Although the Cumberland Office Park
Properties are currently fully leased, the Company believes that their long-
term value potential lies in the redevelopment of those sites currently
occupied by smaller, older, less functional buildings into new Class A
suburban office buildings. In 1995, the Prentiss Group began implementing this
strategy by demolishing a single-story 7,500 square-foot building on a site
that will accommodate up to 280,000 net rentable square feet of new
improvements. The Company is currently seeking future tenants for a 140,000
net rentable square foot office building that the Company intends to build
when it secures such tenants. The Company makes decisions regarding any
capital improvements after performing a cost/benefit analysis based on
projected long-term operating efficiencies and savings.
35
<PAGE>
Development
In addition to acquisition and redevelopment opportunities, the Company
expects to develop properties selectively in markets with favorable
supply/demand characteristics. The Company intends to develop properties in
which it controls all aspects of the development process, including site
selection, project concept, design and construction, financing, leasing and
property management. The Company intends to continue developing industrial and
office properties primarily on a build-to-suit basis but will also consider
selective opportunities for speculative development of industrial properties
and development of office properties when significant pre-leasing is possible.
Since 1980, the Prentiss Group and its predecessors have developed for itself
or third parties 31 office buildings containing approximately 16.3 million net
rentable square feet (including 11 of the Office Properties containing
approximately 2.0 million square feet) and 25 industrial buildings containing
approximately 3.2 million net rentable square feet. With landmark projects
such as Broadmoor Austin in Austin (approximately 1.1 million net rentable
square feet), Park West in Dallas (approximately 1.6 million net rentable
square feet), Fairview Park in Northern Virginia (approximately 1.5 million
net rentable square feet), Burnett Plaza in Fort Worth (approximately 1.0
million net rentable square feet) and Continental Executive Parke in Chicago
(approximately 3.2 million net rentable square feet), the Company expects to
benefit from the Prentiss Group's national reputation as a leading developer
that produces quality properties within budget.
The Company owns or has options to acquire the following 14 development
parcels, each of which is located either within an industrial park developed
by PPL or adjacent to one of the Company's Properties, except for the parcel
located in Atlanta, Georgia.
<TABLE>
<CAPTION>
PARCEL MAXIMUM
ACREAGE DEVELOPMENT COMPANY'S
(APPROX.) LOCATION/ADJACENT PROPERTY MARKET (SQUARE FEET) INTEREST
--------- -------------------------- ------ ------------- ---------
<S> <C> <C> <C> <C>
OFFICE:
1.6 Cumberland Office Park Atlanta, GA 280,000 Fee
4.2 Walnut Glen Dallas, TX 500,000 Fee
2.0 Broadmoor Austin Austin, TX 200,000 Leasehold/(1)/
6.4 3141 Fairview Park Drive Northern Virginia 200,000 Option
4.7 Park West Dallas, TX 350,000 Option/(2)/
----
---------
18.9 1,530,000
----
---------
INDUSTRIAL:
3.6 Airworld Drive Kansas City, MO 100,000 Fee
13.0 Airport Properties Milwaukee, WI 250,000 Fee
4.0 Airport Properties Milwaukee, WI 50,000 Fee
15.2 Park West Commerce Center Dallas, TX 320,000 Option/(3)/
14.8 Park West Commerce Center Dallas, TX 320,000 Option
3.7 Continental Executive Parke Chicago, IL 75,000 Option
26.3 Continental Executive Parke Chicago, IL 300,000 Option/(3)/
16.2 Continental Executive Parke Chicago, IL 225,000 Option
49.8 Near Hartsfield International Airport Atlanta, GA 280,000 Option
----
---------
146.6 1,920,000
-----
---------
165.5 3,450,000
=====
=========
</TABLE>
- --------
/(1)/The Company owns a 49.9% interest in the general partnership that owns the
leasehold interest in this parcel.
/(2)/The Company has an option to acquire a 50% partnership interest in the
partnership owning this parcel.
/(3)/The Company is obligated to purchase each of these parcels if a building
permit has been obtained before January 1, 1997, and if a building permit
has not been obtained by such date, the Company will have an option to
purchase the parcel at any time. See "The Properties--Option Parcels."
36
<PAGE>
THIRD-PARTY MANAGEMENT
The Company manages approximately 250 office and industrial properties for
45 third-party management clients. These properties are located in 17 markets
throughout the U.S., contain approximately 30 million net rentable square feet
and are leased to over 1,800 tenants. The Company has served its ten largest
management clients (measured by total space under management) for an average
of 6.6 years and, since 1989, approximately 60% of new third-party management
business has been generated from existing clients. In addition to property
management and leasing, the Company offers its clients a full range of related
services including tenant construction, marketing, insurance, accounting, tax,
real estate law, acquisition, disposition, facilities management, corporate
services and asset management. The following table sets forth the number of
properties, total net rentable square feet, occupancy and number of tenants
for the properties managed by PPL as of June 30, 1996 and as of December 31
for the years 1991 through 1995.
MANAGED PROPERTIES
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
MANAGED OFFICE PROPERTIES
Number...................... 122 113 69 117 83 69
Total Net Rentable Square
Feet....................... 21,237 18,650 15,951 23,232 16,862 14,619
Occupancy %................. 85% 87% 82% 88% 88% 83%
MANAGED INDUSTRIAL PROPERTIES
Number...................... 130 148 155 164 144 155
Total Net Rentable Square
Feet....................... 9,046 10,361 9,888 11,158 10,322 12,891
Occupancy %................. 98% 94% 94% 87% 87% 89%
TOTAL MANAGED PROPERTIES
Number...................... 252 261 224 281 227 224
Total Net Rentable Square
Feet....................... 30,283 29,011 25,839 34,390 27,184 27,510
Occupancy %................. 90% 90% 87% 87% 88% 85%
Number of Third-Party
Owners..................... 45 38 36 37 24 18
</TABLE>
The Company believes it has successfully developed and maintained
relationships with its broad base of national management clients and intends
to develop relationships with additional clients in the future. The Company
uses several tools to measure customer satisfaction. The Company uses the
REACT customer survey program to measure its management performance from the
perspective of the building owners and tenants and to compare those results to
other managers. REACT is administered and compiled by CEL & Associates, Inc.,
an independent third party. Results of the Spring 1996 REACT survey for all
office properties managed by the Company are shown as follows by region (85%-
100% is considered outstanding based on benchmarked studies by the testing
company):
<TABLE>
<CAPTION>
REGION/(1)/ BUILDING OWNER TENANTS
----------- -------------- -------
<S> <C> <C>
West............................................... 94.9% 84.7%
Southwest.......................................... 83.8% 84.3%
Mid-Atlantic....................................... 94.8% 86.9%
Southeast.......................................... 92.3% 86.5%
----- -----
Average............................................ 91.4% 85.6%
</TABLE>
- --------
/(1)/The Company owns only one Office Property in its Midwest region and has
managed that Property since March 1, 1996. The Company manages no other
office buildings in this region.
The Company intends to focus future growth of its management business on the
expansion of profitable long-term arrangements with existing clients and on
high margin business with new clients for large spaces. The Company will
target long-term relationships with clients who need high-quality property
services and who have intermediate to long-term ownership objectives. The
Company believes that its long-term relationships with its customer base will
provide a stable source of fee income. Furthermore, the Company believes it
will benefit from
37
<PAGE>
the increasing trend of institutional owners of real estate consolidating
their property management relationships with sophisticated national service
providers.
The Company believes that the third-party management business provides the
Company with several important benefits. These benefits include (i) access to
a national tenant base with space needs in multiple markets, (ii) access to
acquisition and development opportunities in markets throughout the country,
and (iii) the ability to achieve greater economies of scale with its property
management systems and to defray the costs of maintaining its presence in key
markets.
The Company will seek to maximize the owner's objectives for each property
using strategies employed at the Properties. The Company's third-party service
contracts vary in length and generally provide for management fees ranging
from 1% to 3% of gross revenues plus recovery of the costs of on-site
personnel, and leasing commissions at market rates. The contracts typically
assign the responsibility for management of property operations, marketing and
property-level accounting to the Company. While many contracts are terminable
on 30-days notice in accordance with industry practice, the Company believes
that it will benefit from the Prentiss Group's long-term relationships with
key clients.
The Company's third party management will be conducted primarily by the
Manager. Through the Operating Partnership's ownership of non-voting equity
and debt interests in the Manager, the Company expects to receive most of the
after-tax economic benefits from the Manager's third-party management
business. The Company estimates that funds generated by its third-party
property management operations, after deducting all allocable expenses, will
represent approximately 10% of its estimated Funds from Operations for the 12
months ended June 30, 1997. See "Distribution Policy."
FINANCING STRATEGIES
The Company intends to maintain a conservative debt policy through its Debt
Limitation, which limits the Company's total combined indebtedness plus its
pro rata share of Joint Venture Debt to 50% of the Company's Total Market
Capitalization, although the Company's organizational documents do not limit
the amount of indebtedness that the Company may incur. At the closing of the
Offering, the Company will have outstanding combined indebtedness of
approximately $82.0 million, or 16.7% of total market capitalization
(excluding its pro rata share of Joint Venture Debt), and, together with its
pro rata share of Joint Venture Debt, will have outstanding total indebtedness
of approximately $152.0 million, or approximately 27.0% of Total Market
Capitalization. The Predecesssor Company, as defined in "Selected Financial
Information" herein, had total outstanding indebtedness of 40.4% of its total
debt plus equity as of June 30, 1996 and 30.9%, 29.3% and 17.9% as of December
31, 1995, December 31, 1994 and December 31, 1993, respectively. To the extent
that the Underwriters' overallotment option to purchase 2,266,500 Common
Shares is exercised, the Company expects to use the additional net proceeds of
up to approximately $42.2 million to repay certain indebtedness incurred in
connection with the Formation Transactions. If the Underwriters' overallotment
option is exercised in full and the proceeds therefrom are used to repay
outstanding indebtedness, the Company's combined outstanding indebtedness
after such repayment would be $109.8 million or 19.4% of its Total Market
Capitalization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Assuming the overallotment option is not exercised, the Company will have the
capacity to borrow up to $258.5 million under the Debt Limitation. The Company
intends to obtain a commitment for the $100 million Line of Credit prior to
completion of the Offering. The Line of Credit may be used, among other
things, to finance the acquisition or development of additional properties and
the redevelopment of properties owned by the Company. The Company believes
that its access to capital through the Line of Credit and other sources of
private financing, as well as its access to the public capital markets, will
provide it with a competitive advantage in acquisitions and developments over
certain competitive bidders which may have to qualify their bids with
financing contingencies or which have less access to capital. Acquisition
financings through the Line of Credit and other sources of unsecured financing
may be subject to certain risks. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." In addition, the Company also enjoys a competitive advantage over
many bidders because of the ability to fund or partially fund acquisitions
through the issuance of Units to the sellers of such properties, which may, in
certain circumstances, defer a seller's tax consequences related to the
transfer of those properties.
38
<PAGE>
USE OF PROCEEDS
The net cash proceeds to the Company from the Offering, after deducting the
underwriting discount and estimated expenses of the Offering, are estimated to
be approximately $277.9 million (approximately $320.1 million if the
Underwriters' overallotment option is exercised in full). In connection with
the Formation Transactions, the Company is also obtaining three mortgage loans
with an aggregate principal balance of $70.8 million from an affiliate of
Lehman. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Underwriting."
None of the net cash proceeds from the Offering is being paid to any member of
the Prentiss Group or any officer, director or affiliate of the Company. The
net cash proceeds of the Offering and the two mortgage loans will be used by
the Company as follows: (i) approximately $238.2 million to acquire interests
in the Properties, including approximately $54.0 million to acquire interests
in the Properties from an affiliate of Lehman; (ii) approximately $99.5
million to repay certain mortgage indebtedness secured by the Properties as
set forth in the table below, including approximately $64.5 million which will
be repaid to an affiliate of Lehman; (iii) approximately $1.1 million for
prepayment penalties associated with debt from lenders unaffiliated with
Lehman; (iv) to establish $7.1 million in reserves for capital expenditures;
(v) to establish a cash balance of approximately $2.3 million for working
capital purposes; and (vi) to pay approximately $500,000 in financing costs
relating to the Line of Credit. The Company currently has no agreements or
understandings to purchase any properties other than the Properties and the
Options. See "Properties--General, --Option Properties and --Option Parcels."
Certain information regarding the indebtedness to be repaid is set forth
below:
DEBT TO BE REPAID WITH A PORTION OF OFFERING PROCEEDS
<TABLE>
<CAPTION>
PROPERTY MATURITY DATE INTEREST RATE AMOUNT TO BE REPAID(/1/)
-------- ------------- ------------- ------------------------
<S> <C> <C> <C>
Walnut Glen Tower....... January 31, 2001 7.500% $ 3,146,368(/2/)
8521 Leesburg Pike...... September 1, 1999 8.500% 5,062,727
Northland Park/(3)/..... July 1, 1999 8.750% 9,500,000
North Topping Street,
Airworld Drive,
107th Terrace/(3)/..... October 1, 2001 8.300% 3,435,182
Nicholson III,
13425 Branchview
and 1002 Avenue T...... October 1, 2001 8.300% 3,464,818
Milwaukee
Industrials/(3)/....... May 1, 2000 8.125% 10,323,479
3141 Fairview Park
Drive.................. February 21, 1999 LIBOR + 3.50%/(4)//(5)/ 22,500,000(/6/)(/7/)
Bachman Creek........... August 9, 1997 LIBOR + 1.65%/(4)/ 6,500,000(/7/)
Park West C2............ March 31, 1997 9.000% 35,517,327(/7/)
-----------
Total........................................................... $99,449,901
===========
</TABLE>
Although the indebtedness secured by the 3141 Fairview Park Drive, Bachman
Creek and Park West C2 Properties was incurred in the last 12 months, there
are no prepayment penalties associated with such indebtedness.
- --------
/(1)/TheCompany estimates that the indebtedness to be repaid with a portion of
the proceeds of the Offering had a weighted average interest rate of
approximately 8.3% and a weighted average maturity of approximately 3.38
years as of August 31, 1996. Exact repayment amounts may differ due to
amortization.
/(2)/Represents prepayment of principal. Following such prepayment the loan
will have a principal balance of approximately $11.3 million and only
payments of interest will be due until maturity.
/(3)/In connection with the Formation Transactions, the Company is obtaining a
mortgage loan with an initial principal balance of $40 million that will
be secured by a lien on all of the Company's Industrial Properties in
Kansas City, Missouri and Milwaukee, Wisconsin. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
/(4)/30 Day LIBOR of 5.50% as of September 10, 1996 was used for calculation
of the weighted average interest rate in Note (1) above.
39
<PAGE>
/(5)/ In connection with the Formation Transactions the Company is obtaining a
mortgage loan with an initial principal balance of approximately $10
million that will be secured by a lien on the 3141 Fairview Park Drive
Property. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
/(6)/ Includes two notes, one in the amount of $19 million with a maturity date
of February 21, 1999, and the second in the amount of $3.5 million with a
maturity date of February 21, 1997.
/(7)/ Financing provided by an affiliate of Lehman.
To the extent the Underwriters' overallotment option to purchase up to
2,266,500 Common Shares is exercised in full, the Company expects to use the
additional net proceeds of up to approximately $42.2 million to repay certain
indebtedness incurred in connection with the Formation Transactions. If the
Underwriters' overallotment option is exercised in full and the proceeds
therefrom are used to repay outstanding indebtedness, the Company's total
outstanding indebtedness after such repayment would be $109.8 million or 19.4%
of its Total Market Capitalization. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Pending application of net proceeds, the Company will invest such portion of
the net proceeds in interest-bearing accounts and short-term, interest-bearing
securities, which are consistent with the Company's intention to qualify for
taxation as a REIT.
40
<PAGE>
DISTRIBUTION POLICY
The Company intends to pay regular quarterly distributions to its
shareholders. The first distribution, for the period commencing on the Closing
Date and ending December 31, 1996, is expected to be approximately $
per Common Share, which is equivalent to a quarterly distribution of $0.40 per
Common Share and an annual distribution of $1.60 per Common Share, or 8.00% of
the Offering Price. The Company does not expect to change its estimated
initial distribution per Common Share if the Underwriters' overallotment
option is exercised. See "Formation Transactions."
The Company's initial intended annual distribution rate is based on an
estimate of cash flow that will be available for distribution. This estimate
is based on historical cash flows provided by operations of the Prentiss Group
for the 12 months ended June 30, 1996. Except as reflected in the table below
and the notes thereto, investing and financing activities are not expected to
have a material adverse effect on estimated cash available for distributions.
The estimate of Funds from Operations is being made solely for the purpose of
setting the initial distribution rate and is not intended to be a prediction
or forecast of the Company's results of operations or of its liquidity.
The following table illustrates the adjustments made by the Company to its
pro forma Funds from Operations for the 12 months ended June 30, 1996 in order
to calculate initial estimated distributions.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
----------------------
<S> <C>
Pro forma net income (before minority interest of
$4,437) for the year ended December 31, 1995.......... $ 25,871
Real estate depreciation............................. 9,991
Real estate amortization............................. 2,827
Broadmoor depreciation/(1)/.......................... 2,167
--------
Pro forma Funds from Operations, year ended December
31, 1995/(2)/......................................... 40,856
Less: Pro forma Funds from Operations for the six
months ended June 30, 1995.......................... (18,004)
Add: Pro forma Funds from Operations for the six
months ended June 30, 1996.......................... 19,118
--------
Pro forma Funds from Operations, 12 months ended June
30, 1996/(2)/......................................... $ 41,970
========
Adjustments:
Contractual net increases in rent/(3)/............... 1,451
Reduction in cash received from the Manager/(4)/..... (1,975)
--------
Estimated Funds from Operations for the twelve months
ended June 30, 1997/(2)/.............................. $ 41,446
========
Estimated capital expenditures for the
Properties/(5)/..................................... (4,350)
Estimated capital expenditures for furniture,
fixtures and equipment of the Manager............... (190)
Straight line rent accrual adjustments............... (1,547)
Amortization of non-real estate assets/(6)/.......... 179
--------
Estimated cash available for distributions............. $ 35,538
========
Estimated initial annual distributions................. $ 32,837
========
Company's share of estimated initial annual
distributions......................................... $ 27,205
========
Payout ratio based on estimated cash available for
distributions/(7)/.................................... 92.4%
========
</TABLE>
- --------
/(1)/The Broadmoor depreciation adjustment represents the Company's share of
the depreciation recognized on the Broadmoor Austin Office Properties by
the joint venture that owns these properties which are accounted for using
the equity method.
/(2)/The Company generally considers Funds from Operations an appropriate
measure of liquidity of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. Funds from
Operations, as defined by NAREIT, represents net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization on
real estate assets and after adjustments for unconsolidated partnerships
and joint ventures. Funds from Operations, therefore, does not represent
cash generated from operating activities in accordance with GAAP and
should not be considered an alternative to net income as an indication of
the Company's performance or to cash flow as a measure of liquidity or the
ability to pay distributions. Pro forma Funds from Operations for the six
months ended June 30, 1996 and 1995 was calculated as follows:
41
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Pro forma net income (before minority interest of $1,987
and $1,819)............................................ $ 11,585 $ 10,604
Adjustments:
Real estate depreciation............................... 5,072 4,960
Real estate amortization............................... 1,377 1,356
Broadmoor depreciation................................. 1,084 1,084
-------- --------
Pro forma Funds from Operations......................... $ 19,118 $ 18,004
======== ========
</TABLE>
/(3)/Represents the effect on Estimated Funds from Operations for the 12 months
ended June 30, 1997 from the net change in rental revenue from (i) lease
renewals, new leases or, in the case of the Airworld Drive Industrial
Property, a letter of intent, that have been signed since June 30, 1996,
(ii) existing leases expiring after June 30, 1996, and (iii) certain
contractual rent increases and decreases under leases in effect as of June
30, 1996. With respect to (ii) above, any space subject to a lease
expiring after June 30, 1996 that had not been renewed or released as of
September 10, 1996 was assumed to remain unleased. Through September 10,
1996, the Prentiss Group had renewed the leases on approximately 54% of
the space subject to leases expiring after June 30, 1996 and had renewed
or re-leased approximately 97% of the space that was (a) subject to leases
expiring after June 30, 1996 or (b) vacant as of that date.
/(4)/Represents an estimated reduction in cash from the Manager due to fee
income adjustments, net of taxes, as detailed below.
<TABLE>
<S> <C>
Net reduction in the annual fee income recognized by the Manager... $(3,482)
Income tax savings on reduction of fee income...................... 1,219
-------
Net reduction in Manager's income.................................. (2,263)
-------
Company's 95% share of Manager's reduction......................... (2,150)
Add: Interest income due under the installment note from the
Manager to the Company excluded from Equity in joint venture and
subsidiary........................................................ 175
-------
Total net reduction................................................ $(1,975)
=======
</TABLE>
/(5)/The estimated annual unreimbursed capital expenditures of $4,350 were
derived by (i) adding (a) an estimate of the tenant improvements and
leasing commissions required for all signed new leases or renewals for the
period from July 1, 1996 to June 30, 1997 and (b) an estimate of the
capital improvements to be made at each Property, then (ii) increasing
this total estimated amount by a contingency factor of 10%.
The analysis below is a comparison of the estimated amount to the historical
actual costs incurred (the historical actual costs represent the average
costs for the years 1993-1995). A comparison to the average dollars actually
spent on these items is provided along with a comparison to historical
amounts adjusted for the Company's portfolio of Properties. The adjusted
historical amounts were derived by using per square foot historical cost
amounts applied to the square footage of the Company.
In addition to the $4,350 estimated annual unreimbursed capital expenditure
provision, the Company will set aside $7.1 million of the net Offering
proceeds for estimated specific non-recurring capital expenditures and
leasing costs, including tenant improvements and leasing commissions for
currently vacant space in the Walnut Glen Office Property, re-leasing costs
for the major leases of the Park West C2 and Walnut Glen Office Properties,
which expire in October 1999 and July 1998, respectively, and the 21,000
square foot expansion of one of the Milwaukee Industrial Properties. Unused
portions of the funds, if any, will be applied to reduce outstanding
indebtedness. See "Properties--Historical Non-Incremental Revenue-Generating
Capital Expenditures, Tenant Improvement Cost and Leasing Commissions" and
"--Historical Incremental Revenue-Generating Tenant Improvement Costs and
Leasing Commissions."
<TABLE>
<CAPTION>
NON-INCREMENTAL TENANT
IMPROVEMENT AND LEASING CAPITAL IMPROVEMENTS
-------------------------------- --------------------------------
OFFICE INDUSTRIAL OFFICE INDUSTRIAL
---------------- --------------- --------------- ---------------- TOTAL
PER SQ FT TOTAL PER SQ FT TOTAL PER SQ FT TOTAL PER SQ FT TOTAL AMOUNT
--------- ------ --------- ----- --------- ----- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated Amounts....... $6.21 $2,125 $1.54 $643 $0.15 $573 $0.20 $1,009 $4,350
Historical Amounts...... $5.78 $1,930 $1.06 $906 $0.15 $363 $0.18 $ 838 $4,037
Estimated Amounts based
on Historical Rates.... $5.78 $1,978 $1.06 $442 $0.15 $573 $0.18 $ 908 $3,901
</TABLE>
/(6)/Represents the amortization of deferred financing costs which is reflected
as an expense in the pro forma financial statements of the Company. The
Company's pro forma statements reflect no draw downs under its $100
million Line of Credit. The Line of Credit will have a fee of $500 that
will amortize at $167 per year for three years. The Company will incur an
additional $12 of amortization on the remaining $11,250 of debt on the
Walnut Glen Property.
/(7)/The Company's payout ratio is based on estimated cash available for
distribution, calculated by dividing the Estimated initial annual
distributions by the estimated cash available for distributions.
42
<PAGE>
The Company believes that its estimated cash available for distributions
constitutes a reasonable basis for setting the initial distribution rate on
the Common Shares and intends to maintain its initial distribution rate for
the 12 months following the Offering unless actual results from operations,
economic conditions or other factors differ from the assumptions used in its
estimate. The actual return that the Company will realize and the amount
available for distributions to shareholders will be affected by a number of
factors, including the revenues received from the Properties, the
distributions received from the Operating Partnership, the operating expenses
of the Company, the interest expense incurred on its borrowings and
unanticipated capital expenditures. No assurance can be given that the
Company's estimate will prove accurate. In addition, pro forma results of
operations do not purport to present the actual results that can be expected
for future periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Funds from Operation."
The Company anticipates that Funds from Operations will exceed earnings and
profits due to non-cash expenses, primarily depreciation and amortization,
expected to be incurred by the Company. Distributions by the Company to the
extent of its current or accumulated earnings and profits for federal income
tax purposes, other than capital gain dividends, will be taxable to
shareholders as ordinary dividend income. Capital gain dividends generally
will be treated as long-term capital gain. Distributions in excess of earnings
and profits generally will be treated as a non-taxable reduction of the
shareholder's basis in the Common Shares to the extent thereof, and thereafter
as capital gain. Distributions treated as a non-taxable reduction in basis
will have the effect of deferring taxation until the sale of a shareholder's
Common Shares. The Company does not intend to reduce the expected initial
distribution per share if the Underwriters' overallotment option is exercised.
Based on the Company's estimated results of operations for the 12 months
ending June 30, 1997, the Company estimates that approximately 18.1% of the
anticipated initial annual distribution to shareholders will represent a
return of capital for federal income tax purposes and that the Company would
have been required to distribute $22.3 million or $1.31 per share during such
12-month period in order to maintain its status as a REIT. If actual Funds
from Operations or taxable income varies from these amounts, the percentage of
distributions which represents a return of capital may be materially
different. In addition, the percentage of distributions may vary substantially
in future years. For a discussion of the tax treatment of distributions to
holders of Common Shares, see "Federal Income Tax Considerations--Taxation of
Taxable U.S. Shareholders" and "--Taxation of Non-U.S. Shareholders." In order
to qualify to be taxed as a REIT, the Company must make annual distributions
to shareholders of at least 95% of its REIT taxable income (determined by
excluding any net capital gain), which the Company anticipates will be less
than its share of adjusted Funds from Operations. Under certain circumstances,
the Company may be required to make distributions in excess of cash available
for distribution in order to meet such distribution requirements. In such a
case, the Company may find it necessary to arrange for short-term (or possibly
long-term) borrowings or to raise funds through the issuance of preferred
shares or additional Common Shares.
Future distributions by the Company will be at the discretion of the Board
of Trustees and will depend on the actual Funds from Operations of the
Company, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code (see "Federal
Income Tax Considerations--Requirements for Qualification"), and such other
factors as the Board of Trustees deems relevant. See "Risk Factors--Changes in
Policies Without Shareholder Approval."
43
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and on a pro forma basis assuming completion of the Formation
Transactions and the Offering and the application of the assumed net proceeds
therefrom as if such transactions had occurred on June 30, 1996. See "Use of
Proceeds." The information set forth in the table should be read in
conjunction with the combined financial statements of the Company and notes
thereto included elsewhere in this Prospectus, the pro forma financial
information and notes thereto included elsewhere in this Prospectus and the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------
HISTORICAL PRO FORMA
----------------- ----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
DEBT................................... $ 68,787 $ 82,010/(1)/
---------------- ----------------
MINORITY INTEREST...................... -- 54,461
---------------- ----------------
SHAREHOLDERS' EQUITY:
Common Shares, $.01 par value;
100,000,000 authorized; 100 issued
and outstanding and 17,002,985
issued and outstanding on a pro
forma basis/(2)/.................... -- 170/(2)/
Preferred shares, $.01 par value,
20,000,000 authorized, no shares
issued or outstanding............... -- --
Additional paid-in capital........... -- 315,636
Note receivable/(3)/................. -- 26,950
Accumulated equity (deficit) of
continuing interests................ 101,620 (79,661)
---------------- ----------------
Total shareholders' equity........... 101,620 263,095
---------------- ----------------
Total capitalization................. $ 170,407 $ 399,566
================ ================
</TABLE>
- --------
/(1)/ Excludes the Company's pro rata share of indebtedness of the partnership
that owns the Broadmoor Austin Property. For more detailed information on
the operations and accounts of Broadmoor Austin, refer to footnote (12) in
the notes to the Predecessor Company's financial statements.
/(2)/ Does not include Common Shares reserved for issuance upon (i) possible
exchange of 3,520,198 Units issued and outstanding after the Offering and
(ii) exercise of 1,291,439 options to be granted pursuant to the 1996
Share Incentive Plan effective upon the completion of the Offering. See
"Management--1996 Share Incentive Plan."
/(3)/ Certain Contracts will be contributed by the Prentiss Group to the
Operating Partnership as described under "The Offering." The Operating
Partnership will contribute the majority of the Contracts to the Manager
in exchange for a note in the amount of $26,950. The note bears interest
at 13% per year and has interest only payments for the first three years
with a subsequent 10-year amortization. Due to the affiliation of the
Manager and the Operating Partnership, the note has been classified in
Shareholders' equity. Due to the capital nature of this transaction,
interest income and expense amounts are recorded directly to Shareholders'
equity.
44
<PAGE>
DILUTION
The initial price per share to the public of the Common Shares offered
hereby exceeds the net tangible book value per share immediately following
consummation of the Offering and the other Formation Transactions. Therefore,
the Continuing Investors and holders of Units issued in connection with the
Formation Transactions (the Prentiss Principals, directly or indirectly, and
other management members) will realize an immediate increase in the net
tangible book value of their Common Shares and Units, respectively, while
purchasers of the Common Shares in the Offering will realize an immediate
dilution in the net tangible book value of their shares. Pro forma net
tangible book value per share is determined by subtracting the Company's total
liabilities from its total tangible assets and dividing the remainder by the
number of Common Shares and Units that will be outstanding after the Offering.
The following table illustrates the dilution to purchasers of shares sold in
the Offering, based on the Offering Price of $20.00 per share.
<TABLE>
<S> <C> <C>
Initial price per share to the public.......................... $20.00
Pro forma net tangible book value per share as of June 30,
1996 prior to the Offering, attributable to Common Shares
issued to Prentiss Principals /(1)/......................... $ 1.34
Pro-forma net tangible book value per share as of June 30,
1996 prior to the Offering, attributable to Common Shares
issued to Continuing Investors.............................. $15.67
Decrease in net tangible book value per share attributable to
payments by purchasers of Common Shares in the Offering
/(1)/....................................................... $(2.03)
------
Pro forma net tangible book value per share as of June 30, 1996
after the Offering /(2)/...................................... $14.98
------
Dilution per share sold in the Offering........................ $ 5.02
======
</TABLE>
- --------
/(1)/ Based on the Pro Forma Combined Balance Sheet contained elsewhere in this
Prospectus.
/(2)/ Based on pro forma shareholders' equity of $263,095 and minority interests
in the Operating Partnership of $54,461, net of intangible assets of
$10,146, divided by 20,523,183 Common Shares outstanding. This assumes all
Units have been converted into Common Shares.
The following table sets forth the number of Common Shares offered to the
public hereby, the total price to be paid for the Common Shares offered
hereby, the number of Restricted Shares and Units previously outstanding or to
be issued to Continuing Investors and the Prentiss Principals in connection
with the Formation Transactions, the pro forma net book value as of June 30,
1996 attributable to the Restricted Shares and Units issued directly or
indirectly to the Continuing Investors and the Prentiss Principals, the book
value as of March 31, 1996 of the assets contributed to the Operating
Partnership and the purchase price per Common Share in the Offering and book
value of the contributions per Restricted Share or Unit.
<TABLE>
<CAPTION>
CASH/BOOK VALUE OF
SHARES/UNITS ISSUED TOTAL CONTRIBUTIONS PURCHASE PRICE/
BY THE COMPANY TO THE COMPANY/(1)/ BOOK VALUE/
-------------------- ------------------- OF CONTRIBUTIONS
SHARES/UNITS PERCENT AMOUNT/(1)/ PERCENT PER SHARE/UNIT/(2)/
------------ ------- ----------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Common Shares offered by
the Company to the
Public................. 15,110 73.63% $302,200 96.76 % $20.00
Units issued to
Continuing Prentiss
Principals............. 3,520 17.15% $ 4,716 1.51 % $ 1.34
Common Shares and Units
issued to the
Continuing Investors... 1,893 9.22% $ 29,668 9.50 % $15.67
Other /(3)/............. -- -- (24,254) (7.77)% --
------ ----- -------- -----
Total................. 20,523 100.0% $312,330 100.0 %
</TABLE>
- --------
/(1)/ Based on the June 30, 1996 net book value of the assets to be contributed
in connection with the Formation Transactions, net of liabilities to be
assumed.
/(2)/ Before deducting the Underwriters' discount and estimated expenses of the
Offering.
/(3)/ Represents the expenses of the Offering net of the effects of the
Formation Transactions.
45
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth (i) selected combined financial data for the
Predecessor Company on a historical basis, and (ii) pro forma financial data
for the Company at and for the six months ended June 30, 1996 and for the year
ended December 31, 1995. The combined financial statements of the Predecessor
Company include (i) 100% of the assets and results of operations from 47
Properties owned by the Operating Partnership for the periods presented, (ii)
100% of the assets and results of operations of the 3141 Fairview Park Drive
Property for the portion of the periods after a Prentiss Group member acquired
the Property, (iii) a 25% equity investment in the Broadmoor Austin
Properties, (iv) a 15% equity investment in the Park West C2 Property for the
portion of the periods in which the Prentiss Group owned its 15% non-
controlling interest, (v) a 25% equity investment in the industrial building
in Itasca, Illinois and (vi) results of operations of some of the Prentiss
Properties Service Business (conducted primarily by PPL). The Properties owned
by the Operating Partnership prior to the Formation Transactions include
Cumberland Office Park, 5307 East Mockingbird, Walnut Glen Tower, 8521
Leesburg Pike, all of the Industrial Properties in Baltimore except 9050
Junction Drive, and all of the Industrial Properties in Kansas City, Missouri,
Dallas, Texas, and Milwaukee, Wisconsin. The selected financial data at and
for the six months ended June 30, 1996 and June 30, 1995 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments (consisting of normal recurring adjustments) that management
considers necessary for a fair presentation of the financial position and
results of operations for those periods. Operating results for the six months
ended June 30, 1996 are not necessarily indicative of the results to be
expected for the entire year ending December 31, 1996. The following data
should be read in conjunction with (i) the pro forma financial statements and
notes thereto of the Company; (ii) the historical financial statements and
notes thereto for the Predecessor Company and the Acquisition Properties; and
(iii) "Management's Discussion and Analysis of Financial Condition and Results
of Operations," each included elsewhere in this Prospectus.
Historical operating results may not be comparable to future operating
results. In addition, the Company believes that the book value of the
Properties, which reflects historical costs of such real estate assets less
accumulated depreciation, is not indicative of the fair value of the
Properties.
Pro forma information is presented as if (i) the transfer of the Properties,
the Prentiss Properties Service Business and other assets of the Prentiss
Group and (ii) the completion of the Offering and the application of the net
proceeds therefrom as described under "Use of Proceeds" had occurred at the
beginning of the pro forma periods with respect to the pro forma operating
data and at June 30, 1996 with respect to the pro forma balance sheet data.
The pro forma information is based upon certain assumptions that are included
in the notes to the pro forma financial statements included elsewhere in this
Prospectus. The pro forma financial information is unaudited and is not
necessarily indicative of what the financial position and results of
operations of the Company would have been as of the dates and for the periods
indicated, nor does it purport to represent or project the financial position
and results of operations for future periods.
46
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------------------------------------
HISTORICAL HISTORICAL
PRO FORMA ------------------ PRO FORMA ------------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
--------- -------- -------- --------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Rental income........... $ 31,888 $ 16,340 $ 14,527 $62,724 $ 29,423 $ 25,256 $ 14,412 $ 8,169 $ 5,194
Fee and other
income/(1)/............ 1,676 10,357 9,906 3,529 25,741 26,702 23,609 24,278 35,346
-------- -------- -------- ------- -------- -------- -------- -------- --------
Total revenues......... 33,564 26,697 24,433 66,253 55,164 51,958 38,021 32,447 40,540
Operating
expenses/(1)/.......... 10,996 14,790 14,176 21,610 31,272 33,178 28,667 31,925 35,848
Real estate taxes....... 2,694 1,709 1,547 5,456 3,030 2,691 1,631 712 428
Interest expense........ 3,300 3,306 1,944 6,599 3,882 3,191 1,444 491 60
Real estate depreciation
and amortization....... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Other depreciation and
amortization........... -- 4 53 -- 106 106 106 106 96
Equity in joint venture
and subsidiary/(1)/.... 1,460 19 29 6,101 11 13 (4) 2 211
-------- -------- -------- ------- -------- -------- -------- -------- --------
Income (loss) before
gain on sale of
property and minority
interest............... 11,585 3,338 3,305 25,871 9,825 7,354 2,857 (2,685) 3,598
Gain on sale of
property............... -- -- -- -- -- 1,718 -- -- --
Minority interest/(2)/.. (1,987) -- -- (4,437) -- -- -- -- --
-------- -------- -------- ------- -------- -------- -------- -------- --------
Net income (loss)...... $ 9,598 $ 3,338 $ 3,305 $21,434 $ 9,825 $ 9,072 $ 2,857 $ (2,685) $ 3,598
======== ======== ======== ======= ======== ======== ======== ======== ========
Net income per share.... $ 0.56 -- -- $ 1.26 -- -- -- -- --
Weighted average number
shares outstanding..... 17,003 -- -- 17,003 -- -- -- -- --
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before
accumulated
depreciation/(3)/..... $378,308 $173,439 -- -- $153,148 $151,673 $ 89,116 $ 42,561 $ 24,508
Real estate, after
accumulated
depreciation/(3)/..... 364,216 159,347 -- -- 141,368 144,366 85,549 41,182 24,082
Cash................... 8,302 1,936 -- -- 1,033 9,133 1,605 8,004 3,202
Total assets........... 404,267 175,108 -- -- 154,490 164,307 117,819 53,327 29,900
Debt on real
estate/(3)/........... 82,010 68,787 -- -- 46,442 46,732 20,473 10,186 717
Total liabilities...... 86,711 73,488 -- -- 50,769 51,713 23,773 11,480 1,759
Stockholders' equity... 263,095 101,620 103,721 112,594 94,046 41,847 28,141
OTHER DATA (END OF
PERIOD):
EBITDA/(4)/............. $ 16,466 $ 8,449 $ 7,216 $32,466 $ 17,284 $ 13,330 $ 6,399 $ (157) $ 3,533
======== ======== ======== ======= ======== ======== ======== ======== ========
Funds from
Operations/(5)/........ $ 15,839 $ 6,171 $ 6,035 $33,849 $ 14,887 $ 11,507 $ 6,009 $ 248 $ 4,060
======== ======== ======== ======= ======== ======== ======== ======== ========
Cash flow from
operations............. -- $ 8,011 $ 6,341 -- $ 16,238 $ 13,059 $ 6,115 $ (755) $ 4,241
Cash flow from
investing.............. -- $(22,014) $ (2,577) -- $ (4,301) $(40,909) $(71,977) $(20,133) $(25,541)
Cash flow from
financing.............. -- $ 14,906 $(10,886) -- $(20,037) $ 35,378 $ 59,463 $ 25,690 $ 24,502
PROPERTY DATA (END OF
PERIOD):/(6)/
Number of Properties.... 87 56 54 87 55 54 47 23 16
Total GLA in sq. ft..... 8,866 6,515 5,979 8,866 6,323 5,976 4,793 2,733 1,650
Occupancy %............. 92% 92% 97% 95% 97% 96% 95% 97% 94%
</TABLE>
- --------
/(1)/ The Manager's operations are combined with the property operations in the
historical statements and are accounted for under the equity method in the
pro forma statements; therefore, the historical statements include the
Manager's revenues and expenses on a gross basis in the respective income
and expense line items and the pro forma statements present the Manager's
net operations in the line item titled "Equity in joint venture and
subsidiary."
Equity in joint venture and subsidiary includes the Company's 25% and
49.9% interest in the partnership owning the Broadmoor Austin Partnership
on a historical and pro forma basis, respectively, which is accounted for
on the equity method for all periods presented. For more information on
the operations and accounts of the Broadmoor Austin Partnership refer to
footnote (12) in the footnotes to the Predecessor Company's financial
statements.
Equity in joint venture and subsidiary on a historical basis also includes
the 15% general partnership interest owned by members of the Prentiss
Group in the Park West C2 Property. The operations and accounts are
combined on a pro forma basis.
/(2)/ Represents the approximate 17.15% interest in the Operating Partnership
which will be owned by the Prentiss Principals.
47
<PAGE>
/(3)/The pro forma balance sheet as of June 30, 1996 reflects the Company's
investment in the Broadmoor Austin Property using the equity method of
accounting. As a result, the Company's 49.9% share of the Broadmoor Austin
Partnership's real estate and related debt are not shown in the line items
titled "Real estate, before accumulated depreciation," "Real estate, after
accumulated depreciation" and "Debt on real estate." The following
schedule represents the Balance Sheet Data as of June 30, 1996 on a pro
forma basis as if the Company's share of the Broadmoor Austin
Partnership's real estate and related debt thereon were included. This
presentation is provided for informational purposes only:
<TABLE>
<CAPTION>
PRO FORMA 6/30/96 ADJUSTMENTS PRO FORMA 6/30/96
BALANCE SHEET FOR COMBINING BROADMOOR'S BALANCE SHEETDATA
DATA AS PRESENTED 49.9% OWNERSHIP BROADMOOR COMBINED
----------------- ------------------------- ------------------
<S> <C> <C> <C>
Real estate before
accumulated
depreciation........... $378,308 $54,113 $432,421
Real estate after
accumulated
depreciation........... $364,216 $48,662 $412,878
Debt on real estate..... $ 82,010 $70,000 $152,010
</TABLE>
/(4)/Does not include the Company's pro rata share of the operations in the
entities accounted for under the equity method; such amounts are $5,941
and $16,377 for the pro forma six months ended June 30, 1996 and the pro
forma year ended December 31, 1995, respectively. EBITDA means operating
income before mortgage and other interest, income taxes, depreciation and
amortization. The Company believes EBITDA is useful to investors as an
indicator of the Company's ability to service debt or pay cash
distributions. EBITDA, as calculated by the Company, is not comparable to
EBITDA reported by other REITs that do not define EBITDA exactly as the
Company defines that term. EBITDA does not represent cash generated from
operating activities in accordance with GAAP and should not be considered
as an alternative to operating income or net income as an indicator of
performance or as an alternative to cash flows from operating activities
as an indicator of liquidity. EBITDA does not include the amounts
reflected in "Equity in joint venture and subsidiary," nor does it add
back the depreciation, interest and taxes included therein. EBITDA for the
respective periods is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA --------------- FORMA ----------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------- ------ ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA
Net Income (loss)....... $ 9,598 $ 3,338 $3,305 $21,434 $ 9,825 $ 9,072 $2,857 $(2,685) $3,598
Add:
Interest expense....... 3,300 3,306 1,944 6,599 3,882 3,191 1,444 491 60
Real estate
depreciation and
amortization.......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Other depreciation and
amortization.......... -- 4 53 -- 106 106 106 106 96
Minority interest...... 1,987 -- -- 4,437 -- -- -- -- --
Less:
Gain on sale of
property.............. -- -- -- -- -- (1,718) -- -- --
Equity in joint venture
and subsidiary........ (1,460) (19) (29) (6,101) (11) (13) 4 (2) (211)
------- ------- ------ ------- ------- ------- ------ ------- ------
EBITDA.................. $19,874 $10,198 $8,710 $39,187 $20,862 $16,089 $7,723 $ (190) $4,264
------- ------- ------ ------- ------- ------- ------ ------- ------
EBITDA (Company's 82.85%
share)................. $16,466 $ 8,449 $7,216 $32,466 $17,284 $13,330 $6,399 $ (157) $3,533
======= ======= ====== ======= ======= ======= ====== ======= ======
</TABLE>
/(5)/The Company generally considers Funds from Operations an appropriate
measure of liquidity of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. "Funds from
Operations" as defined by the National Association of Real Estate
Investment Trusts ("NAREIT") means net income (computed in accordance with
GAAP) excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization on real estate assets, and
after adjustments for unconsolidated partnerships and joint ventures. The
Company's Funds from Operations are not comparable to Funds from
Operations reported by other REITs that do not define that term using the
current NAREIT definition. The Company believes that in order to
facilitate a clear understanding of the combined historical operating
results of the Prentiss Group and the Company, Funds from Operations
should be examined in conjunction with net income (loss) as presented in
the audited combined financial statements and information included
elsewhere in this Prospectus. Funds from Operations does not represent
cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income as an indication
of the Company's performance or to cash flows as a measure of liquidity or
ability to make distributions. Funds from Operations for the respective
periods is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA ------------- FORMA ---------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------ ------ ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FUNDS FROM OPERATIONS
Net Income (loss)....... $ 9,598 $3,338 $3,305 $21,434 $ 9,825 $ 9,072 $2,857 $(2,685) $3,598
Add:
Real estate
depreciation and
amortization.......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Real estate
depreciation and
amortization of
unconsolidated joint
ventures.............. 1,084 542 542 2,167 1,084 1,084 1,084 1,084 582
Minority interest...... 1,987 -- -- 4,437 -- -- -- -- --
Less:
Gain on sale of
property.............. -- -- -- -- -- (1,718) -- -- --
------- ------ ------ ------- ------- ------- ------ ------- ------
Funds from Operations... $19,118 $7,449 $7,284 $40,856 $17,969 $13,889 $7,253 $ 299 $4,901
------- ------ ------ ------- ------- ------- ------ ------- ------
Funds from Operations
(Company's 82.85%
Share)................. $15,839 $6,171 $6,035 $33,849 $14,887 $11,507 $6,009 $ 248 $4,060
======= ====== ====== ======= ======= ======= ====== ======= ======
</TABLE>
/(6)/The Property Data includes information on the Broadmoor Austin, Park West
C2 and 3141 Fairview Park Drive Properties only for the end of the periods
subsequent to the Prentiss Group's acquisition of an ownership interest in
the respective Properties.
48
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Information" and the historical and pro forma financial statements
appearing elsewhere in this Prospectus. The following discussion is based
primarily on the Combined Financial Statements of the Predecessor Company for
the periods prior to the completion of the Offering and Formation
Transactions. The combined financial statements of the Predecessor Company
include (i) the results of operations from 47 properties for the periods
presented, (ii) the results of operations of the 3141 Fairview Park Drive
property for the portion of the periods after a Prentiss Group member acquired
the property, (iii) a 25% equity interest in the Broadmoor Austin properties,
(iv) a 15% equity interest in the Park West C2 property for the portion of the
periods in which the Prentiss Group owned a non-controlling interest, (v) a
25% equity interest in the industrial building in Itasca, Illinois, and (vi)
results of operations of the Prentiss Properties Service Business conducted
primarily by PPL in the period presented. The Properties owned by the
Operating Partnership prior to the Formation Transactions consist of
Cumberland Office Park, 5307 East Mockingbird, Walnut Glen Tower, 8521
Leesburg Pike, all of the Industrial Properties in Baltimore, Maryland except
9050 Junction Drive, and all of the Industrial Properties in Kansas City,
Missouri, Dallas, Texas and Milwaukee, Wisconsin.
Historical results set forth in the "Selected Financial Information," the
Combined Financial Statements of the Predecessor Company, and the Pro Forma
Financial Statements of the Company should not be taken as an indication of
future operations of the Company.
OVERVIEW
The Company operates commercial office and industrial properties throughout
the United States. The Company generally receives real estate operating
revenues from wholly-owned properties and from interests in real estate joint
ventures. The Company also receives service revenues from its development,
management, sale and leasing contracts for owned properties as well as for
real estate owned by unrelated third parties.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 TO THE SIX MONTHS ENDED JUNE
30, 1995
Total Revenues increased by $2,264,000, or 9.3%, to $26,697,000 in the first
six months of 1996 from $24,433,000 in the first six months of 1995 due to
increases in rental revenues and fee and other income. Rental revenues
increased by $1,813,000, or 12.5%, to $16,340,000 from $14,527,000 primarily
as a result of the addition of 3141 Fairview Park Drive which increased rental
revenues by $1,269,000. The remaining increase in rental income of $544,000
was due to an increase in rental rates net of a decrease in occupancy. The
increase related to the rental rate increases is approximately $884,000, and
the decrease related to occupancy is approximately $340,000. Fee and other
income increased by $451,000, or 4.6%, from $9,906,000 to $10,357,000
primarily due to an increase in management fees of $476,000, an increase in
development fees of $216,000, offset by a decrease in leasing and tenant
services fees of $112,000 and a decrease in sale, other fees and other income
of $129,000. The increase in management fees was related to the addition of
new contracts during the period.
Total Expenses increased $2,221,000, or 10.5%, to $23,378,000 in the first
six months of 1996 from $21,157,000 in the same period of 1995. Operating
expenses increased by $859,000, or 4.5%, to $20,072,000 from $19,213,000. The
Manager had a decrease in operating expenses of $367,000. This decrease was
primarily attributable to a reduction in development related expenses. The
properties had an increase in operating expenses of $1,226,000. This increase
was comprised of increases in property operating and maintenance expenses of
$981,000, an increase of $162,000 in real estate taxes and an increase of
$83,000 in depreciation and amortization. Approximately $564,000 of the
increase in property operating expenses was attributable to the addition of
the 3141 Fairview Park Drive building and the remainder of the increase,
$413,000, was related to an increase in operating expenses of the existing
portfolio. Mortgage interest expense increased $1,362,000, or 70.1%, to
$3,306,000 from $1,944,000, primarily as a result of the 3141 Fairview Park
Drive acquisition and related debt thereon.
49
<PAGE>
Net Income for the six months ended June 30, 1996 increased $33,000, or 1%,
to $3,338,000 from $3,305,000 for the same period of 1995. The increase in net
income was the result of the increase in total revenues of $2,264,000, offset
by the increase in total expenses of $2,221,000 and a decrease in income from
equity investments of $10,000.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Total Revenues increased by $3,206,000, or 6.2%, to $55,164,000 for the year
ended December 31, 1995 from $51,958,000 for the same period in 1994. Rental
revenues increased $4,167,000, or 16.5%, to $29,423,000 from $25,256,000
primarily as a result of the Company's acquisition of industrial properties in
Baltimore and 8521 Leesburg Pike in late 1994 and two additional industrial
properties in the Kansas City portfolio in May 1994. These property additions
accounted for approximately $2,936,000 of the increase in rental income, the
remaining increase in rental income of approximately $1,231,000 was the result
of increased rental rates and occupancy rates in the existing portfolio which
are estimated at $943,000 and $288,000, respectively. Fee and other income
decreased $961,000, or 3.6%, to $25,741,000 from $26,702,000, primarily due to
a decrease in development fees of $5,141,000 and a decrease in leasing and
tenant services fees of $1,901,000, offset by an increase in sale, other fees
and other income of $6,081,000. The decrease in development fees was primarily
due to the recognition of a significant fee in 1994 coupled with low
development activity during 1995. The leasing and tenant services fee
decreases were due to higher space rollover and leasing activity in 1994. Sale
and other fees increased due to property sales and fees received as a result
of contract termination payments.
Total Expenses increased by $733,000, or 1.6%, to $45,350,000 for the year
ended December 31, 1995 from $44,617,000 for the same period in 1994.
Operating expenses increased by $42,000, or .1%, to $41,468,000 from
$41,426,000. Operating expenses includes a decrease of $1,131,000 in
compensation of the Manager's shareholders. Shareholder compensation was based
on earnings of the Manager and was a means of distributing those earnings to
the shareholders. The Manager had other decreases in operating expenses of
$1,650,000 which primarily was related to personnel cost reductions. Operating
expenses of the properties increased by $2,823,000. This increase was
comprised of an increase in property operating and maintenance expenses of
$875,000, an increase of $339,000 in real estate taxes and an increase of
$1,609 in depreciation and amortization. Approximately $1,969,000 of the
increase in property operating expense was attributable to the property
additions discussed previously and the remainder of the increase, $854,000,
was attributable to increased occupancy and an increase in amortization
expense. Mortgage interest expense increased $691,000, or 21.7%, to $3,882,000
for the year ended December 31, 1995 from $3,191,000 for 1994. This increase
was primarily the result of new financing related to acquisitions during the
period along with additional financing obtained on the Dallas Industrial
Properties.
Gains on sale of property for the year ended December 31, 1995 was $0. Gains
on sale of property for the year ended December 31, 1994 was $1,718,000. This
gain was the result of the sale of an industrial building in Ontario,
California. The property was purchased in 1993.
Net income for the year ended December 31, 1995 increased by $753,000, or
8.3%, to $9,825,000 from $9,072,000 for 1994. As discussed above, the increase
in net income was the result of an increase in total revenues of $3,206,000,
offset by an increase in total expenses of $733,000, a decrease in income from
equity investments of $2,000 and a decrease in gains on sale of property of
$1,718,000.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993
Total Revenues increased by $13,937,000, or 36.7%, to $51,958,000 for the
year ended December 31, 1994 from $38,021,000 for the year ended December 31,
1993. Rental revenues increased by $10,844,000, or 75.2%, to $25,256,000 for
the year ended December 31, 1994 from $14,412,000 for the year ended December
31, 1993. The primary reason for this increase was acquisitions during the
period of the Walnut Glen Tower, 8521 Leesburg Pike, five industrial buildings
in Baltimore, Maryland and two additional industrial buildings in Kansas City,
Missouri. Property acquisition activity accounted for approximately
$10,695,000 of the increase in rental income; the remaining increase in rental
income of approximately $149,000 was the result of increased
50
<PAGE>
occupancy rates in the existing portfolio net of decreased rental rates which
were approximately $339,000 and ($190,000), respectively. Fee and other income
increased by $3,093,000, or 13.1%, to $26,702,000 for the year ended December
31, 1994 from $23,609,000 for the year ended December 31, 1993. The increase
was primarily attributable to an increase in development fees of $2,217,000,
an increase in leasing and tenant services fees of $1,229,000, a decrease of
$1,230,000 in management fees and an increase in sale, other fees and other
income of $877,000. The increase in development fees was primarily due to the
recognition of a significant fee in 1994. The increases in leasing and tenant
services fees were due to higher space rollover and leasing activity during
1994. The decrease in management fees reflects the discontinuance of certain
contracts. Sale, other fees and other income increased due to increased
property sales and fees received as a result of contract termination payments.
Total Expenses increased by $9,457,000, or 26.9%, to $44,617,000 for the
year ended December 31, 1994 from $35,160,000 for the year ended December 31,
1993. Operating expenses increased by $7,710,000, or 22.9%, to $41,426,000 for
the year ended December 31, 1994 from $33,716,000 for the year ended
December 31, 1993. The primary reason for this increase was the acquisitions
of the above-mentioned properties along with an increase of $1,528,000 in
operating expense of the Manager. The Manager's operating expense increase was
comprised of an increase of $2,755,000 in shareholder compensation and a
decrease in other operating expenses of $1,277,000. Shareholder compensation
was based on earnings of the Manager and was a means of distributing those
earnings to the shareholders. The decrease in other operating expenses of the
Manager was primarily related to a decrease in professional fees and other
general and administrative expenses. Operating expense of the properties
increased by $6,182,000. This increase was comprised of an increase in
property operating and maintenance expenses of $2,983,000, an increase of
$1,060,000 in real estate taxes and an increase of $2,139,000 in depreciation
and amortization. The increase in property operating expenses was primarily
attributable to the property additions discussed previously. Mortgage interest
expense increased by $1,747,000, or 121%, to $3,191,000 for the year ended
December 31, 1994 from $1,444,000 for the year ended December 31, 1993. This
increase was primarily the result of new financing placed on the Milwaukee
properties along with financing obtained upon the purchase of Walnut Glen
Tower.
Gains on sale property for the year ended December 31, 1994 was $1,718,000.
This gain was the result of the sale of an industrial building in Ontario,
California. The building was purchased in 1993. Gain on sale of property for
the year ended December 31, 1993 was $0.
Net income for the year ended December 31, 1994 increased by $6,215,000, or
218%, to $9,072,000 from $2,857,000 for the year ended December 31, 1993. As
discussed above, the increase in net income was the result of an increase in
total revenues of $13,937,000, an increase in income from equity investments
of $17,000 and an increase in gain on sale of property of $1,718,000, offset
by an increase in total expenses of $9,457,000.
COMPARISON OF PRO FORMA SIX MONTHS ENDED JUNE 30, 1996 TO HISTORICAL SIX
MONTHS ENDED JUNE 30, 1996
For the six months ended June 30, 1996, pro forma rental income, property
expenses and depreciation and amortization were higher than the historical
amounts as a result of the Company's ownership in the pro forma period of
certain properties acquired after June 30, 1996, the results of which
properties are not included in the historical financial data. In addition, the
decrease in the pro forma period of fee income by $8,756,000, or 84.5%,
general office and administrative expenses by $1,877,000 or 63.0%, and
personnel costs by $5,890,000, or 85.1%, primarily results from the Company's
contribution of certain contracts to the Manager in the pro forma period, net
of additional expenses associated with being a public company. See "Formation
Transactions." The $662,000, or 26.0%, net increase in interest expense in the
pro forma period, is attributable to the full six months of interest expense
recorded on the 3141 Fairview Park Drive property in the pro forma period and
a partial period of interest expense recorded in the historical amounts as a
result of the purchase of that property during the six months ended June 30,
1996 accompanied by mortgage loans acquired concurrent with the Offering, net
of a reduction of interest expense due to the repayment of certain mortgage
loans. The decrease in non-cash interest expense by $668,000, or 88.1%, in the
pro forma period results from the write-off of deferred financing costs
associated with mortgage debt repaid (including deferred financing costs
associated with the acquisition of 3141 Fairview Park Drive during the period)
concurrent with the Offering, net of the amortization of deferred financing
costs incurred in connection with the terms of the Line of Credit.
51
<PAGE>
COMPARISON OF PRO FORMA YEAR ENDED DECEMBER 31, 1995 TO HISTORICAL YEAR ENDED
DECEMBER 31, 1995
For the year ended December 31, 1995, pro forma rental income, property
expenses and depreciation and amortization were higher than the historical
amounts as a result of the Company's ownership in the pro forma period of
certain properties acquired after December 31, 1995, the results of which
properties are not included in the historical financial data. In addition, the
decrease in the pro forma period of fee income by $22,317,000, or 86.7%,
general office and administrative expenses by $4,344,000, or 67.5%, and
personnel costs by $15,193,000, or 88.7%, results primarily from the Company's
contribution of certain contracts to the Manager in the pro forma period, net
of additional expenses associated with being a public company. The $2,637,000,
or 69.7%, increase in interest expense in the pro forma period is attributable
to the debt incurred in the purchase of properties subsequent to December 31,
1995. The increase in non-cash interest expense by $80,000, or 80.8%, in the
pro forma period results from the write-off of deferred financing costs
associated with mortgage debt repaid concurrent with the Offering, net of the
amortization of deferred financing costs incurred in connection with the terms
of the Line of Credit.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1.9 million and $2.0 million at June 30,
1996 and June 30, 1995, respectively. The decrease in cash and cash
equivalents is primarily a result of cash flows used by investing activities
exceeding those provided by operating and financing activities. Net cash
provided by operating activities for the six months ended June 30, 1996
increased by $1.7 million compared to the six months ended June 30, 1995. The
increase was primarily attributable to an increase in cash flow provided by
the properties and an increase in accounts payable and other liabilities. Net
cash used by investing activities increased by $19.5 million for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995. The
primary reason for this increase was the purchase of the 3141 Fairview Drive
Property. Net cash provided by financing activities increased $25.8 million
for the six months ended June 30, 1996 as compared to the six months ended
June 30, 1995. The primary reason for the increase was $22.5 million of new
real estate loans.
Cash and cash equivalents were $1.0 million and $9.1 million at December 31,
1995 and 1994, respectively. The decrease in cash and cash equivalents is
primarily a result of cash flows used by investing activities exceeding those
provided by operating and financing activities. Net cash provided by operating
activities in 1995 increased by $3.2 million compared to 1994. The increase
was primarily attributable to the incremental increase in cash flow from
operations provided by properties acquired in 1994 and an approximately $1.9
million increase in earnings from the Manager. The increase in the Manager's
earnings was primarily due to reductions in operating expenses. Net cash used
by investing activities in 1995 decreased by $36.6 million compared to 1994.
The decrease was primarily a result of the acquisition of properties in 1994.
These acquisitions were funded primarily through capital contributions and the
addition of new real estate loans. Net cash provided by (used in) financing
activities in 1995 decreased by $55.4 million compared to 1994. The decrease
was primarily attributable to partner distributions of $15.3 million in 1995
compared to partner contributions, and new real estate loans of $12.1 million
and $27.1 million, respectively, in 1994.
Cash and cash equivalents were $9.1 million and $1.6 million at December 31,
1994 and 1993, respectively. The increase in cash and cash equivalents is
primarily attributable to cash flows used by investing activities exceeding
cash flows provided by operating activities and financing activities. Net cash
provided by operating activities increased in 1994 by $6.9 million in
comparison to 1993. The increase was primarily attributable to property
acquisitions in both 1994 and 1993 and an approximately $1.5 million increase
in earnings from the Manager. The increase in earnings from the Manager was
primarily related to increased fee income from its development and leasing
activities. Net cash used by investing activities decreased in 1994 by $31.1
million in comparison to 1993. The decrease was primarily the result of the
release of $23 million in escrowed funds from partners' 1993 capital
contributions and proceeds from the sale of properties of $7.9 million. Net
cash provided by financing activities decreased in 1994 by $24.1 million
compared to 1993. The decrease was primarily attributable to partner
contributions of $12.1 million in 1994 compared to $49.9 million in 1993,
offset by new real estate loans of $27.1 million in 1994 compared to $10.3
million in 1993.
52
<PAGE>
Upon the closing of the Offering, the Company will have total outstanding
indebtedness including the Company's pro rata share of Joint Venture Debt of
approximately $152.0 million (the "Mortgage Debt"), which will be secured by
35 Properties. The Mortgage Debt will represent approximately 27.0% of the
Company's Total Market Capitalization at the closing of the Offering.
Approximately $70.8 million of the Mortgage Debt consists of three mortgage
loans that the Company is obtaining from an affiliate of Lehman in connection
with the Formation Transactions. The proceeds of these three mortgage loans
will be used to fund a portion of the Company's acquisition of interests in
the Properties. The remainder of the Mortgage Debt consists of prior
indebtedness of the Prentiss Group that is secured by certain of the
Properties and is not being fully repaid with the net proceeds of the
Offering. The following table sets forth certain information regarding the
Mortgage Debt immediately after the closing of the Offering.
REMAINING MORTGAGE DEBT
<TABLE>
<CAPTION>
PRINCIPAL INTEREST ANNUAL
PROPERTY(IES) AMOUNT RATE AMORTIZATION MATURITY PAYMENT
------------- ------------ ---------------- ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C>
Park West E1 and E2..... $ 20,760,000 LIBOR+1.65%/(1)/ None October 30, 1999 $1,484,340
All Industrial
Properties in Kansas
City, MO and Milwaukee,
WI..................... 40,000,000 LIBOR+1.65%/(1)/ None October 30, 1999 2,860,000
3141 Fairview Park
Drive.................. 10,000,000 LIBOR+1.65%/(1)/ None October 30, 1999 715,000
Walnut Glen............. 11,250,000 7.500% None January 31, 2001 843,750
Broadmoor Austin........ 70,000,000/(2)/ 9.750% None April 1, 2001 6,825,000
------
------------ -----------
Total/Weighted Average.. $152,010,000 8.805% $12,728,090
</TABLE>
- --------
/(1)/30 day LIBOR of 5.50% as of September 10, 1996, was used for calculation
of the weighted average rate in the table above.
/(2)/The Company, through the Operating Partnership, will own a 49.9% general
partnership interest in the entity that owns the Broadmoor Austin
Properties, which interest is accounted for under the equity method of
accounting. The amount shown reflects the Company's proportionate share of
the mortgage indebtedness secured by the Property.
If the Underwriters exercise all or a portion of their overallotment option,
the Company expects to use the additional proceeds to (i) repay the $40.0
million mortgage loan secured by all of the Company's Industrial Properties in
Kansas City, Missouri, and Milwaukee, Wisconsin and (ii) repay the
approximately $10.0 million mortgage loan secured by a lien upon the 3141
Fairview Park Drive Property. The Company may refinance all or a portion of
the variable rate mortgage debt not repaid with the proceeds (if any) of the
Underwriter's overallotment option with long-term fixed rate mortgage debt
secured by the same Properties. During the period between the Closing Date and
any such refinancings, the Company may manage the variable rate interest risk
by using interest rate swaps and hedging instruments as deemed appropriate by
management. If the Underwriters exercise in full their overallotment to
purchase 2,266,500 Common Shares and the Company applies the additional net
proceeds of $42.2 million to repay indebtedness as described above, the
Company's combined indebtedness plus its pro rata share of Joint Venture Debt
would be $109.8 million or 19.4% of its Total Market Capitalization. If the
Company repays all or a part of the $10 million mortgage loan, the Company
will have, under certain circumstances, the option over the loan term
(maturing October 1999) to borrow an amount equal to or less than the
difference between $10 million and the then-current outstanding principal
amount for the purpose of funding acquisitions or developments.
The Company intends to obtain a commitment for the $100 million Line of
Credit, which will close contemporaneously with the closing of the Offering.
The Company believes that the Line of Credit is adequate for its needs
initially. The Company intends to use proceeds from the Line of Credit to fund
future acquisitions and development, including the acquisition of the Option
Properties, and redevelopment of properties owned by the Company.
Pursuant to the Debt Limitation, the Company's combined indebtedness plus
its pro rata share of Joint Venture Debt is limited so that at the time such
debt is incurred, it does not exceed 50% of the Company's Total Market
Capitalization. The Predecessor Company as defined in "Selected Financial
Information" had total outstanding indebtedness of 40.4% of total debt plus
equity as of June 30, 1996 and 30.9%, 29.3% and 17.9% as of December 31, 1995,
December 31, 1994 and December 31, 1993, respectively. At the closing of the
Offering,
53
<PAGE>
the Company will have outstanding combined indebtedness of approximately $82.0
million or approximately 16.7% of total market capitalization (excluding its
pro rata share of Joint Venture Debt) and, together with its pro rata share of
Joint Venture Debt, will have total outstanding indebtedness of approximately
$152.0 million, or approximately 27.0% of Total Market Capitalization. As of
the Closing Date, the Company will have the approximate capacity to borrow up
to an additional $258.5 million under the Debt Limitation. The amount of
indebtedness that the Company may incur, and the policies with respect
thereto, are not limited by the Company's Declaration of Trust and Bylaws, and
are solely within the discretion of the Company's Board of Trustees. See "Risk
Factors--Changes in Policies Without Shareholder Approval; No Limitation on
Debt."
The Company's operating properties require periodic investments of capital
for tenant-related capital expenditures and for general capital improvements
projects. For the years ended December 31, 1993, 1994 and 1995, the Company's
recurring non-incremental capital investments in its properties have been
$3,335,000, $2,732,000 and $4,993,000, respectively. These costs for each of
the three years equated to $8.03, $4.66 and $6.16 per improved square foot for
the office properties, respectively, and $1.85, $1.02 and $1.12 per improved
square foot for the industrial properties, respectively. The Company has
estimated its annual recurring capital costs to be $4,350,000 or $6.36 per
square foot of improved office space and $1.88 per square foot of improved
industrial space. The Company believes its estimate of capital expenditures is
conservative given the historical results discussed above along with its
detailed forecast of these costs for the prospective twelve month period. In
addition, the Company will set aside approximately $7.1 million of the net
Offering proceeds for certain estimated non-recurring capital expenditures and
leasing costs, including tenant improvements and leasing commissions for
currently vacant space in the Walnut Glen Office Property, re-leasing costs
associated with the major leases of the Park West and Walnut Glen Office
Properties, which expire in October 1999 and July 1998, respectively, and the
21,000 square foot expansion of one of the Milwaukee Industrial Properties.
Unused portions of the funds will be applied to reduce outstanding
indebtedness.
Following the closing of the Offering, the Company will have approximately
$2.3 million in working capital. The Company has considered its short-term
liquidity needs and the adequacy of adjusted pro forma cash flows and other
expected liquidity sources to meet these needs. The Company believes that its
principal short-term liquidity needs are to fund normal recurring expenses,
debt service requirements and the minimum distribution required to maintain
the Company's REIT qualification under the Code. The Company anticipates that
these needs will be fully funded from the Company's initial working capital
and the cash flows provided by operating activities and, when necessary to
fund shortfalls resulting from the timing of collections of accounts
receivable in the ordinary course of business, the Line of Credit.
The Company expects to meet its long-term liquidity requirements for the
funding of activities such as development, property acquisitions, scheduled
debt maturities, major renovations, expansions and other non-recurring capital
improvements through long-term secured and unsecured indebtedness and the
issuance of additional equity securities from the Company and the Operating
Partnership. The Company also intends to use proceeds from the Line of Credit
to fund property acquisitions, development, redevelopment, expansions and
capital improvements on an interim basis.
The Company expects to make distributions to its shareholders primarily
based on its distributions from the Operating Partnership. The Operating
Partnership's income will be derived primarily from lease revenues from the
Properties, to a limited extent, from fees generated by its office and
industrial real estate management, leasing development and construction
business and from the Manager. The Manager's sole source of income will be
fees generated by its office and industrial real estate management, leasing,
development and construction business.
INFLATION
Most of the leases on the Properties require tenants to pay increases in
operating expenses, including common area charges and real estate taxes,
thereby reducing the impact on the Company of the adverse effects of
inflation. Leases also vary in term from one to 15 years, further reducing the
impact on the Company of the adverse effects of inflation.
54
<PAGE>
PROPERTIES
GENERAL
Upon the completion of the Offering, the Company will own or have an
interest in a diversified portfolio of 87 Properties comprising approximately
8.9 million net rentable square feet. The Properties are located in 10 major
markets throughout the U.S. The Properties consist of the 28 Office Properties
comprising approximately 3.8 million net rentable square feet and the 59
Industrial Properties comprising 5.0 million net rentable square feet. As of
June 30, 1996, the Properties were approximately 92% leased to 394 tenants.
The Company also owns the six Development Parcels comprising approximately
30.4 acres that can support approximately 1.4 million square feet of net
rentable space. Three of the Development Parcels are zoned for office use and
three are zoned for industrial use. In addition, the Company has options to
acquire one office building containing approximately 1.0 million net rentable
square feet, four industrial buildings containing approximately 268,000 net
rentable square feet, six development parcels comprising an aggregate of
approximately 28.4 acres that can support approximately 1.4 million net
rentable square feet of development and one development parcel comprising
approximately 6.4 acres that can support approximately 200,000 net rentable
square feet of office development. See "--Option Properties," "--Option
Parcels" and "Business Objectives--Growth Strategies--Acquisitions" and "--
Development." The Company also has an option to acquire partnership interests
in any one or all of three partnerships owning two office buildings containing
a total of approximately 387,000 net rentable square feet and a development
parcel that can support approximately 280,000 net rentable square feet of
office development. See "Properties--Option Properties" and "--Option
Parcels." "Business Objectives--Growth Strategies--Acquisitions." The Company
also owns a 25% interest in a general partnership that owns an industrial
building containing approximately 71,000 net rentable square feet.
55
<PAGE>
Set forth below is a summary of the Company's Properties. For additional
information regarding the Office Properties see "--Office Properties" and for
additional information regarding the Industrial Properties, see "--Industrial
Properties."
PROPERTY DATA
<TABLE>
<CAPTION>
1995
ANNUAL 1995
TOTAL ANNUAL
PERCENT BASE BASE EFFECTIVE
NET LEASED RENT FOR RENT RENT PER
YEAR(S) NUMBER RENTABLE AS OF TWELVE MONTHS PERCENT PER LEASED
BUILT/ OF SQUARE JUNE 30, ENDED OF TOTAL SQUARE SQUARE
PROPERTY NAME/(1)/ MARKET RENOVATED BUILDINGS FEET 1996 12/31/95/(4)/ PORTFOLIO FOOT FOOT
------------------ ------ --------- --------- -------- -------- ------------- --------- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
Cumberland Office
Park............... Atlanta, GA 1972-1980 9 530,228 97% $ 6,141 10% $11.70 $ 3.31
One Northwestern
Plaza/(2)/......... Southfield, MI 1989 1 241,751 93 4,772 8 21.12 21.12
Broadmoor
Austin/(3)/........ Austin, TX 1991 7 1,112,236 100 8,824 14 15.87 15.16
Park West........... Dallas, TX 1982-1989 3 727,545 100 9,978 16 13.87 9.05
5307 East
Mockingbird........ Dallas, TX 1979/1993 1 118,316 80 679 1 7.80 1.17
Walnut Glen Tower... Dallas, TX 1985 1 464,289 81 7,254 12 17.74 11.04
Cottonwood Office
Center............. Dallas, TX 1986 3 164,111 99 1,922 3 12.32 12.32
Plaza on Bachman
Creek.............. Dallas, TX 1986 1 125,903 90 1,155 2 9.79 5.23
3141 Fairview Pk.
Drive.............. Northern Virginia 1988 1 192,108 89 2,780 5 16.29 7.24
8521 Leesburg Pike.. Northern Virginia 1984/1993 1 145,257 93 1,940 3 13.86 10.24
--- --------- --- ------- --- ------ ------
Subtotal/weighted average for Office Properties.. 28 3,821,744 95% $45,445 74% $14.58 $10.91
=== ========= === ======= === ====== ======
INDUSTRIAL
PROPERTIES:
Pacific Gateway
Center............. Los Angeles, CA 1972-1984 18 1,252,708 88% $ 4,855 8% $ 4.25 $ 4.26
8869 Greenwood...... Baltimore, MD 1986-1987 1 89,582 74 296 * 3.29 2.75
1329 Western Ave.... Baltimore, MD 1988 1 185,600 95 713 1 4.79 4.14
Deep Run 1&2........ Baltimore, MD 1988 2 169,112 100 629 1 3.72 3.55
4611 Mercedes
Drive.............. Baltimore, MD 1990 1 178,133 100 711 1 3.99 3.64
9050 Junction
Drive.............. Baltimore, MD 1989 1 108,350 100 395 1 3.66 3.66
Northland Park...... Kansas City, MO 1975-1980 4 925,007 100 2,312 4 2.50 1.97
North Topping
Street............. Kansas City, MO 1975-1980 1 119,118 100 276 * 2.32 1.87
Airworld Drive...... Kansas City, MO 1975-1980 1 200,000 0 358 1 1.79 1.61
107th Terrace....... Kansas City, MO 1975-1980 1 96,700 100 244 * 2.52 2.35
Nicholson III....... Dallas, TX 1981 3 155,712 73 468 1 3.90 2.53
13425 Branchview.... Dallas, TX 1970 1 121,250 100 274 * 2.26 2.10
1002 Avenue T....... Dallas, TX 1981 1 100,000 100 233 * 2.33 2.37
1625 Vantage Drive.. Dallas, TX 1984 1 50,000 100 193 * 3.86 3.72
West Loop Business
Park............... Houston, TX 1986 5 75,231 92 508 1 6.96 6.96
Airport Properties.. Milwaukee, WI 1970-1980 12 572,953 98 1,906 3 3.48 3.25
Oak Creek
Properties......... Milwaukee, WI 1970-1979 2 232,000 100 673 1 2.90 2.51
North West
Properties......... Milwaukee, WI 1973-1987 3 413,371 83 1,258 2 3.04 3.21
--- --------- --- ------- --- ------ ------
Subtotal/weighted average for Industrial
Properties...................................... 59 5,044,827 90% $16,302 26% $ 3.31 $ 3.13
=== ========= === ======= === ====== ======
Consolidated total/ weighted average for all
Properties 100%................................. 87 8,866,571 92% $61,747 100% $11.60 $ 6.45
=== ========= === ======= === ====== ======
</TABLE>
- --------
* Less than one percent
/(1)/TheCompany also will own a minority interest in a partnership that owns
an approximately 71,000 net rentable square foot building in Itasca,
Illinois.
/(2)/The Operating Partnership owns a 100% leasehold interest in this Property.
/(3)/The Operating Partnership owns a 49.9% interest in the general partnership
that owns a 100% leasehold interest in this Property. The Company accounts
for its interest in this partnership under the equity method. The net
rentable square feet for this Property reflects the entire Property and
the Base Rent data for the property reflects the Company's receipt of
49.9% of such rent.
/(4)/"Base Rent" means the fixed base rental amount paid by a tenant under the
terms of the related lease agreement, which amount generally does not
include payments on account of real estate taxes, operating expense
escalations and utility charges.
56
<PAGE>
LOCATION OF PROPERTIES; MARKET OVERVIEW
The Properties are located in 10 major markets and in every region of the
U.S. The following tables indicate, by the net rentable square feet and 1995
Base Rent, respectively, the Properties by location and type of property at
December 31, 1995:
NET RENTABLE SQUARE FEET OF PROPERTIES
BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
NUMBER OF OFFICE INDUSTRIAL PERCENT OF
LOCATION PROPERTIES PROPERTIES PROPERTIES TOTAL TOTAL
-------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Los Angeles, CA......... 18 -- 1,252,708 1,252,708 14%
Atlanta, GA............. 9 530,228 -- 530,228 6
Baltimore, MD........... 6 -- 730,777 730,777 8
Southfield, MI.......... 1 241,751 -- 241,751 3
Kansas City, MO......... 7 -- 1,340,825 1,340,825 15
Austin, TX.............. 7 1,112,236 -- 1,112,236 12
Dallas, TX.............. 15 1,600,164 426,962 2,027,126 23
Houston, TX............. 5 -- 75,231 75,231 1
Northern Virginia....... 2 337,365 -- 337,365 4
Milwaukee, WI........... 17 -- 1,218,324 1,218,324 14
--- --------- --------- --------- ---
Total................... 87 3,821,744 5,044,827 8,866,571 100%
=== ========= ========= ========= ===
Percent of Total........ 43% 57% 100%
========= ========= =========
Number of Properties.... 28 59 87
========= ========= =========
</TABLE>
The following table sets forth the 1995 annual Base Rent of the Properties by
location and type of property:
1995 BASE RENT PER LEASED SQUARE FOOT AND
EFFECTIVE RENT PER LEASED SQUARE FOOT OF PROPERTIES
BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
1995 BASE RENT 1995 EFFECTIVE RENT
1995 BASE RENT PER LEASED SQUARE FOOT PER LEASED SQUARE FOOT
-------------------------------------- ---------------------------- ----------------------------
NUMBER PERCENT
OF OFFICE INDUSTRIAL OF OFFICE INDUSTRIAL OFFICE INDUSTRIAL
LOCATION PROPERTIES PROPERTIES PROPERTIES TOTAL TOTAL PROPERTIES PROPERTIES TOTAL PROPERTIES PROPERTIES TOTAL
-------- ---------- ---------- ---------- ------- ------- ---------- ---------- ------ ---------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Los Angeles,
CA............. 18 $ -- $ 4,855 $ 4,855 8% $ -- $4.25 $ 4.25 $ -- $4.26 $ 4.26
Atlanta, GA..... 9 6,141 -- 6,141 10 11.95 -- 11.95 3.31 -- 3.31
Baltimore, MD... 6 -- 2,744 2,744 4 -- 3.95 3.95 -- 3.61 3.61
Southfield, MI.. 1 4,772 -- 4,772 8 21.12 -- 21.12 21.12 -- 21.12
Kansas City,
MO............. 7 -- 3,190 3,190 5 -- 2.38 2.38 -- 1.94 1.94
Austin,
TX/(1)/........ 7 8,824 -- 8,824 14 15.87 -- 15.87 15.16 -- 15.16
Dallas, TX...... 15 20,988 1,168 22,156 36 14.40 2.86 11.87 9.25 2.51 7.77
Houston, TX..... 5 -- 508 508 1 -- 7.47 7.47 -- 6.96 6.96
Northern
Virginia....... 2 4,720 -- 4,720 8 16.56 -- 16.56 8.44 -- 8.44
Milwaukee, WI... 17 -- 3,837 3,837 6 -- 3.29 3.29 -- 3.09 3.09
--- ------- ------- ------- --- ------ ----- ------ ------ ----- ------
Total........... 87 $45,445 $16,302 $61,747 100% $15.10 $3.38 $ 8.38 $10.91 $3.13 $ 6.45
=== ======= ======= ======= === ====== ===== ====== ====== ===== ======
Percent of
Total.......... 74% 26% 100%
======= ======= =======
Number of
Properties..... 28 59 87
======= ======= =======
</TABLE>
- --------
/(1)/Base Rent calculation for the Broadmoor Austin Properties reflects the
Company's 49.9% interest in the partnership that owns a leasehold interest
in the Properties.
57
<PAGE>
The following table sets forth an economic summary of the Company's major
markets:
ECONOMIC SUMMARY OF COMPANY'S MAJOR MARKETS
<TABLE>
<CAPTION>
TOTAL TOTAL
SIZE OF PMSA POPULATION JOB UNEMPLOY- OFFICE INDUSTRIAL
REGION AND MARKET POPULATION/(1)/ GROWTH/(2)/ GROWTH/(3)/ MENT RATE/(4)/ STOCK (SF) STOCK (SF)
----------------- --------------- ----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
WESTERN REGION:
Phoenix, AZ............. 2,563,582 14.5% 4.6% 3.2% 43,400,000 70,600,000
Los Angeles, CA......... 9,138,798 4.8 1.3 5.8 150,000,000 760,000,000
San Francisco, CA....... 4,668,023/(5)/ 5.2 2.4 4.7 93,266,000 394,000,000
SOUTHWEST REGION:
Austin, TX.............. 999,936 18.1 6.0 3.5 19,969,000 17,010,499
Dallas/Ft. Worth, TX.... 4,449,875/(6)/ 10.2 3.4 4.6 166,413,465 314,445,400
Houston, TX............. 3,710,844 11.7 2.0 5.7 195,000,000 198,000,000
MIDWEST REGION:
Chicago, IL............. 7,724,770 4.2 2.2 4.8 181,574,456 830,000,000
Detroit, MI............. 4,320,203 1.3 3.0 4.2 56,108,047 500,000,000
Kansas City, MO......... 1,663,453 5.1 2.0 3.0 52,100,000 166,755,000
Milwaukee, WI........... 1,457,939 1.8 5.0 2.7 12,915,328 191,244,500
MID-ATLANTIC REGION:
Washington, DC
(including Northern
Virginia).............. 4,509,932 6.8 0.6 3.6 304,100,000 26,200,000
Baltimore, MD........... 2,469,985 3.7 0.2 5.0 51,262,737 101,151,428
Northern New Jersey..... 6,255,741 1.6 0.8 6.7 133,000,000 364,000,000
SOUTHEAST REGION:
Orlando, FL............. 1,390,574 13.5 3.3 4.8 17,750,000 66,000,000
Atlanta, GA............. 3,431,983 16.0 4.4 3.7 89,100,000 273,000,000
National Average........ N/A N/A 2.6 5.4
</TABLE>
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Source: Prepared by the Company using data from Valuation International,
Viewpoint.96, Cushman & Wakefield, Inc. and U.S. Government Statistics.
/(1)/ Size of population in the primary metropolitan statistical area ("PMSA")
as of July 1, 1995
/(2)/ Average rate of growth 1990-1995.
/(3)/ Average for three years ended May 31, 1996
/(4)/ As of May 31, 1996
/(5)/ Includes San Francisco PMSA (1,645,815), San Jose PMSA (1,565,253) and
Sacramento PMSA (1,456,955). The job growth unemployment and population
growth data are weighted averages for the combined area.
/(6)/ Includes Dallas PMSA (2,957,910) and Fort Worth PMSA (1,491,965).
Los Angeles
Los Angeles is the second largest metropolitan area in the U.S. with a
population of 9.1 million as of July 1, 1995. The area had an average
population growth rate of 4.8% from 1990 to 1995. The average annual job
growth rate for the three years ended May 31, 1996 was 1.3%. The unemployment
rate as of May 31, 1996 was 5.8%. Major employers in the area are Hughes
Aircraft (21,000 employees), Kaiser Permanente (19,500 employees), Northrop
Grumman (18,500 employees) and McDonnell-Douglas (18,400 employees).
The Company owns 18 Industrial Properties in Los Angeles with more than 1.2
million net rentable square feet, representing approximately 25% of the
Company's total industrial square footage. The properties are located in the
Torrance submarket of the South Bay Industrial Sector. The Company also
manages 28 office properties and 85 industrial properties in the Los Angeles
market.
The Los Angeles industrial market is one of the largest in the U.S.
consisting of approximately 760,000,000 net rentable square feet of industrial
space. The overall vacancy rate for the market was approximately 8% at March
31, 1996. The South Bay Industrial Sector contains approximately 194,000,000
net rentable square feet of industrial space and had a vacancy rate of
approximately 10% at March 31, 1996. The Torrance submarket of the South Bay
Industrial Sector contains approximately 26 million net rentable square feet
of industrial space. This submarket has excellent access to the San Diego
Freeway, the Harbor Freeway and the Artesia Freeway all of which are located
within one mile of the Company's Properties. Torrance also has convenient
access to Los Angeles International Airport and the Ports of Long Beach and
Los Angeles. The South Bay area has benefitted from the growth in
international trade through area ports in Los Angeles and Long Beach, and the
availability of
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large blocks of high quality space. The Los Angeles Customs District now
handles more cargo than any other district in the U.S. Conditions are expected
to continue to improve as the Alameda Corridor project progresses. This
project is an 18-mile fixed route between the Ports of Los Angeles and Long
Beach, linking rail and truck traffic to area warehouses, rail yards and
factories. The South Bay Industrial Sector continues to recover from the
federal government's cutbacks in defense spending. In 1995, the market
absorbed 11 million square feet of industrial space and the vacancy rate
declined from 12.8% in 1994 to 9.8% at March 31, 1996. The overall economic
activity in this sector was stimulated by an $18 billion defense contract
awarded to Long Beach's McDonnell-Douglas in 1995.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
LOS ANGELES - TORRANCE SUBMARKET LOS ANGELES - TORRANCE SUBMARKET
Industrial Space - Warehouse Industrial Space - Warehouse
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through June 30, 1996.
Source: Compiled by the Company based on various sources of publicly available
information.
Austin
The metropolitan area of Austin, the capital of Texas, has a population of
approximately 1.0 million as of July 1, 1995. Between 1990 and 1995, the
Austin metropolitan area's population increased at an average rate of 18.1%.
According to statistics compiled by the U.S. Government, Bureau of Labor
Statistics, Austin experienced a 33% growth in jobs from December 1990 to
December 1995 as compared to the National Average of 7.6% for the same period.
The average annual job growth rate for the three years ending May 31, 1996 was
6.0%. The unemployment rate as of May 31, 1996 was 3.5%. The two largest
public sector employers in the area are the State of Texas and the University
of Texas-Austin. The University of Texas-Austin, the third-largest public
university in the country with nearly 48,000 students enrolled in the 1995-96
school year, employs approximately 20,000 people. The largest private sector
employers are Motorola (7,500 employees), IBM (6,800 employees), and Dell
Computers (4,500 employees). Austin is home to approximately 825 high-tech
firms employing nearly 85,000 people. Motorola and Advanced Micro Devices
recently opened $1 billion facilities in Austin and Samsung Electronics has
announced its plans to build a $1.3 billion semiconductor plant, which is
expected to employ approximately 1,600 people.
The Company owns seven Office Properties in Austin which contain
approximately 1.1 million aggregate net rentable square feet. These properties
are located in the Northwest submarket of Austin. The Company also manages one
office property in the Austin market. Austin's suburban office sector is one
of the tightest in the U.S. with five of the six non-CBD office submarkets
having occupancies of at least 90% as of year end 1995. The Northwest
submarket is Austin's dominant non-CBD office submarket with an inventory
totaling almost 5.5 million net rentable square feet. The Northwest submarket
has some of the highest rental rates in metropolitan Austin and had a 4%
vacancy rate at the end of 1995.
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Dallas/Fort Worth
Dallas/Fort Worth is the nation's eighth-largest consolidated metropolitan
area with a total population of 4.4 million as of July 1, 1995. The area had
an average population growth rate of 10.2% from 1990 to 1995. The average
annual job growth rate for the three years ended May 31, 1996 was 3.4%. The
unemployment rate as of May 31, 1996 was 4.6%. Eight cities in the Dallas area
have over 100,000 residents. The unemployment rate was 4.6% at May 31, 1996.
The major employers in the metropolitan area are AMR Corporation, the parent
company of American Airlines (29,000 employees), Texas Instruments (22,500
employees) and Lockheed Martin (12,500 employees). Other large private sector
employers include Kroger and Electronic Data Systems (EDS), each of which
employs over 10,000 people.
Dallas continues to be a leading choice for corporate relocations. In the
first quarter of 1996, Quaker State Corporation moved its corporate
headquarters from Oil City, Pennsylvania to Las Colinas in Irving, leasing
125,000 net rentable square feet of space vacated by Exxon, which moved to a
new world headquarters facility also in Las Colinas. Pizza Hut moved its
national headquarters to Dallas from Wichita, Kansas, filling one of the last
available office buildings along Dallas' North Tollway. Netcom On-line, a
California based Internet service provider, opened a Dallas office in one of
the Park West buildings originally built by the Prentiss Group and managed by
the Company.
Five of the Company's Office Properties, representing 35% of its total
office square footage, and four of the Company's Industrial Properties,
representing 8% of its industrial square footage, are located in the
Dallas/Fort Worth metropolitan area. The Company also manages 16 office
properties and 17 industrial properties in this market. The Dallas area real
estate market has improved dramatically over the past three years, as have the
submarkets in which the Company's Properties are located. Dallas is the
location of the Company's corporate headquarters and Southwest regional
office.
DALLAS SUBMARKETS
North Central Expressway. The Company's Walnut Glen and 5307 Mockingbird
Office Properties are located in the North Central Expressway submarket, which
extends from downtown Dallas north to the LBJ Freeway (Interstate 635). This
submarket contains 7.4 million net rentable square feet of office space and
had a vacancy rate of 18% as of March 31, 1996, down significantly from a peak
of 38% at year-end 1991. The North Central submarket is located in close
proximity to the prime residential areas of Dallas and offers numerous
amenities, including restaurants, shopping areas and hotels.
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<PAGE>
Central Expressway (I-75), one of the principal north-south arteries serving
Dallas and the northern suburbs, is currently undergoing a $500 million
improvement project which commenced in the mid-1980s. The completion of the
initial phases of this development project, combined with the tight vacancy
conditions of less than 10% in neighboring submarkets, have contributed to the
improving occupancy and rental rate trends that the North Central submarket
has experienced in recent years. The Company expects that these trends will
continue as additional phases of the improvement project are completed.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
DALLAS - NORTH CENTRAL EXPWY DALLAS - NORTH CENTRAL EXPWY
SUBMARKET SUBMARKET
Office Space - Class A & B Office Space - Class A & B
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* Market Rate/Vacancy Trends data through March 31, 1996.
Source: M/PF Research, Inc., prepared at the Company's request for a fee.
West LBJ Freeway. The Company's Park West Properties are located in the Park
West Office Park in the heart of the West LBJ submarket, which is located
along the LBJ Freeway within one mile of Interstate 35. This submarket
provides convenient access to Dallas-Fort Worth International Airport ("DFW
Airport") via the LBJ Freeway and to downtown Dallas and Love Field via I-35.
This submarket contains 2.6 million square feet of office space.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
DALLAS - WEST LBJ FREEWAY DALLAS - WEST LBJ FREEWAY
SUBMARKET SUBMARKET
Office Space - Class A & B Office Space - Class A & B
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* Market Rate/Vacancy Trends data through March 31, 1996.
Source: M/PF Research, Inc.
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<PAGE>
Las Colinas. Las Colinas is a 12,000 acre master-planned office, retail,
hotel and residential community located in Irving, Texas. Las Colinas is
approximately 10 minutes from DFW Airport and approximately 15 and 25 minutes,
respectively, from downtown Dallas and Fort Worth. Las Colinas has its own
CBD, consisting of a number of high-rise office buildings around Lake Carolyn,
known as the Las Colinas Urban Center. The Company's Cottonwood Office Center
Properties are located in the North Irving Subsection on the western border of
the office development of Las Colinas. This submarket contains 4.9 million net
rentable square feet of multi-tenant office space and had a vacancy rate of
6.25% as of March 31, 1996.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
DALLAS - NORTH IRVING SUBMARKET DALLAS - NORTH IRVING SUBMARKETS
Office Space - Class A & B Office Space - Class A & B
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through March 31, 1996.
Source: M/PF Research, Inc.
Valwood Industrial Market. The Valwood industrial market (which includes the
Nicholson III and the 13425 Branchview Industrial Properties) encompasses an
area approximately two and one half miles to the west of the intersection of
the LBJ and Stemmons Freeways. The Valwood industrial market consists of
approximately 25 million net rentable square feet of industrial space and had
a 9.5% vacancy rate as of March 31, 1996. The Valwood industrial market
appeals to national firms seeking a central location in Dallas' traditional
industrial corridor, with functional buildings and a plentiful labor supply.
Among the firms with a large presence in the Valwood Industrial District are
Minyards, Boise Cascade, Motorola, Duracell, Stanley Works and Toys 'R Us.
The area is convenient to the Dallas CBD, North Dallas, DFW Airport and the
Mid-Cities (Arlington and Grand Prairie). Continued migration of Dallas'
suburban population to the north should serve to establish Valwood as the
economic industrial center of the Dallas metropolitan area.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
DALLAS - VALWOOD SUBMARKET DALLAS - VALWOOD SUBMARKET
Industrial Space - Warehouse Industrial Space - Warehouse
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through March 31, 1996.
Source: M/PF Research, Inc.
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<PAGE>
Carrollton/Farmers Branch Industrial Market. The Carrollton/Farmers Branch
industrial market straddles the cities of Farmers Branch and Carrollton. The
Company's 1625 Vantage Drive Industrial Property is located in this submarket.
This submarket extends approximately three miles east from the intersection of
the LBJ Freeway and Stemmons Freeway to the North Dallas Tollway.
The Carrollton/Farmers Branch industrial market is home to numerous national
and regional companies including Whirlpool, Chrysler, CompUSA, Neiman Marcus
and Lennox. These companies are attracted to this submarket because of its
location, access to the local customer base and the ability to distribute
regionally and nationally via the freeway network and rail service. This
submarket contains approximately 25.2 million net rentable square feet of
industrial space with a vacancy rate of 5.1% at March 31, 1996.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
DALLAS - CARROLTON/ DALLAS - CARROLTON/
FARMERS BRANCH SUBMARKET FARMERS BRANCH SUBMARKET
Industrial Space - Warehouse Industrial Space - Warehouse
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through March 31, 1996.
Source: M/PF Research, Inc.
Great Southwest/CentrePort Industrial Market. The Great Southwest/CentrePort
industrial market contains approximately 41.3 million net rentable square feet
of industrial space and had a vacancy rate of 3.4% at March 31, 1996. The
submarket is further divided into the North and South Great Southwest
Industrial Districts.
The Company's 1002 Avenue T Industrial Property is located in the north
sector of this submarket which is between State Highway 183 and I-30. This
submarket is one of the largest industrial submarkets in the Dallas area and
appeals to firms seeking a location in the heart of the Dallas/Fort Worth area
with a plentiful labor supply.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
DALLAS - GREAT SOUTHWEST DALLAS - GREAT SOUTHWEST
SUBMARKETS SUBMARKETS
Industrial Space - Warehouse Industrial Space - Warehouse
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through March 31, 1996.
Source: M/PF Research, Inc.
63
<PAGE>
Detroit
Detroit is the sixth largest metropolitan area in the U.S. with a population
of 4.3 million as of July 1, 1995. The area had an average population growth
rate of 1.3% from 1990 to 1995. The average annual job growth rate for the
three years ended May 31, 1996 was 3.0%. The unemployment rate was 4.2% as of
May 31, 1996. The Big Three automakers remain the largest local private sector
employers. Within the six-county metropolitan region, Ford employs 79,000
workers, General Motors 68,000 workers, and Chrysler 39,000 workers. Other
large private sector employers include Electronic Data Systems (14,000
employees), Detroit Medical Center (12,900 employees) and Henry Ford Health
System (7,400 employees).
The Company owns one Property in Detroit, a 241,751 square foot Class A
Office in the Southfield submarket. Southfield is the largest suburban office
market in metropolitan Detroit with an inventory of approximately 12.6 million
net rentable square feet of Class A and B office space. Vacancy rates in
suburban Detroit's office markets declined from 13.5% at June 30, 1995 to 7.4%
as of June 30, 1996.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
DETROIT - SOUTHFIELD SUBMARKET DETROIT - SOUTHFIELD SUBMARKET
Office - Class A & B Office Space - A & B
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
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* 1996 Market Rate/Vacancy Trends data through June 30, 1996.
Source: Prepared by the Company based on research compiled by Grubb & Ellis
and other publicly available sources.
Kansas City
Kansas City is the 24th largest metropolitan area in the country with a
population of approximately 1.7 million as of July 1, 1995. The Kansas City
market has exhibited steady economic and demographic trends, which makes it an
attractive market for investment despite its relatively small size. The
average population growth rate from 1990 to 1995 was 5.1%. The average annual
job growth rate for the three years ended May 31, 1996 was 2.0%. The
unemployment rate as of May 31, 1996 was 3.0%. Major employers in the Kansas
City area include Sprint (9,000 employees), Health Midwest (8,000 employees)
and Hallmark Cards (7,000 employees).
The Company owns seven Industrial Properties with an aggregate of
approximately 1.3 million net rentable square feet in the Kansas City
metropolitan area. The Kansas City metropolitan area contains approximately
167 million net rentable square feet of industrial properties. The vacancy
rate for Kansas City industrial properties was 5% at June 30, 1996. The
Company's Kansas City Industrial Properties are located in three submarkets,
North Kansas City, Executive Park and Airport Industrial.
North Kansas City is an independent municipality that has access to most
major thoroughfares in Kansas City. This submarket has over 19 million net
rentable square feet of industrial space with a 9% vacancy rate as of March
31, 1996. Among the incentives that draw companies to the North Kansas City
submarket are the low income taxes, lack of inventory property tax and the
lowest property tax in the Kansas City metropolitan area.
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The Executive Park submarket is an industrial area four miles northeast of
the CBD. Executive Park attracts companies looking for newer buildings and
Missouri's low-cost base. Executive Park contains approximately 15.5 million
net rentable square feet of industrial space and had a 9% vacancy rate as of
March 31, 1996.
The Airport Industrial submarket is in the northern industrial area of
Kansas City. The area contains approximately 1.9 million net rentable square
feet with a 21% vacancy rate. The vacancy rate increased dramatically in the
first quarter of 1996 because of Sony Corporation's relocation out of the
Company's 200,000 net rentable square foot building in the Airworld Industrial
Park ("Airworld"). Airworld is the centerpiece of this submarket, holding 70%
of the industrial base. Its attractions include proximity to the airport, good
freeway access, available labor supply, lower occupancy costs and high-quality
telecommunications and electrical infrastructure.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RATE/VACANCY TRENDS
KANSAS CITY - TOTAL KANSAS CITY - TOTAL
Industrial Space - Warehouse Industrial Space - Warehouse
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through March 31, 1996.
Source: Prepared by the Company based on research compiled by Nunnick &
Associates at the Company's request for a fee.
Milwaukee
Milwaukee is the 25th largest metropolitan area in the United States with a
population of 1.5 million as of July 1, 1995. The area had an average
population growth rate of 1.8% from 1990 to 1995. The average annual job
growth rate for the three years ended May 31, 1996 was 5.0%. The unemployment
rate was 2.7% as of May 31, 1996. Milwaukee's unemployment rate has remained
lower than the national average for the past nine years due largely to the
stability of the industrial base which employs 22% of Milwaukee's workforce.
Milwaukee ranks number one nationally in the manufacturing of industrial
equipment such as industrial controls, mining machinery, hoists, drives and
gears. Major employers in the Milwaukee area include Aurora Health Care, Inc.
(9,407 employees), Covenant Healthcare System, Inc. (8,758 employees), Briggs
and Stratton Corp. (7,000 employees) and Ameritech (8,600 employees).
The Company owns 17 Industrial Properties in the Milwaukee area with an
aggregate of approximately 1.2 million net rentable square feet. The four-
county Milwaukee metropolitan area contains a total industrial inventory of
over 5,000 buildings comprising approximately 200 million net rentable square
feet. The 1996 occupancy rate is 97%, up from 1995's rate of 94%. Milwaukee's
largest concentration of industrial space (130.4 million net rentable square
feet or 69% of the total market) is in Milwaukee County which includes the
Airport/Oak Creek and Northwest Milwaukee submarkets. The Milwaukee County
submarkets have benefitted from the increase in air freight activity at
General Mitchell International Airport over the last 10 to 15 years.
The Airport/Oak Creek submarket has approximately 2.9 million net rentable
square feet with a vacancy rate of 2.9%. Twelve of the Company's Properties in
the Airport/Oak Creek submarket are adjacent to General
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Mitchell International Airport. Four of the buildings are serviced by the 500
Line and Chicago Northwestern railroads. Access is provided by IH-43, IH-94
and South Howell Street.
At March 31, 1996, the Northwest Milwaukee submarket has more than 1.9
million net rentable square feet of industrial space with a vacancy rate of
2.4%. The remaining three Properties are in the northwest Milwaukee submarket.
Access to the industrial park in which these Properties are located is
provided by IH-894 and State Highway 18.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
MILWAUKEE - TOTAL MILWAUKEE - TOTAL
Industrial Space - Warehouse Industrial Space - Warehouse
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through March 31, 1996.
Source: Prepared by the Company based on research prepared by Moegenburg
Research, Inc. at the Company's request for a fee and The Polacheck
Company's 1996 Market Survey.
Washington, D.C. (including Northern Virginia)
The population of the Washington, D.C. metropolitan area, which includes
Northern Virginia was 4.5 million as of July 31, 1995. The Washington, D.C.
metropolitan area had an average population growth rate of 6.8% from 1990 to
1995. The average annual job growth rate for the three years ended May 31,
1996 was 0.6%. The unemployment rate was 3.6% as of May 31, 1996.
The Company owns two Office Properties in Northern Virginia. Northern
Virginia is the largest office market in the Washington, D.C. metropolitan
area, with 104 million net rentable square feet of space, nearly two-thirds of
which was built in the past ten years. The vacancy rate in this market has
improved from 13 percent in 1993 to 8% as of March 31, 1996. The decline in
the vacancy rate is a result of the attraction that Northern Virginia holds
for government agencies, expanding high tech and communication firms, and
firms and associations looking to leave the District of Columbia for less
expensive office space. Outside of the public sector, the largest employers in
Northern Virginia include Giant Food (19,000 employees), Marriott Corporation
(11,000 employees), Inova Health System (10,000 employees), Walter Reed Army
Medical Center (8,800 employees), Medlantic Healthcare Group (8,300
employees), MCI (5,300 employees) and Washington Hospital Center (5,200
employees).
The Company's Properties, 3141 Fairview Park and 8521 Leesburg, are located
in Fairfax County, which contains 63 million net rentable square feet
representing over 60% of the office inventory in Northern Virginia. Fairfax
County is one of the prime growth centers in the Washington, D.C. metropolitan
area. Located west of Washington, D.C., linked by a sophisticated
transportation system and served by a highly educated labor force, Fairfax
County has numerous characteristics that have attracted many corporate users
of office space.
8521 Leesburg and 3141 Fairview are located more specifically in the Tyson's
Corner and Merrifield submarkets, respectively, of Fairfax County. The Tyson's
Corner office market has grown significantly over the
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past 20 years and is currently one of the county's largest office markets with
more than 19 million square feet of existing space. The vacancy rate at March
31, 1996 was 8.5%.
Tyson's Corner has a number of amenities. A wide range of hotels have opened
to serve business travelers and provide conference facilities. The expansion
of the Tyson's Shopping Center, the opening of the Galleria regional shopping
center and the high end shops at Fairfax Square, including Tiffany's, Hermes
and Gucci, have established Tyson's Corner as a premier retail location in
Northern Virginia. In addition, Tyson's Corner has many multifamily projects
which are located near its business districts.
The Merrifield submarket is centered around the intersection of the Capital
Beltway and U.S. Route 50. This market has experienced strong development
since 1980 and has an inventory of 4.1 million net rentable square feet of
office space as of March 31, 1996. Fairview Park is situated in the heart of
the Merrifield office market and offers a unique, high quality planned
environment. Fairview Park's tenants include several Fortune 500 firms,
including Bell Atlantic, Computer Sciences Corporation and IBM. The Merrifield
vacancy rate at March 31, 1996 was approximately 5%. Merrifield offers a
highly accessible location with less congestion than Tyson's Corner.
Merrifield is midway between Dulles and National airports and is conveniently
located twenty minutes from the District of Columbia.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
NORTHERN VIRGINIA - TOTAL NORTHERN VIRGINIA - TOTAL
Office Space - Class A & B Office Space - Class A & B
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through March 31, 1996.
Source: Computed by the Company based on Grubb & Ellis' 1996 Metropolitan
Washington, D.C. Real Estate Forecast, CB Commercial's Window on the
Market Spring 1996--Washington Baltimore Region and other sources of
publicly available information.
Baltimore
Baltimore is the 17th largest metropolitan area in the U.S. with a
population of 2.5 million as of July 1, 1995. The area had an average
population growth rate of 3.7% from 1990 to 1995. The average annual job
growth rate for the three years ended May 31, 1996 was 0.2%. The unemployment
rate was 5.0% as of May 31, 1996. Baltimore is the home of one of the top five
seaports on the eastern seaboard. Major employers in the metropolitan area are
John Hopkins University (18,000 employees), Helix Health (9,300 employees) and
Westinghouse Electronic Systems Group (8,800 employees).
The Company has six Industrial Properties in the Baltimore metropolitan area
with an aggregate of 730,777 net rentable square feet. Metropolitan Baltimore
contains a total of approximately 46.8 million square feet of industrial
space. The vacancy rate as of June 30, 1996 was 9.3%. The Company's Properties
are located in the Harford County and Howard County submarkets.
Harford County contains 5.9 million net rentable square feet of industrial
space with a 3.3% vacancy rate as of March 31, 1996. It is the site of several
large corporate distribution facilities including facilities occupied by
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GE, Procter & Gamble, Pier 1 Imports, Clorox Company and The Gap. Saks Fifth
Avenue is currently building a 450,000 net rentable square foot distribution
facility in this county. Harford County also is a strong build-to-suit market.
Howard County is located in the Baltimore Washington Corridor. This
submarket contains 17.6 million square feet of industrial space and had a
vacancy rate of 7.9% as of March 31, 1996. Access within the corridor is
provided by I-95 and Route 1.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
BALTIMORE SUBMARKET BALTIMORE SUBMARKET
Idustrial Space - Warehouse Idustrial Space - Warehouse
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through June 30, 1996.
Source: Prepared by the Company based on research compiled by Preston
Partners, Inc. Commercial Real Estate Services at the Company's request
for a fee.
Atlanta
Atlanta has a population of 3.4 million as of July 1, 1995 and is one of the
fastest growing metropolitan areas in the United States. The area had an
average population growth rate of 16.0% from 1990 to 1995. The average annual
job growth rate for the three years ended May 31, 1996 was 4.4%. The
unemployment rate was 3.7% as of May 31, 1996. Major employers in the
metropolitan area are Delta Airlines (23,000 employees), AT&T (20,000
employees), Bell South (16,000 employees) and Emory University (14,000
employees). Atlanta is the home of the Georgia World Congress Center, the
second largest convention center in the country at 2.8 million square feet,
and the Atlanta Market Center, a four-building complex with 500,000 square
feet of exhibit and meeting space. Hartsfield International Airport is the
busiest airport in the world.
The Company owns nine Office Properties with 530,228 net rentable square
feet in Atlanta. The overall vacancy rate for Atlanta as of March 31, 1996 was
9.5%, the lowest level since 1982. The Company also manages two office
properties and ten industrial properties in Atlanta. The Company's Cumberland
Office Properties are located in the Northwest submarket.
68
<PAGE>
The Northwest submarket has approximately 235 office projects consisting of
approximately 17.8 million square feet of net rentable space. Of this space
approximately 8.6 million net rentable square feet are considered Class B,
with a vacancy rate of 11.4%. This submarket is the second largest area in the
Atlanta market and contains 20% of the office space. The Company's strategy is
to selectively redevelop Cumberland into a mixture of new Class A buildings
and high-quality, functional Class B buildings.
NEW SUPPLY/NEW DEMAND TRENDS MARKET RENT/VACANCY TRENDS
ATLANTA - NORTHWEST SUBMARKET ATLANTA - NORTHWEST SUBMARKET
Office Space - Class A & B Office Space - Class A & B
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
- --------
* 1996 Market Rate/Vacancy Trends data through March 31, 1996.
Source: Prepared by the Company based on Jamison Research, Inc.'s 1st Quarter
1996 Market Conditions Report--Atlanta, Georgia.
OFFICE PROPERTIES
General
The Company's 28 Office Properties comprise approximately 3.8 million net
rentable square feet and are located in five major markets: Atlanta, Georgia;
Southfield (Detroit), Michigan; Austin, Texas; Dallas, Texas; and Northern
Virginia. Eleven of the 28 Office Properties were developed by the Prentiss
Group and all of the Office Properties are currently managed by PPL. The
weighted average age of the Office Properties is 10 years. As of June 30,
1996, the Office Properties were 95% leased to 274 tenants. The total 1995
annual Base Rent of the Office Properties was approximately $45.4 million, and
the average 1995 Base Rent per leased square foot was $14.58. Except as noted
in the description of the One Northwestern Plaza and Broadmoor Austin
Properties below, the Company owns the entire fee interest in the Office
Properties. See "--Description of Office Properties."
The space leases on the Office Properties generally have original lease
terms ranging from one year to 15 years. A typical lease requires (i) payment
of Base Rent, (ii) payment of base utility charges, (iii) payment of the
tenant's proportionate share of real estate tax, common area and other
operating expense escalations over a base year, and (iv) payment of overtime
HVAC and electrical use. Under these leases, the Company is typically
responsible for external and structural repairs and repairs relating to the
common areas. Some of the leases have renewal options of varying duration
which extend the original lease terms, typically at either market rent or
negotiated rental rates set forth in the lease.
69
<PAGE>
Historical Occupancy and Rental Information
The following table sets forth as of the dates indicated certain information
regarding the Office Properties that have been managed by PPL since 1991.
OFFICE PROPERTIES MANAGED BY PPL SINCE 1991
HISTORICAL OCCUPANCY AND RENTAL RATES
<TABLE>
<CAPTION>
TOTAL NET
RENTABLE PERCENTAGE AVERAGE ANNUAL
SQUARE FEET LEASED AT BASE RENT PER
DATE (IN THOUSANDS) PERIOD END LEASED SQUARE FOOT/(1)//(2)/
- ---- -------------- ---------- ----------------------------
<S> <C> <C> <C>
June 30, 1996............ 3,822 95% $15.13
December 31, 1995........ 3,414 96 14.58
December 31, 1994........ 3,337 94 14.55
December 31, 1993........ 2,687 94 14.18
December 31, 1992........ 2,569 93 14.25
December 31, 1991........ 2,569 84 12.57
</TABLE>
- --------
/(1)/ Calculated as total annualized Base Rent for the previous 12 months
divided by the total leased square feet at period end.
/(2)/ Represents)actual Base Rent for the previous 12 months from signed leases
for the period except that only 49.9% of the Base Rent from the Broadmoor
Austin Property is included in the calculations of total annual Base Rent,
reflecting the Company's 49.9% interest in the partnership owning the
leasehold interest in that Property.
Lease Expirations
The following table sets forth a schedule of the lease expirations for the
Office Properties for leases in place as of June 30, 1996, assuming that none
of the tenants exercises renewal options or termination rights, if any:
OFFICE PROPERTIES
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
PERCENTAGE BASE RENT
OF TOTAL PER NET
NET RENTABLE ANNUAL BASE PERCENTAGE OF RENTABLE
SQUARE FEET SQUARE FEET RENT UNDER ANNUAL BASE SQUARE
NUMBER SUBJECT TO UNDER EXPIRING RENT UNDER FEET UNDER
OF LEASES EXPIRING EXPIRING LEASES EXPIRING EXPIRING
PERIOD OF LEASE EXPIRATION EXPIRING LEASES LEASES (IN THOUSANDS) LEASES/(1)/ LEASES
- -------------------------- --------- ----------- ------------ -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
July 1, 1996 to December
31, 1996............... 48 136,445 4% $ 1,942 4% $14.23
1997.................... 49 353,834 11 3,899 8 11.02
1998.................... 48 498,407 16 8,095 16 16.24
1999.................... 50 550,235 18 8,604 17 15.64
2000.................... 32 368,053 12 6,095 12 16.56
2001.................... 212 181,089 6 2,931 10 16.19
2002.................... 6 70,274 2 1,090 2 15.51
2003.................... 1 182,739 6 3,289 2 --
2004.................... 2 183,566 6 3,473 7 18.42
2005.................... 2 11,365 0 184 -- 16.19
2006.................... 1 556,118 18 11,030 22 19.83
After 2006.............. -- -- -- -- -- --
--- --------- --- ------- --- ------
Total/Weighted Average.. 451 3,092,125 100% $50,632 100% $16.35
=== ========= === ======= === ======
</TABLE>
- --------
/(1)/ Calculated by dividing annual Base Rent as adjusted for contractual
increases expiring during each period by the total Base Rent inclusive of
contractual increases.
/(2)/ Represents the Company's 49.9% interest in the annual Base Rent from this
lease.
70
<PAGE>
Leasing Activity
The following table sets forth for the Office Properties that have been
managed by the Company since 1993 a schedule regarding the number of leases
signed, total net rentable square feet, the annualized Base Rent per leased
square foot and effective rent per leased square foot for the years 1993 (the
year that PPL began recording such historical leasing information) through
1995 and for the six months ended June 30, 1996.
OFFICE PROPERTIES MANAGED BY THE COMPANY SINCE 1993
HISTORICAL LEASING ACTIVITY
<TABLE>
<CAPTION>
ANNUALIZED EFFECTIVE
BASE RENT RENT PER
NUMBER OF RENTABLE PER LEASED LEASED
PERIOD LEASES SQUARE FEET SQUARE FOOT SQUARE FOOT/(1)/
------ --------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
January 1, 1996 through June 30, 1996........... 35 144,949 $14.74 $12.63
1995............................................ 81 389,395 14.72 11.86
1994............................................ 83 432,241 11.72 10.13
1993............................................ 55 208,815 11.09 8.88
</TABLE>
- --------
/(1)/ Equals aggregate Base Rent received over all lease transactions with
respect to such Office Properties during the period minus all tenant
improvements, leasing commissions and concessions from all lease
transactions during the period, divided by the lease terms (in months),
multiplied by 12 and then divided by the total net rentable square feet
leased under all lease transactions during the period.
71
<PAGE>
Tenant Information
The Office Properties are leased to 274 tenants which engage in a variety of
businesses including computer services, telecommunications, insurance and food
and beverage services. During the year ended 1995, the largest tenant in the
Office Properties, IBM, accounted for approximately 22.2% of the Company's pro
forma annual Base Rent for that period. Sixty-four percent of IBM's annual
Base Rent is derived from a lease at the Company's Broadmoor Austin Property,
which expires in 2006. The Company and IBM own 49.9% and 50.0% interests,
respectively, in the Broadmoor Austin Partnership that owns a long-term ground
lease on that Property. The Prentiss Group will continue to own a 0.1%
interest in this partnership, which the Company will have an option to acquire
one year and one day after the Closing Date. The remaining 36% of IBM's
portion of the Company's pro forma 1995 Base Rent is derived from a lease at
the Park West C2 Property, which expires in 1999. The following table sets
forth the annual Base Rent as of December 31, 1995 derived from the 20 largest
tenants at the Office Properties.
OFFICE PROPERTIES
20 LARGEST TENANTS BY 1995 ANNUAL BASE RENT
<TABLE>
<CAPTION>
TOTAL NET RENTABLE ANNUAL PERCENTAGE OF MONTHS
SQUARE FEET BASE RENT ANNUAL REMAINING
TENANT (IN THOUSANDS) (IN THOUSANDS) BASE RENT AFTER JUNE 30, 1996
------ ------------------ -------------- ------------- -------------------
<S> <C> <C> <C> <C>
IBM..................... 1,382 $13,709/(1)/ 22.2% 117
Dr. Pepper/(2)/......... 168 3,887 6.3 25
Hoechst Celanese........ 205 3,108 5.0 86
The Wyatt Company....... 63 1,404 2.3 94
Medaphis Corporation.... 92 1,166 1.9 44
MCI Communications...... 63 1,153 1.9 46
Sprint Communications... 125 1,039 1.7 97
Liberty Mutual Life
Insurance.............. 84 1,024 1.7 15
Sandwell, Inc........... 52 596 1.0 20
Hewlett Packard......... 21 509 0.8 64
Express One............. 37 479 0.8 44
GTE..................... 35 412 0.7 42
Intergraph Corporation.. 24 396 0.6 27
R.R. Donnelley & Sons... 17 381 0.6 39
Total System Services... 33 379 0.6 7
Tower Marketing......... 29 375 0.6 74
General Reinsurance..... 26 353 0.6 50
The Weather Channel..... 33 337 0.6 22
TCC Communications...... 24 322 0.5 22
Blum Consulting......... 19 315 0.5 60
----- ------- ----
Total................... 2,532 $31,344 50.8%
===== ======= ====
</TABLE>
- --------
/(1)/ Includes approximately $4.9 million derived from a lease at the Company's
Park West C2 Property and approximately $8.8 million derived from a lease
at the Company's Broadmoor Austin Property, which amount reflects the
Company's 49.9% interest in the total annual Base Rent from that Property.
/(2)/ Dr. Pepper recently announced that it intends not to renew its lease at
the Walnut Glen Tower Property when it expires in July 1998.
72
<PAGE>
The following table sets forth information relating to the diversity of the
Company's tenants at the Office Properties based upon net rentable square feet
under lease as of June 30, 1996:
OFFICE PROPERTIES
DISTRIBUTION OF LEASES BY SIZE OF SPACE
<TABLE>
<CAPTION>
TOTAL
SQUARE FOOTAGE NUMBER OF PERCENT OF SQUARE PERCENT OF ANNUAL PERCENT OF
UNDER LEASE LEASES TOTAL FEET TOTAL BASE RENT TOTAL
-------------- --------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Less than 10,000........ 205 78% 602,311 17% $ 7,928,711 18%
10,000--20,000.......... 37 14 488,929 14 6,637,939 15
20,001--40,000.......... 13 5 368,916 11 5,190,948 12
40,001--60,000.......... 1 0 59,158 2 629,014 1
60,001--80,000.......... 2 1 137,772 4 2,598,233 6
80,001--100,000......... 1 0 83,922 2 1,024,488 2
100,001 and over........ 4 2 1,730,536 50 20,320,670 46
--- --- --------- --- ----------- ---
Total................... 263 100% 3,471,544 100% $44,330,003 100%
=== === ========= === =========== ===
</TABLE>
Description of Office Properties
Cumberland Office Park (Atlanta, GA). Cumberland Office Park is a campus-
style office facility comprised of nine one to five-story office buildings.
These Properties were developed between 1972 and 1980 and contain a total of
530,288 net rentable square feet. Upon acquiring the property in 1991, the
Prentiss Group applied and received approval for rezoning to allow up to 2.1
million square feet of additional development. The Properties are located at
the intersection of I-285 and Paces Ferry Road, in the heart of Atlanta's
Northwest submarket, and have convenient access to all parts of the Atlanta
metropolitan area, especially the central business district and the airport.
Amenities found either within the complex or within a few minutes drive
include hotels, restaurants, shopping malls, athletic clubs, day care centers,
banks and postal facilities. As of June 30, 1996, the Properties were 97%
leased, and the average 1995 annual Base Rental rate was $11.70 per leased
square foot. Major tenants at Cumberland Office Park include Medaphis
Corporation (approximately 102,000 net rentable square feet with an option to
expand by approximately 22,000 net rentable square feet), GTE Communications
(approximately 36,000 net rentable square feet) and Cap Logistics
(approximately 35,000 net rentable square feet) under leases that expire in
2000, 1999 and 2001, respectively. The aggregate net rentable square footage
of leases expiring in 1996 (after June 30), 1997 and 1998 represent 5%, 7% and
33% of the net rentable square footage of this office park, respectively.
One Northwestern Plaza (Southfield, MI). One Northwestern Plaza is a 13-
story, Class A suburban office building. The building was developed in 1989
and contains 241,751 net rentable square feet with heated underground parking
facilities. The Company owns the entire leasehold interest in the Property
which expires in 2054. The main lobby is a two-story atrium with prominent
main entrances on the east and west sides of the building. Amenities within
the Property include a restaurant, sundry shop, florist/gift shop, travel
agency, hair salon, dentist, jewelry store, stock broker and mail room. The
building is located at the intersection of I-696 and Northwestern Highway. As
of June 30, 1996, the Property was 93% leased, and the 1995 annual Base Rent
was $21.12 per leased square foot. The Property's major tenants are The Wyatt
Company (approximately 62,000 net rentable square feet), Intergraph
Corporation (approximately 21,000 net rentable square feet) and Prudential
Insurance (approximately 11,000 net rentable square feet), under leases that
expire in 2004, 1998 and 1996, respectively. The aggregate net rentable square
footage of leases expiring in 1996 (after June 30), 1997 and 1998 represent
13%, 11% and 14% of this Property's net rentable square footage, respectively.
Broadmoor Austin (Austin, TX). Broadmoor Austin is a seven-building, campus-
style, Class A office complex consisting of one single story, three six-story
and three eight-story office buildings. The Properties were developed by PPL
in 1991 and contain 1,112,236 net rentable square feet and parking for
approximately 3,000 cars. The land on which the building is located is
currently leased from IBM for $150,000 per year through 2005
73
<PAGE>
and $300,000 per year through 2015 under a long-term ground lease expiring no
earlier than 2015. The ground lease may be renewed for two successive terms of
25 years at the Company's option. After March 2015, yearly rent for the ground
lease will be equal to (i) 90% of fair market value, but not less than
$300,000 per year in the first renewal period and (ii) fair market value, but
not less than $300,000 per year in the second renewal period. The Company owns
a 49.9% managing general partnership interest in the partnership owning the
leasehold interest. The Prentiss Group will continue to own a 0.1% interest in
this partnership, which the Company will have an option to acquire one year
and one day after the Closing Date. IBM owns the other 50.0% interest in that
partnership. The Properties are located on 62 acres which includes four acres
for future development. IBM has the right to terminate the ground lease with
respect to 83 acres at no cost and it expects to exercise this right after it
obtains certain governmental approvals necessary for a planned development.
Until such time, the Company is the nominal owner of those 83 acres with no
rights to develop them. The Properties are located in northwest Austin, at
MoPac (Loop 1) and FM 1325 (Burnett Road), one mile north of Highway 183. The
Properties are adjacent to a 563-acre IBM software manufacturing and
operations facility. IBM has leased 100% of the rentable area of the
Properties since March 1991 under an occupancy lease with an initial term of
15 years with three five-year renewal options. The occupancy lease with IBM
provides for annual rent payments of approximately $17.6 million per year
through March 2001 and approximately $22.1 million from April 2001 through
March 2006. After March 2006, the rent payments under the occupancy lease
shall be 90% of fair market value but not less than approximately $22.1
million per year in each renewal term. The average 1995 annual Base Rent was
$15.87 per square foot. The Properties represent IBM's first centralized
office complex in Austin and accommodate approximately 3,500 IBM employees.
Park West (Dallas, TX). Park West consists of three office buildings
containing a total of 727,545 net rentable square feet, which are located in
the Park West Office Park. The Park West Office Park is part of the Park West
Master Plan, which consists of 350 acres located along the LBJ Freeway less
than one mile west of I-35. The location provides direct access along the LBJ
Freeway to DFW Airport, and to downtown Dallas and Love Field via I-35. The
Park West Master Plan includes an extensive package of amenities including
restaurants, full-service banking, travel agency, athletic club and jogging
trails and a Doubletree Hotel.
Park West C2 is a seven-story, Class A office building. The building was
developed by PPL in 1989 and contains 344,216 net rentable square feet with an
adjacent five-story garage. The exterior of the building is architecture
concrete with black aggregate and full-height windows of silver dual panes,
reflective glass. As of June 30, 1996, the building was 100% leased, and the
average 1995 annual Base Rent was $16.22 per leased square foot. The
building's principal tenants are IBM (approximately 270,000 net rentable
square feet), Ultimate Corporation (approximately 18,000 net rentable square
feet) and CIGNA (approximately 15,000 net rentable square), under leases
expiring in 1999, 1999 and 2002 respectively. The aggregate net rentable
square footage of leases expiring in 1996 (after June 30), 1997 and 1998
represent 2%, 0% and 0% of this building's net rentable square footage,
respectively.
Park West E1 is an eight-story, Class A office building. The Property was
developed by PPL in 1982 and contains 182,739 net rentable square feet with a
627 car, free standing parking garage. As of June 30, 1996, the Property was
100% leased to Hoechst Celanese Corporation under a lease that expires in July
2003. The Average 1995 annual Base Rent was $14.62 per leased square foot.
Park West E2 is an eight story, Class A office building located adjacent to
Park West E2. The Property contains 200,590 net rentable square feet and was
developed by PPL in 1985. It contains a free standing parking garage and
bridges connecting the fourth through seventh floors to Park West E1 and to an
adjacent building. Both Park West E2 and E1 are constructed of pre-cast
concrete panels and full-height dual pane glass. As of June 30, 1996, the
building was 99% leased, and the average 1995 annual Base Rent was $9.17 per
leased square foot. The building's principal tenants are Sprint Communication
(approximately 125,000 net rentable square feet) and Hoechst Celanese
Corporation (approximately 22,000 net rentable square feet). The aggregate net
rentable square footage of leases expiring in 1996 (after June 30), 1997 and
1998 represent 0%,1% and 6% of this Property's net rentable square footage,
respectively.
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<PAGE>
5307 East Mockingbird (Dallas, TX). 5307 East Mockingbird is a ten-story
suburban office building. The Property was developed in 1979 and contains
118,316 net rentable square feet with an attached six-story garage. Both the
building and the parking structure are reinforced concrete structures. Tenant
common areas and office spaces were renovated in 1993 with upgraded carpet,
wall coverings and recessed lighting. The Property is located on the northeast
corner of the intersection of North Central Expressway and East Mockingbird.
The North Central Expressway is undergoing a substantial renovation that is
expected to increase access to and visibility of the Property. The renovation
is expected to be completed in 2000. Local amenities include proximity to
various restaurants, theaters and retail centers, including North Park Mall.
As of June 30, 1996, the Property was 80% leased, and the average 1995 annual
Base Rent was $7.80 per leased square foot. The Property's major tenants are
Staff Benefits, Inc. (approximately 13,000 net rentable square feet),
Guarantee Federal Bank, F.S.B. (approximately 12,000 net rentable square feet)
and Cardinal Communications (approximately 7,000 net rentable square feet)
under leases that expire in 1998, 1999 and 2002, respectively. The aggregate
net rentable square footage of leases expiring in 1996 (after June 30), 1997
and 1998 represent 4%, 9% and 27% of this Property's net rentable square
footage, respectively.
Walnut Glen Tower (Dallas, TX). Walnut Glen is an 18-story, Class A suburban
office building. The Property was developed in 1985 and contains 466,289 net
rentable square feet with an adjacent six-story garage. The building is
situated around a full-height atrium with an 84-foot waterfall and consists of
a reinforced concrete and structural steel frame, and a polished granite and
insulated glass interior. Walnut Glen is located in the North Central Corridor
of Dallas, Texas and has direct access to North Central Expressway with easy
access to the LBJ Freeway and downtown Dallas. As of June 30, 1996, the
Property was 81% leased, and the average 1995 annual Base Rent was $17.74 per
leased square foot. The major tenants of Walnut Glen are Dr. Pepper/Cadbury
North America (approximately 205,000 net rentable square feet), General
Reinsurance (approximately 26,000 net rentable square feet), and the American
Association of Retired Persons (approximately 7,000 net rentable square feet)
under leases that expire in 1999, 2001 and 2001, respectively. Dr.
Pepper/Cadbury North America recently announced that it intends to relocate
its offices from this Property when its current lease expires in 1998. The
aggregate net rentable square footage of leases expiring in 1996 (after June
30), 1997 and 1999 represent 7%, 7% and 48% of the Property's net rentable
square footage, respectively. As part of the Formation Transactions, the
Company will also acquire a 4.2 acre parcel adjacent to the Property which can
support approximately 500,000 net rentable square feet of new office
development. The parcel is currently ground leased to a restaurant.
Cottonwood Office Center (Dallas, TX). Cottonwood Office Center is a Class A
suburban office complex consisting of two two-story buildings and one three-
story building. The three Properties were developed in 1986 and contain a
total of 164,111 net rentable square feet. The Properties have surface and
underground parking. All three buildings are connected via a glass-enclosed
atrium. The Properties are located at 2110 Walnut Hill Lane, on the western
border of the office development of Las Colinas. The majority of the building
has a view of the golf course at the Cottonwood Valley Country Club. As of
June 30, 1996, the Properties were 99% leased, and the average 1995 annual
Base Rent was $12.32 per leased square foot. The Properties' major tenants
include Liberty Mutual Life (approximately 96,000 net rentable square feet),
Glade Properties (approximately 17,000 net rentable square feet) and GTE
Visnet Incorporated (approximately 11,000 net rentable square feet) under
leases that expire in 2004, 2000 and 2000, respectively. The aggregate net
rentable square footage of leases expiring in 1996 (after June 30), 1997 and
1998 represent 5%, 0% and 5% of the Properties' net rentable square footage,
respectively.
The Plaza on Bachman Creek (Dallas, TX). The Plaza on Bachman Creek is a
seven-story, Class A suburban office building. The Property was developed in
1986 and contains 125,903 net rentable square feet. The interior of the
building includes a two-story atrium lobby that is finished in travertine and
polished verde marble. This Property is situated on an eight-acre site, which
includes an adjacent 248 room Embassy Suites hotel and four-story, 72,000
square foot office building of similar design. Common areas for all three
buildings are controlled through a condominium agreement. Total parking
provided for all three buildings is for 1,066 cars. The Plaza on Bachman Creek
is located at the intersection of Northwest Highway and Lemmon Avenue. Major
business centers and transportation facilities are easily accessible via
Stemmons Freeway, LBJ Freeway and the
75
<PAGE>
North Dallas Tollway. In addition, Love Field is one mile to the south and DFW
Airport is 11 miles to the west. As of June 30, 1996, the Property was 90%
leased, and the average 1995 annual Base Rent was $9.79 per square foot. The
Property's major tenants are Express One (approximately 37,000 net rentable
square feet) and Tower Marketing (approximately 29,000 net rentable square
feet) under leases that expire in 2000 and 2002, respectively. The Company
intends to relocate its headquarters to this Property in the fourth quarter of
1996 and to lease approximately 37,000 net rentable square feet at this
building under a lease that expires in 2001. The aggregate net rentable square
footage of leases expiring in 1996 (after June 30), 1997 and 1998, represent
0%, 3% and 0% of the Property's net rentable square footage, respectively.
3141 Fairview Park Drive (Northern Virginia). 3141 Fairview Park Drive is an
eight-story, Class A suburban office building. The Property was developed by
PPL in 1988 and contains 192,108 net rentable square feet. The building shares
an adjacent parking garage with a Marriott Hotel. The exterior of the building
is composed of granite and glass with a slate roof and dormer windows on the
top floor. The Property overlooks a retail court and expansive tiered
fountain. The main lobby of the building features a 28-foot high barrel-
vaulted ceiling. The Property is located in the Fairfax County submarket of
Northern Virginia and is the centerpiece of Fairview Park, a 220-acre master-
planned office community developed by the Prentiss Group. As of June 30, 1996,
the Property was 89% leased, and the average 1995 annual Base Rent was $16.29
per square foot. The Property's major tenants include Hewlett-Packard
(approximately 21,000 net rentable square feet), Equitable Life (approximately
17,000 net rentable square feet) and R.R. Donnelley & Sons (approximately
17,000 net rentable square feet) under leases that expire 2001, 2002 and 1999.
The aggregate net rentable square footage of leases expiring in 1996 (after
June 30), 1997 and 1998 represent 34%, 1% and 7% of the Property's net
rentable square footage, respectively.
8521 Leesburg Pike (Northern Virginia). 8521 Leesburg Pike is a seven-story,
Class A suburban office building. The Property was developed in 1984 and was
substantially renovated in 1993. It contains 145,257 net rentable square feet
with an adjacent four-story garage. The building's exterior is composed of an
acid washed pre-cast curtain wall and has green tinted double pane insulating
glass. The Property's lobby features marble floors, marble wainscot and
painted drywall finishes. The Property is located in Tyson's Corner, Virginia,
near the intersection of Leesburg Pike and the Dulles Access Road. The Tyson's
Corner submarket of Northern Virginia has evolved from a regional retail
shopping center and low-cost offices for high-tech firms to one of the largest
office markets in the country. There are a number of amenities in the Tyson's
Corner area, including day-care centers, luxury hotels, such as the Ritz-
Carlton, and retail shops, including Tiffany's, Hermes and Gucci. As of June
30, 1996 the Property was 93% leased, and the average 1995 annual Base Rent
was $13.86 per square foot. The Property's major tenants are MCI
Telecommunications (approximately 84,000 net rentable square feet), Optical
Data Systems (approximately 7,000 net rentable square feet) and Wolf & Cohen
(approximately 5,000 net rentable square feet) under leases that expire in
2000, 1997 and 2001, respectively. The aggregate net rentable square footage
of leases expiring in 1996 (after June 30), 1998 and 1999 represent 0%, 5% and
0% of the Property's net rentable square footage, respectively.
76
<PAGE>
The following table sets forth additional information regarding each of the
Office Properties.
OFFICE PROPERTIES -- ADDITIONAL DATA
<TABLE>
<CAPTION>
1995
ANNUAL
COMPANY'S OWNERSHIP 1995 BASE
PERCENTAGE INTEREST NUMBER ANNUAL RENT
OWNERSHIP (GROUND OF PERCENT TOTAL BASE PER NUMBER
AFTER LEASE LAND NUMBER FLOORS RENTABLE LEASED RENT LEASED OF
FORMATION EXPIRATION YEAR YEAR AREA OF PER SQUARE AS OF (IN SQUARE TENANT
PROPERTY TRANSACTION DATE)/(1)/ DEVELOPED ACQUIRED ACRES BLDGS. BLDG. FEET 6/30/96 THOUSANDS) FOOT LEASES
-------- ----------- ---------- --------- -------- ----- ------ ------ --------- ------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cumberland 100% Fee 1972-1980 1991 46.7 9 1-5 530,228 99% $ 6,141 $11.70 82
Office Park.....
One Northwestern 100% Leasehold 1989 1996 8.9 1 14 241,751 92 4,772 21.12 30
Plaza........... (6/30/54)
Broadmoor 50% Leasehold 1991 1991 62.0/(3)/ 7 6-8 1,112,236 100 8,824 15.87 1
Austin/(2)/..... (3/31/65)
Park West....... 100% Fee 1989 1995 19.3 3 7-8 727,545 100 9,978 13.87 22
5307 East 100% Fee 1979 1993 1.7 1 10 118,316 76 679 7.80 34
Mockingbird.....
Walnut Glen 100% Fee 1985 1994 10.0/(4)/ 1 18 464,289 83 7,254 17.74 40
Tower...........
Cottonwood 100% Fee 1986 1996 4.8 3 2-3 164,111 92 1,922 12.32 8
Office Center...
Plaza on Bachman 100% Fee 1986 1996 2.9 1 7 125,903 87 1,155 9.79 11
Creek...........
3141 Fairview 100% Fee 1988 1996 5.6 1 8 192,108 90 2,780 16.29 33
Park Drive......
8521 Leesburg 100% Fee 1984 1994 3.3 1 7 145,257 92 1,940 13.86 12
Pike............
----- --- --------- --- ------- ------ ---
Total--Office
Properties...... 165.2 28 3,821,744 95% $45,445 $14.58 274
===== === ========= === ======= ====== ===
<CAPTION>
1995
ANNUAL
EFFECTIVE
RENT SQUARE FEET
PER LEASED BY
LEASED SIGNIFICANT
SQUARE SIGNIFICANT TENANTS
PROPERTY FOOT TENANTS (NAME) (IN THOUSANDS)
-------- --------- ---------------------------- --------------
<S> <C> <C> <C>
Cumberland $ 3.31 Medaphis Corp. Sandwell Inc. 92
Office Park..... 52
One Northwestern 21.12 The Wyatt Company 63
Plaza........... Intergraph Corporation 24
Broadmoor 15.16 IBM 1,112
Austin/(2)/.....
Park West....... 9.05 IBM 270
Hoechst Celanese 183
5307 East 1.17 Staff Benefits, Inc. 13
Mockingbird..... Guaranty Federal Bank 12
Walnut Glen 11.04 Dr. Pepper 168
Tower........... General Reinsurance 26
Cottonwood 12.32 Liberty Mutual Life 84
Office Center... GTE Visnet Incorporated 11
Plaza on Bachman 5.23 Express One 37
Creek........... Tower Marketing 29
3141 Fairview 7.24 Hewlett Packard 21
Park Drive...... RR Donnelley 17
8521 Leesburg 10.24 MCI Communications 63
Pike............ Coscan Homes 13
--------- --------------
Total--Office
Properties...... $10.91 2,290
========= ==============
</TABLE>
- ----
/(1)/Ground lease expirations assume exercise of renewal options by the lessee.
/(2)/The Base Rent data reflects the Company's 49.9% interest in the general
partnership owning the leasehold interest in this Property.
/(3)/Initially approximately 145 acres. IBM has the right to terminate the
ground lease with respect to 83 acres at no cost to the Company, after IBM
obtains certain governmental approvals necessary for a planned development
by it on that site. Until such time the Company is the nominal owner of
those 83 acres with no rights to develop them.
/(4)/3.2 acres are ground leased to an adjoining restaurant.
77
<PAGE>
INDUSTRIAL PROPERTIES
The 59 Industrial Properties comprise approximately 5.0 million square feet
of net rentable area and are located in six major markets: Los Angeles,
California; Baltimore, Maryland; Kansas City, Missouri; Dallas, Texas;
Houston, Texas and Milwaukee, Wisconsin. As of June 30, 1996, the Industrial
Properties were 90% leased to 120 tenants. The total 1995 annual Base Rent of
the Industrial Properties was approximately $16.3 million and average 1995
Base Rent per leased square foot of the Industrial Properties was $3.31. The
Company owns 100% of the Industrial Properties.
The current leases on the Industrial Properties generally have original
lease terms ranging from one to 15 years. A typical lease requires (i) payment
of Base Rent, (ii) payment of base utility charges, and (iii) payment of
tenant's proportionate share of fixed costs subject to an expense stop or base
year. Some of the leases have renewal options of varying duration which extend
the original lease terms, typically at either market rent or negotiated rental
rates set forth in the lease.
In addition to the Industrial Properties, the Company owns a 25% interest in
a partnership that owns a 70,735 net rentable square foot industrial building
in Itasca, Illinois. The Company may derive some income from this minority
interest, but its principal benefit is the possibility that this interest may
provide the Company with opportunities to increase its development business.
See "Business Objectives--Growth Strategies--Development Strategy."
Historical Occupancy and Rental Information
The following table sets forth certain information regarding those
Industrial Properties that have been managed by PPL since 1991.
INDUSTRIAL PROPERTIES MANAGED BY PPL SINCE 1991
HISTORICAL OCCUPANCY AND RENTAL RATES
<TABLE>
<CAPTION>
TOTAL RENTABLE PERCENTAGE AVERAGE ANNUAL
SQUARE FEET LEASED AT BASE RENT PER
DATE (IN THOUSANDS) PERIOD END LEASED SQUARE FOOT/(1)/
- ---- -------------- ---------- -----------------------
<S> <C> <C> <C>
June 30, 1996................. 4,937 92% $3.57
December 31, 1995............. 4,937 96 3.31
December 31, 1994............. 4,862 94 3.12
December 31, 1993............. 4,032 93 3.38
December 31, 1992............. 2,334 86 4.17
December 31, 1991............. 1,253 77 6.40
</TABLE>
- --------
/(1)/ Calculated as total annualized Base Rent for the previous twelve months
divided by the total leased square feet at period end.
78
<PAGE>
Lease Expirations
The following table sets forth a schedule of the lease expirations for the
Industrial Properties for leases in place as of June 30, 1996 assuming that
none of the tenants exercises renewal options or termination rights, if any:
INDUSTRIAL PROPERTIES
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
NET RENTABLE PERCENTAGE OF ANNUAL BASE PERCENTAGE OF RENT PER NET
YEAR OF NUMBER OF SQUARE FEET TOTAL NET RENTABLE RENT UNDER ANNUAL BASE RENTABLE SQUARE
LEASE LEASES SUBJECT TO SQUARE FEET UNDER EXPIRING LEASES RENT UNDER FOOT UNDER
EXPIRATION EXPIRING EXPIRING LEASES EXPIRING LEASES (IN THOUSANDS) EXPIRING LEASES/(1)/ EXPIRING LEASES
---------- --------- --------------- ------------------ --------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
July 1, 1996 to
December 31, 1996...... 12 262,191 6% $ 949 6% $3.62
1997.................... 15 484,802 10 1,862 11 3.84
1998.................... 22 1,044,849 22 3,257 19 3.12
1999.................... 25 694,169 15 2,516 15 3.62
2000.................... 22 1,400,647 30 5,075 30 3.62
2001.................... 9 399,040 9 1,358 8 3.40
2002.................... 2 55,092 1 285 2 5.17
2003.................... 1 50,814 1 291 2 5.73
2004.................... 2 94,947 2 407 2 4.29
2005.................... 3 177,338 4 1,036 6 5.84
2006.................... 0 -- 0 -- -- --
After 2006.............. 0 -- 0 -- -- --
--- --------- --- ------- --- -----
Total/Weighted Average.. 113 4,663,889 100% $17,036 100% $3.65
=== ========= === ======= === =====
</TABLE>
- --------
/(1)/ Calculated by dividing annual base rent as adjusted for contractual
increases expiring during each period by the total base rent inclusive of
contractual increases.
LEASING ACTIVITY
The following table sets forth a schedule regarding the Industrial
Properties of number of leases signed, total net rentable square feet, the
annualized base rent per leased square foot and effective rent per leased
square foot for the years 1993 (the year that PPL began recording such
historical leasing information) to 1995 and the six months ended June 30,
1996.
INDUSTRIAL PROPERTIES MANAGED BY THE COMPANY SINCE 1993
HISTORICAL LEASING ACTIVITY
<TABLE>
<CAPTION>
ANNUALIZED EFFECTIVE
BASE RENT RENT PER
NUMBER OF RENTABLE PER LEASED LEASED
PERIOD LEASES SQUARE FEET SQUARE FOOT SQUARE FOOT/(1)/
------ --------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
January 1, 1996 through
June 30, 1996............. 16 628,564 $3.15 $2.97
1995....................... 38 1,644,064 3.85 3.53
1994....................... 28 771,934 3.20 2.89
1993....................... 23 974,437 3.50 3.05
</TABLE>
- --------
/(1)/ Equals aggregate Base Rent received over all lease transactions with
respect to such Industrial Properties during the period minus all tenant
improvements, leasing commissions and concessions from all lease
transactions during the period, divided by the lease terms (in months),
multiplied by 12 and then divided by the total net rentable square feet
leased under all lease transactions during the period.
79
<PAGE>
TENANT INFORMATION
The Industrial Properties are leased to 120 tenants which engage in a
variety of businesses including electronics, tire manufacturing and food
systems. Major tenants in the Industrial Properties include Nippon Express
USA, Crown Cork & Seal and Dunlop Tire Corporation. During the year ended
December 31, 1995, the Company's two largest tenants at the Industrial
Properties, Nippon Express USA and Crown Cork & Seal accounted for
approximately 2% and 1%, respectively, of the Company's pro forma annual Base
Rent for the period. The following table sets forth the annual base rent as of
December 31, 1995 derived from the 15 largest tenants at the Industrial
Properties.
INDUSTRIAL PROPERTIES
15 LARGEST TENANTS BY 1995 ANNUAL BASE RENT
<TABLE>
<CAPTION>
MONTHS
TOTAL NET RENTABLE ANNUAL PERCENTAGE REMAINING
SQUARE FEET BASE RENT OF TOTAL AFTER
TENANT (IN THOUSANDS) (IN THOUSANDS) BASE RENT JUNE 30, 1996
------ ------------------ -------------- ---------- -------------
<S> <C> <C> <C> <C>
Nippon Express USA...... 353 $1,308 2.2% 54
Crown Cork & Seal....... 178 677 1.1 46
Dunlop Tire Corp........ 230 525 0.9 49
Distribution Services... 163 386 0.6 8
General Electric
Company................ 118 382 0.6 16/(1)/
Pepsico Food Systems.... 120 354 0.6 19
Elite Spice............. 89 331 0.5 46
Distribution
Specialists............ 112 319 0.5 17
Ambrosia Chocolate...... 101 318 0.5 40
Bradley Corp............ 119 316 0.5 54
Serv-Tech............... 67 304 0.5 12
Northwestern Mutual
Life................... 100 301 0.5 144
Fujitsu-Ten
Corporation............ 76 301 0.5 39
Tate Access Floors...... 81 288 0.5 21
Standard
Communications......... 54 282 0.5 109
----- ------ ----
Total............... 1,961 $6,392 10.4%
===== ====== ====
</TABLE>
- --------
/(1)/ Represents the weighted average of a lease for 56,000 net rentable square
feet which expires in November 1998 and a lease for 62,000 net rentable
square feet which expires in November 1996.
The following table sets forth information relating to the diversity of the
tenants at the Industrial Properties based upon square feet under lease at
June 30, 1996:
INDUSTRIAL PROPERTIES
DISTRIBUTION OF LEASES BY SIZE OF SPACE
<TABLE>
<CAPTION>
TOTAL ANNUAL
SQUARE FOOTAGE NUMBER OF PERCENT OF NET RENTABLE PERCENT OF BASE RENT PERCENT OF
UNDER LEASE LEASE TOTAL SQUARE FEET TOTAL (IN THOUSANDS) TOTAL
-------------- ---------- ---------- ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Less than 10,000........ 36 31% 195,318 4% $ 876,160 6%
10,001-20,000........... 17 15 257,749 6 1,029,475 6
20,001-40,000........... 18 16 525,414 11 2,219,110 14
40,001-60,000........... 20 17 972,455 21 3,973,186 25
60,001-80,000........... 6 5 400,931 9 1,505,236 9
80,001-100,000.......... 6 5 529,569 12 1,516,196 10
100,001 and over........ 13 11 1,723,479 37 4,801,234 30
--- --- --------- --- ----------- ---
Total............... 116 100% 4,604,915 100% $15,920,597 100%
=== === ========= === =========== ===
</TABLE>
80
<PAGE>
Industrial Properties Descriptions
LOS ANGELES INDUSTRIAL PROPERTIES.
Pacific Gateway Center. Pacific Gateway Center is an industrial complex
composed of 18 buildings containing 1,252,708 net rentable square feet. The
Property's major tenants are Nippon Express USA, R.R. Donnelley & Sons,
Fujitsu-Ten Corporation, Toyota Motor Sales and Shimadzu. The Properties are
located in Torrance, California, approximately 14 miles south of downtown Los
Angeles and approximately 10 miles from the ports of Long Beach and Los
Angeles and Los Angeles International Airport. Pacific Gateway Center is
within one mile from each of the San Diego (405) Freeway, the Harbor (110)
Freeway and the Artesia (91) Freeway. The Torrance submarket contains
approximately 26 million net square feet and includes the Los Angeles
Enterprise Zone (in which Pacific Gateway Center is located), which provides
tenants with various tax and cost benefits.
BALTIMORE INDUSTRIAL PROPERTIES. The Company owns six Industrial Properties
containing 730,777 net rentable square feet in five locations throughout the
Baltimore/Washington Industrial Corridor (the "BWI Corridor"). The BWI
Corridor contains approximately 55 million square feet of distribution,
warehouse and research property in five counties. Howard County and Anne
Arundel County contain the primary bulk distribution/warehouse inventory for
the BWI Corridor, a total of 41 million square feet in seven major industrial
parks. The Baltimore Industrial Properties consist of 8869 Greenwood, 1329
Western Avenue, Deep Run 1 & 2, 4611 Mercedes Drive and 9050 Junction Drive.
8869 Greenwood. 8869 Greenwood is a multi-tenant warehouse/distribution
building containing 89,582 net rentable square feet. The Property's major
tenants are Mid-Atlantic Coca-Cola, Systems Connection and Wilmar Industries.
The Property is located in Howard County and is part of Corridor Industrial
Park which is an eleven building industrial park totaling 1.4 million net
rentable square feet.
1329 Western Avenue. 1329 Western Avenue is a multi-tenant bulk distribution
building containing 185,600 net rentable square feet, of which 14,500 square
feet are devoted to office area. The Property's major tenants are Holt Paper
and Chemical and Electronic Data Systems, Inc. The Property is located at 1329
Western Avenue, Baltimore, Maryland, in the Southwest submarket of the BWI
Corridor. This submarket contains approximately 7.2 million net rentable
square feet of industrial/warehouse space. 5.2 million net rentable square
feet of this submarket was constructed prior to 1960. Only one million square
feet has been constructed since 1980.
Deep Run 1 & 2. Deep Run 1 & 2 are two warehouses containing a total of
169,112 net rentable square feet. Elite Spice and Tate Access Floors currently
lease 100% of Deep Run 1 and 2, respectively. The Properties are located at
7151 and 7155 Montevideo Road, Jessup, Maryland, on the Route 1 Corridor
submarket of the BWI Corridor. This submarket contains approximately 8.6
million square feet of industrial/warehouse space that on average was
constructed in 1982. This submarket has a strategic location with proximity to
the Port of Baltimore and excellent access to major trucking routes.
4611 Mercedes Drive. 4611 Mercedes Drive is a one-story
warehouse/distribution facility containing 178,133 net rentable square feet.
Crown, Cork & Seal currently leases 100% of the Property. The Property is
located at 4611 Mercedes Drive, Belcamp, Maryland, in the Harford County
submarket of the northeast corridor of Maryland. This submarket contains 44
buildings totaling over 6,750,000 net rentable square feet. The Property is
part of Riverside Park, an industrial park consisting of 19 buildings totaling
approximately 2,400,000 net rentable square feet. Harford County has grown
into a significant location for warehouse/distribution activities during the
past several years, as a number of Fortune 500 companies have moved into this
submarket.
9050 Junction. 9050 Junction is a bulk industrial building containing
108,350 net rentable square feet. Professional Mailing currently leases 100%
of the Property. The Property is located in the Annapolis Junction Business
Park in Savage (Howard County), Maryland. The Annapolis Junction Business Park
is strategically
81
<PAGE>
located in the southeastern quadrant of the intersection of Route 1 and Route
32 in the heart of the BWI Corridor. This location affords the Property
convenient access to the area's major roadways such as Route 32, which
intersects with I-95, approximately 1.5 miles west of the Property.
KANSAS CITY INDUSTRIAL PROPERTIES. The Company owns seven Industrial
Properties containing 1,340,781 net rentable square feet in four locations
throughout Kansas City, Missouri. The Kansas City Industrial Properties
consist of Northland Park, North Topping Street, Airworld Drive and 107th
Terrace.
Northland Park. Northland Park is an industrial complex composed of four
warehouse/distribution facilities containing 925,007 net rentable square feet.
The Property is located in North Kansas City, Missouri, in the Paseo
Industrial District. The Paseo Industrial District contains over 13 million
net rentable square feet of industrial and warehouse space with minimal land
available for future development. North Kansas City has access to all three of
the interstate highways in Kansas City. Other incentives of this independent
municipality are the low income taxes, lack of an inventory property tax and
the lowest property tax in the Kansas City metroplex.
North Topping Street. North Topping Street is an industrial warehouse
building containing 119,118 net rentable square feet. The Property's major
clients are Quality Warehouse and Porteous Realty Investments. The Property is
located at 1501-1599 North Topping Street, in Executive Park, an industrial
area four miles northeast of the central business district. Executive Park
draws companies looking for newer product with Missouri's low cost base.
Executive Park contains approximately 7.5 million net rentable square feet of
industrial and warehouse space.
Airworld Drive. Airworld Drive is a warehouse building containing 200,000
net rentable square feet. The Property is currently not leased. The Company is
negotiating with a number of potential tenants for the space. The Property is
located at 107 NW Airworld Drive, Kansas City, Missouri. Airworld Drive is
part of the Airworld Center, which is a 330 acre master planned office and
industrial park located in the Airport Industrial submarket in the northern
industrial area of Kansas City, Missouri. The Airport submarket contains
approximately 1.9 million net rentable square feet of industrial and warehouse
space. The centerpieces of this submarket are Airworld Center and Executive
Hills North, an office park. Airworld's attraction for tenants includes
proximity to the airport, good freeway access, available labor supply, lower
occupancy costs and high quality telecommunications and electrical
infrastructure. The Company also owns a 3.6 acre potential development parcel
adjacent to this Property.
107th Terrace. 107th Terrace is a warehouse building containing 96,700 net
rentable square feet. Sony Corporation currently leases 100% of the Property.
The Property is located at 8281 NW Airworld Drive, Kansas City, Missouri. The
Property is also part of the Airworld Center.
DALLAS INDUSTRIAL PROPERTIES. The Company's Industrial Properties in Dallas,
Texas consist of four complexes containing warehouse, distribution,
manufacturing, service and technical center space. The four complexes making
up the Dallas Industrial Properties are: Nicholson III, 13425 Branchview Lane,
1002 Avenue T, and 1526 Vantage Drive.
Nicholson III. Nicholson III is a three building industrial distribution,
warehousing and service center complex containing 155,712 net rentable square
feet. The Properties' major tenants are DFW Water Quality, Inc. and Aloe
Commodities, Inc. The Properties are located at 12901 Nicholson Road, Farmers
Branch, Texas, in the Valwood Industrial submarket, which is just outside the
Valwood Improvement District. The Properties have very good freeway access to
all parts of the city, via I-35 and I-635.
13425 Branchview Lane. 13425 Branchview Lane is an industrial distribution
and warehousing property containing 121,250 net rentable square feet. Iron
Mountain Records Management currently leases 100% of the Property. The
Property is located at 13425 Branchview Lane, Farmers Branch, Texas, 200 yards
off the I-35 access road and close to the LBJ Freeway. The Property is in the
Valwood Industrial submarket, which is just
82
<PAGE>
outside the Valwood Improvement District. The Valwood Industrial submarket is
among the largest and highest quality in the Dallas area with approximately 31
million square feet of industrial space.
1002 Avenue T. 1002 Avenue T is a distribution and warehousing facility
containing 100,000 net rentable square feet. The Room Store currently leases
100% of the Property. The Property is located at 1002 Avenue T, Grand Prairie,
Texas, in the north section of the Great Southwest/CentrePort Industrial
District, the second largest submarket in the Dallas area. The northern
section of the Great Southwest/CentrePort Industrial District is distinguished
from the southern section by the quality of the building and the restrictive
codes and covenants enacted to protect the image of this submarket. This
Property is of equal distance from the Central Business Districts of both
Dallas and Fort Worth and is ten minutes from DFW Airport.
1625 Vantage Drive. 1625 Vantage Drive is a single-story industrial
distribution building containing 50,000 net rentable square feet, of which
6,000 square feet are devoted to office area. Dal-Ton Shippers Association
currently leases 100% of the Property. The Property is located at 1625 Vantage
Drive, Carrollton, Texas, in the North Dallas submarket which contains
approximately 33 million net rentable square feet of industrial property. This
area has a history of strong occupancies with warehouse/distribution lease
rates above the citywide average. The submarket is well placed in close
proximity to the employment centers in North Dallas, the Dallas North Tollway
and I-35E.
HOUSTON INDUSTRIAL PROPERTIES.
West Loop Business Park. The West Loop Business Park is a service center
development located in the northwest area of Houston, Texas. The Properties
consist of five one-story buildings containing a total of 75,231 square feet.
The Properties' major tenants are Houston Cellular and Sawyer and Associates.
The Properties are part of Western Loop Business Park, a twelve-building mixed
use business park located just off the west loop of Interstate 610 in the
Galleria area of Houston.
MILWAUKEE INDUSTRIAL PROPERTIES. The Company owns 17 Industrial Properties
containing approximately 1.2 million net rentable square feet in three
locations in Milwaukee, Wisconsin. The buildings were built between the years
of 1970 to 1987. The Milwaukee Industrial Properties are made up of three
groups of properties: the Airport Properties, the Oakwood Properties and the
North West Properties.
Airport Properties. The Airport Properties consist of 12 Industrial
Properties containing a total of 572,953 net rentable square feet. The major
tenants at these Properties are General Electric Company and Northwestern
Mutual Life. The Airport Properties are located adjacent to General Mitchell
International Airport.
In addition to the buildings, the Company owns two Development Parcels
totaling 17 gross acres adjacent to the Airport Properties. The net acreage of
13.5 acres will support up to 250,000 square feet of new development. The
largest parcel of 13 acres, which can support 250,000 square feet, is graded
into pad sites and is being actively marketed for build-to-suit development. A
contract has been executed with Budget Car Rental for approximately 6 acres of
the 13 acre parcel at the corner of Sixth Street and Grange Avenue and is
scheduled to close in August 1996. A 21,000 square foot expansion of Building
10 for Airborne Express which will utilize approximately 1.5 acres adjacent to
the existing structure, is scheduled to begin construction in September of
1996.
Oak Creek Properties. The Oak Creek Properties consist of two
warehouse/distribution centers, Buildings 7 and 13, containing approximately
232,000 net rentable square feet. Pepsico and Distribution Specialists
currently lease 100% of Building 7 and 13, respectively. The Oak Creek
Properties are located in the Airport/Oak Creek submarket, just southwest of
the General Mitchell International Airport.
North West Properties. The North West Properties consist of three
warehouse/distribution centers, Buildings 14, 15 and 18, containing a total of
413,371 net rentable square feet. Ambrosia Chocolate and the Bradley
Corporation currently lease 100% of Buildings 14 and 15, respectively.
Building 18 is currently unoccupied. The North West Properties are located in
the Bradley Industrial Park which is located in northwestern suburban
Milwaukee near the town of Brown Deer.
83
<PAGE>
The following table sets forth additional information for each of the
Industrial Properties.
INDUSTRIAL PROPERTIES--ADDITIONAL DATA
<TABLE>
<CAPTION>
COMPANY'S
PERCENTAGE 1995
OWNERSHIP NET PERCENT 1995 ANNUAL ANNUAL
AFTER OWNERSHIP LAND RENTABLE LEASED TOTAL BASE BASE RENT
FORMATION INTEREST YEAR YEAR AREA NUMBER SQUARE AS OF RENT FOR PER LEASED
PROPERTY TRANSACTIONS DATE) DEVELOPED ACQUIRED ACRES OF BLDGS. FEET 6/30/96 (IN THOUSANDS) SQUARE FOOT
-------- ------------ --------- --------- -------- ----- --------- --------- ------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOS ANGELES
INDUSTRIALS:
Pacific Gateway
Center......... 100% Fee 1972-1984 1996 68.0 18 1,252,708 88% $ 4,855 $4.25
BALTIMORE
INDUSTRIALS:
8869 Greenwood.. 100 Fee 1986-1987 1993 5.0 1 89,582 74 296 3.29
1329 Western
Avenue......... 100 Fee 1988 1994 14.4 1 185,600 95 713 4.79
Deep Run 1 & 2.. 100 Fee 1988 1994 10.7 2 169,112 100 629 3.72
4611 Mercedes
Drive.......... 100 Fee 1990 1994 10.2 1 178,133 100 711 3.99
9050 Junction 100 Fee 1989 1993 7.0 1 108,350 100 395 3.66
Drive..........
KANSAS CITY
INDUSTRIALS:
Northland Park.. 100 Fee 1975-1980 1992 40.1 4 925,007 100 2,312 2.50
North Topping
Street......... 100 Fee 1975-1980 1993 5.9 1 119,118 100 276 2.32
Airworld Drive.. 100 Fee 1975-1980 1994 13.1 1 200,000 0 358 1.79
107th Terrace... 100 Fee 1975-1980 1994 6.3 1 96,700 100 244 2.52
DALLAS
INDUSTRIALS:
Nicholson III... 100 Fee 1981 1992 7.2 3 155,712 73 468 3.90
13425
Branchview..... 100 Fee 1970 1993 5.5 1 121,250 100 274 2.26
1002 Avenue T... 100 Fee 1981 1993 4.6 1 100,000 100 233 2.33
1625 Vantage
Drive.......... 100 Fee 1984 1993 3.9 1 50,000 100 193 3.66
HOUSTON
INDUSTRIALS:
West Loop
Business Park.. 100 Fee 1986 1995 6.7 5 75,231 92 508 6.96
MILWAUKEE
INDUSTRIALS:
Airport
Properties..... 100 Fee 1970-1980 1993 34.5 12 572,953 98 1,906 3.48
Oak Creek
Properties..... 100 Fee 1970-1979 1993 12.1 2 232,000 100 673 2.90
North West
Properties..... 100 Fee 1973-1987 1993 23.7 3 413,371 83 1,258 3.04
----- --- --------- --- ------- -----
Total--
Industrial
Properties..... 278.9 59 5,044,827 90% $16,302 $3.31
===== === ========= === ======= =====
<CAPTION>
1995 SQUARE FEET
ANNUAL LEASED BY
EFFECTIVE NUMBER OF MAJOR
RENT PER TENANT SIGNIFICANT TENANTS
PROPERTY SQUARE FOOT LEASES TENANTS (NAME) (IN THOUSANDS)
-------- ----------- --------- --------------------------- --------------
<S> <C> <C> <C> <C>
LOS ANGELES
INDUSTRIALS:
Pacific Gateway
Center......... $4.26 22 Fujitsu-Ten Corp. 76
Nippon Express 353
BALTIMORE
INDUSTRIALS:
8869 Greenwood.. 2.75 3 Wilmar Industries 29
Systems Connection 23
1329 Western
Avenue......... 4.14 7 Winchester Homes 48
Electr. Data Systems Corp. 28
Deep Run 1 & 2.. 3.55 3 Elite Spice 88
Tate Access Floors 81
4611 Mercedes
Drive.......... 3.64 1 Crown Cork and Steel 178
9050 Junction 3.66 1 Professional Mailing and
Drive.......... Distribution Services 108
KANSAS CITY
INDUSTRIALS:
Northland Park.. 1.97 13 Dunlop Tire Corp. 230
Distribution Services 162
North Topping
Street......... 1.87 3 Quality Warehouse 86
Porteous Realty Investments 18
Airworld Drive.. 1.61 1 Sony Electronics(1) 200
107th Terrace... 2.35 1 Sony Electronics 97
DALLAS
INDUSTRIALS:
Nicholson III... 2.53 15 DFW Water Quality, Inc. 33
Aloe Commodities Int'l 20
13425
Branchview..... 2.10 1 Iron Mtn. Records Mgmt. 121
1002 Avenue T... 2.37 1 The Room Store 100
1625 Vantage
Drive.......... 3.72 1 Dal-Ton Shippers 50
HOUSTON
INDUSTRIALS:
West Loop
Business Park.. 6.96 12 Houston Cellular 15
Sawyer and Associates 12
MILWAUKEE
INDUSTRIALS:
Airport
Properties..... 3.25 29 General Electric Company 118
Northwestern Mutual Life 100
Oak Creek
Properties..... 2.51 2 Pepsico Food Systems 120
Distribution Specialists 112
North West
Properties..... 3.21 4 Bradley Corp. 119
----------- ---------
Ambrosia Chocolate 101
--------------
Total--
Industrial
Properties..... $3.13 120 2,826
=========== ========= ==============
</TABLE>
84
<PAGE>
OPTION PROPERTIES
The Company has options to acquire interests in three office buildings
containing approximately 1.4 million net rentable square feet and four
industrial buildings containing approximately 268,000 net rentable square
feet. All of the Option Properties are managed by the Company. Although the
Company will succeed to the option rights of the Prentiss Group with respect
to the Option Properties, the exercise of these options is subject to various
contingencies, including the determination of purchase price, certain lease
renewals and certain debt restructurings, and therefore they cannot be termed
probable. The following table sets forth the location, number of buildings,
net rentable square feet, occupancy (as of June 30, 1996) and 1995 net
operating income for each Option Property.
OPTION PROPERTIES
<TABLE>
<CAPTION>
1995 NET
NUMBER OF NET RENTABLE PERCENTAGE OPERATING
PROPERTY LOCATION BUILDINGS SQUARE FEET LEASED INCOME
- -------- -------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Burnett Plaza........... Fort Worth, Texas 1 1,008,141 90% $11,551
Wood Dale 1 & 2......... Chicago, Illinois 2 116,076 100 493
155 Alexandra Way....... Chicago, Illinois 1 110,000 100 386
Lincolnshire............ Chicago, Illinois 1 42,009 100 121
Seven Fairview Park..... Fairfax, Virginia 1 115,992 100 1,732
World Savings Center.... Oakland, California 1 271,055 94 2,159
--- --------- --- -------
Total/Weighted Average.. 7 1,663,273 93% $16,442
=== ========= === =======
</TABLE>
Burnett Plaza
Burnett Plaza is a 40-story, Class A office building located in downtown
Fort Worth, Texas. The building was developed by PPL in 1983 and contains
1,008,141 net rentable square feet with an attached parking facility. The
building is constructed primarily of reinforced concrete with an exterior of
architectural concrete and grey insulating glass set in dark anodized aluminum
frames. Interior spaces are large and column free making them ideal for larger
users. PPL currently manages this property. Major tenants of the building are
Union Pacific Resource Corporation ("UPRC") and Meridian Oil, which occupy
approximately 439,000 and 204,000 square feet of area, respectively, under
leases that expire in 1998 and 2013, respectively.
The building is located at 801 Cherry Street, Fort Worth, Texas, in a block
bounded by Burnett Park and Tenth, Cherry and Seventh streets. This location
provides access to downtown Fort Worth and DFW Airport and has excellent
visibility from surrounding freeways. Located on the southwestern side of the
Fort Worth central business district, Burnett Plaza is close to Forth Worth's
more exclusive residential neighborhoods and its primary cultural and
educational centers, such as the Kimball Art Museum, the Amon Carter Museum of
Western Art and the Fort Worth Zoological Park.
The Company has a contingent agreement to purchase 100% of the partnership
interests of the current owner of Burnett Plaza, within 18 months after the
closing of the Offering, for an aggregate purchase price of $118 million,
including approximately $8 million in Units (the number of which shall be
based on the price of the Common Shares at the time of purchase) and the
assumption of $110 million of debt secured by the property. The current owner
of Burnett Plaza is a member of the Prentiss Group. If acquired, the purchase
will be recorded at the historical cost, with any excess paid recorded as a
distribution. The contingent purchase agreement is subject to approval by the
Board of Trustees (and including a majority of the Independent Trustees) of
the Company. If the Company purchases the partnership interests in Burnett
Plaza, it intends to pay down immediately $32 million of the approximately
$110 million of mortgage debt on the property. The remaining approximately $78
million of mortgage debt will accrue interest at 7.625% per annum for the
first seven years of the term of the loan and thereafter at an interest rate
equal to 1.70% over the interest rate on comparable term Treasury notes at the
time of such rate change but not less than 7.625%. At any time during the
first seven years
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of the term of the loan, however, the Company has the option of fixing the
interest rate for the remainder of the term of the loan at a rate equal to
1.70% over the interest rate on comparable term Treasury Notes at the time
that the Company exercises such option but not less than 7.625%. The loan will
mature on or about March 1, 2006. If approved by the Board, the Company must
close under the contingent purchase agreement if, within the 18 month period,
UPRC, which currently leases approximately 440,000 net rentable square feet,
enters into a new or amended lease extending the term of its current lease
beyond its 1998 expiration and modifying its terms. The purchase price was
determined assuming that under the new UPRC lease, the property would have an
annual net operating income of approximately $10.8 million, producing a
contribution to the Company's annual Funds from Operations of approximately
$4.85 million and a Funds from Operations yield of 12.125%. If UPRC executes a
lease on terms different from those proposed by the Company but covering
substantially all of the square footage covered by the current lease, the
purchase price for the building will be adjusted to maintain the Company's
Funds from Operation yield from the property at 12.125%. If UPRC does not
execute a new lease for substantially the same square footage, the Company has
no obligation to purchase Burnett Plaza. Although the current owner of Burnett
Plaza is currently negotiating the terms of a new lease with UPRC, there are
no assurances that UPRC will execute a new lease or, therefore, that the
Company will acquire the property.
The Company also has an option to acquire Burnett Plaza (subject to the
approval of the Board of Trustees, including a majority of Independent
Trustees) for its fair market value as determined by appraisal within
30 months after the closing of the Offering if UPRC does not execute a new
lease or executes a lease for substantially less space. The Company does not
intend to exercise the option unless one or more tenants are secured to occupy
substantially all of the space currently leased to and vacated by UPRC. The
current owner of Burnett Plaza is not currently actively seeking replacement
tenants for the UPRC lease because discussions with UPRC are ongoing and the
space would not be available until 1998. There are no assurances that the
space currently leased by UPRC will be leased within the option period if UPRC
does not renew its lease, or that the Company will exercise the option. Upon
the expiration of the option period, the Company will thereafter have a right
of first offer with respect to Burnett Plaza. Notwithstanding the Company's
option and right of first offer, if the UPRC lease is not renewed within 18
months, there are no assurances that the current owner will have funds
sufficient to pay debt service to the mortgage lender (in light of the
potential loss of all or a portion of the UPRC rental income) or that the
lender will not foreclose on Burnett Plaza as a result of other defaults by
the current owner. If the mortgage lender forecloses on Burnett Plaza, the
Company's option and right of first refusal on that property will terminate.
Chicago Industrial Buildings
The Company has options to purchase from PCIG the four industrial properties
in Chicago, Illinois listed above (the "Chicago Industrial Buildings") at fair
market value less an amount equal to 50% of a market rate real estate
commission. The Company tendered an offer to purchase the Chicago Industrial
Buildings for $10.5 million. The Company's offer was not accepted, and the
fair market value of the properties is being determined by appraisal upon such
determination the Company will have 30 days to decide whether to exercise any
or all of the options. Consequently, there can be no assurances that the fair
market value for any or all of the Chicago Industrial Buildings will be
acceptable to the Company, and further there can be no assurances as to the
timing of the purchases of the Chicago Industrial Buildings or the purchase
price that the Company will pay for them.
Wood Dale 1 and 2. Wood Dale 1 and 2 is a two-building industrial,
distribution, warehouse and servicing complex containing 116,076 net rentable
square feet. The major tenants are Vacumette Corporation, Sun Chemical and
General Electric Company. The buildings are located in Wood Dale (DuPage
County), Illinois.
155 Alexandra Way. 155 Alexandra Way is an industrial distribution,
warehouse and servicing building containing 110,000 net rentable square feet.
Michelin Tire Corporation currently leases 100% of the building. The building
is located in Carol Stream (DuPage County), Illinois.
Lincolnshire. Lincolnshire is an industrial distribution, warehouse and
servicing building containing 42,009 net rentable square feet. Food Equipment
Technologies currently leases 100% of the building. The building is located in
Lincolnshire (Lake County), Illinois.
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Seven Fairview Park
The Company has an option to acquire from PCIG a 33% interest in Seven
Fairview Park, a 6-story office building containing 115,992 net rentable
square feet. The building was completed in 1986. The property is located in
Fairview Park in Fairfax, VA near the Company's 3141 Fairview Park Drive
Property. The property is occupied 100% by Computer Sciences Corp. through
October 1999. The option price will be the fair market value as determined by
the parties or, if they cannot agree, by appraisal, less an amount equal to
50% of a market rate real estate commission. The Company believes that the
debt outstanding on the property may exceed the value of the property and will
pursue one or more of a restructuring of the debt, a buy-out of one or more of
the other partners and/or a restructuring or renewal of the current lease
before exercising its option.
World Savings Center
The Company has an option to acquire from PCIG a 67% interest in World
Savings Center, a 17-story office building containing 271,055 square feet
located adjacent to Lake Merritt in downtown Oakland, CA at a price of $1. The
building was completed in 1985 and was 94% occupied as of June 30, 1996. World
Savings and Loan leases 147,174 net rentable square feet, or 54% of the net
rentable area, through November 2000. Larson, Burnham and Trutnen leases
69,081 net rentable square feet, or 26% of the net rentable area, through
December 31, 1999. The Company believes that the debt outstanding on the
property exceeds the value of the property and the Company will seek a debt
restructuring before or in conjunction with exercising its option. In
addition, any transaction must preserve World Saving's in the partnership.
OPTION PARCELS
The Company has contingent purchase agreements and/or options and rights of
first refusal to acquire the following eight Development Parcels, each of
which is located within an industrial or office park developed by PPL, except
for the Development Parcel located in Atlanta, Georgia.
<TABLE>
<CAPTION>
PARCEL MAXIMUM
ACREAGE DEVELOPMENT
(APPROX.) LOCATION/ADJACENT PROPERTY MARKET (SQUARE FEET)
--------- -------------------------- ------ -------------
OFFICE:
<C> <S> <C> <C>
6.4 3141 Fairview Park Drive Northern Virginia 200,000
4.7 Park West Dallas, TX 350,000
----- ---------
11.1 550,000
----- ---------
INDUSTRIAL:
15.2 Park West Commerce Center Dallas, TX 320,000
14.8 Park West Commerce Center Dallas, TX 320,000
3.7 Continental Executive Parke Chicago, IL 50,000
26.3 Continental Executive Parke Chicago, IL 300,000
16.2 Continental Executive Parke Chicago, IL 200,000
49.8 Airport Industrial Park Atlanta, GA 280,000
----- ---------
126.0 1,470,000
----- ---------
137.1 2,020,000
===== =========
</TABLE>
The Company is succeeding to the rights of the Prentiss Group with respect
to all of the options described below. Other than with respect to two parcels
which will be acquired if certain events occur (as described below) and two
parcels for which the price is fixed if purchased by February 15, 1997 (as
described in the next sentence), the Company will exercise an option, if at
all, by submitting a price offer to the owner. If the owner rejects the offer,
the price at which the Company can exercise the option will be determined by
appraisal. With respect to the 14.8 acre parcel in Park West Commerce Center
and the 26.3 acre parcel in Continental Executive Parke, the Prentiss Group
and the owner have agreed on an option price if the parcels are purchased by
February 15, 1997. If the Company does not exercise its options on these
parcels by such time, the option price will be determined by the process
described above. In addition the Company has a right of first refusal on such
parcels through February 15, 1997. The Company expects that any such pricing
process could take several months from the date
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<PAGE>
the Company makes its initial price offer. Once the purchase price is
determined, the Company has 30 days to decide whether to exercise its option.
With respect to the office Development Parcels, the Company will seek build-
to-suit tenants for any development thereon, but has not yet indentified such
tenants and does not currently intend to develop offices on a speculative
basis. The decision as to whether or not to exercise the Company's option to
purchase any Development Parcel from the Prentiss Group or PCIG will be
subject to approval of the Board of Trustees (including a majority of the
Independent Trustees).
The Company, on January 1, 1997, will acquire from the Prentiss Group (i) a
15.2 acre Development Parcel located in the Park West Commerce Center in
Coppell, Texas, a northwest suburb of Dallas near the DFW Airport, and (ii) a
3.7 acre Development Parcel in Continental Executive Parke ("CEP") in Vernon
Hills (near Chicago), Illinois, if a building permit has been obtained by that
time for construction on either parcel. Both parcels are zoned for industrial
use and can support approximately 320,000 and 50,000 net rentable square feet
of development, respectively. The Prentiss Group intends to commence the
development of industrial warehouse distribution buildings on these sites in
January 1997. If a building permit on either parcel has been obtained by that
time, the Company will, on January 1, 1997, acquire the Prentiss Group's
interest in both of these Development Parcels at its cost (including
acquisition, development, financing and construction costs, if any), and
complete any development on either property. If a building permit has not been
obtained on either parcel at that time, the Company will have the option to
acquire either parcel, at any time, at a cost equal to the Prentiss Group's
costs up to the closing of the acquisition. The Prentiss Group may seek to
enter into joint ventures for the development of either of the parcels, and
the Company would succeed to the Prentiss Group's joint venture interest if it
exercises the option, including any rights to receive management, development,
or leasing fees and expense reimbursements. The Park West Commerce Center and
CEP were developed by PPL.
The Company also holds an option to purchase from PCIG a 14.8 acre parcel of
developable land in the Park West Commerce Center in Dallas adjacent to the
15.2 acre parcel described above. This parcel is zoned for industrial use and
can also support approximately 320,000 net rentable square feet of
development. The parcel may be purchased in increments. The option period
expires on February 15, 1998.
The Company also holds an option to purchase from a PCIG three parcels of
developable land totaling approximately 26.3 acres in CEP adjacent to the 3.7
acre parcel described above. The parcels consist of five separate lots, are
zoned for industrial use and can support a total of 300,000 net rentable
square feet of development. Each parcel may be purchased in increments. The
option period expires on February 15, 1998. In addition, the Company has an
option to purchase two additional parcels totaling approximately 16.2 acres in
CEP from PCIG. The parcels are zoned for industrial or office use and can
support an additional 200,000 square feet of development. Each parcel can be
purchased separately. The option expires on February 15, 1997.
The Prentiss Group has pursued an agreement to develop, construct and manage
a 280,000 net rentable square foot distribution facility to be 100% long-term
leased to FedEx near the Hartsfield International Airport in Atlanta, Georgia.
Commercial development is subject to negotiation of the definitive development
and lease agreement with FedEx and an agreement with a construction lender.
The Prentiss Group estimates, subject to the definitive FedEx lease agreement
and the definitive construction loan agreement, that the development and
construction would cost approximately $18.0 million and be completed within 15
months after breaking ground. The Company has the option to assume the
Prentiss Group's rights and obligations in connection with this arrangement
for a price equal to any third-party costs incurred by the Prentiss Group at
the date of exercise and to assume FedEx's contract to purchase the land for
approximately $4.6 million. The option will expire June 30, 1997.
The Company has an option to acquire PCIG's 50% interest in Park West C1, a
4.7 acre tract of land located in the Park West development in Dallas, Texas
adjacent to the Company's Park West Properties. The tract is zoned for office
use and can support up to 350,000 net rentable square feet of development. The
option expires on February 15, 1997.
Finally, the Company has an option to purchase from an unaffiliated
partnership a 6.4 acre development parcel of land in the Fairview Park
development. This parcel is zoned for office use and can support 200,000 net
rentable square feet of development. The option will expire on February 15,
1997.
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<PAGE>
HISTORICAL NON-INCREMENTAL REVENUE-GENERATING CAPITAL EXPENDITURES, TENANT
IMPROVEMENT COSTS AND LEASING COMMISSIONS
The following table sets forth annual and per square foot recurring, non-
incremental revenue-generating capital expenditures and non-incremental
revenue-generating tenant improvement costs and leasing commissions to retain
revenues attributable to existing leased space for the period 1993 through
1995 for the Office Properties and the Industrial Properties. Revenue-
generating tenant improvement costs and leasing commissions are not included
in the table set forth below. The historical capital expenditures are not
necessarily indicative of future recurring non-incremental revenue-generating
capital expenditures or non-incremental revenue-generating tenant improvement
costs or leasing commissions.
<TABLE>
<CAPTION>
1995-1993
1995 1994 1993 AVERAGE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
CAPITAL EXPENDITURES:
Office Properties
Annual............................ $ 592,117 $ 168,279 $328,526 $ 362,974
Per Square Foot................... .22 .06 .16 .15
Industrial Properties
Annual............................ 1,272,747 423,912 817,381 838,013
Per Square Foot................... 0.26 0.09 0.20 0.18
NON-INCREMENTAL REVENUE-GENERATING
TENANT IMPROVEMENT COSTS
AND LEASING COMMISSIONS
Office Properties
Annual Tenant Improvement Costs... $1,411,699 $1,216,335 $896,031 $1,174,688
Per square foot improved.......... 4.11 2.52 5.10 3.52
Annual leasing commissions........ 650,563 1,173,639 442,066 755,423
Per square foot improved.......... 1.89 2.43 2.52 2.26
Total per square foot............. 6.00 4.95 7.62 5.78
Industrial Properties
Annual Tenant Improvement Costs... $ 465,877 $ 286,092 $555,247 $ 435,739
Per square foot improved.......... 0.34 0.47 0.94 0.51
Annual leasing commissions........ 714,606 276,927 418,052 469,862
Per square foot improved.......... 0.52 0.46 0.71 0.55
Total per square foot............. 0.86 0.93 1.65 1.06
</TABLE>
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HISTORICAL INCREMENTAL REVENUE-GENERATING TENANT IMPROVEMENT COSTS AND LEASING
COMMISSIONS
The following table sets forth annual and per square foot incremental
revenue-generating tenant improvement costs and leasing commissions for the
period 1993 through 1995 for the Office Properties and the Industrial
Properties. There were no historical incremental revenue-generating capital
expenditures. The foregoing table provides all remaining tenant improvement
costs and leasing commissions not included in the table set forth above for
the Properties. Incremental revenue-generating tenant improvement costs and
leasing commissions generally relate to vacant space that is not generating
income. The historical incremental revenue-generating tenant improvement costs
and leasing commissions set forth below are not necessarily indicative of
future incremental revenue-generating tenant improvement costs and leasing
commissions.
<TABLE>
<CAPTION>
1995-1993
1995 1994 1993 AVERAGE
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
INCREMENTAL REVENUE-GENERATING TENANT
IMPROVEMENT COSTS AND LEASING COMMISSIONS
Office Properties
Annual Tenant Improvements.............. $2,318,668 $758,987 $483,274 $1,186,976
Per square foot improved................ 7.86 3.59 9.41 6.38
Annual Leasing Commissions.............. 744,493 347,843 185,095 425,810
Per square foot leased.................. 2.52 1.64 3.60 2.29
Total per square foot................... 10.38 5.23 13.01 8.67
Industrial Properties
Annual Tenant Improvements.............. $ 588,315 $246,880 $777,912 $ 537,702
Per square foot improved................ 2.26 1.70 2.12 2.09
Annual Leasing Commissions.............. 214,407 108,853 189,011 170,756
Per square foot leased.................. 0.82 0.75 0.52 0.66
Total per square foot................... 3.08 2.45 2.64 2.75
</TABLE>
PRENTISS PROPERTIES SERVICE BUSINESS
The Company manages approximately 250 office and industrial properties owned
by third parties with approximately 30 million net rentable square feet leased
to over 2,300 tenants. These properties are owned by over 45 different clients
and are located in 16 markets throughout the U.S. In addition to property
management and leasing, the Company offers its clients a full range of related
services including tenant construction, marketing, insurance, accounting, tax,
real estate law, acquisition, disposition, facilities management, corporate
services and asset management.
INSURANCE
The Company will keep in force comprehensive insurance, including liability,
fire, workers' compensation, extended coverage, rental loss and, when
available on reasonable commercial terms, flood and earthquake insurance, with
policy specifications, limits and deductibles customarily carried for similar
properties. The Company currently maintains a $20 million blanket earthquake
policy on the Properties it manages and the Properties it owns in California.
Certain types of losses, however (generally of a catastrophic nature such as
acts of war, earthquakes for properties located outside of California, etc.),
are either uninsurable or are not economically insurable. Certain types of
losses, such as those arising from subsidence activity, are insurable only to
the extent that certain standard policy exceptions to insurability are waived
by agreement with the insurer. See "Risk Factors--Real Estate Investment
Risks--Uninsured Loss." The Company believes, however, that the Properties are
adequately insured in accordance with industry standards.
In 1995, an affiliate of PPL invested in a managing general agency which was
a leading insurance broker. Through the MgmtPlus+ Preferred Risk Real Estate
Insurance Program sponsored by PPL, a leading insurance broker has offered its
clients insurance cost savings, better asset protection, higher limits and
improved claims handling through insurance coverage specifically designed for
real estate. The PPL affiliate received distributions
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<PAGE>
of $54,000 in 1995 from its investment in the managing general agency. In
connection with the Formation Transactions, a subsidiary of the Operating
Partnership will acquire the investment in the managing general agency.
ENVIRONMENTAL MATTERS
In connection with the ownership and operation of the Properties, the
Company or the Operating Partnership, as the case may be, may be potentially
liable for costs associated with the removal or remediation of certain
hazardous or toxic substances or the release of or exposure to hazardous
substances, including ACMs, into the air. See "Risk Factors--Real Estate
Investment Risks--Possible Environmental Liabilities."
Phase I ESAs have been obtained on all of the Properties prior to the
closing of the Offering to identify potential sources of contamination for
which the Properties may be responsible and to assess the status of
environmental regulatory compliance. The Phase I ESAs included historical
reviews of the Properties, reviews of certain public records, preliminary
investigations of the lots and surrounding properties, screening for the
presence of asbestos, PCBs and underground storage tanks, and the preparation
and issuance of a written report. The Phase I ESAs did not include invasive
procedures, such as soil sampling or ground water analysis.
For a number of the Properties, the Phase I ESAs referenced prior Phase II
ESAs obtained on such Properties. Phase II ESAs generally involve more
invasive procedures than Phase I ESAs, such as soil sampling and testing or
the installation and monitoring of groundwater wells. Except as noted below,
the ESAs have not revealed any environmental condition, liability or
compliance concern that the Company believes would have a material adverse
affect on the Company's business, assets or results of operations, nor is the
Company aware of any such condition, liability or concern.
The land (the "Plant Site") underlying one industrial complex containing
eighteen Industrial Properties, Pacific Gateway Center ("PGC"), was formerly
the site of a synthetic rubber manufacturing plant (the "Plant") owned by the
United States Government and subsequently owned or operated by numerous
companies, including Shell Oil Company ("Shell") and Dow Chemical Company
("Dow"). During the operation of the Plant, wastes were disposed of in pits
and ponds located just to the south of PGC (the "Plant Site Affected Area").
In 1994, the Plant Site Affected Area was deeded back to Shell by the Prentiss
Group affiliate that owned the property, and Shell agreed to indemnify the
Prentiss Group affiliate and any successors in interest against (i) any costs
of remediation of the Plant Site Affected Area and (ii) any suit for damages
for personal injury or property damage brought by neighboring landowners.
Environmental studies conducted by Dow and Shell on the Plant Site have
detected the presence of groundwater contamination about 60 feet below the
surface of the Plant Site, which appears to be related to the operations of
the Plant. Limited soil contamination has also been found on parcels in the
area, including parcels that will be owned by the Company. In July 1991, the
United States Environmental Protection Agency ("EPA") proposed that the Plant
Site be listed on the National Priorities List ("NPL") of Superfund sites.
Comments were submitted to the EPA challenging the proposal, but no action was
taken by the EPA. On June 17, 1996, the EPA re-proposed that the Plant Site
Affected Area be listed on the NPL. At this time, the Company cannot predict
whether EPA will promulgate the proposed listing of the Affected Area. In
addition, PGC is located about one block east of an additional Superfund site,
the Montrose Chemical Superfund Site. Contaminants associated with this site
have been detected in the groundwater in the vicinity of PGC. Contamination
also has been found in groundwater to the south of the Plant Site Affected
Area (the "Study Area"). According to reports prepared by Shell and Dow, this
contamination appears to be associated with leaks from pipelines located in
that area.
All past and present owners of the land underlying PGC, including the United
States Government, Dow, Shell and the current owner, in which a Prentiss Group
affiliate is a general partner, are Potentially Responsible Parties for the
investigation and remediation of the Plant Site. However, the current owner is
close to execution of an indemnification agreement with Shell whereby, in
consideration of the waiver by the current owner of any claim it might have
against Shell for damage to or diminution in the value of its property, Shell
would (i) agree to indemnify and hold harmless any successor of the current
owner, including the Company and any subsequent
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<PAGE>
purchasers, tenants and lenders, from any liability relating to clean up or
remediation costs for the Plant Site or for any contamination resulting from
the interrelationship of (a) the Montrose Chemical Superfund Site and/or the
Study Area and (b) the Plant Site, and (ii) indemnify and hold harmless any
successor of the current owner, including the Company, from any liability
arising out of any third party tort claims for personal injury or property
damage. While this indemnity does not extend to claims for diminution in value
or consequential damages resulting from the remediation of the property or
Shell's actions, any affected party, including the Company, would have the
right to make a claim for any such damages against the responsible party.
In addition to these indemnification arrangements, the EPA has indicated its
willingness to enter into a de minimis landowner settlement with the current
owner of PCG by which the owner would receive a release, covenant not to sue
and contribution protection from the United States in exchange for a one-time
payment. The current owner has requested that the EPA extend that protection
to subsequent purchasers of all or any portion of the property; if successful,
the benefit of this agreement would extend to the Company.
The Company believes that its effective share of any costs to remediate the
Plant Site will not have a material adverse effect on the Company. The Company
believes that despite its possible technical liability as an owner or operator
of contaminated property, existing evidence makes clear that the contamination
of concern to the regulatory agencies did not result from the present use of
the Plant Site as an industrial park. Further, the Company believes that the
existing and pending indemnifications from Shell and the potential future de
minimis settlement agreement with the EPA will protect the Company against any
future costs of a material nature.
The ESAs for the Industrial Properties located in Milwaukee, Wisconsin,
revealed lead contamination in some of the soil near the property lines of two
of the Properties and the Development Parcel adjacent to those Properties (the
"Milwaukee Affected Areas"). The ESAs and the Wisconsin Department of Natural
Resources ("WDNR") have concluded that the contamination is the result of
unauthorized placement of contaminated soil by the owner of a vacant lot that
is located between the two Properties and the Development Parcel. The
placement occurred prior to the acquisition of these Industrial Properties by
the Prentiss Group affiliate that currently owns the Properties. The
contaminated soil consists of foundry sand which was found to contain lead in
excess of acceptable trace levels. According to the ESA, the contamination
does not affect the groundwater and is not likely to migrate or leech into
adjoining land or groundwater in the future. Upon discovery of the
unauthorized placement, the Company brought suit against the owner of the
vacant lot, the generators of the contaminated soil and the prior owner of the
Properties. A settlement to the lawsuit has been entered under which (i) the
Company has transferred the Milwaukee Affected Areas (a total of approximately
1.6 acres) to the owner of the vacant lot in exchange for $100,000 and (ii)
the owner of the vacant lot and the generators of the contaminated soil agreed
to assume all responsibility for the remediation of the contaminated soil. The
court has entered a finding that the Company was not in the chain of ownership
of the Milwaukee Affected Areas. Based on all available information, the
Company does not believe that it will incur any liability with respect to this
contamination.
In addition to these matters, it is possible that the ESAs related to any
one of the Properties do not reveal all environmental conditions, liabilities
or compliance concerns or that there are material environmental conditions,
liabilities or compliance concerns that arose at a Property after the related
ESA report was completed of which the Company is otherwise unaware.
Except as noted above, the Company believes that the Properties are in
compliance in all material respects with all federal, state and local laws,
ordinances and regulations regarding hazardous or toxic substances and other
environmental matters. Neither the Company nor, to the knowledge of the
Company, any of the current owners of the Properties has been notified by any
governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental substances in
connection with any of its present or former properties.
DEPRECIATION OF SIGNIFICANT PROPERTIES
For federal income tax purposes, the basis in the Properties of the Company
and the Operating Partnership was approximately $378 million at December 31,
1995. The real property associated with the Properties (other
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than land) generally will be depreciated for federal income tax purposes over
40 years using the straight line method. For financial reporting purposes, the
Properties are recorded at their historical cost and are depreciated using the
straight line method over their estimated useful lives, typically 40 years.
The federal tax basis on the Cumberland Office Park Properties equals
approximately $11.0 million for the land and approximately $16.9 million for
the building. The federal tax basis on the Park West Properties equals
approximately $13.8 million for the land and approximately $57.9 million for
the building. Depreciation is taken on the Walnut Glen Property, with the
federal tax basis equaling approximately $5.4 million for the land and
approximately $32.6 million for the building. Depreciation on these properties
is computed on the straight line method at a rate of 2.5% and the life claimed
with respect to the buildings is 40 years. IBM, which owns a 50% interest in
the partnership owning the Broadmoor Austin Properties, takes all of the
depreciation allocated to those Office Properties.
REAL ESTATE TAXES ON SIGNIFICANT PROPERTIES
The annual real estate taxes paid on the Broadmoor Austin Properties were
approximately $2.1 million, of which the Company would have been responsible
for the payment of 49.9% had the Offering been completed prior to the time
such taxes were due. The Austin real estate tax is 2.394% of assessed value.
The Dallas real estate tax rate is 3.868% of assessed value. The 1996 annual
real estate taxes paid on the Walnut Glen Property were $782,100. The Atlanta
real estate tax rate is 2.607% of assessed value. The 1995 annual real estate
taxes paid on Cumberland Office Park were $418,482.
LEGAL PROCEEDINGS
The Company, the General Partner and the Manager have no operating history
and are not currently parties to any legal proceedings. Additionally, neither
the Operating Partnership, nor any Prentiss Group member (other than in a
representative capacity), is presently subject to any material litigation or,
to the Company's knowledge, has any litigation been threatened against the
Company, the Prentiss Group or the Prentiss Principals, other than routine
actions and administrative proceedings substantially all of which are expected
to be covered by liability insurance and in the aggregate which are not
expected to have a material adverse effect on the business or financial
condition of the Company.
PRENTISS GROUP ASSETS NOT ACQUIRED BY THE COMPANY
PPL and certain other entities owned by the Prentiss Principals will retain
certain assets and liabilities which will not be transferred to the Company in
the Formation Transactions. These assets either were determined to be
inconsistent with the Company's investment objectives or are not continuing
businesses. The most significant excluded assets include the Burnett Plaza
office building (which the Company has an option to purchase); a 5% interest
in a partnership that owns an industrial development near Philadelphia,
Pennsylvania that the Prentiss Group intends to sell in the near future; a 71%
interest in a partnership that owns a 5% profits interest in a limited
liability company that owns a leasehold interest in 50.4 acres zoned for
industrial use at O'Hare International Airport; the Termination Fee Note; fee
receivables relating to prior development projects of the Prentiss Group,
including non-recurring fees relating to the Atlanta Federal Center and the
Atlanta Criminal Justice Center; minority interests in distressed assets that
are being sold or are soon to be sold; assets and liabilities of the Prentiss
Group relating to contracts and partnerships with the Resolution Trust
Corporation and the Federal Deposit Insurance Corporation, all of which are
expected to expire or dissolve by the end of 1997; mortgage brokerage
contracts within the Prentiss Group that are scheduled to be sold; and
interests in inactive corporate affiliates.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Trustees and may be amended or revised from time to time without the
approval of the Company's shareholders, except (i) the Company may not change
its policy of holding its assets and conducting its businesses only through
the Operating Partnership and its subsidiaries, including the General Partner
and the Manager, or joint ventures in which it or a subsidiary is a partner,
without the consent of the Limited Partners as provided in the Operating
Partnership Agreement, (ii) changes in certain policies with respect to
conflicts of interest must be consistent with legal requirements, and (iii)
the Company cannot take any action intended to terminate its qualification as
a REIT without the approval of the holders of two-thirds of the outstanding
Common Shares.
INVESTMENT POLICIES
The Company will conduct all of its investment activities through the
Operating Partnership and its subsidiaries, including joint ventures in which
it is a partner. The Company's investment objectives are to provide quarterly
cash distributions and achieve long-term capital appreciation through
increases in the value of the Company. For a discussion of the Company's
Properties and its development, acquisition and other strategic objectives,
see "Properties" and "Business Objectives."
The Company may purchase income-producing office and industrial and other
types of properties for long-term investment, expand and improve the
Properties or other properties purchased, or sell such real estate properties,
in whole or in part, when circumstances warrant. The Company may also
participate with third parties in property ownership, through joint ventures
or other types of co-ownership. Equity investments may be subject to existing
mortgage financing and other indebtedness or such financing or indebtedness as
may be incurred in connection with acquiring or refinancing these investments.
Debt service with respect to such financing or indebtedness will have a
priority over any distributions with respect to the Common Shares.
While the Company's current portfolio consists of, and the Company's
business objectives emphasize, equity investments in office and industrial
real estate, the Company may, at the discretion of the Board of Trustees,
invest in other types of equity real estate investments, mortgages (including
participation in convertible mortgages) and other real estate interests. Other
than the limitations described in the succeeding paragraph, future development
or investment activities will not be limited to any geographic area or product
type or to a specified percentage of the Company's assets. While the Company
intends to diversify in terms of property location, size and market, the
Company does not have any limit on the amount or percentage of its assets that
may be invested in any one property or any one market area.
Subject to the limitations on ownership of certain types of assets and the
gross income tests imposed by the Code, the Company also may invest in the
securities of other REITs, other entities engaged in real estate activities or
other issuers, including for the purpose of exercising control over such
entities. See "Federal Income Tax Considerations--Requirements for
Qualification--Income Tests" and "--Requirements for Qualification--Asset
Tests." The Company may enter into joint ventures or partnerships for the
purpose of obtaining an equity interest in a particular property in accordance
with the Company's investment policies. Such investments may permit the
Company to own interests in larger assets without unduly restricting
diversification and, therefore, add flexibility in structuring its portfolio.
The Company will not enter into a joint venture or partnership to make an
investment that would not otherwise meet its investment policies. Investments
in such securities are also subject to the Company's policy not to be treated
as an investment company under the Investment Company Act of 1940.
FINANCING POLICIES
The Company's Debt Limitation is a policy of incurring debt only if upon
such incurrence the ratio of the Company's combined indebtedness plus its pro
rata share of Joint Venture Debt would be 50% or less of the
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Company's Total Market Capitalization. Upon completion of the Offering and the
Formation Transactions, the Company's combined indebtedness will be
approximately $82.0 million or approximately 16.7% of total market
capitalization (excluding its pro rata share of Joint Venture Debt), and,
together with its pro rata share of Joint Venture Debt its outstanding total
indebtedness will be approximately $152.0 million or approximately 27.0% of
the Company's Total Market Capitalization. The ratio, which is based, in part,
upon the aggregate market value of the outstanding Common Shares on a fully
diluted basis, will fluctuate with changes in the price of the Common Shares
(and the issuance of additional Common Shares or Preferred Shares, if any) and
differ from a debt to book capitalization ratio, which is based upon book
values. A company's debt to book capitalization ratio may not reflect the
current income potential of its assets and operations, and the Company
believes that a debt to Total Market Capitalization ratio provides a more
appropriate indication of leverage for a company whose assets are primarily
income-producing real estate. The Company's Declaration of Trust and Bylaws do
not, however, limit the amount or percentage of indebtedness that the Company
may incur. Accordingly, the Board of Trustees could alter or eliminate this
policy at will. The Company may from time to time modify its debt policy in
light of current economic conditions, relative costs of debt and equity
capital, market values of its properties, general conditions in the market for
debt and equity securities, fluctuations in the market price of Common Shares,
growth opportunities, the Company's continued REIT qualification requirements
and other factors. Accordingly, the Company may increase or decrease its debt
to market capitalization ratio beyond the limits described above.
To the extent that the Board of Trustees decides to obtain additional
capital, the Company may raise such capital through additional equity
offerings (including offerings of senior securities), debt financings or
retention of cash available for distribution (subject to provisions in the
Code concerning taxability of undistributed REIT income), or a combination of
these methods. As long as the Operating Partnership is in existence, the net
proceeds of the sale of Common Shares by the Company will be transferred to
the Operating Partnership in exchange for that number of Units in the
Operating Partnership equal to the number of Common Shares sold by the
Company. The Company presently anticipates that any additional borrowings
would be made through the Operating Partnership, although the Company may
incur indebtedness directly and loan the proceeds to the Operating
Partnership. Borrowings may be unsecured or may be secured by any or all of
the assets of the Company, the Operating Partnership or any existing or new
property owning partnership and may have full or limited recourse to all or
any portion of the assets of the Company, the Operating Partnership or any
existing or new property owning partnership. Indebtedness incurred by the
Company may be in the form of bank borrowings, purchase money obligations to
sellers of properties, publicly or privately placed debt instruments or
financing from institutional investors or other lenders. The proceeds from any
borrowings by the Company may be used for working capital, to refinance
existing indebtedness or to finance acquisitions, expansions or the
development of new properties, and for the payment of distributions. See
"Federal Income Tax Considerations." Other than restrictions that may be
imposed by lenders from time to time in connection with outstanding
indebtedness, the Company has no established limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies and entered into certain agreements
designed to minimize potential conflicts of interest. See "Management--
Employment Agreements." The Company's Board of Trustees is subject to certain
provisions of Maryland law, which are designed to eliminate or minimize
certain potential conflicts of interest. However, there can be no assurance
that these policies always will be successful in eliminating the influence of
such conflicts, and if they are not successful, decisions could be made that
might fail to reflect fully the interests of all shareholders.
Declaration of Trust and Bylaw Provisions
The Company's Declaration of Trust, with limited exceptions, requires that a
majority of the Company's Board of Trustees be comprised of persons who are
not officers or employees of the Company or any Affiliate, or Affiliates of
any lessee of any property of the Company. The Declaration of Trust provides
that such Independent Trustee requirement may not be amended, altered, changed
or repealed without the affirmative vote
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of 85% of the Trustees or the affirmative vote of two-thirds of the
outstanding shares of the Company entitled to vote. In addition, the Company's
Bylaws provide that any transaction involving the Company, including the
purchase, sale, lease or mortgage of any real estate asset or any other
transaction, in which a trustee or officer of the Company, or any Affiliate of
the foregoing, has any direct or indirect interest other than solely as a
result of his status as a trustee, officer or shareholder of the Company, must
be approved by a majority of the trustees, including a majority of the
Independent Trustees, even if the Independent Trustees constitute less than a
quorum. The Declaration of Trust also includes a provision permitting each
Trustee, including Independent Trustees, to engage in the type of business
activities conducted by the Company without first presenting any investment
opportunities to the Company even though such investment opportunities may be
within the scope of the Company's investment policies. These provisions are
subject to any non-competition agreements that may exist. See "Management--
Employment Agreements."
Employment Agreements
At the Closing of the Offering, Michael V. Prentiss and Thomas F. August
will enter into an employment and noncompetition agreement with the Company
that will, subject to certain limited exceptions, prohibit them from engaging
in activities that compete with the Company's businesses during the term of
their employment by the Company and for a period ending two years after the
termination of their employment with the Company. See "Management--Employment
Agreements."
The Operating Partnership
A conflict of interest may arise between the Company and the other Limited
Partners of the Operating Partnership, including the Prentiss Principals, due
to the possibility that a disproportionately large share of any gain
recognized from the sale of any of the Properties contributed by the Limited
Partners, directly or indirectly, to the Operating Partnership will be
allocated to the Limited Partners. The Operating Partnership Agreement gives
the General Partner, a wholly-owned subsidiary of the Company, full, complete
and exclusive discretion in managing and controlling the business of the
Operating Partnership and in making all decisions affecting the business and
assets of the Operating Partnership. In addition, the Company's Bylaws provide
that any transaction (including the sale of a real estate asset) involving the
Company in which an advisor, trustee, officer or shareholder of the Company,
or any Affiliate of the foregoing, has a direct or indirect interest other
than solely as a result of his status as an advisor, trustee, officer, or
shareholder of the Company, must be approved by a majority of the Independent
Trustees. Pursuant to the Operating Partnership Agreement, the Limited
Partners have agreed that in the event of any conflict in the fiduciary duties
owed by the Company to its shareholders, and by the General Partner to such
Limited Partners, the General Partner will fulfill its fiduciary duties to
such Limited Partners by acting in the best interests of the Company's
shareholders. In addition, the General Partner is not responsible for any
misconduct or negligence on the part of its agents, provided that the General
Partner appointed such agents in good faith.
Provisions of Maryland Law
Pursuant to Maryland law (the jurisdiction under which the Company is
organized), each Trustee is required to discharge his duties in good faith,
with the care an ordinarily prudent person in a like position would exercise
under similar circumstances and in a manner he reasonably believes to be in
the best interest of the Company. In addition, under Maryland law, a
transaction between the Company and any of its Trustees or between the Company
and a corporation, firm or other entity in which a Trustee is a director or
has a material financial interest is not void or voidable solely because of
the Trustee's directorship or the Trustee's interest in the transaction if (i)
the transaction is authorized, approved or ratified, after disclosure of the
interest, by the affirmative vote of a majority of the disinterested Trustees,
or by the affirmative vote of a majority of the votes cast by shareholders
entitled to vote other than the votes of shares owned of record or
beneficially by the interested Trustee or corporation, firm or other entity,
or (ii) the transaction is fair and reasonable to the Company.
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POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer shares of beneficial interest or other
securities and to repurchase or otherwise reacquire its shares or any other
securities and may engage in such activities in the future. As described under
"Shares Available for Future Sale," the Company expects to issue Common Shares
to holders of Units upon exercise of their Exchange Rights. The Company has
not issued Common Shares, interests or any other securities to date, except in
connection with the formation of the Company. The Company has no outstanding
loans to other entities or persons, including its officers and Trustees. The
Company has not engaged in trading, underwriting or agency distribution or
sale of securities of other issuers, nor has the Company invested in the
securities of other issuers other than the Operating Partnership for the
purpose of exercising control and does not intend to do so in the future. The
Company makes and intends to continue to make investments in such a way that
it will not be treated as an investment company under the Investment Company
Act of 1940. The Company's policies with respect to such activities may be
reviewed and modified or amended from time to time by the Company's Board of
Trustees without approval of shareholders.
At all times, the Company intends to make investments in such a manner
consistent with the requirements of the Code for the Company to qualify as a
REIT unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the Company's Board of Trustees, with the consent of
the holders of two-thirds of the outstanding Common Shares, determines that it
is no longer in the best interests of the Company to qualify as a REIT.
WORKING CAPITAL RESERVES
The Company will maintain working capital reserves in amounts that the Board
of Trustees determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and investments.
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MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Trustees and executive officers of the Company immediately after the closing
of the Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael V. Prentiss..... 52 Chief Executive Officer and Chairman of the Board of
Trustees (Term will expire in 1999)
Thomas F. August........ 48 President, Chief Operating Officer and Trustee (Term will
expire in 1998)
Thomas J. Hynes*........ 57 Independent Trustee (Term will expire in 1999)
Barry J. C. Parker*..... 49 Independent Trustee (Term will expire in 1999)
Dr. Leonard M. Riggs, 53
Jr.*................... Independent Trustee (Term will expire in 1998)
Ronald G. Steinhart*.... 56 Independent Trustee (Term will expire in 1998)
Lawrence A. Wilson*..... 61 Independent Trustee (Term will expire in 1997)
Dennis J. DuBois........ 50 Executive Vice President
Richard B. Bradshaw, 44 Executive Vice President and National Director of Corporate
Jr..................... Development
Richard J. Bartel....... 45 Executive Vice President--Financial Operations and
Administration, Chief Operating Officer--Property
Management
Mark R. Doran........... 42 Executive Vice President and Treasurer
Lawrence J. Krueger..... 40 Executive Vice President and Managing Director, Midwest
Region
Jeffry T. Courtwright... 36 Senior Vice President and Managing Director, Southwest
Region
James B. Meyer.......... 37 Senior Vice President and Managing Director, Southeast
Region
David Robertson......... 39 Senior Vice President and Managing Director, Western Region
Robert K. Wiberg........ 41 Senior Vice President and Managing Director, Mid-Atlantic
Region
</TABLE>
- --------
* Has agreed to be nominated as a Trustee, but is not expected to become a
Trustee until immediately after the consummation of the Offering.
The following are biographical summaries of the Trustees and executive
officers of the Company:
Michael V. Prentiss will serve as Chairman of the Board and Chief Executive
Officer of the Company. Mr. Prentiss, the founder and majority owner of PPL,
has over 25 years experience in real estate development, acquisitions, and
investment management and has acquired or developed properties with an
aggregate value in excess of $2 billion. From 1987 to 1992 he served as
President and Chief Executive Officer of PPL and since 1992 he has served as
its Chairman and Chief Executive Officer. From 1978 to 1987, Mr. Prentiss
served as President of Cadillac Urban, Executive Vice President and member of
the Board of Trustees of Cadillac Fairview, and a member of Cadillac
Fairview's Executive Committee. Cadillac Urban was the largest business unit
of Cadillac Fairview, responsible for all of its office, mixed-use and
suburban office park development activity in the U.S. and Canada. Prior to
1978, Mr. Prentiss was President of Ackerman Development Company. Mr. Prentiss
is a Baker Scholar graduate of the Harvard Graduate School of Business
Administration. He holds a Bachelor of Science degree in Civil Engineering and
a B.A. degree in Business Administration from Washington State University.
Thomas F. August serves as President, Chief Operating Officer and Trustee of
the Company. Mr. August has served as President and Chief Operating Officer of
PPL since 1992. From 1987 to 1992, Mr. August served as Executive Vice
President and Chief Financial Officer of PPL. From 1985 to 1987, Mr. August
served in executive capacities with Cadillac Urban. Prior to joining Cadillac
Urban in 1985, Mr. August was Senior Vice President of Finance for Oxford
Properties, Inc., in Denver, Colorado, an affiliate of a privately-held
Canadian real estate firm. Previously, he was a Vice President of Citibank,
responsible for real estate lending activities in the upper Midwest. Mr.
August holds a B.A. degree from Brandeis University and an M.B.A. degree from
Boston University.
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Thomas J. Hynes serves as an Independent Trustee of the Company. Mr. Hynes
is President and Chief Executive Officer of Meredith & Grew Incorporated, a
Boston-based real estate brokerage firm, and has served in that capacity since
1988. Mr. Hynes has been employed by Meredith & Grew Incorporated since 1965
in which time he has held various offices. Mr. Hynes holds a B.A. degree from
Boston College.
Barry J. C. Parker serves as an Independent Trustee of the Company. Mr.
Parker is the immediate past Chairman of the Board, President and Chief
Executive Officer of County Seat, Inc., a nationwide chain of 740 specialty
apparel stores. Prior to joining County Seat, Inc. in 1985, Mr. Parker worked
for the Children's Place, Inc. for 10 years and held various offices with that
company including Senior Vice President and Chief Financial Officer, and Vice
President and General Merchandising Manager. Mr. Parker worked for Federated
Department Stores, Inc. prior to 1975 and held various management positions
with that company's F&R Lazarus Department Store division. Mr. Parker holds a
B.A. degree from Washington University in St. Louis and an M.B.A. degree from
the University of Pennsylvania's Wharton School of Finance and Commerce.
Dr. Leonard M. Riggs, Jr. serves as an Independent Trustee of the Company.
Dr. Riggs is Chairman and Chief Executive Officer of EmCare, Holdings Inc., a
publicly-held physician practice management company specializing in emergency
medicine. Dr. Riggs founded EmCare Holdings, Inc. as Emergency Health Service
Associates in 1972. Dr. Riggs has also served as the Director of Emergency
Medicine at Baylor University Medical Center since 1974. Dr. Riggs is past
president of the American College of Emergency Physicians and is a director
and member of the compensation committee of American Oncology Resources, Inc.
He holds a B.S. degree from Centenary College of Shreveport, Louisiana and an
M.D. degree from the University of Texas Southwestern Medical School in
Dallas, Texas.
Ronald G. Steinhart serves as an Independent Trustee of the Company. Mr.
Steinhart is Chairman and Chief Executive Officer of Banc One Texas, N.A. and
has served in that capacity since 1995. He was also appointed as Regional
Executive for Banc One Corporation's operations in Oklahoma, Arizona, Colorado
and Utah earlier this year. Prior to 1995, Mr. Steinhart served as President
and Chief Operating Officer of Banc One Texas, N.A. to which he was appointed
in 1992 in connection with the merger of Team Bank into Banc One Texas, N.A.
Prior to that merger, Mr. Steinhart served as Chairman and Chief Executive
Officer of Team Bank, which he founded as Deposit Guaranty Bank in 1988. Mr.
Steinhart served as President and Chief Operating Officer of InterFirst
Corporation from 1981 to 1987. Prior to joining InterFirst Corporation in
1980, Mr. Steinhart organized investors to charter and purchase six banks. Mr.
Steinhart holds a B.A. degree in accounting and a M.S. in finance from the
University of Texas in Austin. He is also a Certified Public Accountant.
Lawrence A. Wilson serves as an Independent Trustee of the Company. Mr.
Wilson is President and Chief Executive Officer of HCB Contractors, a
construction and project management company that is a subsidiary of the Beck
Group. Mr. Wilson serves as a director of TU Electric. Mr. Wilson holds a
L.L.B. degree from the Woodrow Wilson College of Law in Atlanta, Georgia and
is a graduate of the Emory University Advanced Management Program.
Dennis J. DuBois serves as Executive Vice President of the Company. Mr.
DuBois served as Executive Vice President of PPL since 1994 and from 1987 to
1993 as its General Counsel. He has more than 22 years of real estate
experience in acquisitions, development and leasing of major buildings and
mixed-use urban properties. Beginning in 1981, Mr. DuBois served as General
Counsel for Cadillac Urban. Before joining Cadillac Urban in 1981, Mr. DuBois
was a partner in a prominent Baltimore law firm. Mr. DuBois holds a B.A.
degree from the University of Massachusetts and a J.D. from the University of
Maryland Law School. He is a member of the Order of the Coif and a member of
the Bar in the state of Maryland.
Richard B. Bradshaw, Jr. serves as Executive Vice President and National
Director of Corporate Development of the Company, overseeing the property
management, leasing and new business development functions. Mr. Bradshaw has
served PPL in that capacity since 1995. Prior to 1995, he was Executive Vice
President of PPL in charge of development for its eastern region. Prior to
1987, Mr. Bradshaw was Senior Vice President of Cadillac Urban, where he was
involved with a variety of Cadillac Urban's real estate projects.
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Mr. Bradshaw holds a B.A. degree in Business Administration from the
University of Georgia and is a Harvard Business School PMD graduate. He is a
member of the Board of Trustees of Central Atlanta Progress and the Midtown
Alliance, and serves on the Urban Land Institute's Regional Steering
Committee.
Richard J. Bartel serves as Executive Vice President--Financial Operations
and Administration and Chief Operating Officer--Property Management of the
Company. Since 1995, Mr. Bartel has served in similar capacities for PPL,
overseeing the operating aspects of its property management business,
including quality control, management training and day-to-day operations. He
also directs financial operations and administration, including accounting and
reporting, taxes, insurance and human resources. Mr. Bartel served as Senior
Vice President of Financial Operations of PPL from 1989 to 1995, Vice
President of Financial Operations of PPL from 1987 to 1989 and Vice President
of Financial Operations of Cadillac Urban from 1986 to 1987. Mr. Bartel holds
a B.S. degree in Accounting from the University of Illinois and a Masters in
Management from Northwestern University's Kellogg Graduate School of
Management. He is also a Certified Public Accountant.
Mark R. Doran serves as Executive Vice President and Treasurer of the
Company. Mr. Doran is responsible for securing interim and long-term financing
and establishing and maintaining relationships with project financing sources.
In 1992 and 1993, Mr. Doran served as Senior Vice President and Treasurer of
PPL, and in 1990 and 1991 he served as its Vice President and Treasurer. Prior
to joining PPL in 1990, Mr. Doran served as Senior Vice President for Lincoln
Property Company, where he was responsible for the financing of Lincoln's
commercial projects throughout the United States. Mr. Doran holds an M.B.A.
degree and a B.B.A. degree in Accounting from Baylor University and is a
member of the Urban Land Institute.
Lawrence J. Krueger serves as Executive Vice President and a Managing
Director of the Company's Midwest region. Mr. Krueger has served in that
capacity for PPL since 1994. He also has primary responsibility for the
development and construction of the 525-acre Continental Executive Parke
office and light industrial complex in suburban Chicago. He served as Senior
Vice President--Development of PPL from 1990 to 1994, Vice President--
Development of PPL from 1987 to 1990 and Vice President--Development Cadillac
Urban from 1986 to 1997. Mr. Krueger holds a B.A. degree in Business from
Indiana University and a Masters degree in Urban Land Economics and Real
Estate Investment Analysis from the University of Wisconsin, Madison. He is a
member of the National Association of Industrial and Office Parks, the
Industrial Development Research Council and the Japan-American Society of
Chicago.
Jeffry T. Courtwright serves as Senior Vice President and a Managing
Director of the Company's Southwest region. He is also responsible for
development and construction activities for the approximately 1.6 million
square foot Park West office park, and Park West Commerce Center, a 366-acre
industrial park, both in suburban Dallas. From 1993 to 1995, Mr. Courtwright
was Senior Vice President of Lincoln Property Company in Dallas, where he
handled leasing, property development and business development. Mr.
Courtwright holds a B.A. in Business from Southern Methodist University, is a
licensed real estate broker in Texas, a council member of the National
Association of Industrial and Office Parks and a member of the Executive
Committee for the Board of Directors of the Central Dallas Association.
James B. Meyer serves as Senior Vice President and a Managing Director of
the Company's Southeast region. Mr. Meyer has served as Senior Vice President
and Managing Director of PPL since 1995, was Senior Vice President from 1994
to 1995 and was a Vice President from 1990 to 1994. Mr. Meyer was also
responsible for the acquisition of the 500,000 square foot Cumberland Office
Park in Atlanta and the development and sale of One Atlantic Center (IBM
Tower), a 1.1 million net rentable square foot landmark building in Midtown
Atlanta. Prior to 1990, Mr. Meyer worked in various capacities for Cadillac
Fairview, which he joined in 1984. Mr. Meyer holds an M.B.A. from the
University of Pennsylvania's Wharton School of Finance and Commerce and a B.S.
degree in civil engineering from Purdue University. He has served on the
Boards of the Midtown Alliance, Downtown Atlanta Partnership, and numerous
other civic and professional organizations.
David Robertson serves as Senior Vice President and a Managing Director of
the Company's Western region. Mr. Robertson has served as a Senior Vice
President and Managing Director of PPL since 1995, a Vice
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President since 1993 and a General Manager since 1990. From 1986 to 1990, he
worked in various capacities for Cadillac Fairview. Before joining Cadillac
Fairview in 1986, Mr. Robertson was responsible for the management of various
properties for Gerald D. Hines Interests and Henry S. Miller Management
Corporation in Dallas. Mr. Robertson holds a California Real Estate License,
and is a candidate for the Certified Property Manager designation from the
Institute of Real Estate Management. He received a B.S. in banking and finance
from Mississippi State University, and is actively involved in the Institute
of Real Estate Management and the Building Owners and Managers Association.
Robert K. Wiberg serves as Senior Vice President and a Managing Director of
the Company's Mid-Atlantic region. Mr. Wiberg has served as a Senior Vice
President and Managing Director of PPL since 1995 and a Vice President for
Development and Acquisitions since 1990. Prior to joining Cadillac Fairview in
1984, Mr. Wiberg was employed by Coldwell Banker in its Los Angeles office. As
Vice President of Development and Acquisitions, Mr. Wiberg was responsible for
PPL's development in Washington, D.C. and Northern Virginia, including the
Fairview Park project. Mr. Wiberg holds an M.B.A. degree from the University
of California, at Berkeley; a Masters degree in City and Regional Planning
from Harvard University, and a B.A. degree from Cornell University.
BOARD OF TRUSTEES
The business and affairs of the Company will be managed under the direction
of the Board of Trustees, which will initially have seven members, five of
whom will be Independent Trustees. Messrs. Prentiss and August presently serve
as Trustees of the Company. Immediately following the consummation of the
Offerings, Messrs. Hynes, Parker, Steinhart and Wilson and Dr. Riggs will
become Trustees.
Pursuant to the terms of the Company's Declaration of Trust, the Trustees
are divided into three classes. One class will hold office initially for a
term expiring at the annual meeting of shareholders to be held in 1997, a
second class will hold office initially for a term expiring at the annual
meeting of shareholders to be held in 1998, and a third class will hold office
initially for a term expiring at the annual meeting of shareholders to be held
in 1999. At each annual meeting of the shareholders of the Company, the
successors to the class of Trustees whose terms expire at that meeting will be
elected to hold office for a term continuing until the annual meeting of
shareholders held in the third year following the year of their election and
the election and qualification of their successors. See "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws."
The Continuing Investors have a right, exercisable within one year of the
Closing of the Offering, to nominate one person acceptable to management as a
Trustee. The Company is obligated to facilitate a shareholder vote on such
nominee at a special shareholders meeting to be called upon such nomination.
At such meeting, management will endorse the nominee for election as a Trustee
for a term expiring no less than one year after the election. If elected, such
nominee will have such rights, powers and obligations as any other single
Trustee of the Company possesses. Such a Trustee will not be an Independent
Trustee.
COMMITTEES OF THE BOARD OF TRUSTEES
Audit Committee. Within 30 days following consummation of the Offering, the
Board of Trustees of the Company will establish an Audit Committee that will
consist of not less than two members, all of whom shall be Independent
Trustees. The Audit Committee will make recommendations concerning the
engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls.
Executive Compensation Committee. The Board of Trustees will also establish
a Compensation Committee (the "Compensation Committee") comprised of two or
more of the Independent Trustees to determine compensation for the Company's
executive officers and to implement the Company's 1996 Share Incentive Plan.
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The Board of Trustees does not have a standing nominating committee. The
full Board of Trustees performs the functions of such a committee.
COMPENSATION OF TRUSTEES
The Company intends to pay its Trustees who are not officers of the Company
fees for their services as trustees. Each such Trustee will receive annual
compensation of $10,000 in Common Shares payable quarterly and a fee of $1,250
plus expenses for attendance in person at each meeting of the Board of
Trustees, $250 for each telephonic meeting of the Board of Trustees and $500
for each committee meeting attended. In addition, each such Trustee will
receive options under the 1996 Trustees' Share Incentive Plan (the "Trustees'
Plan") to purchase 10,000 Common Shares at an exercise price equal to the
Offering Price, which options will vest in equal installments over a four-year
period on the anniversary of the date of grant. Officers of the Company who
are Trustees will not be paid any trustee fees.
EXECUTIVE COMPENSATION
The Company was organized as a Maryland real estate investment trust in July
1996, and paid no cash compensation to its executive officers for the year
ended December 31, 1995.
The following table sets forth the base compensation to be awarded to each
of the five most highly compensated executive officers of the Company during
the fiscal year ending December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS AND
NAME AND PRINCIPAL POSITION SALARY/(1)/ OPTIONS/(2)/
--------------------------- ------------ ------------
<S> <C> <C>
Michael V. Prentiss
Chairman and CEO.................................................. $180,000 386,762
Thomas F. August
President and COO................................................. 175,000 173,944
Richard J. Bartel
Executive Vice President.......................................... 160,000 75,000
Richard B. Bradshaw
Executive Vice President.......................................... 150,000 64,366
Dennis J. DuBois
Executive Vice President.......................................... 150,000 39,366
</TABLE>
- --------
/(1)/ Amounts given are annualized projections for fiscal year 1996, which ends
December 31, 1996. Does not include bonuses that may be paid to the above
individuals. See "Incentive Compensation".
/(2)/ Upon the effective date of the Offering, options to purchase a total of
1,291,439 Common Shares will be granted to Trustees and employees of the
Company under the 1996 Share Incentive Plan (the "1996 Plan") and
Trustees' Plan at a price equal to the Offering Price. In addition, the
Company will award under the 1996 Plan options to purchase 2,000 Common
Shares at the then-current trading price at the time of the award to each
employee achieving a combined 10 years of service with the Prentiss Group
and the Company. In 1996, those awards are expected to total approximately
20,000 options. See "1996 Share Incentive Plan."
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OPTION GRANTS IN FISCAL YEAR 1996(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF SHARE
OPTIONS PRICE APPRECIATION FOR
GRANTED OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED /(1)/ FISCAL YEAR PER SHARE /(2)/ DATE /(3)/ 5% 10%
---- ------------- ---------------- --------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael V. Prentiss..... 386,762 29.9% $20.00 , 2006 $4,864,649 $12,327,979
Thomas F. August........ 173,944 13.5% 20.00 , 2006 2,187,848 5,544,439
Richard J. Bartel....... 75,000 5.8% 20.00 , 2006 943,342 2,390,614
Richard B. Bradshaw..... 64,366 5.0% 20.00 , 2006 809,588 2,051,656
Dennis J. DuBois........ 39,366 3.0% 20.00 , 2006 495,141 1,254,785
</TABLE>
- --------
/(1)/ The options will become exercisable for one-third of the covered shares
(disregarding fractional shares if any) on the first and second
anniversaries of the date of grant, and for the balance of the covered
shares on the third anniversary of the date of grant.
/(2)/ Based on the Offering Price.
/(3)/ The expiration date will be ten years after the date of grant.
EMPLOYMENT AGREEMENTS
Messrs. Prentiss and August will enter into employment agreements with the
Company. Each agreement will be for an initial term of three years, which will
be automatically renewed for successive one-year periods unless otherwise
terminated. The agreements will provide for base annual compensation (as set
forth in "--Executive Compensation" above) and incentive compensation to be
determined by the Compensation Committee (within the terms set forth in "--
Incentive Compensation Program" below). Each employment agreement provides
that the Compensation Committee may approve increases in the base salaries.
Each of the employment agreements provides for certain severance payments in
the event of disability or termination by the Company without cause or by the
employee with cause. No other employee of the Company will be employed
pursuant to an employment agreement.
The terms of Messrs. Prentiss's and August's employment agreements require
that Messrs. Prentiss and August devote substantially all of their business
time to the affairs of the Company. These agreements also, subject to certain
exceptions, prohibit them from engaging, directly or indirectly, during the
term of their employment or the Noncompetition Period (as defined below), in
any activity anywhere in the U.S. that competes with the Company (the
"Competitive Activities"). These provisions of each employment agreement
survive the termination of such agreement until the expiration of the
Noncompetition Period. The "Noncompetition Period" is the period beginning on
the date of the termination of employment with the Company and ending on the
second anniversary of such date.
Messrs. Bradshaw and DuBois will enter into noncompetition agreements with
the Company that, subject to certain limited exceptions, prohibit them from
engaging, directly or indirectly, in Competitive Activities in the
Southeastern U.S. and the Southwestern U.S., respectively, during the
Noncompetition Period.
1996 SHARE INCENTIVE PLAN
Prior to the Offering, the Board of Trustees will adopt, and the sole
shareholder of the Company will approve, the 1996 Plan. As used in this
summary, "--1996 Share Incentive Plan," "--Incentive Compensation" below, "--
The Trustees' Plan" below, "--Savings Plan" below and "--Share Purchase Plan"
below, the term "Company" shall not include the Operating Partnership, the
Manager, or other corporate or noncorporate subsidiaries of the Company. The
1996 Plan will be administered by the Compensation Committee of the Board of
Trustees, or its delegate. The Compensation Committee may not delegate its
authority with respect to grants and awards to individuals subject to Section
16 of the Exchange Act. As used in this summary, the term "Administrator"
means the Compensation Committee or its delegate, as appropriate.
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Officers and other employees of the Company, the Operating Partnership and
designated subsidiaries, including the Manager, generally will be eligible to
participate in the 1996 Plan. The Administrator selects the individuals who
will participate in the 1996 Plan ("Participants"), but no person may
participate in the 1996 Plan while he is a member of the Compensation
Committee. No Participant may be granted, in any calendar year, options that
cover more than 390,000 Common Shares or Share Appreciation Rights ("SARs")
that cover more than 390,000 Common Shares. Options granted with tandem SARs
shall be treated as a single award for purposes of applying the limitation in
the preceding sentence. No Participant may be issued, in any calendar year,
more than 50,000 Common Shares pursuant to one or more Share Awards, including
an award of Restricted Shares (defined below), or Performance Shares (defined
below) for more than 50,000 Common Shares.
The 1996 Plan authorizes the issuance of up to 1,614,300 Common Shares, plus
automatic increases equal to 8% of newly issued and outstanding Common Shares
of the Company (other than Common Shares issued under the 1996 Plan, Trustees'
Plan, or other benefit plans of the Company). The Plan provides for the grant
of (i) share options not intended to qualify as incentive stock options under
Section 422 of the Code, (ii) Performance Shares, (iii) SARs, issued alone or
in tandem with options, (iv) Restricted Shares, which are contingent upon the
attainment of performance goals or subject to vesting requirements or other
restrictions and (v) incentive awards. The Administrator shall prescribe the
conditions which must occur for Restricted Shares and Performance Shares to
vest or incentive awards to be earned. These conditions may include, for
example, a Participant's continued employment for a specified period or that
the Company or the Participant achieve stated, performance-related objectives
such as earnings per share, fair market value, Funds from Operations per
share, or return on assets. For Restricted Shares where vesting conditions are
performance based, the vesting period must be at least one year. For other
Restricted Shares, the vesting period must be at least three years. The
performance period for all Performance Shares must be at least one year. Not
more than 10% of the Common Shares authorized to be issued under the 1996 Plan
at any time may be issued pursuant to awards of Restricted Shares, or in full
or partial settlement of an incentive award or an award of Performance Shares.
The share limitations described in this paragraph and the terms of outstanding
awards shall be adjusted as the Compensation Committee deems appropriate in
the event of a share dividend, share split, combination, reclassification,
recapitalization or other similar event.
In connection with the grant of options under the 1996 Plan, the
Administrator will determine the option exercise period and any vesting
requirements. The initial options granted under the Plan will have 10-year
terms and will become exercisable for one-third of the covered shares
(disregarding fractional shares, if any) on the first and second anniversaries
of the date of grant, and for the balance of the shares on the third
anniversary of the date of grant subject to acceleration of vesting upon a
change in control of the Company (as defined in the 1996 Plan). An option may
be exercised for any number of whole shares less than the full number for
which the option could be exercised. A Participant will have no rights as a
shareholder with respect to Common Shares subject to his or her option until
the option is exercised. To the extent an option has not become exercisable at
the time of a Participant's termination of employment, it will be forfeited
unless the Administrator exercises its discretion to accelerate vesting for
the Participants. If a Participant is terminated due to dishonesty or similar
reasons, all unexercised options, whether vested or unvested, will be
forfeited. Any Common Shares subject to options which are forfeited (or expire
without exercise) pursuant to the vesting requirement or other terms
established at the time of grant will again be available for grant under the
1996 Plan. The exercise price of options granted under the 1996 Plan may not
be less than the fair market value of the Common Shares on the date of grant.
Payment of the exercise price of an option granted under the 1996 Plan may be
made in cash, cash equivalents acceptable to the Compensation Committee or, if
permitted by the option agreement, by exchanging Common Shares having a fair
market value equal to the option exercise price.
Upon exercise of an option, a Participant will be deemed to receive ordinary
income in an amount equal to the difference between the exercise price and the
fair market value of the underlying shares of Common Shares on the date of the
exercise. Upon the exercise of an option by a Participant who is an employee
of the Company, the Company will be entitled to a deduction for the amount
recognized as ordinary income by such Participant.
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On the effective date of the Offering, options for 1,291,439 Common Shares
will be granted to employees and officers, including the officers named in "--
Executive Compensation" above, at an exercise price equal to the Offering
Price.
The Compensation Committee will determine the service requirements and
performance goals to which future awards of Restricted Shares will be subject.
Restricted Shares that have not vested at the time of a Participant's
termination of employment with the Company generally will be forfeited, except
where such termination occurs by reason of death or disability. The
Compensation Committee will also have discretion to accelerate vesting for
Participants whose employment ceases, under appropriate circumstances. The
Participant will have all the rights of a shareholder both prior to and after
vesting of Restricted Shares, including the right to vote and receive
distributions with respect to the shares.
A Restricted Share award will create no tax consequences for the Participant
or the Company until it is transferable or nonforfeitable (unless the
Participant makes an election pursuant to Section 83(b) of the Code). The
Participant will recognize ordinary income when an award of Restricted Shares,
becomes transferable or nonforfeitable, in an amount equal to the fair market
value of the shares on the date of vesting less any consideration paid by the
Participant for such shares. If the Participant makes an election pursuant to
Section 83(b) of the Code, the Participant will recognize income at the time
the shares are awarded (based upon the value of such shares at the time of
award) rather than when the shares become transferable or nonforfeitable. The
Company will be allowed a business expense deduction for the amount of any
taxable income recognized by a Participant who is an employee of the Company
at the time such income is recognized.
No option, SAR, Restricted Shares, incentive award or Performance Shares may
be granted under the 1996 Plan after December 31, 2006. The Board may amend or
terminate the 1996 Plan at any time, but an amendment will not become
effective without shareholder approval if the amendment materially (i)
increases the number of shares that may be issued under the 1996 Plan (other
than an adjustment or automatic increase described above); (ii) changes the
eligibility requirements; or (iii) increases the benefits that may be provided
under the 1996 Plan. No amendment will affect a Participant's outstanding
award without the Participant's consent.
INCENTIVE COMPENSATION
The Company may award incentive compensation to employees of the Company and
its subsidiaries, including incentive awards under the 1996 Plan that may be
earned on the attainment of performance objectives stated with respect to
criteria described above or other performance-related criteria. The
Compensation Committee may, in its discretion, approve bonuses to executive
officers and certain other officers and key employees if the Company achieves
Company-wide, regional and/or business unit performance objectives determined
by it each year. To the extent a bonus exceeds 100% of such an employee's base
salary, the Company may pay such excess in Restricted Shares.
THE TRUSTEES' PLAN
Prior to the Offering, the Board of Trustees will also adopt, and the
Company's sole shareholder will approve, the Trustees' Plan to provide
incentives to attract and retain Independent Trustees.
The Trustees' Plan provides for the grant of options and the award of Common
Shares to each eligible Trustee of the Company. No Trustee who is an employee
of the Company, the Operating Partnership, or designated subsidiaries,
including the Manager, is eligible to participate in the Trustees' Plan.
The Trustees' Plan provides that each Independent Trustee who is a member of
the Board of Trustees on the effective date of the Offering (a "Founding
Trustee") will be granted an option for 10,000 Common Shares at an exercise
price equal to the Offering Price. Each Independent Trustee who is not a
Founding Trustee will receive an option for 10,000 Common Shares on the date
of the first Board of Trustees meeting following the annual meeting of
shareholders at which the Independent Trustee is first elected to the Board of
Trustees;
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provided, however, that an Independent Trustee (other than a Founding Trustee)
who is first elected or appointed to the Board of Trustees other than at an
annual meeting of shareholders shall receive an option for 10,000 Common
Shares on the date of such election or appointment. The exercise price of
options granted in accordance with the preceding sentence shall be the fair
market value of a Common Share on the date of grant. The exercise price of
options granted under the Trustees' Plan may be paid in cash, acceptable cash
equivalents, Common Shares or a combination thereof. Options issued under the
Trustees' Plan are exercisable for ten years from the date of grant.
An option granted under the Trustees' Plan shall become exercisable for
2,500 shares on each of the first through fourth anniversaries of the date of
grant, provided that Trustee is a member of the Board of Trustees on such
anniversary date. To the extent an option has become exercisable under the
Trustees' Plan, it may be exercised whether or not the Trustee is a member of
the Board on the date or dates of exercise. An option may be exercised for any
number of whole shares less than the full number for which the option could be
exercised. A Trustee will have no rights as a shareholder with respect to
Common Shares subject to his or her option until the option is exercised.
Each Independent Trustee will also receive quarterly an award of Common
Shares. Awards will be made on each March 1, June 1, September 1 and December
1 (each date, a "Quarterly Award Date") during the term of the Trustees' Plan.
Each Independent Trustee will receive, on each Quarterly Award Date on which
he or she is a member of the Board of Trustees, the number of Common Shares
having a fair market value on that date that as nearly as possible equals, but
does not exceed, $2,500. A Trustee will be immediately and fully vested in all
such Common Shares awarded to him or her under the Trustees' Plan.
The terms of outstanding options, the number of Common Shares for which
options will thereafter be awarded, and the number of Common Shares to be
awarded on a Quarterly Award Date shall be subject to adjustment in the event
of a share dividend, share split, combination, reclassification,
recapitalization or other similar event.
The Trustees' Plan provides that the Board of Trustees may amend or
terminate the Trustees' Plan, but the Trustees' Plan may not be amended more
than once every six months other than to comply with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act of 1974, or the
rules thereunder. An amendment will not become effective without shareholder
approval if the amendment materially changes the eligibility requirements or
increases the benefits that may be provided under the Trustees' Plan. No
options for Common Shares may be granted and no Common Shares may be awarded
under the Trustees' Plan after December 31, 2002.
SAVINGS PLAN
The Company intends to assume and continue, and the Operating Partnership
and designated subsidiaries, including the Manager (each, a "Participating
Employer"), intend to adopt, the Employee Savings Plan & Trust (the "401(k)
Plan") of PPL which was originally adopted in 1987. Prior service with PPL
will be credited in full as service with the Company or a Participating
Employer for all purposes under the 401(k) Plan, including eligibility and
vesting.
Each employee of the Company and a Participating Employer may enroll in the
401(k) Plan on March 1, June 1, September 1, and December 1 after completing
one year and 1,000 hours of service and attaining age 21 (an enrolled employee
is a "Plan Participant"). Plan Participants are immediately vested in their
pre-tax and after-tax contributions, matching and discretionary Company
contributions, and earnings thereon.
The 401(k) Plan permits each Plan Participant to elect to defer up to 15% of
base compensation, subject to the annual statutory limitation ($9,500 for
1996) prescribed by Section 402(g) of the Code, on a pre-tax basis. Plan
Participants may also elect to make an after-tax contribution of up to 8% of
their base compensation. The Company and the Participating Employers will make
matching contributions equal to 25% of amounts deferred
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up to $500 in deferrals. The Company and the Participating Employers may also
make annual contributions if the Company achieves certain performance
objectives to be determined on an annual basis by the Compensation Committee.
Matching and discretionary contributions will be made in cash or Common
Shares.
SHARE PURCHASE PLAN
Prior to the Offering, the Company will adopt a "Share Purchase Plan." Under
the Share Purchase Plan, employees of the Company, will be able to purchase
Common Shares directly from the Company at a 15% discount to the then-current
market value at the date of purchase. Purchases may be made by any employee
(other than certain shareholders of the Company or certain subsidiary
corporations) with more than one full year of continuous employment on the
last business day of June and December. An employee's purchases, on an annual
basis, under the Share Purchase Plan will be limited to the lesser of 15% of
the employee's base salary or $20,000. The maximum number of Common Shares
that may be purchased under the Share Purchase Plan is 250,000. The Company
will also adopt a similar plan for employees of the Operating Partnership and
designated subsidiaries, including the Manager, and employees of the Company
who may not purchase shares under the Share Purchase Plan under which a
maximum of 250,000 Common Shares may be purchased. Employees who participate
in the plan described in the preceeding sentence will recognize income equal
to the discount at the time of a purchase.
INDEMNIFICATION
For a description of the limitation of liability and indemnification rights
of the Company's officers and Trustees, see "Certain Provisions of Maryland
Law and of the Company's Declaration of Trust and Bylaws--Limitation of
Liability and Indemnification."
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FORMATION TRANSACTIONS
The Company was formed to continue and expand the Prentiss Group's national
acquisition, property management, leasing, development and construction
businesses and to acquire the 85 Properties. Prior to or simultaneous with the
closing of the Offering, the Company will engage in the Formation Transactions
described below, which are designed to consolidate the ownership of the
Properties and the Prentiss Properties Service Business in the Company, to
facilitate the Offering and to enable the Company to qualify as a REIT
commencing with its short taxable year ending December 31, 1996.
FORMATION TRANSACTIONS
The Formation Transactions include the following, which will occur in
connection with the closing of the Offering:
. The Company will sell to the public 15,110,000 Common Shares and will
issue 1,892,985 Common Shares to the Continuing Investors in exchange for
a portion of their interests in the Operating Partnership. The Company
will transfer (i) approximately 31.9% of the net proceeds of the Offering
to the current limited partners of the Operating Partnership, which
include the Continuing Investors, in exchange for interests in the
Operating Partnership, (ii) 67.9% directly to the Operating Partnership
in exchange for Units, and (iii) approximately .2% of the net proceeds of
the Offering to the General Partner, which the General Partner will in
turn contribute to the Operating Partnership in exchange for a 0.2%
general partnership interest in the Operating Partnership. After the
completion of the Offering, the Company will have issued a total of
17,002,985 Common Shares and will own, either directly or through the
General Partner, 17,002,985 Units. The total value of the consideration
being paid by the Company (cash, Units and Common Shares) to the pre-
Offering limited partners of the Operating Partnership is approximately
$126.2 million.
. The Operating Partnership is an affiliate of the Prentiss Group. The
Prentiss Group members who collectively serve as the general partner of
the Operating Partnership will contribute to the Operating Partnership
all of their interests in the Properties and certain management contracts
of PPL in exchange for 3,520,198 Units. The acquisition of the various
Prentiss Group interests will be accounted for at their historical cost
with any excess paid recorded as a distribution.
. The interests of the pre-Offering limited partners of the Operating
Partnership will be acquired by the Company with Common Shares and cash.
The pre-Offering limited partners will receive $88,708 in cash and
1,892,985 Common Shares for their interests. The acquisition of the
Continuing Investors interests will be accounted for using purchase
accounting based on the cash paid and the value of the REIT shares issued
to them, resulting in an incremental increase in the basis of the
Predecessor Company's real estate.
. The Prentiss Group will contribute to the Operating Partnership all of
its interests in the Properties, the Development Parcels, the Options and
the Prentiss Properties Service Business in exchange for an aggregate of
3,520,198 Units. Members of the Prentiss Group will realize an immediate
increase of $48.0 million in the net tangible book value of their
original $4.7 million investment in the Company. The acquisition of the
various Prentiss Group interests will be accounted for at their
historical cost with any excess paid recorded as a distribution.
. The Prentiss Group member which currently serves as general partner of
the Operating Partnership will convert its interest into a limited
partnership interest and will distribute the Units representing such
interest to its partners, all of whom are members of the Prentiss Group
and will be limited partners of the Operating Partnership.
. The Units received by the Prentiss Group in connection with the Formation
Transactions will have a total value of approximately $70.4 million based
on the Offering Price of $20 per Common Share and will be redeemable for
cash or Common Shares on a one for one basis, no earlier than two years
after the Closing Date.
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. A corporation wholly owned by Michael Prentiss, the Chairman and Chief
Executive Officer of the Company, will contribute $167,000 in cash to the
Manager in exchange for all of the voting common stock of the Manager,
which stock shall represent 5% of the ownership interest in such company.
The Manager will record the receipt of cash and will record the 5% voting
interest in the Company. The Manager has been included in the pro forma
financial information under the equity method of accounting due to the
Operating Partnership's ownership of a non-controlling, non-voting
interest in the Manager.
. The Operating Partnership will contribute a portion of the Prentiss
Properties Service Business as required for the Company to maintain its
status as a REIT to the Manager in exchange for all of the non-voting
common stock of the Manager, which stock shall represent 95% of the
ownership interest in such company, and a promissory note in the
principal amount of $26.95 million, bearing interest at an annual rate of
13%. Accrued interest on the outstanding principal balance of the note
shall be paid monthly. No principal on the note will be due in the first
three years, after which time 10% of the initial principal balance will
be repaid each year for 10 years. Due to the affiliation of the Manager
and the Operating Partnership, the Note has been classified in
shareholder's equity. Due to the capital nature of this transaction,
interest income and expense amounts are recorded directly to
shareholder's equity.
. The Operating Partnership will borrow $70.8 million from an affiliate of
Lehman to fund a portion of the acquisition of the Properties.
. The Operating Partnership will use approximately $54.0 million of the net
proceeds of the Offering to acquire interests in certain Properties from
an affiliate of Lehman, and will use approximately $64.5 of the net
proceeds of the Offering to repay mortgage loans made by an affiliate of
Lehman and secured by certain of such Properties.
. The Operating Partnership will use approximately $149.6 million of the
net proceeds of the Offering (and the proceeds from the loans from an
affiliate of Lehman) to acquire certain Properties from an affiliate of
the Prentiss Group.
. The Operating Partnership will use approximately $34.9 million of the net
proceeds of the Offering to repay indebtedness secured by certain
Properties currently held by the Operating Partnership or to be acquired
from the Prentiss Group. "Certain Relationships and Transactions."
. The Operating Partnership will use approximately $1.1 million of the net
proceeds of the Offering to pay prepayment penalties associated with all
of the debt to be repaid in the Formation Transactions. The accounting
treatment for the prepayment penalties will be a charge to equity.
EFFECTS OF THE FORMATION TRANSACTIONS
As a result of the transactions involved in the formation of the Company
(including the Offering), the Company initially will hold directly or
indirectly approximately 82.85% of the Units in the Operating Partnership, and
the remaining Units will be held directly or indirectly by the Prentiss
Principals. Immediately following completion of the Offering, purchasers of
Common Shares in the Offering will hold approximately 73.62% of the
consolidated equity of the Company, the Prentiss Principals will directly or
indirectly hold approximately 17.15% and the Continuing Investors will hold
approximately 9.22% of the consolidated equity of the Company.
In addition to the 47 Properties owned by the Operating Partnership prior to
the Offering, the Operating Partnership will own (i) 100% of the fee interest
in 20 Properties, (ii) 99% general partnership interests of two limited
partnerships that own, in the aggregate, three Properties, the 1% limited
partner of which is the Manager, (iii) a 98.01% general partnership interest
of a limited partnership that owns one Property, the 1.99% limited partner of
which is the Manager, (iv) 99% limited partnership interests in six limited
partnerships that each own one Property, the 1% general partner of which is a
limited partnership in which the Operating Partnership owns a 99% general
partnership interest, (v) a 49.9% general partnership interest in a general
partnership that owns a leasehold interest in seven Properties, (vi) a 25%
general partnership interest in a general partnership that owns an individual
property in Itasca, Illinois, (vii) a 99% general partnership interest in a
limited partnership that
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owns the management contracts with respect to the Properties owned, directly
or indirectly, by the Operating Partnership before the completion of the
Formation Transactions, (viii) a 99% interest as the managing member of a
limited liability company that owns (A) the title insurance agency that
underwrites policies on properties located in Texas (including the policies
obtained on the Texas Properties in connection with the Formation
Transactions) and (B) a 1% interest in, and contract rights with respect to,
the insurance agency that underwrites the policies in the Company's MgmtPlus+
insurance program (see "Properties--Insurance"), the 1% member of which
limited liability company is the Manager, and (xi) all of the nonvoting stock
of the Manager, representing 95% of the beneficial interests therein, with a
corporation wholly owned by Michael V. Prentiss owning all of the voting stock
of the Manager, representing 5% of the beneficial interests therein.
VALUATION OF THE COMPANY AND PROPERTIES
Neither the Prentiss Group nor the Company sought or obtained any third
party determination of the value of the assets contributed to the Operating
Partnership in connection with the Formation Transactions, except with respect
to the 47 Properties owned by the Operating Partnership prior to the Offering.
With respect to those Properties, an appraisal was performed in June 1996 by
Landauer Associates, Inc., solely to assist the Prentiss Group in determining
the purchase prices payable to the current partners of the Operating
Partnership, including the Continuing Investors and the Prentiss Group member
serving as managing general partner, for their interests therein.
The Total Market Capitalization of the Company at the Offering Price may not
be indicative of, and may exceed: (i) the aggregate appraised values of the
Properties and other assets to be acquired by the Company if appraisals had
been obtained on all such assets in connection with the formation of the
Company, and (ii) the fair market value of the Properties and such other
assets. The value of the Company has been derived from a capitalization of the
Company's pro forma consolidated cash flow, as adjusted, available for
distribution to its shareholders, the Company's potential for growth and
comparisons to other REITs and other factors set forth in "Underwriting." This
methodology has been used because the Company believes it is appropriate to
value the Company as an ongoing business, rather than through values that
could be obtained from a liquidation of the Company or of its individual
assets. No assurance can be given that the Offering Price will be an
indication of the actual value of the Common Shares, which will be determined
by market conditions and other factors. The aggregate number of Common Shares
and Units allocated to members of the Continuing Investors and Prentiss Group,
respectively, was arrived at by determining the percentage of equity of the
Company remaining after sufficient equity is allocated to the public Offering
to enable the Company to pay out of expected cash flow an annual distribution
of $20.6 million or $1.28 per share. The distribution rate was derived by
comparison to distribution rates of other REITs that the Company believes may
be comparable and in light of current market conditions. The percentage of
Common Shares allocated to the purchasers of shares sold by the Company in the
Offering (73.62%) is equal to the percentage of estimated pro forma cash flow
available for distribution necessary to pay the targeted distribution rate and
the remaining equity of the Company was allocated to members of the Prentiss
Group and Continuing Investors. Thus, the aggregate number of Restricted
Shares and Units allocated to persons participating in the formation of the
Company was not based on a valuation of the assets contributed other than the
range of estimated values that the public market may place on the Company as a
whole. See "Risk Factors--Prices to be Paid for Properties."
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
See "Formation Transactions" for a summary of certain related party
transactions that will be consummated prior to or simultaneously with the
closing of the Offering.
BENEFITS TO RELATED PARTIES
The Prentiss Group, including the Prentiss Principals, will realize certain
benefits as a result of the Offering and the Formation Transactions, including
the following:
Receipt of Units by the Prentiss Group. Members of the Prentiss Group will
receive a total of 3,520,198 Units in consideration for their interests in the
Properties, the Development Parcels, the Options and the Prentiss Properties
Service Business in connection with the Formation Transactions. These Units
(representing approximately 17.15% of the Company on a consolidated basis)
will have a total value of approximately $70.4 million based on the Offering
Price of the Common Shares, compared to a net tangible book value of the
assets contributed to the Operating Partnership by the Prentiss Group of
approximately $4.7 million. The Company believes that the net tangible book
value of the individual assets contributed to the Operating Partnership by the
Prentiss Group (which reflects the historical cost of such assets less
accumulated depreciation), is less than the aggregate current market value of
such assets. Any time after two years following the Closing Date, the members
of the Prentiss Group holding Units may, in accordance with the Operating
Partnership Agreement, exchange all or a portion of such Units for cash or, at
the election of the Company, Common Shares on a one-for-one basis. The Company
currently expects that it will not elect to pay cash for Units in connection
with any such exchange request, but instead will exchange Common Shares for
such Units. The Units may provide the members of the Prentiss Group with
increased liquidity and, until disposition of certain assets contributed to
the Company, with continued deferral of the taxable gain associated with those
assets.
Increase in Prentiss Group's Net Tangible Investment. Members of the
Prentiss Group will realize an immediate increase of $30.4 million in the net
tangible book value of their original $4.7 million investment in the Company.
The immediate increase is derived from the difference between the net tangible
assets per share before and after the Formation Transactions multiplied by the
3,520,198 Units of to be received as consideration. See "Dilution."
Messrs. Prentiss and August Employment Agreements. Messrs. Prentiss and
August will enter into employment agreements with the Company. See
"Management--Employment Agreements."
Options Granted. The Company will grant to the Prentiss Principals, 41
employees of the Company and the Independent Trustees, options to purchase an
aggregate of 1,291,439 Common Shares under the Company's 1996 Share Incentive
Plan at the Offering Price, subject to certain vesting requirements. See
"Management--1996 Share Incentive Plan."
Maintenance of Debt for Benefit of Prentiss Principals. The Company has
agreed to maintain at least $1.3 million of indebtedness secured by certain of
the Properties outstanding for three years and to permit certain Prentiss
Group members to guaranty such debt through December 31, 1998 in order to
defer certain tax consequences associated with the Formation Transactions.
REPAYMENT OF TERMINATION FEE NOTE
PPL holds (and after the Formation Transactions will continue to hold) the
Termination Fee Note from PCIG which is paid with the proceeds of sales of
properties owned by PCIG. The Company will acquire the PGC Properties from
PCIG that in the Formation Transactions and subsequent to the Offering, PPL
will receive a payment of approximately $500,000 under the Termination Fee
Note. The Company will have certain options on properties owned by PCIG which,
if exercised, would result in additional payments to PPL under the Termination
Fee Note. See "Properties--Option Parcels."
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TRANSACTIONS WITH AN AFFILIATE OF LEHMAN
In connection with the Offering, (i) affiliates of Lehman will receive $54.0
million of the net proceeds as consideration for the sale of such affiliates'
interests in certain of the Properties to the Company in the Formation
Transactions, (ii) an affiliate of Lehman will be repaid mortgage loans in the
principal amount of approximately $64.5 million made by it to certain
affiliates of the Company prior to the Offering and (iii) an affiliate of
Lehman Inc. has provided commitments to make three mortgage loans available to
the Company in the aggregate principal amount of $70.8 million. See
"Underwriting," "Use of Proceeds", "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Results."
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PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth the beneficial ownership of Common Shares of
(i) each person who is a shareholder of the Company owning more than 5% of the
beneficial interest in the Company, (ii) each person who is a trustee or
executive officer of the Company and (iii) the trustees and executive officers
of the Company as a group. Unless otherwise indicated in the footnotes, all of
such interests are owned directly, and the indicated person or entity has sole
voting and investment power. The number of shares represents the number of
Common Shares the person is expected to hold plus the number of shares for
which Units expected to be held by the person are redeemable (if the Company
elects to issue Common Shares rather than pay cash upon such redemption). The
extent to which the persons will hold Common Shares as opposed to Units is set
forth in the notes.
<TABLE>
<CAPTION>
NUMBER OF SHARES AND
UNITS BENEFICIALLY
OWNED AFTER PERCENT OF ALL COMMON PERCENT OF ALL
NAME OF BENEFICIAL OWNER THE OFFERING SHARES AND UNITS/(1)/ COMMON SHARES/(1)/
- ------------------------ -------------------- --------------------- ------------------
<S> <C> <C> <C>
Michael V.
Prentiss/(2)//(3)/..... 2,759,000 13.44% 13.96%
Thomas F.
August/(2)//(4)/....... 364,000 1.77% 2.10%
Thomas J. Hynes/(5)/.... 500 * *
Barry J.C. Parker/(5)/.. 500 * *
Dr. Leonard Riggs,
Jr./(5)/............... 500 * *
Ronald G.
Steinhart/(5)/......... 500 * *
Lawrence A.
Wilson/(5)/............ 500 * *
Richard B. Bradshaw,
Jr./(3)//(6)/.......... 173,000 0.84% 1.01%
Dennis J.
DuBois/(2)//(7)/....... 224,000 1.10% 1.30%
Richard J. Bartel/(8)/.. -- -- --
Mark R. Doran/(9)/...... -- -- --
Lawrence J.
Krueger/(8)/........... -- -- --
Jeffrey T.
Courtwright/(10)/...... -- -- --
James B. Meyer/(10)/.... -- -- --
David
Robertson/(10)/........ -- -- --
Robert K.
Wiberg/(10)/........... -- -- --
All Trustees and
executive officers (11
persons)............... 3,522,500 17.15% 17.15%
</TABLE>
- --------
* Less than 1%.
/(1)/ Assumes that all Units held by the person are redeemed for Common Shares.
The total number of Common Shares outstanding used in calculating the
percentage of all Common Shares and Units assumes that all of the Units
held by other persons are redeemed for Common Shares. The total number of
Common Shares outstanding used in calculating the percentage of all
Common Stock assumes that none of the Units held by other persons are
redeemed for Common Shares.
/(2)/ Includes the principal's allocable share of Units held by PPL and various
other Prentiss Group entities (including the trust discussed in 3 below)
which received units in the Formation Transactions, in exchange for
interests in Properties or the Prentiss Properties Service Business.
/(3)/ Excludes 386,762 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant. Includes Units
redeemable for 336,000 Common Shares which are held in a trust of which
Mr. Prentiss is a trustee, and in which Mr. Prentiss disclaims beneficial
ownership.
/(4)/ Excludes 173,944 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
/(5)/ The Independent Trustees will receive a fee of $10,000 per year payable
quarterly in Common Shares. The table includes the shares to be issued in
the year following the closing of the Offering, based on the Offering
Price. Excludes 10,500 Common Shares issuable upon the exercise of
options granted under the Trustees' Plan, which vest in equal
installments over a four-year period on the anniversary date of the
grant.
/(6)/ Excludes 64,366 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
/(7)/ Excludes 39,366 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
/(8)/ Excludes 75,000 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
/(9)/ Excludes 50,000 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
/(10)/Excludes 25,000/Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the terms of the shares of beneficial interest of
the Company does not purport to be complete and is subject to and qualified in
its entirety by reference to the Declaration of Trust and Bylaws of the
Company, copies of which are exhibits to the Registration Statement of which
this Prospectus is a part. See "Additional Information."
GENERAL
The Declaration of Trust of the Company provides that the Company may issue
up to 100,000,000 Common Shares and 20,000,000 preferred shares of beneficial
interest, $0.01 par value per share ("Preferred Shares"). Upon completion of
this Offering and the related transactions, 17,002,985 Common Shares will be
issued and outstanding (20,523,183 shares if the Underwriters' overallotment
option is exercised in full) and no Preferred Shares will be issued and
outstanding. As permitted by the Maryland statute governing real estate
investment trusts formed as trusts (the "Maryland REIT Law"), the Declaration
of Trust contains a provision permitting the Board of Trustees, without any
action by the shareholders of the Trust, to amend the Declaration of Trust to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of any class of shares of beneficial interest that the
Trust has authority to issue.
Both the Maryland REIT Law and the Company's Declaration of Trust provide
that no shareholder of the Company will be personally liable for any
obligation of the Company solely as a result of his status as a shareholder of
the Company. The Company's Bylaws further provide that the Company shall
indemnify each shareholder against any claim or liability to which the
shareholder may become subject by reason of his being or having been a
shareholder or former shareholder and that the Company shall pay or reimburse
each shareholder or former shareholder for all legal and other expenses
reasonably incurred by him in connection with any claim or liability. Inasmuch
as the Company carries public liability insurance which it considers adequate,
any risk of personal liability to shareholders is limited to situations in
which the Company's assets plus its insurance coverage would be insufficient
to satisfy the claims against the Company and its shareholders.
COMMON SHARES
All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or
series of beneficial interest and to the provisions of the Company's
Declaration of Trust regarding the restriction of the transfer of shares of
beneficial interest, holders of Common Shares are entitled to receive
dividends on shares if, as and when authorized and declared by the Board of
Trustees of the Company out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to its
shareholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of the
Company.
Each outstanding Common Share entitles the holder to one vote on all matters
submitted to a vote of shareholders, including the election of trustees, and,
except as provided with respect to any other class or series of shares of
beneficial interest, the holders of such Common Shares possess the exclusive
voting power. There is no cumulative voting in the election of trustees, which
means that the holders of a majority of the outstanding Common Shares can
elect all of the trustees then standing for election and the holders of the
remaining shares will not be able to elect any trustees.
Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of Shares of beneficial interest,
Common Shares have equal dividend, distribution, liquidation and other rights.
Under the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge unless
approved by the affirmative vote of shareholders holding at least two-
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<PAGE>
thirds of the shares entitled to vote on the matter unless a lesser percentage
(but not less than a majority of all the votes entitled to be cast on the
matter) is set forth in the real estate investment trust's declaration of
trust. The Company's Declaration of Trust provides for approval by a majority
of all the votes entitled to be cast on the matter in all situations
permitting or requiring action by the shareholders except with respect to: (a)
the intentional disqualification of the Company as a real estate investment
trust or revocation of its election to be taxed as a real estate investment
trust (which requires the affirmative vote of the holders of two-thirds of the
number of Common Shares entitled to vote on such matter at a meeting of the
shareholders of the Company); (b) the election of trustees (which requires a
plurality of all the votes cast at a meeting of shareholders of the Company at
which of quorum is present); (c) the removal of trustees (which requires the
affirmative vote of the holders of a majority the outstanding voting shares of
the Company); (d) the amendment or repeal of the Independent Trustee provision
in the Declaration of Trust (which requires the affirmative vote of 85% of the
Trustees or the holders of two-thirds of the outstanding shares entitled to
vote on the matter); (e) the amendment of the Declaration of Trust by
shareholders (which requires the affirmative vote of a majority of votes
entitled to be cast on the matter, except under certain circumstances
specified in the Declaration of Trust which require the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter); and (f) the
dissolution of the Company (which requires the affirmative vote of two-thirds
of all the votes entitled to be cast on the matter). Under the Maryland REIT
Law, a declaration of trust may permit the trustees by a two-thirds vote to
amend the declaration of trust from time to time to qualify as a real estate
investment trust under the Code or the Maryland REIT Law without the approval
of the shareholders. The Company's Declaration of Trust permits such action by
the Board of Trustees. As permitted by the Maryland REIT Law, the Declaration
of Trust contains a provision permitting the Board of Trustees, without any
action by the shareholders of the Trust, to amend the Declaration of Trust to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of any class of shares of beneficial interest that the
Trust has authority to issue.
PREFERRED SHARES
The Declaration of Trust authorizes the Board of Trustees to classify any
unissued Preferred Shares and to reclassify any previously classified but
unissued Preferred Shares of any series from time to time in one or more
series, as authorized by the Board of Trustees. Prior to issuance of shares of
each series, the Board of Trustees is required by the Maryland REIT Law and
the Company's Declaration of Trust to set for each such series, subject to the
provisions of the Company's Declaration of Trust regarding the restriction on
transfer of shares of beneficial interest, the terms, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Thus, the Board of Trustees could authorize
the issuance of Preferred Shares with terms and conditions which could have
the effect of delaying, deferring or preventing a transaction or a change in
control of the Company that might involve a premium price for holders of
Common Shares or otherwise might be in their best interest. As of the date
hereof, no Preferred Shares are outstanding and the Company has no present
plans to issue any Preferred Shares.
CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES
The Company's Declaration of Trust authorizes the Trustees to classify or
reclassify any unissued Common Shares or Preferred Shares into one or more
classes or series of shares of beneficial interest by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or distributions, qualifications or terms or
conditions of redemption of such new class or series of shares of beneficial
interest.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of beneficial
interest. Specifically, not more than 50% in value of the Company's
outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year, and the
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<PAGE>
Company must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year. See "Federal Income Tax Considerations--Requirements for
Qualification."
Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust, subject to certain
exceptions described below, provides that no person may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than (i) 8.5% of
the number of outstanding Common Shares, except for Michael V. Prentiss, who
may own initially no more than 15.0% of the number of such outstanding shares
or (ii) 9.8% of the number of outstanding Preferred Shares of any series of
Preferred Shares (the "Ownership Limitation"). The Ownership Limitation with
respect to the Common Shares will be increased, to a maximum of 9.8%, and the
ownership limit applicable to Mr. Prentiss will be decreased, subject to a
minimum percentage equal to the Ownership Limitation in proportion to any
reduction in Mr. Prentiss' direct or indirect percentage ownership of the
Company as a result of additional issuances or dispositions of securities of
the Company or redemptions of Units held directly or indirectly by Mr.
Prentiss. Any transfer of Common or Preferred Shares that would (i) result in
any person (other than Mr. Prentiss with respect to Common Shares) owning,
directly or indirectly, Common or Preferred Shares in excess of the Ownership
Limitation, (ii) result in Mr. Prentiss owning directly or indirectly in
excess of 15.0% of the number of outstanding Common Shares (or the decreased
percentage that may be applicable), (iii) result in the Common and Preferred
Shares being owned by fewer than 100 persons (determined without reference to
any rules of attribution), (iv) result in the Company being "closely held"
within the meaning of Section 856(h) of the Code, or (v) cause the Company to
own, directly or constructively, 10% or more of the ownership interests in a
tenant of the Company's or the Partnership's real property, within the meaning
of Section 856 (d) (2) (B) of the Code, shall be null and void, and the
intended transferee will acquire no rights in such Common or Preferred Shares.
Subject to certain exceptions described below, if any purported transfer of
Common or Preferred Shares would (i) result in any person be decreased,
subject to a minimum percentage equal to the Ownership Limitation owning,
directly or indirectly, Common or Preferred Shares in excess of the Ownership
Limitation, (ii) result in Mr. Prentiss owning directly or indirectly in
excess of 15.0% of the number of outstanding Common Shares (or the decreased
percentage that may be applicable), (iii) result in the Common and Preferred
Shares being owned by fewer than 100 persons (determined without reference to
any rules of attribution), (iv) result in the Company being "closely held"
within the meaning of Section 856(h) of the Code, or (v) cause the Company to
own, directly or constructively, 10% or more of the ownership interests in a
tenant of the Company's or the Operating Partnership's real property, within
the meaning of Section 856(d)(2)(B) of the Code, the Common or Preferred
Shares will be designated as "Shares-in-Trust" and transferred automatically
to a trust (the "Share Trust") effective on the day before the purported
transfer of such Common or Preferred Shares. The record holder of the Common
or Preferred Shares that are designated as Shares-in-Trust (the "Prohibited
Owner") will be required to submit such number of Common or Preferred Shares
to the Company for registration in the name of the Share Trust. The Share
Trustee will be designated by the Company, but will not be affiliated with the
Company. The beneficiary of the Share Trust (the "Beneficiary") will be one or
more charitable organizations that are named by the Company.
Shares-in-Trust will remain issued and outstanding Common or Preferred
Shares and will be entitled to the same rights and privileges as all other
shares of the same class or series. The Share Trust will receive all dividends
and distributions on the Shares-in-Trust and will hold such dividends and
distributions in trust for the benefit of the Beneficiary. The Share Trustee
will vote all Shares-in-Trust. The Share Trustee will designate a permitted
transferee of the Shares-in-Trust, provided that the permitted transferee (i)
purchases such Shares-in-Trust for valuable consideration and (ii) acquires
such Shares-in-Trust without such acquisition resulting in a transfer to
another Share Trust and resulting in the redesignation of such Common or
Preferred Shares as Shares-in-Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Share Trust the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-
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<PAGE>
in-Trust and (ii) the record date for which was on or after the date that such
shares became Shares-in-Trust. The Prohibited Owner generally will receive
from the Share Trustee the lesser of (i) the price per share such Prohibited
Owner paid for the Common or Preferred Shares that were designated as Shares-
in-Trust (or, in the case of a gift or devise, the Market Price (as defined
below) per share on the date of such transfer) and (ii) the price per share
received by the Share Trustee from the sale of such Shares-in-Trust. Any
amounts received by the Share Trustee in excess of the amounts to be paid to
the Prohibited Owner will be distributed to the Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in
the case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept
such offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust and (ii) the date
the Company determines in good faith that a transfer resulting in such Shares-
in-Trust occurred.
"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the NYSE or, if the Common or
Preferred Shares are not listed or admitted to trading on the NYSE, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Common or Preferred Shares are listed or admitted to trading or, if
the Common or Preferred Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price, or if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal
automated quotations system that may then be in use or, if the Common or
Preferred Shares are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Common or Preferred Shares selected by the Board of
Trustees. "Trading Day" shall mean a day on which the principal national
securities exchange on which the Common or Preferred Shares are listed or
admitted to trading is open for the transaction of business or, if the Common
or Preferred Shares are not listed or admitted to trading on any national
securities exchange, shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
Any person who acquires or attempts to acquire Common or Preferred Shares in
violation of the foregoing restrictions, or any person who owned Common or
Preferred Shares that were transferred to a Share Trust, will be required (i)
to give immediately written notice to the Company of such event and (ii) to
provide to the Company such other information as the Company may request in
order to determine the effect, if any, of such transfer on the Company's
status as a REIT.
The Declaration of Trust requires all persons who own, directly or
indirectly, more than 5% (or such lower percentages as required pursuant to
regulations under the Code) of the outstanding Common and Preferred Shares,
within 30 days after January 1 of each year, to provide to the Company a
written statement or affidavit stating the name and address of such direct or
indirect owner, the number of Common and Preferred Shares owned directly or
indirectly, and a description of how such shares are held. In addition, each
direct or indirect shareholder shall provide to the Company such additional
information as the Company may request in order to determine the effect, if
any, of such ownership on the Company's status as a REIT and to ensure
compliance with the Ownership Limitation.
The Ownership Limitation generally will not apply to the acquisition of
Common or Preferred Shares by an underwriter that participates in a public
offering of such shares. In addition, the Board of Trustees, upon receipt
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<PAGE>
of a ruling from the Service or an opinion of counsel and upon such other
conditions as the Board of Trustees may direct, may exempt a person from the
Ownership Limitation under certain circumstances. However, the Board may not
grant an exemption from the Ownership Limit to any proposed transferee whose
ownership, direct or indirect, of shares of beneficial interest of the Company
in excess of the Ownership Limit would result in the termination of the
Company's status as a REIT. The foregoing restrictions will continue to apply
until (i) the Board of Trustees determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as
a REIT and (ii) there is an affirmative vote of two-thirds of the votes
entitled to be cast on such matter at a regular or special meeting of the
shareholders of the Company.
The Ownership Limitation could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Common Shares or otherwise be in the best
interest of the shareholders of the Company.
All certificates representing Common or Preferred Shares will bear a legend
referring to the restrictions described above.
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S DECLARATION
OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company is subject to and qualified in
its entirety by reference to Maryland law and to the Declaration of Trust and
Bylaws of the Company.
CLASSIFICATION OF THE BOARD OF TRUSTEES
The Bylaws provide that the number of trustees of the Company may be
established by the Board of Trustees but may not be fewer than three nor more
than nine. At the closing of the Offering, there will be seven Trustees. The
Trustees may increase or decrease the number of Trustees by a vote of at least
80% of the members of the Board of Trustees, provided that the number of
Trustees shall never be less than the number required by Maryland law and that
the tenure of office of a Trustee shall not be affected by any decrease in the
number of Trustees. Any vacancy will be filled, including a vacancy created by
an increase in the number of Trustees, at any regular meeting or at any
special meeting called for that purpose, by a majority of the remaining
Trustees.
Pursuant to the Declaration of Trust, the Board of Trustees is divided into
three classes of trustees. The initial terms of the first, second and third
class will expire in 1997, 1998 and 1999, respectively. Beginning in 1997,
Trustees of each class are chosen for three-year terms upon the expiration of
their current terms and each year one class of trustees will be elected by the
shareholders. The Company believes that classification of the Board of
Trustees will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Trustees.
Holders of Common Shares will have no right to cumulative voting in the
election of Trustees. Consequently, at each annual meeting of shareholders,
the holders of a majority of the Common Shares are able to elect all of the
successors of the class of trustees whose terms expire at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent trustees more time consuming and difficult. At least
two annual meetings of shareholders, instead of one, will generally be
required to effect a change in a majority of the Board of Trustees. The
staggered terms of Trustees may reduce the possibility of a tender offer or an
attempt to change control of the Company or other transaction that might
involve a premium price for holders of Common Shares, even though a tender
offer, change of control or other transaction might be in the best interest of
the shareholders.
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REMOVAL OF TRUSTEES
The Declaration of Trust provides that a Trustee may be removed with or
without cause upon the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of Trustees. This provision, when coupled
with the provision in the Bylaws authorizing the Board of Trustees to fill
vacant trusteeships, precludes shareholders from removing incumbent Trustees,
except upon a substantial affirmative vote, and filling the vacancies created
by such removal with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, as applicable to Maryland real estate investment trusts,
certain "business combinations" (including a merger, consolidation, share
exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland real estate
investment trust and any person who beneficially owns ten percent or more of
the voting power of the trust's shares or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was an
Interested Shareholder or an affiliate thereof are prohibited for five years
after the most recent date on which the Interested Shareholder becomes an
Interested Shareholder. Thereafter, any such business combination must be
recommended by the board of trustees of such trust and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by
holders of outstanding voting shares of beneficial interest of the trust and
(b) two-thirds of the votes entitled to be cast by holders of voting shares of
the trust other than shares held by the Interested Shareholder with whom (or
with whose affiliate) the business combination is to be effected, unless,
among other conditions, the trust's common shareholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the board
of trustees of the trust prior to the time that the Interested Shareholder
becomes an Interested Shareholder.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, provides
that control shares (as defined below) of a Maryland real estate investment
trust acquired in a "control share acquisition" have no voting rights except
to the extent approved by a vote of two-thirds of the votes entitled to be
cast on the matter, excluding shares of beneficial interest owned by the
acquiror, by officers or by trustees who are employees of the trust. "Control
Shares" are voting shares of beneficial interest which, if aggregated with all
other such shares of beneficial interest previously acquired by the acquiror
or in respect of which the acquiror is able to exercise or direct the exercise
of voting power (except solely by virtue of a revocable proxy), would entitle
the acquiror to exercise voting power in electing trustees within one of the
following ranges of voting power: (i) one-fifth or more but less than one-
third, (ii) one-third or more but less than a majority, or (iii) a majority or
more of all voting power. Control Shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
shareholder approval. A "control share acquisition" means the acquisition of
Control Shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself
present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the trust may redeem any
or all of the Control Shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the Control Shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for Control Shares are approved at a shareholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to
vote, all other shareholders
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may exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's Common or Preferred Shares. There can be no assurance that such
provision will not be amended or eliminated at any time in the future.
AMENDMENT
The Declaration of Trust may be amended with the approval of at least a
majority of all of the votes entitled to be cast on the matter, provided, that
certain provisions of the Declaration of Trust regarding (i) the Company's
Board of Trustees, (ii) the restrictions on transfer of the Common Shares and
the Preferred Shares, (iii) amendments to the Declaration of Trust by the
Trustees and the shareholders of the Company, and (iv) the termination of the
Company may not be amended, altered, changed or repealed without the approval
of two-thirds of all of the votes entitled to be cast on these matters. In
addition, the Declaration of Trust may be amended by the Board of Trustees,
without shareholder approval to conform the Declaration of Trust to the
Maryland REIT law. The Company's Bylaws may be amended or altered exclusively
by the Board of Trustees.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit
or profit in money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. The Declaration of Trust of the Company contains such a provision
which limits such liability to the maximum extent permitted by Maryland law.
The Declaration of Trust of the Company authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former Trustee or officer or (b) any individual who,
while a Trustee of the Company and at the request of the Company, serves or
has served another real estate investment trust corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
trustee, director, officer, partner of such real estate investment trust
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer or partner of such real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise from and against any claim or
liability to which such person may become subject or which such person may
incur by reason of his status as a present or former shareholder, Trustee, or
officer of the Company. The Bylaws of the Company obligate it, to the maximum
extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former Trustee or officer who is made a party to the proceeding by
reason of his service in that capacity, or (b) any individual who, while a
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise and who is made a party to the proceeding by reason of his service
in that capacity against any claim or liability to which he may become subject
by reason of such status. The Declaration of Trust and Bylaws also permit the
Company to indemnify and advance expenses to any person who served a
predecessor of the Company in any of the capacities described above and to any
employee or agent of the Company or a predecessor of the Company. The Bylaws
require the Company to indemnify Trustee or officer
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who has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In accordance with the MGCL, the Bylaws of
the Company require it, as a condition to advancing expenses, to obtain (a) a
written affirmation by the director or officer of his good faith belief that
he has met the standard of conduct necessary for indemnification by the
Company as authorized by the Bylaws and (b) a written statement by or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.
OPERATIONS
The Company is generally prohibited from engaging in certain activities,
including incurring consolidated indebtedness, in the aggregate, in excess of
the Debt Limitation and acquiring or holding property or engaging in any
activity that would cause the Company to fail to qualify as a real estate
investment trust.
DISSOLUTION OF THE COMPANY
Pursuant to the Company's Declaration of Trust, and subject to the
provisions of any class or series of shares of beneficial interest of the
Company then outstanding, the shareholders of the Company, at any meeting
thereof, may dissolve the Company by the affirmative vote of two-thirds of all
of the votes entitled to be cast on the matter.
ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Trustees
and the proposal of business to be considered by shareholders may be made only
(i) pursuant to the Company's notice of the meeting, (ii) by the Board of
Trustees or (iii) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and
(b) with respect to special meetings of Shareholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of shareholders and nominations of persons for election to the Board of
Trustees may be made only (i) pursuant to the Company's notice of the meeting,
(ii) by the Board of Trustees or, (iii) provided that the Board of Trustees
has determined that Trustees shall be elected at such meeting, by a
shareholder who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS
The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Declaration of Trust on classification of the Board of
Trustees, the removal of Trustees and the restrictions on the transfer of
shares of beneficial interest and the advance notice provisions of the Bylaws
could have the affect of delaying, deferring or preventing a transaction or a
change in control of the Company that might involve a premium price for
holders of Common Shares or otherwise be in their best interest.
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MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires at least 75% of the value of the Company's
assets to be held, directly or indirectly, in real estate assets, mortgages or
mortgage related securities, government securities, cash and cash equivalent
items, including high-grade short term securities and receivables. The
Maryland REIT Law also prohibits the Company from using or applying land for
farming, agricultural, horticultural or similar purposes.
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Shares is .
SHARES AVAILABLE FOR FUTURE SALE
Upon the closing of the Offering and the Formation Transactions, the Company
will have 17,002,985 Common Shares issued and outstanding (19,269,485 Common
Shares if the Underwriter's overallotment option is exercised in full),
3,520,198 Common Shares will be reserved for issuance upon redemption of Units
and 1,614,300 Common Shares (plus 8% of newly issued and outstanding Common
Shares other than shares issued under the 1996 Plan or Trustees Plan) will be
reserved for issuance under the 1996 Plan. The Common Shares issued in the
Offering will be freely tradeable by persons other than "Affiliates" of the
Company without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), subject to certain limitations on ownership set forth in
the Declaration of Trust. See "Description of Shares of Beneficial Interest--
Restrictions on Transfer."
Pursuant to the Operating Partnership Agreement, the Limited Partners (other
than the Company) have Exchange Rights which, beginning two years from the
date of the closing of the Offering, enable them to cause the Operating
Partnership to exchange their Units for cash or, at the option of the General
Partner, Common Shares on a one-for-one basis.
The Common Shares that will be issuable to holders of Units upon exercise of
the Exchange Rights will be "restricted" securities under the meaning of Rule
144 promulgated under the Securities Act ("Rule 144") and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including exemptions contained in Rule 144. As
described below, the Company has granted the holders registration rights with
respect to such Common Shares.
In general, under Rule 144 as currently in effect, if two years have elapsed
since the later of the date of acquisition of restricted shares from the
Company or any "Affiliate" of the Company, as that term is defined under the
Securities Act, the acquiror or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding Common Shares or the average weekly
trading volume of the Common Shares during the four calendar weeks preceding
the date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 also are subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. If three years have elapsed
since the date of acquisition of restricted shares from the Company or from
any Affiliate of the Company, and the acquiror or subsequent holder thereof is
deemed not to have been an Affiliate of the Company at any time during the
three months preceding a sale, such person would be entitled to sell such
shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.
The Company has agreed to file, as soon as practicable after two years from
the Closing Date, a registration statement with the Commission for the purpose
of registering the sale of 3,520,198 Common Shares to be issuable upon
redemption of the Units. The Company will use its best efforts to have each of
the registration statements declared effective and to keep it effective for a
period of two years. Upon effectiveness of the related registration
statements, those persons holding Common Shares upon redemption of the
applicable Units other
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than "Affiliates" of the Company, as that term is defined under the Securities
Act may sell such shares in the secondary market without being subject to the
volume limitations or other requirements of Rule 144. The Operating
Partnership will bear expenses incident to the registration requirements,
except that such expenses shall not include any underwriting discounts or
commissions, Commission or state securities registration fees, transfer taxes
or certain other fees or taxes relating to such shares. Registration rights
may be granted to future sellers of properties to the Operating Partnership
who elect to receive, in lieu of cash, Common Shares, Units, or other
securities convertible into Common Shares.
Prior to the Offering there has been no public market for the Common Shares.
The Company intends to apply to list the Common Shares on the NYSE.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Shares prevailing from time to time. Sales of substantial
amounts of Common Shares, or the perception that such sales could occur, may
affect adversely prevailing market prices of the Common Shares. See "Risk
Factors--Effect of Shares Available for Future Sale on Price of Common Shares"
and "Operating Partnership Agreement--Transferability of Interests."
For a description of certain restrictions on transfers of Common Shares held
by certain shareholders of the Company, see "Underwriting."
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OPERATING PARTNERSHIP AGREEMENT
The following summary of the material terms of the Operating Partnership
Agreement, and the descriptions of certain provisions thereof set forth
elsewhere in this Prospectus, is qualified in its entirety by reference to the
Operating Partnership Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
MANAGEMENT
The Operating Partnership has been organized as a Delaware limited
partnership pursuant to the terms of the First Amended and Restated Agreement
of Limited Partnership of the Operating Partnership (the "Operating
Partnership Agreement"). Pursuant to the Operating Partnership Agreement, the
General Partner, as the sole general partner of the Partnership, has full,
exclusive and complete responsibility and discretion in the management and
control of the Operating Partnership, and the Limited Partners have no
authority in their capacity as Limited Partners to transact business for, or
participate in the management activities or decisions of, the Operating
Partnership except as required by applicable law. However, any amendment to
the Operating Partnership Agreement that would (i) adversely affect the
Exchange Rights (as defined herein), (ii) adversely affect the Limited
Partners' rights to receive cash distributions, (iii) alter the Operating
Partnership's allocations of income or loss, or (iv) impose on the Limited
Partners any obligations to make additional contributions to the capital of
the Operating Partnership, requires the consent of Limited Partners (other
than the General Partner) holding more than two-thirds of the Units held by
such partners.
TRANSFERABILITY OF INTERESTS
The General Partner may not voluntarily withdraw from the Operating
Partnership or transfer or assign its interest in the Operating Partnership
unless the transaction in which such withdrawal or transfer occurs results in
the Limited Partners receiving property in an amount equal to the amount they
would have received had they exercised their Exchange Rights immediately prior
to such transaction, or unless the successor to the General Partner
contributes substantially all of its assets to the Operating Partnership in
return for an interest in the Operating Partnership. With certain limited
exceptions, the Limited Partners may not transfer their interests in the
Operating Partnership, in whole or in part, without the written consent of the
General Partner, which consent the General Partner may withhold in its sole
discretion. The General Partner may not consent to any transfer that would
cause the Operating Partnership to be treated as a corporation for federal
income tax purposes.
CAPITAL CONTRIBUTION
The Company will contribute to the Operating Partnership, approximately
85.329% of the net proceeds of the Offering in exchange for the issuance to
the Company of Units to be held by the Company. The Company will contribute to
the General Partner and the General Partner will contribute to the Operating
Partnership approximately 0.171% of the net proceeds of the Offering in
exchange for a 0.2% general partnership interest in the Operating Partnership
to be held by the General Partner. The Company will transfer the remaining
14.5% of the net proceeds of the Offering to the current limited partners of
the Operating Partnership, which include the Continuing Investors, in exchange
for interests in the Operating Partnership. After the completion of the
Offering, the Company will have issued a total of 17,002,985 Common Shares and
will own, either directly or through the General Partner, 17,002,985 Units.
Although the Operating Partnership will receive the net proceeds of the
Offering, the Company and the General Partner will be deemed to have made a
capital contribution to the Operating Partnership in the amount of the gross
proceeds of the Offering and the Operating Partnership will be deemed
simultaneously to have paid the underwriter's discount and other expenses paid
or incurred in connection with the Offering. Following the closing of the
Offering the Limited Partners (other than the Company) that are members of the
Prentiss Group, including the Prentiss Principals, will collectively own
approximately 17.15% of the outstanding Units. The Operating Partnership
Agreement provides that if the Operating Partnership requires additional funds
at any time or from time to time in excess of funds available to the Operating
Partnership from borrowing or capital contributions, the General Partner or
the Company may borrow such funds from a financial
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institution or other lender and lend such funds to the Operating Partnership
on the same terms and conditions as are applicable to the General Partner's or
the Company's, as applicable, borrowing of such funds. Moreover, the General
Partner is authorized to cause the Operating Partnership to issue partnership
interests for less than fair market value if the Company (i) has concluded in
good faith that such issuance is in the best interest of the Company and the
Operating Partnership and (ii) the General Partner makes a capital
contribution in an amount equal to the proceeds of such issuance. Under the
Operating Partnership Agreement, the General Partner generally is obligated to
contribute or cause the Company to contribute the proceeds of a share offering
by the Company as additional capital to the Operating Partnership. Upon such
contribution, the General Partner or the Company, as applicable, will receive
additional Units and the General Partner's or the Company's, as applicable,
percentage interest in the Operating Partnership will be increased on a
proportionate basis based upon the amount of such additional capital
contributions. Conversely, the percentage interests of the Limited Partners
will be decreased on a proportionate basis in the event of additional capital
contributions by the General Partner or the Company. In addition, if the
General Partner or the Company contributes additional capital to the Operating
Partnership, the General Partner will revalue the property of the Operating
Partnership to its fair market value (as determined by the General Partner)
and the capital accounts of the partners will be adjusted to reflect the
manner in which the unrealized gain or loss inherent in such property (that
has not been reflected in the capital accounts previously) would be allocated
among the partners under the terms of the Operating Partnership Agreement if
there were a taxable disposition of such property for such fair market value
on the date of the revaluation.
EXCHANGE RIGHTS
Pursuant to the Operating Partnership Agreement, the Limited Partners (other
than the Company) have exchange rights ("Exchange Rights") that enable them to
cause the Operating Partnership to exchange their Units for cash, or at the
option of the General Partner, Common Shares on a one-for-one basis. The
exchange price will be paid in cash in the event that the issuance of Common
Shares to the exchanging Limited Partner would (i) result in any person
owning, directly or indirectly, Common Shares in excess of the Ownership
Limitation, (ii) result in shares of beneficial interest of the Company being
owned by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, (iv) cause the Company to own, actually
or constructively, 10% or more of the ownership interest in a tenant of the
Company's or the Operating Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of Common
Shares by such redeeming Limited Partner to be "integrated" with any other
distribution of Common Shares for purposes of complying with the Securities
Act. The Exchange Rights may be exercised by the Limited Partners at any time
after the second anniversary of the date of the closing of the Offering,
provided that not more than two exchanges may occur during each calendar year
and each Limited Partner may not exercise the Exchange Right for less than
1,000 Units or, if such Limited Partner holds less than 1,000 Units, all of
the Units held by such Limited Partner. See "Federal Income Tax
Considerations--Tax Aspects of the Operating Partnership." After the closing
of the Offering the aggregate number of Common Shares issuable upon exercise
of the Exchange Rights will be approximately 2,931,184. The number of Common
Shares issuable upon exercise of the Exchange Rights will be adjusted upon the
occurrence of share splits, mergers, consolidations or similar pro rata share
transactions, which otherwise would have the effect of diluting the ownership
interests of the Limited Partners or the shareholders of the Company.
REGISTRATION RIGHTS
For a description of certain registration rights held by the Limited
Partners, see "Shares Available for Future Sale."
OPERATIONS
The Operating Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable the Company to satisfy the
requirements for being classified as a REIT for federal tax purposes, to
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avoid any federal income or excise tax liability imposed by the Code, and to
ensure that the Operating Partnership will not be classified as a "publicly
traded partnership" for purposes of Section 7704 of the Code.
In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, the Operating Partnership will pay all
administrative costs and expenses of the Company and the General Partner
(collectively, the "Company Expenses") and the Company Expenses will be
treated as expenses of the Operating Partnership. The Company Expenses
generally will include (i) all expenses relating to the formation and
continuity of existence of the Company and the General Partner, (ii) all
expenses relating to the public offering and registration of securities by the
Company, (iii) all expenses associated with the preparation and filing of any
periodic reports by the Company under federal, state or local laws or
regulations, (iv) all expenses associated with compliance by the Company and
the General Partner with laws, rules and regulations promulgated by any
regulatory body and (v) all other operating or administrative costs of the
General Partner incurred in the ordinary course of its business on behalf of
the Partnership.
DISTRIBUTIONS
The Operating Partnership Agreement provides that the Operating Partnership
shall distribute cash from operations (including net sale or refinancing
proceeds, but excluding net proceeds from the sale of the Operating
Partnership's property in connection with the liquidation of the Operating
Partnership) on a quarterly (or, at the election of the General Partner, more
frequent) basis, in amounts determined by the General Partner in its sole
discretion, to the partners in accordance with their respective percentage
interests in the Operating Partnership. Upon liquidation of the Operating
Partnership, after payment of, or adequate provision for, debts and
obligations of the Operating Partnership, including any partner loans, any
remaining assets of the Operating Partnership will be distributed to all
partners with positive capital accounts in accordance with their respective
positive capital account balances. If the Company has a negative balance in
its capital account following a liquidation of the Operating Partnership, it
will be obligated to contribute cash to the Operating Partnership equal to the
negative balance in its capital account.
ALLOCATIONS
Income, gain and loss of the Operating Partnership for each fiscal year
generally is allocated among the partners in accordance with their respective
interests in the Operating Partnership, subject to compliance with the
provisions of Code Sections 704(b) and 704(c) and Treasury Regulations
promulgated thereunder.
TERM
The Operating Partnership shall continue until December 31, 2050, or until
sooner dissolved upon (i) the bankruptcy, dissolution or withdrawal of the
General Partner (unless the Limited Partners elect to continue the Operating
Partnership), (ii) the sale or other disposition of all or substantially all
the assets of the Operating Partnership, (iii) the redemption of all limited
partnership interests in the Partnership (other than those held by the
Company, if any), or (iv) the election by the General Partner.
FIDUCIARY DUTY
The Limited Partners have agreed that in the event of any conflict in the
fiduciary duties owed by the Company to its shareholders and by the General
Partner to such Limited Partners, the General Partner will fulfill its
fiduciary duties to such limited partnership by acting in the best interests
of the Company's shareholders.
TAX MATTERS
Pursuant to the Operating Partnership Agreement, the General Partner is the
tax matters partner of the Operating Partnership and, as such, has authority
to handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material federal income tax considerations
that may be relevant to a prospective holder of Common Shares in the Company.
Hunton & Williams has acted as counsel to the Company and has reviewed this
summary and is of the opinion that it fairly summarizes the federal income tax
considerations that will be material to a holder of the Common Shares. The
discussion contained herein does not address all aspects of taxation that may
be relevant to particular shareholders in light of their personal investment
or tax circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations, and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
The statements in this discussion and the opinion of Hunton & Williams are
based on current provisions of the Code, existing, temporary, and currently
proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, existing administrative rulings and practices of the
Service, and judicial decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions, which may be
retroactive in effect, will not affect the accuracy of any statements in this
Prospectus with respect to the transactions entered into or contemplated prior
to the effective date of such changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND
SALE OF THE COMMON SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF
SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
The Company currently has in effect an election to be taxed as a pass-
through entity under Subchapter S of the Code, but intends to revoke its S
election on the day prior to the closing of the Offering. The Company plans to
make an election to be taxed as a REIT under sections 856 through 860 of the
Code, effective for its short taxable year beginning on the day prior to the
Closing of the Offering and ending on December 31, 1996. The Company believes
that, commencing with such taxable year, it will be organized and will operate
in such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can
be given that the Company will operate in a manner so as to qualify or remain
qualified as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
Hunton & Williams has acted as counsel to the Company in connection with the
Offering and the Company's election to be taxed as a REIT. In the opinion of
Hunton & Williams, assuming that the elections and other procedural steps
described in this discussion of "Federal Income Tax Considerations" are
completed by the Company in a timely fashion, the Company's organization and
proposed method of operation will enable it to qualify to be taxed as a REIT
under the Code commencing with the Company's short taxable year beginning the
day prior to the closing of the Offering and ending December 31, 1996, and for
its future taxable years. Investors should be aware, however, that opinions of
counsel are not binding upon the Service or any court. It must be emphasized
that Hunton & Williams' opinion is based on various assumptions and is
conditioned upon certain representations made by the Company as to factual
matters, including representations regarding the nature of the Company's
properties and the future conduct of its business. Such factual assumptions
and representations are described below in this discussion of "Federal Income
Tax Considerations" and are set out in the federal
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income tax opinion that will be delivered by Hunton & Williams at the closing
of the Offering. Moreover, such qualification and taxation as a REIT depends
upon the Company's ability to meet on a continuing basis, through actual
annual operating results, distribution levels, and share ownership, the
various qualification tests imposed under the Code discussed below. Hunton &
Williams will not review the Company's compliance with those tests on a
continuing basis. Accordingly, no assurance can be given that the actual
results of the Company's operations for any particular taxable year will
satisfy such requirements. For a discussion of the tax consequences of failure
to qualify as a REIT, see "Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is distributed
currently to its shareholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and shareholder
levels) that generally results from investment in a corporation. However, the
Company will be subject to federal income tax in the following circumstances.
First, the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any. Third, if
the Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest corporate rate
on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to
customers in the ordinary course of business), such income will be subject to
a 100% tax. Fifth, if the Company should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), and nonetheless has
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on the net income attributable to
the greater of the amount by which the Company fails the 75% or 95% gross
income test. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, if the Company acquires any asset
from a C corporation (i.e., a corporation generally subject to full corporate-
level tax) in a transaction in which the basis of the asset in the Company's
hands is determined by reference to the basis of the asset (or any other
asset) in the hands of the C corporation and the Company recognizes gain on
the disposition of such asset during the 10-year period beginning on the date
on which such asset was acquired by the Company, then to the extent of such
asset's "built-in-gain" (i.e., the excess of the fair market value of such
asset at the time of acquisition by the Company over the adjusted basis in
such asset at such time), such gain will be subject to tax at the highest
regular corporate rate applicable (as provided in Treasury Regulations that
have not yet been promulgated). The results described above with respect to
the recognition of "built-in-gain" assume that the Company will make an
election pursuant to IRS Notice 88-19 if it were to make any such acquisition.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation,
but for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the
Code; (v) the beneficial ownership of which is held by 100 or more persons;
(vi) not more than 50% in value of the outstanding shares of which is owned,
directly or indirectly, by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of each taxable year (the
"5/50 Rule"); (vii) that makes an election to be a REIT (or has made such
election for a previous taxable year) and satisfies all relevant filing and
other administrative requirements established by the Service that must be met
in order to elect and maintain REIT status; (viii) that uses a calendar year
for federal income tax purposes and complies with the recordkeeping
requirements of the Code and Treasury Regulations promulgated thereunder; and
(ix) that meets certain other tests, described below, regarding the nature of
its income and assets. The Code provides that
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conditions (i) to (iv), inclusive, must be met during the entire taxable year
and that condition (v) must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a taxable year of less than 12
months. Conditions (v) and (vi) will not apply until after the first taxable
year for which an election is made by the Company to be taxed as a REIT. For
purposes of determining stock ownership under the 5/50 Rule, a supplemental
unemployment compensation benefits plan, a private foundation, or a portion of
a trust permanently set aside or used exclusively for charitable purposes
generally is considered an individual. A trust that is a qualified trust under
Code section 401(a), however, generally is not considered an individual and
beneficiaries of such trust are treated as holding shares of a REIT in
proportion to their actuarial interests in such trust for purposes of the 5/50
Rule.
Prior to the consummation of the Offering, the Company did not satisfy
conditions (v) and (vi) in the preceding paragraph. The Company anticipates
issuing sufficient Common Shares with sufficient diversity of ownership
pursuant to the Offering to allow it to satisfy requirements (v) and (vi). In
addition, the Company's Declaration of Trust provides for restrictions
regarding transfer of the Common Shares that are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
clauses (v) and (vi) above. Such transfer restrictions are described in
"Description of Shares of Beneficial Interest--Restrictions on Transfer."
The Company currently has one subsidiary, the General Partner, and may have
additional subsidiaries in the future. Code section 856(i) provides that a
corporation that is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of
which has been held by the REIT at all times during the period such
corporation was in existence. Thus, in applying the requirements described
herein, any "qualified REIT subsidiaries" of the Company will be ignored, and
all assets, liabilities, and items of income, deduction, and credit of such
subsidiaries will be treated as assets, liabilities, and items of income,
deduction, and credit of the Company. The General Partner is a "qualified REIT
subsidiary." The General Partner, therefore, will not be subject to federal
corporate income taxation, although it may be subject to state and local
taxation.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the gross income of the partnership attributable to such share. In addition,
the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of section 856 of the Code, including
satisfying the gross income and asset tests described below. Thus, the
Company's proportionate share of the assets, liabilities, and items of income
of the Operating Partnership and the noncorporate subsidiaries of the
Operating Partnership (the "Noncorporate Subsidiaries") will be treated as
assets, liabilities, and items of income of the Company for purposes of
applying the requirements described herein.
Income Tests
In order for the Company to qualify and to maintain its qualification as a
REIT, three requirements relating to the Company's gross income must be
satisfied annually. First, at least 75% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must consist of defined types of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or
temporary investment income. Second, at least 95% of the Company's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property or temporary investments, and
from dividends, other types of interest, and gain from the sale or disposition
of stock or securities, or from any combination of the foregoing. Third, not
more than 30% of the Company's gross income (including gross income from
prohibited transactions) for each taxable year may be gain from the sale or
other disposition of (i) stock or securities held for less than one year, (ii)
dealer property that is not foreclosure property, and (iii) certain real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property). The specific application of these tests to the
Company is discussed below.
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The rent received by the Company from its tenants ("Rent") will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent must not be based, in whole or in part, on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, the Code
provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the Company, or a
direct or indirect owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, for the Rent to
qualify as "rents from real property," the Company generally must not operate
or manage the Properties or furnish or render services to the tenants of such
Properties, other than through an "independent contractor" who is adequately
compensated and from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the Company are "usually or customarily rendered" in connection
with the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant."
The Company does not anticipate charging Rent for any portion of any
Property that is based, in whole or in part, on the income or profits of any
person (except by reason of being based on a fixed percentage or percentages
of receipts of sales, as described above). Furthermore, the Company has
represented that, with respect to other properties that it may acquire in the
future, it will not charge Rent for any portion of any property that is based,
in whole or in part, on the income or profits of any person to the extent that
the receipt of such Rent would jeopardize the Company's status as a REIT. In
addition, the Company does not anticipate receiving any Rent from a Related
Party Tenant, and the Company has represented that, to the extent that it
receives Rent from a Related Party Tenant in the future, such Rent will not
cause the Company to fail to satisfy either the 75% or 95% gross income test.
The Company also does not anticipate that the Rent attributable to personal
property leased in connection with any lease (a "Lease") of real property will
exceed 15% of the total Rent received under the Lease. The Company has
represented that, in the future, it will not allow the Rent attributable to
personal property leased in connection with any Lease of real property to
exceed 15% of the total Rent received under the Lease, if the receipt of such
Rent would cause the Company to fail to satisfy either the 75% or 95% gross
income test.
Through the Operating Partnership, the Noncorporate Subsidiaries, and the
Manager, none of which constitutes a qualifying independent contractor, the
Company will provide certain services to its tenants. The Company believes
(and has represented to Hunton & Williams) that all such services will be
considered "usually or customarily rendered" in connection with the rental of
space for occupancy only and will not otherwise be considered "rendered to the
occupant," so that the provision of such services will not jeopardize the
qualification of the Rent as "rents from real property." In the case of any
services that are not "usual and customary" under the foregoing rules, the
Company intends to employ qualifying independent contractors to provide such
services. Furthermore, the Company has represented that it will not provide
noncustomary services with respect to other properties that it acquires in the
future (other than through a qualifying independent contractor) to the extent
that the provision of such services would cause the Company to fail to satisfy
either the 75% or 95% gross income test.
If any portion of the Rent does not qualify as "rents from real property"
because the Rent attributable to personal property leased in connection with
any Lease of real property exceeds 15% of the total Rent received under the
Lease for a taxable year, the portion of the Rent that is attributable to
personal property will not be qualifying income for purposes of either the 75%
or 95% gross income test. Thus, if the Rent attributable to personal property,
plus any other income received by the Company during a taxable year that is
not qualifying income for purposes of the 95% gross income test, exceeds 5% of
the Company's gross income during such year, the Company likely would lose its
REIT status. If, however, any portion of the Rent received under a Lease does
not qualify as "rents from real property" because either (i) the Rent is
considered based on the income or
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profits of any person or (ii) the tenant is a Related Party Tenant, none of
the Rent received by the Company under such Lease would qualify as "rents from
real property." In that case, if the Rent received by the Company under such
Lease, plus any other income received by the Company during the taxable year
that is not qualifying income for purposes of the 95% gross income test,
exceeds 5% of the Company's gross income for such year, the Company likely
would lose its REIT status. Finally, if any portion of the Rent does not
qualify as "rents from real property" because the Company furnishes
noncustomary services with respect to a Property other than through a
qualifying independent contractor, none of the Rent received by the Company
with respect to the related Property would qualify as "rents from real
property." In that case, if the Rent received by the Company with respect to
the related Property, plus any other income received by the Company during the
taxable year that is not qualifying income for purposes of the 95% gross
income test, exceeds 5% of the Company's gross income for such year, the
Company would lose its REIT status.
The Company, through the Operating Partnership, may receive certain types of
income that will not qualify for purposes of the 75% or 95% gross income test.
In particular, dividends paid with respect to the stock of the Manager owned
by the Operating Partnership will be qualifying income for purposes of the 95%
gross income test, but not the 75% gross income test. In addition, the
Operating Partnership, through a Noncorporate Subsidiary, will receive its
allocable shares of fees received by the Noncorporate Subsidiary in
consideration of the performance of certain services with respect to
Properties that are owned, directly or indirectly, by the Operating
Partnership. Although the law is not entirely clear, to the extent that the
Operating Partnership owns, directly or indirectly, an interest in such
Properties and an interest in the Noncorporate Subsidiary, such fees should be
disregarded for purposes of the 75% and 95% gross income tests. The Operating
Partnership, through a Noncorporate Subsidiary, also may provide services to
third parties. Any fees received in exchange for such services will not be
qualifying income for purposes of the 75% and 95% gross income tests.
Furthermore, to the extent that the Company receives interest that is accrued
on the late payment of the Rent, such amounts will not qualify as "rents from
real property" and, thus, will not be qualifying income for purposes of the
75% gross income test, but instead will be treated as interest that qualifies
for the 95% gross income test. The Company believes that the aggregate amount
of any such nonqualifying income in any taxable year will not cause the
Company to fail to satisfy either the 75% or 95% gross income test.
It is possible that, from time to time, the Company or the Operating
Partnership will enter into hedging transactions with respect to one or more
of its assets or liabilities. Any such hedging transactions could take a
variety of forms, including interest rate swap contracts, interest rate cap or
floor contracts, futures or forward contracts, and options. To the extent that
the Company or the Operating Partnership enters into an interest rate swap or
cap contract to hedge any variable rate indebtedness incurred to acquire or
carry real estate assets, any periodic income or gain from the disposition of
such contract should be qualifying income for purposes of the 95% gross income
test, but not the 75% gross income test. Furthermore, any such contract would
be considered a "security" for purposes of applying the 30% gross income test.
To the extent that the Company or the Operating Partnership hedges with other
types of financial instruments or in other situations, it may not be entirely
clear how the income from those transactions will be treated for purposes of
the various income tests that apply to REITs under the Code. The Company
intends to structure any hedging transactions in a manner that does not
jeopardize its status as a REIT.
Based on the foregoing, Hunton & Williams is of the opinion that the Rent
will qualify as "rents from real property" for purposes of the 75% and 95%
gross income tests, and that the Company's proposed method of operation will
enable it to satisfy the 75% and 95% gross income tests. As described above,
the opinion of Hunton & Williams is based upon an analysis of all the facts
and circumstances and upon rulings and judicial decisions involving situations
that are considered to be analogous, as well as representations by the Company
and assumptions that are described above and set out in the federal income tax
opinion of Hunton & Williams to be delivered at the closing of the Offering.
Opinions of counsel are not binding upon the Service or any court.
Accordingly, there can be no complete assurance that the Service will not
assert successfully a contrary position and, therefore, prevent the Company
from qualifying as a REIT.
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If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it nevertheless may qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. Those
relief provisions generally will be available if the Company's failure to meet
such tests is due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of those relief provisions. As
discussed above in "Federal Income Tax Considerations--Taxation of the
Company," even if those relief provisions apply, a 100% tax would be imposed
on the net income attributable to the greater of the amount by which the
Company fails the 75% or 95% gross income test. No such relief is available
for violations of the 30% income test.
Asset Tests
The Company, at the close of each quarter of each taxable year, also must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, "real estate
assets," or, in cases where the Company raises new capital through stock or
long-term (at least five-year) debt offerings, temporary investments in stock
or debt instruments during the one-year period following the Company's receipt
of such capital. The term "real estate assets" includes interests in real
property, interests in mortgages on real property to the extent the principal
balance of a mortgage does not exceed the value of the associated real
property, and shares of other REITs. For purposes of the 75% asset test, the
term "interest in real property" includes an interest in land and improvements
thereon, such as buildings or other inherently permanent structures (including
items that are structural components of such buildings or structures), a
leasehold of real property, and an option to acquire real property (or a
leasehold of real property). Second, of the investments not included in the
75% asset class, the value of any one issuer's securities owned by the Company
may not exceed 5% of the value of the Company's total assets and the Company
may not own more than 10% of any one issuer's outstanding voting securities
(except for its interests in the Operating Partnership, the Noncorporate
Subsidiaries, the General Partner, and any other qualified REIT subsidiary).
For purposes of the asset tests, the Company will be deemed to own its
proportionate share of the assets of the Operating Partnership and each
Noncorporate Subsidiary, rather than its interests in those entities. The
Operating Partnership will own 100% of the nonvoting common stock of the
Manager. The Company has represented that, as of the date of the Offering, (i)
at least 75% of the value of its total assets will be represented by real
estate assets, cash and cash items (including receivables), and government
securities and (ii) it will not own (A) securities of any one issuer the value
of which exceeds 5% of the value of the Company's total assets or (B) more
than 10% of any one issuer's outstanding voting securities (except for its
interests in the Operating Partnership, the Noncorporate Subsidiaries, the
General Partner, and any other qualified REIT subsidiary). In addition, the
Company has represented that it will not acquire or dispose, or cause the
Operating Partnership to acquire or dispose, of assets in the future in a way
that would cause it to violate either asset test. Based on the foregoing,
Hunton & Williams is of the opinion that the Company will satisfy both asset
tests for REIT status.
If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the Company's assets and
the asset tests either did not exist immediately after the acquisition of any
particular asset or was not wholly or partly caused by such an acquisition
(i.e., the discrepancy arose from changes in the market values of its assets).
If the condition described in clause (ii) of the preceding sentence were not
satisfied, the Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.
Distribution Requirements
The Company, in order to qualify as a REIT, is required to distribute with
respect to each taxable year dividends (other than capital gain dividends) to
its shareholders in an aggregate amount at least equal to (i) the
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sum of (A) 95% of its "REIT taxable income" (computed without regard to the
dividends paid deduction and its net capital gain) and (B) 95% of the net
income (after tax), if any, from foreclosure property, minus (ii) the sum of
certain items of noncash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its federal income tax return for
such year and if paid on or before the first regular dividend payment date
after such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of
its "REIT taxable income," as adjusted, it will be subject to tax thereon at
regular ordinary and capital gains corporate tax rates. Furthermore, if the
Company should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain income for such year, and (iii) any undistributed taxable income
from prior periods, the Company would be subject to a 4% nondeductible excise
tax on the excess of such required distribution over the amounts actually
distributed. The Company intends to make timely distributions sufficient to
satisfy the annual distribution requirements.
It is possible that, from time to time, the Company may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of
such expenses in arriving at its REIT taxable income. Further, it is possible
that, from time to time, the Company may be allocated a share of net capital
gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. Therefore, the Company may
have less cash than is necessary to meet its annual 95% distribution
requirement or to avoid corporate income tax or the excise tax imposed on
certain undistributed income. In such a situation, the Company may find it
necessary to arrange for short-term (or possibly long-term) borrowings or to
raise funds through the issuance of Preferred Shares or additional Common
Shares.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to its shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Although the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends, it
will be required to pay to the Service interest based upon the amount of any
deduction taken for deficiency dividends.
Recordkeeping Requirements
Pursuant to applicable Treasury Regulations, in order to be able to elect to
be taxed as a REIT, the Company must maintain certain records and request on
an annual basis certain information from its shareholders designed to disclose
the actual ownership of its outstanding shares. The Company intends to comply
with such requirements.
Partnership Anti-Abuse Rule
The U.S. Treasury Department has issued a final regulation (the "Anti-Abuse
Rule") under the partnership provisions of the Code (the "Partnership
Provisions") that authorizes the Service, in certain "abusive" transactions
involving partnerships, to disregard the form of the transaction and recast it
for federal tax purposes as the Service deems appropriate. The Anti-Abuse Rule
applies where a partnership is formed or utilized in connection with a
transaction (or series of related transactions) with a principal purpose of
substantially reducing the present value of the partners' aggregate federal
tax liability in a manner inconsistent with the intent of the Partnership
Provisions. The Anti-Abuse Rule states that the Partnership Provisions are
intended to permit taxpayers to conduct joint business (including investment)
activities through a flexible economic arrangement that accurately reflects
the partners' economic agreement and clearly reflects the partners' income
without incurring any entity-level tax. The purposes for structuring a
transaction involving a partnership are determined based on all of the facts
and circumstances, including a comparison of the purported business purpose
for a transaction and the claimed tax benefits resulting from the transaction.
A reduction in the present value of the partners' aggregate federal tax
liability through the use of a partnership does not, by itself, establish
inconsistency with the intent of the Partnership Provisions.
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The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partnership
interest. The limited partners of the partnership contribute real property
assets to the partnership, subject to liabilities that exceed their respective
aggregate bases in such property. In addition, some of the limited partners
have the right, beginning two years after the formation of the partnership, to
require the redemption of their limited partnership interests in exchange for
cash or REIT stock (at the REIT's option) equal to the fair market value of
their respective interests in the partnership at the time of the redemption.
The example concludes that the use of the partnership is not inconsistent with
the intent of the Partnership Provisions and, thus, cannot be recast by the
Service. Based on the foregoing, Hunton & Williams is of the opinion that the
Anti-Abuse Rule will not have any adverse impact on the Company's ability to
qualify as a REIT. However, the Exchange Rights do not conform in all respects
to the redemption rights contained in the foregoing example. Moreover, the
Anti-Abuse Rule is extraordinarily broad in scope and is applied based on an
analysis of all of the facts and circumstances. As a result, there can be no
assurance that the Service will not attempt to apply the Anti-Abuse Rule to
the Company. If the conditions of the Anti-Abuse Rule are met, the Service is
authorized to take appropriate enforcement action, including disregarding the
Operating Partnership for federal tax purposes or treating one or more of its
partners as nonpartners. Any such action potentially could jeopardize the
Company's status as a REIT.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to the Company's shareholders in any
year in which the Company fails to qualify will not be deductible by the
Company nor will they be required to be made. In such event, to the extent of
current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from taxation as a
REIT for the four taxable years following the year during which the Company
ceased to qualify as a REIT. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. shareholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. shareholder" means a holder of Common Shares that
for U.S. federal income tax purposes is (i) a citizen or resident of the U.S.,
(ii) a corporation, partnership, or other entity created or organized in or
under the laws of the U.S. or of any political subdivision thereof, or (iii)
an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held his Common
Shares. However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Shares, but rather will reduce the adjusted basis of such
shares. To the extent that such distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a shareholder's
Common Shares, such distributions will be included in income as long-term
capital gain (or short-term capital gain if the Common Shares have been held
for one year or less), assuming the Common Shares are capital assets in the
hands of the shareholder. In addition, any distribution declared by the
Company in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the shareholder on December 31 of
such year, provided that the distribution is actually paid by the Company
during January of the following calendar year.
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Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would
be carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of the Common Shares will not be treated as passive
activity income and, therefore, shareholders generally will not be able to
apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which a shareholder is a limited partner) against such
income. In addition, taxable distributions from the Company generally will be
treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of Common Shares (or
distributions treated as such), however, will be treated as investment income
only if the shareholder so elects, in which case such capital gains will be
taxed at ordinary income rates. The Company will notify shareholders after the
close of the Company's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital,
and capital gain.
TAXATION OF SHAREHOLDERS ON THE DISPOSITION OF THE COMMON SHARES
In general, any gain or loss realized upon a taxable disposition of the
Common Shares by a shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the Common Shares have been held
for more than one year and otherwise as short-term capital gain or loss.
However, any loss upon a sale or exchange of Common Shares by a shareholder
who has held such shares for six months or less (after applying certain
holding period rules), will be treated as a long-term capital loss to the
extent of distributions from the Company required to be treated by such
shareholder as long-term capital gain. All or a portion of any loss realized
upon a taxable disposition of the Common Shares may be disallowed if other
Common Shares are purchased within 30 days before or after the disposition.
CAPITAL GAINS AND LOSSES
A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is
39.6%, and the tax rate on net capital gains applicable to individuals is 28%.
Thus, the tax rate differential between capital gain and ordinary income for
individuals may be significant. In addition, the characterization of income as
capital or ordinary may affect the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against an individual's
ordinary income only up to a maximum annual amount of $3,000. Unused capital
losses may be carried forward. All net capital gain of a corporate taxpayer is
subject to tax at ordinary corporate rates. A corporate taxpayer can deduct
capital losses only to the extent of capital gains, with unused losses being
carried back three years and forward five years.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Company will report to its U.S. shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with the applicable requirements of
the backup withholding rules. A shareholder who does not provide the Company
with his correct taxpayer identification number also may be subject to
penalties imposed by the Service. Any amount paid as backup withholding will
be creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their nonforeign status to the Company.
The Service issued proposed regulations in April 1996 regarding the backup
withholding rules as applied to Non-U.S. Shareholders. Those proposed
regulations would alter the current system of backup withholding compliance.
See "--Taxation of Non-U.S. Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are
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subject to taxation on their unrelated business taxable income ("UBTI"). While
many investments in real estate generate UBTI, the Service has issued a
published ruling that dividend distributions from a REIT to an exempt employee
pension trust do not constitute UBTI, provided that the shares of the REIT are
not otherwise used in an unrelated trade or business of the exempt employee
pension trust. Based on that ruling, amounts distributed by the Company to
Exempt Organizations generally should not constitute UBTI. However, if an
Exempt Organization finances its acquisition of the Common Shares with debt, a
portion of its income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17), and (20), respectively, of Code section 501(c) are subject to
different UBTI rules, which generally will require them to characterize
distributions from the Company as UBTI. In addition, in certain circumstances,
a pension trust that owns more than 10% of the Company's shares is required to
treat a percentage of the dividends from the Company as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived by the Company
from an unrelated trade or business (determined as if the Company were a
pension trust) divided by the gross income of the Company for the year in
which the dividends are paid. The UBTI rule applies to a pension trust holding
more than 10% of the Company's stock only if (i) the UBTI Percentage is at
least 5%, (ii) the Company qualifies as a REIT by reason of the modification
of the 5/50 Rule that allows the beneficiaries of the pension trust to be
treated as holding shares of the Company in proportion to their actuarial
interests in the pension trust, and (iii) either (A) one pension trust owns
more than 25% of the value of the Company's shares or (B) a group of pension
trusts individually holding more than 10% of the value of the Company's shares
collectively owns more than 50% of the value of the Company's shares.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no
attempt will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS
TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH
REGARD TO AN INVESTMENT IN THE COMMON SHARES, INCLUDING ANY REPORTING
REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current
or accumulated earnings and profits of the Company. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross
amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the Common
Shares is treated as effectively connected with the Non-U.S. Shareholder's
conduct of a U.S. trade or business, the Non-U.S. Shareholder generally will
be subject to federal income tax at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to such distributions (and also may
be subject to the 30% branch profits tax in the case of a Non-U.S. Shareholder
that is a non-U.S. corporation). The Company expects to withhold U.S. income
tax at the rate of 30% on the gross amount of any such distributions made to a
Non-U.S. Shareholder unless (i) a lower treaty rate applies and any required
form evidencing eligibility for that reduced rate is filed with the Company or
(ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company claiming
that the distribution is effectively connected income. The Service issued
proposed regulations in April 1996 that would modify the manner in which the
Company complies with the withholding requirements. Distributions in excess of
current and accumulated earnings and profits of the Company will not be
taxable to a shareholder to the extent that such distributions do not exceed
the adjusted basis of the shareholder's Common Shares, but rather will reduce
the adjusted basis of such shares. To the extent that distributions in excess
of current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Shareholder's Common Shares, such distributions will give rise to tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his Common Shares, as described below.
Because it generally cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current and accumulated
earnings and profits, the entire
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amount of any distribution normally will be subject to withholding at the same
rate as a dividend. Amounts so withheld, however are refundable to the extent
it is determined subsequently that such distribution was, in fact, in excess
of current and accumulated earnings and profits of the Company.
In August 1996, the U.S. Congress passed the Small Business Job Protection
Act of 1996, which requires the Company to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits. That
statute is effective for distributions made after August 20, 1996.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution, to the extent that the Company does not do
so any portion of a distribution not subject to withholding at a rate of 30%
will be subject to withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of
U.S. real property interests are taxed to a Non-U.S. Shareholder as if such
gain were effectively connected with a U.S. business. Non-U.S. Shareholders
thus would be taxed at the normal capital gain rates applicable to U.S.
shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals).
Distributions subject to FIRPTA also may be subject to the 30% branch profits
tax in the hands of a non-U.S. corporate shareholder not entitled to treaty
relief or exemption. The Company is required to withhold 35% of any
distribution that is designated by the Company as a capital gains dividend.
The amount withheld is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his Common Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. It is currently anticipated that the
Company will be a "domestically controlled REIT" and, therefore, the sale of
the Common Shares will not be subject to taxation under FIRPTA. However,
because the Common Shares will be publicly traded, no assurance can be given
that the Company will be a "domestically controlled REIT." Furthermore, gain
not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i)
investment in the Common Shares is effectively connected with the Non-U.S.
Shareholder's U.S. trade or business, in which case the Non-U.S. Shareholder
will be subject to the same treatment as U.S. shareholders with respect to
such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien individual
who was present in the U.S. for 183 days or more during the taxable year and
certain other conditions apply, in which case the nonresident alien individual
will be subject to a 30% tax on the individual's capital gains. If the gain on
the sale of the Common Shares were to be subject to taxation under FIRPTA, the
Non-U.S. Shareholder would be subject to the same treatment as U.S.
shareholders with respect to such gain (subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident
alien individuals, and the possible application of the 30% branch profits tax
in the case of non-U.S. corporations).
OTHER TAX CONSEQUENCES
The Company, the General Partner, the Operating Partnership, the Manager, a
Noncorporate Subsidiary, or the Company's shareholders may be subject to state
or local taxation in various state or local jurisdictions, including those in
which it or they own property, transact business, or reside. The state and
local tax treatment of the Company and its shareholders may not conform to the
federal income tax consequences discussed above. CONSEQUENTLY, PROSPECTIVE
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF
STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN THE COMPANY.
In particular, the State of Texas imposes a franchise tax upon corporations
and limited liability companies that do business in Texas, including REITs
that are organized as corporations. The Texas franchise tax imposed on a
corporation doing business in Texas generally is equal to the greater of (i)
.25% of its "taxable capital" (generally, its financial accounting net worth
with certain adjustments) apportioned to Texas; or (ii) 4.5% of its
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"taxable earned surplus" (generally, its federal taxable income with certain
adjustments) apportioned to Texas. A corporation's taxable capital and taxable
earned surplus are apportioned to Texas based upon a fraction, the numerator
of which is the corporation's gross receipts from business transacted in Texas
and the denominator of which is the corporation's gross receipts from all
sources.
Because the Company will be organized as a Maryland real estate investment
trust, and not as a corporation or a limited liability company, the Company
should not be subject to Texas franchise tax. Similarly, neither the Operating
Partnership nor any Noncorporate Subsidiary organized as a partnership should
be subject to the Texas franchise tax. The Company will request a ruling from
the office of the Texas State Comptroller of Public Accounts (the
"Comptroller"), the administrative agency that administers the Texas franchise
tax, that neither the Company, the Operating Partnership nor any Noncorporate
Subsidiary organized as a partnership will be subject to the Texas franchise
tax. There can be no assurance, however, that the Texas legislature, which
next meets in regular session in 1997, will not expand the scope of the Texas
franchise tax to apply to trusts such as the Company or partnerships such as
the Operating Partnership or the Noncorporate Subsidiaries that are organized
as partnerships.
Both the General Partner and the Manager will be organized as corporations.
Furthermore, the General Partner will be the general partner of a partnership
doing business in Texas (i.e., the Operating Partnership) and will register in
the State of Texas as a foreign corporation qualified to transact business in
Texas. Similarly, the Manager will conduct business in Texas and will register
in the State of Texas as a foreign corporation qualified to transact business
in Texas. Accordingly, both the General Partner and the Manager will be
subject to the Texas franchise tax. Finally, one of the Noncorporate
Subsidiaries, Riverside Industrial, LLC, is organized as a limited liability
company, will conduct business in Texas and will register in the State of
Texas as a foreign limited liability company qualified to transact business in
Texas. Accordingly, that Noncorporate Subsidiary also will be subject to the
Texas franchise tax.
Coopers & Lybrand L.L.P., special tax consultant to the Company ("Coopers &
Lybrand"), has reviewed the discussion in this section with respect to Texas
franchise tax matters and is of the opinion that it fairly summarizes the
Texas franchise tax considerations that will be material to the Company. The
opinion rendered by Coopers & Lybrand is not binding upon the Comptroller or
any court. Furthermore, Coopers & Lybrand expresses no opinion with respect to
(i) any federal or other state tax considerations affecting the Company
including, but not limited to, other taxes imposed by the State of Texas; or
(ii) any of the tax considerations affecting a holder of Common Shares
including, but not limited to, the Texas franchise tax implications to a
holder of owning Common Shares.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE NONCORPORATE SUBSIDIARIES
The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investment in
the Operating Partnership and the Noncorporate Subsidiaries (each of the
Operating Partnership and the Noncorporate Subsidiaries is referred to herein
as a "Partnership"). The discussion does not cover state or local tax laws or
any federal tax laws other than income tax laws.
Classification as a Partnership
The Company will be entitled to include in its income its distributive share
of each Partnership's income and to deduct its distributive share of each
Partnership's losses only if each Partnership is classified for federal income
tax purposes as a partnership rather than as a corporation or an association
taxable as a corporation. An organization formed as a partnership will be
treated as a partnership, rather than as a corporation, for federal income tax
purposes if it (i) has no more than two of the four corporate characteristics
that the Treasury Regulations use to distinguish a partnership from a
corporation for tax purposes and (ii) is not a "publicly traded" partnership.
Those four corporate characteristics are continuity of life, centralization of
management, limited liability, and free transferability of interests. A
publicly traded partnership is a partnership whose interests are traded on an
established securities market or are readily tradable on a secondary market
(or the substantial equivalent thereof). A publicly traded partnership will be
treated as a corporation for federal income tax purposes
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unless at least 90% of such partnership's gross income for a taxable year
consists of "qualifying income" under Section 7704(d) of the Code, which
generally includes any income that is qualifying income for purposes of the
95% gross income test applicable to REITs (the "90% Passive-Type Income
Exception"). See "--Requirements for Qualification--Income Tests."
The U.S. Treasury Department recently issued regulations effective for
taxable years beginning after December 31, 1995 (the "PTP Regulations") that
provide limited safe harbors from the definition of a publicly traded
partnership. Pursuant to one of those safe harbors, (the "Private Placement
Exclusion"), interests in a partnership will not be treated as readily
tradable on a secondary market or the substantial equivalent thereof if (i)
all interests in the partnership were issued in a transaction (or
transactions) that was not required to be registered under the Securities Act
of 1933, and (ii) the partnership does not have more than 100 partners at any
time during the partnership's taxable year. In determining the number of
partners in a partnership, a person owning an interest in a flow-through
entity (i.e., a partnership, grantor trust, or S corporation) that owns an
interest in the partnership is treated as a partner in such partnership only
if (a) substantially all of the value of the owner's interest in the flow-
through entity is attributable to the flow-through entity's interest (direct
or indirect) in the partnership and (b) a principal purpose of the use of the
tiered arrangement is to permit the partnership to satisfy the 100-partner
limitation. Each Partnership qualifies for the Private Placement Exclusion. If
the Operating Partnership is considered a publicly traded partnership under
the PTP Regulations because it is deemed to have more than 100 partners, such
Partnership should not be treated as a corporation because it should be
eligible for the 90% Passive-Type Income Exception.
The Company has not requested, and does not intend to request, a ruling from
the Service that each Partnership will be classified as a partnership for
federal income tax purposes. Instead, Hunton & Williams is of the opinion
that, based on certain factual assumptions and representations, each
Partnership does not possess more than two corporate characteristics and will
not be treated as a publicly traded partnership and, thus, will be treated for
federal income tax purposes as a partnership and not as a corporation or an
association taxable as a corporation, or a publicly traded partnership. Unlike
a tax ruling, an opinion of counsel is not binding upon the Service, and no
assurance can be given that the Service will not challenge the status of each
Partnership as a partnership for federal income tax purposes. If such
challenge were sustained by a court, the Partnership would be treated as a
corporation for federal income tax purposes, as described below. In addition,
the opinion of Hunton & Williams is based on existing law, which is to a great
extent the result of administrative and judicial interpretation. No assurance
can be given that administrative or judicial changes would not modify the
conclusions expressed in the opinion.
If for any reason one of the Partnerships were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company
would not be able to qualify as a REIT. See "Federal Income Tax
Considerations--Requirements for Qualification--Income Tests" and "--
Requirements for Qualification--Asset Tests." In addition, any change in a
Partnership's status for tax purposes might be treated as a taxable event, in
which case the Company might incur a tax liability without any related cash
distribution. See "Federal Income Tax Considerations--Requirements for
Qualification--Distribution Requirements." Further, items of income and
deduction of such Partnership would not pass through to its partners, and its
partners would be treated as shareholders for tax purposes. Consequently, such
Partnership would be required to pay income tax at corporate tax rates on its
net income, and distributions to its partners would constitute dividends that
would not be deductible in computing such Partnership's taxable income.
Income Taxation of the Partnerships and their Partners
Partners, Not Partnerships, Subject to Tax. A partnership is not a taxable
entity for federal income tax purposes. Rather, the Company will be required
to take into account its allocable share of each Partnership's income, gains,
losses, deductions, and credits for any taxable year of such Partnership
ending within or with the taxable year of the Company, without regard to
whether the Company has received or will receive any distribution from such
Partnership.
Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under section 704(b) of
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the Code if they do not comply with the provisions of section 704(b) of the
Code and the Treasury Regulations promulgated thereunder. If an allocation is
not recognized for federal income tax purposes, the item subject to the
allocation will be reallocated in accordance with the partners' interests in
the partnership, which will be determined by taking into account all of the
facts and circumstances relating to the economic arrangement of the partners
with respect to such item. Each Partnership's allocations of taxable income
and loss are intended to comply with the requirements of section 704(b) of the
Code and the Treasury Regulations promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. Pursuant to section
704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal
income tax purposes in a manner such that the contributor is charged with, or
benefits from, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain
or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution. The Treasury
Department recently issued regulations requiring partnerships to use a
"reasonable method" for allocating items affected by section 704(c) of the
Code and outlining several reasonable allocation methods. The Operating
Partnership plans to elect to use the traditional method for allocating Code
section 704(c) items with respect to the Properties it acquires in exchange
for Units.
Under the Operating Partnership Agreement, depreciation or amortization
deductions of the Operating Partnership generally will be allocated among the
partners in accordance with their respective interests in the Operating
Partnership, except to the extent that the Operating Partnership is required
under Code section 704(c) to use a method for allocating tax depreciation
deductions attributable to the Properties that results in the Company
receiving a disproportionately large share of such deductions. In addition,
gain on the sale of a Property contributed to the Operating Partnership by a
member of the Prentiss Group in exchange for Units will be specially allocated
to such member to the extent of any "built-in" gain with respect to such
Property for federal income tax purposes. Depending on the allocation method
elected under Code section 704(c), it is possible that the Company (i) may be
allocated lower amounts of depreciation deductions for tax purposes with
respect to contributed Properties than would be allocated to the Company if
such Properties were to have a tax basis equal to their fair market value at
the time of contribution and (ii) may be allocated taxable gain in the event
of a sale of such contributed Properties in excess of the economic profit
allocated to the Company as a result of such sale. These allocations may cause
the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements, although the Company does not anticipate that this
event will occur. The foregoing principles also will affect the calculation of
the Company's earnings and profits for purposes of determining which portion
of the Company's distributions is taxable as a dividend. The allocations
described in this paragraph may result in a higher portion of the Company's
distributions being taxed as a dividend than would have occurred had the
Company purchased the Properties for cash.
Basis in Operating Partnership Interest. The Company's adjusted tax basis in
its partnership interest in the Operating Partnership generally is equal to
(i) the amount of cash and the basis of any other property contributed to the
Operating Partnership by the Company, (ii) increased by (A) its allocable
share of the Operating Partnership's income and (B) its allocable share of
indebtedness of the Operating Partnership, and (iii) reduced, but not below
zero, by (A) the Company's allocable share of the Operating Partnership's loss
and (B) the amount of cash distributed to the Company, including constructive
cash distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnership below zero, the recognition
of such loss will be deferred until such time as the recognition of such loss
would not reduce the Company's adjusted tax basis below zero. To the extent
that the Operating Partnership's distributions, or any decrease in the
Company's share of the indebtedness of the Operating Partnership (such
decrease being considered a constructive
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cash distribution to the partners), would reduce the Company's adjusted tax
basis below zero, such distributions (including such constructive
distributions) will constitute taxable income to the Company. Such
distributions and constructive distributions normally will be characterized as
capital gain, and, if the Company's partnership interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive distributions
will constitute long-term capital gain.
SALE OF THE OPERATING PARTNERSHIP'S OR A NONCORPORATE SUBSIDIARY'S PROPERTY
Generally, any gain realized by the Operating Partnership or a Noncorporate
Subsidiary on the sale of property held for more than one year will be long-
term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. Any gain recognized by the Operating
Partnership or a Noncorporate Subsidiary on the disposition of the Properties
contributed by the Prentiss Group in exchange for Units will be allocated
first to the applicable members of the Prentiss Group under section 704(c) of
the Code to the extent of their "built-in gain" on those Properties for
federal income tax purposes. The Limited Partners' "built-in gain" on the
Properties sold will equal the excess of the Limited Partners' proportionate
share of the book value of those Properties over the Limited Partners' tax
basis allocable to those Properties at the time of the sale. Any remaining
gain recognized by the Operating Partnership or a Noncorporate Subsidiary on
the disposition of the contributed Properties, and any gain recognized upon
the disposition of the Properties acquired by the Operating Partnership for
cash, will be allocated among the partners in accordance with their respective
percentage interests in the Operating Partnership or such Noncorporate
Subsidiary. The Bylaws of the Company provide that any decision to sell any
real estate asset in which a trustee, or officer of the Company, or any
Affiliate of the foregoing, has a direct or indirect interest, will be made by
a majority of the Trustees including a majority of the Independent Trustees.
See "Policies with Respect to Certain Activities--Conflict of Interest
Policies--Declaration of Trust and Bylaw Provisions."
The Company's share of any gain realized by the Operating Partnership or a
Noncorporate Subsidiary on the sale of any property held by the Operating
Partnership or a Noncorporate Subsidiary as inventory or other property held
primarily for sale to customers in the ordinary course of the Operating
Partnership's or a Noncorporate Subsidiary's trade or business will be treated
as income from a prohibited transaction that is subject to a 100% penalty tax.
Such prohibited transaction income also may have an adverse effect upon the
Company's ability to satisfy the income tests for REIT status. See "Federal
Income Tax Considerations--Requirements For Qualification--Income Tests"
above. The Company, however, does not presently intend to allow the Operating
Partnership or a Noncorporate Subsidiary to acquire or hold any property that
represents inventory or other property held primarily for sale to customers in
the ordinary course of the Company's, the Operating Partnership's or a
Noncorporate Subsidiary's trade or business.
MANAGER
The Operating Partnership owns 100% of the nonvoting stock of the Manager.
Such stock represents in the aggregate a 95% economic interest in the Manager.
The Operating Partnership also holds a $26.95 million note issued by the
Manager. By virtue of its ownership of the Operating Partnership, the Company
is considered to own its pro rata share of such stock and note.
As noted above, for the Company to qualify as a REIT the Company's
proportionate share of the value of the equity and debt securities of the
Manager held by the Operating Partnership may not exceed 5% of the total value
of the Company's assets. In addition, the Company's proportionate share of the
Manager's equity securities may not constitute more than 10% of the voting
securities of the Manager. The Company does not own, directly or through the
Operating Partnership, any of the voting securities of the Manager. In
addition, the Company believes its proportionate share of the value of the
equity and debt securities of the Manager held by the Operating Partnership
does not exceed 5% of the total value of the Company's assets. If the Service
were to successfully challenge these determinations, however, the Company
likely would fail to qualify as a REIT.
The Manager will be organized as a corporation and will pay federal, state
and local income taxes on its taxable income at normal corporate rates. Any
such taxes will reduce amounts available for distribution by the Manager which
in turn will reduce amounts available for distribution to the Company's
stockholders.
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ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
prohibited transaction provisions of section 4975 of the Code that may be
relevant to a prospective purchaser (including, with respect to the discussion
contained in "ERISA Considerations--Status of the Company and the Partnership
under ERISA," to a prospective purchaser that is not an employee benefit plan,
another tax-qualified retirement plan, or an individual retirement account
("IRA")). The discussion does not purport to deal with all aspects of ERISA or
section 4975 of the Code that may be relevant to particular shareholders
(including plans subject to Title I of ERISA, other retirement plans and IRAs
subject to the prohibited transaction provisions of section 4975 of the Code,
and governmental plans or church plans that are exempt from ERISA and section
4975 of the Code but that may be subject to state law requirements) in light
of their particular circumstances.
The discussion is based on current provisions of ERISA and the Code,
existing and currently proposed regulations under ERISA and the Code, the
legislative history of ERISA and the Code, existing administrative rulings of
the Department of Labor ("DOL") and reported judicial decisions. No assurance
can be given that legislative, judicial, or administrative changes will not
affect the accuracy of any statements herein with respect to transactions
entered into or contemplated prior to the effective date of such changes.
A FIDUCIARY MAKING THE DECISION TO INVEST IN THE COMMON SHARES ON BEHALF OF
A PROSPECTIVE PURCHASER THAT IS AN EMPLOYEE BENEFIT PLAN, A TAX-QUALIFIED
RETIREMENT PLAN, OR AN IRA IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR
REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE
CODE, AND STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE
COMMON SHARES BY SUCH PLAN OR IRA.
EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS, AND IRAS
Each fiduciary of a pension, profit-sharing, or other employee benefit plan
(an "ERISA Plan") subject to Title I of ERISA should consider carefully
whether an investment in the Common Shares is consistent with his fiduciary
responsibilities under ERISA. In particular, the fiduciary requirements of
Part 4 of Title I of ERISA require a ERISA Plan's investments to be (i)
prudent and in the best interests of the ERISA Plan, its participants, and its
beneficiaries, (ii) diversified in order to minimize the risk of large losses,
unless it is clearly prudent not to do so, and (iii) authorized under the
terms of the ERISA Plan's governing documents (provided the documents are
consistent with ERISA). In determining whether an investment in the Common
Shares is prudent for purposes of ERISA, the appropriate fiduciary of a ERISA
Plan should consider all of the facts and circumstances, including whether the
investment is reasonably designed, as a part of the ERISA Plan's portfolio for
which the fiduciary has investment responsibility, to meet the objectives of
the ERISA Plan, taking into consideration the risk of loss and opportunity for
gain (or other return) from the investment, the diversification, cash flow,
and funding requirements of the ERISA Plan's portfolio. A fiduciary also
should take into account the nature of the Company's business, the management
of the Company, the length of the Company's operating history, the fact that
certain investment properties may not have been identified yet, and the
possibility of the recognition of UBTI.
The fiduciary of an IRA or of a qualified retirement plan not subject to
Title I of ERISA because it is a governmental or church plan or because it
does not cover common law employees (a "Non-ERISA Plan") should consider that
such an IRA or Non-ERISA Plan may only make investments that are authorized by
the appropriate governing documents and under applicable state law.
Fiduciaries of ERISA Plans and persons making the investment decision for an
IRA or other Non-ERISA Plan should consider the application of the prohibited
transaction provisions of ERISA and the Code in making their investment
decision. A "party in interest" or "disqualified person" with respect to an
ERISA Plan or with respect to a Non-ERISA Plan or IRA subject to Code section
4975 is subject to (i) an initial 5% excise tax on
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the amount involved in any prohibited transaction involving the assets of the
plan or IRA and (ii) an excise tax equal to 100% of the amount involved if any
prohibited transaction is not corrected. If the disqualified person who
engages in the transaction is the individual on behalf of whom an IRA is
maintained (or his beneficiary), the IRA will lose its tax-exempt status and
its assets will be deemed to have been distributed to such individual in a
taxable distribution (and no excise tax will be imposed) on account of the
prohibited transaction. In addition, a fiduciary who permits an ERISA Plan to
engage in a transaction that the fiduciary knows or should know is a
prohibited transaction may be liable to the ERISA Plan for any loss the ERISA
Plan incurs as a result of the transaction or for any profits earned by the
fiduciary in the transaction.
STATUS OF THE COMPANY AND THE PARTNERSHIP (AND THE SUBSIDIARY PARTNERSHIPS)
UNDER ERISA
The following section discusses certain principles that apply in determining
whether the fiduciary requirements of ERISA and the prohibited transaction
provisions of ERISA and the Code apply to an entity because one or more
investors in the equity interests in the entity is an ERISA Plan or is a Non-
ERISA Plan or IRA subject to section 4975 of the Code. An ERISA Plan fiduciary
also should consider the relevance of those principles to ERISA's prohibition
on improper delegation of control over or responsibility for "plan assets" and
ERISA's imposition of co-fiduciary liability on a fiduciary who participates
in, permits (by action or inaction) the occurrence of, or fails to remedy a
known breach by another fiduciary.
If the assets of the Company are deemed to be "plan assets" under ERISA, (i)
the prudence standards and other provisions of Part 4 of Title I of ERISA
would be applicable to any transactions involving the Company's assets, (ii)
persons who exercise any authority over the Company's assets, or who provide
investment advice to the Company, would (for purposes of the fiduciary
responsibility provisions of ERISA) be fiduciaries of each ERISA Plan that
acquires Common Shares, and transactions involving the Company's assets
undertaken at their direction or pursuant to their advice might violate their
fiduciary responsibilities under ERISA, especially with regard to conflicts of
interest, (iii) a fiduciary exercising his investment discretion over the
assets of an ERISA Plan to cause it to acquire or hold the Common Shares could
be liable under Part 4 of Title I of ERISA for transactions entered into by
the Company that do not conform to ERISA standards of prudence and fiduciary
responsibility, and (iv) certain transactions that the Company might enter
into in the ordinary course of its business and operations might constitute
"prohibited transactions" under ERISA and the Code.
Regulations of the DOL defining "plan assets" (the "Plan Asset Regulations")
generally provide that when an ERISA Plan or Non-ERISA Plan or IRA acquires a
security that is an equity interest in an entity and the security is neither a
"publicly-offered security" nor a security issued by an investment company
registered under the Investment Company Act of 1940, the ERISA or Non-ERISA
Plan's or IRA's assets include both the equity interest and an undivided
interest in each of the underlying assets of the issuer of such equity
interest, unless one or more exceptions specified in the Plan Asset
Regulations are satisfied.
The Plan Asset Regulations define a publicly-offered security as a security
that is "widely-held," "freely transferable," and either part of a class of
securities registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or sold pursuant to an effective registration statement
under the Securities Act (provided the securities are registered under the
Exchange Act within 120 days after the end of the fiscal year of the issuer
during which the offering occurred). The Common Shares are being sold in an
offering registered under the Securities Act and will be registered under the
Exchange Act. The Plan Asset Regulations provide that a security is "widely
held" only if it is part of a class of securities that is owned by 100 or more
investors independent of the issuer and of one another. A security will not
fail to be widely held because the number of independent investors falls below
100 subsequent to the initial public offering as a result of events beyond the
issuer's control. The Company anticipates that upon completion of the
Offering, the Common Shares will be "widely held."
The Plan Asset Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The Plan Asset Regulations further provide
that where a security is part of an offering in which the minimum investment
is $10,000 or less (as is the case
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with this Offering), certain restrictions ordinarily will not, alone or in
combination, affect a finding that such securities are freely transferable.
The restrictions on transfer enumerated in the Plan Asset Regulations as not
affecting that finding include: (i) any restriction on or prohibition against
any transfer or assignment that would result in the termination or
reclassification of an entity for federal or state tax purposes, or that
otherwise would violate any federal or state law or court order, (ii) any
requirement that advance notice of a transfer or assignment be given to the
issuer, (iii) any administrative procedure that establishes an effective date,
or an event (such as completion of an offering), prior to which a transfer or
assignment will not be effective, and (iv) any limitation or restriction on
transfer or assignment that is not imposed by the issuer or a person acting on
behalf of the issuer. The Company believes that the restrictions imposed under
the Declaration of Trust on the transfer of the Company's shares of beneficial
interest will not result in the failure of the Common Shares to be "freely
transferable." The Company also is not aware of any other facts or
circumstances limiting the transferability of the Common Shares that are not
enumerated in the Plan Asset Regulations as those not affecting free
transferability, and the Company does not intend to impose in the future (or
to permit any person to impose on its behalf) any limitations or restrictions
on transfer that would not be among the enumerated permissible limitations or
restrictions. The Plan Asset Regulations only establish a presumption in favor
of a finding of free transferability, and no assurance can be given that the
DOL or the Treasury Department will not reach a contrary conclusion.
Assuming that the Common Shares will be "widely held" and that no other
facts and circumstances other than those referred to in the preceding
paragraph exist that restrict transferability of the Common Shares, the Common
Shares should be publicly offered securities and the assets of the Company
should not be deemed to be "plan assets" of any ERISA Plan, IRA, or Non-ERISA
Plan that invests in the Common Shares.
The Plan Asset Regulations also will apply in determining whether the assets
of the Partnership (and the Subsidiary Partnerships) will be deemed to be
"plan assets." The partnership interests in the Partnership and the Subsidiary
Partnerships will not be publicly-offered securities. Nevertheless, if the
Common Shares constitute publicly-offered securities, the indirect investment
in the Partnership and the Subsidiary Partnerships by ERISA Plans, IRAs, or
Non-ERISA Plans subject to section 4975 of the Code through their ownership of
Common Shares will not cause the assets of the Partnership or the Subsidiary
Partnerships to be treated as "plan assets" of such shareholders.
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UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), for whom Lehman Brothers Inc.,
Alex. Brown & Sons Incorporated, A.G. Edwards & Sons, Inc., Prudential
Securities Incorporated, Smith Barney Inc. and Principal Financial Securities,
Inc. are acting as representatives (the "Representatives"), and each of the
Underwriters has severally agreed to purchase, the respective number of Common
Shares set forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc...............................................
Alex. Brown & Sons Incorporated...................................
A.G. Edwards & Sons, Inc..........................................
Prudential Securities Incorporated................................
Smith Barney Inc..................................................
Principal Financial Securities, Inc...............................
---
Total.........................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the Common Shares are subject to certain conditions precedent and
that if any of the foregoing Common Shares are purchased by the Underwriters
pursuant to the Underwriting Agreement, all such Common Shares must be so
purchased.
The Company has been advised by the Underwriters that they propose to offer
the Common Shares directly to the public at the initial public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
public offering price less a concession not in excess of $. per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $. per share to certain other underwriters or to certain other
brokers or dealers. After the initial public offering, the public offering
price, the concession to selected dealers and the reallowance to other dealers
may be changed by the Representatives.
The Company has granted to the Underwriters an option to purchase up to an
additional 2,266,500 Common Shares at the initial public offering price less
underwriting discounts and commissions, solely to cover overallotments, if
any. The Underwriters may exercise this option at any time up to 30 days after
the date of this Prospectus. To the extent that the Underwriters exercise this
option, each of the Underwriters will be obligated, subject to certain
conditions, to purchase a number of additional Common Shares proportionate to
such Underwriter's initial commitment reflected in the foregoing table.
The Company has agreed that it will not, without the prior written consent
of Lehman Brothers Inc., offer for sale, contract to sell, sell or otherwise
dispose of, directly or indirectly, any Common Shares (other than shares
issued pursuant to the 1996 Share Incentive Plan and certain other agreements)
or any securities convertible or exchangeable into Common Shares or sell or
grant options, rights or warrants with respect to any Common Shares, for a
period of six months after the consummation of the Offering. Each of the
officers, Trustees and affiliates of the Company who have acquired Units in
connection with the organization of the Company and the Formation Transactions
has entered into agreements with the Underwriters providing that, subject to
certain exceptions, such holders of Units will not sell any Units prior to the
second anniversary of the Closing Date, without the consent of the Company and
Lehman Brothers Inc. Each of the Continuing Investors has agreed that, subject
to certain exceptions, it will not sell any Common Shares prior to the first
anniversary of the Closing Date. The Company has agreed with the Continuing
Investors that it will issue 1,892,985 Common Shares (representing an
investment of approximately $37.9 million based on the Offering Price) in
exchange for a portion of their interests in the Operating Partnership. No
underwriting discounts or commissions will be applied to the Common Shares to
be issued to the Continuing Investors.
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The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common
Shares. Consequently, the offering price was determined by negotiations among
the Company and the Representatives. Among the principal factors considered in
such negotiations were prevailing market and general economic conditions,
dividend yields and Funds from Operation multiples of comparable publicly
traded REITs, the revenues and earnings of the Company in recent periods, the
current financial position of the Company and estimates of the business
potential and earnings prospects of the Company. Additionally, consideration
was given to the general status of the securities market, the market
conditions for new issues of securities and the demand for securities of
comparable companies at the times the offerings are made.
Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment
banking services for the Company, for which customary compensation has been
received. The Company will pay an advisory fee equal to 0.5% of the gross
proceeds of the Offering (including any exercise of the Underwriters'
overallotment option) to Lehman Brothers Inc. for advisory services in
connection with the evaluation, analysis and structuring of the Company's
formation as a REIT. In connection with the Offering, (i) affiliates of Lehman
Brothers Inc. will receive $54.0 million of the net proceeds as consideration
for the sale of such affiliates' interests in certain of the Properties to the
Company in the Formation Transactions, (ii) an affiliate of Lehman Brothers
Inc. will be repaid mortgage loans in the principal amount of approximately
$64.5 million made by it to certain affiliates of the Company prior to the
Offering and (iii) an affiliate of Lehman Brothers Inc. has delivered
commitments to make three mortgage loans available to the Company in the
aggregate principal amount of $70.8 million. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Results."
Although the Conduct Rules of the National Association of Securities
Dealers, Inc. exempt REITs from the conflict of interest provisions thereof,
because affiliates of Lehman Brothers Inc. will receive more than 10% of the
net proceeds of the Offering as consideration for the sale of interests in
certain of the properties and in repayment of currently outstanding
indebtedness, the Underwriters have determined to conduct the Offering in
accordance with the applicable provisions of Rule 2720 of the Conduct Rules.
In accordance with these requirements, A.G. Edwards & Sons, Inc. (the
"Independent Underwriter") is assuming the responsibilities of acting as
"qualified independent underwriter," and will recommend the maximum initial
public offering price for the Common Shares in compliance with the
requirements of the Conduct Rules. In connection with the Offering, the
Independent Underwriter is performing due diligence investigations and is
reviewing and participating in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. The initial
public offering price of the Common Shares will be no higher than the price
recommended by the Independent Underwriter.
Principal Mutual Life Insurance Company ("Principal Mutual"), an affiliate
of Principal Financial Securities, Inc., will receive approximately $13.8
million of the net proceeds of the Offering as consideration for the sale of
Principal Mutual's interests in two Properties in the Formation Transactions.
In addition, as of March 31, 1996 Principal Mutual occupied approximately
6,650 square feet of the Company's One Northwestern Plaza Property in
Southfield, Michigan (approximately 2.8% of the net rentable square feet)
pursuant to leases which expire June 30, 1997. Total annual base rent under
Principal Mutual's leases was approximately $147,533 as of March 31, 1996. As
of March 31, 1996, The Prudential Insurance Company of America occupied
approximately 11,470 square feet of One Northwestern Plaza (approximately 4.7%
of the net rentable square feet) pursuant to a lease which expires December
31, 1996. Total annual base rent under the Prudential Insurance Company of
America lease was approximately $270,533 as of March 31, 1996.
The Company intends to apply to have the Common Shares listed on the NYSE
under the symbol "PP."
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LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Hunton &
Williams, Richmond, Virginia, as corporate, securities and tax counsel to the
Company, and by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Dallas, Texas as
real estate counsel to the Company, and for the Underwriters by Rogers &
Wells, New York, New York. Hunton & Williams and Rogers & Wells will rely on
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland as to certain matters
of Maryland law.
EXPERTS
The balance sheet of Prentiss Properties Trust as of July 12, 1996, the
combined balance sheets of the Predecessor Company as of December 31, 1995 and
1994, and the related combined statements of income, owners' equity, and cash
flows for each of the three years in the period ended December 31, 1995 and
the financial statement schedule, the combined statements of revenues and
certain operating expenses of the Prentiss Group Acquisition Properties for
each of the three years in the period ended December 31, 1995, the combined
statements of revenues and certain operating expenses of the Other Acquisition
Properties for the year ended December 31, 1995, and the statement of revenues
and certain operating expenses of Bachman Creek and Park West E-1 and E-2
Properties for the year ended December 31, 1995, as listed on the Index to
Financial Statements on F-1, included in this Prospectus, have been included
herein in reliance on the reports of Coopers & Lybrand, L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing. The description of Texas franchise tax matters set forth in the
Prospectus under the heading "Federal Income Tax Considerations--Other Tax
Consequences" is based upon the opinion of Coopers & Lybrand, L.L.P.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-11 under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Common Shares offered pursuant to this
Prospectus. This Prospectus, which is part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and financial statement schedules thereto. For further
information with respect to the Company and the Common Shares, reference is
made to the Registration Statement and such exhibits and financial statement
schedules, copies of which may be examined without charge at or obtained upon
payment of prescribed fees from, the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and will also be available for inspection and copying at the regional offices
of the Commission located at 13th Floor, 7 World Trade Center, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. The Commission maintains a Website at http:/www.sec.gov, and
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission (including the
Company) can be obtained from that site.
Statements contained in this Prospectus as to the contents of any contract
or other document that is filed as an exhibit to the Registration Statement
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the full text of such contract or document.
The Company will be required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934. In addition to
applicable legal or NYSE requirements, if any, holders of Common Shares will
receive annual reports containing audited financial statements with a report
thereon by the Company's independent certified public accounts, and quarterly
reports containing unaudited financial information for each of the first three
quarters of each fiscal year.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus.
"401(k) Plan" means the Employee Savings Plan & Trust of PPL that will be
assumed and continued by the Company.
"5/50 Rule" means not more than 50% in value of the outstanding shares is
owned, directly or indirectly, by five or fewer individuals during the last
half of each taxable year.
"90% Passive-Type Income Exception" means that a publicly traded partnership
will be treated as a corporation for federal income tax purposes unless at
least 90% of such partnership's income for a taxable year consists of certain
passive-type income.
"ACMs" means asbestos-containing materials.
"ADA" means the Americans with Disabilities Act of 1990.
"ADS" means the alternative depreciation system of depreciation.
"Affiliate" means (i) any person that, directly or indirectly, controls or
is controlled by or is under common control with such person, (ii) any other
person that owns, beneficially, directly or indirectly, five percent (5%) or
more of the outstanding capital stock, shares or equity interests of such
person, or (iii) any officer, director, employee, partner or trustee of such
person or any person controlling, controlled by or under common control with
such person (excluding trustees and persons serving in similar capacities who
are not otherwise an Affiliate of such person). The term "person" means and
includes individuals, corporations, general and limited partnerships, stock
companies or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts, or other entities and
governments and agencies and political subdivisions thereof. For the purposes
of this definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests.
"Anti-Abuse Rule" means a final regulation issued by the United States
Treasury Department under the Partnership Provisions that authorizes the
Service, in certain "abusive" transactions involving partnerships, to
disregard the form of the transaction and recast it for federal tax purposes
as the Service deems appropriate.
"Beneficiary" means the beneficiary of the Share Trust.
"Broadmoor Austin Partnership" means the partnership owning the Broadmoor
Austin Property in which the Company owns a 49.9% interest.
"BWI Corridor" means the Baltimore/Washington Industrial Corridor.
"Bylaws" means the Company's Bylaws.
"Cadillac Fairview" means The Cadillac Fairview Corporate Limited and its
subsidiaries, including Corporate Limited Urban Development.
"CBD" means Central Business District.
"Chicago Industrial Buildings" means the four industrial buildings located
in Chicago, Illinois as to which the Company will have options to acquire
after the completion of the Formation Transactions.
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"Closing Date" means the date of the closing of the Offering.
"Closing Price" means the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common or Preferred Shares
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Common or Preferred Shares are listed or admitted to trading or, if
the Common or Preferred Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price, or if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Common or
Preferred Shares are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Common or Preferred Shares selected by the Board of
Trustees.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means common shares of beneficial interest, $.01 par value
per share, of the Company.
"Company" means Prentiss Properties Trust and, where applicable, its
subsidiaries on a consolidated basis.
"Company Expenses" means administrative costs and expenses of the Company
and the General Partner.
"Compensation Committee" means the committee comprised of two or more of the
Independent Trustees established by the Board of Trustees to determine
compensation for the Company's executive officers and to implement the
Company's 1996 Share Incentive Plan.
"Competitive Activities" means engaging in, directly or indirectly, the
acquisition, development, construction, operation, management or leasing of
any office or industrial real estate property anywhere in the U.S. that the
Company conducts its affairs.
"Continuing Investors" means each of whom will receive Common
Shares in the Formation Transactions in exchange for their limited partnership
interests in the Operating Partnership.
"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.
"Control Shares" means shares of beneficial interest that, if aggregated
with all other such shares of beneficial interest of the Company previously
acquired by the acquiror, would entitle the acquiror to exercise voting power
in electing trustees within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority, or (iii) a majority of all voting power, but does not include
shares which the acquiring person is then entitled to vote as a result of
having previously obtained shareholder approval.
"Debt Limitation" means the limitation on indebtedness that the Company
intends to maintain by limiting the Company's total combined indebtedness plus
its pro rata share of Joint Venture Debt to 50% of the Company's Total Market
Capitalization.
"Declaration of Trust" means the amended and restated Declaration of Trust
of the Company.
"Development Parcels" means the six parcels of land owned by the Company
that are adjacent to certain of the Properties.
G-2
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"DFW Airport" means Dallas-Fort Worth International Airport.
"Dow" means the Dow Chemical Corporation.
"EPA" means the United States Environmental Protection Agency.
"ESAs" means the Phase I environmental site assessments obtained by the
Company on all of the Properties prior to the closing of the Offering.
"Exchange Rights" means the right of Limited Partners to exchange all or a
portion of their units for Common Shares on a one-for-one basis pursuant to
the terms of the Operating Partnership Agreement.
"Exempt Organizations" means tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"Formation Transactions" means principal transactions in connection with the
formation of the Company and the acquisition of interests in the Properties by
the Operating Partnership.
"General Partner" means Prentiss Properties I, Inc., as general partner of
the Operating Partnership.
"IBM" means International Business Machines Corporation.
"Independent Trustees" means a trustee of the Company that is not an officer
or employee of the Company, any affiliate of an officer or employee or any
affiliate of (i) any advisor to the Company under an advisory agreement, (ii)
any lessee of any property of the Company, (iii) any subsidiary of the Company
or (iv) any partnership that is an affiliate of the Company.
"Industrial Properties" means the 59 industrial buildings that the Company
will own after the completion of the Formation Transactions.
"Interested Shareholder" means a beneficial owner of ten percent or more of
the voting power of the then outstanding voting shares of beneficial interest
of a trust or an affiliate thereof.
"ISO" means share options of the Company that qualify as incentive share
options.
"Joint Venture Debt" means indebtedness of unconsolidated investments.
"Lease" means a lease of real property to which the Company is a party.
"Lehman" means Lehman Brothers Inc.
"LIBOR" means the London Interbank Offered Rate.
"Limited Partners" means the limited partners of the Operating Partnership
after the completion of the Formation Transactions.
"Line of Credit" means the $100 million line of credit that the Company
intends to obtain simultaneously with the closing of the Offering.
"MACRS" means the modified accelerated cost recovery system of depreciation.
"Manager" means Prentiss Properties Run Deep, Inc.
G-3
<PAGE>
"Market Price" means the average of the Closing Price for the five
consecutive Trading Days.
"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended.
"MGCL" means the Maryland General Corporation Law, as amended.
"Milwaukee Affected Areas" means the land on two Industrial Properties and a
Development Parcel in Milwaukee, Wisconsin on which lead-contaminated soil has
been found.
"Mortgage Debt" means the approximately $133.3 million of indebtedness
secured by 33 Properties that the Company will have outstanding after the
closing of the Offering.
"NAREIT" means National Association of Real Estate Investment Trusts, Inc.
"Non-U.S. Shareholders" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders.
"Noncompetition Period" means the period set forth in employment and
noncompetition agreements with Michael V. Prentiss and Thomas F. August during
which Messrs. Prentiss and August are prohibited from engaging, directly or
indirectly, in any Competitive Activities.
"NPL" means the National Priorities List of Superfund sites.
"NQSO" means share options of the Company that do not qualify as incentive
share options.
"NYSE" means the New York Stock Exchange.
"Offering" means the offering of Common Shares hereby.
"Offering Price" means the mid point of the range set forth on the cover of
this Prospectus.
"Office Properties" means the 26 office buildings that the Company will own
after the completion of the Formation Transactions.
"Operating Partnership" means Prentiss Properties Acquisition Partners, L.P.
"Operating Partnership Agreement" means the partnership agreement of the
Operating Partnership.
"Option Properties" means the Chicago Industrial Properties and Burnett
Plaza.
"Ownership Limitation" means the ownership of more than 9.8% of the number
of the outstanding Common Shares, except for Michael V. Prentiss, who may own
initially no more than 15% of the number of such outstanding shares or 9.8% of
the number of outstanding Preferred Shares of any series of Preferred Shares.
"Partnership" means each of the Operating Partnership and the Noncorporate
Subsidiaries.
"Partnership Provisions" means partnership provisions of the Code.
"PCIG" means Prentiss/Copley Investment Group.
"PGC" means the Pacific Gateway Center, an industrial complex containing 18
Industrial Properties.
"Plant Site" means the former synthetic rubber manufacturing plant owned by
the United States government located at the Plant Site.
G-4
<PAGE>
"Plant Site Affected Area" means the area south of the Plant Site on which
wastes from the Operation of the Plant was disposed.
"PMSA" means Primary Metropolitan Statistical Area.
"PPL" means Prentiss Properties Limited, Inc.
"Predecessor Company" means (i) 100% of the assets and results of operations
from 47 Properties for the periods presented, (ii) 100% of the assets and
results of operations of the 3141 Fairview Park Drive Property for the portion
of the periods after a Prentiss Group member acquired the Property, (iii)
49.9% of the assets and results of operations of the Broadmoor Austin
Properties; (iv) 15% of the assets and results of operations from the Park
West Property for the portion of the periods in which the Prentiss Group owned
a non-controlling interest, (v) a 25% of the assets and results of operations
of the industrial building in Itasca, Illinois and (vi) results of operations
of the Prentiss Properties Service Businesses conducted primarily by PPL in
the periods presented.
"Preferred Shares" means the preferred shares of beneficial interest, $.01
par value per share, of the Company.
"Prentiss Group" means Prentiss Properties Limited, Inc., the companies and
partnerships affiliated with PPL and the Prentiss Principals and their
affiliates.
"Prentiss Principals" means Michael V. Prentiss, Thomas F. August, Dennis J.
DuBois and Richard B. Bradshaw, Jr.
"Prentiss Properties Service Business" means PPL's office and industrial
property management, leasing, development and construction businesses that the
Company will acquire in the Formation Transactions.
"Private Placement Exclusion" means the safe harbor from the definition of a
publicly traded partnership as provided for in the PTP Regulations.
"Prohibited Owner" means the record holder of the Common or Preferred Shares
that are designated as Shares-in-Trust.
"Properties" means, collectively, the Industrial Properties and the Office
Properties.
"PTP Regulations" means regulations recently issued by the United States
Treasury Department effective for taxable years beginning after December 31,
1995 that provide limited safe harbors from the definition of a publicly
traded partnership.
"Purchase Agreement" means the purchase agreement whereby the Company has
agreed to sell to the Underwriters, and each of the Underwriters has severally
agreed to purchase, a certain number of Common Shares as set forth therein.
"REIT" means real estate investment trust.
"Related Party Tenant" means the Company, or an owner of 10% or more of the
Company, directly or constructively owns 10% or more of a tenant.
"Rent" means rent received by the Company from its tenants.
"Restricted Shares" means restricted Common Shares of the Company.
"Rule 144" means Rule 144 promulgated under the Securities Act.
G-5
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the U.S. Internal Revenue Service.
"Share Trust" means a trust which holds Common or Preferred Shares of the
Company which have been designated as Shares-in-Trust.
"Shares-in-Trust" means Common or Preferred Shares which are transferred
automatically to the Share Trust.
"Shell" means the Shell Oil Company.
"Study Area" means the area south of the Plant Site Affected Area in which
the contamination of ground water has been found.
"Termination Fee Note" means the promissory note from a Prentiss Group
affiliate to PPL which is paid with the proceeds of sales of properties owned
by the affiliate.
"Total Market Capitalization" means the Company's combined equity market
capitalization plus its combined indebtedness and its pro rata share of Joint
Venture Debt.
"Trading Day" means a day on which the principal national securities
exchange on which the Common or Preferred Shares are listed or admitted to
trading is open for the transaction of business or, if the Common or Preferred
Shares are not listed or admitted to trading on any national securities
exchange, shall mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.
"Trustees" means trustees of the Company.
"UBTI" means unrelated business taxable income.
"UBTI Percentage" means the percentage of dividends treated as UBTI in
certain circumstances where a pension trust owns more than 10% of the
Company's shares.
"Underwriters" means the Underwriters named in this Prospectus.
"Units" means units of limited partnership interest in the Operating
Partnership.
"UPRC" means Union Pacific Resource Corporation.
"WDNR" means the Wisconsin Department of Natural Resources.
G-6
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Combined Financial Information
Pro Forma Combined Balance Sheet as of June 30, 1996.................... F-2
Pro Forma Combined Statement of Income for the six months ended June 30,
1996................................................................... F-3
Pro Forma Combined Statement of Income for the year ended December 31,
1995................................................................... F-4
Notes and Management's Assumptions to the Pro Forma Combined Financial
Information............................................................ F-5
Prentiss Properties Trust
Report of Independent Accountants....................................... F-20
Balance Sheet as of July 12, 1996....................................... F-21
Notes to Balance Sheet.................................................. F-22
Predecessor Company
Report of Independent Accountants....................................... F-25
Combined Balance Sheets as of June 30, 1996 (unaudited) and as of Decem-
ber 31, 1995 and 1994.................................................. F-26
Combined Statements of Income for the six-month periods ended June 30,
1996 and 1995
(unaudited) and for the years ended December 31, 1995, 1994 and 1993... F-27
Combined Statements of Owners' Equity for the six-month period ended
June 30, 1996 (unaudited) and for the years ended December 31, 1995,
1994 and 1993.......................................................... F-28
Combined Statements of Cash Flows for the six-month periods ended June
30, 1996 and 1995 (unaudited) and for the years ended December 31,
1995, 1994 and 1993.................................................... F-29
Notes to Combined Financial Statements.................................. F-30
Schedule III: Real Estate and Accumulated Depreciation as of December
31, 1995............................................................... F-44
Prentiss Group Acquisition Properties
Report of Independent Accountants....................................... F-46
Combined Statements of Revenues and Certain Operating Expenses for the
six-month period ended June 30, 1996 (unaudited) and for the years
ended December 31, 1995, 1994 and 1993................................. F-47
Notes to Combined Statements of Revenues and Certain Operating Ex-
penses................................................................. F-48
Other Acquisition Properties
Report of Independent Accountants....................................... F-50
Combined Statements of Revenues and Certain Operating Expenses for the
six-month period ended June 30, 1996 (unaudited) and for the years
ended December 31, 1995 and 1994 (unaudited)........................... F-51
Notes to Combined Statements of Revenues and Certain Operating Ex-
penses................................................................. F-52
Bachman Creek and Park West E1 and E2 Properties
Report of Independent Accountants....................................... F-53
Combined Statements of Revenues and Certain Operating Expenses for the
six-month period ended June 30, 1996 (unaudited) and for the year ended
December 31, 1995...................................................... F-54
Notes to Combined Statements of Revenues and Certain Operating Ex-
penses................................................................. F-55
</TABLE>
F-1
<PAGE>
PRENTISS PROPERTIES TRUST
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (NOTE 5)
----------------------------------------------------------------------
BACHMAN CREEK,
PARK WEST
THE E1 AND E2 PRENTISS
PRENTISS GROUP AND OTHER PROPERTIES
PREDECESSOR ACQUISITION ACQUISITION THE OTHER TRUST
COMPANY PROPERTIES (A)(I) PROPERTIES (B)(I) OFFERING (C)(I) ADJUSTMENTS (D)(I) PRO FORMA
----------- ----------------- ----------------- --------------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Real estate............. $173,439 $87,682 $ 90,739 $ -- $ 26,448 $378,308
Less: accumulated
depreciation......... (14,092) -- -- -- -- (14,092)
-------- ------- -------- -------- -------- --------
159,347 87,682 90,739 -- 26,448 364,216
Deferred charges and
other assets, net.... 8,360 -- -- -- (1,159) 7,201
Receivables, net...... 2,605 -- -- -- -- 2,605
Escrowed funds........ 1,810 -- -- -- -- 1,810
Cash and cash
equivalents.......... 1,936 (86,632) (66,879) 277,946 (118,069) 8,302
Investments in limited
partnership and joint
venture.............. 1,050 -- -- -- 19,083 20,133
-------- ------- -------- -------- -------- --------
Total Assets........ $175,108 $ 1,050 $ 23,860 $277,946 $(73,697) $404,267
======== ======= ======== ======== ======== ========
Liabilities and
Shareholders' Equity:
Debt on real estate... $ 68,787 $ -- $ 20,760 $ -- $ (7,537) $ 82,010
Accounts payable and
other liabilities.... 4,181 -- -- -- -- 4,181
Amounts due to
affiliates........... 520 -- -- -- -- 520
-------- ------- -------- -------- -------- --------
Total Liabilities... 73,488 -- 20,760 -- (7,537) 86,711
-------- ------- -------- -------- -------- --------
Minority interest....... -- -- -- -- 54,461 54,461
-------- ------- -------- -------- -------- --------
Shareholders' Equity:
Common shares......... -- -- -- 151 19 170
Additional paid-in
capital.............. -- -- -- 277,795 37,841 315,636
Note receivable....... -- -- -- -- 26,950 26,950
Accumulated equity
(deficit) of
continuing
interests............ 101,620 1,050 3,100 -- (185,431) (79,661)
-------- ------- -------- -------- -------- --------
Total Shareholders'
Equity............. 101,620 1,050 3,100 277,946 (120,621) 263,095
-------- ------- -------- -------- -------- --------
Total Liabilities
and Shareholders'
Equity............. $175,108 $ 1,050 $ 23,860 $277,946 $(73,697) $404,267
======== ======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
PRENTISS PROPERTIES TRUST
PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (NOTE 5)
----------------------------------------------------------
BACHMAN CREEK,
THE PARK WEST E1 AND E2 PRENTISS
PRENTISS GROUP AND OTHER PROPERTIES
PREDECESSOR ACQUISITION ACQUISITION OTHER TRUST
COMPANY PROPERTIES (A)(II) PROPERTIES (B)(II) ADJUSTMENTS (D)(II) PRO FORMA
----------- ------------------ ------------------- ------------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......... $ 16,340 $7,688 $7,554 $ 306 $ 31,888
Management fees....... 5,004 -- -- (4,122) 882
Development, leasing,
sales and other
fees................. 5,353 65 10 (4,634) 794
-------- ------ ------ -------- ----------
Total revenues...... 26,697 7,753 7,564 (8,450) 33,564
Expenses:
Property operating and
maintenance.......... 4,872 1,919 2,405 (356) 8,840
Real estate taxes..... 1,709 448 500 37 2,694
General office and
administration....... 2,995 5 -- (1,877) 1,123
Personnel costs, net.. 6,923 -- -- (5,890) 1,033
Interest expense...... 2,548 -- -- 662 3,210
Interest expense (non-
cash)................ 758 -- -- (668) 90
Depreciation and
amortization......... 3,573 -- -- 2,876 6,449
-------- ------ ------ -------- ----------
Total expenses...... 23,378 2,372 2,905 (5,216) 23,439
Equity in joint
venture and
subsidiary........... 19 -- -- 1,441 1,460
-------- ------ ------ -------- ----------
Income before minority
interest............... 3,338 5,381 4,659 (1,793) 11,585
Minority interest..... -- -- -- (1,987) (1,987)
-------- ------ ------ -------- ----------
Net income.............. $ 3,338 $5,381 $4,659 $ (3,780) $ 9,598
======== ====== ====== ======== ==========
Net income per share.... $ .56
==========
Weighted average number
of shares outstanding.. 17,002,985
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PRENTISS PROPERTIES TRUST
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (NOTE 6)
---------------------------------------------------
BACHMAN CREEK,
THE PARK WEST E1 AND E2 PRENTISS
PRENTISS GROUP AND OTHER PROPERTIES
PREDECESSOR ACQUISITION ACQUISITION OTHER TRUST
COMPANY PROPERTIES (A) PROPERTIES (B) ADJUSTMENTS (C) PRO FORMA
----------- -------------- -------------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......... $29,423 $17,563 $15,128 $ 610 $ 62,724
Management fees....... 9,979 -- -- (7,641) 2,338
Development, leasing,
sales and other
fees................. 15,762 36 69 (14,676) 1,191
------- ------- ------- -------- ----------
Total revenues...... 55,164 17,599 15,197 (21,707) 66,253
Expenses:
Property operating and
maintenance.......... 7,696 5,546 5,120 (791) 17,571
Real estate taxes..... 3,030 912 1,441 73 5,456
General office and
administration....... 6,438 -- -- (4,344) 2,094
Personnel costs, net.. 17,138 -- -- (15,193) 1,945
Interest expense...... 3,783 -- -- 2,637 6,420
Interest expense
(non-cash)........... 99 -- -- 80 179
Depreciation and
amortization......... 7,166 -- -- 5,652 12,818
------- ------- ------- -------- ----------
Total expenses...... 45,350 6,458 6,561 (11,886) 46,483
Equity in joint
venture and
subsidiary........... 11 -- -- 6,090 6,101
------- ------- ------- -------- ----------
Income before minority
interest............... 9,825 11,141 8,636 (3,731) 25,871
Minority interest..... -- -- -- (4,437) (4,437)
------- ------- ------- -------- ----------
Net income.............. $ 9,825 $11,141 $ 8,636 $ (8,168) $ 21,434
======= ======= ======= ======== ==========
Net income per share.... $ 1.26
==========
Weighted average number
of shares outstanding.. 17,002,985
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION:
Prentiss Properties Trust (the "Company"), was organized in the state of
Maryland on July 12, 1996. The Company intends to qualify as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended,
commencing with its taxable year ending December 31, 1996. The Company will
acquire a sole general partnership interest in Prentiss Properties Acquisition
Partners, L.P. (the "Operating Partnership") through the Company's wholly
owned subsidiary Prentiss Properties I, Inc., a Delaware corporation, and will
own an 82.85% limited partnership interest in the Operating Partnership
directly.
The Company has been formed to succeed to substantially all of the interests
of Prentiss Properties Limited, Inc. ("PPL") and its affiliates in (i) a
portfolio of office and industrial properties and (ii) the national
acquisition, property management, leasing, development and construction
businesses of PPL and its affiliates. The acquisition, property management,
leasing, development and construction businesses will be carried out directly
by the Operating Partnership and the Company's majority-owned affiliate (the
"Manager"), which will be renamed Prentiss Properties Limited, Inc. subsequent
to the completion of the Offering.
The Company has had no operations to date.
2. FORMATION TRANSACTIONS:
The Offering
The Company has filed a registration statement on Form S-11 with the
Securities and Exchange Commission with respect to the public offering (the
"Offering") of 15,110,000 Common shares (exclusive of 2,266,500 Common shares
subject to the underwriters' over-allotment option and 1,892,985 Common shares
being concurrently sold by the Company to certain limited partners, not
affiliated with the Prentiss Group, for their interests in the Properties, as
defined below) at an estimated initial offering price of $20.00 per share. The
Company will use some of the net proceeds from the Offering to purchase
certain limited partners' interests in the Operating Partnership and will
contribute the remaining net proceeds to the Operating Partnership in exchange
for 17,002,985 partnership units ("Units"), representing an approximate 82.85%
interest, in the Operating Partnership.
The Operating Partnership is an affiliate of the Prentiss Group (as defined
below). The Prentiss Group members who collectively serve as the general
partner of the Operating Partnership will contribute to the Operating
Partnership all of their interests in the Properties (as defined below) and
certain management contracts of PPL (the "Contracts") in exchange for
3,520,198 Units. The acquisition of the various Prentiss Group interests will
be accounted for at their historical cost with any excess paid recorded as a
distribution.
The interests of the limited partners of the Operating Partnership will be
acquired by the Company with common shares and cash. The limited partners will
receive for their interests, $88,708 in cash and 1,892,985 Common Shares for a
total consideration of approximately $126,600 (including certain related
transfer costs estimated to be $369), for their interests. The acquisition of
the limited partners interests will be accounted for using purchase accounting
based on the cash paid and the value of the REIT shares issued, resulting in
an incremental increase in the basis of the Predecessor Company's real estate.
The Properties
Upon consummation of the Offering and certain related transactions
(collectively, the "Formation Transactions"), the Company will own 87
properties (the "Properties"), including 28 office and 59 industrial
F-5
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
properties, located in 10 major markets throughout the U.S. and containing 8.9
million net rentable square feet. The Properties consist of the following:
(a) twelve office properties and thirty-five industrial properties
collectively, the Operating Partnership and its subsidiaries. The Operating
Partnership and its subsidiaries will be acquire as described under "The
Offering".
(b) a 49.9% non-controlling interest in seven properties (collectively,
the "Broadmoor Austin office properties"). A 24.9% joint venture interest
in the Broadmoor Austin office properties will be contributed to the
Operating Partnership upon consummation of the Offering by Michael V.
Prentiss, Thomas F. August, Dennis J. DuBois and Richard B. Bradshaw or
entities owned, directly or indirectly, by one or more of such persons
(such individuals and entities being referred to collectively herein as the
"Prentiss Group"), in exchange for Units. An additional 25% interest in the
Broadmoor Austin office properties will be purchased from a third party for
$17,133. The Operating Partnership will have an option to acquire an
additional .1% interest in the Broadmoor Austin office properties after the
Formation Transactions, which would increase the Operating Partnership's
ownership in Broadmoor Austin to 50%. The option may be exercised at any
time one year and one day after the Offering.
(c) the 3141 Fairview Park Drive office property, which will be
contributed to the Operating Partnership by the Prentiss Group in exchange
for Units and $22,583 of net proceeds of the Offering to be used to repay
$22,500 of debt and certain transfer costs (estimated to be $83) of the
Property; the Park West C2 office property, in which a 15% interest will be
contributed to the Operating Partnership by the Prentiss Group in exchange
for Units and in which the remaining 85% will be acquired by the Operating
Partnership with $43,032 of net proceeds; a 25% general partnership
interest in the 71,000 square foot Itasca Industrial property, which will
be contributed to the Operating Partnership by the Prentiss Group in
exchange for Units, and the 18 industrial properties comprising Pacific
Gateway Center, which will be acquired from an affiliate of the Prentiss
Group upon the closing of the Offering with cash totalling $43,600; and
(d) an additional six industrial properties and seven office properties.
The Park West E1 and E2 office properties will be acquired from an
unaffiliated third party with net proceeds totalling $34,600. The interest
in Bachman Creek will be contributed by the Prentiss Group to the Company
in exchange for Units and the assumption and repayment of debt totalling
$6,527 (inclusive of $27 in closing costs) from an affiliate of Lehman
Brothers Inc. The remaining 10 properties will be acquired from affiliates
of Lehman Brothers Inc. in exchange for $46,512.
The Contracts
The Contracts will be contributed by the Prentiss Group to the Operating
Partnership as described under "The Offering." The Operating Partnership will
contribute the majority of the Contracts to the Manager in exchange for a note
in the amount of $26,950. The note bears interest at 13% per year and has
interest only payments for the first three years with a subsequent 10-year
amortization. Due to the affiliation of the Manager and the Operating
Partnership, the note has been classified in Shareholders' equity. Due to the
capital nature of this transaction, interest income and expense amounts are
recorded directly to Shareholders' equity.
The Line of Credit
Concurrent with the consummation of the Offering, the Operating Partnership
intends to enter into a three-year, $100,000 revolving credit facility (the
"Line of Credit") under which the Operating Partnership may borrow to finance
the acquisition of additional properties and for other corporate purposes,
including to obtain additional working capital. The Company anticipates that
borrowings under the Line of Credit will bear interest at LIBOR plus an
additional percentage and will be secured by first mortgage liens on certain
of the Properties and may be secured by other properties acquired by the
Company and will be guaranteed by the Company. The Company expects that an
origination fee of approximately 0.5% or $500 will be paid to obtain the Line
of Credit.
F-6
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
Approximately $99,600 of the net proceeds of the Offering will be used to
repay certain mortgage indebtedness secured by the Properties as set forth in
the table below, including approximately $64,500 which will be repaid to an
affiliate of Lehman Brothers Inc. Concurrent with the Offering, the Company
will obtain mortgage loans with an aggregate principal amount totalling
$70,800 from an affiliate of Lehman Brothers Inc.
Certain information regarding the indebtedness to be repaid is set forth
below:
DEBT TO BE REPAID WITH A PORTION OF OFFERING PROCEEDS
<TABLE>
<CAPTION>
PROPERTY MATURITY DATE INTEREST RATE AMOUNT TO BE REPAID
- ----------------------- ----------------- ------------- -------------------
<S> <C> <C> <C>
Walnut Glen Tower...... January 31, 2001 7.500% $3,229(/1/)
8521 Leesburg Pike..... September 1, 1999 8.500% 5,085(/1/)
Northland Park......... July 1, 1999 8.750% 9,500
North Topping Street... October 1, 2001 8.300% 3,435
Airworld Drive, 107th
Terrace
Nicholson III, 13425... October 1, 2001 8.300% 3,465
Branchview and 1002
Avenue T
Milwaukee Industrial... May 1, 2000 8.125% 10,323
3141 Fairview Park
Drive................. February 21, 1999 LIBOR + 3.50% 22,500(/2/)(/3/)
Bachman Creek.......... August 9, 1997 LIBOR + 1.65% 6,500(/3/)
Park West.............. March 31, 1997 9.000% 35,517(/3/)
</TABLE>
- --------
(/1/The)amounts to be repaid are based on the actual debt balances as of the
June 30, 1996 Balance Sheet. The actual amounts that will be repaid will
differ due to amortization of the principal balance of the debt.
(/2/The)amount includes two notes, one with a face amount of $19,000 and a
maturity date of February 21, 1999, and the second with a face amount of
$3,500 and a maturity date of February 21, 1997.
(/3/Debt)to be repaid to an affiliate of Lehman Brothers Inc.
3. BASIS OF PRESENTATION:
The accompanying unaudited pro forma financial information has been prepared
based upon certain pro forma adjustments to the historical combined financial
statements of Prentiss Properties Acquisition Partners, L.P., the operations
of PPL, a 50% equity investment in Austex Associates L.P. ("Austex"), which
holds a 50% interest in the Broadmoor Austin office properties, the accounts
of Fairview Eleven Investors L.P. ("3141 Fairview Park Drive") from February
23, 1996 through June 30, 1996, a 25% equity investment in Prentiss/Copley
Itasca Associates and a 15% equity investment in Park West C2 Associates
("Park West C2") from September 5, 1995 through June 30, 1996 (collectively,
the "Predecessor Company"). The pro forma adjustments reflect the Offering,
the purchase of properties affiliated with the Prentiss Group (the "Prentiss
Group Acquisition Properties"), the Other Acquisition Properties and other
adjustments (for purposes of the pro forma financial information, Bachman
Creek and Park West E1 and E2 are included in the Other Acquisition
Properties).
The pro forma balance sheet of the Company as of June 30, 1996 has been
prepared as if the Formation Transactions, as discussed above, had been
consummated on June 30, 1996. The pro forma statements of income for the six
months ended June 30, 1996 and for the year ended December 31, 1995, have been
prepared as if the Formation Transactions had been consummated at the
beginning of the fiscal year presented or January 1, 1995, and carried forward
through the interim period presented.
F-7
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
Effective September 5, 1995, the Prentiss Group acquired a 15% non-
controlling interest in Park West C2. This investment is accounted for in the
Predecessor Company's combined financial statements under the equity method of
accounting. On February 23, 1996, the Prentiss Group acquired the 3141
Fairview Park Drive property. Subsequent to the acquisition, operations of the
3141 Fairview Park Drive property are reflected in the combined financial
statements of the Predecessor Company.
The Manager has been included in the pro forma financial information under
the equity method of accounting due to the Operating Partnership's ownership
of a non-controlling, non-voting interest.
Information regarding the Prentiss Group Acquisition Properties is presented
separately from the Predecessor Company financial data for those properties
not owned by the Prentiss Group during the periods presented. The Other
Acquisition Properties are presented separately from the Predecessor Company
financial data as the acquisition of such properties will close subsequent to
June 30, 1996, concurrent with the consummation of the Offering.
The unaudited pro forma financial information is not necessarily indicative
of what the actual financial position would have been at June 30, 1996, or
what the actual results of operations would have been for the six months ended
June 30, 1996, or for the year ended December 31, 1995, had the Formation
Transactions been consummated on June 30, 1996, or January 1, 1995 and carried
forward through the interim period presented, nor do they purport to present
the future financial position or results of operations of the Company.
The pro forma financial information should be read in conjunction with the
historical combined financial statements and notes thereto of the Predecessor
Company, the Prentiss Group Acquisition Properties, the Other Acquisition
Properties and the Bachman Creek and Park West E1 and E2 Properties.
4. ASSUMPTIONS:
Certain assumptions regarding the operations of the Company have been made
in connection with the preparation of the pro forma financial information.
These assumptions are as follows:
(a) The pro forma financial information assumes that the Company has
elected to be, and qualified as, a REIT for federal income tax purposes and
has distributed all of its taxable income for the applicable periods, and,
therefore, incurred no federal income tax liabilities.
(b) Rental income has been recognized on a straight-line method of
accounting in accordance with generally accepted accounting principles.
(c) The over-allotment option granted to the underwriters is not
exercised.
(d) General and administrative expenses historically incurred by the
Properties and the Predecessor Company have been adjusted to reflect the
self-administered structure of the Company and the additional expenses of
being a public company.
(e) The Company will relocate its corporate offices, to a property to be
acquired by the Company concurrent with the offering, resulting in an
approximate pre-tax savings of $300 per year. The relocation is expected to
occur in or around October 1996.
(f) Pro forma net income per share has been calculated using 17,002,985
Common shares as the weighted average number of shares outstanding during
the pro forma period reflecting the issuance of 15,110,000 Common shares to
the public in the Offering and 1,892,985 Common shares to three of the non-
continuing limited partners (the "Continuing Investors") in the Operating
Partnership.
F-8
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
5. PRO FORMA ADJUSTMENTS FOR JUNE 30, 1996:
A. The Prentiss Group Acquisition Properties:
(i) Balance Sheet
The balance sheet reflects the acquisition of the Park West C2 and the
Pacific Gateway Center properties. The purchase price of Park West C2
(including certain related transfer costs estimated to be $82) is $44,082. The
acquisition of Park West C2 will be consummated pursuant to a cash payment of
$43,032 to an affiliate of Lehman Brothers Inc. for its 85% interest in the
property, repayment of debt on the property and related transfer costs, and an
issuance of Units valued at $1,050 for the Prentiss Group's 15% interest in
the property, resulting in an increase in Real estate of $44,082 and an
increase in Accumulated equity (deficit) of continuing interests of $1,050
(see June 30, 1996 Balance Sheet adjustment D(4) for additional information).
The Pacific Gateway Center property will be acquired with cash of $43,600
(including certain related transfer costs estimated to be $225). The 3141
Fairview Park Drive property was purchased by the Prentiss Group in February
1996 and, therefore, is included in the balance sheet of the Predecessor
Company at June 30, 1996. The aggregate purchase price of Park West C2
($44,082) and Pacific Gateway Center ($43,600) is $87,682 and is reflected in
real estate on the pro forma balance sheet.
(ii) Statement of Income
The statement of income reflects the historical operations of the Prentiss
Group Acquisition Properties. Operations for the 3141 Fairview Park Drive
property are included in the Predecessor Company's combined financial
statements from February 23, 1996 (the date of acquisition by the Prentiss
Group) through June 30, 1996. Operations for this property prior to its
acquisition by the Prentiss Group and the operations of Park West C2 and
Pacific Gateway Center for the six months ended June 30, 1996 are reflected in
the Prentiss Group Acquisition Properties financial information as presented
in the table below:
<TABLE>
<CAPTION>
3141 FAIRVIEW PARK WEST PACIFIC
PARK DRIVE C2 GATEWAY CENTER TOTAL
------------- --------- -------------- ------
<S> <C> <C> <C> <C>
Rental income................... $489 $4,286 $2,913 $7,688
Other income.................... 2 34 29 65
---- ------ ------ ------
Total revenues................ 491 4,320 2,942 7,753
Property operating and
maintenance.................... 215 1,043 661 1,919
Real estate taxes............... 33 325 90 448
Other expenses.................. 1 4 -- 5
---- ------ ------ ------
Total expenses................ 249 1,372 751 2,372
---- ------ ------ ------
Revenues in excess of certain
operating expenses............. $242 $2,948 $2,191 $5,381
==== ====== ====== ======
</TABLE>
The table below presents operations for the 3141 Fairview Park Drive
property, both prior and subsequent to its acquisition by the Prentiss Group.
<TABLE>
<CAPTION>
3141 FAIRVIEW PARK DRIVE
-------------------------------------
OPERATIONS
TOTAL INCLUDED IN
FOR THE OPERATIONS PRENTISS
SIX MONTHS INCLUDED IN GROUP
ENDED PREDECESSOR ACQUISITION
JUNE 30, 1996 COMPANY PROPERTIES
------------- ----------- -----------
<S> <C> <C> <C>
Rental income........................... $1,758 $1,269 $489
Other income............................ 11 9 2
------ ------ ----
Total revenues........................ 1,769 1,278 491
Property operating and maintenance...... 684 469 215
Real estate taxes....................... 128 95 33
Other expenses.......................... 1 -- 1
------ ------ ----
Total expenses........................ 813 564 249
------ ------ ----
Revenues in excess of certain operating
expenses............................... $ 956 $ 714 $242
====== ====== ====
</TABLE>
F-9
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
B. Bachman Creek, Park West E1 and E2 and Other Acquisition Properties:
(i) Balance Sheet
The balance sheet reflects the purchase of the One Northwestern, Cottonwood,
West Loop Business Park, 9050 Junction Drive, Bachman Creek and Park West E1
and E2 properties. The purchase price of these properties (including certain
related transfer costs estimated to be $539) is $90,739. The acquisition of
the properties will be consummated pursuant to a cash payment of $87,639 and
the issuance of $3,100 in Units for the Prentiss Group's equity interest in
Bachman Creek. A portion of the properties will be acquired pursuant to a
$20,760 mortgage loan to be secured by the Park West E1 and E2 properties.
(ii) Statement of Income
Reliable historical financial information for the West Loop Business Park
properties, to be acquired for $3,261, is not available. Accordingly,
operating results for the Other Acquisition Properties excludes the operations
of the West Loop Business Park properties for all periods presented. The
statement of income reflects the historical operations of One Northwestern,
Cottonwood, 9050 Junction Drive and the Bachman Creek and Park West E1 and E2
properties for the six months ended June 30, 1996 as follows:
<TABLE>
<CAPTION>
BACHMAN CREEK,
PARK WEST E1
BACHMAN AND E2
OTHER PARK PARK CREEK AND AND OTHER
ONE 9050 ACQUISITION BACHMAN WEST WEST PARK WEST ACQUISITIONS
NORTHWESTERN COTTONWOOD JUNCTION PROPERTIES CREEK E1 E2 E1 AND E2 PROPERTIES
------------ ---------- -------- ----------- ------- ------ ------ --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income........... $ 2,631 $1,104 $241 $3,976 $742 $1,462 $1,374 $3,578 $7,554
Other income............ 2 1 -- 3 3 2 2 7 10
------- ------ ---- ------ ---- ------ ------ ------ ------
Total revenues........ 2,633 1,105 241 3,979 745 1,464 1,376 3,585 7,564
Property operating and
maintenance............ 711 409 14 1,134 251 496 524 1,271 2,405
Real estate taxes....... 229 204 -- 433 66 -- 1 67 500
------- ------ ---- ------ ---- ------ ------ ------ ------
Total expenses........ 940 613 14 1,567 317 496 525 1,338 2,905
------- ------ ---- ------ ---- ------ ------ ------ ------
Revenues in excess of
certain operating
expenses............... $ 1,693 $ 492 $227 $2,412 $428 $ 968 $ 851 $2,247 $4,659
======= ====== ==== ====== ==== ====== ====== ====== ======
</TABLE>
C. The Offering:
(i) Balance Sheet
Reflects the initial capitalization of the Company and the issuance of
15,110,000 Common shares in connection with the Offering at an assumed initial
public offering price of $20.00 per share. The estimated costs of the
Offering, totalling $24,254 have been reflected as an offset to Additional
paid-in capital. The resulting net proceeds of the Offering total $277,946. An
additional 1,892,985 Common shares will be issued to the Continuing Investors.
F-10
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
D. Other Adjustments:
(i) Balance Sheet
The following Pro Forma Adjustment Summary table summarizes the pro forma
adjustments made in the June 30, 1996 Prentiss Properties Trust Balance Sheet.
The column totals reflect the net adjustments presented in the Balance Sheet
on F-2. The summary below should be read in conjunction with the following
notes.
PRO FORMA ADJUSTMENT SUMMARY
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
INVEST.
DEFERRED CASH & IN LTD. DEBT ON SHARE-
PRO FORMA REAL FINANCING CASH PARTNERSHIP REAL MINORITY HOLDERS'
ADJUSTMENT ESTATE COSTS, NET EQUIV. & JV ESTATE INTEREST EQUITY
----------- ------- ---------- --------- ----------- ------- -------- --------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
5D(i)(1) Purchase of limited
partners' interests..... $26,365 $ (88,708) $ 62,343
5D(i)(2) Transfer costs paid..... 83 (83)
5D(i)(3) Deferred financing
costs, net.............. $(1,159) (500) 1,659
5D(i)(4) Equity investments...... (20,133) $19,083 1,050
5D(i)(5) Mortgage loan repayment,
net..................... (7,537) $7,537
5D(i)(6) Debt prepayment
penalties............... (1,108) 1,108
5D(i)(7) Prentiss Group
ownership............... $(54,461) 54,461
5D(i)(8) Contribution of
contracts............... 0
------- ------- --------- ------- ------ -------- --------
Pro Forma other
adjustments total....... $26,448 $(1,159) $(118,069) $19,083 $7,537 $(54,461) $120,621
======= ======= ========= ======= ====== ======== ========
</TABLE>
(1) Reflects the incremental increase in basis of the Predecessor Company's
Real estate resulting from the purchase of the limited partners' interest of
97.5% in the Operating Partnership. The limited partners will receive $88,708
in cash for certain their interests in the Operating Partnership. The
continuing limited partners, not affiliated with the Prentiss Group, will be
issued 1,892,985 Common shares, at an estimated offering price of $20 per
share, for their interests. The reduction of the 97.5% limited partners'
interest in the Operating Partnership is derived by multiplying their
ownership interest by the Operating Partnership's historical equity. The
remaining difference represents the incremental increase in basis of the
Predecessor Company's Real estate. The purchase of the limited partners'
interest in the Operating Partnership (including certain related transfer
costs estimated to be $369) is reflected as follows:
<TABLE>
<CAPTION>
ACCUMULATED
EQUITY TOTAL
ADDITIONAL (DEFICIT) OF SHARE-
REAL COMMON PAID-IN CONTINUING HOLDERS'
CASH ESTATE STOCK CAPITAL INTERESTS EQUITY
-------- ------- ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Cash payment for limited
partners' interest..... $(88,708) -- -- -- -- --
Common shares issued for
Continuing Investors'
interest............... -- -- $(19) $(37,841) -- $(37,860)
Equity of limited part-
ners in Prentiss
Properties Acquisition
Partners, L.P. ........ -- -- -- -- $100,203 100,203
Step-up in basis for ac-
quisition of limited
partners' interest..... -- $26,365 -- -- -- --
-------- ------- --------
$(88,708) $26,365 $ 62,343
======== ======= ========
</TABLE>
(2) Represents the transfer costs paid and the corresponding increase in
basis of the 3141 Fairview Park Drive property totalling $83 in connection
with the contribution of the property by the Prentiss Group concurrent with
the Offering.
F-11
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
(3) Represents the write-off to shareholders equity of previously
capitalized deferred financing costs on mortgage loans to be repaid concurrent
with the Offering, offset by the capitalization of a .5% financing fee to be
incurred on the Line of Credit as follows:
<TABLE>
<S> <C>
Deferred financing costs to be written-off......................... $(1,659)
Financing fee to be capitalized.................................... 500
-------
$(1,159)
=======
</TABLE>
(4) Reflects the net increase in Investments in limited partnership and
joint venture as a result of the acquisition of the remaining 50% interest in
Austex and contribution of working capital to the Manager, net of the pro
forma adjustment to reverse the Prentiss Group's prior equity in the Park West
C2 property, which is included in both the Predecessor Company and Prentiss
Group Acquisition Properties as detailed below:
<TABLE>
<S> <C>
Acquisition price for the 50% interest in Austex.................... $17,133
Cash contributed to the Manager by the Operating Partnership........ 3,000
-------
20,133
Adjustment to reverse the equity interest in Park West C2........... (1,050)
-------
$19,083
=======
</TABLE>
(5) Reflects the expected paydown of outstanding mortgage loans of the
Predecessor Company properties in the amount of $57,537 with proceeds from the
Offering, net of the assumption of new debt totalling $50,000 as follows:
<TABLE>
<S> <C>
Walnut Glen....................................................... $ (3,229)
8521 Leesburg Pike................................................ (5,085)
Kansas City Industrials(/1/)...................................... (9,500)
Kansas City/Dallas Industrials(/2/)............................... (6,900)
Milwaukee Industrials............................................. (10,323)
3141 Fairview Park Drive.......................................... (22,500)
--------
Total debt repayment............................................ (57,537)
Debt acquired concurrent with the Offering........................ 50,000
--------
Net decrease in debt on Predecessor Company properties.......... $ (7,537)
========
</TABLE>
- --------
(/1/Includes)the Northland Park properties
(/2/Includes)the North Topping Street, Airworld Drive, 107th Terrace,
Nicholson III, 13425 Branchview and 1002 Avenue T properties
(6) Reflects the prepayment penalties on early retirement of mortgage loans
charged directly to pro forma Shareholders' equity:
<TABLE>
<S> <C>
Prepayment penalty on debt repayment of mortgage loan on Walnut
Glen............................................................... $ 108
Prepayment penalty on debt repayment of mortgage loan on Northland
Park............................................................... 456
Prepayment penalty on debt repayment of mortgage loan on other
Kansas City Industrials............................................ 186
Prepayment penalty on debt repayment of mortgage loan on Milwaukee
Industrials........................................................ 358
------
$1,108
======
</TABLE>
(7) Represents the equity attributable to Units owned by the Prentiss Group.
The Company, through its wholly owned subsidiary, is the sole general partner
of the Operating Partnership and will own approximately 82.85% of the
Operating Partnership. The Prentiss Group will own in the aggregate 3,520,198
Units, which will represent an approximate 17.15% minority interest in the
Operating Partnership. The minority interest is reported as the equity of the
Operating Partnership multiplied by the Prentiss Group's ownership percentage
in the Operating Partnership.
F-12
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
(8) The Contracts as described under "The Offering" will be contributed by
the Prentiss Group to the Operating Partnership in exchange for Units. The
Operating Partnership will contribute the majority of the Contracts to the
Manager in exchange for a note in the amount of $26,950. The note bears
interest at 13% per year and has interest only payments for the first three
years with a subsequent 10-year amortization. Due to the affiliation of the
Manager and the Operating Partnership, the note has been classified in
Shareholders' equity and has been accounted for as an increase to Note
receivable and a decrease to Accumulated equity (deficit) of continuing
interest resulting in a net zero effect to Total Shareholders' Equity.
(ii) Statement of Income
The following Pro Forma Adjustment Summary table summarizes the pro forma
adjustments made in the Prentiss Properties Trust Statement of Income for the
six months ended June 30, 1996. The column totals reflect the net adjustments
presented on the Statement of Income on F-3. The summary below should be read
in conjunction with the following notes.
PRO FORMA ADJUSTMENT SUMMARY
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PROPERTY REAL GEN PER- INTEREST
PRO FORMA RENTAL MGMT OTHER OPERATING ESTATE OFFICE & SONNEL INTEREST EXPENSE DEPR & INVEST
ADJUSTMENT INCOME FEES FEES & MAINT. TAXES ADMIN COSTS EXPENSE NON-CASH AMORT INCOME
---------- ------ ------- ------- --------- ------ -------- ------- -------- -------- ------ ------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5D(ii)(1) Estimated
operations of
Westloop....... $306 $ 68 $37
5D(ii)(2) Assignment of
contracts...... $(3,739) $(3,833) $(1,581) $(4,885)
5D(ii)(3) Equity
investment
income......... $1,193
5D(ii)(4) Management of
REIT prop...... (383) (383)
5D(ii)(5) Acquisition and
management of
REIT prop...... (41)
5D(ii)(6) Other fees &
recoveries..... (801)
5D(ii)(7) Advisory fees.. (444)
5D(ii)(8) Prop mgmt g&a
and salaries... 115 (828)
5D(ii)(9) Special comp... (177)
5D(ii)(10) Mortgage
interest....... $662
5D(ii)(11) Amortization of
deferred
financing
costs.......... $(668)
5D(ii)(12) Depreciation
expense........ $2,876
5D(ii)(13) Consolidation
of Austex...... 33 248
5D(ii)(14) Prentiss Group
ownership......
---- ------- ------- ----- --- ------- ------- ---- ----- ------ ------
Pro Forma other
adjustments
total.......... $306 $(4,122) $(4,634) $(356) $37 $(1,877) $(5,890) $662 $(668) $2,876 $1,441
==== ======= ======= ===== === ======= ======= ==== ===== ====== ======
<CAPTION>
MINORITY
INTEREST
---------- ---------
<C>
$(1,987)
---------
$(1,987)
=========
</TABLE>
(1) Represents the estimated operations of the West Loop Business Park
properties to be acquired concurrent with the Offering, including Rental
income of $306, Property operating and maintenance expense of $68 and Real
estate tax expense of $37.
(2) In connection with the Formation Transactions, certain third-party
management contracts will be assigned to the Manager in return for a $26,950
note payable to the Operating Partnership. As a result of the assignment,
current operating income, expenses and overhead attributable to the contracts
will be reflected in the operations of the Manager as detailed below:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Management fees..................................................... $ 3,739
Other fees and recoveries........................................... 3,833
General and administrative.......................................... (1,581)
Personnel cost, net................................................. (4,885)
-------
$ 1,106
=======
</TABLE>
F-13
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
In addition to the above, the Manager will benefit from a reduction in
occupancy cost totalling $150, resulting in net income to the Manager of
$1,256.
(3) The Operating Partnership will hold a 95% economic interest in the
Manager and record an equity interest of $1,193 on the $1,256 net income.
(4) Represents the intercompany elimination of Management fee revenues and
expenses (Property operating and maintenance) of $383 as a result of the in-
house management of the Company's properties.
(5) Represents a reduction in property management fee expense (Property
operating and maintenance) of $41 previously paid to a third party. Subsequent
to the Offering, these properties will be owned and managed by the Company.
(6) Represents a reduction of $801 in Recoveries in connection with in-house
tax and legal staffing changes after the Offering.
(7) Reflects the decrease of $444 in fees formerly paid by the Predecessor
Company to an affiliate for acquisition and advisory services performed.
(8) Reflects an increase of $115 and a decrease of $828 in General office
and administration expense and Personnel costs, net, respectively, as a result
of staffing changes after the Offering:
<TABLE>
<CAPTION>
GENERAL OFFICE PERSONNEL
AND ADMINISTRATION COST
------------------ ---------
<S> <C> <C>
Increase due to public company expenses....... $ 425 --
(Decrease) in Prentiss Principals salaries.... -- $(400)
(Decrease) in other Personnel costs........... -- (428)
(Decrease) in other General office and admin-
istration expense............................ (310) --
----- ------
Net Increase (decrease) in expenses......... $ 115 $ (828)
===== ======
</TABLE>
(9) Reflects the decrease of $177 in compensation paid to the Prentiss
Principals. As a privately held company, PPL distributed a portion of
quarterly cash flow, in the form of compensation, to the Prentiss Principals.
Subsequent to the Offering, this compensation will no longer be paid.
(10) Reflects the net increase in Interest expense as a result of the
assumption of debt in connection with the acquisition of certain properties,
less a decrease in Interest expense as a result of the repayment of a portion
of the existing mortgage indebtedness. The following outlines the debt to be
outstanding subsequent to the Offering and the corresponding interest expense:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
PROPERTY(IES) AMOUNT RATE INTEREST
------------- --------- -------- --------
<S> <C> <C> <C>
Industrial properties in Kansas City, MO and
Milwaukee, WI................................. $40,000 8.00% $3,200
3141 Fairview Park Drive(/1/).................. 10,000 7.15% 715
Walnut Glen.................................... 11,250 7.50% 844
Park West E1 and E2............................ 20,760 8.00% 1,661
------
Pro forma annual Interest expense............. 6,420
Pro forma Interest expense for six months
ended June 30, 1996.......................... 3,210
Historical Interest expense for six months
ended June 30, 1996.......................... 2,548
------
Pro forma Interest expense adjustment......... $ 662
======
</TABLE>
- --------
(/1/The)Mortgage loan secured by the 3141 Fairview Park Drive property will
bear interest at annual rate equal to the 30 day LIBOR plus 1.65%. The 30
day LIBOR of 5.50%, as of September 10, 1996, was used in the calculation.
(11) Reflects the net decrease of $668 in the amortization of deferred
financing costs (Interest expense, non-cash) as a result of $84 in
amortization of the $500 fee on the Line of Credit, less a reduction of $752
in amortization of deferred financing costs to be written-off concurrent with
the Offering.
F-14
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
(12) Reflects the net increase in Depreciation and amortization expense as a
result of the acquisition of properties and the related step-up in basis in
connection with the Offering, less a reduction in amortization of
organizational costs to be written-off concurrent with the Offering. The
following outlines the components of the net increase:
<TABLE>
<CAPTION>
PRO FORMA SIX
PURCHASE PRICE PURCHASE PRICE MONTH
PURCHASE ASSIGNED TO ASSIGNED TO DEPRECIABLE DEPRECIATION AND
PRICE LAND BUILDING LIFE AMORTIZATION
-------- -------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Office Properties:
One Northwestern
Plaza................. $27,459 $ -- $27,459 40 years $ 343
Park West C2........... 44,082 6,632 37,450 40 years 468
Cottonwood Office
Center................ 11,283 1,685 9,598 30 years 160
Plaza on Bachman
Creek................. 9,627 1,426 8,201 40 years 103
3141 Fairview Park
Drive................. 22,583 3,663 18,920 40 years 237
Park West E1 and E2.... 34,600 5,000 29,600 40 years 370
Industrial Properties:
Pacific Gateway
Center................ 43,600 7,888 35,712 30 years 595
9050 Junction Drive.... 4,509 676 3,833 30 years 64
Depreciation of step-up
in basis of Predecessor
Company
properties/(1)/........ 420
Amortization of excess
purchase price of
Austex/(2)/............ 120
Decrease in amortization
of organizational
costs.................. (4)
Net increase in
Depreciation and
amortization expense... $2,876
======
</TABLE>
/(1)/ The increase in Depreceiation and amoritzation expense in connection
with the acquisition and step-up in basis of the limited partners'
interests in the Predecessor Company is calculated as follows:
<TABLE>
<S> <C>
Incremental step-up in basis of properties........................ $26,365
Estimated weighted average useful life (years).................... 31.4
-------
$ 840
=======
Pro forma increase in depreciation expense for the six month
period ended June 30, 1996....................................... $ 420
=======
</TABLE>
/(2)/ The amortization of the excess purchase price of Austex is calculated
as follows:
<TABLE>
<S> <C>
Purchase price paid for 50% interest in Austex..................... $17,133
Book value of net assets purchased................................. 7,542
-------
Excess purchase price.............................................. 9,591
Amortization period (in years)..................................... 40
-------
$ 240
=======
Pro forma amortization for the six months ended June 30, 1996...... $ 120
=======
</TABLE>
(13) Reflects the net Investment income and General office and administration
expenses of $248 and $33, respectively, as a result of the pro forma
consolidation of Austex.
(14) Represents net income attributable to the Prentiss Group's interest in
the Operating Partnership. The Company, through its wholly owned subsidiary, is
the sole general partner and will own approximately 82.85% of the Operating
Partnership. The Prentiss Group will own in the aggregate approximately 17.15%
of the Operating Partnership.
F-15
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
6. PRO FORMA ADJUSTMENTS FOR DECEMBER 31, 1995:
A. The Prentiss Group Acquisition Properties:
The statement of income reflects the historical operations of the Prentiss
Group Acquisition Properties for the year ended December 31, 1995 as follows:
<TABLE>
<CAPTION>
3141 FAIRVIEW PARK WEST PACIFIC GATEWAY
PARK DRIVE C2 CENTER TOTAL
------------- --------- --------------- -------
<S> <C> <C> <C> <C>
Rental income................. $3,667 $8,365 $5,531 $17,563
Other income.................. 5 31 -- 36
------ ------ ------ -------
Total revenues.............. 3,672 8,396 5,531 17,599
Property operating and
maintenance.................. 1,608 2,463 1,475 5,546
Real estate taxes............. 196 592 124 912
------ ------ ------ -------
Total expenses.............. 1,804 3,055 1,599 6,458
------ ------ ------ -------
Revenues in excess of certain
operating expenses........... $1,868 $5,341 $3,932 $11,141
====== ====== ====== =======
</TABLE>
B. Bachman Creek, Park West E1 and E2 and Other Acquisition Properties:
The statement of income reflects the historical operations of One
Northwestern, Cottonwood, 9050 Junction Drive and the Bachman Creek and Park
West E1 and E2 properties for the year ended December 31, 1995 as follows:
<TABLE>
<CAPTION>
BACHMAN
CREEK,
PARK WEST
BACHMAN E1 AND E2
OTHER CREEK AND AND OTHER
ONE COTTON- 9050 ACQUISITION BACHMAN PARKWEST PARKWEST PARK WEST ACQUISITION
NORTHWESTERN WOOD JUNCTION PROPERTIES CREEK E1 E2 E1 AND E2 PROPERTIES
------------ ------- -------- ----------- ------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income........... $5,436 $2,270 $505 $8,211 $1,182 $2,823 $2,912 $6,917 $15,128
Other income............ 59 1 -- 60 2 2 5 9 69
------ ------ ---- ------ ------ ------ ------ ------ -------
Total revenues.......... 5,495 2,271 505 8,271 1,184 2,825 2,917 6,926 15,197
Property operating and
maintenance............ 1,548 818 54 2,420 536 1,017 1,147 2,700 5,120
Real estate taxes....... 440 219 -- 659 123 314 345 782 1,441
------ ------ ---- ------ ------ ------ ------ ------ -------
Total expenses.......... 1,988 1,037 54 3,079 659 1,331 1,492 3,482 6,561
------ ------ ---- ------ ------ ------ ------ ------ -------
Revenues in excess of
certain operating
expenses............... $3,507 $1,234 $451 $5,192 $ 525 $1,494 $1,425 $3,444 $ 8,636
====== ====== ==== ====== ====== ====== ====== ====== =======
</TABLE>
F-16
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
C. Other Adjustments:
The following Pro Forma Adjustment Summary table summarizes the pro forma
adjustments made in the Prentiss Properties Trust Statement of Income for the
year ended December 31, 1995. The column totals reflect the net adjustments
presented on the Statement of Income on F-4. The summary below should be read
in conjunction with the following notes.
PROFORMA ADJUSTMENT SUMMARY
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PROPERTY REAL GEN PER- INTEREST
PRO FORMA RENTAL MGMT OTHER OPERATING ESTATE OFFICE & SONNEL INTEREST EXPENSE DEPR & INVEST
ADJUSTMENTS INCOME FEES FEES & MAINT. TAXES ADMIN COSTS EXPENSE NON-CASH AMORT INCOME
----------- ------ ------- -------- --------- ------ -------- -------- -------- -------- ------ ------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6C(1) Estimated
operations of
Westloop........ $610 $ 137 $73
6C(2) Assignment of
contracts....... $(6,930) $(12,781) $(3,174) $(9,488)
6C(3) Equity
investment
income.......... $5,637
6C(4) Management of
REIT prop....... (711) (8) (719)
6C(5) Acquisition and
management of
REIT prop....... (209)
6C(6) Other fees &
recoveries...... (1,887)
6C(7) Advisory fees... (858)
6C(8) Prop mgmt g&a
and salaries.... (361) (1,371)
6C(9) Special comp.... (4,334)
6C(10) Mortgage
interest........ $2,637
6C(11) Amortization of
deferred
financing
costs........... $80
6C(12) Depreciation
expense......... $5,652
6C(13) Consolidation of
Austex.......... 49 453
6C(14) Prentiss Group
ownership.......
---- ------- -------- ----- --- ------- -------- ------ --- ------ ------
Pro forma other
adjustments
total........... $610 $(7,641) $(14,676) $(791) $73 $(4,344) $(15,193) $2,637 $80 $5,652 $6,090
==== ======= ======== ===== === ======= ======== ====== === ====== ======
<CAPTION>
PRO FORMA MINORITY
ADJUSTMENTS INTEREST
----------- ---------
<S> <C>
6C(1) Estimated
operations of
Westloop........
6C(2) Assignment of
contracts.......
6C(3) Equity
investment
income..........
6C(4) Management of
REIT prop.......
6C(5) Acquisition and
management of
REIT prop.......
6C(6) Other fees &
recoveries......
6C(7) Advisory fees...
6C(8) Prop mgmt g&a
and salaries....
6C(9) Special comp....
6C(10) Mortgage
interest........
6C(11) Amortization of
deferred
financing
costs...........
6C(12) Depreciation
expense.........
6C(13) Consolidation of
Austex..........
6C(14) Prentiss Group
ownership....... $(4,437)
---------
Pro forma other
adjustments
total........... $(4,437)
=========
</TABLE>
/(1)/ Represents the estimated operations of the West Loop Business Park
properties to be acquired concurrent with the Offering, including Rental
income of $610, Property operating and maintenance expense of $137 and Real
estate tax expense of $73.
/(2)/ In connection with the Formation Transactions, certain third-party
management contracts will be assigned to the Manager in return for a $26,950
note payable to the Operating Partnership. As a result of the assignment, a
portion of the current operating income, expenses and overhead will be
reflected in the operations of the Manager as detailed below:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Management fees..................................................... $ 6,930
Other fees and recoveries........................................... 12,781
General office and administrative................................... (3,174)
Personnel cost, net................................................. (9,488)
-------
$ 7,049
=======
</TABLE>
F-17
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
In addition to the above, the Manager will incur income tax expense
estimated at $1,415 and will benefit from a reduction in occupancy cost
totalling $300, resulting in net income to the Manager of $5,934.
(3) The Operating Partnership will hold a 95% economic interest in the
Manager and record an equity interest of $5,637 on the $5,934 of net income.
(4) Represents the intercompany elimination of Management and Recovery fee
revenues of $711 and $8, respectively, and Management fee expenses (Property
operating and maintenance) of $719 as a result of in-house management of the
Company's properties.
(5) Represents a reduction in property management fee expense (Property
operating and maintenance) of $209 previously paid to a third party.
Subsequent to the Offering, these properties will be owned and managed by the
Company.
(6) Represents a reduction of $1,887 in Recoveries in connection with in-
house tax and legal staffing changes after the Offering.
(7) Reflects the decrease of $858 in fees formerly paid by the Predecessor
Company to an affiliate for acquisition and advisory services performed.
(8) Reflects a decrease of $361 and $1,371 in General office and
administration expense and Personnel cost, net, as a result of staffing
changes after the Offering:
<TABLE>
<CAPTION>
GENERAL OFFICE
AND PERSONNEL
ADMINISTRATION COSTS
-------------- ---------
<S> <C> <C>
Increase due to public company expenses........... $ 850 --
(Decrease) in Prentiss Principals salaries........ -- $ (800)
(Decrease) in other Personnel costs............... -- (571)
(Decrease) in General office and administration
expense.......................................... (1,211) --
------- -------
Net decrease in expenses........................ $ (361) $(1,371)
======= =======
</TABLE>
(9) Reflects the decrease of $4,334 in compensation paid to the Prentiss
Principals. As a privately held company, PPL, distributed a portion of annual
cash flow, in the form of compensation, to the Prentiss Principals. Subsequent
to the Offering, this compensation will no longer be paid.
(10) Reflects the net increase in Interest expense as a result of the
assumption of debt in connection with the acquisition of certain properties,
less a decrease in Interest expense as a result of the repayment of a portion
of the existing mortgage indebtedness. The following outlines the debt to be
outstanding subsequent to the Offering and the corresponding interest expense:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
PROPERTY(IES) AMOUNT RATE INTEREST
- ------------- --------- -------- --------
<S> <C> <C> <C>
Industrial properties in Kansas City, MO and
Milwaukee, WI..................................... $40,000 8.00% $3,200
3141 Fairview Park Drive/(1)/...................... 10,000 7.15% 715
Walnut Glen........................................ 11,250 7.50% 844
Park West E1 and E2................................ 20,760 8.00% 1,661
------
Pro forma annual Interest expense................ 6,420
Historical Interest expense for year ended
December 31, 1995............................... 3,783
------
Pro forma Interest expense adjustment............ $2,637
======
</TABLE>
- --------
/(1)/ The mortgage loan secured by the 3141 Fairview Park Drive property will
bear interest at an annual rate equal to the 30 day LIBOR plus 1.65%. The
30 day LIBOR of 5.50%, as of September 10, 1996, was used in the
calculation.
F-18
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
(11) Reflects the net increase of $80 in the amortization of deferred
financing costs (Interest expense, non-cash) as a result of $167 in
amortization of the $500 fee on the Line of Credit, less a reduction of $87 in
amortization of deferred financing costs to be written-off concurrent with the
Offering.
(12) Reflects the net increase in Depreciation and amortization expense as a
result of the acquisition of properties and related step-up in basis in
connection with the Offering, less a reduction in amortization of
organizational costs to be written-off concurrent with the Offering. The
following outlines the components of the net increase:
<TABLE>
<CAPTION>
PURCHASE
PURCHASE PRICE PRO FORMA
PRICE ASSIGNED ANNUAL
PURCHASE ASSIGNED TO DEPRECIABLE DEPRECIATION AND
PRICE TO LAND BUILDING LIFE AMORTIZATION
-------- -------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Office Properties:
One Northwestern
Plaza................ $27,459 $ -- $27,459 40 years $ 686
Park West C2.......... 44,082 6,632 37,450 40 years 936
Cottonwood Office
Center............... 11,283 1,685 9,598 30 years 320
Plaza on Bachman
Creek................ 9,627 1,426 8,201 40 years 205
3141 Fairview Park
Drive................ 22,583 3,663 18,920 40 years 473
Park West E1 and E2... 34,600 5,000 29,600 40 years 740
Industrial Properties:
Pacific Gateway
Center............... 43,600 7,888 35,712 30 years 1,190
9050 Junction Drive... 4,509 676 3,833 30 years 128
Depreciation of step-up
in basis of
Predecessor Company
Properties(/1/)........ 840
Amortization of excess
purchase price of
Austex(/2/).......... 240
Decrease in
amortization of
organizational
costs................ (106)
------
Net increase in
Depreciation and
Amortization......... $5,652
======
</TABLE>
- --------
(/1/) The increase in Depreciation and amortization expense in
connection with the acquisition and step-up in basis of the limited
partners' interests in the Predecessor Company is calculated as
follows:
<TABLE>
<S> <C>
Incremental step-up in basis of properties.......................... $26,365
Estimated weighted average useful life (years)...................... 31.4
-------
Increase in annual depreciation expense........................... $ 840
=======
(/2/) The amortization of the excess purchase price of Austex is calculated
as follows:
Purchase price pad for 50% interest in Austex....................... $17,133
Book value of net assets purchased.................................. 7,542
-------
Excess purchase price............................................... 9,591
Amortization period (in years)...................................... 40
-------
Annual amortization................................................. $ 240
=======
</TABLE>
(13) Reflects the net Investment income, and General office and
administration expenses of $453 and $49, respectively, as a result of the pro
forma consolidation of Austex.
(14) Represents Net income attributable to the Prentiss Group's interest in
the Operating Partnership. The Company, through its wholly owned subsidiary,
is the sole general partner and will own approximately 82.85% of the Operating
Partnership. The Prentiss Group will own in the aggregate approximately 17.15%
of the Operating Partnership.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors Prentiss Properties Trust
We have audited the accompanying balance sheet of Prentiss Properties Trust
as of July 12, 1996. This balance sheet is the responsibility of the
management of Prentiss Properties Trust. Our responsibility is to express an
opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Prentiss Properties Trust as of
July 12, 1996 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
July 15, 1996Dallas, Texas
F-20
<PAGE>
PRENTISS PROPERTIES TRUST
BALANCE SHEET
JULY 12, 1996
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
Cash.................................................................. $ 1
----
$ 1
====
SHAREHOLDERS' EQUITY
Shareholders' equity:
Common shares, $.01 par value, 100,000 shares authorized, 1,000 issued
and outstanding...................................................... $--
Additional paid-in capital............................................ 1
----
$ 1
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION:
Prentiss Properties Trust (the "Company"), was organized in the state of
Maryland on July 12, 1996 with $1 capitalization. The Company intends to
qualify as a real estate investment trust ("REIT") under the Internal Revenue
Code commencing with its taxable year ended December 31, 1996. The Company
will acquire a sole general partnership interest in Prentiss Properties
Acquisition Partners, L.P. (the "Operating Partnership") through the Company's
wholly owned subsidiary Prentiss Properties I, Inc., a Delaware corporation
and will own an 82.85% limited partnership interest in the Operating
Partnership directly.
The Company has been formed to succeed to substantially all of the interests
of Prentiss Properties Limited, Inc. ("PPL") and its affiliates in (i) a
portfolio of office and industrial properties and (ii) the national
acquisition, property management, leasing, development and construction
businesses of PPL and its affiliates. The acquisition, property management,
leasing, development and construction businesses will be carried out by the
Operating Partnership and the Company's majority-owned affiliate, (the
"Manager"), which will be renamed Prentiss Properties Limited, Inc. subsequent
to the completion of the Offering.
The Company has had no operations to date.
2. FORMATION TRANSACTIONS:
The Offering
The Company has filed a registration statement on Form S-11 with the
Securities and Exchange Commission with respect to the public offering (the
"Offering") of 15,110,000 Common shares (exclusive of 2,266,500 Common shares
subject to the underwriter's over-allotment option and 1,892,985 Common shares
being concurrently sold by the Company to certain limited partners, not
affiliated with the Prentiss Group, for their interests in the Properties, as
defined below) at an estimated initial offering price of $20.00 per share. The
Company will use some of the net proceeds from the Offering to purchase
certain limited partners' interests in the Operating Partnership and will
contribute the remaining net proceeds to the Operating Partnership in exchange
for 17,002,985 partnership units (the "Units"), representing an approximate
82.85% interest, in the Operating Partnership.
The Operating Partnership is an affiliate of the Prentiss Group (as defined
below). The Prentiss Group members who collectively serve as the general
partner of the Operating Partnership will contribute to the Operating
Partnership all of its interests in the Properties (as defined below) and
certain management contracts of PPL (the "Contracts") in exchange for
3,520,198 Units. The acquisition of the various Prentiss Group interests will
be accounted for at their historical cost with any excess paid recorded as a
distribution.
The interests of the limited partners of the Operating Partnership will be
acquired by the Company with Common shares and cash. The limited partners will
receive $88,708 in cash and 1,892,985 Common shares for a total consideration
of approximately $126,600 (including certain related transfer costs estimated
to be $369) for their interests. The acquisition of the limited partners
interests will be accounted for using purchase accounting based on the cash
paid and the value of the REIT shares issued, resulting in an incremental
increase in the basis of the Predecessor Company's real estate.
The Properties
Upon consummation of the Offering and certain related transactions
(collectively, the "Formation Transactions"), the Company will own 87
properties, 28 office and 59 industrial (the "Properties") located in 10 major
markets throughout the U.S. and containing 8.9 million net rentable square
feet.
F-22
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO BALANCE SHEET--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Line of Credit
Concurrent with the consummation of the Offering, the Operating Partnership
intends to enter into a three-year, $100,000 revolving credit facility (the
"Line of Credit") under which the Operating Partnership may borrow to finance
the acquisition of additional properties and for other corporate purposes,
including to obtain additional working capital. The Company anticipates that
borrowings under the Line of Credit will bear interest at LIBOR plus an
additional percentage and will be secured by first mortgage liens on certain
of the properties and may be secured by other properties acquired by the
Company and will be guaranteed by the Company. The Company believes that an
origination fee of approximately .5% or $500 will be paid to secure the Line
of Credit.
3. INCENTIVE, SAVINGS AND SHARE PURCHASE PLANS:
The Company intends to adopt the 1996 Share Incentive Plan (the "1996
Incentive Plan"), a non-employee Trustees' Share Incentive Plan (the
"Trustees' Plan"), an Employee Savings Plan & Trust (the "401(k) Plan") and a
Share Purchase Plan (the "Share Purchase Plan").
The 1996 Incentive Plan
The 1996 Incentive Plan is designed to provide incentives to attract, retain
and motivate Officers and other employees (the "Participants") of the Company
and its subsidiaries, including the Manager. The 1996 Incentive Plan
authorizes the issuance of up to 1,623,000 Common shares, plus automatic
increases equal to 8% of newly issued and outstanding Common shares of the
Company. The 1996 Incentive Plan provides for the grant of (i) Share Options,
(ii) Performance Shares, (iii) Share Appreciation Rights ("SARs"), (iv) Share
Awards, and (v) Incentive Awards.
The Administrator shall prescribe the conditions which must occur for
Restricted Shares and Performance Shares to vest or Incentive Awards to be
earned. In connection with the grant of options under the 1996 Plan, the
Administrator will determine the option exercise period and any vesting
requirements. On the effective date of the Offering, options for 1,291,439
Common shares will be granted to the Participants, at an exercise price equal
to the Offering Price. The initial options granted under this Plan will have
10-year terms and will become exercisable for one-third of the covered shares
on the first and second anniversaries of the date of grant, and for the
balance of the shares on the third anniversary of the date of grant subject to
the acceleration of vesting upon a change in control of the Company. No
Participants may be granted, in any calendar year, options that cover more
than 200,000 Common shares or SARs that cover more than 200,000 Common shares.
The Trustees' Plan
Prior to the Offering the Company will adopt the Trustees' Plan to provide
incentives to attract and retain Independent Trustees. The Trustees Plan
provides for the grant of options and the award of Common shares to each
eligible Trustee of the Company. Under the Trustees' Plan, each Independent
Trustee who is not an employee of the Company will receive, upon closing of
the Offering, options to purchase 10,000 Common shares at an exercise price
equal to the Offering Price. An option granted under the Trustees' Plan shall
become exercisable for 2,500 shares on each of the first through fourth
anniversaries of the date of grant, provided the Trustee is a member of the
Board of Trustees on such anniversary date. Each Independent Trustee will also
receive quarterly awards of Common shares on which he or she is a member of
the Board of Trustees, for a number of Common shares having a fair market
value on the date that as nearly as possible equals, but does not exceed,
$2,500.
F-23
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO BALANCE SHEET--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Trustees' Plan provides that the Board of Trustees may amend or
terminate the Trustees' Plan. No options for Common shares may be granted and
no Common shares will be awarded under the Trustees Plan after December 31,
2002.
401(k) Plan
The Company intends to assume and continue, and the Operating Partnership
and designated subsidiaries, including the Manager, intend to adopt the 401(k)
Plan of PPL which was originally adopted in 1987. Prior service with PPL will
be credited in full as service with the Company or a Participating Employer
for all purposes under the 401(k) Plan including eligibility and vesting.
Each employee of the Company and a Participating Employer may enroll in the
401(k) Plan after completing 1,000 hours of service and attaining age 21. Plan
participants are immediately vested in their pre-tax and after tax
contributions, matching and discretionary Company contributions, and earnings.
The 401(k) Plan permits each Plan Participant to elect to defer up to 15% of
base compensation, subject to limitation on a pre-tax basis. Plan Participants
may also elect to make an after-tax contribution of up to 8% of their base
compensation. The Company and the participating employers will make matching
contributions equal to 25% of amounts deferred up to five hundred dollars in
deferrals. The Company and the participating employers may also make annual
contributions if the Company achieves certain performance objectives to be
determined on an annual basis by the Compensation Committee. Matching and
discretionary contributions will be made in cash or Common shares.
Share Purchase Plan
Prior to the Offering, the Company will adopt the Share Purchase Plan. Under
this plan, employees of the Company, the Operating Partnership and designated
subsidiaries, including the Manager, will be able to purchase Common shares
directly from the Company at a 15% discount to the then current market value
at the date of purchase. Purchases may be made by any employee with more than
one full year of continuous employment, limited to the lesser of 15% of the
employees base salary or $20,000. The maximum number of Common shares that may
be purchased under the Share Purchase Plan is 250,000.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners and Owners ofthe Predecessor Company
We have audited the accompanying combined balance sheets of the Predecessor
Company as of December 31, 1995 and 1994, and the related combined statements
of income, owners' equity, and cash flows for each of the three years in the
period ended December 31, 1995 and the financial statement schedule included
on the index at F-1 of this Prospectus. These financial statements are the
responsibility of the management of the Predecessor Company. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Predecessor Company as of December 31, 1995 and 1994, and the combined results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be set forth therein.
Coopers & Lybrand L.L.P.
July 15, 1996
Dallas, Texas
F-25
<PAGE>
PREDECESSOR COMPANY
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Real estate.................................. $173,439 $153,148 $151,673
Less: accumulated depreciation............. (14,092) (11,780) (7,307)
-------- -------- --------
159,347 141,368 144,366
Deferred charges and other assets, net....... 8,360 6,990 6,848
Receivables, net............................. 2,605 2,755 2,340
Escrowed funds............................... 1,810 1,294 1,569
Cash and cash equivalents.................... 1,936 1,033 9,133
Investments in limited partnership and joint
venture..................................... 1,050 1,050 51
-------- -------- --------
Total Assets............................... $175,108 $154,490 $164,307
======== ======== ========
Liabilities and Owners' Equity:
Debt on real estate.......................... $ 68,787 $ 46,442 $ 46,732
Accounts payable and other liabilities....... 4,181 3,622 4,378
Amounts due to affiliates.................... 520 705 603
-------- -------- --------
Total Liabilities.......................... 73,488 50,769 51,713
Commitments and contingencies
Owners' Equity............................... 101,620 103,721 112,594
-------- -------- --------
Total Liabilities and Owners' Equity....... $175,108 $154,490 $164,307
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
PREDECESSOR COMPANY
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- --------------------------
1996 1995 1995 1994 1993
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income............ $ 16,340 $ 14,527 $ 29,423 $ 25,256 $ 14,412
Management fees ......... 5,004 4,528 9,979 9,810 11,040
Development, leasing,
sales and other fees.... 5,353 5,378 15,762 16,892 12,569
-------- -------- -------- -------- --------
Total revenues......... 26,697 24,433 55,164 51,958 38,021
Expenses:
Property operating and
maintenance............. 4,872 3,891 7,696 7,040 4,204
Real estate taxes........ 1,709 1,547 3,030 2,691 1,631
General office and admin-
istration............... 2,995 3,509 6,438 5,323 6,265
Personnel costs, net..... 6,923 6,776 17,138 20,815 18,198
Interest expense......... 2,548 1,894 3,783 3,120 1,404
Interest expense (non-
cash)................... 758 50 99 71 40
Depreciation and amorti-
zation.................. 3,573 3,490 7,166 5,557 3,418
-------- -------- -------- -------- --------
Total expenses......... 23,378 21,157 45,350 44,617 35,160
Equity (loss) in joint
venture................. 19 29 11 13 (4)
-------- -------- -------- -------- --------
Income before gain on sale
of property............... 3,338 3,305 9,825 7,354 2,857
Gain on sale of proper-
ty...................... -- -- -- 1,718 --
-------- -------- -------- -------- --------
Net income............... $ 3,338 $ 3,305 $ 9,825 $ 9,072 $ 2,857
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
PREDECESSOR COMPANY
COMBINED STATEMENTS OF OWNERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at January 1, 1993............................................ $ 41,847
Net income.......................................................... 2,857
Contributions....................................................... 49,900
Distributions of PPL income......................................... (558)
--------
Balance at December 31, 1993.......................................... 94,046
Net income.......................................................... 9,072
Contributions....................................................... 12,139
Distributions of PPL income......................................... (2,663)
--------
Balance at December 31, 1994.......................................... 112,594
Net income.......................................................... 9,825
Distributions....................................................... (15,250)
Distributions of PPL income......................................... (4,498)
Equity on purchase of Park West C2.................................. 1,050
--------
Balance at December 31, 1995.......................................... 103,721
Net income (unaudited).............................................. 3,338
Distributions (unaudited)........................................... (3,625)
Distributions of PPL income (unaudited)............................. (1,814)
--------
Balance at June 30, 1996 (unaudited).................................. $101,620
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
PREDECESSOR COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- ----------------------------
1996 1995 1995 1994 1993
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income............. $ 3,338 $ 3,305 $ 9,825 $ 9,072 $ 2,857
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Gain on sale of prop-
erty................ -- -- -- (1,718) --
Depreciation and am-
ortization.......... 3,573 3,490 7,166 5,557 3,418
Amortization of de-
ferred financing
costs............... 758 50 99 71 40
Increase in Receiv-
ables............... 295 (118) (265) (654) (1,686)
Increase (decrease)
in Provision for
doubtful accounts... (145) (178) (150) 310 100
Decrease (increase)
in Organization
costs and other
assets.............. 33 204 258 (609) (209)
Decrease (increase)
in Escrowed funds... (215) 235 (93) (698) (211)
(Decrease) increase
in Accounts payable
and other
liabilities......... 559 (667) (756) 1,557 1,529
(Decrease) increase
in Amounts due to
affiliates.......... (185) 15 102 124 216
(Equity) loss in
joint venture....... (19) (29) (11) (13) 4
Decrease in Other.... 19 34 63 60 57
-------- ------- -------- -------- --------
Cash flows provided by
operating activities.... 8,011 6,341 16,238 13,059 6,115
Cash flows from investing
activities:
Acquisition of Real es-
tate.................. (19,946) -- -- (68,114) (45,271)
Proceeds from sale of
Real estate........... -- -- -- 7,894 --
Investment in Real es-
tate.................. (1,767) (2,945) (4,669) (3,742) (2,995)
(Increase) decrease in
Escrowed funds........ (301) 368 368 23,053 (23,711)
-------- ------- -------- -------- --------
Cash flows used in in-
vesting activities...... (22,014) (2,577) (4,301) (40,909) (71,977)
Cash flows from financing
activities:
Partners' contributions
...................... -- -- -- 12,139 49,900
Partners' distribu-
tions................. (3,625) (9,900) (15,250) -- --
Funding of Debt on Real
estate................ 22,500 -- -- 27,100 10,323
Repayment of Debt on
Real estate........... (155) (142) (289) (841) (36)
Financing costs of Debt
on Real estate........ (2,000) -- -- (357) (166)
Distributions of PPL
income................ (1,814) (844) (4,498) (2,663) (558)
-------- ------- -------- -------- --------
Cash flows provided by
(used in) financing
activities.............. 14,906 (10,886) (20,037) 35,378 59,463
Net increase (decrease)
in Cash and cash
equivalents............. 903 (7,122) (8,100) 7,528 (6,399)
Cash and cash equiva-
lents, beginning of
year.................... 1,033 9,133 9,133 1,605 8,004
-------- ------- -------- -------- --------
Cash and cash equiva-
lents, end of year...... $ 1,936 $ 2,011 $ 1,033 $ 9,133 $ 1,605
======== ======= ======== ======== ========
Supplemental cash flow
information:
Cash paid for inter-
est................... $ 2,550 $ 1,896 $ 3,786 $ 2,946 $ 1,333
======== ======= ======== ======== ========
Net (prepaids) liabili-
ties assumed in con-
nection with the ac-
quisition of Real es-
tate.................. $ -- $ -- $ -- $ (44) $ 261
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-29
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements of the Predecessor Company
include the accounts of Prentiss Properties Acquisition Partners, L.P. ("the
Operating Partnership"), the operations of Prentiss Properties Limited, Inc.
("PPL"), a 50% equity investment in Austex Associates L.P. ("Austex"), the
accounts of Fairview Eleven Investors L.P. ("3141 Fairview Park Drive") from
February 23, 1996 through June 30, 1996, a 25% equity investment in
Prentiss/Copley Itasca Associates, and a 15% equity investment in Park West C2
Associates ("Park West C2") from September 5, 1995 through June 30, 1996. The
accounts are presented on a combined basis as the above properties are under
the control of common investors (the "Prentiss Group"), common ownership
interest, common management, and are subject to the expected formation of
Prentiss Properties Trust (the "Trust").
The Trust is expected to be formed with the intent of qualifying as a Real
Estate Investment Trust ("REIT") under the Internal Revenue Code of 1986, as
amended. The Trust expects to raise equity through an initial public offering
(the "Offering") and has structured the business combination so that the
limited partners receive cash and Common shares and the Prentiss Group will
receive partnership units ("Units"). The proceeds from the Offering will be
used to purchase the general partnership interest in the Operating Partnership
and other properties through the Trust's wholly owned subsidiary, Prentiss
Properties I, Inc., a Delaware corporation to be formed prior to consummation
of the Offering. Prentiss Properties I, Inc. will be the sole general partner
and majority owner of the Operating Partnership, which will hold the operating
assets and liabilities of the Trust.
The following schedules summarize the Predecessor Company's interest in the
properties. All properties have been combined by the Predecessor Company
unless otherwise indicated in the notes.
Properties at December 31, 1995:
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
NUMBER OF COMPANY COMPANY
PROPERTIES OWNERSHIP % LOCATION NOTES
---------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
Cumberland Office Park.. 9 100% Atlanta, GA
Broadmoor Austin........ 7 25% Austin, TX (A)
Park West CZ............ 1 15% Dallas, TX (B)
5307 East Mockingbird... 1 100% Dallas, TX
Walnut Glen Tower....... 1 100% Dallas, TX
8521 Leesburg Pike...... 1 100% Tysons Corner, VA
INDUSTRIAL PROPERTIES
Baltimore Industrial.... 5 100% Baltimore, MD (C)
Kansas City Industrial.. 7 100% Kansas City, MO
Dallas Industrial....... 6 100% Dallas, TX
Milwaukee Industrial.... 17 100% Milwaukee, WI
Prentiss/Copley Itasca
Associates............. -- 25% Itasca, IL (D)
Property acquired during the six months ended June 30, 1996:
OFFICE PROPERTY
3141 Fairview Park
Drive.................. 1 100% Merrifield, VA
</TABLE>
(A) The Predecessor Company holds a non-controlling 50% interest in Austex
Associates, L.P. which owns a non-controlling 50% interest in the general
partnership that owns a leasehold interest in the Broadmoor Austin Associates
Joint Venture. The Broadmoor Austin Associates Joint Venture owns and operates
an office complex in Austin, Texas, consisting of seven properties. The
Predecessor Company accounts for its 50% investment in Austex Associates, L.P.
using the equity method of accounting.
F-30
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(B) The Predecessor Company holds a non-controlling 15% general partnership
interest and accounts for the investment using the equity method of
accounting.
(C) Four of the five Baltimore Industrial properties are owned by three
partnerships which are wholly owned by the Predecessor Company.
(D) The Predecessor Company holds a non-controlling 25% general partnership
interest and accounts for the investment using the equity method of
accounting.
All significant intercompany transactions have been eliminated in the
combined financial statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate
Real estate and leasehold improvements are stated at the lower of
depreciated cost or net realizable value. In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," the
Partnership will record impairment losses on long-lived assets used in
operation, when events and circumstances indicate that the assets might be
impaired and the estimated undiscounted cash flows to be generated by those
assets are less than the carrying amounts of those assets. No such impairment
losses have been recognized to date.
Depreciation on buildings and improvements is provided under the straight-
line method over an estimated useful life of thirty to fifty years for office
buildings and twenty-five years for industrial buildings.
When assets are sold or retired, their costs and related accumulated
depreciation are removed from the accounts with the resulting gains or losses
reflected in net income or (loss).
Deferred Charges
Deferred financing costs are recorded at cost and are being amortized over
the life of the related debt. Leasing commissions and leasehold improvements
are deferred and amortized over the terms of the related leases. Other
deferred charges are amortized over terms applicable to the expenditure.
Organization Costs
Organization costs are recorded at cost and are being amortized over five
years using the straight-line method.
Income Taxes
No provision for income taxes is necessary in the financial statements of
the Predecessor Company since the Predecessor Company's statements combine the
operations and balances of partnerships and an S-corporation neither of which
is directly subject to income tax. The tax effect of its activities accrues to
the individual partners and or principals of the respective entity.
Leases
The Predecessor Company, as lessor, has retained substantially all of the
risks and benefits of ownership and accounts for its leases as operating
leases.
F-31
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and investments with
maturities of three months or less when purchased.
Revenue Recognition
Rental income is recognized over the terms of the leases as it is earned.
Management company income, principally Management fees and Recoveries, are
recognized as earned. Other income, including (1) development fees are
recognized ratably over each project's development period, as defined; (2)
leasing fees are generally recognized upon tenant occupancy of the leased
premises unless such fees are irrevocably due and payable upon lease
execution, in which case recognition occurs on the lease execution date; (3)
sales fees are recognized upon completion of the asset sale; and (4)
termination fees are recognized when earned.
Distributions of PPL Income
PPL will retain certain assets and liabilities which will not be transferred
to the Operating Partnership pursuant to the expected formation of the Trust.
These assets and liabilities are inconsistent with the Company's investment
objectives or are not continuing businesses. All revenues and expenses related
to the management contracts to be contributed to the Operating Partnership
upon formation, are reflected in the accompanying financial statements. The
Combined Statements of Owners' Equity and the Combined Statements of Cash
Flows reflect the distributions of the PPL income, as the benefit of each
period's net income from these contracts has been distributed to the
principals of PPL.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Statements
The combined financial statements as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 are unaudited. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for
a fair presentation of such combined financial statements have been included.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the Predecessor Company's future results of
operations for the full year ending December 31, 1996.
(3) REAL ESTATE
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land...................................... $ 35,724 $ 32,061 $ 31,661
Buildings and improvements................ 137,715 121,087 120,012
-------- -------- --------
Total................................... 173,439 153,148 151,673
Less: Accumulated depreciation............ (14,092) (11,780) (7,307)
-------- -------- --------
$159,347 $141,368 $144,366
======== ======== ========
</TABLE>
Depreciation expense on Real estate for the six-month periods ended June 30,
1996 and 1995 and the years ended December 31, 1995, 1994 and 1993 was $2,312,
$2,202, $4,473, $4,008 and $2,188, respectively.
F-32
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
On February 23, 1996, the Predecessor Company acquired the 3141 Fairview
Park Drive Property located in Northern Virginia at a purchase price of
$22,500 from an affiliate of the Prentiss Group.
(4) RECEIVABLES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Rents and services....................... $1,446 $1,697 $1,775
Accruable rental income.................. 1,372 1,327 989
Other.................................... 6 95 90
------ ------ ------
Total................................ 2,824 3,119 2,854
Less: Allowance for doubtful accounts.... (219) (364) (514)
------ ------ ------
$2,605 $2,755 $2,340
====== ====== ======
</TABLE>
Accruable rental income represents rental income earned in excess of rent
payments received pursuant to the terms of the individual lease agreements.
(5) DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred Charges......................... $16,298 $12,876 $9,682
Less: Accumulated amortization......... (8,614) (6,599) (3,911)
------- ------- ------
Deferred charges, net.................. $ 7,684 $ 6,277 $5,771
======= ======= ======
Organization costs....................... $ 525 $ 525 $ 525
Prepaid and other assets................. 676 709 967
------- ------- ------
1,201 1,234 1,492
Less: Accumulated amortization......... (525) (521) (415)
------- ------- ------
Organization costs and other assets,
net................................... $ 676 $ 713 $1,077
======= ======= ======
</TABLE>
(6) ESCROWED FUNDS
Escrowed funds as of June 30, 1996 and December 31, 1995 are comprised of
funds held for the payment of real estate taxes. Escrowed funds as of December
31, 1994 consist of funds held for the payment of real estate taxes and for
the purchase of an industrial building in Milwaukee, Wisconsin, totalling
$1,319 and $250, respectively. As the acquisition of the industrial building
did not occur, the Escrowed funds related thereto were reimbursed to the
Predecessor Company in February 1995.
F-33
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(7) DEBT ON REAL ESTATE
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
OFFICE PROPERTIES
Walnut Glen Tower......................... $14,479 $14,599 $14,824
3141 Fairview Park Drive
Note (1)................................. 19,000 -- --
Note (2)................................. 3,500 -- --
8521 Leesburg Pike........................ 5,085 5,120 5,185
INDUSTRIAL PROPERTIES
Kansas City Industrials
Insurance Company(1)..................... 8,000 8,000 8,000
Insurance Company(2)..................... 1,500 1,500 1,500
Kansas City/Dallas Industrials............ 6,900 6,900 6,900
Milwaukee................................. 10,323 10,323 10,323
------- ------- -------
$68,787 $46,442 $46,732
======= ======= =======
</TABLE>
Walnut Glen Tower--The loan, which is payable to an insurance company and
collateralized by certain of the Predecessor Company's real estate, bears
interest at 7.5% per annum. Principal and interest, based on a 25-year
amortization schedule, are payable on the first day of each month through
January 31, 2001, at which time all unpaid principal and interest are due. The
loan is prepayable at any time upon payment of a penalty.
3141 Fairview Park Drive--On February 23, 1996, the Prentiss Group acquired
the 3141 Fairview Park Drive property. Pursuant to the purchase, the Prentiss
Group executed two notes with an affiliate of Lehman Brothers Inc. to finance
the transaction. The first note (Note [1]) calls for interest only payments of
LIBOR plus 3.5% until maturity on February 21, 1999. The second note (Note
[2]) calls for interest only payments at the pay rate, (the pay rate is
defined as the net operating cash flows of the property) until maturity on
February 21, 1997.
8521 Leesburg Pike--The note, which is payable to a mortgage company and
collateralized by certain of the Predecessor Company's real estate, bears
interest at 8.5% per annum. Principal and interest, based on a 25-year
amortization schedule, are payable on the first day of each month through
September 1, 1999, at which time all unpaid principal and interest are due.
The loan is prepayable in full with no penalty.
Kansas City Industrials--The Predecessor Company entered into a nonrecourse
loan agreement with two insurance companies, totalling $9,500. Interest only
is payable monthly at 8.75% per annum until July 1, 1999, at which time the
principal balance is due and payable. The loan, which is collateralized by
certain of the Predecessor Company's real estate located in Kansas City,
Missouri, is prepayable at any time upon payment of a penalty.
Kansas City/Dallas Industrials--The Predecessor Company is also indebted in
connection with a nonrecourse loan agreement entered into on September 13,
1994, totalling $7,500. The loan is payable to an insurance company. A total
of $6,900 was drawn under the agreement and the remaining commitment was
canceled. Interest only is payable at 8.3% per annum until October 1, 2001, at
which time the principal balance is due and payable. The loan, which is
collateralized by certain of the Predecessor Company's real estate located in
Dallas, Texas, and Kansas City, Missouri, is prepayable at any time upon
payment of a penalty.
Milwaukee--On April 8, 1993, the Predecessor Company entered into two
nonrecourse loan agreements with an insurance company, totalling $10,950. A
total of $10,323 was drawn under these agreements and the remaining
commitments were canceled. Interest only is payable monthly at 8.125% per
annum until May 1, 2000, at which time the principal balance is due and
payable. The loans, which are collateralized by certain of the Predecessor
Company's real estate located in Milwaukee, Wisconsin, are prepayable at any
time upon payment of a penalty.
F-34
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Cumberland--On March 31, 1994, the Predecessor Company repaid a nonrecourse
loan assumed in connection with the January 1991 acquisition of Cumberland
Office Park. The note was collateralized by a portion of the real estate
located in the park. The note, which was payable to an insurance company, bore
interest at 8.5% per annum. Principal and interest, based on a twenty-year
amortization schedule, was payable on the first day of each month through
April 1, 1994, at which time a balloon payment of $640 was due.
Principal repayments of Debt on real estate at December 31, 1995, are due
approximately as follows:
<TABLE>
<S> <C>
Years ending December 31:
1996.............................................................. $ 313
1997.............................................................. 339
1998.............................................................. 366
1999.............................................................. 14,696
2000.............................................................. 10,652
Thereafter........................................................ 20,076
-------
$46,442
=======
</TABLE>
(8) ACCOUNTS PAYABLE AND OTHER LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable and other liabilities... $2,902 $2,481 $3,296
Advance rent and deposits................ 1,279 1,141 1,082
------ ------ ------
$4,181 $3,622 $4,378
====== ====== ======
</TABLE>
(9) MANAGEMENT COMPANY COSTS
As discussed in footnote (2) under Revenue Recognition, management company
income is comprised of Management fees and Development, leasing, sales and
other fees. Due to the nature of the management company as a service industry
business, the direct costs incurred in generating the various fee income of
the management company are comprised primarily of Personnel costs and General
office and administration expenses, which can be identified in total, yet are
not specifically identifiable between fee types. The following illustrates the
management company income and the costs attributable to the generation of the
income:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1995 1994 1993
-------- --------------- ------- -------
<S> <C> <C> <C> <C> <C>
Management company income......... $ 10,297 $9,798 $25,580 $26,505 $23,469
Direct costs...................... 9,402 9,765 22,599 25,380 23,852
-------- ------- ------- ------- -------
Net management company income..... $ 895 $ 33 $ 2,981 $ 1,125 $ (383)
======== ======= ======= ======= =======
</TABLE>
(10) LEASING ACTIVITIES
The future minimum lease payments to be received by the Predecessor Company
and its three wholly-owned partnerships as of December 31, 1995 under
noncancelable operating leases, which expire on various dates through 2013,
are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1996................................................................ $25,836
1997................................................................ 22,831
1998................................................................ 17,848
1999................................................................ 11,734
2000................................................................ 5,442
Thereafter.......................................................... 4,323
-------
$88,014
=======
</TABLE>
F-35
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The geographic concentration of the future minimum lease payments to be
received are detailed as follows:
<TABLE>
<S> <C>
LOCATION AMOUNT
-------- -------
Milwaukee, WI........................................................ $12,778
Dallas, TX........................................................... 30,934
Kansas City, MO...................................................... 9,630
Atlanta, GA.......................................................... 17,296
Tysons Corner, VA.................................................... 9,471
Baltimore, MD........................................................ 7,905
-------
$88,014
=======
</TABLE>
One major tenant represented 13% of the Predecessor Company's total rental
income for the year ended December 31, 1995.
The Predecessor Company leases certain office space from an insurance
company. The lease commenced on May 14, 1988. On December 9, 1992, the
Predecessor Company signed an amendment to the original lease effective May 1,
1993, whereby modifying the rental rate to match current market rental rates
for the area. The Predecessor Company has the right to terminate the lease
upon thirty days written notice. If the Predecessor Company elects to
terminate the lease during the year ended December 31, 1996, a termination
penalty expected to range from approximately $108 to $174 will be payable to
the landlord. The Predecessor Company has a dispute, with the landlord, as to
the calculation of the termination penalty. The dispute has not been resolved
and the Predecessor Company has elected to disclose the maximum range of
termination penalty it considers to be payable under the lease agreement. The
future minimum lease payments which are due under this operating lease, which
has been amended to expire on April 30, 1998, are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1996............................................................... $ 452
1997............................................................... 445
1998............................................................... 148
------
$1,045
======
</TABLE>
The lease described above contains no renewal options and requires that the
Predecessor Company pay its pro rata share of operating costs and utilities.
Under the terms of this lease, rental expense, including operating costs and
utilities, incurred during the six months ended June 30, 1996 and 1995 and
years ended December 31, 1995, 1994 and 1993, was approximately $391, $396,
$801, $797 and $900, respectively.
The Predecessor Company also occupies office space in certain properties it
manages. The costs of operating these property management offices are borne
entirely by the respective owners.
(11) RELATED PARTY TRANSACTIONS
Prentiss Properties Investors, Inc., an affiliate of the Predecessor
Company, provides acquisition and other advisory services to the Predecessor
Company pursuant to an asset management agreement. Asset management fees
charged to the Predecessor Company during the six-month periods ended June 30,
1996 and 1995 and the years ended December 31, 1995, 1994 and 1993, totalled
$444, $429, $858, $699 and $594, respectively.
Under the terms of various management and development agreements, the
Predecessor Company receives cost reimbursements and property management,
development, leasing and tenant service fees from certain affiliates in which
the Prentiss Group have ownership interests. Cost reimbursements are comprised
primarily of salary and employee benefit recoveries and reimbursements of
certain administrative costs. During the six months
F-36
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
ended June 30, 1996 and 1995 and the years ended December 31, 1995, 1994 and
1993, fees and cost reimbursements derived from these agreements totalled
$6,741, $11,590, $21,590, $23,345, $21,362, respectively.
Amounts due to affiliates at June 30, 1996, December 31, 1995 and 1994,
consisted primarily of asset management fees and property management and
leasing fees due to PPL and other affiliates of the Predecessor Company.
The financing for the acquisition of the 3141 Fairview Park Drive property
was provided by an affiliate of Lehman Brothers Inc. The financing provided
for an additional $2,000 representing financing costs to be repaid pursuant to
the terms of the loan.
In 1987, a Prentiss Group affiliate and a third party formed The
Prentiss/Copley Investment Group ("PCIG") to acquire substantially all of the
U.S. office and industrial assets of Cadillac Fairview. PCIG has been in the
process of liquidating its remaining assets for the past several years. PPL
manages the PCIG properties under contractual management agreements. Fees are
payable to PPL upon early termination of the management agreements. In 1995,
PPL recognized $6,384 in termination fee revenue related to these contracts.
Benefits of any future termination fees will be retained by the Prentiss
Group.
(12) INVESTMENT IN LIMITED PARTNERSHIP AND JOINT VENTURE
The Predecessor Company accounts for its 25% investment in Broadmoor Austin
Associates Joint Venture, 15% investment in Park West and 25% investment in
Prentiss/Copley Itasca Associates, using the equity method of accounting and
thus, reports its share of income and losses based on its ownership interest
in the respective entities.
Presented below are the financial statements of Broadmoor Austin Associates
Joint Venture, a significant unconsolidated subsidiary:
BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Income-producing property, net.............................. $ 98,406 $100,571
Deferred leasing and other charges, net..................... 21,783 23,951
Accruable rental income..................................... 8,744 7,444
Cash and cash equivalents................................... 3,538 3,541
-------- --------
Total assets.............................................. $132,471 $135,507
======== ========
LIABILITIES AND VENTURERS' DEFICIT
Debt on income property..................................... $140,000 $140,000
Accounts payable and other liabilities...................... 3,444 3,454
Amounts due to venturers and affiliates..................... 86 34
-------- --------
Total liabilities......................................... 143,530 143,488
Venturers' deficit.......................................... (11,059) (7,981)
-------- --------
Total liabilities and venturers' deficit.................. $132,471 $135,507
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Rental operations:
Rental income........................................ $19,776 $19,789 $19,811
Property operating expenses.......................... 836 845 875
------- ------- -------
18,940 18,944 18,936
Interest expense, net.................................. 13,529 13,559 13,577
Ground rent............................................ 150 150 150
Depreciation and amortization.......................... 4,333 4,332 4,332
------- ------- -------
Net income......................................... $ 928 $ 903 $ 877
======= ======= =======
</TABLE>
BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
STATEMENTS OF VENTURERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AALP IBM TOTAL
------- ------- --------
<S> <C> <C> <C>
Venturers' deficit, January 1, 1993................ (958) (958) (1,916)
Distributions to venturers......................... (1,957) (1,957) (3,914)
Net Income......................................... 439 439 878
------- ------- --------
Venturers' deficit, December 31, 1993.............. $(2,476) $(2,476) $ (4,952)
Distributions to venturers......................... (1,966) (1,966) (3,932)
Net income......................................... 451 452 903
------- ------- --------
Venturers' deficit, December 31, 1994.............. (3,991) (3,990) (7,981)
Distributions to venturers......................... (2,003) (2,003) (4,006)
Net income......................................... 464 464 928
------- ------- --------
Venturers' deficit, December 31, 1995.............. $(5,530) $(5,529) $(11,059)
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 928 $ 903 $ 877
Charge not requiring current cash outlay:
Depreciation and amortization................... 4,333 4,332 4,332
Increase in accruable rental income............... (1,300) (1,305) (1,302)
(Increase) decrease in other assets............... (2) 2 3
(Decrease) increase in accounts payable and other
liabilities...................................... (10) 3 (1,557)
Increase (decrease) in amounts due to venturers
and affiliates................................... 52 (26) (20)
------- ------- -------
Net cash provided by operating activities....... 4,001 3,909 2,333
------- ------- -------
Cash flows from financing activities:
Distributions to venturers........................ (4,006) (3,933) (3,913)
------- ------- -------
Net cash used in financing activities........... (4,006) (3,933) (3,913)
------- ------- -------
Net decrease in cash and cash equivalents......... (5) (24) (1,580)
Cash and cash equivalents, beginning of year...... 3,529 3,553 5,133
------- ------- -------
Cash and cash equivalents, end of year............ $ 3,524 $ 3,529 $ 3,553
======= ======= =======
Supplemental information:
Interest paid................................... $13,650 $13,650 $13,641
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
I.ORGANIZATION AND ACCOUNTING POLICIES:
Broadmoor Austin Associates Joint Venture (the "Venture"), a joint
venture between Austex Associates Limited Partnership ("AALP"), as managing
venturer, and International Business Machines Corporation ("IBM"), was
formed for the purpose of owning, constructing and operating an office
complex in Austin, Texas. The significant accounting policies of the
Venture are as follows:
Venture formation:
The Venture was formed effective April 26, 1990, pursuant to a joint
venture agreement between IBM (99%) and 11,000 Burnet Road Corporation
("Burnet") (1%), a wholly-owned subsidiary of IBM.
On May 9, 1990, the joint venture agreement was amended and restated,
whereby AALP purchased from IBM a 49% interest in the Venture and all the
outstanding shares of stock in Burnet. Pursuant to the terms of this
agreement, AALP and IBM each now effectively hold a 50% interest in the
Venture.
Income-producing property:
The Income-producing property, which became operational on various dates
between April 1, 1991 and August 19, 1991, is recorded at cost.
Depreciation on buildings and improvements is provided under the straight-
line method over an estimated useful life of 50 years. The Venture analyzes
potential impairment of the Income-producing property by using recent
appraisals, other indicators of current market conditions or undiscounted
cash flows.
Deferred leasing and other charges:
Leasing charges are deferred and amortized over the term of the related
lease. Other deferred charges are amortized over terms appropriate to the
expenditure.
Income taxes:
No provision for income taxes is necessary in the financial statements of
the Venture because, as a venture, it is not subject to income tax and the
tax effect of its activities accrues to the individual venturers.
Leases:
The Venture, as a lessor, has retained substantially all of the risks and
benefits of ownership and accounts for its lease as an operating lease.
Rental income is recognized over the term of the lease as it is earned.
Accruable rental income represents rental income earned in excess of rent
payments received pursuant to the terms of the lease agreement.
Assets held for leasing purposes are classified as Income-producing
property.
As a lessee, the Venture accounts for its lease as an operating lease
(Note VI).
Cash and cash equivalents:
For purposes of reporting cash flows, cash and cash equivalents consist
of cash on hand and investments with maturities of three months or less.
F-40
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
II.INCOME PRODUCING PROPERTY:
<TABLE>
<CAPTION>
1995 1994
----------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Land................................................. $ 425 $ 425
Buildings and improvements........................... 107,800 107,800
---------- -----------
108,225 108,225
Accumulated depreciation............................. 9,819 7,654
---------- -----------
$ 98,406 $ 100,571
========== ===========
</TABLE>
III.DEFERRED LEASING AND OTHER CHARGES:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred leasing and other charges.................. 31,616 31,616
Accumulated amortization............................ 9,833 7,665
----------- -----------
$ 21,783 $ 23,951
=========== ===========
IV.CASH AND CASH EQUIVALENTS:
<CAPTION>
1995 1994
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Cash and short-term deposits........................ $ 3,524 $ 3,529
Other assets........................................ 14 12
----------- -----------
$ 3,538 $ 3,541
=========== ===========
V.DEBT ON INCOME PROPERTY:
The Venture entered into a loan agreement with a Texas financial
institution totalling $140,000. Advances under the agreement are secured by
the Real estate and bear interest at 9.75%, which is payable quarterly.
Borrowings under the agreement, which are repayable on or before April 1,
2001, are guaranteed by AALP and IBM.
VI.ACCOUNTS PAYABLE AND OTHER LIABILITIES:
<CAPTION>
1995 1994
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Accounts payable and other liabilities.............. $ 3 $ 13
Accrued interest.................................... 3,441 3,441
----------- -----------
$ 3,444 $ 3,454
=========== ===========
</TABLE>
F-41
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
VII.LEASING ACTIVITIES:
The future minimum lease payments to be received by the Venture under the
noncancellable operating lease (Note VII), which expires in 2006, are as
follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Year ending December
1996............................................ $ 17,648
1997............................................ 17,648
1998............................................ 17,648
1999............................................ 17,648
2000............................................ 17,648
Subsequent to 2000.............................. 114,712
--------
$202,952
========
As a lessee, the Venture is obligated to IBM under a noncancellable
operating ground lease which expires on March 31, 2015. The future minimum
lease payments are due as follows:
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Year ending December
1996............................................ $ 150
1997............................................ 150
1998............................................ 150
1999............................................ 150
2000............................................ 150
Subsequent to 2000.............................. 3,638
--------
$ 4,388
========
</TABLE>
VIII. RELATED PARTY TRANSACTIONS
IBM is the sole lessee of the Real estate under a 15-year lease. The
lease commenced on various dates between April 1, 1991 and August 19, 1991.
Rental income for the years ended December 31, 1995, 1994 and 1993, and
accruable rental income receivable at December 31, 1995 and 1994, were
derived solely from this lease.
The management agreement provides for the payment of management fees to
an affiliate of AALP. During the years ended December 31, 1995, 1994 and
1993, management fees charged to the Venture totalled $407 each year.
Amounts due to venturers and affiliates at December 31, 1995 and 1994,
consisted of operating cost recoveries payable to IBM and management fees
payable to an affiliate of AALP.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments," requires disclosure about the fair value of
all financial assets and liabilities for which it is practicable to estimate.
Cash and short-term deposits, accounts receivable, accounts payable and other
liabilities are carried at amounts that reasonably approximate their fair
values. There is no quoted market value available for any of the Predecessor
Company's financial instruments. The mortgage notes payable of the Predecessor
Company are at fixed rates of interest or fixed rates plus LIBOR which
approximate current market rates. Management believes that the carrying amount
of the Predecessor Company's financial instruments at June 31, 1996 and
December 31, 1995 and 1994 approximates fair value.
F-42
<PAGE>
PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(14) SAVINGS PLAN (IN WHOLE DOLLARS)
Effective October 16, 1987, the Predecessor Company adopted a 401(k) Savings
Plan (the "Plan") for its employees. Under the Plan, as amended, employees,
age 21 and older, are eligible to participate in the Plan after they have
completed one year and 1,000 hours of service.
Wages eligible for contribution to the Plan include bonuses, overtime pay
and commissions. Participants who have authorized a pre-tax contribution of 2%
or more may also elect to make an after-tax contribution of up to 8% of their
wages.
The Plan provides that matching employer contributions are to be determined
at the discretion of the Predecessor Company. The Predecessor Company matches
25% of the first $500 contributed by its employees. The cost to the
Predecessor Company of this matching for the six months ended June 30, 1996
and 1995 and the years ended December 31, 1995, 1994 and 1993 were $30,000,
$32,000, $36,000, $41,000 and $50,000, respectively. In addition the
Predecessor Company elected to match employee contributions with a
discretionary match. The discretionary matching contributions for the six
months ended June 30, 1996 and 1995 and the years ended December 31, 1995,
1994 and 1993 were $0, $0, $0, $76,000 and $127,000, respectively.
Participants are immediately vested in their pre-tax and after-tax
contributions, the Predecessor Company's matching contributions and earnings
thereon.
(15) COMMITMENTS AND CONTINGENCIES
Legal Matters
The Predecessor Company is subject to various legal proceedings and claims
that arise in the ordinary course of business. These matters are generally
covered by insurance. Management believes that the final outcome of such
matters will not have a material adverse effect on the financial position,
results of operations or liquidity of the Predecessor Company.
Environmental Matters
The Company has obtained Phase I environmental site assessments ("ESAs") for
all properties involved in the offering. The ESAs for the Industrial
Properties located in Milwaukee, Wisconsin, revealed lead contamination near
the property lines of two of the buildings and the development parcel adjacent
to the site. The ESA states that the contamination is probably the result of
unauthorized dumping of contaminated soil by the owner of a vacant lot that is
located between the two buildings and the development parcel. The dumping
occurred prior to the acquisition of the Milwaukee Industrials by the Prentiss
group affiliate which currently owns the properties. Upon discovery of the
unauthorized dumping, the Prentiss group affiliate brought suit against the
owner of the vacant lot, the generators of the contaminated soil and the prior
owner of the properties. The contaminated soil consists of foundry sand which
was found to contain lead in excess of acceptable trace levels. According to
the ESA, the contamination does not affect the groundwater and is not likely
to migrate or leech into adjoining land. A settlement to the lawsuit has been
approved by the court negotiated under which (i) the Company has transferred
the affected areas (a total of approximately 1.2 acres) to the owner of the
vacant lot in exchange for $100,000 and (ii) the owner of the vacant lot and
the generators of the contaminated soil agreed to assume all responsibility
for the remediation of the contaminated soil. The court has entered a finding
that the Operating Partnership was not in the chain of title of the
contaminated area.
F-43
<PAGE>
SCHEDULE III
PREDECESSOR COMPANY
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT
INITIAL COST CARRIED AT CLOSE OF PERIOD
-------------------- COSTS ----------------------------------
BUILDINGS CAPITALIZED
AND SUBSEQUENT LAND AND BUILDING AND
PROPERTY NAME LOCATION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION IMPROVEMENTS IMPROVEMENTS TOTAL
------------- ----------------- ------------ ------- ------------ -------------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office Proper-
ties:
Cumberland
Office Park..... Atlanta, GA $ -- $10,987 $ 13,226 $ 819 $11,020 $ 14,012 $ 25,032
5307 East
Mockingbird..... Dallas, TX -- 870 1,976 264 874 2,236 3,110
Walnut Glen
Tower........... Dallas, TX 14,599 5,400 32,669 213 5,400 32,882 38,282
8521 Leesburg
Pike............ Tysons Corner, VA 5,120 2,130 5,955 158 2,130 6,113 8,243
Industrial Prop-
erties:
8869 Greenwood.. Baltimore, MD -- 425 1,701 153 425 1,854 2,279
1329 Western
Avenue.......... Baltimore, MD -- 800 4,854 5 800 4,859 5,659
Deep Run 1&2.... Baltimore, MD -- 1,400 3,947 128 1,400 4,075 5,475
4611 Mercedes
Drive........... Baltimore, MD -- 865 4,600 50 865 4,650 5,515
Northland Park.. Kansas City, MO 9,500 2,710 12,677 163 2,710 12,840 15,550
North Topping
Street.......... Kansas City, MO 986 425 1,505 -- 425 1,505 1,930
Airworld Drive.. Kansas City, MO 1,413 722 2,736 -- 722 2,736 3,458
107th Terrace... Kansas City, MO 1,037 276 1,728 -- 276 1,728 2,004
Nicholson III... Dallas, TX 1,500 700 1,758 82 700 1,840 2,540
13425
Branchview...... Dallas, TX 954 310 1,795 7 310 1,802 2,112
1002 Avenue T... Dallas, TX 1,010 300 1,831 177 300 2,008 2,308
1625 Vantage.... Dallas, TX -- 145 1,067 1 145 1,068 1,213
Airport
Properties...... Milwaukee, WI 10,323 1,649 11,783 861 2,034 12,259 14,293
Oakcreek
Properties...... Milwaukee, WI -- 494 3,795 103 495 3,897 4,392
North West
Properties...... Milwaukee, WI -- 1,030 8,357 366 1,030 8,723 9,753
----------------- ------- ------- -------- ------ ------- -------- --------
$46,442 $31,638 $117,960 $3,550 $32,061 $121,087 $153,148
======= ======= ======== ====== ======= ======== ========
<CAPTION>
DEPRECIABLE
ACCUMULATED DATE OF DATE LIVES
PROPERTY NAME DEPRECIATION CONSTRUCTION ACQUIRED (YEARS)
------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Office Proper-
ties:
Cumberland (1)
Office Park..... $ 2,262 1972-1980 01/16/91
5307 East (1)
Mockingbird..... 218 1979 01/28/93
Walnut Glen (1)
Tower........... 2,187 1985 01/01/94
8521 Leesburg (1)
Pike............ 274 1984 08/17/94
Industrial Prop-
erties:
8869 Greenwood.. 151 1986-1987 12/27/93 (1)
1329 Western (1)
Avenue.......... 251 1988 09/19/94
Deep Run 1&2.... 213 1988 09/01/94 (1)
4611 Mercedes (1)
Drive........... 187 1990 12/27/94
Northland Park.. 2,024 1975-1980 01/23/92 (1)
North Topping (1)
Street.......... 175 1975-1980 02/01/93
Airworld Drive.. 178 1975-1980 05/16/94 (1)
107th Terrace... 113 1975-1980 05/16/94 (1)
Nicholson III... 242 1981 09/16/92 (1)
13425 (1)
Branchview...... 177 1970 07/23/93
1002 Avenue T... 209 1981 05/05/93 (1)
1625 Vantage.... 106 1984 07/26/93 (1)
Airport (1)
Properties...... 1,392 1970-1980 02/11/93
Oakcreek (1)
Properties...... 445 1970-1979 02/11/93
North West (1)
Properties...... 976 1973-1987 02/11/93
------------
$11,780
============
</TABLE>
- ----
/(1)/ Buildings and improvements--25 to 40 years.
/(2)/ The aggregate cost for federal income tax purposes was approximately
$155,761.
F-44
<PAGE>
PREDECESSOR COMPANY
REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
A summary of activity for Real estate and Accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Real estate:
Balance at beginning of year....................... $151,673 $ 89,116 $42,561
Improvements..................................... 1,475 580 1,023
Acquisition of Real estate....................... -- 68,070 45,532
Disposition of Real estate....................... -- (6,093) --
-------- -------- -------
Balance at end of year........................... $153,148 $151,673 $89,116
======== ======== =======
Accumulated depreciation:
Balance at beginning of year..................... 7,307 3,567 1,379
Depreciation expense............................. 4,473 4,008 2,188
Accumulated depreciation on Real estate sold..... -- (268) --
-------- -------- -------
Balance at end of year........................... $ 11,780 $ 7,307 $ 3,567
======== ======== =======
</TABLE>
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Prentiss Properties Trust
We have audited the accompanying combined statements of revenues and certain
operating expenses of The Prentiss Group Acquisition Properties for each of
the three years in the period ended December 31, 1995. These statements of
revenues and certain operating expenses are the responsibility of The Prentiss
Group Acquisition Properties' owners. Our responsibility is to express an
opinion on the statements of revenues and certain operating expenses based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of revenues and
certain operating expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of revenues and certain operating expenses. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statements of revenues and certain expense. We believe that our audits
provide a reasonable basis for our opinion.
The accompanying statements of revenues and certain operating expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the registration
statement on Form S-11 of Prentiss Properties Trust), as described in Note 1,
and are not intended to be a complete presentation of the Properties' revenues
and expenses.
In our opinion, the statements of revenues and certain operating expenses
referred to above present fairly, in all material respects, the revenues and
certain operating expenses described in Note 1 of The Prentiss Group
Acquisition Properties for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
July 15, 1996
Dallas, Texas
F-46
<PAGE>
THE PRENTISS GROUP ACQUISITION PROPERTIES
COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------
JUNE 30, 1996 1995 1994 1993
---------------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rental income................... $7,688 $ 17,563 $ 16,359 $ 18,270
Other income.................... 65 36 29 26
------ -------- -------- --------
Total revenues................ 7,753 17,599 16,388 18,296
Certain operating expenses:
Real estate taxes............... 448 912 1,020 969
Repairs and maintenance......... 588 1,929 1,727 1,650
Property management............. 764 1,997 1,499 1,516
Utilities....................... 471 1,446 1,404 1,529
Insurance....................... 96 174 132 111
Other........................... 5 -- -- --
------ -------- -------- --------
Total certain operating ex-
penses....................... 2,372 6,458 5,782 5,775
Revenues in excess of certain op-
erating expenses................. $5,381 $ 11,141 $ 10,606 $ 12,521
====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-47
<PAGE>
THE PRENTISS GROUP AQUISITION PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION:
The combined statements of revenues and certain operating expenses for the
six months ended June 30, 1996 and for the years ended December 31, 1995, 1994
and 1993 relate to the operations of the Fairview Eleven Investors L.P. ("3141
Fairview Park Drive"), Park West C-2 Associates ("Park West") and the Pacific
Gateway Center ("PGC") properties, owned by an affiliate of the Prentiss Group
and managed by the Prentiss Group for a period of time during the period for
which information is presented. The Prentiss Group acquired 3141 Fairview Park
Drive from the affiliate on February 23, 1996 and a 15% non-controlling
interest in Park West in September 1995. The Prentiss Group currently holds no
ownership interest in Pacific Gateway Center. These properties are to be
acquired by Prentiss Properties Trust concurrent with the consummation of the
Offering for an aggregate purchase price, (including closing cost and the
assumption and repayment of debt), of $109,215 in cash and the disbursement of
Operating Partnership Units for the Prentiss Group's 15% ownership in the Park
West property. For the property acquired between January 1, 1996 and June 30,
1996 and the properties for which a controlling interest was not owned at June
30, 1996, operations prior to the date of acquisition are presented as part of
the Prentiss Group Acquisition Properties and operations subsequent to the
acquisition are presented as part of the Predecessor Company, as shown below
in the table.
<TABLE>
<CAPTION>
COMBINED OPERATIONS
----------------------------------------------------
TOTAL FOR THE
SIX MONTHS ENDED PERIOD SUBSEQUENT PERIOD PRIOR
JUNE 30, 1996 TO ACQUISITION(1) TO ACQUISITION(2)
---------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Rental income.......... $8,957 $1,269 $7,688
Other income........... 74 9 65
------ ------ ------
Total revenues....... 9,031 1,278 7,753
Certain operating ex-
penses:
Real estate taxes...... 543 95 448
Repairs and mainte-
nance................. 796 208 588
Property management.... 876 112 764
Utilities.............. 617 146 471
Insurance.............. 99 3 96
Other.................. 5 -- 5
------ ------ ------
Total certain operat-
ing expenses........ 2,936 564 2,372
Revenues in excess of
certain operating ex-
penses.................. $6,095 $ 714 $5,381
====== ====== ======
</TABLE>
- --------
/(1)/ Included in the Predecessor Company.
/(2)/ Included in the Prentiss Group Acquisition Properties.
The accompanying combined statements exclude certain expenses such as
interest, depreciation and amortization and other costs not directly related
to the future operations of these properties that may not be comparable to the
expenses expected to be incurred in the proposed future operations of these
properties. Management is not aware of any material factors relating to these
properties which would cause the reported financial information not to be
necessarily indicative of future operating results.
Revenue and Expense Recognition
The combined statements of revenues and certain expenses have been prepared
on the accrual basis of accounting.
F-48
<PAGE>
THE PRENTISS GROUP ACQUISITION PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
Rental income is recorded when due from tenants. The effects of scheduled
rent increases and rental concessions, if any, are recognized on a straight-
line basis over the term of the tenant's lease.
Future Rental Revenues
The properties are leased to tenants under net operating leases. Minimum
lease payments receivable, excluding tenant reimbursements of expenses, under
noncancellable operating leases in effect as of December 31, 1995 are
approximately as follows:
<TABLE>
<S> <C>
1996................................................................. $12,441
1997................................................................. 11,035
1998................................................................. 10,240
1999................................................................. 8,242
2000................................................................. 2,916
Thereafter........................................................... 3,447
-------
$48,321
=======
</TABLE>
Use of Estimates
The preparation of the combined statements of revenues and certain operating
expenses requires management to make estimates and assumptions that affect the
reported amounts, revenues and certain operating expenses during the reporting
period. Actual results could differ from those estimates.
2. RELATED PARTY TRANSACTIONS:
Under the terms of management and development agreements, the Prentiss Group
Acquisition Properties pay management and certain other fees to the
Predecessor Company. During the six months ended June 30, 1996 and 1995 and
the years ended December 31, 1995, 1994, and 1993, fees incurred under these
agreements totalled $229, $265, $528, $545 and $563, respectively.
3. ENVIRONMENTAL MATTERS:
The area where PGC is now located (the "Plant Site") was formerly the site
of a synthetic rubber manufacturing plant owned by the United States
Government and subsequently owned or operated by Shell Oil Company and Dow
Chemical Company. During the operation of the plant, wastes were disposed of
in pits and ponds just to the south of what is now PGC. Environmental studies
have detected groundwater contamination. Also, limited soil contamination
around and in certain other areas of PGC has been detected, including parcels
that will be owned by the Company. The EPA has named as Potentially
Responsible Parties ("PRPs") for the investigation and remediation of the
Plant Site, all owners of the land underlying PGC, including the United States
Government, Dow, Shell, and the current owner, a Prentiss Group affiliate.
The Prentiss Group is close to the execution of a settlement agreement with
Shell that will indemnify and hold harmless the current owner and successors
from liability or clean up or remediation, and third party tort claims for
injury to person or damage to property, but not claims for diminution in value
or consequential damages relating to remediation.
Management believes that its share of any costs to remediate the Plant Site
will not have a material adverse affect on the Company. The Company believes
that despite its possible technical liability as an owner of contaminated
property, existing evidence indicates that contamination of concern to the
regulatory agencies did not result from the present use of the site. Further,
the Company believes that any indemnification from Shell and a potential
future settlement with the EPA will protect the Company against any future
costs of a material nature.
F-49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTS
To the Board of Directors
Prentiss Properties Trust
We have audited the accompanying combined statement of revenues and certain
operating expenses of The Other Acquisition Properties for the year ended
December 31, 1995. The statement of revenues and certain operating expenses is
the responsibility of The Other Acquisition Properties' owners. Our
responsibility is to express an opinion on the statement of revenues and
certain operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenues and
certain operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of revenues and certain operating expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
statement of revenues and certain operating expenses. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain operating expenses was
prepared for the purpose of complying with rules and regulations of the
Securities and Exchange Commission (for inclusion in the registration
statement on Form S-11 of Prentiss Properties Trust), as described in Note 1,
and is not intended to be a complete presentation of the Properties' revenues
and expenses and may not be comparable to results from proposed future
operations of the Properties.
In our opinion, the statement of revenues and certain operating expenses
referred to above presents fairly, in all material respects, the revenues and
certain operating expenses described in Note 1 of The Other Acquisition
Properties for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
July 15, 1996
Dallas, Texas
F-50
<PAGE>
THE OTHER ACQUISITION PROPERTIES
COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ---------------------------
JUNE 30, 1996 1995 1994
---------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Rental income................. $3,976 $ 8,211 $ 7,148
Other income.................. 3 60 55
------ ------------ ------------
Total revenues.............. 3,979 8,271 7,203
Certain operating expenses:
Real estate taxes............. 433 659 734
Repairs and maintenance....... 63 335 379
Property management........... 624 1,169 1,121
Utilities..................... 421 857 868
Insurance..................... 26 59 48
------ ------------ ------------
Total certain operating ex-
penses..................... 1,567 3,079 3,150
Revenues in excess of certain
operating expenses............. $2,412 $ 5,192 $ 4,053
====== ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-51
<PAGE>
THE OTHER ACQUISITION PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION:
The combined statements of revenues and certain operating expenses for the
six months ended June 30, 1996 and for the years ended December 31, 1995 and
1994 relate to the operations of One Northwestern, Cottonwood and 9050
Junction Drive, which are to be acquired by Prentiss Properties Trust from an
affiliate of Lehman Brothers Inc. concurrent with the consummation of the
Offering for an aggregate purchase price, including closing costs, of $43,251.
The accompanying combined statements exclude certain expenses such as
interest, depreciation and amortization and other costs not directly related
to the future operations of these properties that may not be comparable to the
expenses expected to be incurred in the proposed future operations of these
properties. Management is not aware of any material factors relating to these
properties which would cause the reported financial information not to be
necessarily indicative of future operating results.
The combined statements of revenues and certain operating expenses have been
prepared on the accrual basis of accounting.
Revenue and Expense Recognition
Rental income is recorded when due from tenants. The effects of scheduled
rent increases and rental concessions, if any, are recognized on a straight-
line basis over the term of the tenant's lease.
Future Rental Revenues
The properties are leased to tenants under net operating leases. Minimum
lease payments receivable, excluding tenant reimbursement of expenses, under
noncancellable operating leases in effect as of December 31, 1995, are
approximately as follows:
<TABLE>
<S> <C>
1996................................................................. $ 5,818
1997................................................................. 5,457
1998................................................................. 4,453
1999................................................................. 4,113
2000................................................................. 3,408
Thereafter........................................................... 8,739
-------
$31,988
=======
</TABLE>
Use of Estimates
The preparation of the combined statements of revenues and certain operating
expenses requires management to make estimates and assumptions that affect the
reported amounts, revenues and certain operating expenses during the reporting
period. Actual results could differ from those estimates.
2. RELATED PARTY TRANSACTIONS:
PPL assumed management of the One Northwestern and Cottonwood properties on
March 1, 1996. Under the terms of the management and development agreements,
the properties pay management and certain other fees to the Predecessor
Company. During the six months ended June 30, 1996, fees incurred under these
agreements totalled $66.
F-52
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors Prentiss Properties Trust
We have audited the accompanying combined statement of revenues and certain
operating expenses of Bachman Creek and Park West E1 and E2 Properties for the
year ended December 31, 1995. This statement of revenues and certain operating
expenses is the responsibility of the Bachman Creek owners. Our responsibility
is to express an opinion on the statement of revenues and certain operating
expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements of revenues
and certain operating expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of revenues and certain operating expenses. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statement of revenues and certain operating expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain operating
expenses was prepared for the purpose of complying with rules and regulations
of the Securities and Exchange Commission (for inclusion in the registration
Form S-11 of Prentiss Properties Trust), as described in Note 1, and is not
intended to be a complete presentation of the Property's revenues and expenses
and may not be comparable to results from proposed future operations of the
Properties.
In our opinion, the combined statement of revenues and certain operating
expenses referred to above presents fairly, in all material respects, the
revenues and certain operating expenses described in Note 1 of Bachman Creek
and Park West E1 and E2 for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
Coopers & Lybrand l.l.p.
August 30, 1996
Dallas, Texas
F-53
<PAGE>
BACHMAN CREEK AND PARK WEST E1 AND E2 PROPERTIES
COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1996 1995
---------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Rental income................................. $3,578 $6,917
Other income.................................. 7 9
------ ------
Total revenues.............................. 3,585 6,926
Certain operating expenses:
Real estate taxes............................. 67 782
Repairs and maintenance....................... 114 230
Property management........................... 774 1,505
Utilities..................................... 375 917
Insurance..................................... 8 48
------ ------
Total certain operating expenses............ 1,338 3,482
Revenues in excess of certain operating ex-
penses......................................... $2,247 $3,444
====== ======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-54
<PAGE>
BACHMAN CREEK AND PARK WEST E1 AND E2 PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION:
The combined statements of revenues and certain operating expenses for the
six months ended June 30, 1996 and for the year ended December 31, 1995 relate
to the operations of the Bachman Creek and Park West E1 and E2 Properties
which are to be acquired by Prentiss Properties Trust concurrent with the
consummation of the Offering for an aggregate purchase price, including
closing costs, of $41,127 in cash, the assumption and repayment of debt and
Operating Partnership Units for the equity interest of the Prentiss Group in
the Bachman Creek property.
The accompanying combined statements exclude certain expenses such as
interest, depreciation and amortization and other costs not directly related
to the future operations of this property that may not be comparable to the
expenses expected to be incurred in the proposed future operations of this
property. Management is not aware of any material factors relating to this
property which would cause the reported financial information not to be
necessarily indicative of future operating results.
Revenue and Expense Recognition
The combined statements of revenues and certain operating expenses have been
prepared on the accrual basis of accounting.
Rental income is recorded when due from tenants. The effects of scheduled
rent increases and rental concessions, if any, are recognized on a straight-
line basis over the term of the tenant's lease.
Future Rental Revenues
The property is leased to tenants under net operating leases. Minimum lease
payments receivable, excluding tenant reimbursement of expenses, under
noncancellable operating leases in effect as of December 31, 1995, are
approximately as follows:
<TABLE>
<S> <C>
1996................................................................. $ 6,071
1997................................................................. 6,190
1998................................................................. 6,197
1999................................................................. 5,793
2000................................................................. 5,392
Thereafter........................................................... 15,565
-------
$45,208
=======
</TABLE>
Use of Estimates
The preparation of the combined statements of revenues and certain operating
expenses requires management to make estimates and assumptions that affect the
reported amounts, revenues and certain operating expenses during the reporting
period. Actual results could differ from those estimates.
2. RELATED PARTY TRANSACTIONS:
Under the terms of management and development agreements, Bachman Creek and
ParkWest E1 and E2 pays management and certain other fees to the Predecessor
Company. During the six months ended June 30, 1996 and the year ended December
31, 1995, fees incurred under these agreements totalled $86 and $191,
respectively.
F-55
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------
SUMMARY TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 15
The Company.............................................................. 28
Business Objectives...................................................... 31
Use of Proceeds.......................................................... 39
Distribution Policy...................................................... 41
Capitalization........................................................... 44
Dilution................................................................. 45
Selected Financial Information........................................... 46
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 49
Properties............................................................... 55
Policies with Respect to Certain Activities.............................. 94
Management............................................................... 98
Formation Transactions................................................... 108
Certain Relationships and Transactions................................... 111
Principal and Management Shareholders.................................... 113
Description of Shares of Beneficial Interest............................. 114
Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws........................................................ 118
Shares Available for Future Sale......................................... 122
Operating Partnership Agreement.......................................... 124
Federal Income Tax Considerations........................................ 127
ERISA Considerations..................................................... 142
Underwriting............................................................. 145
Legal Matters............................................................ 147
Experts.................................................................. 147
Additional Information................................................... 147
Glossary................................................................. G-1
Financial Statements..................................................... F-1
</TABLE>
-----------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY RE-
QUIREMENT IS IN ADDITION TO THE OBLIGATION OF THE DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15,110,000 SHARES
LOGO
Prentiss Properties Trust
COMMON SHARES OF
BENEFICIAL INTEREST
-----------------
PROSPECTUS
, 1996
-----------------
LEHMAN BROTHERS
Alex. Brown & SONS
INCORPORATED
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
PRINCIPAL FINANCIAL SECURITIES, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the Shares.
<TABLE>
<S> <C>
Securities and Exchange Commission, registration fee................ $ 132,893
NASD filing fee..................................................... 30,500
New York Stock Exchange listing fee................................. 138,612
Printing and mailing................................................ 280,000
Accountant's fees and expenses...................................... 300,000
Blue Sky fees and expenses.......................................... 40,000
Counsel fees and expenses........................................... 1,000,000
Miscellaneous....................................................... 77,995
----------
Total............................................................... 2,000,000
==========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES
See Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
On July 24, 1996, the Company was capitalized with the issuance to Michael
V. Prentiss of 50 Common Shares for a purchase price of $20 per share for an
aggregate purchase price of $1,000. The Common Shares were purchased for
investment and for the purpose of organizing the Company. The Company issued
these Common Shares in reliance on an exemption from registration under
Section 4(2) of the Securities Act.
ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit
or profit in money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. The Declaration of Trust of the Company contains such a provision
which eliminates such liability to the maximum extent permitted by the
Maryland REIT Law.
The Declaration of Trust of the Company authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former Trustee or officer or (b) any individual who,
while a Trustee of the Company and at the request of the Company, serves or
has served another real estate investment trust, corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
trustee, director, officer or partner of such real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his status as a
present or former shareholder. The Bylaws of the Company obligate it, to the
maximum extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former Trustee or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
and who is made a party to the proceeding by reason of his service in
II-1
<PAGE>
that capacity. The Declaration of Trust and Bylaws also permit the Company to
indemnify and advance expenses to any person who served a predecessor of the
Company in any of the capacities described above and to any employee or agent
of the Company or a predecessor of the Company. The Bylaws require the Company
to indemnify a Trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnity its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In accordance with the MGCL, the Bylaws of
the Company require it, as a condition to advancing expenses, to obtain (a) a
written affirmation by the Trustee or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Company
as authorized by the Bylaws and (b) a written statement by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met.
ITEM 34. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED
None.
II-2
<PAGE>
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Combined Financial Information F-2
Pro Forma Combined Balance Sheet as of June 30, 1996.................... F-2
Pro Forma Combined Statement of Income for the six months ended June 30,
1996................................................................... F-3
Pro Forma Combined Statement of Income for the year ended December 31,
1995................................................................... F-4
Notes and Management's Assumptions to the Pro Forma Combined Financial
Information............................................................ F-5
Prentiss Properties Trust
Report of Independent Accountants....................................... F-20
Balance Sheet as of July 12, 1996....................................... F-21
Notes to Balance Sheet.................................................. F-22
Predecessor Company
Report of Independent Accountants....................................... F-25
Combined Balance Sheets as of June 30, 1996 (unaudited) and as of
December 31, 1995 and 1994............................................. F-26
Combined Statements of Income for the six-month periods ended June 30,
1996 and 1995 (unaudited) and for the years ended December 31, 1995,
1994 and 1993.......................................................... F-27
Combined Statements of Owners' Equity for the six-month period ended
June 30, 1996 (unaudited) and for the years ended December 31, 1995,
1994 and 1993.......................................................... F-28
Combined Statements of Cash Flows for the six-month periods ended June
30, 1996 and 1995 (unaudited) and for the years ended December 31,
1995, 1994 and 1993.................................................... F-29
Notes to Combined Financial Statements.................................. F-30
Schedule III: Real Estate and Accumulated Depreciations of December 31,
1995................................................................... F-44
Prentiss Group Acquisition Properties
Report of Independent Accountants....................................... F-46
Combined Statements of Revenues and Certain Operating Expenses for the
six-month period ended June 30, 1996 (unaudited) and for the years
ended December 31, 1995, 1994 and 1993................................. F-47
Notes to Combined Statements of Revenues and Certain Operating
Expenses............................................................... F-48
Other Acquisition Properties
Report of Independent Accountants....................................... F-50
Combined Statements of Revenues and Certain Operating Expenses for the
six-month period ended June 30, 1996 (unaudited) and for the years
ended December 31, 199 and 1994 (unaudited)........................... F-51
Notes to Combined Statements of Revenues and Certain Operating
Expenses............................................................... F-52
Bachman Creek and Park West E1 and E2 Properties
Report of Independent Accountants....................................... F-53
Combined statements of Revenues and Certain Operating Expenses for the
six-month period ended June 30, 1996 (unaudited) and for the year ended
December 31, 1995...................................................... F-54
Notes to Combined Statements of Revenue and Certain Operating Expenses.. F-55
</TABLE>
II-3
<PAGE>
ITEM 16. EXHIBITS
EXHIBITS
<TABLE>
<C> <S>
1.1 -- Form of Underwriting Agreement
3.1 -- Form of Amended and Restated Declaration of Trust of the
Registrant
3.2 -- Bylaws of the Registrant
4.1 -- Form of Common Share certificate
5.1* -- Opinion of Hunton & Williams
8.1 -- Form of Opinion of Hunton & Williams as to Tax Matters
8.2* -- Form of Opinion of Coopers & Lybrand L.L.P. as to Franchise Tax
Matters
10.1 -- Form of Second Amendment to First Amended and Restated Agreement
of Limited Partnership of Prentiss Properties Acquisition
Partnership, L.P.
10.2** -- Commitment Letter from Line of Credit Lender to the Company
10.3 -- Form of Employment Agreement for Michael V. Prentiss
10.4 -- Form of Employment Agreement for Thomas F. August
10.5 -- Form of Agreement Not to Compete for Richard B. Bradshaw
10.6 -- Form of Agreement Not to Compete for Dennis J. DuBois
10.7 -- Contribution Agreement by and between the Operating Partnership
and PPL
10.8 -- Agreement of Purchase and Sale of Partnership Interest by and
Among Prentiss Properties Austin, L.P. and PPL.
10.9 -- Agreement of Purchase and Sale of Partnership Interests by and
Among Prentiss Properties Burnett, Inc., Prentiss Properties
Burnett II, Inc. and PPL.
10.10 -- Agreement of Purchase and Sale of Partnership Interest and
Option Agreement by and Between 11,000 Burnet Road Corporation
and PPL.
10.11 -- Agreement of Purchase and Sale of Partnership Interests by and
Among Fairview Eleven, Inc., the Prentiss Principals and PPL.
10.12 -- Agreement of Purchase and Sale of Partnership Interest by and
Between Prentiss Properties Itasca, L.P. and PPL.
10.13 -- Agreement of Purchase and Sale of Partnership Interests by and
Between Prentiss O'Hare Illinois, Inc., Prentiss O'Hare Illinois
II, Inc. and PPL.
10.14 -- Agreement of Purchase and Sale of Partnership Interests by and
Between Prentiss Properties C-2 Investors, L.P. and PPL.
10.15 -- Agreement of Sale of Partnership Interest by and Among New York
Life Insurance Company, Prentiss Properties Austin, L.P. and
PPL.
10.16 -- Purchase Agreement by and Between the Operating Partnership and
PPL.
10.17 -- Agreement of Purchase and Sale and Joint Escrow Instructions by
and Between Lapco Industrial Parks and PPL.
10.18 -- First Amendment to Agreement of Purchase and Sale and Joint
Escrow Instructions by and Between Lapco Industrial Parks and
PPL.
10.19 -- Agreement of Purchase and Sale of Partnership Interests by and
Among LW-RTC, Inc., LW-LP, Inc., NP Investment VI Co. and PPL.
10.20 -- Agreement of Sale (Real Property) by and Between Property Asset
Management Inc. and PPL (Annapolis, Marlyland).
10.21 -- Agreement of Sale (Real Property) by and Between Property Asset
Management Inc. and PPL (Irving, Texas).
10.22 -- Agreement of Sale (Real Property) by and Between Property Asset
Management Inc. and PPL (Houston, Texas).
10.23 -- Letter Agreement dated as of August 5, 1996 from PPL to LW-LP,
Inc., LW-RTC, Inc. and NP Investment VI Co.
10.24 -- Real Estate Purchase and Sale Agreement by and Between Principal
Mutual Life Insurance Company and Prentiss Properties
Investors, Inc.
10.25 -- 1996 Share Incentive Plan
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.26 -- Trustees' Share Incentive Plan
10.27 -- First Amendment to Real Estate Purchase and Sale Agreement by and
Between Principal Mutual Life Insurance Company and Prentiss
Properties Investors, Inc.
21** -- List of Subsidiaries of Registrant
23.1* -- Consent of Hunton & Williams (included in Exhibits 5.1 and 8.1)
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3* -- Consent of Coopers & Lybrand L.L.P. to Inclusion of Opinion on
Franchise Tax Matters (included in Exhibit 8.2)
24.1* -- Powers of Attorney (included on signature page)
27.1 -- Financial Data Schedule
99.1* -- Consent of Thomas J. Hynes to being named as a Trustee
99.2* -- Consent of Barry J. C. Parker to being named as a Trustee
99.3* -- Consent of Dr. Leonard Riggs, Jr. to being named as a Trustee
99.4* -- Consent of Ronald G. Steinhart to being named as a Trustee
99.5* -- Consent of Lawrence A. Wilson to being named as a Trustee
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
ITEM 36. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 33 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question as to whether such indemnification by it
is against public policy as expressed in the Act, and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED
THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS, ON THE 18TH
DAY OF SEPTEMBER 1996.
Prentiss Properties Trust, a
Maryland real estate investment
trust (Registrant)
By: /s/ Thomas F. August
---------------------------------
THOMAS F. AUGUST PRESIDENT, CHIEF
OPERATING OFFICER AND TRUSTEE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON THE 18TH DAY OF SEPTEMBER 1996
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Michael V. Prentiss* Chairman of the Board and
- ------------------------------------- Chief Executive Officer
MICHAEL V. PRENTISS
/s/ Thomas F. August President, Chief Operating
- ------------------------------------- Officer and Trustee
THOMAS F. AUGUST
/s/ Richard J. Bartel Executive Vice President--
- ------------------------------------- Financial Operations and
RICHARD J. BARTEL Administration and Chief
Operating Officer--Property
Management (principal
accounting and financial
officer)
*By: /s/ Thomas F. August
---------------------------
THOMAS F. AUGUST
(ATTORNEY IN FACTFOR PERSONS
INDICATED)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
-------- ----------- ----
<C> <S> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Form of Amended and Restated Declaration of Trust of the
Registrant
3.2 -- Bylaws of the Registrant
4.1 -- Form of Common Share certificate
5.1* -- Opinion of Hunton & Williams
8.1 -- Form of Opinion of Hunton & Williams as to Tax Matters
8.2* -- Form of Opinion of Coopers & Lybrand L.L.P. as to Franchise
Tax Matters
10.1 -- Form of Second Amendment to First Amended and Restated
Agreement of Limited Partnership of Prentiss Properties
Acquisition Partnership, L.P.
10.2** -- Commitment Letter from Line of Credit Lender to the Company
10.3 -- Form of Employment Agreement for Michael V. Prentiss
10.4 -- Form of Employment Agreement for Thomas F. August
10.5 -- Form of Agreement not to Compete for Richard B. Bradshaw
10.6 -- Form of Agreement not to Compete for Dennis J. DuBois
10.7 -- Contribution Agreement by and Between the Operating
Partnership and PPL.
10.8 -- Agreement of Purchase and Sale of Partnership Interest by
and Among Prentiss Properties Austin, L.P. and PPL.
10.9 -- Agreement of Purchase and Sale of Partnership Interests by
and Among Prentiss Properties Burnett, Inc., Prentiss
Properties Burnett, II, Inc. and PPL.
10.10 -- Agreement of Purchase and Sale of Partnership Interest and
Option Agreement by and Between 11,000 Burnet Road
Corporation and PPL.
10.11 -- Agreement of Purchase and Sale of Partnership Interests by
and Among Fairview Eleven, Inc., the Prentiss Principals
and PPL.
10.12 -- Agreement of Purchase and Sale of Partnership Interest by
and Between Prentiss Properties Itasca, L.P. and PPL.
10.13 -- Agreement of Purchase and Sale of Partnership Interests by
and Between Prentiss O'Hare Illinois, Inc., Prentiss O'Hare
Illinois II, Inc. and PPL.
10.14 -- Agreement of Purchase and Sale of Partnership Interests by
and Between Prentiss Properties C-2 Investors, L.P. and
PPL.
10.15 -- Agreement of Sale of Partnership Interest by and Among New
York Life Insurance Company, Prentiss Properties Austin,
L.P. and PPL.
10.16 -- Purchase Agreement by and Between the Operating Partnership
and PPL.
10.17 -- Agreement of Purchase and Sale and Joint Escrow
Instructions by and Between Lapco Industrial Parks and PPL.
10.18 -- First Amendment to Agreement of Purchase and Sale and Joint
Escrow Instructions by and Between Lapco Industrial Parks
and PPL.
10.19 -- Agreement of Purchase and Sale of Partnership Interests by
and Among LW-RTC, Inc., LW-LP, Inc., NP Investment VI Co.
and PPL.
10.20 -- Agreement of Sale (Real Property) by and Between Property
Asset Management Inc. and PPL (Annapolis, Maryland).
10.21 -- Agreement of Sale (Real Property) by and Between Property
Asset Management Inc. and PPL (Irving, Texas).
10.22 -- Agreement of Sale (Real Property) by and Between Property
Asset Management Inc. and PPL (Houston, Texas)
10.23 -- Letter Agreement dated as of August 5, 1996 from PPL to LW-
LP, Inc., LW-RTC, Inc. and NP Investment VI Co.
10.24 -- Real Estate Purchase and Sale Agreement by and Between
Principal Mutual Life Insurance Company and Prentiss
Properties Investors, Inc.
10.25 -- 1996 Share Trustee Plan
10.26 -- Trustees' Share Incentive Plan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
-------- ----------- ----
<C> <S> <C>
10.27 -- First Amendment to Real Estate Purchase and Sole Agreement
by a Between Principal Mutual Life Insurance Company and
Prentiss Properties Investors, Inc.
21** -- List of Subsidiaries of Registrant
23.1* -- Consent of Hunton & Williams (included in Exhibits 5.1 and
8.1)
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3* -- Consent of Coopers & Lybrand L.L.P. to Inclusion of Opinion
on Franchise Tax Matters
(included in Exhibit 8.2)
24.1* -- Powers of Attorney (included on signature page)
27.1 -- Financial Data Schedule
99.1* -- Consent of Thomas J. Hynes to being named as a Trustee
99.2* -- Consent of Barry J. C. Parker to being named as a Trustee
99.3* -- Consent of Dr. Leonard Riggs, Jr. to being named as a
Trustee
99.4* -- Consent of Ronald G. Steinhart to being named as a Trustee
99.5* -- Consent of Lawrence A. Wilson to being named as a Trustee
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
<PAGE>
EXHIBIT 1.1
Draft Date
September 16, 1996
-------------------
14,250,000 Shares
-----------------
PRENTISS PROPERTIES TRUST
Common Shares of Beneficial Interest
UNDERWRITING AGREEMENT
----------------------
_____ __, 1996
Lehman Brothers Inc.,
As Representative of the several
Underwriters named in Schedule 1,
Three World Financial Center
New York, New York 10285
Dear Sirs:
Prentiss Properties Trust, a Maryland trust (the "Company"), intending
to qualify for federal income tax purposes as a real estate investment trust
pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"), Prentiss Properties Acquisition Partners, L.P., a Delaware
limited partnership (the "Operating Partnership"), Prentiss Properties, Inc., a
Delaware corporation (the "General Partner"), Prentiss Properties Management,
Inc., a Delaware corporation (the "Manager" and together with the Company, the
Operating Partnership and the General Partner, the "Transaction Entities") and
Prentiss Properties Limited, Inc., a Delaware corporation ("PPL") each wish to
confirm as follows its agreement with the Underwriters named in Schedule 1
hereto (the "Underwriters", which term shall also include any underwriter
substituted as hereinafter provided in Section 9 of this Agreement) for whom
Lehman Brothers Inc., Alex Brown & Sons Incorporated, A.G. Edwards & Sons, Inc.,
Prudential Securities Incorporated, Smith Barney Inc. and Principal Financial
Securities, Inc. are acting as representatives (the "Representatives") and A.G.
Edwards & Sons, Inc. is acting as an independent underwriter (the "Independent
Underwriter"), with respect to the sale by the Company and the purchase by the
Underwriters, acting severally and not jointly, of an aggregate of 14,250,000
shares (the "Firm Shares") of the Company's common shares of beneficial
interest, par value $.01 per share (the "Common Shares"). In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional 2,137,500 Common Shares on the terms and for the purposes set forth
in Section 2 (the "Option Shares"). The Firm Shares and the Option Shares, if
purchased, are hereinafter collectively called the "Shares."
Capitalized terms used but not otherwise defined herein shall have the
meanings given to those terms in the Prospectus (as herein defined).
<PAGE>
The Transaction Entities understand that the Underwriters propose to
make a public offering of the Shares as soon as the Representatives deem
advisable after the Registration Statement becomes effective and this Agreement
has been executed and delivered.
At or prior to the First Delivery Date (as hereinafter defined), the
Company will complete the Formation Transactions, described in the Prospectus
under the heading "Formation Transactions." As part of these transactions, (i)
the Underwriters will purchase the Shares and offer them in a public offering as
contemplated hereunder, (ii) the Company will issue 1,892,985 Common Shares to
the Continuing Investors in exchange for interests in the Operating Partnership,
(iii) the Company will contribute to the Operating Partnership, the General
Partner and the current limited partners of the Operating Partnership the
proceeds of the sale of the Shares in exchange for equity interests in the
Partnership ("Units"), (iv) the Prentiss Group will contribute to the Operating
Partnership all of its interests in the Properties, the Development Parcels, the
Options and the Prentiss Properties Service Business in exchange for Units
exchangeable into Common Shares and in certain instances, for cash, (v) the
Operating Partnership will contribute a portion of the Prentiss Properties
Service Business to the Manager in exchange for all of the non-voting common
stock of the Manager and a promissory note, (vi) the Operating Partnership will
borrow $50.0 million from an affiliate of Lehman Brothers Inc., (vii) a
corporation wholly owned by Michael V. Prentiss will contribute cash to the
Manager in exchange for all of the voting common stock of the Manager, and
(viii) the Company and the Partnership will use the net proceeds of the sale of
Shares hereunder as described in the Prospectus under the heading "Use of
Proceeds (the foregoing transactions, as more particularly described in the
Prospectus, are referred to herein as the "Formation Transactions")."
1. Representations, Warranties and Agreements of the Transaction
Entities and PPL. Each of the Transaction Entities and PPL, jointly and
severally, represents, warrants and agrees that, as of the date hereof:
(a) A registration statement on Form S-11 (No. 333-09863), and
any amendments thereto, with respect to the Shares has (i) been
prepared by the Company in conformity with the requirements of the
United States Securities Act of 1933, as amended (the "Securities
Act") and the rules and regulations (the "Rules and Regulations") of
the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under
the Securities Act and (iii) become effective under the Securities
Act. Copies of such registration statement and any amendments thereto
have been delivered by the Company to you as the Representatives of
the Underwriters. As used in this Agreement, "Effective Time" means
the date and the time as of which such registration statement, or the
most recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary Prospectus" means each prospectus
included in such registration statement, or amendments thereto, before
it became effective under the Securities Act and any prospectus filed
with the Commission by the Company with the consent of the
Representatives pursuant to Rule 424(a) of the Rules and Regulations;
"Registration Statement" means such registration statement, as amended
at the Effective Time, including all information contained in the
final prospectus filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations and deemed to be a part of the registration
statement as of the Effective Time pursuant to paragraph (b) of Rule
430A of the Rules and Regulations; and "Prospectus" means such final
2
<PAGE>
prospectus, as first filed with the Commission pursuant to paragraph
(1) or (4) of Rule 424(b) of the Rules and Regulations.
(b) Each Preliminary Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424 under the 1933
Act Regulations, complied when so filed in all material respects with
the provisions of the 1933 Act. The Commission has not issued any
order preventing or suspending the use of any Preliminary Prospectus.
(c) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable Effective Date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date and at the First Delivery Date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or
the Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Representatives by or
on behalf of any Underwriter specifically for inclusion therein.
(d) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no
proceeding for that purpose has been instituted or, to the knowledge
of any of the Transaction Entities or PPL, threatened by the
Commission or by the state securities authority of any jurisdiction.
No order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus has been issued and no proceeding for
that purpose has been instituted or, to the knowledge of any of the
Transaction Entities or PPL, after due inquiry, threatened by the
Commission or by the state securities authority of any jurisdiction.
(e) The Company has been duly formed and is validly existing as
a trust in good standing under the laws of the State of Maryland, is
duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification,
and has all power and authority necessary to own or hold its
properties, to conduct the business in which it is engaged and to
enter into and perform its obligations under this Agreement and the
other Operative Documents (as herein defined) to which it is a party.
None of the subsidiaries of the Company (other than the Operating
Partnership, the General Partner and the Manager) is a "significant
subsidiary", as such term is defined in Rule 405 of the Rules and
Regulations. Except as described in the Prospectus, the Company owns
no direct or indirect equity interest in any entity other than the
Transaction Entities.
(f) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of beneficial interest of
the Company have
3
<PAGE>
been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus. Except as disclosed in the Prospectus, no shares of
beneficial interest of the Company are reserved for any purpose and
except for the Units, there are no outstanding securities convertible
into or exchangeable for any shares of beneficial interest of the
Company, and no outstanding options, rights (preemptive or otherwise)
or warrants to purchase or subscribe for shares of beneficial interest
or any other securities of the Company.
(g) The Operating Partnership has been duly formed and is validly
existing as a limited partnership in good standing under the laws of
the State of Delaware, is duly qualified to do business and is in good
standing as a foreign limited partnership in each jurisdiction in
which its ownership or lease of property or the conduct of its
business requires such qualification, and has all power and authority
necessary to own or hold its properties, to conduct the business in
which it is engaged and to enter into and perform its obligations
under this Agreement and the other Operative Documents to which it is
a party. At the First Delivery Date, the General Partner will be the
sole general partner of the Operating Partnership. At the First
Delivery Date, the Agreement of Limited Partnership of the Operating
Partnership (the "Operating Partnership Agreement") will be in full
force and effect, and the aggregate percentage interests of the
Company, the General Partner and the limited partners in the Operating
Partnership will be as set forth in the Prospectus; provided that to
the extent any portion of the over-allotment option described in
Section 2 hereof is exercised at the First Delivery Date, the
percentage interest of such partners in the Operating Partnership will
be adjusted accordingly. Additionally, to the extent any portion of
such over-allotment option is exercised subsequent to the First
Delivery Date, the Company will contribute the proceeds from the sale
of the Option Shares to the Operating Partnership in exchange for a
number of Units equal to the number of Option Shares issued.
(h) The General Partner has been duly formed and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which its ownership
or lease of property or the conduct of its business requires such
qualification, and has all power and authority necessary to own or
hold its properties, to conduct the business in which it is engaged
and to enter into and perform its obligations under this Agreement and
the other Operative Documents to which it is a party. At the First
Delivery Date, all of the issued and outstanding capital stock of the
General Partner will have been duly authorized and validly issued and
will be fully paid and non-assessable, will be owned by the Company
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim, restriction or equities and will have been offered
and sold in compliance with all applicable laws (including, without
limitation, federal or state securities laws). No shares of capital
stock of the General Partner are reserved for any purpose, and there
are no outstanding securities convertible into or exchangeable for any
capital stock of the General Partner, and no outstanding options,
rights (preemptive or otherwise) or warrants to purchase or to
subscribe for shares of such capital stock or any other securities of
the General Partner.
4
<PAGE>
(i) The Manager has been duly formed and is validly existing as a
corporation in good standing under the laws of the State of Delaware,
is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification,
and has all power and authority necessary to own or hold its
properties, to conduct the business in which it is engaged and to
enter into and perform its obligations under this Agreement and the
other Operative Documents to which it is a party. At the First
Delivery Date, all of the issued and outstanding capital stock of the
Manager will have been duly authorized and validly issued and will be
fully paid and non-assessable, will have been offered and sold in
compliance with all applicable laws (including, without limitation,
federal or state securities laws) and, all of such capital stock owned
by the Operating Partnership (100% of the nonvoting common stock) will
be owned free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim, restriction or equities. At the First
Delivery Date, the Operating Partnership will own a 95% economic
interest in the Manager. No shares of capital stock of the Manager
are reserved for any purpose, and there are no outstanding securities
convertible into or exchangeable for any capital stock of the Manager
and no outstanding options, rights (preemptive or otherwise) or
warrants to purchase or to subscribe for shares of such capital stock
or any other securities of the Manager.
(j) Each of the [other entities through which the Company and the
Operating Partnership owns interests in the Properties] (the "Property
Affiliates") has been duly organized and is validly existing as a
partnership or corporation, as the case may be, in good standing under
the laws of its respective jurisdiction of formation, is duly
qualified to do business and is in good standing as a foreign
partnership or corporation, as the case may be, in each jurisdiction
in which its ownership or lease of property or the conduct of its
business requires such qualification, and has all power and authority
necessary to own or hold its properties, to conduct the business in
which it is engaged and to enter into and perform its obligations
under this Agreement and the other Operative Documents to which it is
a party. Except as set forth in the Prospectus, all of the issued
shares of capital stock or partnership interests of each Property
Affiliate have been duly and validly authorized and issued and are
fully paid and non-assessable are owned directly or indirectly by the
Company and the Operating Partnership, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim, restriction or
equities.
(k) The Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and non-assessable. Upon
payment of the purchase price and delivery of the Shares in accordance
herewith, each of the Underwriters will receive good, valid and
marketable title to the Shares, free and clear of all security
interests, mortgages, pledges, liens, encumbrances, claims,
restrictions and equities. The issuance and sale by the Company of
the Common Shares (other than the Shares) in connection with the
Formation Transactions at or prior to the First Delivery Date are
exempt from the registration requirements of the Securities Act and
applicable state securities, real estate syndication and blue sky
laws. The terms of the Common Shares conform in substance to all
statements and descriptions related thereto contained in the
Prospectus. The form of the
5
<PAGE>
certificates to be used to evidence the Common Shares will at the
First Delivery Date be in due and proper form and will comply with all
applicable legal requirements. The issuance of the Shares is not
subject to any preemptive or other similar rights.
(l) At the First Delivery Date, the Units issued as part of the
Formation Transactions, including, without limitation, the Units to be
issued to the General Partner and the Company, will have been duly and
validly authorized, duly and validly issued, fully paid and non-
assessable. Immediately after the First Delivery Date and not
including any Units issued in exchange for proceeds received by the
Company and the General Partner in connection with the sale of the
Shares, [_______] Units will be issued and outstanding. The issuance
and sale by the Operating Partnership of the Units in connection with
the Formation Transactions are exempt from the registration
requirements of the Securities Act and applicable state securities,
real estate syndication and blue sky laws. The terms of the Units
conform in substance to all statements and descriptions related
thereto contained in the Prospectus.
(m) (A) This Agreement has been duly and validly authorized,
executed and delivered by the each of the Transaction Entities and
PPL, and assuming due authorization, execution and delivery by the
Representatives, is a valid and binding agreement of each of the
Transaction Entities and PPL, enforceable against the Transaction
Entities and PPL in accordance with its terms; (B) at the First
Delivery Date, the Operating Partnership Agreement and the partnership
agreement or joint venture agreement of each Property Affiliate, will
have been duly and validly authorized, executed and delivered by the
parties thereto and will be a valid and binding agreement of the
parties thereto, enforceable against such parties in accordance with
its terms; (C) each of the agreements pursuant to which Prentiss Group
members and third parties have agreed to contribute assets, shares,
properties and partnership interests to the Prentiss Group (the
"Initial Contribution Agreements"), and each of the agreements
pursuant to which such assets, shares, properties and partnership
interests and the Prentiss Property Service Business will be
transferred from the Prentiss Group to the Operating Partnership (the
"Prentiss Contribution Agreements"), have been duly and validly
authorized, executed and delivered by each Transaction Entity and each
Prentiss Group member that is a party thereto, are valid and binding
agreements, enforceable against such Transaction Entity and Prentiss
Group Member, in accordance with their terms, and, at the First
Delivery Date, the Prentiss Group's interests in the Initial
Contribution Agreements will have been validly assigned by means of
the Prentiss Contribution Agreements to the Operating Partnership and
its subsidiaries such that the Operating Partnership and its
subsidiaries will be, without the need for any further act, deed or
conveyance, vested with all the authority, rights, powers, duties and
obligations of the Prentiss Group parties thereto and with like effect
as if originally named as such Prentiss Group parties under the
Initial Contribution Agreements, and none of the Transaction Entities
or PPL has any reason to believe that any Initial Contribution
Agreement has not been duly and validly authorized by all other
parties thereto; (E) at the First Delivery Date, the Management
Agreement by and between the Manager and the Company (the "Management
Agreement") will have been duly and validly authorized, executed and
delivered by the parties thereto and will be a valid and binding
agreement,
6
<PAGE>
enforceable against the parties thereto in accordance with its terms
[and (F) describe line of credit and other financing documents]. This
Agreement, the Operating Partnership Agreement, the Prentiss
Contribution Agreements, the Initial Contribution Agreements, [the
Financing Agreements] and the Management Agreement are sometimes
hereinafter collectively called the "Operative Documents".
(n) The execution, delivery and performance of each Operative
Document by each of the Transaction Entities and members of the
Prentiss Group and the consummation of the transactions contemplated
thereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which any of the Transaction Entities or Prentiss
Group members is a party or by which any of the Transaction Entities
or Prentiss Group members is bound or to which any of the Properties
or other assets of any of the Transaction Entities or Prentiss Group
members is subject, nor will such actions result in any violation of
the provisions of the charter, by-laws, certificate of limited
partnership or agreement of limited partnership of any of the
Transaction Entities or Prentiss Group members, or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over any of the Transaction Entities or Prentiss
Group members or any of their properties or assets; and except for the
registration of the Shares under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state securities laws
in connection with the purchase and distribution of the Shares by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of the
Operative Documents by the Transaction Entities and the Prentiss Group
members and the consummation of the transactions contemplated hereby
and thereby.
(o) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Securities Act
with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in
the securities registered pursuant to the Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act.
(p) Except as described in the Prospectus, no Transaction Entity
has sold or issued any securities during the six-month period
preceding the date of the Prospectus, including any sales pursuant to
Rule 144A under, or Regulations D or S of, the Securities Act.
(q) None of the Transaction Entities nor any of the Properties
has sustained, since the date of the latest audited financial
statements included in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, other than
as set forth or contemplated in the Prospectus; and, since such date,
there has not been any change in the capital stock or long-term debt
of any of the Transaction
7
<PAGE>
Entities or any material adverse change, or any development involving
a prospective material adverse change, in or affecting any of the
Properties or the general affairs, management, financial position,
stockholders' equity or results of operations of any of the
Transaction Entities, other than as set forth or contemplated in the
Prospectus.
(r) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby,
at the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. Pro forma financial
information included in the Prospectus has been prepared in accordance
with the applicable requirements of the Act, the Regulations and AICPA
guidelines with respect to pro forma financial information and
includes all adjustments necessary to present fairly the pro forma
financial position of the Company at the respective dates indicated
and the results of operations for the respective periods specified.
(s) Coopers & Lybrand L.L.P., who have certified certain
financial statements of the Company, whose reports appear in the
Prospectus and who have delivered the initial letter referred to in
Section 7(f) hereof, are independent public accountants as required by
the Securities Act and the Rules and Regulations.
(t) (A) At the First Delivery Date, the Operating Partnership
and the Property Affiliates will have good and marketable title to
each of the Properties and the other assets being contributed as part
of the Formation Transactions, in each case free and clear of all
liens, encumbrances, claims, security interests and defects, other
than those referred to in the Prospectus or those which are not
material in amount or those which would not have a material adverse
effect on the business, operations, use or value of any of the
Properties and all material consents or approvals with respect to any
such transfer shall have been received; (B) all liens, charges,
encumbrances, claims or restrictions on or affecting any of the
Properties and the assets of any Transaction Entity which are required
to be disclosed in the Prospectus are disclosed therein; (C) except as
otherwise described the Prospectus, neither any Transaction Entity nor
any tenant of any of the Properties is in default under (i) any space
leases (as lessor or lessee, as the case may be) relating to the
Properties, or (ii) any of the mortgages or other security documents
or other agreements encumbering or otherwise recorded against the
Properties, and no Transaction Entity knows, and PPL does not know, of
any event which, but for the passage of time or the giving of notice,
or both, would constitute a default under any of such documents or
agreements; (D) no tenant under any of the leases at the Properties
has a right of first refusal to purchase the premises demised under
such lease which has not been waived with respect to the Formation
Transactions; (E) each of the Properties complies with all applicable
codes, laws and regulations (including, without limitation, building
and zoning codes, laws and regulations and laws relating to access to
the Properties), except for such failures to comply that would not
have a material adverse effect on the business operations, use or
value of such Property; and (F) no Transaction Entity has knowledge of
any pending or threatened
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condemnation proceedings, zoning change or other proceeding or action
that will in any material manner affect the size of, use of,
improvements on, construction on or access to the Properties.
(u) Immediately following the application of the net proceeds of
the sale of the Firm Shares and the [Financing Agreements] in the
manner set forth in the Prospectus, the mortgages and deeds of trust
which will encumber the Properties will not be convertible into equity
securities of the entity owning such Property and said mortgages and
deeds of trust will not be cross-defaulted or cross-collateralized
with any property other than other Properties.
(v) At the First Delivery Date, the Operating Partnership and the
Property Affiliates will have obtained title insurance on the fee
interests in each of the Properties, in an amount at least equal to
the greater of (A) the mortgage indebtedness of each such Property or
(B) the purchase price of each such Property.
(w) At the First Delivery Date, each of the Options will have
been duly and validly authorized, executed and delivered by the
parties thereto and will be a valid and binding agreement, enforceable
in accordance with its terms.
(x) Except as disclosed in the Prospectus; (A) to the knowledge
of the Transaction Entities and PPL, after due inquiry, the operations
of the Company, the Operating Partnership, the General Partner, the
Manager, and the Properties are in compliance with all Environmental
Laws (as defined below) and all requirements of applicable permits,
licenses, approvals and other authorizations issued pursuant to
Environmental Laws; (B) to the knowledge of the Transaction Entities
and PPL, after due inquiry, none of the Transaction Entities or any
Property has caused or suffered to occur any Release (as defined
below) of any Hazardous Substance (as defined below) into the
Environment (as defined below) on, in, under or from any Property, and
no condition exists on, in, under or adjacent to any Property that
could result in the incurrence of liabilities under, or any violations
of, any Environmental Law or give rise to the imposition of any Lien
(as defined below), under any Environmental Law; (C) none of the
Transaction Entities or PPL has received any written notice of a claim
under or pursuant to any Environmental Law or under common law
pertaining to Hazardous Substances on, in, under or originating from
any Property; (D) none of the Transaction Entities or PPL has actual
knowledge of, or received any written notice from any Governmental
Authority (as defined below) claiming, any violation of any
Environmental Law or a determination to undertake and/or request the
investigation, remediation, clean-up or removal of any Hazardous
Substance released into the Environment on, in, under or from any
Property; and (E) no Property is included or, to the knowledge of the
Transaction Entities or PPL, after due inquiry, proposed for inclusion
on the National Priorities List issued pursuant to CERCLA (as defined
below) by the United States Environmental Protection Agency (the
"EPA") or on the Comprehensive Environmental Response, Compensation,
and Liability Information System database maintained by the EPA, and
none of the Transaction Entities or PPL has actual knowledge that any
Property has otherwise been identified in a published writing by the
EPA as a potential CERCLA removal, remedial or response site
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or, to the knowledge of the Transaction Entities, is included on any
similar list of potentially contaminated sites pursuant to any other
Environmental Law.
As used herein, "Hazardous Substance" shall include any hazardous
substance, hazardous waste, toxic substance, pollutant or hazardous
material, including, without limitation, oil, petroleum or any
petroleum-derived substance or waste, asbestos or asbestos-containing
materials, PCBs, pesticides, explosives, radioactive materials,
dioxins, urea formaldehyde insulation or any constituent of any such
substance, pollutant or waste which is subject to regulation under any
Environmental Law (including, without limitation, materials listed in
the United States Department of Transportation Optional Hazardous
Material Table, 49 C.F.R. (S) 172.101, or in the EPA's List of
Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302);
"Environment" shall mean any surface water, drinking water, ground
water, land surface, subsurface strata, river sediment, buildings,
structures, and ambient, workplace and indoor and outdoor air;
"Environmental Law" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. (S) 9601 et seq.) ("CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended (42 U.S.C. (S) 6901, et seq.), the
Clean Air Act, as amended (42 U.S.C. (S) 7401, et seq.), the Clean
Water Act, as amended (33 U.S.C. (S) 1251, et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. (S) 2601, et seq.), the
Occupational Safety and Health Act of 1970, as amended (29 U.S.C. (S)
651, et seq.), the Hazardous Materials Transportation Act, as amended
(49 U.S.C. (S) 1801, et seq.), and all other federal, state and local
laws, ordinances, regulations, rules and orders relating to the
protection of the environments or of human health from environmental
effects; "Governmental Authority" shall mean any federal, state or
local governmental office, agency or authority having the duty or
authority to promulgate, implement or enforce any Environmental Law;
"Lien" shall mean, with respect to any Property, any mortgage, deed of
trust, pledge, security interest, lien, encumbrance, penalty, fine,
charge, assessment, judgment or other liability in, on or affecting
such Property; and "Release" shall mean any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, emanating or disposing of any Hazardous
Substance into the Environment, including, without limitation, the
abandonment or discard of barrels, containers, tanks (including,
without limitation, underground storage tanks) or other receptacles
containing or previously containing any Hazardous Substance.
(y) Each Transaction Entity and Property carries, or is covered
by, insurance in such amounts and covering such risks as is adequate
for the conduct of its business and the value of such Property and as
is customary for companies engaged in similar businesses in similar
industries.
(z) Each Transaction Entity owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of
its business and has no reason to believe that the conduct of its
business will conflict with, and has not received any notice of any
claim of conflict with, any such rights of others.
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(aa) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which any Transaction Entity or
Prentiss Group member is a party or of which any property or assets of
any Transaction Entity is the subject which, if determined adversely
to such Transaction Entity or Prentiss Group member, might have a
material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of
the Company; and to the best knowledge of the Transaction Entities and
PPL, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(ab) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations.
(bb) No relationship, direct or indirect, exists between or among
any of the Transaction Entities on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Transaction
Entities on the other hand, which is required to be described in the
Prospectus which is not so described.
(cc) No labor disturbance by the employees of any Transaction
Entity exists or, to the knowledge of the Transaction Entities or PPL,
is imminent which might be expected to have a material adverse effect
on the consolidated financial position, stockholders' equity, results
of operations, business or prospects of such Transaction Entity.
(dd) Each Transaction Entity is in compliance in all material
respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which any Transaction
Entity would have any liability; no Transaction Entity has incurred or
expects to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii)
sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder
(the "Code"); and each "pension plan" for which any Transaction Entity
would have any liability that is intended to be qualified under
section 401(a) of the Code is so qualified in all material respects
and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(ee) Each Transaction Entity has filed all federal, state and
local income and franchise tax returns required to be filed through
the date hereof and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to any Transaction Entity
which has had (nor does any Transaction Entity or PPL have any
knowledge of any tax deficiency which, if determined adversely to it
might have) a material adverse effect on the financial position,
stockholders' equity, results of operations, business or prospects of
such Transaction Entity.
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(ff) Upon completion of the transactions described in the
Prospectus and the sale of the Shares hereunder, the Company, the
Operating Partnership, the General Partner, and the Manager will be
organized and operated in conformity with the requirements for
qualification of the Company as a real estate investment trust under
the Code commencing with the Company's short taxable year ending
December 31, 1996, and the proposed method of operation of the
Company, the Operating Partnership, the General Partner and the
Manager will enable the Company to meet the requirements for
qualification and taxation as a real estate investment trust under the
Code.
(gg) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, no Transaction Entity has (i) issued or
granted any securities, (ii) incurred any liability or obligation,
direct or contingent, other than liabilities and obligations which
were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock.
(hh) Each Transaction Entity (i) makes and keeps accurate books
and records and (ii) maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are
recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access
to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(ii) No Transaction Entity or Property Affiliate (i) is in
violation of its charter, by-laws, certificate of limited partnership,
agreement of limited partnership or other similar organizational
document, (ii) is in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any term,
covenant or condition contained in any material indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of the
Properties or any of its other properties or assets is subject or
(iii) is in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or the
Properties or any of its other properties or assets may be subject or
has failed to obtain any material license, permit, certificate,
franchise or other governmental authorization or permit necessary to
the ownership of the Properties or any of its other properties or
assets or to the conduct of its business.
(jj) No Transaction Entity, nor any director, officer, agent,
employee or other person associated with or acting on behalf of any
Transaction Entity, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating
to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
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<PAGE>
(kk) No Transaction Entity is an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
(ll) The Common Shares have been approved for listing on the New
York Stock Exchange upon notice of issuance.
(mm) At or prior to the Closing Time, each of the Formation
Transactions will have occurred in the manner described in the
Prospectus.
(nn) Other than this Agreement and as set forth in the Prospectus
under the heading "Underwriting", there are no contracts, agreements
or understandings between any Prentiss Group member or any Transaction
Entity and any person that would give rise to a valid claim against
any Transaction Entity or any Underwriter for a brokerage commission,
finder's fee or other like payment with respect to the consummation of
the transactions contemplated by this Agreement.
(oo) Each Transaction Entity has complied with all provisions of
Florida Statutes (S) 517.075, relating to issuers doing business with
Cuba.
2. Purchase of the Shares by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 14,250,000 Firm
Shares, severally and not jointly, to the several Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase the number of Firm
Shares set forth opposite that Underwriter's name in Schedule 1 hereto. The
respective purchase obligations of the Underwriters with respect to the Firm
Shares shall be rounded among the Underwriters to avoid fractional shares, as
the Representatives may determine.
In addition, the Company grants to the Underwriters an option to
purchase up to 2,137,500 Option Shares. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Shares and is
exercisable as provided in Section 4 hereof. Option Shares shall be purchased
severally for the account of the Underwriters in proportion to the number of
Firm Shares set forth opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Shares shall be adjusted by the Representatives so that no
Underwriter shall be obligated to purchase Option Shares other than in 100 share
amounts. The price of both the Firm Shares and any Option Shares shall be
[$_____] per share.
The Company shall not be obligated to deliver any of the Shares to be
delivered on the First Delivery Date or the Second Delivery Date (as hereinafter
defined), as the case may be, except upon payment for all the Shares to be
purchased on such Delivery Date as provided herein.
3. Offering of Shares by the Underwriters.
Upon authorization by the Representatives of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
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<PAGE>
4. Delivery of and Payment for the Shares. Delivery of and payment
for the Firm Shares shall be made at the office of Rogers & Wells, 200 Park
Avenue, New York, New York 10166, or at such other date or place as shall be
determined by agreement between the Representatives and the Company, at 10:00
A.M., New York City time, on the third full business day following the date of
this Agreement or on the fourth full business day if the Agreement is executed
after the daily closing time of the New York Stock Exchange (unless postponed in
accordance with the provisions of Section 9 hereof). This date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery Date,
the Company shall deliver or cause to be delivered certificates representing the
Firm Shares to the Representatives for the account of each Underwriter against
payment to or upon the order of the Company of the purchase price by certified
or official bank check or checks payable in [New York Clearing House (next-day)]
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Firm Shares shall be registered
in such names and in such denominations as the Representatives shall request in
writing not less than two full business days prior to the First Delivery Date.
For the purpose of expediting the checking and packaging of the certificates for
the Firm Shares, the Company shall make the certificates representing the Firm
Shares available for inspection by the Representatives in New York, New York,
not later than 2:00 P.M., New York City time, on the business day prior to the
First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement, the option granted in Section 2 may be exercised by written notice
being given to the Company by the Representatives. Such notice shall set forth
the aggregate number of Option Shares as to which the option is being exercised,
the names in which the Option Shares are to be registered, the denominations in
which the Option Shares are to be issued and the date and time, as determined by
the Representatives, when the Option Shares are to be delivered; provided,
however, that this date and time shall not be earlier than the First Delivery
Date nor earlier than the second business day after the date on which the option
shall have been exercised nor later than the fifth business day after the date
on which the option shall have been exercised. The date and time the Option
Shares are delivered are sometimes referred to as the "Second Delivery Date" and
the First Delivery Date and the Second Delivery Date are sometimes each referred
to as a "Delivery Date".
Delivery of and payment for the Option Shares shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Shares to the
Representative for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by certified or official bank
check or checks payable in [New York Clearing House (next-day)] funds. Time
shall be of the essence, and delivery at the time and place specified pursuant
to this Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Shares shall be registered in such names
and in such denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Shares, the Company shall make the certificates
representing the Option Shares available for inspection by the Representatives
in New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
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5. Further Agreements of the Transaction Entities. Each of the
Transaction Entities jointly and severally agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and
delivery of this Agreement or, if applicable, such earlier time as may
be required by Rule 430A(a)(3) under the Securities Act; to make no
further amendment or any supplement to the Registration Statement or
to the Prospectus except as permitted herein; to advise the
Representatives, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Representatives
with copies thereof; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to the Representatives and to counsel for
the Underwriters five signed copies of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and exhibits filed
therewith, and will also furnish to the Representatives and their
counsel such number of conformed copies of the Registration Statement
as originally filed and of each amendment thereto, as the
Representatives may request;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request:
(i) conformed copies of the Registration Statement as originally filed
with the Commission and each amendment thereto (in each case excluding
exhibits other than this Agreement and the computation of per share
earnings) and (ii) each Preliminary Prospectus, the Prospectus and any
amended or supplemented Prospectus; and, if the delivery of a
prospectus is required at any time after the Effective Time in
connection with the offering or sale of the Shares or any other
securities relating thereto and if at such time any events shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary to amend or supplement the
Prospectus in order to comply with the Securities Act or the Exchange
Act, to notify the Representatives and, upon its request, to file such
document and to prepare and furnish without charge to each Underwriter
and to any dealer in securities as many copies as the Representatives
may from time to time reasonably request of
15
<PAGE>
an amended or supplemented Prospectus which will correct such
statement or omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representatives and counsel for the
Underwriters and obtain the consent of the Representatives to the
filing;
(f) The Company will make generally available to its security
holders as soon as practicable but no later than 60 days after the
close of the period covered thereby an earnings statement (in form
complying with the provisions of Section 11(a) of the Securities Act
and Rule 158 of the Rules and Regulations), which need not be
certified by independent certified public accountants unless required
by the Securities Act or the Rules and Regulations, covering a twelve-
month period commencing after the "effective date" (as defined in said
Rule 158) of the Registration Statement;
(g) The Company will furnish to each Underwriter, from time to
time during the period when the Prospectus is required to be delivered
under the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably
request for the purposes contemplated by the Securities Act or the
Exchange Act or the respective applicable rules and regulations of the
Commission thereunder.
(h) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by
the Company to its shareholders and all public reports and all reports
and financial statements furnished by the Company to the principal
national securities exchange upon which the Common Shares may be
listed pursuant to requirements of or agreements with such exchange or
to the Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(i) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Shares for
offering and sale under the securities, real estate syndication or
Blue Sky laws of such jurisdictions as the Representatives may request
and to comply with such laws so as to permit the continuance of sales
and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Shares;
(j) For a period of 180 days from the date of the Prospectus, the
Company will not, directly or indirectly, offer for sale, sell,
contract to sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the future of)
any Common Shares or securities convertible into or
<PAGE>
exercisable or exchangeable for Common Shares (other than the Shares
and shares issued pursuant to employee benefit plans, qualified stock
option plans or other employee compensation plans existing on the date
hereof), or sell or grant options, rights or warrants with respect to
any Common Shares (other than the grant of options pursuant to option
plans existing on the date hereof), without the prior written consent
of Lehman Brothers Inc.; and to cause each officer, trustee and
affiliate of the Company who will acquire Units in the Formation
Transactions and each Continuing Investor who will acquire Common
Shares in the Formation Transactions to furnish to the
Representatives, prior to the First Delivery Date, a letter or
letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree not to,
directly or indirectly, offer for sale, sell, contract to sell, pledge
or otherwise dispose of (or enter into any transaction or device which
is designed to, or could be expected to, result in the disposition by
any person at any time in the future of) any (i) in the case of such
officer's, trustees and affiliates of the Company, Units for a period
of two years from the date of the Prospectus and (ii) in the case of
the Continuing Investors, Shares for a period of one year from the
date of the Prospectus, without the prior written consent of Lehman
Brothers Inc. in each case;
(k) Prior to the Effective Date, to apply for the listing of the
Shares on the New York Stock Exchange, Inc. and to use its best
efforts to complete that listing, subject only to official notice of
issuance, prior to the First Delivery Date;
(l) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the Underwriters and receive and consider
its comments thereon, and to deliver promptly to the Representatives a
signed copy of each report on Form SR filed by it with the Commission;
(m) To apply the net proceeds from the sale of the Shares being
sold by the Company in accordance with the description set forth in
the Prospectus under the caption "Use of Proceeds";
(n) To take such steps as shall be necessary to ensure that none
of the Transaction Entities shall become an "investment company"
within the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the Commission thereunder;
(o) Except as stated in this Agreement and in the Preliminary
Prospectus and Prospectus, no Transaction Entity has taken, nor will
take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Shares to facilitate the sale
or resale of the Shares;
(p) The Company will use its best efforts to meet the
requirements to qualify, commencing with the short taxable year ending
December 31, 1996, as a "real estate investment trust" under the Code;
and
(q) If this Agreement shall be terminated by the Underwriters
because of any failure or refusal on the part of the Transaction
Entities or PPL to comply
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<PAGE>
with the terms or fulfill any of the conditions of this Agreement, the
Transaction Entities and PPL jointly and severally agree to reimburse
the Representatives for all reasonable out-of-pocket expenses
(including fees and expenses of counsel for the Underwriters) incurred
by the Representatives in connection herewith.
6. Expenses. The Transaction Entities and PPL jointly and severally
agree to pay (a) the costs incident to the authorization, issuance, sale and
delivery of the Shares and any taxes payable in that connection; (b) the costs
incident to the preparation, printing and filing under the Securities Act of the
Registration Statement and any amendments and exhibits thereto; (c) the costs of
distributing the Registration Statement as originally filed and each amendment
thereto and any post-effective amendments thereof (including, in each case,
exhibits), any Preliminary Prospectus, the Prospectus and any amendment or
supplement to the Prospectus, all as provided in this Agreement; (d) the costs
of producing and distributing this Agreement and any other related documents in
connection with the offering, purchase, sale and delivery of the Shares; (f) the
filing fees incident to securing any required review by the National Association
of Securities Dealers, Inc. of the terms of sale of the Shares; (g) any
applicable listing or other fees; (h) the fees and expenses of qualifying the
Shares under the securities laws of the several jurisdictions as provided in
Section 5(i) and of preparing, printing and distributing a Blue Sky Memorandum
(including related fees and expenses of counsel to the Underwriters); (j) all
fees and expenses of the Independent Underwriter; and (k) all other costs and
expenses incident to the performance of the obligations of the Transaction
Entities and PPL under this Agreement; provided that, except as provided in this
Section 6 and in Section 12 the Underwriters shall pay their own costs and
expenses, including the costs and expenses of their counsel, any transfer taxes
on the Shares which they may sell and the expenses of advertising any offering
of the Shares made by the Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the
Transaction Entities and PPL contained herein, to the performance by each
Transaction Entity and PPL of its obligations hereunder, and to each of the
following additional terms and conditions:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the
Shares may commence, the Registration Statement or such post-effective
amendment shall have become effective not later than 5:30 P.M., New
York City time, on the date hereof, or at such later date and time as
shall be consented to in writing by you, and all filings, if any,
required by Rules 424 and 430A under the Rules and Regulations shall
have been timely made; no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceeding
for that purpose shall have been instituted or, to the knowledge of
the Transaction Entities, PPL or any Underwriter, threatened by the
Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the
satisfaction of the Representatives.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition, financial or
otherwise, business, properties, net worth, or results of operations
of any Transaction Entity, any of their
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subsidiaries or any Property not contemplated by the Prospectus, which
in the opinion of the Representatives, would materially adversely
affect the market for the Shares, or (ii) any event or development
relating to or involving any Transaction Entity, or any partner,
officer, director or trustee of any Transaction Entity, which makes
any statement of a material fact made in the Prospectus untrue or
which, in the opinion of the Company and its counsel or the
Underwriters and their counsel, requires the making of any addition to
or change in the Prospectus in order to state a material fact required
by the 1933 Act or any other law to be stated therein or necessary in
order to make the statements therein not misleading, if amending or
supplementing the Prospectus to reflect such event or development
would, in your opinion, adversely affect the market for the Shares.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Shares,
the Registration Statement and the Prospectus, and all other legal
matters relating to this Agreement and the transactions contemplated
hereby shall be reasonably satisfactory in all material respects to
counsel for the Underwriters, and the Company shall have furnished to
such counsel all documents and information that they may reasonably
request to enable them to pass upon such matters.
(d) Hunton & Williams shall have furnished to the Representatives
its written opinion, as counsel to the Company, addressed to the
Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) The Company has been duly formed and is validly
existing as a trust in good standing under the laws of the State
of Maryland, is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which
its ownership or lease of property or the conduct of its business
requires such qualification, and has all power and authority
necessary to own or hold its properties, to conduct the business
in which it is engaged as described in the Registration Statement
and the Prospectus, and to enter into and perform its obligations
under this Agreement and the other Operative Documents to which
it is a party and in connection with the Formation Transactions.
(ii) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
beneficial interest of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus.
(iii) The Operating Partnership has been duly formed
and is validly existing as a limited partnership in good standing
under the laws of the State of Delaware, is duly qualified to do
business and is in good standing as a foreign limited partnership
in each jurisdiction in which its ownership or lease of property
or the conduct of its business requires such qualification, and
has all power and authority necessary to own or hold its
properties, to conduct the business in which it is engaged as
described in the Registration Statement and the Prospectus, and
to enter into and
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<PAGE>
perform its obligations under this Agreement and the other
Operative Documents to which it is a party and in connection with
the Formation Transactions. The General Partner is the sole
general partner of the Operating Partnership. The Operating
Partnership Agreement is in full force and effect, and the
aggregate percentage interests of the Company, the General
Partner and the limited partners in the Operating Partnership are
as set forth in the Prospectus.
(iv) The General Partner has been duly formed and is
validly existing as a corporation in good standing under the laws
of the State of Delaware, is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the conduct of its
business requires such qualification, and has all power and
authority necessary to own or hold its properties, to conduct the
business in which it is engaged as described in the Registration
Statement and the Prospectus, and to enter into and perform its
obligations under this Agreement and the other Operative
Documents to which it is a party and in connection with the
Formation Transactions. All of the issued and outstanding
capital stock of the General Partner has been duly authorized and
validly issued and is fully paid and non-assessable, is owned by
the Company free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim, restriction or equities and has
been offered and sold in compliance with all applicable laws
(including, without limitation, federal or state securities
laws).
(v) The Manager has been duly formed and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the conduct of its
business requires such qualification, and has all power and
authority necessary to own or hold its properties, to conduct the
business in which it is engaged as described in the Registration
Statement and the Prospectus, and to enter into and perform its
obligations under this Agreement and the other Operative
Documents to which it is a party and in connection with the
Formation Transactions. All of the issued and outstanding
capital stock of the Manager has been duly authorized and validly
issued and is fully paid and non-assessable, has been offered and
sold in compliance with all applicable laws (including, without
limitation, federal or state securities laws) and, all of such
capital stock owned by the Operating Partnership (100% of the
nonvoting common stock) is owned free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim, restriction
or equities.
(vi) Each of the [other entities through which the
Company and the Operating Partnership owns interests in the
Properties] (the "Property Affiliates") has been duly organized
and is validly existing as a partnership or corporation, as the
case may be, in good standing under the laws of its respective
jurisdiction of formation, is duly qualified to do business and
is in good standing as a foreign partnership or corporation, as
the case may be, in each jurisdiction in which its
20
<PAGE>
ownership or lease of property or the conduct of its business
requires such qualification, and has all power and authority
necessary to own or hold its properties, to conduct the business
in which it is engaged and to enter into and perform its
obligations under this Agreement and the other Operative
Documents to which it is a party. Except as set forth in the
Prospectus, all of the issued shares of capital stock or
partnership interests of each Property Affiliate have been duly
and validly authorized and issued and are fully paid and non-
assessable are owned directly or indirectly by the Company and
the Operating Partnership, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim, restriction
or equities.
(vii) The Shares have been duly and validly authorized
and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
non-assessable. Upon payment of the purchase price and delivery
of the Shares in accordance herewith, each of the Underwriters
will receive good, valid and marketable title to the Shares, free
and clear of all security interests, mortgages, pledges, liens,
encumbrances, claims, restrictions and equities. The issuance
and sale by the Company of the Common Shares (other than the
Shares) in connection with the Formation Transactions at or prior
to the First Delivery Date are exempt from the registration
requirements of the Securities Act and applicable state
securities, real estate syndication and blue sky laws. The terms
of the Common Shares conform in substance to all statements and
descriptions related thereto contained in the Prospectus. The
form of the certificates to be used to evidence the Common Shares
are in due and proper form and comply with all applicable legal
requirements. The issuance of the Shares is not subject to any
preemptive or other similar rights.
(viii) The Units issued as part of the Formation
Transactions, including, without limitation, the Units issued to
the General Partner and the Company, have been duly and validly
authorized, duly and validly issued, fully paid and non-
assessable. The issuance and sale by the Operating Partnership
of the Units in connection with the Formation Transactions are
exempt from the registration requirements of the Securities Act
and applicable state securities, real estate syndication and blue
sky laws. The terms of the Units conform in substance to all
statements and descriptions related thereto contained in the
Prospectus.
(ix) (A) This Agreement has been duly and validly
authorized, executed and delivered by the each of the Transaction
Entities and PPL, and assuming due authorization, execution and
delivery by the Representatives, is a valid and binding agreement
of each of the Transaction Entities and PPL; (B) the Operating
Partnership Agreement and the partnership agreement or joint
venture agreement of each Property Affiliate, have been duly and
validly authorized, executed and delivered by each Transaction
Entity and Prentiss Group member party thereto and are valid and
binding agreements of the parties thereto, enforceable against
such parties in accordance with their terms; (C) the Initial
Contribution Agreements and each of the Prentiss Contribution
21
<PAGE>
Agreements, have been duly and validly authorized, executed and
delivered by each Transaction Entity and each Prentiss Group
member that is a party thereto, are valid and binding agreements,
enforceable against such Transaction Entity and Prentiss Group
Member, in accordance with their terms, and the Prentiss Group's
interests in the Initial Contribution Agreements have been
validly assigned by means of the Prentiss Contribution Agreements
to the Operating Partnership and its subsidiaries such that the
Operating Partnership and its subsidiaries are, without the need
for any further act, deed or conveyance, vested with all the
authority, rights, powers, duties and obligations of the Prentiss
Group parties thereto and with like effect as if originally named
as such Prentiss Group parties under the Initial Contribution
Agreements, (D) the Management Agreement has been duly and
validly authorized, executed and delivered by the parties thereto
and is a valid and binding agreement, enforceable against the
parties thereto in accordance with its terms [and (E) describe
line of credit and other financing documents].
(x) The execution, delivery and performance of each
Operative Document by each of the Transaction Entities and
members of the Prentiss Group and the consummation of the
transactions contemplated thereby will not conflict with or
result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to
which any of the Transaction Entities or Prentiss Group members
is a party or by which any of the Transaction Entities or
Prentiss Group members is bound or to which any of the Properties
or other assets of any of the Transaction Entities or Prentiss
Group members is subject, nor will such actions result in any
violation of the provisions of the charter, by-laws, certificate
of limited partnership or agreement of limited partnership of any
of the Transaction Entities or Prentiss Group members, or any
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over any of the
Transaction Entities or Prentiss Group members or any of their
properties or assets; and except for the registration of the
Shares under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state securities
laws in connection with the purchase and distribution of the
Shares by the Underwriters, no consent, approval, authorization
or order of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of the Operative Documents by the
Transaction Entities and the Prentiss Group members and the
consummation of the transactions contemplated hereby and thereby.
(xi) There are no contracts, agreements or
understandings between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities
of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities
registered pursuant to the Registration Statement
22
<PAGE>
or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities
Act.
(xii) (A) The Operating Partnership and the Property
Affiliates have good and marketable title to each of the
Properties and the other assets being contributed as part of the
Formation Transactions, in each case free and clear of all liens,
encumbrances, claims, security interests and defects, other than
those referred to in the Prospectus or those which are not
material in amount or those which would not have a material
adverse effect on the business, operations, use or value of any
of the Properties and all material consents or approvals with
respect to any such transfer have been received; (B) all liens,
charges, encumbrances, claims or restrictions on or affecting any
of the Properties and the assets of any Transaction Entity which
are required to be disclosed in the Prospectus are disclosed
therein; and (C) each of the Properties complies with all
applicable codes, laws and regulations (including, without
limitation, building and zoning codes, laws and regulations and
laws relating to access to the Properties), except for such
failures to comply that would not have a material adverse effect
on the business operations, use or value of such Property.
(xiii) Each of the Options has been duly and validly
authorized, executed and delivered by the parties thereto and is
a valid and binding agreement, enforceable in accordance with its
terms.
(xiv) To the best knowledge of such counsel, there are
no legal or governmental proceedings pending to which any
Transaction Entity or Prentiss Group member is a party or of
which any property or assets of any Transaction Entity is the
subject which, if determined adversely to such Transaction Entity
or Prentiss Group member, might reasonably be expected to have a
material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or
prospects of the Company; and to the best knowledge of such
counsel no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(xv) There are no contracts or other documents which
are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act or
by the Rules and Regulations which have not been described in the
Prospectus or filed as exhibits to the Registration Statement or
incorporated therein by reference as permitted by the Rules and
Regulations.
(xvi) To the best knowledge of such counsel, no
relationship, direct or indirect, exists between or among any of
the Transaction Entities on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Transaction
Entities on the other hand, which is required to be described in
the Prospectus which is not so described.
23
<PAGE>
(xvii) Each Transaction Entity is in compliance in all
material respects with all presently applicable provisions of
ERISA; to the best knowledge of such counsel, no "reportable
event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which any Transaction
Entity would have any liability; no Transaction Entity has
incurred or to the best knowledge of such counsel, expects to
incur, liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii)
sections 412 or 4971 of the Code; and each "pension plan" for
which any Transaction Entity would have any liability that is
intended to be qualified under section 401(a) of the Code is so
qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the
loss of such qualification.
(xviii) No Transaction Entity or Property Affiliate
(i) is in violation of its charter, by-laws, certificate of
limited partnership, agreement of limited partnership or other
similar organizational document, (ii) is in default in any
material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the
due performance or observance of any term, covenant or condition
contained in any material indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which it is a
party or by which it is bound or to which any of the Properties
or any of its other properties or assets is subject or (iii) is
in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or the
Properties or any of its other properties or assets may be
subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or
permit necessary to the ownership of the Properties or any of its
other properties or assets or to the conduct of its business.
(xix) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory
body, administrative agency or other governmental body, agency,
or official is required (A) on the part of the Company (except as
have been obtained under the Securities Act and the Exchange Act
or such as may be required under state securities, real estate
syndication or Blue Sky laws governing the purchase and
distribution of the Shares) for the valid issuance and sale of
the Shares to the Underwriters as contemplated by this Agreement
or (B) on the part of any Transaction Entity or any other person
party to an Initial Contribution Agreement or Prentiss
Contribution Agreement in connection with the consummation of the
Formation Transactions (except such as has been obtained or whose
------------------------------------------
absence will not prohibit or otherwise have a material adverse
--------------------------------------------------------------
effect on, or the timing of, the consummation of the Formation
--------------------------------------------------------------
Transactions).
-------------
(xx) The Company is organized in conformity with the
requirements for qualifications as a real estate investment trust
under the Code, and the Company meets the requirements for
qualification and taxation as a real estate investment trust
under the Code for the Company's taxable year ending December 31,
1996; and the Operating
24
<PAGE>
Partnership, as constituted after the Formation Transactions,
will be classified as a partnership and not as (a) an association
taxable as a corporation or (b) a "publicly traded partnership"
within the meaning of Section 7704(b) of the Code.
(xxi) No Transaction Entity is an "investment
company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the
Commission thereunder. The Common Shares have been approved for
listing on the New York Stock Exchange upon notice of issuance.
(xxii) The Registration Statement was declared
effective under the Securities Act as of the date and time
specified in such opinion, the Prospectus was filed with the
Commission pursuant to the subparagraph of Rule 424(b) of the
Rules and Regulations specified in such opinion on the date
specified therein and, to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and, to the best knowledge of such
counsel, no proceeding for that purpose is pending or threatened
by the Commission.
(xxiii) The Registration Statement and the Prospectus
and any further amendments or supplements thereto made by the
Company prior to such Delivery Date (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and
the Rules and Regulations.
(xxiv) The Formation Transactions do not constitute a
"roll-up" transaction for the purposes of Regulation S-K
promulgated under the Securities Act.
(xxv) The statements contained in the Prospectus
under the captions "Risk Factors," "Properties," "Policies with
Respect to Certain Activities," "Management," "Formation
Transactions," "Description of Shares of Beneficial Interest,"
"Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws," "Shares Available for Future
Sale," "Operating Partnership Agreement," and "Federal Income Tax
Considerations", insofar as those statements are descriptions of
contracts, agreements or other legal documents, or they describe
federal statutes, rules and regulations, constitute a fair
summary thereof, and the opinion of such counsel filed as Exhibit
8 to the Registration Statement is confirmed and the Underwriters
may rely upon such opinion as if it were addressed to them.
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United
States of America; (ii) rely (to the extent such counsel deems proper
and specifies in their opinion), as to matters involving the
application of the laws of the States of Maryland and Texas upon the
opinion of other counsel of good standing, provided that such other
counsel is satisfactory to counsel for the Underwriters and furnishes
a copy of its
25
<PAGE>
opinion to the Representatives; (iii) in giving the opinion referred
to in subclauses (B) through (E) in Section 7(d)(x), state that such
opinion with respect to the enforceability of such documents may be
limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and by general equitable principles; and
(iv) in giving the opinion referred to in Section 7(d)(xii), state
that no examination of record titles for the purpose of such opinion
has been made, and that it is relying upon a general review of the
titles of the Company and its subsidiaries, upon opinions of local
counsel and abstracts, reports and policies of title companies
rendered or issued at or subsequent to the time of acquisition of such
property by the Company or its subsidiaries, and, in respect of
matters of fact, upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that it believes
that both the Underwriters and it are justified in relying upon such
opinions, of local counsel and abstracts, reports, policies and
certificates. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and
dated such Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that (x) such counsel has acted as
counsel to the Company in connection with the preparation of the
Registration Statement and the Prospectus, and (y) based on the
foregoing, no facts have come to the attention of such counsel which
lead it to believe that the Registration Statement, as of the
Effective Date, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
that the Prospectus contains any untrue statement of a material fact
or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
foregoing opinion and statement may be qualified by a statement to the
effect that such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus except for the statements
made in the Prospectus under the captions "Description of Shares of
Beneficial Interest" and "Federal Income Tax Considerations" insofar
as such statements relate to the Shares and concern legal matters, and
may state that such counsel expresses no belief with respect to the
financial statements and notes thereto and other financial and
statistical data included in the Registration Statement or the
Prospectus.
(e) The Representatives shall have received from Rogers & Wells,
counsel for the Underwriters, such opinion or opinions, dated such
Delivery Date, with respect to the issuance and sale of the Shares,
the Registration Statement, the Prospectus and other related matters
as the Representatives may reasonably require, and the Company shall
have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(f) At the time of execution of this Agreement, the
Representatives shall have received from Coopers & Lybrand L.L.P. a
letter, in form and substance satisfactory to the Representatives,
addressed to the Underwriters and dated the date hereof (i) confirming
that they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-
26
<PAGE>
01 of Regulation S-X of the Commission, and (ii) stating, as of the
date hereof (or, with respect to matters involving changes or
developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not
more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and
other matters ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings.
(g) With respect to the letter of Coopers & Lybrand L.L.P.
referred to in the preceding paragraph and delivered to the
Representatives concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the
Representatives a letter (the "bring-down letter") of such
accountants, addressed to the Underwriters and dated such Delivery
Date (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance with
the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with respect to
matters involving changes or developments since the respective dates
as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date of
the bring-down letter), the conclusions and findings of such firm with
respect to the financial information and other matters covered by the
initial letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
(h) Each Transaction Entity and PPL shall have furnished to the
Representatives a certificate, dated such Delivery Date, of its
Chairman of the Board, its President or a Vice President and its chief
financial officer stating that:
(i) The representations, warranties and agreements of
the Transaction Entities in Section 1 are true and correct as of
such Delivery Date; the Company has complied with all its
agreements contained herein; and the conditions set forth in
Sections 7(a) and 7(i) have been fulfilled; and
(ii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A) as of the
Effective Date, the Registration Statement and Prospectus did not
include any untrue statement of a material fact and did not omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B)
since the Effective Date no event has occurred which should have
been set forth in a supplement or amendment to the Registration
Statement or the Prospectus.
(i) (i) None of the Transaction Entities or any Property shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus or (ii) since such date there shall not
have been any change in the capital stock or long-term debt of any
Transaction Entity or any change, or any development involving a
prospective change, in or affecting any
27
<PAGE>
Property or the general affairs, management, financial position,
stockholders' equity or results of operations of any Transaction
Entity, otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i) or (ii),
is, in the judgment of the Representatives, so material and adverse as
to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(j) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall
have been a declaration of a national emergency or war by the United
States or (iv) there shall have occurred such a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the
Shares being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(k) The New York Stock Exchange, Inc. shall have approved the
Shares for listing, subject only to official notice of issuance.
(l) The Transaction Entities and PPL shall not have failed at or
prior to such Delivery Date to have performed or complied with any of
their agreements herein contained and required to be performed or
complied with by them hereunder at or prior to such Delivery Date.
(m) All of the transactions which are to occur in order to
consummate the Formation Transactions shall have been consummated on
terms satisfactory to the Representatives.
(n) On the First Delivery Date, counsel for the Underwriters
shall have been furnished with such documents and opinions as they may
require for the purpose of enabling them to pass upon the issuance and
sale of the Shares as herein contemplated and related proceedings, or
in order to evidence the accuracy of any of the representations or
warranties, or the fulfillment of any of the conditions, herein
contained; and all proceedings taken by the Transaction Entities in
connection with the issuance and sale of the Shares as herein
contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(o) You shall have been furnished with the written agreements
referred to in Section 5(j) hereof.
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<PAGE>
(p) The Company shall have furnished or caused to be furnished to
you such further certificates and documents as the Representatives
shall have reasonably requested.
(q) In the event that the Underwriters exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
Option Shares, the representations and warranties of the Transaction
Entities and PPL contained herein and the statements in any
certificates furnished by the Transaction Entities and PPL hereunder
shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Representatives shall have received:
(i) A certificate, dated such Date of Delivery, of the
President or a Vice President of each Transaction Entity and PPL
and of the chief financial or chief accounting officer of each
Transaction Entity and PPL confirming that the certificate
delivered on the First Delivery Date pursuant to Section 7(h)
hereof remains true and correct as of such Date of Delivery.
(ii) The favorable opinion of Hunton & Williams, counsel
for the Transaction Entities, in form and substance satisfactory
to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Shares to be purchased on such Date of
Delivery and otherwise to the same effect as the opinions
required by Section 7(d) hereof.
(iii) The favorable opinion of Rogers & Wells, counsel for
the Underwriters, dated such Date of Delivery, relating to the
Option Shares to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Section
(e) hereof.
(iv) A letter from Arthur Andersen LLP, in form and
substance satisfactory to the Representatives and dated such Date
of Delivery, substantially the same in form and substance as the
letters furnished to the Representatives pursuant to Section 7(f)
hereof.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
Any certificate or document signed by any officer of the Transaction
Entities and PPL and delivered to the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Transaction
Entities and PPL to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Option Shares
hereunder are subject to the satisfaction on and as of any Date of Delivery of
the conditions set forth in this Section 7, except that, if any Date of Delivery
is other than the First Delivery Date, the certificates, opinions and letters
referred to in Sections 7(d) through 7(h) hereof shall be dated the Date of
Delivery in question and the opinions called for by Sections 7(d) and 7(e)
hereof shall be revised to reflect the sale of Option Shares.
8. Effective Date of Agreement.
29
<PAGE>
This Agreement shall become effective: (i) upon the execution hereof
by the parties hereto; or (ii) if, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Shares may
commence, when notification of the effectiveness of the Registration Statement
or such post-effective amendment has been released by the Commission.
9. Default by One or More of the Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting Underwriters shall be obligated to purchase the Shares which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of Firm Shares set forth opposite
the name of each remaining non-defaulting Underwriter in Schedule 1 hereto bears
to the total number of Firm Shares set forth opposite the names of all the
remaining non-defaulting Underwriters in Schedule 1 hereto; provided, however,
that the remaining non-defaulting Underwriters shall not be obligated to
purchase any of the Shares on such Delivery Date if the total number of Shares
which the defaulting Underwriter or Underwriters agreed but failed to purchase
on such date exceeds 9.09% of the total number of Shares to be purchased on such
Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of Shares which it agreed to
purchase on such Delivery Date pursuant to the terms of Section 2. If the
foregoing maximums are exceeded, the remaining non-defaulting Underwriters, or
those other underwriters satisfactory to the Representatives who so agree, shall
have the right, but shall not be obligated, to purchase, in such proportion as
may be agreed upon among them, all the Shares to be purchased on such Delivery
Date. If the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the Shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery Date,
this Agreement (or, with respect to the Second Delivery Date, the obligation of
the Underwriters to purchase, and of the Company to sell, the Option Shares)
shall terminate without liability on the part of any non-defaulting Underwriter
or the Transaction Entities or PPL, except that the Transaction Entities and PPL
will continue to be liable for the payment of expenses to the extent set forth
in Sections 6 and 12. As used in this Agreement, the term "Underwriter"
includes, for all purposes of this Agreement unless the context requires
otherwise, any party not listed in Schedule 1 hereto who, pursuant to this
Section 9, purchases Initial Shares which a defaulting Underwriter agreed but
failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Transaction Entities for damages caused by its
default. If other underwriters are obligated or agree to purchase the Shares of
a defaulting or withdrawing Underwriter, either the Representatives or the
Company may postpone the Delivery Date for up to seven full business days in
order to effect any changes that in the opinion of counsel for the Company or
counsel for the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
10. Indemnification and Contribution.
(a) The Transaction Entities and PPL jointly and severally, shall
indemnify and hold harmless each Underwriter, its officers and employees and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of
Shares), to which that Underwriter, officer, employee or controlling person may
become subject, under
30
<PAGE>
the Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any amendment or supplement
thereto or (B) in any blue sky application or other document prepared or
executed by the Company (or based upon any written information furnished by the
Company) specifically for the purpose of qualifying any or all of the Shares
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Transaction
Entities and PPL shall not be liable under this clause (iii) to the extent that
it is determined in a final judgment by a court of competent jurisdiction that
such loss, claim, damage, liability or action resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such Underwriter
through its gross negligence or willful misconduct), and shall reimburse each
Underwriter and each such officer, employee or controlling person promptly upon
demand for any legal or other expenses reasonably incurred by that Underwriter,
officer, employee or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Transaction
Entities and PPL shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the Representatives
by or on behalf of any Underwriter specifically for inclusion therein. The
foregoing indemnity agreement is in addition to any liability which the
Transaction Entities and PPL may otherwise have to any Underwriter or to any
officer, employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless each Transaction Entity and PPL, its officers and employees, each
of its directors, and each person, if any, who controls each Transaction Entity
and PPL within the meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof,
to which each Transaction Entity and PPL or any such director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of that Underwriter
specifically for inclusion therein, and shall reimburse each Transaction Entity
and PPL and any such director, officer or controlling person for any legal or
other expenses reasonably incurred by each
31
<PAGE>
Transaction Entity and PPL or any such director, officer or controlling person
in connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred.
The foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to each Transaction Entity and PPL or any such
director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Transaction Entities and PPL under this Section 8 if, in the
reasonable judgment of the Representatives, it is advisable for the
Representatives and those Underwriters, officers, employees and controlling
persons to be jointly represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the Transaction
Entities and PPL. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for any settlement
of any such action effected without its written consent (which consent shall not
be unreasonably withheld), but if settled with the consent of the indemnifying
party or if there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(c) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Transaction Entities and PPL on the one hand and the
Underwriters on the other from the offering of the Shares or (ii) if the
32
<PAGE>
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Transaction
Entities and PPL on the one hand and the Underwriters on the other with respect
to the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Transaction Entities and
PPL on the one hand and the Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Shares purchased under this Agreement (before deducting
expenses) received by the Transaction Entities and PPL, on the one hand, and the
total underwriting discounts and commissions received by the Underwriters with
respect to the Shares purchased under this Agreement, on the other hand, bear to
the total gross proceeds from the offering of the Shares under this Agreement,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Transaction Entities and
PPL or the Underwriters, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Transaction Entities and PPL and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section were
to be determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
Section shall be deemed to include, for purposes of this Section 10(d), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 10(d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute as provided in this Section 8(d) are several in proportion to their
respective underwriting obligations and not joint.
(e) The Underwriters severally confirm and each Transaction Entity and
PPL acknowledges that the statements with respect to the public offering of the
Shares by the Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information concerning such
Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
11. Termination. The obligations of the Underwriters hereunder may
be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Shares if, prior to that
time, any of the events described in Sections 7(i), 7(j) or 7(l), shall have
occurred or if the Underwriters shall decline to purchase the Shares for any
reason permitted under this Agreement.
12. Reimbursement of Underwriters' Expenses. If (a) the Company
shall fail to tender the Shares for delivery to the Underwriters by reason of
any failure, refusal or inability
33
<PAGE>
on the part of the Transaction Entities or PPL to perform any agreement on their
part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Transaction Entities and
PPL is not fulfilled, the Transaction Entities and PPL will reimburse the
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Shares, and upon demand the
Transaction Entities and PPL shall pay the full amount thereof to the
Representatives. If this Agreement is terminated pursuant to Section 9 by
reason of the default of one or more Underwriters, the Transaction Entities and
PPL shall not be obligated to reimburse any defaulting Underwriter on account of
those expenses.
13. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy, in the case of any notice
pursuant to Section 8(c), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th
Floor, New York, NY 10285;
(b) if to the Transaction Entities shall be delivered or sent by
mail, telex or facsimile transmission to the Company, 1717 Main
Street, Suite 5000, Dallas, Texas 75201, Attention: Michael V.
Prentiss (Fax: 214-761-5083);
provided, however, that any notice to an Underwriter pursuant to Section 10(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Transaction
Entities shall be entitled to act and rely upon any request, consent, notice or
agreement given or made on behalf of the Underwriters by Lehman Brothers Inc.
14. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Transaction
Entities, PPL and their respective personal representatives and successors.
This Agreement and the terms and provisions hereof are for the sole benefit of
only those persons, except that (A) the representations, warranties, indemnities
and agreements of the Transaction Entities and PPL contained in this Agreement
shall also be deemed to be for the benefit of the person or persons, if any, who
control any Underwriter within the meaning of Section 15 of the Securities Act
and (B) the indemnity agreement of the Underwriters contained in Section 10(b)
of this Agreement shall be deemed to be for the benefit of directors of the
Transaction Entities and PPL, officers of the Company who have signed the
Registration Statement and any person controlling the Transaction Entities and
PPL within the meaning of section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section 14, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
15. Survival. The respective indemnities, representations,
warranties and agreements of the Transaction Entities, PPL and the Underwriters
contained in this Agreement or made by or on behalf on them, respectively,
pursuant to this Agreement, shall survive the
34
<PAGE>
delivery of and payment for the Shares and shall remain in full force and
effect, regardless of any investigation made by or on behalf of any of them or
any person controlling any of them.
16. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the New
York Shares Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
17. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
18. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement between the
Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
PRENTISS PROPERTIES TRUST
By
-------------------------------------
Name:
Title:
PRENTISS PROPERTY ACQUISITION
PARTNERS, L.P.
By: Prentiss Properties Trust, its
general partner
By
--------------------------------
Name:
Title:
PRENTISS PROPERTIES, INC.
35
<PAGE>
By
-------------------------------------
Name:
Title:
PRENTISS PROPERTIES MANAGEMENT, INC.
By
-------------------------------------
Name:
Title:
PRENTISS PROPERTIES LIMITED
By
-------------------------------------
Name:
Title:
Accepted:
Lehman Brothers Inc.
By
-----------------------------------
Authorized Representatives
For itself and as Representatives
of the several Underwriters named
in Schedule 1 hereto
36
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------ ---------
<S> <C>
Lehman Brothers Inc.......................................
------------
Alex Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Principal Financial Securities, Inc.......................
------------
Total 14,250,000
===========
</TABLE>
37
<PAGE>
EXHIBIT 3.1
-----------
PRENTISS PROPERTIES TRUST
-------------------------
AMENDED AND RESTATED DECLARATION OF TRUST
Dated as of _________, 1996
Prentiss Properties Trust, a Maryland real estate investment trust
(the "Trust") under Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland ("Title 8"), desires to amend and restate its
Declaration of Trust as currently in effect and as hereinafter amended.
The following provisions are all the provisions of the Declaration of
Trust currently in effect and as hereinafter amended:
ARTICLE I
FORMATION
The Trust is a real estate investment trust (a "REIT") within the
meaning of Title 8. The Trust shall not be deemed to be a general partnership,
limited partnership, joint venture, joint stock company or a corporation (but
nothing herein shall preclude the Trust from being treated for tax purposes as
an association under the Code).
ARTICLE II
NAME
The name of the Trust is:
Prentiss Properties Trust
Under circumstances in which the Board of Trustees of the Trust (the
"Board of Trustees" or "Board") determines that the use of the name of the Trust
is not practicable, the Trust may use any other designation or name for the
Trust.
<PAGE>
ARTICLE III
PURPOSES AND POWERS
Section 1. Purposes. The purposes for which the Trust is formed are
--------
to invest in and to acquire, hold, manage, administer, control and dispose of
real property and interests in real property, including, without limitation or
obligation, engaging in business as a REIT under the Internal Revenue Code of
1986, as amended (the "Code").
Section 2. Powers. The Trust shall have all of the powers granted to
------
REITs by Title 8 and all other powers set forth in the Declaration of Trust
which are not inconsistent with law and are appropriate to promote and attain
the purposes set forth in the Declaration of Trust.
ARTICLE IV
RESIDENT AGENT
The name of the resident agent of the Trust in the State of Maryland
is James J. Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, whose post office
address is 300 East Lombard Street, Baltimore, Maryland 21202. The resident
agent is a citizen of and resides in the State of Maryland. The Trust may have
such offices or places of business within or outside the State of Maryland as
the Board of Trustees of the Trust may from time to time determine.
ARTICLE V
BOARD OF TRUSTEES
Section 1. Powers.
------
(A) Subject to any express limitations contained in the
Declaration of Trust or in the Bylaws, (i) the business and affairs of the Trust
shall be managed under the direction of the Board of Trustees and (ii) the Board
shall have full, exclusive and absolute power, control
-2-
<PAGE>
and authority over any and all property of the Trust. The Board may take any
action as it, in its sole judgment and discretion, deems necessary or
appropriate to conduct the business and affairs of the Trust. The Declaration of
Trust shall be construed with a presumption in favor of the grant of power and
authority to the Board. Any construction of the Declaration of Trust or
determination made in good faith by the Board concerning its powers and
authority hereunder shall be conclusive. The enumeration and definition of
particular powers of the Trustees included in the Declaration of Trust or in the
Bylaws shall in no way be construed or deemed by inference or otherwise in any
manner to exclude or limit the powers conferred upon the Board of Trustees under
the general laws of the State of Maryland or any other applicable laws.
(B) Except as otherwise provided in the Bylaws, the Board, without
any action by the shareholders of the Trust, shall have and may exercise, on
behalf of the Trust, without limitation, the power to adopt, amend and repeal
Bylaws; to elect officers in the manner prescribed in the Bylaws; to solicit
proxies from holders of shares of beneficial interest of the Trust; and to do
any other acts and deliver any other documents necessary or appropriate to the
foregoing powers.
(C) It shall be the duty of the Board of Trustees to ensure that the
Trust satisfies the requirements for qualification as a REIT under the Code,
including, but not limited to, the ownership of outstanding shares of its
beneficial interest, the nature of its assets, the sources of its income, and
the amount and timing of its distributions to its shareholders. The Board of
Trustees shall take no action to disqualify the Trust as a REIT or to otherwise
revoke the Trust's election to be taxed as a REIT without the affirmative vote
of a majority of the number of shares of Common Shares entitled to vote on such
matter at a meeting of the Shareholders.
-3-
<PAGE>
Section 2. Classification and Number. (A) The Trustees of the Trust
-------------------------
(hereinafter the "Trustees") (other than any Trustee elected solely by holders
of one or more classes or series of Preferred Shares) shall be classified, with
respect to the terms for which they severally hold office, into three classes,
as nearly equal in number as possible, one class ("Class I") to hold office
initially for a term expiring at the first annual meeting of shareholders,
another class ("Class II") to hold office initially for a term expiring at the
second succeeding annual meeting of shareholders and another class ("Class III")
to hold office initially for a term expiring at the third succeeding annual
meeting of shareholders, with the Trustees of each class to hold office until
their successors are duly elected and qualified. At each annual meeting of
shareholders, the successors to the class of Trustees whose term expires at such
meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders held in the third year following the year of their
election. Shareholder votes to elect Trustees shall be conducted in the manner
provided in the Bylaws.
(B) The number of Trustees initially shall be seven, which number may
be increased or decreased pursuant to the Bylaws of the Trust. The name,
address and class of the Trustees who shall serve as the initial Trustees and
until their successors are duly elected and qualified is:
-4-
<PAGE>
<TABLE>
<CAPTION>
Name Address Class
- ---- ------- -----
<S> <C> <C>
Michael V. Prentiss 1717 Main Street Class III
Suite 5000
Dallas, TX 75201
Thomas F. August 1717 Main Street Class II
Suite 5000
Dallas, TX 75201
Thomas J. Hynes 160 Federal Street Class III
Boston, MA 02110
Barry J. C. Parker Class III
Dr. Leonard M. Riggs,Jr. 1717 Main Street Class II
Suite 5200
Dallas, TX 75201
Ronald G. Steinhart P. O. Box 655415 Class II
Dallas, TX 75265-5415
Lawrence A. Wilson 1700 Pacific, Suite 3800 Class I
Dallas, TX 75201
</TABLE>
The Trustees may increase the number of Trustees and fill any vacancy, whether
resulting from an increase in the number of Trustees or otherwise, on the Board
of Trustees prior to the first annual meeting of shareholders in the manner
provided in the Bylaws. Independent Trustees shall nominate replacements for
vacancies among the Independent Trustees' positions. In the event that, after
the closing of the Initial Public Offering, a majority of the Board of Trustees
are not Independent Trustees by reason of the resignation or removal of one or
more Independent Trustees or otherwise, the remaining Independent Trustees (or,
if there are no Independent Trustees, the remaining members of the Board of
Trustees) shall promptly elect that number of Independent Trustees necessary to
-5-
<PAGE>
cause the Board of Trustees to include a majority of Independent Trustees. It
shall not be necessary to list in the Declaration of Trust the names and
addresses of any Trustees hereinafter elected.
Section 3. Resignation, Removal or Death. Any Trustee may resign by
-----------------------------
written notice to the Board, effective upon execution and delivery to the Trust
of such written notice or upon any future date specified in the notice. Subject
to the rights of holders of one or more classes or series of Preferred Shares to
elect one or more Trustees, a Trustee may be removed at any time, with or
without cause, at a meeting of the shareholders, by the affirmative vote of the
holders of not less than two-thirds of the Shares then outstanding and entitled
to vote generally in the election of Trustees.
Section 4. Independent Trustees. Notwithstanding anything herein to
--------------------
the contrary, at all times (except during a period not to exceed sixty (60) days
following the death, resignation, incapacity or removal from office of a Trustee
prior to expiration of the Trustee's term of office), a majority of the Board of
Trustees shall be comprised of persons who are not affiliated with any member of
the Prentiss family or officers or employees of the Trust or "Affiliates" of (i)
any subsidiary of the Trust or (ii) any partnership which is an Affiliate of the
Trust (each such person serving on the Board of Trustees being an "Independent
Trustee").
Section 5. Definition of Affiliate. For purposes of Section 4 above,
-----------------------
"Affiliate" of a person shall mean (i) any person that, directly or indirectly,
controls or is controlled by or is under common control with such person, (ii)
any other person that owns, beneficially, directly or indirectly, five percent
(5%) or more of the outstanding capital shares, shares or equity interests of
such person, or (iii) any officer, director, employee, partner or trustee of
such person or of any person controlling, controlled by or under common control
with such person (excluding trustees and persons serving in similar capacities
who are not otherwise an Affiliate of such person). The term "person" means and
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<PAGE>
includes individuals, corporation, general and limited partnerships, stock
companies or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts, or other entities and
governments and agencies and political subdivisions thereof. For the purpose of
this definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests.
Section 6. Business Activities by Trustees. Unless otherwise agreed
-------------------------------
between the Trust and the Trustees, each individual Trustee, including each
Independent Trustee, may engage in other business activities of the type
conducted by the Trust and is not required to present to the Trust any
investment opportunities presented to them even though the investment
opportunities may be within the scope of the Trust's investment policies.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 1. Authorized Shares. The beneficial interest of the Trust
-----------------
shall be divided into shares of beneficial interest (the "Shares"). The Trust
has authority to issue one hundred million (100,000,000) common shares of
beneficial interest, $.01 par value per share ("Common Shares"), and twenty
million (20,000,000) preferred shares of beneficial interest, $.01 par value per
share ("Preferred Shares"). The Board of Trustees, without any action by the
shareholders of the Trust, may amend the Declaration of Trust from time to time
to increase or decrease the aggregate number of Shares or the number of Shares
of any class that the Trust has authority to issue.
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Section 2. Common Shares. Subject to the provisions of Article VII,
-------------
each Common Share shall entitle the holder thereof to one vote on each matter
upon which holders of Common Shares are entitled to vote. The Board of Trustees
may reclassify any unissued Common Shares from time to time in one or more
classes or series of Shares.
Section 3. Preferred Shares. The Board of Trustees may classify any
----------------
unissued Preferred Shares and reclassify any previously classified but unissued
Preferred Shares of any series from time to time, in one or more series of
Shares.
Section 4. Classified or Reclassified Shares. Prior to issuance of
---------------------------------
classified or reclassified Shares of any class or series, the Board of Trustees
by resolution shall (a) designate that class or series to distinguish it from
all other classes and series of Shares; (b) specify the number of Shares to be
included in the class or series; (c) set, subject to the provisions of Article
VII and subject to the express terms of any class or series of Shares
outstanding at the time, the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption for each series; and (d)
cause the Trust to file articles supplementary with the State Department of
Assessments and Taxation of Maryland ("SDAT"). Any of the terms of any class or
series of Shares set pursuant to clause (c) of this Section 4 may be made
dependent upon facts or events ascertainable outside the Declaration of Trust
(including determinations by the Board of Trustees or other facts or events
within the control of the Trust) and may vary among holders thereof, provided
that the manner in which such facts, events or variations shall operate upon the
terms of such class or series of Shares is clearly and expressly set forth in
articles supplementary filed with the SDAT.
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<PAGE>
Section 5. Authorization by Board of Share Issuance. The Board of
----------------------------------------
Trustees may authorize the issuance from time to time of Shares of any class or
series, whether now or hereafter authorized, or securities or rights convertible
into Shares of any class or series, whether now or hereafter authorized, for
such consideration (whether in cash, property, past or future services,
obligation for future payment or otherwise) as the Board of Trustees may deem
advisable (or without consideration in the case of a Share split or Share
dividend), subject to such restrictions or limitations, if any, as may be set
forth in the Declaration of Trust or the Bylaws of the Trust. Notwithstanding
any other provision in the Declaration of Trust, no determination shall be made
by the Board of Trustees nor shall any transaction be entered into by the Trust
which would cause any Shares or other beneficial interest in the Trust not to
constitute "transferable shares" or "transferable certificates of beneficial
interest" under Section 856(a)(2) of the Code or which would cause any
distribution to constitute a preferential dividend as described in Section
562(c) of the Code.
Section 6. Dividends and Distributions. The holders of all Common
---------------------------
Shares will participate equally in dividends payable to holders of Common Shares
when and as authorized and declared by the Board of Trustees and in net assets
available for distribution to holders of Common Shares upon liquidation or
dissolution. The Board of Trustees may from time to time authorize and declare
to shareholders such dividends or distributions, in cash or other assets of the
Trust or in securities of the Trust or from any other source as the Board of
Trustees in its discretion shall determine. The Board of Trustees shall
endeavor to declare and pay such dividends and distributions as shall be
necessary for the Trust to qualify as a REIT under the Code; however,
shareholders shall have no right to any dividend or distribution unless and
until authorized and declared by the Board. The
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<PAGE>
exercise of the powers and rights of the Board of Trustees pursuant to this
Section shall be subject to the provisions of any class or series of Shares at
the time outstanding.
Section 7. General Nature of Shares. All Shares shall be personal
------------------------
property entitling the shareholders only to those rights provided in the
Declaration of Trust. The shareholders shall have no interest in the property
of the Trust and shall have no right to compel any partition, division, dividend
or distribution of the Trust or of the property of the Trust. The death of a
shareholder shall not terminate the Trust. The Trust is entitled to treat as
shareholders only those persons in whose names Shares are registered as holders
of Shares on the beneficial interest ledger of the Trust.
Section 8. Fractional Shares. The Trust may, without the consent or
-----------------
approval of any shareholder, issue fractional Shares, eliminate a fraction of a
Share by rounding up or down to a full Share, arrange for the disposition of a
fraction of a Share by the person entitled to it, or pay cash for the fair value
of a fraction of a Share.
Section 9. Declaration of Trust and Bylaws. All shareholders are
-------------------------------
subject to the provisions of the Declaration of Trust and the Bylaws of the
Trust.
ARTICLE VII
RESTRICTIONS ON TRANSFER AND SHARES-IN-TRUST
Section 1. Restrictions on Transfer.
------------------------
(A) Definitions. The following terms shall have the following
-----------
meanings:
(1) "Beneficial Ownership" shall mean ownership of
Equity Shares (or options to acquire Equity Shares) by a Person who would be
treated as an owner of such Equity Shares either directly or indirectly through
the application of Section 544 of the Code, as modified
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<PAGE>
by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner," "Beneficially
Owns," and "Beneficially Owned" shall have correlative meanings.
(2) "Beneficiary" shall mean, with respect to any Share Trust, one or
more organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) or (viii) thereof) and Section 170(c)(2) of the Code that are named by the
Share Trust as the beneficiary or beneficiaries of such Share Trust, in
accordance with the provisions of Section 2(A) hereof.
(3) "Board of Trustees" shall mean the Board of Trustees of the
Trust.
(4) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(5) "Constructive Ownership" shall mean ownership of Equity Shares
(or options to acquire Equity Shares) by a Person who would be treated as an
owner of such Equity Shares either directly or indirectly through the
application of Section 318 of the Code, as modified by Section 856(d)(5) of the
Code. The terms "Constructive Owner," "Constructively Owns," and
"Constructively Owned" shall have correlative meanings.
(6) "Equity Shares" shall mean shares that are either Preferred
Shares or Common Shares. The term "Equity Shares" shall include all Preferred
Shares or Common Shares that are held as Shares-in-Trust in accordance with the
provisions of Section 2 hereof.
(7) "Exchange Rights" shall mean the rights granted under the
Prentiss Properties Partnership Agreement to the limited partners to exchange,
under certain circumstances, their limited partnership interests for cash (or,
at the option of the Trust, Common Shares).
(8) "Excluded Holder" shall mean Michael V. Prentiss.
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<PAGE>
(9) "Excluded Holder Limit" shall mean, (i) the lesser of (A) 15% of
the number of outstanding Common Shares or (B) the Adjusted Excluded Holder
Percentage (as defined in Section 1(I) of this Article VII). The Excluded
Holder Limit shall be adjusted on any day that the Adjusted Excluded Holder
Percentage changes as provided in Section 1(I) of this Article VII. The
Excluded Holder shall be subject to the Ownership Limit with respect to any
Preferred Shares acquired by the Excluded Holder.
(10) "Initial Public Offering" means the sale of Common Shares
pursuant to the Trust's first effective registration statement for such Common
Shares filed under the Securities Act of 1933, as amended.
(11) "Market Price" on any date shall mean the average of the Closing
Price for the five consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Equity Shares are not listed
or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Equity Shares
are listed or admitted to trading or, if the Equity Shares are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotations system that may then be in use or, if
the Equity Shares are not
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<PAGE>
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Equity Shares
selected by the Board of Trustees. "Trading Day" shall mean a day on which the
principal national securities exchange on which the Equity Shares are listed or
admitted to trading is open for the transaction of business or, if the Equity
Shares are not listed or admitted to trading on any national securities
exchange, shall mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
(12) "Non-Transfer Event" shall mean an event (other than a purported
Transfer) that would cause (i) any Person (other than the Excluded Holder with
respect to Common Shares) to Beneficially Own or Constructively Own Equity
Shares in excess of the Ownership Limit or (ii) the Excluded Holder to
Beneficially Own or Constructively Own Common Shares in excess of the Excluded
Holder Limit, including, but not limited to, the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Equity Shares or the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Equity Shares.
(13) "Ownership Limit" initially shall mean 8.5% of the number of
outstanding Common Shares and 9.8% of the outstanding number of any series of
Preferred Shares. After any adjustment provided for in Section 1(J) of this
Article VII, the Ownership Limit with respect to Common Shares shall be
increased (but not above 9.8%) as set forth in such Section.
(14) "Partnership Unit" shall mean a fractional, undivided share of
the partnership interests of Prentiss Properties Acquisition Partners, L.P., a
Delaware limited partnership.
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<PAGE>
(15) "Permitted Transferee" shall mean any Person designated as a
Permitted Transferee in accordance with the provisions of Section 2(E) hereof.
(16) "Person" shall mean an individual, corporation, partnership,
estate, trust, a portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity and also includes a "group" as that
term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.
(17) "Prentiss Properties Partnership Agreement" shall mean the
agreement of limited partnership of Prentiss Properties Acquisition Partners,
L.P., a Delaware limited partnership, as amended and restated.
(18) "Prohibited Owner" shall mean, with respect to any purported
Transfer or Non-Transfer Event, any Person who, but for the provisions of
Section 1(C) hereof, would own record title to Equity Shares.
(19) "REIT" shall mean a real estate investment trust under Section
856 of the Code.
(20) "Restriction Termination Date" shall mean the first day after
the date of the Initial Public Offering on which the Board of Trustees and the
shareholders of the Trust determine, pursuant to Article V, Section 1(C), that
it is no longer in the best interests of the Trust to attempt to, or continue
to, qualify as a REIT.
(21) "Shares-in-Trust" shall mean any Equity Shares designated
Shares-in-Trust pursuant to Section 1(C) hereof.
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<PAGE>
(22) "Share Trust" shall mean any separate trust created pursuant to
Section 1(C) hereof and administered in accordance with the terms of Section 2
hereof, for the exclusive benefit of any Beneficiary.
(23) "Share Trustee" shall mean any person or entity unaffiliated
with both the Trust and any Prohibited Owner, such Share Trustee to be
designated by the Trust to act as trustee of any Share Trust, or any successor
trustee thereof.
(24) "Transfer" (as a noun) shall mean any sale, transfer, gift,
assignment, devise or other disposition of Equity Shares, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether by
operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
(B) Restriction on Transfers.
------------------------
(1) Except as provided in Section 1(G) hereof, from the date of the
Initial Public Offering and prior to the Restriction Termination Date, (i) no
Person (other than the Excluded Holder with respect to Common Shares) shall
Beneficially Own or Constructively Own outstanding Equity Shares in excess of
the Ownership Limit and (ii) the Excluded Holder shall not Beneficially Own or
Constructively Own outstanding Common Shares in excess of the Excluded Holder
Limit.
(2) Except as provided in Section 1(G) hereof, from the date of the
Initial Public Offering and prior to the Restriction Termination Date, any
Transfer that, if effective, would result in (i) any Person (other than the
Excluded Holder with respect to Common Shares) Beneficially Owning or
Constructively Owning Equity Shares in excess of the Ownership Limit or (ii) the
Excluded Holder Beneficially Owning or Constructively Owning Common Shares in
excess of the Excluded Holder Limit, shall be void ab initio as to the Transfer
-- ------
of that number of Equity
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Shares which would be otherwise Beneficially Owned or Constructively Owned by
such Person in excess of the Ownership Limit or the Excluded Holder Limit, as
applicable, and the intended transferee shall acquire no rights in such excess
Equity Shares.
(3) From the date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer that, if effective, would result in
the Equity Shares being beneficially owned by fewer than 100 Persons (determined
without reference to any rules of attribution) shall be void ab initio as to the
-- ------
Transfer of that number of shares which would be otherwise beneficially owned
(determined without reference to any rules of attribution) by the transferee,
and the intended transferee shall acquire no rights in such excess Equity
Shares; provided, however, that this Section 1(B)(3) shall not apply to the
Transfer of Equity Shares from the Trust to the underwriters of the Initial
Public Offering.
(4) From the date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer of Equity Shares that, if effective,
would result in the Trust being "closely held" within the meaning of Section
856(h) of the Code shall be void ab initio as to the Transfer of that number of
-- ------
Equity Shares which would cause the Trust to be "closely held" within the
meaning of Section 856(h) of the Code, and the intended transferee shall acquire
no rights in such excess Equity Shares.
(5) Except as provided in Section 1(G) hereof, from the date of the
Initial Public Offering and prior to the Restriction Termination Date, any
Transfer of Equity Shares that, if effective, would cause the Trust to
Constructively Own 10% or more of the ownership interests in a tenant of the
Trust's real property, within the meaning of Section 856(d)(2)(B) of the Code,
shall be void ab initio as to the Transfer of that number of Equity Shares which
-- ------
would cause the Trust to
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<PAGE>
Constructively Own 10% or more of the ownership interests in a tenant of the
Trust's real property, within the meaning of Section 856(d)(2)(B) of the Code,
and the intended transferee shall acquire no rights in such excess Equity
Shares.
(C) Transfer to Share Trust.
-----------------------
(1) If, notwithstanding the other provisions contained in this
Section 1, at any time after the date of the Initial Public Offering and prior
to the Restriction Termination Date, there is a purported Transfer or Non-
Transfer Event such that (i) any Person (other than the Excluded Holder with
respect to Common Shares) would either Beneficially Own or Constructively Own
Equity Shares in excess of the Ownership Limit or (ii) the Excluded Holder would
either Beneficially Own or Constructively Own Common Shares in excess of the
Excluded Holder Limit, then, (x) except as otherwise provided in Section 1(G)
hereof, the purported transferee shall acquire no right or interest (or, in the
case of a Non-Transfer Event, the person holding record title to the Equity
Shares Beneficially Owned or Constructively Owned by such Beneficial Owner or
Constructive Owner, shall cease to own any right or interest) in such number of
Equity Shares which would cause such Beneficial Owner or Constructive Owner to
Beneficially Own or Constructively Own Equity Shares in excess of the Ownership
Limit or the Excluded Holder Limit, as applicable, (y) such number of Equity
Shares in excess of the Ownership Limit or the Excluded Holder Limit, as
applicable (rounded up to the nearest whole share), shall be designated Shares-
in-Trust and, in accordance with the provisions of Section 2 hereof, transferred
automatically and by operation of law to the Share Trust to be held in
accordance with that Section 2 and (z) the Prohibited Owner shall submit such
number of Equity Shares to the Trust for registration into the name of the Share
Trust. Such transfer to a Share Trust and the designation of shares as Shares-
in-Trust shall be effective as
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of the close of business on the business day prior to the date of the Transfer
or Non-Transfer Event, as the case may be.
(2) If, notwithstanding the other provisions contained in this
Section 1, at any time after the date of the Initial Public Offering and prior
to the Restriction Termination Date, there is a purported Transfer or Non-
Transfer Event that, if effective, would (i) result in the Equity Shares being
beneficially owned by fewer than 100 Persons (determined without reference to
any rules of attribution), (ii) result in the Trust being "closely held" within
the meaning of Section 856(h) of the Code, or (iii) cause the Trust to
Constructively Own 10% or more of the ownership interests in a tenant of the
Trust's real property, within the meaning of Section 856(d)(2)(B) of the Code,
then (x) the purported transferee shall not acquire any right or interest (or,
in the case of a Non-Transfer Event, the person holding record title of the
Equity Shares with respect to which such Non-Transfer Event occurred, shall
cease to own any right or interest) in such number of Equity Shares, the
ownership of which by such purported transferee or record holder would (A)
result in the Equity Shares being beneficially owned by fewer than 100 Persons
(determined without reference to any rules of attribution), (B) result in the
Trust being "closely held" within the meaning of Section 856(h) of the Code, or
(C) cause the Trust to Constructively Own 10% or more of the ownership interests
in a tenant of the Trust's real property, within the meaning of Section
856(d)(2)(B) of the Code, (y) such number of Equity Shares (rounded up to the
nearest whole share) shall be designated Shares-in-Trust and, in accordance with
the provisions of Section 2 hereof, transferred automatically and by operation
of law to the Share Trust to be held in accordance with that Section 2, and (z)
the Prohibited Owner shall submit such number of Equity Shares to the Trust for
registration into the name of the Share Trust. Such transfer to a Share Trust
and the designation of shares as Shares-in-
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Trust shall be effective as of the close of business on the business day prior
to the date of the Transfer or Non-Transfer Event, as the case may be.
(D) Remedies For Breach. If the Trust, or its designees, shall at any time
-------------------
determine in good faith that a Transfer has taken place in violation of Section
1(B) hereof or that a Person intends to acquire or has attempted to acquire
Beneficial Ownership or Constructive Ownership of any Equity Shares in violation
of Section 1(B) hereof, the Trust shall take such action as it deems advisable
to refuse to give effect to or to prevent such Transfer or acquisition,
including, but not limited to, refusing to give effect to such Transfer on the
books of the Trust or instituting proceedings to enjoin such Transfer or
acquisition.
(E) Notice of Restricted Transfer. Any Person who acquires or attempts to
-----------------------------
acquire Equity Shares in violation of Section 1(B) hereof, or any Person who
owned Equity Shares that were transferred to the Share Trust pursuant to the
provisions of Section 1(C) hereof, shall immediately give written notice to the
Trust of such event and shall provide to the Trust such other information as the
Trust may request in order to determine the effect, if any, of such Transfer or
Non-Transfer Event, as the case may be, on the Trust's status as a REIT.
(F) Owners Required To Provide Information. From the date of the Initial
--------------------------------------
Public Offering and prior to the Restriction Termination Date:
(1) Every Beneficial Owner or Constructive Owner of more than 5%, or
such lower percentages as required pursuant to regulations under the Code, of
the outstanding Equity Shares of the Trust shall, within 30 days after January 1
of each year, provide to the Trust a written statement or affidavit stating the
name and address of such Beneficial Owner or Constructive Owner, the number of
Equity Shares Beneficially Owned or Constructively Owned, and a description of
how
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such shares are held. Each such Beneficial Owner or Constructive Owner shall
provide to the Trust such additional information as the Trust may request in
order to determine the effect, if any, of such Beneficial Ownership or
Constructive Ownership on the Trust's status as a REIT and to ensure compliance
with the Ownership Limit and the Excluded Holder Limit.
(2) Each Person who is a Beneficial Owner or Constructive Owner of
Equity Shares and each Person (including the shareholder of record) who is
holding Equity Shares for a Beneficial Owner or Constructive Owner shall provide
to the Trust a written statement or affidavit stating such information as the
Trust may request in order to determine the Trust's status as a REIT and to
ensure compliance with the Ownership Limit and the Excluded Holder Limit.
(G) Exception to Ownership Limit. The Ownership Limit shall not apply to
----------------------------
the acquisition of Equity Shares by an underwriter that participates in a public
offering of such shares for a period of 90 days following the purchase by such
underwriter of such shares provided that the restrictions contained in Section
1(B) hereof will not be violated following the distribution by such underwriter
of such shares. In addition, the Board of Trustees, upon receipt of a ruling
from the Internal Revenue Service or an opinion of counsel in each case to the
effect that the restrictions contained in Section 1(B)(3) and/or Section 1(B)(4)
hereof will not be violated and that REIT status will not otherwise be lost, may
exempt a Person from the Ownership Limit if such Person is not an individual for
purposes of Section 542(a)(2) of the Code, provided that (i) the Board of
Trustees obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain that no individual's Beneficial Ownership or
Constructive Ownership of Equity Shares will violate the Ownership Limit and
(ii) such Person agrees that any violation or attempted violation will result in
a transfer to the Share Trust of Equity Shares pursuant to Section 1(C) hereof.
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(H) New York Stock Exchange Transactions. Notwithstanding any provision
------------------------------------
contained herein to the contrary, nothing in this Amended and Restated
Declaration of Trust shall preclude the settlement of any transaction entered
into through the facilities of the New York Stock Exchange.
(I) Redetermination of Excluded Holder Limit. The Excluded Holder Limit
----------------------------------------
shall be redetermined whenever the Adjusted Excluded Holder Percentage (as
defined below) is changed by the Board of Trustees. The "Adjusted Excluded
Holder Percentage" shall equal the percentage of the number of outstanding
Common Shares Beneficially or Constructively Owned by the Excluded Holder
assuming the following: (i) all of the Partnership Units Beneficially or
Constructively Owned by the Excluded Holder are exchanged for Common Shares;
(ii) no other Partnership Units are exchanged for Common Shares; (iii) all of
the options to acquire Common Shares that are Beneficially or Constructively
Owned by the Excluded Holder are exercised; and (iv) no other options to acquire
Common Shares are exercised. The Adjusted Excluded Holder Percentage may (but is
not required to) be redetermined by the Board of Trustees whenever there is a
change in either the number of Common Shares outstanding or the number of Common
Shares Beneficially or Constructively Owned by the Excluded Holder, in each case
based on the assumptions set out in the immediately preceding sentence. In
redetermining the Adjusted Excluded Holder Percentage, the Board of Trustees may
take into account any options with respect to Common Shares that are expected to
be issued to the Excluded Holder (or to any other Person if the Excluded Holder
will be considered to Beneficially or Constructively Own the Common Shares that
are the subject of the options) in the future.
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(J) Redetermination of Ownership Limit. Whenever the Excluded Holder
----------------------------------
Limit is redetermined pursuant to Section 1(I) of this Article VII, the
Ownership Limit shall be redetermined to equal the percentage obtained by
dividing (i) 49% minus the new Excluded Holder Limit by (ii) four.
(K) Limitations on Redetermination of Excluded Holder Limit and
-----------------------------------------------------------
Ownership Limit.
- ---------------
(1) Neither the Ownership Limit nor the Excluded Holder Limit may
be increased (nor may any additional ownership limitation be created with
respect to any shareholder of the Trust) if, after giving effect to such
increase (or creation), the Trust would be (or potentially could be if five or
more individuals Beneficially Owned a percentage of outstanding Common Shares
equal to the applicable limits) "closely held" within the meaning of Section
856(h) of the Code.
(2) In no event shall the Adjusted Excluded Holder Percentage be
less than 9.8%.
(3) In no event shall the Ownership Limit be less than 8.5% or
greater than 9.8%.
(4) Prior to any redetermination of the Adjusted Excluded Holder
Limit, the Board may require such opinions of counsel, affidavits, undertakings,
or agreements as it may deem necessary or advisable in order to determine or
assure the Trust's status as a REIT.
Section 2. Shares-in-Trust.
---------------
(A) Share Trust. Any Equity Shares transferred to a Share Trust and
-----------
designated Shares-in-Trust pursuant to Section 1(C) hereof shall be held for the
exclusive benefit of the Beneficiary. The Trust shall name a beneficiary of each
Share Trust within five days after discovery
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of the existence thereof. Any transfer to a Share Trust, and subsequent
designation of Equity Shares as Shares-in-Trust, pursuant to Section 1(C) hereof
shall be effective as of the close of business on the business day prior to the
date of the Transfer or Non-Transfer Event that results in the transfer to the
Share Trust. Shares-in-Trust shall remain issued and outstanding Equity Shares
of the Trust and shall be entitled to the same rights and privileges on
identical terms and conditions as are all other issued and outstanding Equity
Shares of the same class and series. When transferred to a Permitted Transferee
in accordance with the provisions of Section 2(E) hereof, such Shares-in-Trust
shall cease to be designated as Shares-in-Trust.
(B) Dividend Rights. The Share Trust, as record holder of Shares-in-
---------------
Trust, shall be entitled to receive all dividends and distributions as may be
declared by the Board of Trustees on such Equity Shares and shall hold such
dividends or distributions in trust for the benefit of the Beneficiary. The
Prohibited Owner with respect to Shares-in-Trust shall repay to the Share Trust
the amount of any dividends or distributions received by it that (i) are
attributable to any Equity Shares designated Shares-in-Trust and (ii) the record
date for which was on or after the date that such shares became Shares-in-Trust.
The Trust shall take all measures that it determines reasonably necessary to
recover the amount of any such dividend or distribution paid to a Prohibited
Owner, including, if necessary, withholding any portion of future dividends or
distributions payable on Equity Shares Beneficially Owned or Constructively
Owned by the Person who, but for the provisions of Section 1(C) hereof, would
Constructively Own or Beneficially Own the Shares-in-Trust; and, as soon as
reasonably practicable following the Trust's receipt or withholding thereof,
shall pay over to the Share Trust for the benefit of the Beneficiary the
dividends so received or withheld, as the case may be.
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<PAGE>
(C) Rights Upon Liquidation. In the event of any voluntary or
-----------------------
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Trust, each holder of Shares-in-Trust shall be entitled to
receive, ratably with each other holder of Equity Shares of the same class or
series, that portion of the assets of the Trust which is available for
distribution to the holders of such class and series of Equity Shares. The
Share Trust shall distribute to the Prohibited Owner the amounts received upon
such liquidation, dissolution, or winding up, or distribution; provided,
however, that the Prohibited Owner shall not be entitled to receive amounts
pursuant to this Section 2(C) in excess of, (i) in the case of a purported
Transfer in which the Prohibited Owner gave value for Equity Shares and which
Transfer resulted in the transfer of the shares to the Share Trust, the price
per share, if any, such Prohibited Owner paid for the Equity Shares and, (ii) in
the case of a Non-Transfer Event or Transfer in which the Prohibited Owner did
not give value for such shares (e.g., if the shares were received through a gift
----
or devise) and which Non-Transfer Event or Transfer, as the case may be,
resulted in the transfer of shares to the Share Trust, the price per share equal
to the Market Price on the date of such Non-Transfer Event or Transfer. Any
remaining amount in such Share Trust shall be distributed to the Beneficiary.
(D) Voting Rights. The Share Trustee shall be entitled to vote all
-------------
Shares-in-Trust. Any vote by a Prohibited Owner as a holder of Equity Shares
prior to the discovery by the Trust that the Equity Shares are Shares-in-Trust
shall, subject to applicable law, be rescinded and shall be void ab initio with
-- ------
respect to such Shares-in-Trust and the Prohibited Owner shall be deemed to have
given, as of the close of business on the business day prior to the date of the
purported Transfer or Non-Transfer Event that results in the transfer to the
Share Trust of Equity Shares under Section 1(C)
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<PAGE>
hereof, an irrevocable proxy to the Share Trustee to vote the Shares-in-Trust in
the manner in which the Share Trustee, in its sole and absolute discretion,
desires.
(E) Designation of Permitted Transferee. The Share Trustee shall
-----------------------------------
have the exclusive and absolute right to designate a Permitted Transferee of any
and all Shares-in-Trust. In an orderly fashion so as not to materially
adversely affect the Market Price of the Shares-in-Trust, the Share Trustee
shall designate any Person as Permitted Transferee, provided, however, that (i)
-------- -------
the Permitted Transferee so designated purchases for valuable consideration
(whether in a public or private sale), at a price as set forth in Section 2(G)
hereof, the Shares-in-Trust and (ii) the Permitted Transferee so designated may
acquire such Shares-in-Trust without such acquisition resulting in a transfer to
a Share Trust and the redesignation of such Equity Shares so acquired as Shares-
in-Trust under Section 1(C) hereof. Upon the designation by the Share Trustee
of a Permitted Transferee in accordance with the provisions of this Section
2(E), the Share Trustee shall (i) cause to be transferred to the Permitted
Transferee that number of Shares-in-Trust acquired by the Permitted Transferee,
(ii) cause to be recorded on the books of the Trust that the Permitted
Transferee is the holder of record of such number of Equity Shares, (iii) cause
the Shares-in-Trust to be canceled and (iv) distribute to the Beneficiary any
and all amounts held with respect to the Shares-in-Trust after making the
payment to the Prohibited Owner pursuant to Section 2(F) hereof.
(F) Compensation to Record Holder of Equity Shares that Become
----------------------------------------------------------
Shares-in-Trust. Any Prohibited Owner shall be entitled (following discovery of
- ---------------
the Shares-in-Trust and subsequent designation of the Permitted Transferee in
accordance with Section 2(E) hereof or following the acceptance of the offer to
purchase such shares in accordance with Section 2(G) hereof) to receive from the
Share Trustee following the sale or other disposition of such Shares-in-Trust
the lesser of
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<PAGE>
(i) in the case of (a) a purported Transfer in which the Prohibited Owner gave
value for Equity Shares and which Transfer resulted in the transfer of the
shares to the Share Trust, the price per share, if any, such Prohibited Owner
paid for the Equity Shares, or (b) a Non-Transfer Event or Transfer in which the
Prohibited Owner did not give value for such shares (e.g., if the shares were
---
received through a gift or devise) and which Non-Transfer Event or Transfer, as
the case may be, resulted in the transfer of shares to the Share Trust, the
price per share equal to the Market Price on the date of such Non-Transfer Event
or Transfer and (ii) the price per share received by the Share Trustee from the
sale or other disposition of such Shares-in-Trust in accordance with Section
2(E) hereof. Any amounts received by the Share Trustee in respect of such
Shares-in-Trust and in excess of such amounts to be paid the Prohibited Owner
pursuant to this Section 2(F) shall be distributed to the Beneficiary in
accordance with the provisions of Section 2(E) hereof. Each Beneficiary and
Prohibited Owner waive any and all claims that they may have against the Share
Trustee and the Share Trust arising out of the disposition of Shares-in-Trust,
except for claims arising out of the gross negligence or willful misconduct of,
or any failure to make payments in accordance with this Section 2 by such Share
Trustee or the Trust.
(G) Purchase Right in Shares-in-Trust. Shares-in-Trust shall be
---------------------------------
deemed to have been offered for sale to the Trust, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
created such Shares-in-Trust (or, in the case of devise, gift or Non-Transfer
Event, the Market Price at the time of such devise, gift or Non-Transfer Event)
and (ii) the Market Price on the date the Trust, or its designee, accepts such
offer. The Trust shall have the right to accept such offer for a period of
ninety days after the later of (i) the date of the Non-Transfer Event or
purported Transfer which resulted in such Shares-in-Trust and (ii) the date the
Trust
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<PAGE>
determines in good faith that a Transfer or Non-Transfer Event resulting in
Shares-in-Trust has occurred, if the Trust does not receive a notice of such
Transfer or Non-Transfer Event pursuant to Section 1(E) hereof.
Section 3. Remedies Not Limited. Nothing contained in this Article
--------------------
VII shall limit the authority of the Trust to take such other action as it deems
necessary or advisable to protect the Trust and the interests of its
shareholders by preservation of the Trust's status as a REIT and to ensure
compliance with the Ownership Limit and the Excluded Holder Limit.
Section 4. Ambiguity. In the case of an ambiguity in the application
---------
of any of the provisions of Article VII, including any definition contained in
Section 1(A) hereof, the Board of Trustees shall have the power to determine the
application of the provisions of this Article VII with respect to any situation
based on the facts known to it.
Section 5. Legend. Each certificate for Equity Shares shall bear the
------
following legend:
"The [Common or Preferred] Shares represented by this certificate are
subject to restrictions on transfer for the purpose of the Trust's maintenance
of its status as a real estate investment trust under the Internal Revenue Code
of 1986, as amended (the "Code"). Subject to certain further restrictions and
except as provided in the Declaration of Trust of the Trust, no Person may (i)
Beneficially or Constructively Own Common Shares in excess of 8.5% (or such
other percentage as may be determined by the Board of Trustees) of the number of
outstanding Common Shares, unless such Person is the Excluded Holder (in which
case the Excluded Holder Limit shall be applicable); (ii) Beneficially or
Constructively Own Preferred Shares of any series of Preferred Shares in excess
of 9.8% of the number of outstanding Preferred Shares of such series, (iii)
Beneficially Own Equity Shares that would result in the Equity Shares being
beneficially owned by fewer than 100 Persons
-27-
<PAGE>
(determined without reference to any rules of attribution), (iv) Beneficially
Own Equity Shares that would result in the Trust being "closely held" under
Section 856(h) of the Code, or (v) Constructively Own Equity Shares that would
cause the Trust to Constructively Own 10% or more of the ownership interests in
a tenant of the Trust's real property, within the meaning of Section
856(d)(2)(B) of the Code. Any Person who attempts to Beneficially or
Constructively Own shares of Equity Shares in excess of the above limitations
must immediately notify the Trust in writing. If any restrictions above are
violated, the Equity Shares represented hereby will be transferred automatically
to a Share Trust and shall be designated Shares-in-Trust to a trustee of a trust
for the benefit of one or more charitable beneficiaries. In addition, upon the
occurrence of certain events, attempted transfers in violation of the
restrictions described above may be void ab initio. All capitalized terms in
-- ------
this legend have the meanings defined in the Trust's Amended and Restated
Declaration of Trust, as the same may be further amended from time to time, a
copy of which, including the restrictions on transfer, will be sent without
charge to each shareholder who so requests. Such requests must be made to the
secretary of the trust at its principal office or to the transfer agent."
Section 6. Severability. If any provision of this Article VII or any
------------
application of any such provision is determined to be invalid by any federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
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<PAGE>
ARTICLE VIII
SHAREHOLDERS
Section 1. Meetings. There shall be an annual meeting of the
--------
shareholders, to be held on proper notice at such time (after the delivery of
the annual report) and convenient location as shall be determined by or in the
manner prescribed in the Bylaws, for the election of the Trustees, if required,
and for the transaction of any other business within the powers of the Trust.
Except as otherwise provided in this Declaration of Trust, special meetings of
shareholders may be called in the manner provided in the Bylaws. If there are
no Trustees, the officers of the Trust shall promptly call a special meeting of
the shareholders entitled to vote for the election of successor Trustees. Any
meeting may be adjourned and reconvened as the Trustees determine or as provided
in the Bylaws.
Section 2. Voting Rights. Subject to the provisions of any class or
-------------
series of Shares then outstanding, the shareholders shall be entitled to vote
only on the following matters: (a) termination of REIT status as provided in
Article V, Section (1)(C), (b) election of Trustees as provided in Article V,
Section 2(A) and the removal of Trustees as provided in Article V, Section 3;
(c) amendment of the Declaration of Trust as provided in Article X; (d)
termination of the Trust as provided in Article XII, Section 2; (e) merger or
consolidation of the Trust, or the sale or disposition of substantially all of
the Trust Property, as provided in Article XI; and (f) such other matters with
respect to which a vote of the shareholders is required by applicable law or the
Board of Trustees has adopted a resolution declaring that a proposed action is
advisable and directing that the matter be submitted to the shareholders for
approval or ratification. Except with respect to the foregoing matters, no
action taken by the shareholders at any meeting shall in any way bind the Board
of Trustees.
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<PAGE>
Section 3. Preemptive and Appraisal Rights. Except as may be provided
-------------------------------
by the Board of Trustees in setting the terms of classified or reclassified
Shares pursuant to Article VI, Section 4, no holder of Shares shall, as such
holder, (a) have any preemptive or preferential right to purchase or subscribe
for any additional Shares of the Trust or any other security of the Trust which
it may issue or sell or (b), except as expressly required by Title 8, have any
right to require the Trust to pay him the fair value of his Shares in an
appraisal or similar proceeding.
Section 4. Extraordinary Actions. Except as specifically provided in
---------------------
Article V, Sections 1(C), 2(A) and 3 and Article X, Sections 2 and 3, and
Article XII, Section 2 of this Declaration of Trust, notwithstanding any
provision of law permitting or requiring any action to be taken or authorized by
the affirmative vote of the holders of a greater number of votes, any such
action shall be effective and valid if taken or authorized by the affirmative
vote of holders of Shares entitled to cast a majority of all the votes entitled
to be cast on the matter.
Section 5. Board Approval. The submission of any action to the
--------------
shareholders for their consideration shall first be approved by the Board of
Trustees.
Section 6. Action By Shareholders Without a Meeting. The Bylaws of
----------------------------------------
the Trust may provide that any action required or permitted to be taken by the
shareholders may be taken without a meeting by the written consent of the
shareholders entitled to cast a sufficient number of votes to approve the matter
as required by statute, the Declaration of Trust or the Bylaws of the Trust, as
the case may be.
ARTICLE IX
LIABILITY LIMITATION, INDEMNIFICATION
AND TRANSACTIONS WITH THE TRUST
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<PAGE>
Section 1. Limitation of Shareholder Liability. No shareholder shall
-----------------------------------
be liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a shareholder, nor
shall any shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any person in connection with the property or the
affairs of the Trust by reason of his being a shareholder.
Section 2. Limitation of Trustee and Officer Liability. To the
-------------------------------------------
maximum extent that Maryland law in effect from time to time permits limitation
of the liability of trustees and officers of a REIT, no Trustee or officer of
the Trust shall be liable to the Trust or to any shareholder for money damages.
Neither the amendment nor repeal of this Section, nor the adoption or amendment
of any other provision of the Declaration of Trust or Bylaws of the Trust
inconsistent with this section, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption. In the absence
of any Maryland statute limiting the liability of trustees and officers of a
Maryland REIT for money damages in a suit by or on behalf of the Trust or by any
shareholder, no Trustee or officer of the Trust shall be liable to the Trust or
to any shareholder for money damages except to the extent that (a) the Trustee
or officer actually received an improper benefit or profit in money, property,
or services, for the amount of the benefit or profit in money, property, or
services actually received; or (b) a judgment or other final adjudication
adverse to the Trustee or officer is entered in a proceeding based on a finding
in the proceeding that the Trustee's or officer's action or failure to act was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
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<PAGE>
Section 3. Express Exculpatory Clauses in Instruments. Neither the
------------------------------------------
Shareholders nor the Trustees, officers, employees or agents of the Trust shall
be liable under any written instrument creating an obligation of the Trust, and
all Persons shall look solely to the Trust Property for the payment of any claim
under or for the performance of that instrument. The omission of the foregoing
exculpatory language from any instrument shall not affect the validity or
enforceability of such instrument and shall not render any Shareholder, Trustee,
officer, employee or agent liable thereunder to any third party, nor shall the
Trustees or any officer, employee or agent of the Trust be liable to anyone for
such omission.
Section 4. Indemnification. The Trust shall have the power, to the
---------------
maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former shareholder, Trustee or officer of the Trust or (b) any
individual who, while a Trustee of the Trust and at the request of the Trust,
serves or has served as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his status as a
present or former shareholder, Trustee or officer of the Trust. The Trust shall
have the power, with the approval of its Board of Trustees, to provide such
indemnification and advancement of expenses to a person who served as a
predecessor of the Trust in any of the capacities described in (a) or (b) above,
and to any employee or agent of the Trust or a predecessor of the Trust.
Section 5. Transactions Between the Trust and its Trustees, Officers,
----------------------------------------------------------
Employees and Agents. Subject to any express restrictions in the Declaration of
- --------------------
Trust or adopted by the Trustees in the
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<PAGE>
Bylaws or by resolution, the Trust may enter into any contract or transaction of
any kind with any person, including any Trustee, officer, employee or agent of
the Trust or any person affiliated with a Trustee, officer, employee or agent of
the Trust, whether or not any of them has a financial interest in such
transaction.
ARTICLE X
AMENDMENTS
Section 1. General. The Trust reserves the right from time to time
-------
to make any amendment to the Declaration of Trust, now or hereafter authorized
by law, including any amendment altering the terms or contract rights, as
expressly set forth in the Declaration of Trust, of any Shares. All rights and
powers conferred by this Declaration of Trust on shareholders, Trustees and
officers are granted subject to this reservation. An amendment to the
Declaration of Trust (a) shall be signed and acknowledged by at least two-thirds
of the Trustees, (b) shall be filed for record with SDAT as provided in Article
XIII, Section 5 and (c) shall become effective as of the later of the time the
SDAT accepts the amendment for record or the time established in the amendment,
not to exceed 30 days after the amendment is accepted for record. All references
to the Declaration of Trust shall include all amendments thereto.
Section 2. By Trustees. The Trustees by a two-thirds vote may amend
-----------
the Declaration of Trust from time to time, in the manner provided by Title 8,
without any action by the shareholders, to qualify as a REIT under the Code or
under Title 8.
Section 3. By Shareholders. Other than amendments pursuant to
---------------
Section 2 of this Article X, any amendment to the Declaration of Trust shall be
valid only if approved by the affirmative vote of at least a majority of all the
votes entitled to be cast on the matter, except that any amendment to
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<PAGE>
Article V, Article VII, Article X, Sections 2 and 3, and Article XII, Section 2
of this Declaration of Trust shall be valid only if approved by the affirmative
vote of two-thirds of all the votes entitled to be cast on the matter.
ARTICLE XI
MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY
Subject to the provisions of any class or series of Shares at the time
outstanding, the Trust may (a) merge the Trust into another entity, (b)
consolidate the Trust with one or more other entities into a new entity or (c)
sell, lease, exchange or otherwise transfer all or substantially all of the
Trust Property. Any such action must be approved by the Board of Trustees and,
after notice to all shareholders entitled to vote on the matter, by the
affirmative vote of a majority of all the votes entitled to be cast on the
matter.
ARTICLE XII
DURATION AND TERMINATION OF TRUST
Section 1. Duration. The Trust shall continue perpetually unless
--------
terminated pursuant to Section 2 of this Article XII or pursuant to any
applicable provision of Title 8.
Section 2. Termination.
-----------
(a) Subject to the provision of any class or series of Shares at the
time outstanding, the Trust may be terminated at any meeting of shareholders, by
the affirmative vote of two thirds of all the votes entitled to be cast on the
matter. Upon the termination of the Trust:
i) The Trust shall carry on no business except for the purpose
of winding up its affairs.
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<PAGE>
ii) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under the Declaration of Trust shall
continue, including the powers to fulfill or discharge the Trust's contracts,
collect its assets, sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining property of the Trust to one or more
persons at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge or pay
its liabilities and do all other acts appropriate to liquidate its business.
iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and agreements as
they deem necessary for their protection, the Trust may distribute the remaining
property of the Trust among the shareholders so that after payment in full or
the setting apart for payment of such preferential amounts, if any, to which the
holders of any Shares at the time outstanding shall be entitled, the remaining
property of the Trust shall, subject to any participating or similar rights of
Shares at the time outstanding, be distributed ratably among the holders of
Common Shares at the time outstanding.
(b) After termination of the Trust, the liquidation of its business and
the distribution to the shareholders as herein provided, a majority of the
Trustees shall execute and file with the Trust's records a document certifying
that the Trust has been duly terminated, and the Trustees shall be discharged
from all liabilities and duties hereunder, and the rights and interests of all
shareholders shall cease.
ARTICLE XIII
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<PAGE>
MISCELLANEOUS
Section 1. Governing Law. The Declaration of Trust is executed by
-------------
the undersigned Trustee[s] and delivered in the State of Maryland with reference
to the laws thereof, and the rights of all parties and the validity,
construction and effect of every provision hereof shall be subject to and
construed according to the laws of the State of Maryland without regard to
conflicts of laws provisions thereof.
Section 2. Reliance by Third Parties. Any certificate shall be final
-------------------------
and conclusive as to any person dealing with the Trust if executed by the
Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying
to: (a) the number or identity of Trustees, officers of the Trust or
shareholders; (b) the due authorization of the execution of any document; (c)
the action or vote taken, and the existence of a quorum, at a meeting of the
Board of Trustees or shareholders; (d) a copy of the Declaration of Trust or of
the Bylaws as a true and complete copy as then in force; (e) an amendment to the
Declaration of Trust; (f) the termination of the Trust; or (g) the existence of
any fact relating to the affairs of the Trust. No purchaser, lender, transfer
agent or other person shall be bound to make any inquiry concerning the validity
of any transaction purporting to be made by the Trust on its behalf or by any
officer, employee or agent of the Trust.
Section 3. Severability.
------------
(A) The provisions of the Declaration of Trust are severable,
and if the Board of Trustees shall determine, with the advice of counsel, that
any one or more of such provisions (the "Conflicting Provisions") are in
conflict with the Code, Title 8 or other applicable federal or state laws, the
Conflicting Provisions, to the extent of the conflict, shall be deemed never to
have constituted a part of the Declaration of Trust, even without any amendment
of the Declaration of
-36-
<PAGE>
Trust pursuant to Article X and without affecting or impairing any of the
remaining provisions of the Declaration of Trust or rendering invalid or
improper any action taken or omitted prior to such determination. No Trustee
shall be liable for making or failing to make such a determination. In the event
of any such determination by the Board of Trustees, the Board shall amend the
Declaration of Trust in the manner provided in Article X, Section 2.
(B) If any provision of the Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such holding shall apply only to
the extent of any such invalidity or unenforceability and shall not in any
manner affect, impair or render invalid or unenforceable such provision in any
other jurisdiction or any other provision of the Declaration of Trust in any
jurisdiction.
Section 4. Construction. In the Declaration of Trust, unless the
------------
context otherwise requires, words used in the singular or in the plural include
both the plural and singular and words denoting any gender include all genders.
The title and headings of different parts are inserted for convenience and shall
not affect the meaning, construction or effect of the Declaration of Trust. In
defining or interpreting the powers and duties of the Trust and its Trustees and
officers, reference may be made by the Trustees or officers, to the extent
appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3
of the Corporations and Associations Article of the Annotated Code of Maryland.
In furtherance and not in limitation of the foregoing, in accordance with the
provisions of Title 3, Subtitles 6 and 7, of the Corporations and Associations
Article of the Annotated Code of Maryland, the Trust shall be included within
the definition of "corporation" for purposes of such provisions.
-37-
<PAGE>
Section 5. Recordation. The Declaration of Trust and any amendment
-----------
hereto shall be filed for record with the SDAT and may also be filed or recorded
in such other places as the Trustees deem appropriate, but failure to file for
record the Declaration of Trust or any amendment hereto in any office other than
in the State of Maryland shall not affect or impair the validity or
effectiveness of the Declaration of Trust or any amendment hereto. A restated
Declaration of Trust shall, upon filing, be conclusive evidence of all
amendments contained therein and may thereafter be referred to in lieu of the
original Declaration of Trust and the various amendments thereto.
-38-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Declaration of Trust has been
signed on this ___ day of _______, 1996, by the undersigned President of the
Trust and witnessed by the undersigned Secretary of the Trust, each of whom
acknowledges that this document is his free act and deed, and that to the best
of his knowledge, information, and belief, the matters and facts set forth
herein are true in all material respects and that the statement is made under
the penalties for perjury.
PRENTISS PROPERTIES TRUST
ATTEST:
- ---------------------- -------------------------- (SEAL)
, Secretary , President
IN WITNESS WHEREOF, this Amended and Restated Declaration of Trust has been
signed on this ___ day of _______, 1996, by the sole Trustee of the Trust who
acknowledges that this document is his free act and deed, and that to the best
of his knowledge, information, and belief, the matters and facts set forth
herein are true in all material respects and that the statement is made under
the penalties for perjury.
----------------------------- (SEAL)
Michael V. Prentiss, Trustee
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<PAGE>
Exhibit 3.2
PRENTISS PROPERTIES TRUST
-------------------------
BYLAWS
------
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall
----------------
be located at such place or places as the Trustees may designate.
Section 2. ADDITIONAL OFFICES. The Trust may have additional offices
------------------
at such places as the Trustees may from time to time determine or the business
of the Trust may require.
Section 3. FISCAL AND TAXABLE YEARS. The fiscal and taxable years of
------------------------
the Trust shall begin on January 1 and end on December 31.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held at the
-----
principal office of the Trust or at such other place within the United States as
shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders for
--------------
the election of Trustees and the transaction of any business within the powers
of the Trust shall be held during the month of May of each year, after the
delivery of the annual report, referred to in Section 12 of this Article II, at
a convenient location and on proper notice, on a date and at the time set by the
Trustees, beginning with the year 1996. Failure to hold an annual meeting does
not invalidate the Trust's existence or affect any otherwise valid acts of the
Trust.
Section 3. SPECIAL MEETINGS. The chairman of the board or the
----------------
president or one-third of the Trustees may call special meetings of the
shareholders. Special meetings of shareholders shall also be called by the
secretary upon the written request of the holders of shares entitled to cast not
less than 25% of all the votes entitled to be cast at such meeting. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on at such meeting. The secretary shall inform such shareholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment by such shareholders to the Trust of such costs, the secretary
shall give notice to each shareholder entitled to notice of the meeting. Unless
requested by shareholders entitled to
<PAGE>
cast a majority of all the votes entitled to be cast at such meeting, a special
meeting need not be called to consider any matter which is substantially the
same as a matter voted on at any meeting of the shareholders held during the
preceding twelve months.
Section 4. NOTICE. Not less than ten nor more than 90 days before
------
each meeting of shareholders, the secretary shall give to each shareholder
entitled to vote at such meeting and to each shareholder not entitled to vote
who is entitled to notice of the meeting written or printed notice stating the
time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by any statute, the purpose for which the meeting is
called, either by mail or by presenting it to such shareholder personally or by
leaving it at his residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the shareholder at his post office address as it appears on the records of
the Trust, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be
---------------
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of shareholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of the shareholders, the
------------
Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the President, the Vice Presidents
in their order of rank and seniority, or a Chairman chosen by the shareholders
entitled to cast a majority of the votes which all shareholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
Secretary, or, in his absence, an assistant secretary, or in the absence of both
the Secretary and assistant secretaries, a person appointed by the Chairman
shall act as Secretary.
Section 7. QUORUM. At any meeting of shareholders, the presence in
------
person or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this Section
shall not affect any requirement under any statute or the Declaration of Trust
for the vote necessary for the adoption of any measure. If, however, such
quorum shall not be present at any meeting of the shareholders, the shareholders
entitled to vote at such meeting, present in person or by proxy, shall have the
power to adjourn the meeting from time to time to a date not more than 120 days
after the original record date without notice other than announcement at the
meeting. At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
------
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. Each share may be voted for as many individuals as there are
Trustees to be elected and for whose election the share is entitled to be voted.
A majority of the votes cast at a meeting of shareholders duly called and at
which a quorum is present shall be sufficient to approve any other matter which
may properly come before the meeting, unless more than a majority of the votes
cast is required herein or by statute or by the
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Declaration of Trust. Unless otherwise provided in the Declaration, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of shareholders.
Section 9. PROXIES. A shareholder may cast the votes entitled to be
-------
cast by the shares owned of record by him, either in person or by proxy executed
in writing by the shareholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the secretary of the Trust before or at the time of
the meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust
-----------------------------------
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the partners
of the partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person other
than the shareholder. The resolution shall set forth the class of shareholders
who may make the certification, the purpose for which the certification may be
made, the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the share
transfer books, the time after the record date or closing of the share transfer
books within which the certification must be received by the Trust; and any
other provisions with respect to the procedure which the Trustees consider
necessary or desirable. On receipt of such certification, the person specified
in the certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Notwithstanding any other provision contained herein or in the
Declaration of Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations
and Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of
beneficial interest of the Trust. This Section may be repealed, in whole or in
part, at any time, whether before or after an acquisition of control shares and,
upon such repeal, may, to the extent provided by any successor bylaw, apply to
any prior or subsequent control share acquisition.
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Section 11. INSPECTORS. At any meeting of shareholders, the chairman
----------
of the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain
and report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
----- -----
Section 12. REPORTS TO SHAREHOLDERS.
-----------------------
(a) The Trustees shall submit to the shareholders at or before the
annual meeting of shareholders a report of the business and operations of the
Trust during such fiscal year, containing a balance sheet and a statement of
income and surplus of the Trust, accompanied by the certification of an
independent certified public accountant, and such further information as the
Trustees may determine is required pursuant to any law or regulation to which
the Trust is subject. Within the earlier of 20 days after the annual meeting of
shareholders or 120 days after the end of the fiscal year of the Trust, the
Trustees shall place the annual report on file at the principal office of the
Trust and with any governmental agencies as may be required by law and as the
Trustees may deem appropriate.
(b) Not later than 45 days after the end of each of the first three
quarterly periods of each fiscal year, the Trustees shall deliver or cause to be
delivered an interim report to the shareholders containing unaudited financial
statements for such quarter and for the period from the beginning of the fiscal
year to the end of such quarter, and such further information as the Trustees
may determine is required pursuant to any law or regulation to which the Trust
is subject.
Section 13. NOMINATIONS AND SHAREHOLDER BUSINESS.
------------------------------------
(a) Annual Meetings of Shareholders. (1) Nominations of persons for
-------------------------------
election to the Board of Trustees and the proposal of business to be considered
by the shareholders may be made at an annual meeting of shareholders (i)
pursuant to the Trust's notice of meeting, (ii) by or at the direction of the
Trustees or (iii) by any shareholder of the Trust who was a shareholder of
record at the time of giving of notice provided for in this Section 13(a), who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 13(a).
(2) For nominations or other business to be properly brought before
an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1)
of this Section 13, the shareholder must have given timely notice thereof in
writing to the secretary of the Trust. To be timely, a shareholder's notice
shall be delivered to the secretary at the principal executive offices of
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the Trust not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
shareholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is first made.
Such shareholder's notice shall set forth (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a Trustee all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Trustees, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a Trustee if
elected); (ii) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (x) the name and address of such
shareholder, as they appear on the Trust's books, and of such beneficial owner
and (y) the number of each class of shares of the Trust which are owned
beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 13 to the contrary, in the event that the number of
Trustees to be elected to the Board of Trustees is increased and there is no
public announcement naming all of the nominees for Trustee or specifying the
size of the increased Board of Trustees made by the Trust at least 70 days prior
to the first anniversary of the preceding year's annual meeting, a shareholder's
notice required by this Section 13(a) shall also be considered timely, but only
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the secretary at the principal executive offices of the
Trust not later than the close of business on the tenth day following the day on
which such public announcement is first made by the Trust.
(b) Special Meetings of Shareholders. Only such business shall be
--------------------------------
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting. Nominations of persons
for election to the Board of Trustees may be made at a special meeting of
shareholders at which Trustees are to be elected (i) pursuant to the Trust's
notice of meeting (ii) by or at the direction of the Board of Trustees or (iii)
provided that the Board of Trustees has determined that Trustees shall be
elected at such special meeting, by any shareholder of the Trust who was a
shareholder of record at the time of giving of notice provided for in this
Section 13(b) and at the time of the special meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 13(b). In the event the Trust calls a special meeting of shareholders
for the purpose of electing one or more Trustees to the Board of Trustees, any
such shareholder may nominate a person or persons (as the case may be) for
election to such position as specified in the Trust's notice of meeting, if the
shareholder's notice containing the information required by paragraph (a)(2) of
this Section 13 shall be delivered to the secretary at the principal
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<PAGE>
executive offices of the Trust not earlier than the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the tenth day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Trustees to be elected at such meeting.
(c) General. (1) Only such persons who are nominated in accordance
-------
with the procedures set forth in this Section 13 shall be eligible to serve as
Trustees and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 13. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 13 and, if any proposed nomination or business is not in
compliance with this Section 13, to declare that such defective nomination or
proposal be disregarded.
(2) For purposes of this Section 13, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Trust with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 13,
a shareholder shall also comply with all applicable requirements of state law
and of the Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this Section 13. Nothing in this Section 13 shall be
deemed to affect any rights of shareholders to request inclusion of proposals in
the Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 14. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
-------------------------------
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
shareholder entitled to vote on the matter and any other shareholder entitled to
notice of a meeting of shareholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the shareholders.
Section 15. VOTING BY BALLOT. Voting on any question or in any election may
----------------
be viva voce unless the presiding officer shall order or any shareholder shall
---- ----
demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER. The
-----------------------------------------------------
business and affairs of the Trust shall be managed under the direction of its
Board of Trustees. A Trustee shall be an individual at least 21 years of age
who is not under legal disability. In case of
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failure to elect Trustees at an annual meeting of the shareholders, the Trustees
holding over shall continue to direct the management of the business and affairs
of the Trust until their successors are elected and qualify.
Section 2. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
---------------------------
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.
Section 3. SPECIAL MEETINGS. Special meetings of the Trustees may be
----------------
called by or at the request of the chairman of the board or the president or by
a majority of the Trustees then in office. The person or persons authorized to
call special meetings of the Trustees may fix any place, either within or
without the State of Maryland, as the place for holding any special meeting of
the Trustees called by them.
Section 4. NOTICE. Notice of any special meeting shall be given by
------
written notice delivered personally, telegraphed or mailed to each Trustee at
his business or residence address. Personally delivered or telegraphed notices
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting. Telephone or facsimile-
transmission notice shall be given at least 24 hours prior to the meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail properly addressed, with postage thereon prepaid. If given by
telegram, such notice shall be deemed to be given when the telegram is delivered
to the telegraph company. Telephone notice shall be deemed given when the
Trustee is personally given such notice in a telephone call to which he is a
party. Facsimile-transmission notice shall be deemed given upon completion of
the transmission of the message to the number given to the Trust by the Trustee
and receipt of a completed answer-back indicating receipt. Neither the business
to be transacted at, nor the purpose of, any annual, regular or special meeting
of the Trustees need be stated in the notice, unless specifically required by
statute or these Bylaws.
Section 5. QUORUM. A majority of the entire Board of Trustees shall
------
constitute a quorum for transaction of business at any meeting of the Trustees,
provided that, if less than a majority of such Trustees are present at said
meeting, a majority of the Trustees present may adjourn the meeting from time to
time without further notice, and provided further that if, pursuant to the
Declaration of Trust or these Bylaws, the vote of a majority of a particular
group of Trustees is required for action, a quorum must also include a majority
of such group.
The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.
Section 6. VOTING. (a) Except as provided in subsection (b) of this
------
Section 6, the action of the majority of the Trustees present at a meeting at
which a quorum is present shall be the action
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<PAGE>
of the Trustees, unless the concurrence of a greater proportion is required for
such action by applicable statute.
(b) Notwithstanding anything in these Bylaws to the contrary, any
action pertaining to any transaction involving the Trust, including the
purchase, sale, lease, or mortgage of any real estate asset or any other
transaction, in which a Trustee or officer of the Trust, or any Affiliate (as
defined in the Declaration of Trust of the Trust) of any of the foregoing
persons, has any direct or indirect interest other than solely as a result of
his status as a Trustee, officer, or shareholder of the Trust, must be approved
by a majority of the Trustees, including a majority of the Independent Trustees
(as defined in the Declaration of Trust), even if the Independent Trustees
constitute less than a quorum.
Section 7. TELEPHONE MEETINGS. Trustees may participate in a meeting
------------------
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 8. INFORMAL ACTION BY TRUSTEES. Any action required or
---------------------------
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.
Section 9. VACANCIES. If for any reason any or all the Trustees
---------
cease to be Trustees, such event shall not terminate the Trust or affect these
Bylaws or the powers of the remaining Trustees hereunder (even if fewer than two
Trustees remain). Any vacancy (including a vacancy created by an increase in the
number of Trustees) shall be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining Trustees. Any
individual so elected as Trustee shall hold office for the unexpired term of the
Trustee he is replacing.
Section 10. COMPENSATION. Trustees shall not receive any stated
------------
salary for their services as Trustees but, by resolution of the Trustees, may
receive a fixed sum of cash and/or common shares of beneficial interest of the
Trust (or options to acquire shares) per year and/or per visit to real property
owned or to be acquired by the Trust and for any service or activity they
performed or engaged in as Trustees. Trustees may be reimbursed for expenses of
attendance, if any, at each annual, regular or special meeting of the Trustees
or of any committee thereof; and for their expenses, if any, in connection with
each property visit and any other service or activity performed or engaged in as
Trustees; but nothing herein contained shall be construed to preclude any
Trustees from serving the Trust in any other capacity and receiving compensation
therefor.
Section 11. REMOVAL OF TRUSTEES. The shareholders may, at any time,
-------------------
remove any Trustee in the manner provided in the Declaration of Trust.
Section 12. LOSS OF DEPOSITS. No Trustee shall be liable for any
----------------
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
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Section 13. SURETY BONDS. Unless required by law, no Trustee shall
------------
be obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each Trustee, officer, employee and agent of
--------
the Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
Section 15. NUMBER AND QUALIFICATIONS. The number of Trustees of the
-------------------------
Trust shall not be less than three (3) nor more than nine (9). The Trustees
shall be classified, with respect to the terms for which they severally hold
office, into separate classes, if and in the manner prescribed in the Trust's
Declaration of Trust. At any regular meeting or at any special meeting called
for that purpose, at least 80% of the members of the Board of Trustees shall
establish, increase or decrease the number of Trustees, provided that the number
thereof shall never be less than required by Maryland law and further provided
that the tenure of office of a Trustee shall not be affected by any decrease in
the number of Trustees. Trustees need not be shareholders of the Trust.
Section 16. INTERESTED TRUSTEE TRANSACTIONS. Section 2-419 of the
-------------------------------
Maryland General Corporation Law (the "MGCL") shall be available for and apply
to any contract or other transaction between the Trust and any of its Trustees
or between the Trust and any other trust, corporation, firm or other entity in
which any of its Trustees is a trustee or director or has a material financial
interest.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS; VACANCIES. The Board
--------------------------------------------
of Trustees may appoint from among its members an Executive Committee and other
committees comprised of two or more Trustees. A majority of the members of any
committee so appointed shall be Independent Trustees. The Board of Trustees
shall appoint an audit committee comprised of not less than two members, all of
whom are Independent Trustees.
Notice of committee meetings shall be given in the same manner as
notice for special meetings of the Board of Trustees.
Subject to the provisions hereof, the Board of Trustees shall have the
power at any time to change the membership of any committee, to fill all
vacancies, to designate alternative members to replace any absent or
disqualified member, or to dissolve any such committee.
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Section 2. POWERS. The Trustees may delegate to committees appointed
------
under Section 1 of this Article any of the powers of the Trustees, except as
prohibited by law.
Section 3. MEETINGS. In the absence of any member of any such
--------
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Trustee to act in the place of such
absent member.
One-third, but not less than two, of the members of any committee
shall be present in person at any meeting of such committee in order to
constitute a quorum for the transaction of business at such meeting, and the act
of a majority present shall be the act of such committee. The Board of Trustees
may designate a chairman of any committee, and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of
any such committee, the members thereof present at any meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another Trustee to act at the meeting in the place of such
absent or disqualified members; provided, however, that in the event of the
absence or disqualification of an Independent Trustee, such appointee shall be
an Independent Trustee.
Each committee shall keep minutes of its proceedings and shall report
the same to the Board of Trustees at the meeting next succeeding, and any action
by the committees shall be subject to revision and alteration by the Board of
Trustees, provided that no rights of third persons shall be affected by any such
revision or alteration.
Section 4. TELEPHONE MEETINGS. Members of a committee of the
------------------
Trustees may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
-----------------------------
permitted to be taken at any meeting of a committee of the Trustees may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust may consist
------------------
of a chairman of the board, a vice chairman of the board, one or more chief
operating officers, a president, one or more vice presidents, a treasurer, one
or more assistant treasurers, a secretary, and one or more assistant
secretaries. In addition, the Trustees may from time to time appoint such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Trust shall be
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elected annually by the Trustees at the first meeting of the Trustees held after
each annual meeting of shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor is elected and
qualified or until his death, resignation or removal in the manner hereinafter
provided. Any two or more offices except president and vice president may be
held by the same person. In their discretion, the Trustees may leave unfilled
any office except that of president and secretary. Election of an officer or
agent shall not of itself create contract rights between the Trust and such
officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
-----------------------
Trust may be removed by the Trustees if in their judgment the best interests of
the Trust would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Any officer of the
Trust may resign at any time by giving written notice of his resignation to the
Trustees, the chairman of the board, the president or the secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless otherwise stated in the resignation. Such
resignation shall be without prejudice to the contract rights, if any, of the
Trust.
Section 3. VACANCIES. A vacancy in any office may be filled by the
---------
Trustees for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate a
-----------------------
chief executive officer from among the elected officers. The chief executive
officer shall have responsibility for implementation of the policies of the
trust, as determined by the Trustees, and for the administration of the business
affairs of the Trust. In the absence of both the chairman and the vice chairman
of the board, the chief executive officer shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present.
Section 5. CHIEF OPERATING OFFICER. The Trustees may designate one
-----------------------
or more chief operating officers from among the elected officers. Said officer
will have the responsibilities and duties as set forth by the Trustees.
Section 6. CHIEF FINANCIAL OFFICER. The Trustees may designate a
-----------------------
chief financial officer from among the elected officers. Said officer will have
the responsibilities and duties as set forth by the Trustees or the chief
executive officer.
Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The chairman of
---------------------------------------
the board shall preside over the meetings of the Trustees and of the
shareholders at which he shall be present and shall in general oversee all of
the business and affairs of the Trust. In the absence of the chairman of the
board, the vice chairman of the board shall preside at such meetings at which he
shall be present. The chairman and the vice chairman of the board may execute
any deed, mortgage, bond, contract or other instrument, except in cases where
the execution thereof shall be expressly delegated by the Trustees or by these
Bylaws to some other officer or agent of the Trust or shall be
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<PAGE>
required by law to be otherwise executed. The chairman of the board and the vice
chairman of the board shall perform such other duties as may be assigned to him
or them by the Trustees.
Section 8. PRESIDENT. In the absence of the chairman, the vice
---------
chairman of the board and the chief executive officer, the president shall
preside over the meetings of the Trustees and of the shareholders at which he
shall be present. In the absence of a designation of a chief executive officer
by the Trustees, the president shall be the chief executive officer and shall be
ex officio a member of all committees that may, from time to time, be
constituted by the Trustees. The president may execute any deed, mortgage,
bond, contract or other instrument, except in cases where the execution thereof
shall be expressly delegated by the Trustees or by these Bylaws to some other
officer or agent of the Trust or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
president and such other duties as may be prescribed by the Trustees from time
to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in
---------------
the event of a vacancy in such office, the vice president (or in the event there
be more than one vice president, the vice presidents in the order designated at
the time of their election or, in the absence of any designation, then in the
order of their election) shall perform the duties of the president and when so
acting shall have all the powers of and be subject to all the restrictions upon
the president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Trustees. The Trustees may designate
one or more vice presidents as executive vice president or as vice president for
particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of
---------
the proceedings of the shareholders, the Trustees and committees of the Trustees
in one or more books provided for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws or as required by
law; (c) be custodian of the trust records and of the seal of the Trust; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder; (e) have general charge of the
share transfer books of the Trust; and (f) in general perform such other duties
as from time to time may be assigned to him by the chief executive officer, the
president or by the Trustees.
Section 11. TREASURER. The treasurer shall have the custody of the
---------
funds and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit all
moneys and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Trustees.
He shall disburse the funds of the Trust as may be ordered by the
Trustees, taking proper vouchers for such disbursements, and shall render to the
president and Trustees, at the regular meetings of the Trustees or whenever they
may require it, an account of all his transactions as treasurer and of the
financial condition of the Trust.
If required by the Trustees, he shall give the Trust a bond in such
sum and with such surety or sureties as shall be satisfactory to the Trustees
for the faithful performance of the duties of his
-12-
<PAGE>
office and for the restoration to the Trust, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, moneys and
other property of whatever kind in his possession or under his control belonging
to the Trust.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
----------------------------------------------
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Trustees. The assistant treasurers shall, if
required by the Trustees, give bonds for the faithful performance of their
duties in such sums and with such surety or sureties as shall be satisfactory to
the Trustees.
Section 13. SALARIES. The salaries of the officers shall be fixed
--------
from time to time by the Trustees and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer or
---------
agent to enter into any contract or to execute and deliver any instrument in the
name of and on behalf of the Trust and such authority may be general or confined
to specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
valid and binding upon the Trustees and upon the Trust when authorized or
ratified by action of the Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
-----------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or officers, agent or agents
of the Trust in such manner as shall from time to time be determined by the
Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise employed
--------
shall be deposited from time to time to the credit of the Trust in such banks,
trust companies or other depositories as the Trustees may designate.
ARTICLE VII
SHARES
Section 1. CERTIFICATES. Each shareholder shall be entitled to a
------------
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the chief executive officer, the president or a
-13-
<PAGE>
vice president and countersigned by the secretary or an assistant secretary or
the treasurer or an assistant treasurer and may be sealed with the seal, if any,
of the Trust. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Trust shall, from time to time,
issue several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the Trust,
shall have a statement of such restriction, limitation, preference or redemption
provision, or a summary thereof, plainly stated on the certificate. In lieu of
such statement or summary, the Trust may set forth upon the face or back of the
certificate a statement that the Trust will furnish to any shareholder, upon
request and without charge, a full statement of such information.
Section 2. TRANSFERS. Certificates shall be treated as negotiable,
---------
and title thereto and to the shares they represent shall be transferred by
delivery thereof to the same extent as those of a Maryland stock corporation.
No transfers of shares of the Trust shall be made if (i) void ab initio pursuant
-- ------
to any provision of the Declaration of Trust or (ii) the Board of Trustees,
pursuant to any provision of the Declaration of Trust, shall have refused to
permit the transfer of such shares. Permitted transfers of shares of the Trust
shall be made on the share records of the Trust only upon the instruction of the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and upon surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
share transfer power and the payment of all taxes thereon. Upon surrender to
the Trust or the transfer agent of the Trust of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, as to any transfers not prohibited by any provision of
the Declaration of Trust or by action of the Board of Trustees thereunder, it
shall be the duty of the Trust to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
-----------------------
Trustees may direct a new certificate to be issued in place of any certificate
previously issued by the Trust alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of a
new certificate, the officer designated by the Trustees may, in his discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or the owner's legal representative to
advertise the same in such manner as he shall require and/or to give bond, with
sufficient surety, to the Trust to indemnify it against any loss or claim which
may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
--------------------------------------------------
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other purpose. Such date, in any case, shall not be prior
to the close of business
-14-
<PAGE>
on the day the record date is fixed and shall be not more than 90 days and, in
the case of a meeting of shareholders not less than ten days, before the date on
which the meeting or particular action requiring such determination of
shareholders of record is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that the
share transfer books shall be closed for a stated period but not longer than 20
days. If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed
for the determination of shareholders, (a) the record date for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of shareholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the Trustees,
declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Trust shall maintain at its principal
------------
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may
------------------------------------
issue fractional shares or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
-------------
shares of the Trust may be authorized and declared by the Trustees, subject to
the provisions of law and the
-15-
<PAGE>
Declaration of Trust. Dividends may be paid in cash, property or shares of the
Trust, subject to the provisions of law and the Declaration of Trust.
Section 2. CONTINGENCIES. Before payment of any dividends, there may
-------------
be set aside out of any funds of the Trust available for dividends such sum or
sums as the Trustees may from time to time, in their absolute discretion, think
proper as a reserve fund for contingencies, for equalizing dividends, for
repairing or maintaining any property of the Trust or for such other purpose as
the Trustees shall determine to be in the best interest of the Trust, and the
Trustees may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE IX
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of a seal
----
by the Trust. The seal shall have inscribed thereon the name of the Trust and
the year of its formation. The Trustees may authorize one or more duplicate
seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is required to place
-------------
its seal to a document, it shall be sufficient to meet the requirements of any
law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent
to the signature of the person authorized to execute the document on behalf of
the Trust.
ARTICLE X
INDEMNIFICATION AND ADVANCE FOR EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Trust, without requiring a preliminary determination of the ultimate
entitlement to indemnification, shall indemnify (a) any Trustee, officer or
shareholder or any former Trustee, officer or shareholder (including among the
foregoing, for all purposes of this Article X and without limitation, any
individual who, while a Trustee, officer or shareholder and at the express
request of the Trust, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, shareholder, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of service in such capacity,
against reasonable expenses incurred by him in connection with the proceeding,
(b) any Trustee or officer or any former Trustee or officer against any claim or
liability to which he may become subject by reason of such status unless it is
established that (i) his act or omission was material to the matter giving rise
to the proceeding and was committed in bad faith or was the result
-16-
<PAGE>
of active and deliberate dishonesty, (ii) he actually received an improper
personal benefit in money, property or services or (iii) in the case of a
criminal proceeding, he had reasonable cause to believe that his act or omission
was unlawful and (c) each shareholder or former shareholder against any claim or
liability to which he may become subject by reason of such status. In addition,
the Trust shall pay or reimburse, in advance of final disposition of a
proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or
former Trustee, officer or shareholder made a party to a proceeding by reason
such status, provided that, in the case of a Trustee or officer, the Trust shall
have received (i) a written affirmation by the Trustee or officer of his good
faith belief that he has met the applicable standard of conduct necessary for
indemnification by the Trust as authorized by these Bylaws and (ii) a written
undertaking by or on its behalf to repay the amount paid or reimbursed by the
Trust if it shall ultimately be determined that the applicable standard of
conduct was not met. The Trust may, with the approval of its Trustees, provide
such indemnification or payment or reimbursement of expenses to any Trustee,
officer or shareholder or any former Trustee, officer or shareholder who served
a predecessor of the Trust and to any employee or agent of the Trust or a
predecessor of the Trust. Neither the amendment nor repeal of this Article, nor
the adoption or amendment of any other provision of the Declaration of Trust or
these Bylaws inconsistent with this Article, shall apply to or affect in any
respect the applicability of this Article with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
Any indemnification or payment or reimbursement of the expenses
permitted by these Bylaws shall be furnished in accordance with the procedures
provided for indemnification or payment or reimbursement of expenses, as the
case may be, under Section 2-418 of the MGCL for directors of Maryland
corporations. The Trust may provide to Trustees, officers and shareholders such
other and further indemnification or payment or reimbursement of expenses, as
the case may be, to the fullest extent permitted by the MGCL, as in effect from
time to time, for directors of Maryland corporations.
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
-17-
<PAGE>
ARTICLE XII
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or repeal
any provision of these Bylaws and to make new Bylaws; provided, however, that
any amendment to Article III, Section 6(b) and to the provisions of Article V
relating to requirements that Independent Trustees serve on certain committees
shall require affirmative vote of at least a majority of shareholders entitled
to vote thereon.
ARTICLE XIII
MISCELLANEOUS
All references to the Declaration of Trust shall include any
amendments thereto.
-18-
<PAGE>
Exhibit 4.1
================================================================================
================================================================================
NUMBER
SHARES
___
___
PRENTISS PROPERTIES TRUST
Organized Under the Laws of the State of Maryland
This Certifies that__________________________________________________
_is the
registered holder of_________________________________________________
_Shares
transferable only on the books of the Trust by the holder hereof in
person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Trust has caused this Certificate to
be signed
================================================================================
================================================================================
by its duly authorized officers and its Trust Seal to be hereunto
affixed
this day of A.D. 19
---------- ---------------------- --
---------------- ------------------------
President Secretary
<PAGE>
The Trust will furnish to any shareholder, on request and without charge, a
full statement of the information required by Section 8-203(D) of the
Corporations and Associations Articles of the Annotated of Maryland with respect
to the designations and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends and other distributions,
qualifications, and terms and conditions of redemption of the shares of each
class of beneficial interest which the Trust has authority to issue and, if the
Trust is authorized to issue any preferred or special class in series, (I) the
differences in the relative rights and preferences between the shares of each
series to the extent set, and (ii) the authority of the Board of Trustees to set
such rights and preferences of subsequent series. The foregoing summary does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Declaration of Trust of the Trust, a copy of which will be sent
without charge to each shareholder who requests. Such request must be made to
the Secretary of the Trust at its principal office or to the Transfer Agent.
The Common Shares represented by this certificate are subject to
restrictions on transfer for the purpose of the Trust's maintenance of its
status as a real estate investment trust under the Internal Revenue Code of
1986, as amended (the "Code"). Subject to certain further restrictions and
except as provided in the Declaration of Trust of the Trust, no Person may (i)
Beneficially or Constructively Own Common Shares in excess of 8.5% (or such
other percentage as may be determined by the Board of Trustees) of the number of
outstanding Common Shares, unless such Person is the Excluded Holder (in which
case the Excluded Holder Limit shall be applicable); (ii) Beneficially or
Constructively Own Preferred Shares of any series of Preferred Shares in excess
of 9.8% of the number of outstanding Preferred Shares of such series, (iii)
Beneficially Own Equity Shares that would result in the Equity Shares being
beneficially owned by fewer than 100 Persons (determined without reference to
any rules of attribution), (iv) Beneficially Own Equity Shares that would result
in the Trust being "closely held" under Section 856(h) of the Code, or (v)
Constructively Own Equity Shares that would cause the Trust to Constructively
Own 10% or more of the ownership interests in a tenant of the Trust's real
property, within the meaning of Section 856(d)(2)(B) of the Code. Any Person who
attempts to Beneficially or Constructively Own shares of Equity Shares in excess
of the above limitations must immediately notify the Trust in writing. If any
restrictions above are violated, the Equity Shares represented hereby will be
transferred automatically to a Share Trust and shall be designated Shares-in-
Trust to a trustee of a trust for the benefit of one or more charitable
beneficiaries. In addition, upon the occurrence of certain events, attempted
transfers in violation of the restrictions described above may be void ab
--
initio. All capitalized terms in this legend have the meanings defined in the
- ------
Trust's Amended and Restated Declaration of Trust, as the same may be further
amended from time to time, a copy of which, including the restrictions on
transfer, will be sent without charge to each shareholder who so requests. Such
requests must be made to the secretary of the trust at its principal office or
to the transfer agent.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws and regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- _____________ Custodian_____________
(Cust) (Minor)
under Uniform Gifts to Minors
Act_____________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE
- -----------------------
---------------------------------------------------------
- ----------------------- PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares represented
by the within Certificate, and do hereby irrevocably constitute and appoint
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said shares on the books of the within-named Trust
- --------------------------------------------------------------------------------
with full power of substitution in the premises.
Dated,
----------------------
---------------------------
In presence of
- -------------------------------------
<PAGE>
EXHIBIT 8.1
FORM OF TAX OPINION
-------------------
September , 1996
Prentiss Properties Trust
1717 Main Street, Suite 5000
Dallas, Texas 75201
Lehman Brothers
Alex. Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Principal Financial Securities, Inc.
As representatives of the Underwriters
named in Schedule A of the Underwriting Agreement
c/o Lehman Brothers
3 World Financial Center
New York, New York 10285
Prentiss Properties Trust
-------------------------
Qualification as
----------------
Real Estate Investment Trust
----------------------------
Ladies and Gentlemen:
We have acted as counsel to Prentiss Properties Trust, a Maryland real
estate investment trust (the "Trust"), in connection with the preparation of
a registration statement (the "Registration Statement") filed with the
Securities and Exchange Commission on August 9, 1996 (No.333-9863), as amended
through the date hereof, with respect to the offering and sale (the "Offering")
of up to 18,280,485 common shares of beneficial interest, $0.01 par value per
share, of the Trust (the "Common Shares"), and the Trust's contribution of (1)
a portion of the net proceeds of the Offering to its wholly-owned subsidiary,
Prentiss Properties General Partner, Inc., a Delaware corporation ("GP Inc."),
and GP Inc.'s contribution of such proceeds to Prentiss Properties Acquisition
Partners, L.P., a Delaware
<PAGE>
Prentiss Properties Trust
Lehman Brothers
Alex. Brown & Sons, Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Principal Financial Securities, Inc.
September , 1996
Page 2
limited partnership (the "Operating Partnership"), in exchange for a 0.2%
general partnership interest in the Operating Partnership and (ii) a portion of
the net proceeds of the Offering to the Operating Partnership in exchange for a
limited partnership interest in the Operating Partnership. You have requested
our opinion regarding certain U.S. federal income tax matters in connection with
the Offering.
The Operating Partnership owns, directly or indirectly, equity interests
in 47 office and industrial properties (the "Predecessor Properties") and has
contracted to acquire [38] additional office and industrial properties (the
"Acquisition Properties," and together with the Predecessor Properties, the
"Properties"). Upon the acquisition of the Acquisition Properties, the
Operating Partnership will own [73] of the Properties directly and will own
interests in the remaining [12] Properties through the following entities: (i)
Run Deep Limited Partnership, a Maryland limited partnership ("Run Deep LP"),
(ii) Western Avenue Associates Limited Partnership, a Maryland limited
partnership ("Western LP"), (iii) Riverside Investments, L.P., a
Delaware limited partnership ("Riverside LP"), (iv) PL Properties Associates,
L.P., a [Delaware] limited partnership ("PL LP"), (v) Fairview Eleven Investors,
L.P., a [Delaware] limited partnership ("Fairview LP"), (vi) Broadmoor Austin
Associates, a [Texas] general partnership ("Broadmoor"), and (vii) Prentiss/
Copley Itasca Associates, a [Delaware] general partnership ("Itasca"). The
Operating Partnership also will own interests in Prentiss Properties Management,
L.P., a [Delaware] limited partnership ("PPMLP"), and (ii) Riverside Industrial,
LLC, a Delaware limited liability company ("Riverside LLC"). The entities
described in this paragraph will be referred to collectively herein as the
"Noncorporate Subsidiaries."
The Operating Partnership will own all of the nonvoting stock of Prentiss
Properties Limited, Inc., a [Delaware] corporation formerly named Prentiss
Properties Run Deep, Inc. ("PPL"), representing 95% of the economic
<PAGE>
Prentiss Properties Trust
Lehman Brothers
Alex. Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Principal Financial Securities, Inc.
September __, 1996
Page 3
interests therein. All of the voting stock of PPT., representing 5% of the
economic interests therein, will be owned by [__________, a _________
corporation owned by Michael V. Prentiss] [Michael V. Prentiss].
In connection with the opinions rendered below, we have examined the
following:
1. the Trust's Amended and Restated Declaration of Trust, as duly
filed with the Department of Assessments and Taxation of the State of Maryland
on September __, 1996;
2. the Trust's By-Laws;
3. the Articles of Incorporation of GP Inc.;
4. GP Inc.'s By-Laws;
5. the Registration Statement, including the prospectus contained as
part of the Registration Statement (the "Prospectus");
6. the Agreement of Limited Partnership of the Operating Partnership,
dated March 9, 1990, among Prentiss Property Acquisition, L.P., a Texas limited
partnership ("Acquisition LP"), as general partner, and several limited
partners;
7. the First Amended and Restated Agreement of Limited Partnership of
the Operating Partnership, dated July __, 1990, among Acquisition LP, as general
partner, and several limited partners, as amended on __________, 199__,
________, 199__ and ________, 199__;
8. the Second Amended and Restated Agreement of Limited Partnership of
the Operating Partnership, dated September __, 1996 (the "Operating Partnership
Agreement"), among GP Inc., as general partner, and several limited partners;
<PAGE>
Prentiss Properties Trust
Lehman Brothers
Alex. Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Principal Financial Securities, Inc.
September ___, 1996
Page 4
9. the Agreement of Limited Partnership of Run Deep LP, dated
__________, between the Operating Partnership, as general partner, and PPL, as
limited partner, as amended on September ___, 1996;
10. the Agreement of Limited Partnership of Western LP, dated
__________, between the Operating Partnership, as general partner, and PPL, as
limited partner, as amended on September ___, 1996;
11. the Agreement of Limited Partnership of Riverside LP, dated
- ----------, between the Operating Partnership, as general partner, and PPL, as
limited partner, as amended on September ___, 1996;
12. the Agreement of Limited Partnership of PL LP, dated
__________, between PPM LP, as general partner, and the Operating Partnership,
as limited partner;
13. the Agreement of Limited Partnership of Fairview LP, dated
- ----------, between PPM LP, as general partner, and the Operating Partnership,
as limited partner, as amended on September ___, 1996;
14. the Agreement of Partnership of Broadmoor, dated
__________, among the Operating Partnership, as managing general partner, and
International Business Machines Corporation and 11,000 Burnet Road Corporation,
as general partners, as amended on September ___, 1996;
15. the Agreement of Partnership of Itasca, dated __________,
among the Operating Partnership, and several other persons, as general partners,
as amended on September ___ , 1996;
16. The Agreement of Limited Partnership of PPM LP, dated
_____, between the Operating Partnership, as general partner, and PPL, as
limited partner;
<PAGE>
Prentiss Properties Trust
Lehman Brothers
Alex. Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Principal Financial Securities, Inc.
September , 1996
---
Page 5
17. the Limited Liability Company Agreement of Riverside LLC,
dated , between the Operating Partnership and PPL;
---------
18. the Articles of Incorporation of PPL;
19. PPL's By-Laws; and
20. such other documents as we have deemed necessary or
appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have assumed
generally that:
1. each of the documents referred to above has been duly
authorized, executed, and delivered; in authentic, if an original, or is
accurate, if a copy; and has not been amended;
2. during its short taxable year ending December 31, 1996 and
subsequent taxable years, the Trust will operate in such a manner that will make
the representations contained in a certificate, dated September , 1996 and
---
executed by a duly appointed officer of the Trust (the "Officer's Certificate"),
true for such years;
3. the Trust will not make any amendments to its
organizational documents, GP Inc.'s organizational documents, the Operating
Partnership Agreement, the partnership agreement or operating agreement of any
Noncorporate Subsidiary (together with the Operating Partnership Agreement, the
"Partnership Agreements"), or PPL's organizational documents after the date of
this opinion that would affect its qualification as a real estate investment
trust (a "REIT") for any taxable year;
<PAGE>
Prentiss Properties Trust
Lehman Brothers
Alex. Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Principal Financial Securities, Inc.
September , 1996
---
Page 6
4. each partner or member of the Operating Partnership and the
Noncorporate Subsidiaries (each a "Partner") that is a corporation or other
entity has a valid legal existence;
5. each Partner has full power, authority, and legal right to
enter into and to perform the terms of the applicable Partnership Agreement and
the transactions contemplated thereby; and
6. no action will be taken by the Trust, the Operating
Partnership, the Noncorporate Subsidiaries, the Partners, or PPL after the date
hereof that would have the effect of altering the facts upon which the opinions
set forth below are based.
In connection with the opinions rendered below, we also have
relied upon the correctness of the representations contained in the Officer's
Certificate. For purposes of our opinions, we made no independent investigation
of the facts contained in the documents and assumptions set forth above, the
representations set forth in the Officer's Certificate, or the Prospectus. No
facts have come to our attention, however, that would cause us to question the
accuracy and completeness of such facts or documents in a material way. In
addition, to the extent that any of the representations provided to us in the
Officer's Certificate are with respect to matter set forth in the Internal
Revenue Code of 1986, as amended (the "Code"), or the Treasury regulations
thereunder (the "Regulations"), we have reviewed with the individuals making
such representations the relevant portion of the Code and the applicable
Regulations.
Based on the documents and assumptions set forth above, the
representations set forth in the Officer's Certificate, and the discussion in
the Prospectus under the Caption "Federal Income Tax Considerations" (which is
incorporated herein by reference), we are of the opinion that:
<PAGE>
Prentiss Properties Trust
Lehman Brothers
Alex. Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Principal Financial Securities, Inc.
September ___, 1996
Page 7
(a) commencing with the Trust's short taxable year beginning on
the day before the closing date of the Offering and ending December 31,
1996, the Trust will qualify to be taxed as a REIT pursuant to sections 856
through 860 of the code, and the Trust's organization and proposed method
of operation will enable it to meet the requirements for qualification and
taxation as a REIT under the Code;
(b) the descriptions of the law and the legal conclusions
contained in the Prospectus under the caption "Federal Income Tax
Considerations" are correct in all material respects, and the discussion
thereunder fairly summarizes the federal income tax considerations that are
likely to be material to a holder of the Common Shares;
(c) the Operating Partnership and each Noncorporate Subsidiary
will be treated for federal income tax purposes as partnerships and not as
associations taxable as corporations or as publicly traded partnerships.
We will not review on a continuing basis the Trust's compliance with the
documents or assumptions set forth above, or the representations set forth in
the Officer's Certificate. Accordingly, no assurance can be given taxable year
will satisfy the requirements for qualification and taxation as a REIT.
The foregoing opinions are based on current provisions of the
Code and the Regulations, published administrative interpretations thereof, and
published court decisions. The Internal Revenue Service has not issued
Regulations or administrative interpretations with respect to various provisions
of the Code relating to REIT qualification. No assurance can be given that the
law will not change in a way that will prevent the Trust from qualifying as a
REIT, or
<PAGE>
Prentiss Properties Trust
Lehman Brothers
Alex. Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Principal Financial Securities, Inc.
September ___, 1996
Page 8
the Noncorporate Subsidiaries from being classified as partnerships for federal
income tax purposes.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. We also consent to the references to Hunton &
Williams under the caption "Federal Income Tax Considerations" in the
Prospectus. In giving this consent, we do not admit that we are in the category
of persons whose consent is required by Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations promulgated thereunder by the
Securities and Exchange Commission.
The foregoing opinions are limited to the U.S. federal income
tax matters addressed herein, and no other opinions are rendered with respect to
other federal tax matters or to any issues arising under the tax laws of any
other country, or any state or locality. We undertake no obligation to update
the opinions expressed herein after the date of this letter. This opinion letter
is solely for the information and use of the addresses, and it may not be
distributed, relied upon for any purpose by any other person, quoted in whole or
in part or otherwise reproduced in any document, or filed with any governmental
agency without our express written consent.
Very truly yours,
<PAGE>
Exhibit 10.1
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS................................................................ 1
- -------------
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION.................................. 9
- -------------------------------------------
2.01 Continuation....................................................... 9
------------
2.02 Name, Office and Registered Agent.................................. 9
---------------------------------
2.03 Partners........................................................... 9
--------
2.04 Term and Dissolution............................................... 9
--------------------
2.05 Filing of Certificate and Perfection of Limited Partnership........ 10
-----------------------------------------------------------
2.06 Certificates Describing Partnership Units.......................... 10
-----------------------------------------
ARTICLE III
BUSINESS OF THE PARTNERSHIP.................................................. 11
- ---------------------------
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS........................................... 11
- ----------------------------------
4.01 Capital Contributions.............................................. 11
---------------------
4.02 Additional Capital Contributions and Issuances
----------------------------------------------
of Additional Partnership Interests................................ 12
-----------------------------------
4.03 Additional Funding................................................. 14
------------------
4.04 Capital Accounts................................................... 14
----------------
4.05 Percentage Interests............................................... 14
--------------------
4.06 No Interest on Contributions....................................... 15
----------------------------
4.07 Return of Capital Contributions.................................... 15
-------------------------------
4.08 No Third Party Beneficiary......................................... 15
--------------------------
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS............................................ 16
- ---------------------------------
5.01 Allocation of Profit and Loss...................................... 16
-----------------------------
5.02 Distribution of Cash............................................... 17
--------------------
5.03 REIT Distribution Requirements..................................... 18
------------------------------
5.04 No Right to Distributions in Kind.................................. 18
---------------------------------
5.05 Limitations on Return of Capital Contributions..................... 18
----------------------------------------------
5.06 Distributions Upon Liquidation..................................... 18
------------------------------
- i -
<PAGE>
5.07 Substantial Economic Effect........................................ 19
---------------------------
ARTICLE VI
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER........................ 19
- -----------------------------------------------------
6.01 Management of the Partnership...................................... 19
-----------------------------
6.02 Delegation of Authority............................................ 22
-----------------------
6.03 Indemnification and Exculpation of Indemnitees..................... 22
----------------------------------------------
6.04 Liability of the General Partner................................... 23
--------------------------------
6.05 Reimbursement...................................................... 25
-------------
6.06 Outside Activities................................................. 25
------------------
6.07 Employment or Retention of Affiliates.............................. 25
-------------------------------------
6.08 General Partner Participation...................................... 26
-----------------------------
6.09 Title to Partnership Assets........................................ 26
---------------------------
6.10 Miscellaneous...................................................... 26
-------------
ARTICLE VII
CHANGES IN GENERAL PARTNER................................................... 27
- --------------------------
7.01 Transfer of the General Partner's Partnership Interest............. 27
------------------------------------------------------
7.02 Admission of a Substitute or Additional General.................... 28
-----------------------------------------------
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
-----------------------------------------------------------
General Partner.................................................... 29
---------------
7.04 Removal of a General Partner....................................... 29
----------------------------
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS............................... 30
- ----------------------------------------------
8.01 Management of the Partnership...................................... 30
-----------------------------
8.02 Power of Attorney.................................................. 31
-----------------
8.03 Limitation on Liability of Limited Partners........................ 31
-------------------------------------------
8.04 Ownership by Limited Partner of Corporate General Partner or
------------------------------------------------------------
Affiliate.......................................................... 31
---------
8.05 Exchange Right..................................................... 31
--------------
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS................................... 34
- ------------------------------------------
9.01 Purchase for Investment............................................ 34
-----------------------
9.02 Restrictions on Transfer of Limited Partnership Interests.......... 35
---------------------------------------------------------
9.03 Admission of Substitute Limited Partner............................ 36
---------------------------------------
9.04 Rights of Assignees of Partnership Interests....................... 37
--------------------------------------------
- ii -
<PAGE>
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a
-------------------------------------------------------------
Limited Partner.................................................... 37
---------------
9.06 Joint Ownership of Interests....................................... 37
----------------------------
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS................................... 38
- ------------------------------------------
10.01 Books and Records.................................................. 38
10.02 Custody of Partnership Funds; Bank Accounts........................ 38
10.03 Fiscal and Taxable Year............................................ 38
10.04 Annual Tax Information and Report.................................. 39
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments...... 39
10.06 Reports to Limited Partners........................................ 39
ARTICLE XI
AMENDMENT OF AGREEMENT....................................................... 40
- ----------------------
ARTICLE XII
GENERAL PROVISIONS........................................................... 40
- ------------------
12.01 Notices............................................................ 40
12.02 Survival of Rights................................................. 41
12.03 Additional Documents............................................... 41
12.04 Severability....................................................... 41
12.05 Entire Agreement................................................... 41
12.06 Pronouns and Plurals............................................... 41
12.07 Headings........................................................... 41
12.08 Counterparts....................................................... 41
12.09 Governing Law...................................................... 41
EXHIBITS
EXHIBIT A - Partners, Capital Contributions and Percentage Interests
EXHIBIT B - List of Initial Properties
EXHIBIT C - Notice of Exercise of Exchange Right
- iii -
<PAGE>
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.
RECITALS
Prentiss Properties Acquisition Partners, L.P. (the "Partnership") was
formed as a limited partnership under the laws of the State of Delaware,
pursuant to an Agreement of Limited Partnership dated as of March 9, 1990 (the
"Original Agreement") and a Certificate of Limited Partnership filed with the
Office of the Secretary of State of the State of Delaware effective as of
March 9, 1990. The Original Agreement was amended and restated in its entirety
by an Amended and Restated Agreement of Limited Partnership dated as of
July, 1990, (the "First Restatement"). Further amended by the First, Second and
Third Amendments to the First Restatement dated as of January 11, 1991,
July 13, 1990 and May 20, 1993, respectively.
The First Restatement is being amended and restated in its entirety to
reflect the transfer of the current limited partners' partnership interests, the
conversion of the current general partner's partnership interest to that of a
limited partner and the admission of a new general partner and several new
limited partners.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend the First Restatement to read in its entirety as follows:
ARTICLE I
DEFINED TERMS
-------------
The following defined terms used in this Agreement shall have the
meanings specified below:
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time.
"Additional Funds" has the meaning set forth in Section 4.03 hereof.
"Additional Limited Partner" means a Person admitted to this Partnership
as a Limited Partner pursuant to Section 4.02 hereof.
<PAGE>
"Additional Securities" means any additional REIT Shares (other than
REIT Shares issued in connection with an exchange pursuant to Section 8.05
hereof) or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares, as set forth in
Section 4.02(a)(ii).
"Administrative Expenses" means (i) all administrative and operating
costs and expenses incurred by the Partnership, (ii) those administrative costs
and expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner, and any accounting and
legal expenses of the General Partner, which expenses, the Partners have agreed,
are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, REIT Expenses; provided, however, that
-------- -------
Administrative Expenses shall not include any administrative costs and expenses
incurred by the Company that are attributable to Properties or partnership
interests in a Subsidiary Partnership that are owned by the Company directly.
"Affiliate" means, (i) any Person that, directly or indirectly, controls
or is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 10% or more of the
outstanding capital stock, shares or equity interests of such Person, or
(iii) any officer, director, employee, partner or trustee of such Person or any
Person controlling, controlled by or under common control with such Person
(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such Person). For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities or partnership interests or otherwise.
"Agreed Value" means the fair market value of a Partner's non-cash
Capital Contribution as of the date of contribution as agreed to by the
Partners. For purposes of this Partnership Agreement, the Agreed Value of a
Partner's non-cash Capital Contribution shall be equal to the number of
Partnership Units received by such Partner in exchange for Property or an
interest therein or in connection with the merger of a partnership of which such
person is a partner with and into the Partnership, or for any other non-cash
asset so contributed, multiplied by the Public Offering Price or, if the
contribution is made after the date hereof, the "Market Price" calculated in
accordance with the second and third sentences of the definition of "Cash
Amount." The names and addresses of the Partners, number of Partnership Units
issued to each Partner, and the Agreed Value of non-cash Capital Contributions
as of the date of contribution is set forth on Exhibit A.
---------
"Agreement" means this First Amended and Restated Agreement of Limited
Partnership.
- 2 -
<PAGE>
"Articles of Incorporation" means the Articles of Incorporation of the
General Partner filed with the Secretary of State of Maryland, as amended or
restated from time to time.
"Capital Account" has the meaning provided in Section 4.04 hereof.
"Capital Contribution" means the total amount of cash, cash equivalents,
and the Agreed Value of any Property or other asset contributed or agreed to be
contributed, as the context requires, to the Partnership by each Partner
pursuant to the terms of the Agreement. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a
predecessor holder of the Partnership Interest of such Partner.
"Capital Transaction" means the refinancing, sale, exchange,
condemnation, recovery of a damage award or insurance proceeds (other than
business or rental interruption insurance proceeds not reinvested in the repair
or reconstruction of Properties), or other disposition of any Property (or the
Partnership's interest therein).
"Cash Amount" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount on the date of receipt by the Company of a
Notice of Exchange. The value of the REIT Shares Amount shall be based on the
average of the daily market price of REIT Shares for the ten consecutive trading
days immediately preceding the date of such valuation. The market price for each
such trading day shall be: (i) if the REIT Shares are listed or admitted to
trading on any securities exchange or the NYSE, the sale price, regular way, on
such day, or if no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, on such day, (ii) if the REIT Shares are not
listed or admitted to trading on any securities exchange or the NYSE, the last
reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the Company, or (iii) if the REIT Shares
are not listed or admitted to trading on any securities exchange or the NYSE and
no such last reported sale price or closing bid and asked prices are available,
the average of the reported high bid and low asked prices on such day, as
reported by a reliable quotation source designated by the Company, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than ten days
prior to the date in question) for which prices have been so reported; provided
--------
that if there are no bid and asked prices reported during the ten days prior to
- ----
the date in question, the value of the REIT Shares shall be determined by the
Company acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the REIT Shares Amount includes rights that a holder of REIT Shares would
be entitled to receive, then the value of such rights shall be determined by the
Company acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
"Certificate" means any instrument or document that is required under
the laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the
- 3 -
<PAGE>
power-of-attorney granted to the General Partner in Section 8.02 hereof) and
filed for recording in the appropriate public offices within the State of
Delaware or such other jurisdiction to perfect or maintain the Partnership as a
limited partnership, to effect the admission, withdrawal, or substitution of any
Partner of the Partnership, or to protect the limited liability of the Limited
Partners as limited partners under the laws of the State of Delaware or such
other jurisdiction.
"Code" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"Commission" means the U.S. Securities and Exchange Commission.
"Company" means Prentiss Properties Trust, a Maryland real estate
investment trust.
"Conversion Factor" means 1.0, provided that in the event that the
-------------
Company (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
Substantial Economic Effect the record date for such dividend, distribution,
subdivision or combination (assuming for such purposes that such dividend,
distribution, subdivision or combination has occurred as of such time), and the
denominator of which shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on such date. Any
adjustment to the Conversion Factor shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event; provided, however, that if the Company receives a Notice of Exchange
-------- -------
after the record date, but prior to the effective date of such dividend,
distribution, subdivision or combination, the Conversion Factor shall be
determined as if the Company had received the Notice of Exchange immediately
prior to the record date for such dividend, distribution, subdivision or
combination.
"Declaration of Trust" means the Declaration of Trust of the Company
filed with the Maryland State Department of Assessments and Taxation, as amended
or restated from time to time.
"Event of Bankruptcy" as to any Person means the filing of a petition
for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any
- 4 -
<PAGE>
jurisdiction, whether now in existence or hereinafter in effect, either by such
Person or by another, provided that if such proceeding is commenced by another,
such Person indicates his approval of such proceeding, consents thereto or
acquiesces therein, or such proceeding is contested by such Person and has not
been finally dismissed within 90 days.
"Exchange Amount" means either the Cash Amount or the REIT Shares
Amount, as selected by the General Partner or the Company in its sole discretion
pursuant to Section 8.05(b) hereof.
"Exchange Right" has the meaning provided in Section 8.05(a) hereof.
"Exchanging Partner" has the meaning provided in Section 8.05(a) hereof.
"General Partner" means Prentiss Properties General Partner, Inc., a
Maryland corporation, and any Person who becomes a substitute or additional
General Partner as provided herein, and any of their successors as General
Partner.
"General Partnership Interest" means a Partnership Interest held by the
General Partner that is a general partnership interest.
"Incentive Rights" has the meaning set forth in Section 4.09 hereof.
"Indemnitee" means (i) any Person made a party to a proceeding by reason
of its status as the Company, the General Partner or a director, officer or
employee of the Company, the Partnership or the General Partner, and (ii) such
other Persons (including Affiliates of the Company, General Partner or the
Partnership) as the General Partner may designate from time to time, in its sole
and absolute discretion.
"Independent Directors" means a director of the Company who is not an
officer or employee of the Company, any Affiliate of an officer or employee or
any Affiliate of (i) any lessee of any property of the Company or any Subsidiary
of the Company, (ii) any Subsidiary of the Company, or (iii) any partnership
that is an Affiliate of the Company.
"Initial Properties" means those properties listed on Exhibit B hereto.
---------
"Limited Partner" means any Person named as a Limited Partner on
Exhibit A attached hereto, and any Person who becomes a Substitute or Additional
- ---------
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.
"Limited Partnership Interest" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the
- 5 -
<PAGE>
Act, together with the obligations of such Limited Partner to comply with all
the provisions of this Agreement and of such Act.
"Loss" has the meaning provided in Section 5.01(f) hereof.
"Minimum Limited Partnership Interest" means the lesser of (i) 1% or
(ii) if the total Capital Contributions to the Partnership exceeds $50 million,
1% divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
-------- -------
shall not be less than 0.2% at any time.
"Notice of Exchange" means the Notice of Exercise of Exchange Right
substantially in the form attached as Exhibit C hereto.
---------
"NYSE" means the New York Stock Exchange.
"Offer" has the meaning set forth in Section 7.01(c) hereof.
"Offering" means the initial offer and sale by the Company and the
purchase by the Underwriters (as defined in the Prospectus) of REIT Shares for
sale to the public.
"Partner" means any General Partner or Limited Partner.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations
Section 1.704-2(i)(5).
"Partnership Interest" means an ownership interest in the Partnership
held by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the
amount of Partnership Minimum Gain is determined by first computing, for each
Partnership nonrecourse liability, any gain the Partnership would realize if it
disposed of the property subject to that liability for no consideration other
than full satisfaction of the liability, and then aggregating the separately
computed gains. A Partner's share of Partnership Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(g)(1).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of cash pursuant to Section 5.02 hereof,
which record date shall be the same as the record date established by the
Company for a distribution to its shareholders of some or all of its portion of
such distribution.
- 6 -
<PAGE>
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued hereunder. The allocation of
Partnership Units among the Partners shall be as set forth on Exhibit A, as may
---------
be amended from time to time.
"Percentage Interest" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner by the total number of Partnership Units then outstanding.
The Percentage Interest of each Partner shall be as set forth on Exhibit A, as
---------
may be amended from time to time.
"Person" means any individual, partnership, corporation, joint venture,
trust or other entity.
"Profit" has the meaning provided in Section 5.01(f) hereof.
"Property" means any office or industrial property or other investment
in which the Partnership holds an ownership interest.
"Prospectus" means the final prospectus delivered to purchasers of REIT
Shares in the Offering.
"Public Offering Price" shall mean the initial public offering price set
forth in the Prospectus.
"Regulations" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through
860 of the Code.
"REIT Expenses" means (i) costs and expenses relating to the formation
and continuity of existence and operation of the Company and any Subsidiaries
thereof, including Prentiss Properties General Partner, Inc., (which
Subsidiaries shall, for purposes hereof, be included within the definition of
Company), including taxes, fees and assessments associated therewith, any and
all costs, expenses or fees payable to any director, officer, or employee of the
Company, (ii) costs and expenses relating to the public offering and
registration of securities by the Company and all statements, reports, fees and
expenses incidental thereto, including underwriting discounts and selling
commissions applicable to any such offering of securities, (iii) costs and
expenses associated with the preparation and filing of any periodic reports by
the Company under federal, state or local laws or regulations, including filings
with the Commission, (iv) costs and expenses associated with compliance by the
Company with laws, rules and regulations promulgated by any regulatory body,
including the Commission, and (v) all other
- 7 -
<PAGE>
operating or administrative costs of the Company incurred in the ordinary course
of its business on behalf of or in connection with the Partnership.
"REIT Share" means a common share of beneficial interest in the Company,
$.01 par value per share.
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for exchange by an Exchanging
Partner, multiplied by the Conversion Factor as adjusted to and including the
Specified Exchange Date; provided that in the event the Company issues to all
-------------
holders of REIT Shares rights, options, warrants or convertible or exchangeable
securities entitling the shareholders to subscribe for or purchase REIT Shares,
or any other securities or property (collectively, the "rights"), and the rights
have not expired at the Specified Exchange Date, then the REIT Shares Amount
shall also include the rights issuable to a holder of the REIT Shares Amount of
REIT Shares on the record date fixed for purposes of determining the holders of
REIT Shares entitled to rights.
"Service" means the Internal Revenue Service.
"Specified Exchange Date" means the first business day of the month that
is at least 60 business days after the receipt by the Company of the Notice of
Exchange.
"Share Incentive Plans" means the Prentiss Properties Trust [1996 Share
Option Plan] and the [Prentiss Properties Trust Non-Employee Directors'
Incentive Plan,] as either such plan may be amended from time to time, or any
stock incentive plan adopted in the future by the Company.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Subsidiary Partnership" means any partnership of which the majority of
the limited or general partnership interests therein are owned, directly or
indirectly, by the Partnership.
"Substitute Limited Partner" means any Person admitted to the
Partnership as a Limited Partner pursuant to Section 9.03 hereof.
"Surviving General Partner" has the meaning set forth in Section 7.01(d)
hereof.
"Transaction" has the meaning set forth in Section 7.01(c) hereof.
"Transfer" has the meaning set forth in Section 9.02(a) hereof.
- 8 -
<PAGE>
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
-------------------------------------------
2.01 Continuation. The Partners hereby agree to continue the
------------
Partnership pursuant to the Act and upon the terms and conditions set forth in
this Agreement.
2.02 Name, Office and Registered Agent. The name of the Partnership is
---------------------------------
Prentiss Properties Acquisition Partners, L.P. The specified office and place of
business of the Partnership shall be 1717 Main Street, Suite 5000, Dallas, Texas
75201. The General Partner may at any time change the location of such office,
provided the General Partner gives notice to the Partners of any such change.
The name and address of the Partnership's registered agent is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801. The sole duty of the registered agent as such is
to forward to the Partnership any notice that is served on him as registered
agent.
2.03 Partners.
---------
(a) The new General Partner of the Partnership is Prentiss
Properties General Partner, Inc., a Maryland corporation. Its principal place of
business shall be the same as that of the Partnership.
(b) The former general partner of the Partnership, Prentiss
Properties Acquisition, L.P., a Delaware limited partnership ("PPALP"), is
converted to a limited partner, and shall be identified as a Limited Partner on
Exhibit A.
- ---------
(c) The General Partner hereby consents to admit those persons
identified on Exhibit A as Limited Partners as of the date hereof. The Limited
---------
Partners shall be those Persons identified as Limited Partners on Exhibit A
---------
hereto, as amended from time to time.
2.04 Term and Dissolution.
---------------------
(a) The term of the Partnership shall continue in full force and
effect until December 31, 2050, except that the Partnership shall be dissolved
upon the first to occur of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a
General Partner or the dissolution, death, removal or withdrawal
of a General Partner unless the business of the Partnership is
continued pursuant to Section 7.03(b) hereof; provided that if a
-------- ----
General Partner is on the date of such occurrence a partnership,
the dissolution of such General Partner as a result of the
dissolution, death, withdrawal, removal or Event of Bankruptcy of
a partner in such partnership shall not be an event of dissolution
of the Partnership if the business of such General
- 9 -
<PAGE>
Partner is continued by the remaining partner or partners, either
alone or with additional partners, and such General Partner and
such partners comply with any other applicable requirements of
this Agreement;
(ii) The passage of 90 days after the sale or other
disposition of all or substantially all of the assets of the
Partnership (provided that if the Partnership receives an
-------------
installment obligation as consideration for such sale or other
disposition, the Partnership shall continue, unless sooner
dissolved under the provisions of this Agreement, until such time
as such note or notes are paid in full);
(iii) The exchange of all Limited Partnership Interests;
or
(iv) The election by the General Partner that the
Partnership should be dissolved.
(b) Upon dissolution of the Partnership (unless the business of
the Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either
(i) defer liquidation of, or withhold from distribution for a reasonable time,
any assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.
2.05 Filing of Certificate and Perfection of Limited Partnership.
-----------------------------------------------------------
The General Partner shall execute, acknowledge, record and file at the expense
of the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
2.06 Certificates Describing Partnership Units. At the request of
------------------------------------------
a Limited Partner, the General Partner, at its option, may issue a certificate
summarizing the terms of such Limited Partner's interest in the Partnership,
including the number of Partnership Units owned and the Percentage Interest
represented by such Partnership Units as of the date of such certificate. Any
such certificate (i) shall be in form and substance as approved by the General
Partner, (ii) shall not be negotiable and (iii) shall bear a legend to the
following effect:
This certificate is not negotiable. The Partnership Units
represented by this certificate are governed by and transferable
only in accordance with the provisions of the Second Amended and
- 10 -
<PAGE>
Restated Agreement of Limited Partnership of Prentiss Properties
Acquisition Partners, L.P., as amended and restated.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
---------------------------
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
Company at all times to qualify as a REIT, unless the Company otherwise ceases
to qualify as a REIT, (ii) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing or the ownership of
interests in any entity engaged in any of the foregoing and (iii) to do anything
necessary or incidental to the foregoing. In connection with the foregoing, and
without limiting the Company's right in its sole discretion to cease qualifying
as a REIT, the Partners acknowledge that the Company's current status as a REIT
inures to the benefit of all the Partners and not solely to the Company. The
General Partner shall also be empowered to do any and all acts and things
necessary or prudent to ensure that the Partnership will not be classified as a
"publicly traded partnership" for purposes of Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
----------------------------------
4.01 Capital Contributions. The General Partner shall contribute to
----------------------
the capital of the Partnership cash in an amount set forth opposite its name
on Exhibit A. The Limited Partners shall contribute to the capital of the
---------
Partnership interests in one or more of the Properties or the partnerships
owning such Properties, or interests in certain property management and related
assets, each with values as set forth opposite their names on Exhibit A. The
---------
Agreed Values of such Limited Partners' ownership interests in the Properties
that are contributed to the Partnership are as set forth opposite their names on
Exhibit A.
- ---------
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<PAGE>
4.02 Additional Capital Contributions and Issuances of Additional
------------------------------------------------------------
Partnership Interests. Except as provided in this Section 4.02 or in
- ---------------------
Section 4.03, the Partners shall have no right or obligation to make any
additional Capital Contributions or loans to the Partnership. The General
Partner may contribute additional capital to the Partnership, from time to time,
and receive additional Partnership Interests in respect thereof, in the manner
contemplated in this Section 4.02.
(a) Issuances of Additional Partnership Interests.
---------------------------------------------
(i) General. The General Partner is hereby authorized to
-------
cause the Partnership to issue such additional Partnership Interests in the form
of Partnership Units for any Partnership purpose at any time or from time to
time, to the Partners (including the General Partner and the Company) or to
other Persons for such consideration and on such terms and conditions as shall
be established by the General Partner in its sole and absolute discretion, all
without the approval of any Limited Partners. Any additional Partnership
Interests issued thereby may be issued in one or more classes, or one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined by the General Partner in its sole and absolute discretion and
without the approval of any Limited Partner, subject to Delaware law, including,
without limitation, (i) the allocations of items of Partnership income, gain,
loss, deduction and credit to each such class or series of Partnership
Interests; (ii) the right of each such class or series of Partnership Interests
to share in Partnership distributions; and (iii) the rights of each such class
or series of Partnership Interests upon dissolution and liquidation of the
Partnership; provided, however, that no additional Partnership Interests shall
-------- -------
be issued to the General Partner or the Company unless either:
(1)(A) the additional Partnership Interests are issued in
connection with an issuance of REIT Shares of or other interests in the
Company, which shares or interests have designations, preferences and other
rights, all such that the economic interests are substantially similar to
the designations, preferences and other rights of the additional
Partnership Interests issued to the General Partner or the Company by the
Partnership in accordance with this Section 4.02 and (B) the General
Partner or the Company shall make a Capital Contribution to the Partnership
in an amount equal to the proceeds raised in connection with the issuance
of such shares of stock of or other interests in the Company, or
(2) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, so long as the General Partner concludes in good faith that such issuance
is in the best interests of the General Partner and the Partnership.
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<PAGE>
(ii) Upon Issuance of Additional Securities. After the
--------------------------------------
Offering, the Company shall not issue any additional REIT Shares (other than
REIT Shares issued in connection with an exchange pursuant to Section 8.05
hereof) or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares (collectively,
"Additional Securities") other than to all holders of REIT Shares, unless
(A) the General Partner shall cause the Partnership to issue to the General
Partner and the Company, as the Company may designate, Partnership Interests or
rights, options, warrants or convertible or exchangeable securities of the
Partnership having designations, preferences and other rights, all such that the
economic interests are substantially similar to those of the Additional
Securities, and (B) the Company contributes the proceeds from the issuance of
such Additional Securities and from any exercise of rights contained in such
Additional Securities, directly and through the General Partner, to the
Partnership; provided, however, that the Company is allowed to issue Additional
-------- -------
Securities in connection with an acquisition of a property to be held directly
by the Company, but if and only if, such direct acquisition and issuance of
Additional Securities have been approved and determined to be in the best
interests of the Company and the Partnership by a majority of the Independent
Trustees (as defined in the Company's Amended and Restated Declaration of
Trust). Without limiting the foregoing, the Company is expressly authorized to
issue Additional Securities for less than fair market value, and to cause the
Partnership to issue to the General Partner and the Company corresponding
Partnership Interests, so long as (x) the General Partner concludes in good
faith that such issuance is in the best interests of the General Partner, the
Company and the Partnership, including without limitation, the issuance of REIT
Shares and corresponding Partnership Units pursuant to an employee share
purchase plan providing for employee purchases of REIT Shares at a discount from
fair market value or employee stock options that have an exercise price that is
less than the fair market value of the REIT Shares, either at the time of
issuance or at the time of exercise, and (y) the Company contributes all
proceeds from such issuance, directly or through the General Partner, to the
Partnership. For example, in the event the Company issues REIT Shares for a cash
purchase price and contributes all of the proceeds of such issuance, directly
and through the General Partner, to the Partnership as required hereunder, the
General Partner and the Company, as the Company may so designate, shall be
issued a number of additional Partnership Units equal to the product of (A) the
number of such REIT Shares issued by the Company, the proceeds of which were so
contributed, multiplied by (B) a fraction, the numerator of which is 100%, and
the denominator of which is the Conversion Factor in effect on the date of such
contribution.
(b) Certain Deemed Contributions of Proceeds of Issuance of REIT
------------------------------------------------------------
Shares. In connection with any and all issuances of REIT Shares, the Company and
- ------
the General Partner, as the Company determines, shall make Capital Contributions
to the Partnership of the proceeds therefrom, provided that if the proceeds
actually received and contributed by the Company, directly or through the
General Partner, are less than the gross proceeds of such issuance as a result
of any underwriter's discount or other expenses paid or incurred in connection
with such issuance, then the General Partner and the Company shall be deemed to
have made Capital Contributions to the Partnership in the aggregate amount of
the gross proceeds of such issuance and the Partnership shall be deemed
simultaneously to have paid such offering expenses in
- 13 -
<PAGE>
accordance with Section 6.05 hereof and in connection with the required issuance
of additional Partnership Units to the General Partner and the Company for such
Capital Contributions pursuant to Section 4.02(a) hereof.
(c) Minimum Limited Partnership Interest. In the event that
------------------------------------
either an exchange pursuant to Section 8.05 hereof or additional Capital
Contributions by the General Partner and the Company would result in the Limited
Partners (other than the Company), in the aggregate, owning less than the
Minimum Limited Partnership Interest, the General Partner and/or the Company and
the Limited Partners shall form another partnership and contribute sufficient
Limited Partnership Interests together with such other Limited Partners so that
the limited partners (other than the Company) of such partnership own at least
the Minimum Limited Partnership Interest.
4.03 Additional Funding. If the General Partner determines that it
------------------
is in the best interests of the Partnership to provide for additional
Partnership funds ("Additional Funds") for any Partnership purpose, the General
Partner may (i) cause the Partnership to obtain such funds from outside
borrowings, or (ii) elect to have the General Partner or the Company provide
such Additional Funds to the Partnership through loans or otherwise.
4.04 Capital Accounts. A separate capital account (a "Capital
----------------
Account") shall be established and maintained for each Partner in accordance
with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a de
--
minimis Capital Contribution, (ii) the Partnership distributes to a Partner more
- -------
than a de minimis amount of Partnership property as consideration for a
-- -------
Partnership Interest, or (iii) the Partnership is liquidated within the meaning
of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue
the property of the Partnership to its fair market value (as determined by the
General Partner, in its sole discretion, and taking into account Section 7701(g)
of the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When
the Partnership's property is revalued by the General Partner, the Capital
Accounts of the Partners shall be adjusted in accordance with Regulations
Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital
Accounts to be adjusted to reflect the manner in which the unrealized gain or
loss inherent in such property (that has not been reflected in the Capital
Accounts previously) would be allocated among the Partners pursuant to Section
5.01 if there were a taxable disposition of such property for its fair market
value (as determined by the General Partner, in its sole discretion, and taking
into account Section 7701(g) of the Code) on the date of the revaluation.
4.05 Percentage Interests. If the number of outstanding Partnership
--------------------
Units increases or decreases during a taxable year, each Partner's Percentage
Interest shall be adjusted by the General Partner effective as of the effective
date of each such increase or decrease to a percentage equal to the number of
Partnership Units held by such Partner divided by the aggregate number of
Partnership Units outstanding after giving effect to such increase or decrease.
If the Partners' Percentage Interests are adjusted pursuant to this
Section 4.05, the
- 14 -
<PAGE>
Profits and Losses for the taxable year in which the adjustment occurs shall be
allocated between the part of the year ending on the day when the Partnership's
property is revalued by the General Partner and the part of the year beginning
on the following day either (i) as if the taxable year had ended on the date of
the adjustment or (ii) based on the number of days in each part. The General
Partner, in its sole discretion, shall determine which method shall be used to
allocate Profits and Losses for the taxable year in which the adjustment occurs.
The allocation of Profits and Losses for the earlier part of the year shall be
based on the Percentage Interests before adjustment, and the allocation of
Profits and Losses for the later part shall be based on the adjusted Percentage
Interests.
4.06 No Interest on Contributions. No Partner shall be entitled to
----------------------------
interest on its Capital Contribution.
4.07 Return of Capital Contributions. No Partner shall be entitled
-------------------------------
to withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
4.08 No Third Party Beneficiary. No creditor or other third party
--------------------------
having dealings with the Partnership shall have the right to enforce the right
or obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners
herein set forth to make Capital Contributions or loans to the Partnership shall
be deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.
- 15 -
<PAGE>
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
---------------------------------
5.01 Allocation of Profit and Loss.
-----------------------------
(a) General. Profit and Loss of the Partnership for each fiscal
-------
year of the Partnership shall be allocated among the Partners in accordance with
their respective Percentage Interests.
(b) Minimum Gain Chargeback. Notwithstanding any provision to the
-----------------------
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in
accordance with the Partners' respective Percentage Interests, (ii) any expense
of the Partnership that is a "partner nonrecourse deduction" within the meaning
of Regulations Section 1.704-2(i)(2) shall be allocated to the Partner that
bears the "economic risk of loss" of such deduction in accordance with
Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable year, then, subject to the exceptions set forth in
Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and income
shall be allocated among the Partners in accordance with Regulations
Section 1.704-2(f) and the ordering rules contained in Regulations
Section 1.704-2(j), and (iv) if there is a net decrease in Partner Nonrecourse
Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for
any Partnership taxable year, then, subject to the exceptions set forth in
Regulations Section 1.704(2)(g), items of gain and income shall be allocated
among the Partners in accordance with Regulations Section 1.704-2(i)(4) and the
ordering rules contained in Regulations Section 1.704-2(j). A Partner's
"interest in partnership profits" for purposes of determining its share of the
nonrecourse liabilities of the Partnership within the meaning of Regulations
Section 1.752-3(a)(3) shall be such Partner's Percentage Interest.
(c) Qualified Income Offset. If a Limited Partner receives in any
-----------------------
taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that
causes or increases a deficit balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to eliminate such deficit Capital
Account balance as quickly as possible as provided in Regulations Section 1.704-
1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a
Limited Partner in accordance with this Section 5.01(c), to the extent permitted
by Regulations Section 1.704-1(b), items of expense or loss shall be allocated
to such Partner in an amount necessary to offset the income or gain previously
allocated to such Partner under this Section 5.01(c).
- 16 -
<PAGE>
(d) Capital Account Deficits. Loss shall not be allocated to a
------------------------
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(d), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to such Partner under
this Section 5.01(d).
(e) Allocations Between Transferor and Transferee. If a Partner
---------------------------------------------
transfers any part or all of its Partnership Interest, the distributive shares
of the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
transferee Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective portions of such fiscal year in which the
transferor and the transferee were Partners. The General Partner, in its sole
discretion, shall determine which method shall be used to allocate the
distributive shares of the various items of Profit and Loss between the
transferor and the transferee Partner.
(f) Definition of Profit and Loss. "Profit" and "Loss" and any
-----------------------------
items of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Section 5.01(b), 5.01(c), or 5.01(d). All allocations of income,
Profit, gain, Loss, and expense (and all items contained therein) for federal
income tax purposes shall be identical to all allocations of such items set
forth in this Section 5.01, except as otherwise required by Section 704(c) of
the Code and Regulations Section 1.704-1(b)(4). The General Partner shall have
the authority to elect the method to be used by the Partnership for allocating
items of income, gain, and expense as required by Section 704(c) of the Code and
such election shall be binding on all Partners.
5.02 Distribution of Cash.
--------------------
(a) The Partnership shall distribute cash on a quarterly (or, at
the election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole discretion, to the Partners who
are Partners on the Partnership Record Date with respect to such quarter (or
other distribution period) in accordance with their respective Percentage
Interests on the Partnership Record Date; provided, however, that if a new or
-------- -------
existing Partner acquires an additional Partnership Interest in exchange for a
Capital Contribution on any date other than a Partnership Record Date, the cash
distribution attributable to such additional Partnership Interest relating to
the Partnership Record Date next following the issuance of such additional
Partnership Interest shall be reduced in the proportion that the number of days
that such
- 17 -
<PAGE>
additional Partnership Interest is held by such Partner bears to the number of
days between such Partnership Record Date and the immediately preceding
Partnership Record Date.
(b) Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required to withhold and pay
over to any taxing authority any amount resulting from the allocation or
distribution of income to the Partner or assignee (including by reason of
Section 1446 of the Code), the amount withheld shall be treated as a
distribution of cash in the amount of such withholding to such Partner.
(c) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a cash
dividend as the holder of record of a REIT Share for which all or part of such
Partnership Unit has been or will be exchanged.
5.03 REIT Distribution Requirements. The General Partner shall use
------------------------------
its reasonable efforts to cause the Partnership to distribute amounts sufficient
to enable the Company to pay shareholder dividends that will allow the Company
to (i) meet its distribution requirement for qualification as a REIT as set
forth in Section 857(a)(1) of the Code and (ii) avoid any federal income or
excise tax liability imposed by the Code.
5.04 No Right to Distributions in Kind. No Partner shall be entitled
---------------------------------
to demand property other than cash in connection with any distributions by the
Partnership.
5.05 Limitations on Return of Capital Contributions.
----------------------------------------------
Notwithstanding any of the provisions of this Article V, no Partner shall have
the right to receive and the General Partner shall not have the right to make, a
distribution that includes a return of all or part of a Partner's Capital
Contributions, unless after giving effect to the return of a Capital
Contribution, the sum of all Partnership liabilities, other than the liabilities
to a Partner for the return of his Capital Contribution, does not exceed the
fair market value of the Partnership's assets.
5.06 Distributions Upon Liquidation.
------------------------------
(a) Upon liquidation of the Partnership, after payment of, or
adequate provision for, debts and obligations of the Partnership, including any
Partner loans, any remaining assets of the Partnership shall be distributed to
all Partners with positive Capital Accounts in accordance with their respective
positive Capital Account balances. For purposes of the preceding sentence, the
Capital Account of each Partner shall be determined after all adjustments made
in accordance with Sections 5.01 and 5.02 resulting from Partnership operations
and from all sales and dispositions of all or any part of the Partnership's
assets. To the extent deemed advisable by the General Partner, appropriate
arrangements (including the use of a liquidating trust) may be made to assure
that adequate funds are available to pay any contingent debts or obligations.
- 18 -
<PAGE>
(b) If the General Partner has a negative balance in its Capital
Account following a liquidation of the Partnership, as determined after taking
into account all Capital Account adjustments in accordance with Sections 5.01
and 5.02 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.06(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
5.07 Substantial Economic Effect. It is the intent of the Partners
---------------------------
that the allocations of Profit and Loss under the Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to nonrecourse
debt) within the meaning of Section 704(b) of the Code as interpreted by the
Regulations promulgated pursuant thereto. Article V and other relevant
provisions of this Agreement shall be interpreted in a manner consistent with
such intent.
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
-----------------------------
6.01 Management of the Partnership.
-----------------------------
(a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage and
control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i) to acquire, purchase, own, operate, lease and dispose
of any real property and any other property or assets that the General
Partner determines are necessary or appropriate or in the best
interests of the business of the Partnership;
(ii) to construct buildings and make other improvements on
the properties owned or leased by the Partnership;
(iii) to authorize, issue, sell, redeem or otherwise
purchase any Partnership Interests or any securities (including
secured and unsecured debt obligations of the Partnership, debt
obligations of the Partnership convertible into
- 19 -
<PAGE>
any class or series of Partnership Interests, or options, rights,
warrants or appreciation rights relating to any Partnership Interests)
of the Partnership;
(iv) to borrow or lend money for the Partnership, issue
or receive evidences of indebtedness in connection therewith,
refinance, increase the amount of, modify, amend or change the terms
of, or extend the time for the payment of, any such indebtedness, and
secure such indebtedness by mortgage, deed of trust, pledge or other
lien on the Partnership's assets;
(v) to guarantee or become a comaker of indebtedness of
the Company or any Subsidiary thereof, refinance, increase the amount
of, modify, amend or change the terms of, or extend the time for the
payment of, any such guarantee or indebtedness, and secure such
guarantee or indebtedness by mortgage, deed of trust, pledge or other
lien on the Partnership's assets;
(vi) to use assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with this
Agreement, including, without limitation, payment, either directly or
by reimbursement, of all operating costs and general administrative
expenses of the Company, the General Partner, the Partnership or any
Subsidiary of either, to third parties or to the General Partner as
set forth in this Agreement;
(vii) to lease all or any portion of any of the
Partnership's assets, whether or not the terms of such leases extend
beyond the termination date of the Partnership and whether or not any
portion of the Partnership's assets so leased are to be occupied by
the lessee, or, in turn, subleased in whole or in part to others, for
such consideration and on such terms as the General Partner may
determine;
(viii) to prosecute, defend, arbitrate, or compromise any
and all claims or liabilities in favor of or against the Partnership,
on such terms and in such manner as the General Partner may reasonably
determine, and similarly to prosecute, settle or defend litigation
with respect to the Partners, the Partnership, or the Partnership's
assets; provided, however, that the General Partner may not, without
-------- -------
the consent of all of the Partners, confess a judgment against the
Partnership;
(ix) to file applications, communicate, and otherwise
deal with any and all governmental agencies having jurisdiction over,
or in any way affecting, the Partnership's assets or any other aspect
of the Partnership business;
(x) to make or revoke any election permitted or required
of the Partnership by any taxing authority;
- 20 -
<PAGE>
(xi) to maintain such insurance coverage for public
liability, fire and casualty, and any and all other insurance for the
protection of the Partnership, for the conservation of Partnership
assets, or for any other purpose convenient or beneficial to the
Partnership, in such amounts and such types, as it shall determine
from time to time;
(xii) to determine whether or not to apply any insurance
proceeds for any property to the restoration of such property or to
distribute the same;
(xiii) to establish one or more divisions of the
Partnership, to hire and dismiss employees of the Partnership or any
division of the Partnership, and to retain legal counsel, accountants,
consultants, real estate brokers, and such other persons, as the
General Partner may deem necessary or appropriate in connection with
the Partnership business and to pay therefor such reasonable
remuneration as the General Partner may deem reasonable and proper;
(xiv) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xv) to negotiate and conclude agreements on behalf of
the Partnership with respect to any of the rights, powers and
authority conferred upon the General Partner;
(xvi) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of
the Partnership;
(xvii) to distribute Partnership cash or other Partnership
assets in accordance with this Agreement;
(xviii) to form or acquire an interest in, and contribute
property to, any further limited or general partnerships, joint
ventures or other relationships that it deems desirable (including,
without limitation, the acquisition of interests in, and the
contributions of property to, its Subsidiaries and any other Person in
which it has an equity interest from time to time);
(xix) to establish Partnership reserves for working
capital, capital expenditures, contingent liabilities, or any other
valid Partnership purpose; and
(xx) to take such other action, execute, acknowledge,
swear to or deliver such other documents and instruments, and perform
any and all other acts that the General Partner deems necessary or
appropriate for the formation, continuation and conduct of the
business and affairs of the Partnership (including, without
limitation, all
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actions consistent with allowing the Company at all times to qualify
as a REIT unless the Company voluntarily terminates its REIT status)
and to possess and enjoy all of the rights and powers of a general
partner as provided by the Act.
(b) Except as otherwise provided herein, to the extent the duties
of the General Partner require expenditures of funds to be paid to third
parties, the General Partner shall not have any obligations hereunder except to
the extent that partnership funds are reasonably available to it for the
performance of such duties, and nothing herein contained shall be deemed to
authorize or require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any individual
liability or obligation on behalf of the Partnership.
6.02 Delegation of Authority. The General Partner may delegate any
-----------------------
or all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
6.03 Indemnification and Exculpation of Indemnitees.
----------------------------------------------
(a) The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including reasonable legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership as set forth in this Agreement
in which any Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, unless it is established that: (i) the act or omission of
the Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be
made only out of the assets of the Partnership.
(b) The Partnership shall reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.03 has been met, and (ii) a written undertaking by
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<PAGE>
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf
of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.03, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.03; and actions
taken or omitted by the Indemnitee with respect to an employee benefit plan in
the performance of its duties for a purpose reasonably believed by it to be in
the interest of the participants and beneficiaries of the plan shall be deemed
to be for a purpose which is not opposed to the best interests of the
Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or
in part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.03 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
6.04 Liability of the General Partner.
--------------------------------
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith. The General Partner shall not be in breach of any duty that
the General Partner may owe to the Limited Partners or the Partnership or any
other Persons
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<PAGE>
under this Agreement or of any duty stated or implied by law or equity provided
the General Partner, acting in good faith, abides by the terms of this
Agreement.
(b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, the Company and the Company's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners or the tax consequences of
same, but not all, of the Limited Partners) in deciding whether to cause the
Partnership to take (or decline to take) any actions. In the event of a conflict
between the interests of the shareholders of the Company on one hand and the
Limited Partners on the other, the General Partner shall endeavor in good faith
to resolve the conflict in a manner not adverse to either the shareholders of
the Company or the Limited Partners; provided, however, that for so long as the
Company, directly or the General Partner owns a controlling interest in the
Partnership, any such conflict that cannot be resolved in a manner not adverse
to either the shareholders of the Company or the Limited Partners shall be
resolved in favor of the shareholders. The General Partner shall not be liable
for monetary damages for losses sustained, liabilities incurred, or benefits not
derived by Limited Partners in connection with such decisions, provided that the
General Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner set
forth in Section 6.01 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the Company to
continue to qualify as a REIT or (ii) to prevent the Company from incurring any
taxes under Section 857, Section 4981, or any other provision of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 6.04 as in effect immediately prior to such
amendment, modification or repeal with respect to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
claims relating to such matters may arise or be asserted.
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<PAGE>
6.05 Reimbursement. The General Partner is hereby authorized to
-------------
pay compensation for accounting, administrative, legal, technical, management
and other services rendered to the Partnership. All of the aforesaid
expenditures (including Administrative Expenses) shall be obligations of the
Partnership, and the General Partner shall be entitled to reimbursement by the
Partnership for any expenditure (including Administrative Expenses) incurred by
it on behalf of the Partnership which shall be made other than out of the funds
of the Partnership.
6.06 Outside Activities. Subject to Section 6.08 hereof, the Articles
------------------
of Incorporation and any agreements entered into by the General Partner or its
Affiliates with the Partnership or a Subsidiary, any officer, director,
employee, agent, trustee, Affiliate or shareholder of the General Partner, the
General Partner shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the Partnership,
including business interests and activities substantially similar or identical
to those of the Partnership. Neither the Partnership nor any of the Limited
Partners shall have any rights by virtue of this Agreement in any such business
ventures, interest or activities. None of the Limited Partners nor any other
Person shall have any rights by virtue of this Agreement or the partnership
relationship established hereby in any such business ventures, interests or
activities, and the General Partner shall have no obligation pursuant to this
Agreement to offer any interest in any such business ventures, interests and
activities to the Partnership or any Limited Partner, even if such opportunity
is of a character which, if presented to the Partnership or any Limited Partner,
could be taken by such Person.
6.07 Employment or Retention of Affiliates.
-------------------------------------
(a) Any Affiliate of the General Partner may be employed or
retained by the Partnership and may otherwise deal with the Partnership (whether
as a buyer, lessor, lessee, manager, furnisher of goods or services, broker,
agent, lender or otherwise) and may receive from the Partnership any
compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries or
other Persons in which it has an equity investment, and such Persons may borrow
funds from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions as the
General Partner deems are consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property
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<PAGE>
from, the Partnership, directly or indirectly, except pursuant to transactions
that are on terms that are fair and reasonable to the Partnership.
6.08 General Partner Participation. The General Partner agrees that
-----------------------------
all business activities of the General Partner, including activities pertaining
to the acquisition, development or ownership of office or industrial property or
other property, shall be conducted through the Partnership or one or more
Subsidiary Partnerships; provided, however, that the Company is allowed to make
-------- -------
a direct acquisition, but if and only if, such acquisition is made in connection
with the issuance of Additional Securities, which direct acquisition and
issuance have been approved and determined to be in the best interests of the
Company and the Partnership by a majority of the Independent Directors.
6.09 Title to Partnership Assets. Title to Partnership assets, whether
---------------------------
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
-------- -------
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
6.10 Miscellaneous. In the event the Company redeems any REIT
-------------
Shares, then the General Partner shall cause the Partnership to purchase from
the General Partner and the Company a number of Partnership Units as determined
based on the application of the Conversion Factor on the same terms that the
Company exchanged such REIT Shares. Moreover, if the Company makes a cash
tender offer or other offer to acquire REIT Shares, then the General Partner
shall cause the Partnership to make a corresponding offer to the General Partner
and the Company to acquire an equal number of Partnership Units held by the
General Partner and the Company. In the event any REIT Shares are exchanged by
the Company pursuant to such offer, the Partnership shall redeem an equivalent
number of the General Partner's and the Company Partnership Units for an
equivalent purchase price based on the application of the Conversion Factor.
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<PAGE>
ARTICLE VII
CHANGES IN GENERAL PARTNER
--------------------------
7.01 Transfer of the General Partner's Partnership Interest.
------------------------------------------------------
(a) The General Partner shall not transfer all or any portion of
its General Partnership Interest or withdraw as General Partner except as
provided in Section 7.01(c) or in connection with a transaction described in
Section 7.01(d).
(b) The General Partner agrees that it and the Company will at all
times own in the aggregate at least a 20% Percentage Interest.
(c) Except as otherwise provided in Section 6.06(b) or Section
7.01(d) hereof, the Company shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, or any reclassification, or any recapitalization or change of
outstanding REIT Shares (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination of REIT Shares) (a
"Transaction"), unless (i) the Transaction also includes a merger of the
Partnership or sale of substantially all of the assets of the Partnership as a
result of which all Limited Partners will receive for each Partnership Unit an
amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid in the Transaction to a holder of one REIT Share in consideration of one
REIT Share, provided that if, in connection with the Transaction, a purchase,
-------- ----
tender or exchange offer ("Offer") shall have been made to and accepted by the
holders of more than 50% of the outstanding REIT Shares, each holder of
Partnership Units shall be given the option to exchange its Partnership Units
for the greatest amount of cash, securities, or other property which a Limited
Partner would have received had it (A) exercised its Exchange Right and
(B) sold, tendered or exchanged pursuant to the Offer the REIT Shares received
upon exercise of the Exchange Right immediately prior to the expiration of the
Offer; and (ii) no more than 75% of the equity securities of the acquiring
Person in such Transaction is owned, after consummation of such Transaction, by
the Company, the General Partner or Persons who were Affiliates of the Company,
the Partnership or the General Partner immediately prior to the date on which
the Transaction is consummated.
(d) Notwithstanding Section 7.01(c), the Company or the General Partner
may merge with or into or consolidate with another entity if immediately after
such merger or consolidation (i) substantially all of the assets of the
successor or surviving entity (the "Survivor"), other than Partnership Units
held by the Company or the General Partner, are contributed, directly or
indirectly, to the Partnership as a Capital Contribution in exchange for
Partnership Units with a fair market value equal to the value of the assets so
contributed as determined by the Survivor in good faith and (ii) the Survivor
expressly agrees to assume all obligations of the General Partner or the
Company, as appropriate, hereunder. Upon such
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<PAGE>
contribution and assumption, the Survivor shall have the right and duty to amend
this Agreement as set forth in this Section 7.01(d). The Survivor shall in good
faith arrive at a new method for the calculation of the Cash Amount, the REIT
Shares Amount and Conversion Factor for a Partnership Unit after any such merger
or consolidation so as to approximate the existing method for such calculation
as closely as reasonably possible. Such calculation shall take into account,
among other things, the kind and amount of securities, cash and other property
that was receivable upon such merger or consolidation by a holder of REIT Shares
or options, warrants or other rights relating thereto, and to which a holder of
Partnership Units could have acquired had such Partnership Units been exchanged
immediately prior to such merger or consolidation. Such amendment to this
Agreement shall provide for adjustment to such method of calculation, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for with respect to the Conversion Factor. The Survivor also shall in good faith
modify the definition of REIT Shares and make such amendments to Section 8.05
hereof so as to approximate the existing rights and obligations set forth in
Section 8.05 as closely as reasonably possible. The above provisions of this
Section 7.01(d) shall similarly apply to successive mergers or consolidations
permitted hereunder.
7.02 Admission of a Substitute or Additional General Partner. A
--------------------------------------------------------
Person shall be admitted as a substitute or additional General Partner of the
Partnership only if the following terms and conditions are satisfied:
(a) a majority in interest of the Limited Partners (other than the
Company) shall have consented in writing to the admission of the substitute or
additional General Partner, which consent may be withheld in the sole discretion
of such Limited Partners;
(b) the Person to be admitted as a substitute or additional
General Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.05 hereof in connection
with such admission shall have been performed;
(c) if the Person to be admitted as a substitute or additional
General Partner is a corporation or a partnership it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of such
Person's authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(d) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified
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<PAGE>
other than as a partnership for federal income tax purposes, or (ii) the loss of
any Limited Partner's limited liability.
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
-----------------------------------------------------------
General Partner.
- ---------------
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof.
(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that, if
a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after such
occurrence, may elect to reconstitute the Partnership and continue the business
of the Partnership for the balance of the term specified in Section 2.04 hereof
by selecting, subject to Section 7.02 hereof and any other provisions of this
Agreement, a substitute General Partner by unanimous consent of the Limited
Partners. If the Limited Partners elect to reconstitute the Partnership and
admit a substitute General Partner, the relationship with the Partners and of
any Person who has acquired an interest of a Partner in the Partnership shall be
governed by this Agreement.
7.04 Removal of a General Partner.
----------------------------
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
-------- -------
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners.
(b) If a General Partner has been removed pursuant to this
Section 7.04 and the Partnership is continued pursuant to Section 7.03 hereof,
such General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners in accordance with Section 7.03(b)
hereof and otherwise admitted to the Partnership in accordance with Section 7.02
hereof.
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<PAGE>
At the time of assignment, the removed General Partner shall be entitled to
receive from the substitute General Partner the fair market value of the General
Partnership Interest of such removed General Partner as reduced by any damages
caused to the Partnership by such General Partner. Such fair market value shall
be determined by an appraiser mutually agreed upon by the General Partner and a
majority in interest of the Limited Partners within 10 days following the
removal of the General Partner. In the event that the parties are unable to
agree upon an appraiser, the removed General Partner and a majority in interest
of the Limited Partners each shall select an appraiser. Each such appraiser
shall complete an appraisal of the fair market value of the removed General
Partner's General Partnership Interest within 30 days of the General Partner's
removal, and the fair market value of the removed General Partner's General
Partnership Interest shall be the average of the two appraisals; provided,
however, that if the higher appraisal exceeds the lower appraisal by more than
20% of the amount of the lower appraisal, the two appraisers, no later than 40
days after the removal of the General Partner, shall select a third appraiser
who shall complete an appraisal of the fair market value of the removed General
Partner's General Partnership Interest no later than 60 days after the removal
of the General Partner. In such case, the fair market value of the removed
General Partner's General Partnership Interest shall be the average of the two
appraisals closest in value.
(c) The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.04(b), shall be
converted to that of a special Limited Partner; provided, however, such removed
-------- -------
General Partner shall not have any rights to participate in the management and
affairs of the Partnership, and shall not be entitled to any portion of the
income, expense, profit, gain or loss allocations or cash distributions
allocable or payable, as the case may be, to the Limited Partners. Instead, such
removed General Partner shall receive and be entitled only to retain
distributions or allocations of such items that it would have been entitled to
receive in its capacity as General Partner, until the transfer is effective
pursuant to Section 7.04(b).
(d) All Partners shall have given and hereby do give such
consents, shall take such actions and shall execute such documents as shall be
legally necessary and sufficient to effect all the foregoing provisions of this
Section.
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
-----------------------
8.01 Management of the Partnership. The Limited Partners shall not
-----------------------------
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
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<PAGE>
8.02 Power of Attorney. Each Limited Partner hereby irrevocably
-----------------
appoints the General Partner its true and lawful attorney-in-fact, who may act
for each Limited Partner and in its name, place and stead, and for its use and
benefit, to sign, acknowledge, swear to, deliver, file and record, at the
appropriate public offices, any and all documents, certificates, and instruments
as may be deemed necessary or desirable by the General Partner to carry out
fully the provisions of this Agreement and the Act in accordance with their
terms, which power of attorney is coupled with an interest and shall survive the
death, dissolution or legal incapacity of the Limited Partner, or the transfer
by the Limited Partner of any part or all of its Partnership Interest.
8.03 Limitation on Liability of Limited Partners. No Limited Partner
-------------------------------------------
shall be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of its Capital Contribution, if any, as and when due hereunder. After
its Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 Ownership by Limited Partner of Corporate General Partner or
------------------------------------------------------------
Affiliate. No Limited Partner shall at any time, either directly or indirectly,
- ---------
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
8.05 Exchange Right.
--------------
(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e) and
8.05(f), on or after the date which is one year after the closing of the
Offering, each Limited Partner, other than the Company, shall have the right
(the "Exchange Right") to require the Partnership to redeem on a Specified
Exchange Date all or a portion of the Partnership Units held by such Limited
Partner at an exchange price equal to and in the form of the Cash Amount to be
paid by the Partnership. The Exchange Right shall be exercised pursuant to a
Notice of Exchange delivered to the Partnership (with a copy to the General
Partner) by the Limited Partner who is exercising the Exchange Right (the
"Exchanging Partner"); provided, however, that the Partnership shall not be
obligated to satisfy such Exchange Right if the Company and/or the General
Partner elects to purchase the Partnership Units subject to the Notice of
Exchange pursuant to Section 8.05(b); and provided, further, that no Limited
Partner may deliver more than two Notices of Exchange during each calendar year.
A Limited Partner may not exercise the Exchange Right for less than 1,000
Partnership Units or, if such Limited Partner holds less than 1,000 Partnership
Units, all of the Partnership Units held by such Partner. The Exchanging Partner
shall have no right, with respect to any Partnership Units so exchanged, to
receive any distribution paid with respect to
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<PAGE>
Partnership Units if the record date for such distribution is on or after the
Specified Exchange Date.
(b) Notwithstanding the provisions of Section 8.05(a), a Limited
Partner that exercises the Exchange Right shall be deemed to have offered to
sell the Partnership Units described in the Notice of Exchange to the General
Partner and the Company, and either of the General Partner or the Company (or
both) may, in its sole and absolute discretion, elect to purchase directly and
acquire such Partnership Units by paying to the Exchanging Partner either the
Cash Amount or the REIT Shares Amount, as elected by the General Partner or the
Company (in its sole and absolute discretion), on the Specified Exchange Date,
whereupon the General Partner or the Company shall acquire the Partnership Units
offered for exchange by the exchanging Partner and shall be treated for all
purposes of this Agreement as the owner of such Partnership Units. If the
General Partner and/or the Company shall elect to exercise its right to purchase
Partnership Units under this Section 8.05(b) with respect to a Notice of
Exchange, they shall so notify the Exchanging Partner within five Business Days
after the receipt by the General Partner of such Notice of Exchange. Unless the
General Partner and/or the Company (in its sole and absolute discretion) shall
exercise its right to purchase Partnership Units from the Exchanging Partner
pursuant to this Section 8.05(b), neither the General Partner nor the Company
shall have any obligation to the Exchanging Partner or the Partnership with
respect to the Exchanging Partner's exercise of the Exchange Right. In the event
the General Partner or the Company shall exercise its right to purchase
Partnership Units with respect to the exercise of a Exchange Right in the manner
described in the first sentence of this Section 8.05(b), the Partnership shall
have no obligation to pay any amount to the Exchanging Partner with respect to
such Exchanging Partner's exercise of such Exchange Right, and each of the
Exchanging Partner, the Partnership, and the General Partner or the Company, as
the case may be, shall treat the transaction between the General Partner or the
Company, as the case may be, and the Exchanging Partner for federal income tax
purposes as a sale of the Exchanging Partner's Partnership Units to the General
Partner or the Company, as the case may be. Each Exchanging Partner agrees to
execute such documents as the General Partner may reasonably require in
connection with the issuance of REIT Shares upon exercise of the Exchange Right.
(c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b),
a Limited Partner shall not be entitled to exercise the Exchange Right if the
delivery of REIT Shares to such Partner on the Specified Exchange Date by the
General Partner or the Company pursuant to Section 8.05(b) (regardless of
whether or not the General Partner or the Company would in fact exercise its
rights under Section 8.05(b)) would (i) result in such Partner or any other
person owning, directly or indirectly, REIT Shares in excess of the Ownership
Limitation (as defined in the Articles of Incorporation) and calculated in
accordance therewith, except as provided in the Articles of Incorporation,
(ii) result in REIT Shares being owned by fewer than 100 persons (determined
without reference to any rules of attribution), except as provided in the
Articles of Incorporation, (iii) result in the Company being "closely held"
within the meaning of Section 856(h) of the Code, (iv) cause the Company to own,
directly or constructively, 10% or more of the ownership interests in a tenant
of the General Partner's, the Partnership's, or a Subsidiary
- 32 -
<PAGE>
Partnership's, real property, within the meaning of Section 856(d)(2)(B) of the
Code, or (v) cause the acquisition of REIT Shares by such Partner to be
"integrated" with any other distribution of REIT Shares for purposes of
complying with the registration provisions of the Securities Act of 1933, as
amended (the "Securities Act"). The General Partner or the Company, in their
sole discretion, may waive the restriction on exchange set forth in this
Section 8.05(c); provided, however, that in the event such restriction is
-------- -------
waived, the Exchanging Partner shall be paid the Cash Amount.
(d) Any Cash Amount to be paid to an Exchanging Partner pursuant
to this Section 8.05 shall be paid on the Specified Exchange Date; provided,
--------
however, that the Company or the General Partner may elect to cause the
- -------
Specified Exchange Date to be delayed for up to an additional 180 days to the
extent required for the Company to cause additional REIT Shares to be issued to
provide financing to be used to make such payment of the Cash Amount.
Notwithstanding the foregoing, the Company and the General Partner agree to use
their best efforts to cause the closing of the acquisition of exchanged
Partnership Units hereunder to occur as quickly as reasonably possible.
(e) Notwithstanding any other provision of this Agreement, the
General Partner shall place appropriate restrictions on the ability of the
Limited Partners to exercise their Exchange Rights as and if deemed necessary to
ensure that the Partnership does not constitute a "publicly traded partnership"
under section 7704 of the Code. If and when the General Partner determines that
imposing such restrictions is necessary, the General Partner shall give prompt
written notice thereof (a "Restriction Notice") to each of the Limited Partners,
which notice shall be accompanied by a copy of an opinion of counsel to the
Partnership which states that, in the opinion of such counsel, restrictions are
necessary in order to avoid the Partnership being treated as a "publicly traded
partnership" under section 7704 of the Code.
8.06 Registration.
------------
(a) Shelf Registration of the Common Stock. Prior to or on the
--------------------------------------
first date upon which the Partnership Units owned by any Limited Partner may be
exchanged (or such other date as may be required under applicable provisions of
the Securities Act), the Company agrees to file with the Securities and Exchange
Commission (the "Commission"), a shelf registration statement on Form S-3 under
Rule 415 of the Securities Act (a "Registration Statement"), or any similar rule
that may be adopted by the Commission, with respect to all of the shares of
Common Stock that may be issued upon exchange of such Partnership Units pursuant
to Section 8.05 hereof ("Exchange Shares"). The Company will use its best
efforts to have the Registration Statement declared effective under the
Securities Act. The Company need not file a separate Registration Statement, but
may file one Registration Statement covering Exchange Shares issuable to more
than one Limited Partner. The Company further agrees to supplement or make
amendments to each Registration Statement, if required by the rules, regulations
or instructions applicable to the registration form utilized by the Company or
by the Securities Act or rules and regulations thereunder for such Registration
Statement.
- 33 -
<PAGE>
(b) If a Registration Statement under subsection (a) above is not
available under the securities laws or the rules of the Commission, or if
required to permit the resale of Exchange Shares by "Affiliates" (as defined in
the Securities Act), the Company agrees to file with the Commission a
Registration Statement covering the resale of Exchange Shares by Affiliates or
others whose Exchange Shares are not covered by a Registration Statement filed
pursuant to subsection (a) above. The Company will use its best efforts to have
the Registration Statement declared effective under the Securities Act. The
Company need not file a separate Registration Statement, but may file one
Registration Statement covering Exchange Shares issuable to more than one
Limited Partner. The Company further agrees to supplement or make amendments to
each Registration Statement, if required by the rules, regulations or
instructions applicable to the registration form utilized by the Company or by
the Securities Act or rules and regulations thereunder for such Registration
Statement.
(c) Listing on Securities Exchange. If the Company shall list or
------------------------------
maintain the listing of any shares of Common Stock on any securities exchange or
national market system, it will at its expense and as necessary to permit the
registration and sale of the Exchange Shares hereunder, list thereon, maintain
and, when necessary, increase such listing to include such Exchange Shares.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
------------------------------------------
9.01 Purchase for Investment.
-----------------------
(a) Each Limited Partner hereby represents and warrants to the
General Partner, to the Company and to the Partnership that the acquisition of
his Partnership Interests is made as a principal for his account for investment
purposes only and not with a view to the resale or distribution of such
Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
9.02 Restrictions on Transfer of Limited Partnership Interests.
---------------------------------------------------------
(a) Subject to the provisions of 9.02(b), (c) and (d), a Limited
Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all
or any portion of his Limited Partnership Interest, or any of such Limited
Partner's economic rights as a Limited Partner,
- 34 -
<PAGE>
whether voluntarily or by operation of law or at judicial sale or otherwise
(collectively, a "Transfer") with or without the consent of the General Partner.
The General Partner may require, as a condition of any Transfer, that the
transferor assume all costs incurred by the Partnership in connection therewith.
(b) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act of 1933, as amended,
or would otherwise violate any applicable federal or state securities or blue
sky law (including investment suitability standards).
(c) No transfer by a Limited Partner of its Partnership Units, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of legal counsel for the Partnership, it would adversely affect the
ability of the Company to continue to qualify as a REIT or subject the Company
to any additional taxes under Section 857 or Section 4981 of the Code, or (iii)
such transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.
(d) No transfer of any Partnership Units may be made to a lender
to the Partnership or any Person who is related (within the meaning of
Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a nonrecourse liability (within the meaning of Regulations Section
1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion, provided that as a condition to
-------- ----
such consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Cash Amount
any Partnership Units in which a security interest is held simultaneously with
the time at which such lender would be deemed to be a partner in the Partnership
for purposes of allocating liabilities to such lender under Section 752 of the
Code.
(e) Any Transfer in contravention of any of the provisions of this
Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
9.03 Admission of Substitute Limited Partner.
---------------------------------------
(a) Subject to the other provisions of this Article IX, an
assignee of the Limited Partnership Interest of a Limited Partner (which shall
be understood to include any purchaser, transferee, donee, or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only upon the satisfactory completion of
the following:
- 35 -
<PAGE>
(i) The assignee shall have accepted and agreed to be bound
by the terms and provisions of this Agreement by executing a
counterpart or an amendment thereof, including a revised
Exhibit A, and such other documents or instruments as the General
---------
Partner may require in order to effect the admission of such
Person as a Limited Partner.
(ii) To the extent required, an amended Certificate
evidencing the admission of such Person as a Limited Partner shall
have been signed, acknowledged and filed for record in accordance
with the Act.
(iii) The assignee shall have delivered a letter containing
the representation set forth in Section 9.01(a) hereof and the
agreement set forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership or trust,
the assignee shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of the assignee's
authority to become a Limited Partner under the terms and
provisions of this Agreement.
(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.02
hereof.
(vi) The assignee shall have paid all reasonable legal fees
of the Partnership and the General Partner and filing and
publication costs in connection with its substitution as a Limited
Partner.
(vii) The assignee has obtained the prior written consent of
the General Partner to its admission as a Substitute Limited
Partner, which consent may be given or denied in the exercise of
the General Partner's sole and absolute discretion.
(b) For the purpose of allocating Profits and Losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the Certificate described in
Section 9.03(a)(ii) hereof or, if no such filing is required, the later of the
date specified in the transfer documents or the date on which the General
Partner has received all necessary instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required by
this Section and making all official filings and publications. The Partnership
shall take all such action as promptly as practicable after the satisfaction of
the conditions in this Article IX to the admission of such Person as a Limited
Partner of the Partnership.
- 36 -
<PAGE>
9.04 Rights of Assignees of Partnership Interests.
--------------------------------------------
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of its Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a
Limited Partner's Limited Partnership Interest, but does not become a Substitute
Limited Partner and desires to make a further assignment of such Limited
Partnership Interest, shall be subject to all the provisions of this Article IX
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of its Limited Partnership Interest.
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a
-------------------------------------------------------------
Limited Partner. The occurrence of an Event of Bankruptcy as to a Limited
- ---------------
Partner, the death of a Limited Partner or a final adjudication that a Limited
Partner is incompetent (which term shall include, but not be limited to,
insanity) shall not cause the termination or dissolution of the Partnership, and
the business of the Partnership shall continue if an order for relief in a
bankruptcy proceeding is entered against a Limited Partner, the trustee or
receiver of his estate or, if he dies, his executor, administrator or trustee,
or, if he is finally adjudicated incompetent, his committee, guardian or
conservator, shall have the rights of such Limited Partner for the purpose of
settling or managing his estate property and such power as the bankrupt,
deceased or incompetent Limited Partner possessed to assign all or any part of
his Partnership Interest and to join with the assignee in satisfying conditions
precedent to the admission of the assignee as a Substitute Limited Partner.
9.06 Joint Ownership of Interests. A Partnership Interest may be
----------------------------
acquired by two individuals as joint tenants with right of survivorship,
provided that such individuals either are married or are related and share the
same home as tenants in common. The written consent or vote of both owners of
any such jointly held Partnership Interest shall be required to constitute the
action of the owners of such Partnership Interest; provided, however, that the
-------- -------
written consent of only one joint owner will be required if the Partnership has
been provided with evidence satisfactory to the counsel for the Partnership that
the actions of a single joint owner can bind both owners under the applicable
laws of the state of residence of such joint owners. Upon the death of one
owner of a Partnership Interest held in a joint tenancy with a right of
survivorship, the Partnership Interest shall become owned solely by the survivor
as a Limited Partner and not as an assignee. The Partnership need not recognize
the death of one of the owners of a jointly-held Partnership Interest until it
shall have received notice of such death. Upon notice to the General Partner
from either owner, the General Partner shall cause the Partnership Interest to
be divided into two equal Partnership Interests, which shall thereafter be owned
separately by each of the former owners.
- 37 -
<PAGE>
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
------------------------------------------
10.01 Books and Records. At all times during the continuance of the
-----------------
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports,
(d) copies of the Agreement and any financial statements of the Partnership for
the three most recent years and (e) all documents and information required under
the Act. Any Partner or its duly authorized representative, upon paying the
costs of collection, duplication and mailing, shall be entitled to inspect or
copy such records during ordinary business hours.
10.02 Custody of Partnership Funds; Bank Accounts.
-------------------------------------------
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation of
the business of the Partnership may be invested by the General Partner in
investment grade instruments (or investment companies whose portfolio consists
primarily thereof), government obligations, certificates of deposit, bankers'
acceptances and municipal notes and bonds. The funds of the Partnership shall
not be commingled with the funds of any other Person except for such commingling
as may necessarily result from an investment in those investment companies
permitted by this Section 10.02(b).
10.03 Fiscal and Taxable Year. The fiscal and taxable year of the
-----------------------
Partnership shall be the calendar year.
10.04 Annual Tax Information and Report. Within 75 days after the end
---------------------------------
of each fiscal year of the Partnership, the General Partner shall furnish to
each person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.
-------------------------------------------------------------
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the
- 38 -
<PAGE>
Code for the Tax Matters Partner. The General Partner shall have the right to
retain professional assistance in respect of any audit of the Partnership by the
Service and all out-of-pocket expenses and fees incurred by the General Partner
on behalf of the Partnership as Tax Matters Partner shall constitute Partnership
expenses. In the event the General Partner receives notice of a final
Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner
shall either (i) file a court petition for judicial review of such final
adjustment within the period provided under Section 6226(a) of the Code, a copy
of which petition shall be mailed to all Limited Partners on the date such
petition is filed, or (ii) mail a written notice to all Limited Partners, within
such period, that describes the General Partner's reasons for determining not to
file such a petition.
(b) All elections required or permitted to be made by the
Partnership under the Code or any applicable state or local tax law shall be
made by the General Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the
Partnership Interest of any Partner, the Partnership, at the option of the
General Partner, may elect pursuant to Section 754 of the Code to adjust the
basis of the Properties. Notwithstanding anything contained in Article V of this
Agreement, any adjustments made pursuant to Section 754 shall affect only the
successor in interest to the transferring Partner and in no event shall be taken
into account in establishing, maintaining or computing Capital Accounts for the
other Partners for any purpose under this Agreement. Each Partner will furnish
the Partnership with all information necessary to give effect to such election.
10.06 Reports to Limited Partners.
---------------------------
(a) As soon as practicable after the close of each fiscal quarter
(other than the last quarter of the fiscal year), the General Partner shall
cause to be mailed to each Limited Partner a quarterly report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
quarter, presented in accordance with generally accepted accounting principles.
As soon as practicable after the close of each fiscal year, the General Partner
shall cause to be mailed to each Limited Partner an annual report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
year, presented in accordance with generally accepted accounting principles. The
annual financial statements shall be audited by accountants selected by the
General Partner.
(b) Any Partner shall further have the right to a private audit
of the books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
ARTICLE XI
- 39 -
<PAGE>
AMENDMENT OF AGREEMENT
----------------------
The General Partner's consent shall be required for any amendment to
this Agreement. The General Partner, without the consent of the Limited
Partners, may amend this Agreement in any respect; provided, however, that the
-------- -------
following amendments shall require the consent of Limited Partners (other than
the Company) holding more than 50% of the Percentage Interests of the Limited
Partners (other than the Company):
(a) any amendment affecting the operation of the Conversion
Factor or the Exchange Right (except as provided in Section 8.05(d) or 7.01(d)
hereof) in a manner adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights of the
Limited Partners to receive the distributions payable to them hereunder, other
than with respect to the issuance of additional Partnership Units pursuant to
Section 4.02 hereof;
(c) any amendment that would alter the Partnership's allocations
of Profit and Loss to the Limited Partners, other than with respect to the
issuance of additional Partnership Units pursuant to Section 4.02 hereof; or
(d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.01 Notices. All communications required or permitted under this
-------
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
--------- -------- -------
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.
12.02 Survival of Rights. Subject to the provisions hereof limiting
------------------
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
12.03 Additional Documents. Each Partner agrees to perform all further
--------------------
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
- 40 -
<PAGE>
12.04 Severability. If any provision of this Agreement shall be
------------
declared illegal, invalid, or unenforceable in any jurisdiction, then such
provision shall be deemed to be severable from this Agreement (to the extent
permitted by law) and in any event such illegality, invalidity or
unenforceability shall not affect the remainder hereof.
12.05 Entire Agreement. This Agreement and exhibits attached hereto
----------------
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
12.06 Pronouns and Plurals. When the context in which words are used in
--------------------
the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
12.07 Headings. The Article headings or sections in this Agreement are
--------
for convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.
12.08 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
12.09 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
- 41 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this First Amended and Restated Agreement of Limited Partnership,
all as of the ____ day of ___________, 1995.
CONVERTING GENERAL PARTNER
PRENTISS PROPERTY ACQUISITION, L.P.
By:
--------------------------------------
Name:
Title:
PRENTISS PROPERTY ACQUISITION, INC.
By:
--------------------------------------
Name:
Title:
NEW GENERAL PARTNER
PRENTISS PROPERTY GENERAL PARTNER, INC.
By:
--------------------------------------
Name: Thomas F. August
Title: President
LIMITED PARTNERS
By:
--------------------------------------
Name:
Title:
- 42 -
<PAGE>
EXHIBIT A
---------
Agreed Value
of
Cash Capital Partnership Percentage
Partner Contribution Contribution Units Interest
- ------- ------------ ------------ ----------- ----------
General Partner:
Prentiss Properties General
Partner, Inc.
1717 Main Street
Suite 5000
Dallas, Texas 75201
Limited Partners:
Prentiss Property Trust
1717 Main Street
Suite 5000
Dallas, Texas 75201
<PAGE>
Agreed Value
of
Cash Capital Partnership Percentage
Partner Contribution Contribution Units Interest
- ------- ------------ ------------ ----- --------
<PAGE>
Agreed Value
of
Cash Capital Partnership Percentage
Partner Contribution Contribution Units Interest
- ------- ------------ ------------ ----- --------
*less than 0.1%
<PAGE>
EXHIBIT B
---------
LIST OF INITIAL PROPERTIES
Name Location
- ---- --------
<PAGE>
EXHIBIT C
---------
NOTICE OF EXERCISE OF EXCHANGE RIGHT
In accordance with Section 8.05 of the
First Amended and Restated Agreement of Limited Partnership (the "Agreement") of
Prentiss Properties Acquisition Partners, L.P., the undersigned hereby
irrevocably (i) presents for exchange ________ Partnership Units in Prentiss
Properties Acquisition Partners, L.P. in accordance with the terms of the
Agreement and the Exchange Right referred to in Section 8.05 thereof,
(ii) surrenders such Partnership Units and all right, title and interest
therein, and (iii) directs that the Cash Amount or REIT Shares Amount (as
defined in the Agreement) as determined by the General Partner deliverable upon
exercise of the Exchange Right be delivered to the address specified below, and
if REIT Shares (as defined in the Agreement) are to be delivered, such REIT
Shares be registered or placed in the name(s) and at the address(es) specified
below.
Dated:________ __, _____
Name of Limited Partner:
______________________________
(Signature of Limited Partner)
<PAGE>
-----------------------------
(Mailing Address)
-----------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
-----------------------------
If REIT Shares are to be issued, issue to:
<PAGE>
Please insert social security or identifying number:
Name:
<PAGE>
Exhibit 10.3
------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of __________________, 1996, by and
between Prentiss Properties Trust, a Maryland real estate investment trust (the
"Company") and Michael V. Prentiss (the "Executive"), recites and provides as
follows:
W I T N E S S E T H:
WHEREAS, the Company is a self-administered Maryland real estate investment
trust, which has been formed to continue and expand the national acquisition,
property management, leasing, development and construction business of Prentiss
Properties Limited, Inc., and its affiliates (collectively, the "Prentiss
Group");
WHEREAS, the Company's primary objective is to maximize the profitability
of its Properties by continuing the Prentiss Group's success in renewing leases,
maintaining high occupancy rates, reducing operating costs and growing through
the acquisition of additional office and industrial properties and through
development primarily on a build-to-suit basis;
WHEREAS, for over 25 years, Executive has been continuously and actively
engaged in various aspects of real estate development, acquisitions, and
investment management on the national level, both personally and for companies
and joint ventures controlled by or affiliated with Executive, including,
without limitation, the owning, development, asset management and management of
Office or Industrial Properties;
WHEREAS, the Company desires to employ the Executive to devote a
significant portion of his time (as hereinafter defined) to the business of the
Company, including, without limitation, executive management of the Company and
the Properties, and to serve as the Chairman of the Board of Trustees and Chief
Executive Officer of the Company; and
WHEREAS, the Executive desires to be so employed on the terms and subject
to the conditions hereinafter stated.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants, promises and
obligations of the parties provided for in this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
A. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the
following meanings (applicable to both the singular and plural forms of the
terms defined):
<PAGE>
1. "Acquisition of Office or Industrial Property" means engaging in
the activity of soliciting, seeking to acquire, obtaining an option or first
right of refusal to acquire, or acquiring, any interest in an Office or
Industrial Property.
2. "Affiliate" means (i) any person directly or indirectly
controlling, controlled by, or under common control with such other person, (ii)
any executive officer, director, trustee or general partner of such other
person, and (iii) any legal entity for which such person acts as an executive
officer, director, trustee or general partner. The term "person" means and
includes any natural person, corporation, partnership, association, limited
liability company or any other legal entity.
3. "Asset Management Activity" means engaging directly, through an
Affiliate, or being employed by any entity undertaking, or otherwise undertaking
to manage investments in Property for the account of others.
4. "Competitive Activity" means engaging in directly, through an
Affiliate, or being employed by any entity undertaking, or otherwise undertaking
to do any of the following: (i) Acquisition of Office or Industrial Property,
(ii) Office or Industrial Property Construction, (iii) Office or Industrial
Property Entitlements, (iv) Speculation, or (v) Office or Industrial Property
Management and Operation.
5. "Employment Term" means the Initial Term, as herein defined, and
the successive annual renewals of this Agreement until terminated. The initial
term of the Executive's employment hereunder (the "Initial Term") shall be for a
period of three years, commencing on the date hereof and continuing until
_______________, 1999, unless terminated earlier as provided herein. After
____________________, 1999, the term shall be automatically renewed for
successive one year periods unless otherwise terminated as provided herein.
6. "Independent Trustee" shall mean a member of the Board of
Trustees of the Company who is defined as an "Independent Trustee" in the
Amended and Restated Declaration of Trust of the Company, which is attached as
Exhibit 3.1 to the Company's Registration Statement on Form S-11 (File No. 333-
9863), as filed with the Securities and Exchange Commission, as amended.
7. "Involuntary Termination" means the intentional breach by the
Company of any material provision of this Agreement and such breach continues
for a period of 14 days after the Independent Trustees on the Company's Board of
Trustees receive written notice of such breach.
2
<PAGE>
8. "Noncompetition Period" means the period beginning the date of the
termination of the Employment Term, for whatever reason, and ending two years
from the date of termination.
9. "Noncompetition Regions" means any geographic areas or real
estate market in the United States, including a 50 mile radius of such area or,
in which the Company owns, owns an interest in or manages Office or Industrial
Property, including but not limited to the areas listed on the attached Schedule
A.
10. "Office or Industrial Property Construction" means the
construction, renovation or repair of improvements on a Office or Industrial
Property by Executive or an Affiliate of Executive.
11. "Office or Industrial Property Entitlements" means engaging in
the process by which a person with an interest in an Office or Industrial
Property obtains necessary or desirable governmental approvals, licenses,
permits, entitlement or agreements for the commencement of Office or Industrial
Property Construction.
12. "Office or Industrial Property" means any Property that is used
in whole or in part for office or industrial space or office or industrial
related purposes, whether in fee or leasehold, together with all improvements
and fixtures now or hereafter located thereon, all rights, privileges and
easements appurtenant thereto, and all tangible and intangible personal property
owned by Executive or an Affiliate of Executive, as applicable, and used in
connection therewith.
13. "Property" means any real property or any interest therein.
14. "Property Management and Operation" means engaging in directly or
through an Affiliate, or being employed by any entity undertaking, or otherwise
undertaking the day-to-day management and operation of an Office or Industrial
Property, whether pursuant to a master lease, management agreement or any other
arrangement.
15. "Speculation" means engaging in the activity of soliciting,
seeking to acquire, obtaining an option or a first right of refusal to acquire,
acquiring, any interest in a Office or Industrial Property with the intention at
any time of acquiring (or obtaining an option or a first right of refusal to
acquire) or holding an Office or Industrial Property for subsequent sale or
other transfer to any person for purposes of Competitive Activity.
3
<PAGE>
16. "Termination Without Cause" means the termination of the
Executive's employment by the Company for any reason other than Voluntary
Termination or Termination With Cause.
17. "Termination With Cause" means the termination of the Executive's
employment by act of the Board of Trustees for any of the following reasons:
(a) willful misconduct of the Executive in connection with the
performance of any of his duties, including, without limitation,
misappropriation of funds or property of the Company or any of its
Affiliates or securing or attempting to secure personally any profit in
connection with any transaction entered into on behalf of the Company or
any of its Affiliates;
(b) conduct by the Executive that would result in material injury
to the reputation of the Company if he were retained in his position with
the Company, including, without limitation, conviction of a felony
involving moral turpitude, bankruptcy, insolvency or general assignment for
the benefit of his creditors; or
(c) continued or deliberate neglect by the Executive of any of
his duties hereunder.
18. "Voluntary Termination" means the Executive's voluntary
termination of his employment hereunder, which may be effected by the
Executive's giving the Company's Board of Trustees 90 days written notice of the
Executive's desire to terminate his employment.
B. THE EMPLOYMENT RELATIONSHIP.
---------------------------
1. Employment. The Company shall employ the Executive, and the
----------
Executive agrees to be so employed, in the capacity of Chairman of the Board of
Trustees and Chief Executive Officer of the Company to serve for the Employment
Term (as herein defined), subject to earlier termination as herein provided.
2. Services. The Executive shall devote a significant portion of
--------
his time, attention and effort to the Company's affairs. Specifically, the
Executive shall have complete senior management authority and responsibility
with respect to the day-to-day operations and long-term management of the
Company and the Office and Industrial Properties, as well as implementation of
the long-range growth strategy of the Company, consistent with directions from
the Company's Board of Trustees. The Executive shall have full authority and
responsibility, subject to the general direction, approval and control of the
4
<PAGE>
Company's Board of Trustees for formulating policies and administering the
Company and the Office and Industrial Properties in all respects. He shall have
the authority to hire and fire Company personnel, to retain consultants when he
deems necessary to implement the Company's policies, to execute contracts on
behalf of the Company in the ordinary course of business and to negotiate for
and cause the Company to acquire new Properties at the direction of the Board of
Trustees of the Company. As used herein, "a significant portion of his time,
attention and effort" shall mean approximately substantially all of the
Executive's working time devoted to business activities.
3. Compensation. (a) The Company initially shall pay the Executive
------------
for his services an annual base salary of $180,000, to be paid in semi-monthly
payments, subject to any increases in base compensation as approved by the
Compensation Committee of the Company's Board of Trustees (the "Compensation
Committee").
(b) In addition, the Company may from time to time pay the
Executive incentive compensation, including, but not limited to, share options,
restricted shares or cash bonuses, in accordance with the 1996 Share Incentive
Plan, subsequent annual Share Incentive Plans adopted by the Compensation
Committee and other rules and criteria established by the Compensation Committee
of the Board of Trustees.
4. Benefits. The Company agrees to provide the Executive and the
--------
following benefits:
(a) Vacation. The Executive shall be entitled each year to four
weeks vacation, during which time his compensation shall be paid in full.
(b) Employee Benefits. During the Term of this Agreement, the
Executive shall be entitled to all rights, benefits and privileges to which
other management level employees of the Company are entitled, including, but not
limited to, any retirement, pension, profit-sharing, insurance, hospital or
other plans which may now be in effect or which may hereafter be adopted by the
Company.
(c) Tax Planning. The Company shall provide the Executive with
annual personal tax and estate planning services.
(d) Country Club Fees. The Company shall reimburse the Executive
for his membership dues at the following country clubs: Brookhollow Golf Club in
Dallas, Texas; Robert Trent Jones Golf Club in Frederick County, Virginia; and
Oyster Harbors Club in Cape Cod, Massachusetts.
5
<PAGE>
5. Expenses. The Company recognizes that the Executive will have to
--------
incur certain out-of-pocket expenses, including, but not limited to, travel
expenses, related to his services and the Company's business, and the Company
agrees to reimburse the Executive for all reasonable expenses necessarily
incurred by him in the performance of his duties upon presentation of a voucher
or documentation indicating the amount and business purposes of any such
expenses. The Company agrees that the Executive shall have the authority to
charter private aircraft in the performance of his duties to the Company as he
deems necessary and the Company shall reimburse the Executive for all such
airplane charter expenses incurred in the performance of his duties hereunder.
In the event that the Executive acquires an interest in a private airplane, the
Company agrees to reimburse the Executive for his use of such airplane on behalf
of the Company at the prevailing charter airplane rates in the Dallas area for a
similar airplane.
6. Termination in Case of Death or Disability. In case of the
------------------------------------------
Executive's death or permanent disability (defined as complete physical or
mental inability, confirmed by a licensed physician, to perform substantially
all of the services described herein that continues for a period of 180
consecutive days), the Company may elect to terminate the Executive pursuant to
the terms of Section B, Paragraph 8 hereof.
7. Termination With Cause; Voluntary Termination. The Company may
---------------------------------------------
terminate this Agreement upon a determination that an event has occurred within
the definition of Termination With Cause; provided, however, in the case of a
Termination With Cause based upon clauses (ii) or (iii) of such definition, the
Company shall provide the Executive written notice of such grounds for
termination, and the Executive shall have a period of 14 days to cure such cause
to the reasonable satisfaction of the Company's Board of Trustees. If the
Executive shall suffer Termination With Cause or shall cease being an employee
of the Company on account of a Voluntary Termination, then the Executive shall
not be entitled to any compensation after the effective date of such Voluntary
Termination or Termination With Cause (except compensation accrued but unpaid on
the date of such event). Any continued rights and benefits the Executive may
have under employee benefit plans and programs of the Company upon such a
termination, if any, shall be determined in accordance with the terms of such
plans and programs provided however, that the Executive, including his
immediate, family shall be able to continue to participate in the Company's
medical/health insurance or coverage program with the same level of benefits as
he was entitled to receive immediately prior to the time of termination, but the
Executive shall bear all costs of such medical/health insurance or coverage.
6
<PAGE>
8. Death or Disability; Termination Without Cause; or Involuntary
--------------------------------------------------------------
Termination. If the Executive shall suffer a death, disability, Involuntary
- -----------
Termination or a Termination Without Cause, then the Company shall pay the
Executive cash compensation in a lump sum equal to one years' base salary, based
on the Executive's base salary at the time of such death, disability or
termination and shall continue to provide for a period of three years the
Executive (or his family in the case of his death) with the level of
health/medical insurance or coverage provided to the Executive at the time of
such death, disability or termination. Any continued rights and benefits that
the Executive, or the Executive's estate or other legal representatives, may
have under employee benefit plans and programs of the Company upon such death,
disability or termination shall be determined in accordance with the terms and
provisions of such plans and programs.
C. AGREEMENT NOT TO COMPETE
------------------------
Except as explicitly provided herein, the Executive agrees, for the
entire Employment Term and Noncompetition Period, to the following covenants,
effective within the Noncompetition Regions:
1. Competitive Activity Restriction. Executive, personally or
--------------------------------
through any Affiliate of Executive, shall not conduct any Competitive Activity
other than through the Company, unless a majority of the Company's Board of
Trustees, which majority must include a majority of the Independent Trustees,
have determined that such Competitive Activity will not have a material adverse
effect on the operations of any Office or Industrial Property that the Company
either owns or has a right to acquire.
2. Property Management and Operation. Executive, personally or
---------------------------------
through any Affiliate of Executive, shall not engage in any Property Management
and Operation other than through the Company, except with respect to any Office
or Industrial Property, managed by Executive or any Affiliate of Executive as a
result of any permitted Office or Industrial Activity.
3. No Beneficial Ownership. Executive shall not beneficially own
-----------------------
directly or indirectly any beneficial interest in any entity engaged in any
Office or Industrial Activity other than the Company, except for (i) any
interest in a company traded on a nationally recognized public securities
exchange (including The Nasdaq National Market), provided such interest does not
exceed five percent of the outstanding capital stock of such company, (ii) the
Executive's 6% limited partnership interest in the Chesapeake & Potomac
Telephone Building in Baltimore Maryland and (iii) the Executive's current
interest in the entity that
7
<PAGE>
owns the Federal Express building under construction in Philadelphia,
Pennsylvania.
4. Loans. Executive shall not directly or indirectly make any loan
-----
to, or hold any note evidencing a loan from, any entity engaged in any Office or
Industrial Development Activity.
5. Competitive Entity. Executive shall not be a director or
------------------
trustee, officer, or employee of, or consultant to (whether for compensation or
not) any entity engaged in any Office or Industrial Activity.
6. Notification to Independent Trustees. If Executive or any
------------------------------------
Affiliate of Executive desires to engage in any Office or Industrial Activity,
Executive shall be obligated to describe fully the proposed activity in a
written notice (the "Disclosure Notice") to the Company and the Independent
Trustees. A Disclosure Notice shall only pertain to a specific proposed project
and the referenced proposed project shall be described therein with specificity
as to timing, location, scope and the extent of Executive's involvement,
financially and in terms of his time commitment. A Disclosure Notice may not
request approval for any conceptual or non-project specific activity or for any
activity that is prohibited by this Agreement.
D. MISCELLANEOUS PROVISIONS.
------------------------
1. Notices. All notices or deliveries authorized or required
-------
pursuant to this Agreement shall be deemed to have been given when in writing
and when (i) deposited in the U.S. mail, certified, return receipt requested,
postage prepaid, or (ii) otherwise delivered by hand or by overnight delivery,
against written receipt, by a common carrier or commercial courier or delivery
service addressed to the parties at the following addresses or to such other
addresses as either may designate in writing to the other party:
To the Company: Prentiss Properties Trust
1717 Main Street, Suite 5000
Dallas, Texas 75201
Phone (214) 761-1440
To the Executive: Michael V. Prentiss
1717 Main Street, Suite 5000
Dallas, Texas 75201
Phone (214) 761-1440
2. Entire Agreement. This Agreement contains the entire
----------------
understanding between the parties hereto with respect to the subject matter
hereof and shall not be modified in any manner except by instrument in writing
signed, by or on behalf of, the
8
<PAGE>
parties hereto. This Agreement shall be binding upon and inure to the benefit of
the heirs, successors and assigns of the parties hereto.
3. Applicable Law. This Agreement shall be governed and construed
--------------
in accordance with the laws of the State of Texas.
4. Assignment. The Executive acknowledges that his services are
----------
unique and personal. The Executive may not assign his rights or delegate his
duties or obligations under this Agreement except (a) his rights to compensation
and benefits hereunder may be transferred by will or operation of law and (b)
his rights under employee benefit plans or programs described in Section B,
Paragraph 5(b) may be assigned or transferred in accordance with the terms of
such plans or programs, or regular practices thereunder. The Executive's rights
and obligations under this Agreement shall inure to the benefit of and shall be
binding upon the Executive's heirs and personal representatives.
5. Titles and Headings. Titles and headings to sections and
-------------------
paragraphs in this Agreement are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement.
6. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
7. Amendments. No amendment, modification or supplement to this
----------
Agreement shall be binding on any of the parties hereto unless it is in writing
and signed by the parties in interest at the time of the modification, and
further provided any such modification is approved by a majority of the
Independent Trustees.
8. No Third-Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties to this Agreement and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claims or action or
other right in excess of those existing without reference to this Agreement.
9. Maximum Legal Enforceability; Time of Essence. Any provision of
---------------------------------------------
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party to this
Agreement, each party hereto acknowledges that damages would not
9
<PAGE>
be an adequate remedy for any breach of the provisions of this Agreement and
agrees that the obligations of the parties hereunder shall be specifically
enforceable. Time shall be of the essence as to each and every provision of this
Agreement.
10. Further Assurances. The parties to this Agreement will execute
------------------
and deliver or cause the execution and delivery of such further instruments and
documents and will take such other actions as any other party to the Agreement
may reasonably request in order to effectuate the purpose of this Agreement and
to carry out the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
THE EXECUTIVE
----------------------------------------
MICHAEL V. PRENTISS
THE COMPANY
PRENTISS PROPERTIES TRUST, INC.
By:
-------------------------------------
Its:
-------------------------------
10
<PAGE>
SCHEDULE A
----------
CERTAIN MARKETS INCLUDED
IN THE NONCOMPETITION REGIONS
Phoenix, AZ
Los Angeles, CA
Oakland, CA
Sacramento, CA
San Francisco, CA
Washington, DC
Orlando, FL
Atlanta, GA
Chicago, IL
Baltimore, MD
Southfield, MI
Kansas City, MO
Northern New Jersey
Amarillo, TX
Austin, TX
Dallas, TX
Fort Worth, TX
Houston, TX
Northern Virginia
Milwaukee, WI
11
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of __________________, 1996, by and
between Prentiss Properties Trust, a Maryland real estate investment trust (the
"Company") and Thomas F. August (the "Executive"), recites and provides as
follows:
W I T N E S S E T H:
WHEREAS, the Company is a self-administered Maryland real estate investment
trust, which has been formed to continue and expand the national acquisition,
property management, leasing, development and construction business of Prentiss
Properties Limited, Inc., and its affiliates (collectively, the "Prentiss
Group");
WHEREAS, the Company's primary objective is to maximize the profitability
of its Properties by continuing the Prentiss Group's success in renewing leases,
maintaining high occupancy rates, reducing operating costs and growing through
the acquisition of additional office and industrial properties and through
development primarily on a build-to-suit basis;
WHEREAS, Executive has been continuously and actively engaged in various
aspects of real estate development, acquisitions, and investment management on
the national level, both personally and for companies and joint ventures
controlled by or affiliated with Executive, including, without limitation, the
owning, development, asset management and management of Office or Industrial
Properties;
WHEREAS, the Company desires to employ the Executive to devote a
significant portion of his time (as hereinafter defined) to the business of the
Company, including, without limitation, the operation and management of the
Company and the Properties, and to serve as the President, Chief Operating
Officer and Trustee of the Company; and
WHEREAS, the Executive desires to be so employed on the terms and subject
to the conditions hereinafter stated.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants, promises and
obligations of the parties provided for in this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
A. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the
following meanings (applicable to both the singular and plural forms of the
terms defined):
<PAGE>
1. "Acquisition of Office or Industrial Property" means engaging in
the activity of soliciting, seeking to acquire, obtaining an option or first
right of refusal to acquire, or acquiring, any interest in an Office or
Industrial Property.
2. "Affiliate" means (i) any person directly or indirectly
controlling, controlled by, or under common control with such other person, (ii)
any executive officer, director, trustee or general partner of such other
person, and (iii) any legal entity for which such person acts as an executive
officer, director, trustee or general partner. The term "person" means and
includes any natural person, corporation, partnership, association, limited
liability company or any other legal entity.
3. "Asset Management Activity" means engaging directly, through an
Affiliate, or being employed by any entity undertaking, or otherwise undertaking
to manage investments in Property for the account of others.
4. "Competitive Activity" means engaging in directly, through an
Affiliate, or being employed by any entity undertaking, or otherwise undertaking
to do any of the following: (i) Acquisition of Office or Industrial Property,
(ii) Office or Industrial Property Construction, (iii) Office or Industrial
Property Entitlements, (iv) Speculation, or (v) Office or Industrial Property
Management and Operation.
5. "Employment Term" means the Initial Term, as herein defined, and
the successive annual renewals of this Agreement until terminated. The Initial
Term of the Executive's employment hereunder (the "Initial Term") shall be for a
period of three years, commencing on the date hereof and continuing until
, 1999, unless terminated earlier as provided herein. After
- ---------------
, 1999, the term shall be automatically renewed for
- --------------------
successive one year periods unless otherwise terminated as provided herein.
6. "Independent Trustee" shall mean a member of the Board of
Trustees of the Company who is defined as an "Independent Trustee" in the
Amended and Restated Declaration of Trust of the Company, which is attached as
Exhibit 3.1 to the Company's Registration Statement on Form S-11 (File No. 333-
9863), as filed with the Securities and Exchange Commission, as amended.
7. "Involuntary Termination" means the intentional breach by the
Company of any material provision of this Agreement and such breach continues
for a period of 14 days after the Independent Trustees on the Company's Board of
Trustees receive written notice of such breach.
2
<PAGE>
8. "Noncompetition Period" means the period beginning the date of the
termination of the Employment Term, for whatever reason, and ending two years
from the date of termination.
9. "Noncompetition Regions" means all geographic areas or real
estate markets in the United States, including a 50 mile radius of each area or
market, in which the Company owns, owns an interest in or manages any Office or
Industrial Property, including but not limited to the areas and markets listed
on the attached Schedule A.
10. "Office or Industrial Property Construction" means the
construction, renovation or repair of improvements on a Office or Industrial
Property by Executive or an Affiliate of Executive.
11. "Office or Industrial Property Entitlements" means engaging in
the process by which a person with an interest in an Office or Industrial
Property obtains necessary or desirable governmental approvals, licenses,
permits, entitlement or agreements for the commencement of Office or Industrial
Property Construction.
12. "Office or Industrial Property" means any Property that is used
in whole or in part for office or industrial space or office or industrial
related purposes, whether in fee or leasehold, together with all improvements
and fixtures now or hereafter located thereon, all rights, privileges and
easements appurtenant thereto, and all tangible and intangible personal property
used in connection therewith.
13. "Property" means any real property or any interest therein.
14. "Property Management and Operation" means engaging in directly or
through an Affiliate, or being employed by any entity undertaking, or otherwise
undertaking the day-to-day management and operation of an Office or Industrial
Property, whether pursuant to a master lease, management agreement or any other
arrangement.
15. "Speculation" means engaging in the activity of soliciting,
seeking to acquire, obtaining an option or a first right of refusal to acquire,
acquiring any interest in a Office or Industrial Property with the intention at
any time of acquiring (or obtaining an option or a first right of refusal to
acquire) or holding an Office or Industrial Property for subsequent sale or
other transfer to any person for purposes of Competitive Activity.
3
<PAGE>
16. "Termination Without Cause" means the termination of the
Executive's employment by the Company for any reason other than Voluntary
Termination or Termination With Cause.
17. "Termination With Cause" means the termination of the Executive's
employment by act of the Board of Trustees for any of the following reasons:
(a) willful misconduct of the Executive in connection with the
performance of any of his duties, including, without limitation,
misappropriation of funds or property of the Company or any of its
Affiliates or securing or attempting to secure personally any profit in
connection with any transaction entered into on behalf of the Company or
any of its Affiliates;
(b) conduct by the Executive that would result in material injury
to the reputation of the Company if he were retained in his position with
the Company, including, without limitation, conviction of a felony
involving moral turpitude, bankruptcy, insolvency or general assignment for
the benefit of his creditors; or
(c) continued or deliberate neglect by the Executive of any of
his duties hereunder.
18. "Voluntary Termination" means the Executive's voluntary
termination of his employment hereunder, which may be effected by the
Executive's giving the Company's Board of Trustees 90 days written notice of the
Executive's desire to terminate his employment.
B. THE EMPLOYMENT RELATIONSHIP.
---------------------------
1. Employment. The Company shall employ the Executive, and the
----------
Executive agrees to be so employed, in the capacity of President, Chief
Operating Officer and Trustee of the Company to serve for the Employment Term
(as herein defined), subject to earlier termination as herein provided.
2. Services. The Executive shall devote a significant portion of
--------
his time, attention and effort to the Company's affairs. Specifically, the
Executive shall have senior management authority and responsibility with respect
to the day-to-day operations and management of the Company and the Office and
Industrial Properties, as well as implementation of the growth strategy of the
Company, consistent with directions from the Company's Board of Trustees and
Chief Executive Officer. The Executive shall have authority and responsibility,
subject to the general direction, approval and control of the Company's Board of
Trustees and Chief Executive Officer, for formulating operating
4
<PAGE>
policies of the Company and the Office and Industrial Properties. He shall have
the authority to hire and fire Company personnel, to retain consultants when he
deems necessary to implement the Company's policies, to execute contracts on
behalf of the Company in the ordinary course of business and to negotiate for
and cause the Company to acquire new Properties at the direction of the Board of
Trustees of the Company and the Chief Executive Officer. As used herein, "a
significant portion of his time, attention and effort" shall mean approximately
substantially all of the Executive's working time devoted to business
activities.
3. Compensation. (a) The Company initially shall pay the Executive
------------
for his services an annual base salary of $175,000, to be paid in semi-monthly
payments, subject to any increases in base compensation as approved by the
Compensation Committee of the Company's Board of Trustees (the "Compensation
Committee").
(b) In addition, the Company may from time to time pay the
Executive incentive compensation, including, but not limited to, share options,
restricted shares or cash bonuses, in accordance with the 1996 Share Incentive
Plan, subsequent annual Share Incentive Plans adopted by the Compensation
Committee and other rules and criteria established by the Compensation Committee
of the Board of Trustees.
4. Benefits. The Company agrees to provide the Executive and the
--------
following benefits:
(a) Vacation. The Executive shall be entitled each year to four
weeks vacation, during which time his compensation shall be paid in full.
(b) Employee Benefits. During the Term of this Agreement, the
Executive shall be entitled to all rights, benefits and privileges to which
other management level employees of the Company are entitled, including, but not
limited to, any retirement, pension, profit-sharing, insurance, hospital or
other plans which may now be in effect or which may hereafter be adopted by the
Company.
(c) Tax Planning. The Company shall provide the Executive with
annual personal tax planning services.
(d) Country Club Fees. The Company shall reimburse the
Executive for his membership dues at the Preston Wood Golf Club in Dallas,
Texas.
5. Expenses. The Company recognizes that the Executive will have to
--------
incur certain out-of-pocket expenses, including, but not limited to, travel
expenses, related to his services and the Company's business, and the Company
agrees to
5
<PAGE>
reimburse the Executive for all reasonable expenses necessarily incurred by him
in the performance of his duties upon presentation of a voucher or documentation
indicating the amount and business purposes of any such expenses.
6. Termination in Case of Death or Disability. In case of the
------------------------------------------
Executive's death or permanent disability (defined as complete physical or
mental inability, confirmed by a licensed physician, to perform substantially
all of the services described herein that continues for a period of 180
consecutive days), the Company may elect to terminate the Executive pursuant to
the terms of Section B, Paragraph 8 hereof.
7. Termination With Cause; Voluntary Termination. The Company may
---------------------------------------------
terminate this Agreement upon a determination that an event has occurred within
the definition of Termination With Cause; provided, however, in the case of a
Termination With Cause based upon clauses (ii) or (iii) of such definition, the
Company shall provide the Executive written notice of such grounds for
termination, and the Executive shall have a period of 14 days to cure such cause
to the reasonable satisfaction of the Company's Board of Trustees. If the
Executive shall suffer Termination With Cause or shall cease being an employee
of the Company on account of a Voluntary Termination, then the Executive shall
not be entitled to any compensation after the effective date of such Voluntary
Termination or Termination With Cause (except compensation accrued but unpaid on
the date of such event). Any continued rights and benefits the Executive may
have under employee benefit plans and programs of the Company upon such a
termination, if any, shall be determined in accordance with the terms of such
plans and programs provided however, that the Executive, including his
immediate, family shall be able to continue to participate in the Company's
medical/health insurance or coverage program with the same level of benefits as
he was entitled to receive immediately prior to the time of termination, but the
Executive shall bear all costs of such medical/health insurance or coverage.
8. Death or Disability; Termination Without Cause; or Involuntary
--------------------------------------------------------------
Termination. If the Executive shall suffer a death, disability, Involuntary
- -----------
Termination or a Termination Without Cause, then the Company shall pay the
Executive cash compensation in a lump sum equal to one years' base salary, based
on the Executive's base salary at the time of such death, disability or
termination and shall continue to provide for a period of three years the
Executive (or his family in the case of his death) with the level of
health/medical insurance or coverage provided to the Executive at the time of
such death, disability or termination. Any continued rights and benefits that
the Executive, or the Executive's estate or other legal representatives, may
have under employee benefit plans and programs of the Company upon such death,
disability or termination shall be determined in
6
<PAGE>
accordance with the terms and provisions of such plans and programs.
C. AGREEMENT NOT TO COMPETE
------------------------
Except as explicitly provided herein, the Executive agrees, for the
entire Employment Term and Noncompetition Period, to the following covenants,
effective within the Noncompetition Regions:
1. Competitive Activity Restriction. Executive, personally or
--------------------------------
through any Affiliate of Executive, shall not conduct any Competitive Activity
other than through the Company, unless a majority of the Company's Board of
Trustees, which majority must include a majority of the Independent Trustees,
have determined that such Competitive Activity will not have a material adverse
effect on the operations of any Office or Industrial Property that the Company
either owns or has a right to acquire.
2. Property Management and Operation. Executive, personally or
---------------------------------
through any Affiliate of Executive, shall not engage in any Property Management
and Operation other than through the Company, except with respect to any Office
or Industrial Property, managed by Executive or any Affiliate of Executive as a
result of any permitted Office or Industrial Activity.
3. No Beneficial Ownership. Executive shall not beneficially own
-----------------------
directly or indirectly any beneficial interest in any entity engaged in any
Office or Industrial Activity other than the Company, except for (i) any
interest in a company traded on a nationally recognized public securities
exchange (including The Gnostic National Market), provided such interest does
not exceed five percent of the outstanding capital stock of such company and
(ii) the Executive's current interest in the entity that owns the Federal
Express building currently under construction in Philadelphia, Pennsylvania.
4. Loans. Executive shall not directly or indirectly make any loan
-----
to, or hold any note evidencing a loan from, any entity engaged in any Office or
Industrial Development Activity.
5. Competitive Entity. Executive shall not be a director or
------------------
trustee, officer, or employee of, or consultant to (whether for compensation or
not) any entity engaged in any Office or Industrial Activity.
6. Notification to Independent Trustees. If Executive or any
------------------------------------
Affiliate of Executive desires to engage in any Office or Industrial Activity,
Executive shall be obligated to describe fully the proposed activity in a
written notice (the
7
<PAGE>
"Disclosure Notice") to the Company and the Independent Trustees. A Disclosure
Notice shall only pertain to a specific proposed project and the referenced
proposed project shall be described therein with specificity as to timing,
location, scope and the extent of Executive's involvement, financially and in
terms of his time commitment. A Disclosure Notice may not request approval for
any conceptual or non-project specific activity or for any activity that is
prohibited by this Agreement.
D. MISCELLANEOUS PROVISIONS.
------------------------
1. Notices. All notices or deliveries authorized or required
-------
pursuant to this Agreement shall be deemed to have been given when in writing
and when (i) deposited in the U.S. mail, certified, return receipt requested,
postage prepaid, or (ii) otherwise delivered by hand or by overnight delivery,
against written receipt, by a common carrier or commercial courier or delivery
service addressed to the parties at the following addresses or to such other
addresses as either may designate in writing to the other party:
To the Company: Prentiss Properties Trust
1717 Main Street, Suite 5000
Dallas, Texas 75201
Phone (214) 761-1440
To the Executive: Thomas F. August
1717 Main Street, Suite 5000
Dallas, Texas 75201
Phone (214) 761-1440
2. Entire Agreement. This Agreement contains the entire
----------------
understanding between the parties hereto with respect to the subject matter
hereof and shall not be modified in any manner except by instrument in writing
signed, by or on behalf of, the parties hereto. This Agreement shall be binding
upon and inure to the benefit of the heirs, successors and assigns of the
parties hereto.
3. Applicable Law. This Agreement shall be governed and construed
--------------
in accordance with the laws of the State of Texas.
4. Assignment. The Executive acknowledges that his services are
----------
unique and personal. The Executive may not assign his rights or delegate his
duties or obligations under this Agreement except (a) his rights to compensation
and benefits hereunder may be transferred by will or operation of law and (b)
his rights under employee benefit plans or programs described in Section B,
Paragraph 5(b) may be assigned or transferred in accordance with the terms of
such plans or programs, or regular practices thereunder. The Executive's rights
and obligations
8
<PAGE>
under this Agreement shall inure to the benefit of and shall be binding upon the
Executive's heirs and personal representatives.
5. Titles and Headings. Titles and headings to sections and
-------------------
paragraphs in this Agreement are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement.
6. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
7. Amendments. No amendment, modification or supplement to this
----------
Agreement shall be binding on any of the parties hereto unless it is in writing
and signed by the parties in interest at the time of the modification, and
further provided any such modification is approved by a majority of the
Independent Trustees.
8. No Third-Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties to this Agreement and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claims or action or
other right in excess of those existing without reference to this Agreement.
9. Maximum Legal Enforceability; Time of Essence. Any provision of
---------------------------------------------
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party to this
Agreement, each party hereto acknowledges that damages would not be an adequate
remedy for any breach of the provisions of this Agreement and agrees that the
obligations of the parties hereunder shall be specifically enforceable. Time
shall be of the essence as to each and every provision of this Agreement.
10. Further Assurances. The parties to this Agreement will execute
------------------
and deliver or cause the execution and delivery of such further instruments and
documents and will take such other actions as any other party to the Agreement
may reasonably request in order to effectuate the purpose of this Agreement and
to carry out the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
9
<PAGE>
THE EXECUTIVE
----------------------------------------
THOMAS F. AUGUST
THE COMPANY
PRENTISS PROPERTIES TRUST, INC.
By:_____________________________________
Its:_______________________________
10
<PAGE>
SCHEDULE A
----------
CERTAIN MARKETS INCLUDED
IN THE NONCOMPETITION REGIONS
Phoenix, AZ
Los Angeles, CA
Oakland, CA
Sacramento, CA
San Francisco, CA
Washington, DC
Orlando, FL
Atlanta, GA
Chicago, IL
Baltimore, MD
Southfield, MI
Kansas City, MO
Northern New Jersey
Amarillo, TX
Austin, TX
Dallas, TX
Fort Worth, TX
Houston, TX
Northern Virginia
Milwaukee, WI
11
<PAGE>
EXHIBIT 10.5
------------
AGREEMENT NOT TO COMPETE
THIS AGREEMENT NOT TO COMPETE, dated as of __________________, 1996, by and
between Prentiss Properties Trust, a Maryland real estate investment trust (the
"Company") and Richard B. Bradshaw (the "Executive"), recites and provides as
follows:
W I T N E S S E T H:
WHEREAS, the Company is a self-administered Maryland real estate investment
trust, which has been formed to continue and expand the national acquisition,
property management, leasing, development and construction business of Prentiss
Properties Limited, Inc., and its affiliates (collectively, the "Prentiss
Group");
WHEREAS, the Company's primary objective is to maximize the profitability
of its Properties by continuing the Prentiss Group's success in renewing leases,
maintaining high occupancy rates, reducing operating costs and growing through
the acquisition of additional office and industrial properties and through
development primarily on a build-to-suit basis;
WHEREAS, Executive has been continuously and actively engaged in various
aspects of real estate development, acquisitions, and investment management on
the national level, both personally and for companies and joint ventures
controlled by or affiliated with Executive, including, without limitation, the
owning, development, asset management and management of Office or Industrial
Properties;
WHEREAS, the Executive and the Company have determined that, in furtherance
of the Company's objectives, it is desirable to set forth in this Agreement
certain covenants and agreements with respect to certain Competitive Activities,
as hereinafter defined, of Executive and the Affiliates of Executive, as
hereinafter defined.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants, promises and
obligations of the parties provided for in this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
A. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the
following meanings (applicable to both the singular and plural forms of the
terms defined):
<PAGE>
1. "Acquisition of Office or Industrial Property" means engaging in
the activity of soliciting, seeking to acquire, obtaining an option or first
right of refusal to acquire, or acquiring, any interest in an Office or
Industrial Property.
2. "Affiliate" means (i) any person directly or indirectly
controlling, controlled by, or under common control with such other person, (ii)
any executive officer, director, trustee or general partner of such other
person, and (iii) any legal entity for which such person acts as an executive
officer, director, trustee or general partner. The term "person" means and
includes any natural person, corporation, partnership, association, limited
liability company or any other legal entity.
3. "Asset Management Activity" means engaging directly, through an
Affiliate, or being employed by any entity undertaking, or otherwise undertaking
to manage investments in Property for the account of others.
4. "Competitive Activity" means engaging in directly, through an
Affiliate, or being employed by any entity undertaking, or otherwise undertaking
to do any of the following: (i) Acquisition of Office or Industrial Property,
(ii) Office or Industrial Property Construction, (iii) Office or Industrial
Property Entitlements, (iv) Speculation, or (v) Office or Industrial Property
Management and Operation.
5. "Independent Trustee" shall mean a member of the Board of
Trustees of the Company who is defined as an "Independent Trustee" in the
Amended and Restated Declaration of Trust of the Company, which is attached as
Exhibit 3.1 to the Company's Registration Statement on Form S-11 (File No. 333-
9863), as filed with the Securities and Exchange Commission, as amended.
6. "Noncompetition Period" means the period beginning the date of
this Agreement and ending two years after the date of termination of any
employment relationship between the Executive and the Company.
7. "Noncompetition Regions" means all geographic areas and real
estate markets in the Southeastern United States, including a 50 mile radius of
each area or market, in which the Company owns, owns an interest in or manages
any Office or Industrial Property, including but not limited to the areas and
markets listed on the attached Schedule A.
8. "Office or Industrial Property Construction" means the
construction, renovation or repair of improvements on a Office or Industrial
Property by Executive or an Affiliate of Executive.
2
<PAGE>
9. "Office or Industrial Property Entitlements" means engaging in
the process by which a person with an interest in an Office or Industrial
Property obtains necessary or desirable governmental approvals, licenses,
permits, entitlement or agreements for the commencement of Office or Industrial
Property Construction.
10. "Office or Industrial Property" means any Property that is used
in whole or in part for office or industrial space or office or industrial
related purposes, whether in fee or leasehold, together with all improvements
and fixtures now or hereafter located thereon, all rights, privileges and
easements appurtenant thereto, and all tangible and intangible personal property
used in connection therewith.
11. "Property" means any real property or any interest therein.
12. "Property Management and Operation" means engaging in directly or
through an Affiliate, or being employed by any entity undertaking, or otherwise
undertaking the day-to-day management and operation of an Office or Industrial
Property, whether pursuant to a master lease, management agreement or any other
arrangement.
13. "Speculation" means engaging in the activity of soliciting,
seeking to acquire, obtaining an option or a first right of refusal to acquire,
acquiring, any interest in a Office or Industrial Property with the intention at
any time of acquiring (or obtaining an option or a first right of refusal to
acquire) or holding an Office or Industrial Property for subsequent sale or
other transfer to any person for purposes of Competitive Activity.
B. AGREEMENT NOT TO COMPETE
------------------------
Except as explicitly provided herein, the Executive agrees, for the
entire Noncompetition Period, to the following covenants, effective within the
Noncompetition Regions:
1. Competitive Activity Restriction. Executive, personally or
--------------------------------
through any Affiliate of Executive, shall not conduct any Competitive Activity
other than through the Company, unless a majority of the Company's Board of
Trustees, which majority must include a majority of the Independent Trustees,
have determined that such Competitive Activity will not have a material adverse
effect on the operations of any Office or Industrial Property that the Company
either owns or has a right to acquire.
2. Property Management and Operation. Executive, personally or
---------------------------------
through any Affiliate of Executive, shall not
3
<PAGE>
engage in any Property Management and Operation other than through the Company,
except with respect to any Office or Industrial Property, managed by Executive
or any Affiliate of Executive as a result of any permitted Office or Industrial
Activity.
3. No Beneficial Ownership. Executive shall not hold directly or
-----------------------
indirectly any beneficial interest in any entity engaged in any Office or
Industrial Activity other than the Company, except for any interest in a company
traded on a nationally recognized public securities exchange (including The
Nasdaq National Market), provided such interest does not exceed five percent of
the outstanding capital stock of such company.
4. Loans. Executive shall not directly or indirectly make any loan
-----
to, or hold any note evidencing a loan from, any entity engaged in any Office or
Industrial Development Activity.
5. Competitive Entity. Executive shall not be a director or
------------------
trustee, officer, or employee of, or consultant to (whether for compensation or
not) any entity engaged in any Office or Industrial Activity.
6. Notification to Independent Trustees. If Executive or any
------------------------------------
Affiliate of Executive desires to engage in any Office or Industrial Activity,
Executive shall be obligated to describe fully the proposed activity in a
written notice (the "Disclosure Notice") to the Company and the Independent
Trustees. A Disclosure Notice shall only pertain to a specific proposed project
and the referenced proposed project shall be described therein with specificity
as to timing, location, scope and the extent of Executive's involvement,
financially and in terms of his time commitment. A Disclosure Notice may not
request approval for any conceptual or non-project specific activity or for any
activity that is prohibited by this Agreement.
C. MISCELLANEOUS PROVISIONS.
------------------------
1. Notices. All notices or deliveries authorized or required
-------
pursuant to this Agreement shall be deemed to have been given when in writing
and when (i) deposited in the U.S. mail, certified, return receipt requested,
postage prepaid, or (ii) otherwise delivered by hand or by overnight delivery,
against written receipt, by a common carrier or commercial courier or delivery
service addressed to the parties at the following addresses or to such other
addresses as either may designate in writing to the other party:
To the Company: Prentiss Properties Trust
1717 Main Street, Suite 5000
Dallas, Texas 75201
4
<PAGE>
Phone (214) 761-1440
5
<PAGE>
To the Executive: Richard B. Bradshaw
1717 Main Street, Suite 5000
Dallas, Texas 75201
Phone (214) 761-1440
2. Entire Agreement. This Agreement contains the entire
----------------
understanding between the parties hereto with respect to the subject matter
hereof and shall not be modified in any manner except by instrument in writing
signed, by or on behalf of, the parties hereto. This Agreement shall be binding
upon and inure to the benefit of the heirs, successors and assigns of the
parties hereto.
3. Applicable Law. This Agreement shall be governed and construed
--------------
in accordance with the laws of the State of Texas.
4. Titles and Headings. Titles and headings to sections and
-------------------
paragraphs in this Agreement are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement.
5. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
6. Amendments. No amendment, modification or supplement to this
----------
Agreement shall be binding on any of the parties hereto unless it is in writing
and signed by the parties in interest at the time of the modification, and
further provided any such modification is approved by a majority of the
Independent Trustees.
7. No Third-Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties to this Agreement and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claims or action or
other right in excess of those existing without reference to this Agreement.
8. Maximum Legal Enforceability; Time of Essence. Any provision of
---------------------------------------------
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party to this
Agreement, each party hereto acknowledges that damages would not be an adequate
remedy for any breach of the provisions of this Agreement and agrees that the
obligations of the parties
6
<PAGE>
hereunder shall be specifically enforceable. Time shall be of the essence as to
each and every provision of this Agreement.
9. Further Assurances. The parties to this Agreement will execute
------------------
and deliver or cause the execution and delivery of such further instruments and
documents and will take such other actions as any other party to the Agreement
may reasonably request in order to effectuate the purpose of this Agreement and
to carry out the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
THE EXECUTIVE
----------------------------------------
RICHARD B. BRADSHAW
THE COMPANY
PRENTISS PROPERTIES TRUST, INC.
By:-------------------------------------
Its:-------------------------------
7
<PAGE>
SCHEDULE A
----------
CERTAIN MARKETS INCLUDED
IN THE NONCOMPETITION REGIONS
Washington, DC
Orlando, FL
Atlanta, GA
Baltimore, MD
Kansas City, MO
Amarillo, TX
Austin, TX
Dallas, TX
Fort Worth, TX
Houston, TX
Northern Virginia
8
<PAGE>
Exhibit 10.6
------------
AGREEMENT NOT TO COMPETE
THIS AGREEMENT NOT TO COMPETE, dated as of __________________, 1996, by and
between Prentiss Properties Trust, a Maryland real estate investment trust (the
"Company") and Dennis J. DuBois (the "Executive"), recites and provides as
follows:
W I T N E S S E T H:
WHEREAS, the Company is a self-administered Maryland real estate investment
trust, which has been formed to continue and expand the national acquisition,
property management, leasing, development and construction business of Prentiss
Properties Limited, Inc., and its affiliates (collectively, the "Prentiss
Group");
WHEREAS, the Company's primary objective is to maximize the profitability
of its Properties by continuing the Prentiss Group's success in renewing leases,
maintaining high occupancy rates, reducing operating costs and growing through
the acquisition of additional office and industrial properties and through
development primarily on a build-to-suit basis;
WHEREAS, Executive has been continuously and actively engaged in various
aspects of real estate development, acquisitions, and investment management on
the national level, both personally and for companies and joint ventures
controlled by or affiliated with Executive, including, without limitation, the
owning, development, asset management and management of Office or Industrial
Properties;
WHEREAS, the Executive and the Company have determined that, in furtherance
of the Company's objectives, it is desirable to set forth in this Agreement
certain covenants and agreements with respect to certain Competitive Activities,
as hereinafter defined, of Executive and the Affiliates of Executive, as
hereinafter defined.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants, promises and
obligations of the parties provided for in this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
A. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the
following meanings (applicable to both the singular and plural forms of the
terms defined):
<PAGE>
1. "Acquisition of Office or Industrial Property" means engaging in
the activity of soliciting, seeking to acquire, obtaining an option or first
right of refusal to acquire, or acquiring, any interest in an Office or
Industrial Property.
2. "Affiliate" means (i) any person directly or indirectly
controlling, controlled by, or under common control with such other person, (ii)
any executive officer, director, trustee or general partner of such other
person, and (iii) any legal entity for which such person acts as an executive
officer, director, trustee or general partner. The term "person" means and
includes any natural person, corporation, partnership, association, limited
liability company or any other legal entity.
3. "Asset Management Activity" means engaging directly, through an
Affiliate, or being employed by any entity undertaking, or otherwise undertaking
to manage investments in Property for the account of others.
4. "Competitive Activity" means engaging in directly, through an
Affiliate, or being employed by any entity undertaking, or otherwise undertaking
to do any of the following: (i) Acquisition of Office or Industrial Property,
(ii) Office or Industrial Property Construction, (iii) Office or Industrial
Property Entitlements, (iv) Speculation, or (v) Office or Industrial Property
Management and Operation.
5. "Independent Trustee" shall mean a member of the Board of
Trustees of the Company who is defined as an "Independent Trustee" in the
Amended and Restated Declaration of Trust of the Company, which is attached as
Exhibit 3.1 to the Company's Registration Statement on Form S-11 (File No. 333-
9863), as filed with the Securities and Exchange Commission, as amended.
6. "Noncompetition Period" means the period beginning the date of
this Agreement and ending two years after the date of termination of any
employment relationship between the Executive and the Company.
7. "Noncompetition Regions" means all geographic areas and real
estate markets in the Southwestern United States, including a 50 mile radius of
each area or market, in which the Company owns, owns an interest in or manages
any Office or Industrial Property, including but not limited to the areas and
markets listed on the attached Schedule A.
8. "Office or Industrial Property Construction" means the
construction, renovation or repair of improvements on a Office or Industrial
Property by Executive or an Affiliate of Executive.
2
<PAGE>
9. "Office or Industrial Property Entitlements" means engaging in the
process by which a person with an interest in an Office or Industrial Property
obtains necessary or desirable governmental approvals, licenses, permits,
entitlement or agreements for the commencement of Office or Industrial Property
Construction.
10. "Office or Industrial Property" means any Property that is used
in whole or in part for office or industrial space or office or industrial
related purposes, whether in fee or leasehold, together with all improvements
and fixtures now or hereafter located thereon, all rights, privileges and
easements appurtenant thereto, and all tangible and intangible personal property
used in connection therewith.
11. "Property" means any real property or any interest therein.
12. "Property Management and Operation" means engaging in directly or
through an Affiliate, or being employed by any entity undertaking, or otherwise
undertaking the day-to-day management and operation of an Office or Industrial
Property, whether pursuant to a master lease, management agreement or any other
arrangement.
13. "Speculation" means engaging in the activity of soliciting,
seeking to acquire, obtaining an option or a first right of refusal to acquire,
acquiring, any interest in a Office or Industrial Property with the intention at
any time of acquiring (or obtaining an option or a first right of refusal to
acquire) or holding an Office or Industrial Property for subsequent sale or
other transfer to any person for purposes of Competitive Activity.
B. AGREEMENT NOT TO COMPETE
------------------------
Except as explicitly provided herein, the Executive agrees, for the
entire Noncompetition Period, to the following covenants, effective within the
Noncompetition Regions:
1. Competitive Activity Restriction. Executive, personally or
--------------------------------
through any Affiliate of Executive, shall not conduct any Competitive Activity
other than through the Company, unless a majority of the Company's Board of
Trustees, which majority must include a majority of the Independent Trustees,
have determined that such Competitive Activity will not have a material adverse
effect on the operations of any Office or Industrial Property that the Company
either owns or has a right to acquire.
2. Property Management and Operation. Executive, personally or
---------------------------------
through any Affiliate of Executive, shall not
3
<PAGE>
engage in any Property Management and Operation other than through the Company,
except with respect to any Office or Industrial Property, managed by Executive
or any Affiliate of Executive as a result of any permitted Office or Industrial
Activity.
3. No Beneficial Ownership. Executive shall not hold directly or
-----------------------
indirectly any beneficial interest in any entity engaged in any Office or
Industrial Activity other than the Company, except for any interest in a company
traded on a nationally recognized public securities exchange (including The
Nasdaq National Market), provided such interest does not exceed five percent of
the outstanding capital stock of such company.
4. Loans. Executive shall not directly or indirectly make any loan
-----
to, or hold any note evidencing a loan from, any entity engaged in any Office or
Industrial Development Activity.
5. Competitive Entity. Executive shall not be a director or
------------------
trustee, officer, or employee of, or consultant to (whether for compensation or
not) any entity engaged in any Office or Industrial Activity.
6. Notification to Independent Trustees. If Executive or any
------------------------------------
Affiliate of Executive desires to engage in any Office or Industrial Activity,
Executive shall be obligated to describe fully the proposed activity in a
written notice (the "Disclosure Notice") to the Company and the Independent
Trustees. A Disclosure Notice shall only pertain to a specific proposed project
and the referenced proposed project shall be described therein with specificity
as to timing, location, scope and the extent of Executive's involvement,
financially and in terms of his time commitment. A Disclosure Notice may not
request approval for any conceptual or non-project specific activity or for any
activity that is prohibited by this Agreement.
C. MISCELLANEOUS PROVISIONS.
------------------------
1. Notices. All notices or deliveries authorized or required
-------
pursuant to this Agreement shall be deemed to have been given when in writing
and when (i) deposited in the U.S. mail, certified, return receipt requested,
postage prepaid, or (ii) otherwise delivered by hand or by overnight delivery,
against written receipt, by a common carrier or commercial courier or delivery
service addressed to the parties at the following addresses or to such other
addresses as either may designate in writing to the other party:
To the Company: Prentiss Properties Trust
1717 Main Street, Suite 5000
Dallas, Texas 75201
4
<PAGE>
Phone (214) 761-1440
To the Executive: Dennis J. DuBois
1717 Main Street, Suite 5000
Dallas, Texas 75201
Phone (214) 761-1440
2. Entire Agreement. This Agreement contains the entire
----------------
understanding between the parties hereto with respect to the subject matter
hereof and shall not be modified in any manner except by instrument in writing
signed, by or on behalf of, the parties hereto. This Agreement shall be binding
upon and inure to the benefit of the heirs, successors and assigns of the
parties hereto.
3. Applicable Law. This Agreement shall be governed and construed
--------------
in accordance with the laws of the State of Texas.
4. Titles and Headings. Titles and headings to sections and
-------------------
paragraphs in this Agreement are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement.
5. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
6. Amendments. No amendment, modification or supplement to this
----------
Agreement shall be binding on any of the parties hereto unless it is in writing
and signed by the parties in interest at the time of the modification, and
further provided any such modification is approved by a majority of the
Independent Trustees.
7. No Third-Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties to this Agreement and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claims or action or
other right in excess of those existing without reference to this Agreement.
8. Maximum Legal Enforceability; Time of Essence. Any provision of
---------------------------------------------
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party to this
Agreement, each party hereto acknowledges that damages would not
5
<PAGE>
be an adequate remedy for any breach of the provisions of this Agreement and
agrees that the obligations of the parties hereunder shall be specifically
enforceable. Time shall be of the essence as to each and every provision of this
Agreement.
9. Further Assurances. The parties to this Agreement will execute
------------------
and deliver or cause the execution and delivery of such further instruments and
documents and will take such other actions as any other party to the Agreement
may reasonably request in order to effectuate the purpose of this Agreement and
to carry out the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
THE EXECUTIVE
----------------------------------------
DENNIS J. DUBOIS
THE COMPANY
PRENTISS PROPERTIES TRUST, INC.
By:-------------------------------------
Its:-------------------------------
6
<PAGE>
SCHEDULE A
----------
CERTAIN MARKETS INCLUDED
IN THE NONCOMPETITION REGIONS
Phoenix, AZ
Los Angeles, CA
Oakland, CA
Sacramento, CA
San Francisco, CA
Amarillo, TX
Austin, TX
Dallas, TX
Fort Worth, TX
Houston, TX
7
<PAGE>
Exhibit 10.7
CONTRIBUTION
AGREEMENT
by and between
PRENTISS PROPERTY ACQUISITION PARTNERS, L.P.
and
PRENTISS PROPERTIES LIMITED, INC.
August 5, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I.
DEFINITIONS; RULES OF CONSTRUCTION
1.01 Definitions................................................... (2)
1.02 Rules of Construction......................................... (5)
ARTICLE II.
PURCHASE AND SALE; PURCHASE PRICE;
ASSIGNMENT AND ASSUMPTION; EXCLUDED ASSETS
2.01 Transfers at Closing; Purchase Price; Assumption
of Liabilities................................................ (5)
2.02 Assumption of Liabilities..................................... (7)
2.03 Excluded Assets............................................... (7)
2.04 Independent Consideration..................................... (7)
2.05 Investment Representations and Warranties..................... (7)
ARTICLE III.
CLOSING
3.01 The Closing and the Closing Date.............................. (10)
3.02 PPL's Obligations at the Closing.............................. (10)
3.03 PPAP's Obligations at the Closing............................. (11)
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES, SURVIVAL, COVENANTS
4.01 Representations and Warranties of PPL......................... (12)
4.02 Representations and Warranties of PPAP........................ (16)
4.03 Survival of Representations and Warranties.................... (17)
4.04 Obligation to Notify Parties of Change........................ (17)
4.05 Operation of PPL and Contributed Assets Prior to Closing...... (17)
ARTICLE V.
CONDITIONS TO CLOSING
5.01 Conditions Precedent to PPAP's Obligations.................... (18)
5.02 Consequences of The Failure of Section 5.01
Conditions Precedent.......................................... (18)
5.03 Conditions Precedent to PPL's Obligation to Close............. (19)
<PAGE>
ARTICLE VI.
DEFAULTS AND REMEDIES
6.01 PPL's Defaults; PPAP's Remedies................................ (19)
6.02 PPAP's Default; PPL's Remedies................................. (20)
6.03 Attorneys' Fees................................................ (21)
ARTICLE VII.
CLOSING COSTS; PRORATIONS
7.01 Closing Costs.................................................. (21)
7.02 Proration of Income and Expenses............................... (21)
7.03 Post-Closing Adjustments....................................... (22)
ARTICLE VIII.
INDEMNIFICATION
8.01 Brokerage Commissions.......................................... (22)
8.02 PPL Indemnity.................................................. (23)
8.03 PPAP Indemnity................................................. (23)
ARTICLE IX.
EMPLOYEES
9.01 Property Employees............................................. (23)
9.02 Indemnification................................................ (24)
ARTICLE X.
MISCELLANEOUS
10.01 Notice........................................................ (26)
10.02 Assignment; Successors and Assigns............................ (26)
10.03 Severability.................................................. (27)
10.04 Entire Agreement.............................................. (27)
10.05 Modification.................................................. (27)
10.06 Incorporation by Reference.................................... (27)
10.07 Cooperation; Further Assurances............................... (27)
10.08 Time is of the Essence........................................ (27)
10.09 Days.......................................................... (27)
10.10 Applicable Law................................................ (28)
10.11 Survival of Representations and Warranties.................... (28)
10.12 Counterparts.................................................. (28)
10.13 No Third Party Beneficiaries.................................. (28)
10.14 Headings...................................................... (28)
(ii)
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
Exhibit Title
------- -----
A-1 Real Estate Contracts
A-2 Service Contracts
B Second Amended and Restated Agreement of Limited
Partnership of PPAP
Schedule Title
-------- -----
2.03 Excluded Assets
4.01(g) Employee Benefit Plans
4.01(h) Labor Matters
(iii)
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement"), dated as of August 5, 1996,
by and between PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a Delaware
limited partnership ("PPAP"), and PRENTISS PROPERTIES LIMITED, INC., a Delaware
corporation ("PPL"), recites and provides:
RECITALS:
- --------
A. PPL has entered or will enter into the purchase and sale agreements,
option agreements and rights of first refusal (collectively, "Real Estate
Contracts") identified on Exhibit A-1 to acquire certain real properties or
certain direct or indirect ownership interests in certain real properties (each,
a "Project", as defined in the respective Real Estate Contracts).
B. PPL has entered or will enter into agreements (the "Insurance
Agreements") under which it will acquire certain title insurance and property
and casualty insurance assets (collectively, the "Insurance Assets") from
Prentiss Properties Risk Management, Inc., a Texas corporation, and Prentiss
Properties Title Agency, Inc., a to be formed Texas corporation, respectively.
C. PPL has entered into an agreement (the "Alliance Agreement") under
which it will acquire the interest (the "Alliance Interest") of Prentiss
Properties Real Estate Services, Inc., a Texas corporation, in Alliance
Management and Leasing, a Texas general partnership.
D. PPL is a party to the real property management, facilities management,
service, development, leasing and other agreements set forth on Exhibit A-2
(collectively, the "Service Contracts").
E. PPAP desires to acquire and assume, and PPL desires to contribute and
assign, (i) PPL's rights under the Real Estate Contracts, the Insurance
Agreements, the Alliance Agreement and the Service Contracts (collectively, the
"Assumed Contracts"), (ii) the Fixed Assets (as defined herein) and (iii) the
Miscellaneous Assets (as defined herein), on the terms and conditions set forth
hereinafter.
AGREEMENT:
- ---------
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.011 Definitions . The following terms shall have the indicated
------------
meanings:
An "Affiliate" of any person is a person (i) controlling, controlled by or
under common control with such person, with "control" being determined in
accordance with concepts developed under the securities laws of the United
States or (ii) that owns, directly or indirectly, 10% or more of the outstanding
stock, shares or equity interests of such person.
"Authorizations" shall mean all material licenses, Permits and approvals
required by any governmental body with jurisdiction over PPL for the ownership,
operation and use by PPL of, and the rendering of services by PPL under, the
Contributed Assets or any part thereof.
"Books and Records" shall mean all financial and other books and records
maintained by or for the benefit of PPL in connection with the ownership or
operation of, or rendering of services under, the Contributed Assets, which are
within the possession or control of PPL or its Affiliates, agents or
representatives.
"Closing" shall mean the meeting described in Section 9.01.
------------
"Closing Date" shall be the date of the closing of the IPO, or such other
date as the parties may agree upon.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Shares" shall mean common shares of PPL REIT.
"Contributed Assets" shall mean the assets acquired and assumed by PPAP
hereunder, consisting of the Assumed Contracts, the Fixed Assets and the
Miscellaneous Assets.
"Environmental Laws" means all applicable existing federal, state and local
statutes, ordinances, orders, rules and regulations issued, promulgated or
adopted by any governmental authority having jurisdiction over the Contributed
Assets, relating to environmental pollution or protection, together with all
existing rules, regulations and orders promulgated thereunder, and all similar
applicable existing local, state and federal statutes and regulations
promulgated pursuant thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
(2)
<PAGE>
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, which together with PPL would be treated as a single employer
under Code Sections 414(b), (c), (m) or (o) or ERISA Section 4001(b).
-------------------------
"Excluded Assets" shall have the meaning set forth in Section 2.03.
"Fixed Assets" shall mean all tangible personal property owned by PPL and
used in the rendering of services by PPL under the Service Contracts and
otherwise in PPL's office and industrial property management business as of the
Closing Date, including but not limited to all fixed assets, chattels, machines,
machinery, equipment, leasehold improvements, computer hardware, computer
software, fixtures, furniture, furnishings, and implements (including related
parts, tools and accessories of all kinds).
"Governmental Regulations" means all laws, ordinances, rules, regulations,
statutes, building and fire codes, zoning ordinances, restrictions, restrictive
covenants, judgments, orders or decrees, health and environmental laws and
regulations and any and all other laws, requirements, standards and regulations
or appropriate supervising boards of fire underwriters and other matters of all
governmental authorities or courts of competent jurisdiction having jurisdiction
over the Project, including, but not limited to the Americans with Disabilities
Act.
"Hazardous Materials" means (i) any chemical, material, or substance
defined as or included in the definition of "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," or "toxic substances" or words
of similar import under any Environmental Laws, (ii) any oil, petroleum or
petroleum derived substances, any flammable substances or explosives, any
radioactive materials, any asbestos or any substance containing more than 0.1
percent asbestos, any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million, any urea
formaldehyde insulation, and (iii) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any Environmental Laws.
"Independent Consideration" shall have the meaning set forth in Section
2.04.
"IPO" shall mean the initial public offering of PPL REIT Common Shares.
"IPO Price" shall mean the price at which the Common Shares of PPL REIT are
sold in the IPO.
"Lockup Agreements" shall mean the Agreements between the Principals and
Lehman Brothers Inc., on behalf of the underwriters
(3)
<PAGE>
of the IPO, under which each Principal agrees generally not to transfer
interests in PPL REIT or PPAP owned or controlled, directly or indirectly, by
him during the two years after the closing of the IPO.
"Miscellaneous Assets" shall mean all items of intangible personal property
owned by PPL and used in rendering services under the Service Contracts or in
connection with the Fixed Assets, including but not limited to the "Prentiss
Properties Limited, Inc." name (or derivatives thereof), the Permits, prepaid
license and Permit fees and the Books and Records.
"Partnership Agreement" shall mean the Second Amended and Restated
Agreement of Limited Partnership of PPAP, which shall become effective, and
shall replace the existing agreement of limited partnership of PPAP, upon the
completion of the IPO and the admission of PPL REIT (or a wholly-owned
subsidiary thereof) as the general partner of PPAP, in substantially the form of
Exhibit B.
"Permits" means all licenses, consents and permits issued to or for the
benefit of PPL and used or relating to the ownership or operation of the
Contributed Assets.
"PPL's Actual Knowledge" or words of similar import shall mean the actual
knowledge of one or more of the Principals after due inquiry. For purposes of
this definition, "due inquiry" shall mean inquiry of each other Principal.
"PPL Benefit Plans" shall have the meaning set forth in Section 3.01(i).
"PPL Financial Statements" shall mean financial statements of PPL at
December 31, 1995 and for the three years then ended, and at June 30, 1996 and
June 30, 1995 and for the six month periods then ended, prepared in accordance
with generally accepted accounting principles consistently applied.
"PPL REIT" means the corporation or real estate investment trust to be
formed by PPL to operate as a real estate investment trust under the Code, to
conduct the IPO and to own an interest in, and (through a wholly-owned
subsidiary) to serve as general partner of, PPAP.
"Principals" shall mean Michael V. Prentiss, Thomas F. August, Dennis J.
DuBois and Richard B. Bradshaw, Jr.
"Purchase Price" shall have the meaning set forth in Section 2.01(a).
---------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
(4)
<PAGE>
"Units" shall mean units of limited partnership interest in PPAP.
1.012 Rules of Construction. The following rules shall apply to the
---------------------
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as the
singular and vice versa, and the masculine shall include the feminine and the
neuter.
(b) All references herein to particular articles, sections, subsections
or clauses are references to articles, sections, subsections or clauses of this
Agreement.
(c) The headings contained herein are solely for convenience of reference
and shall not constitute a part of this Agreement nor shall they affect its
meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and revised (or
requested revisions of) this Agreement, and therefore any usual rules of
construction requiring that ambiguities are to be resolved against a particular
party shall not be applicable in the construction and interpretation of this
Agreement or any exhibits hereto or amendments hereof.
ARTICLE II
PURCHASE AND SALE; PURCHASE PRICE;
ASSIGNMENT AND ASSUMPTION; EXCLUDED ASSETS
1.021 Transfers at Closing; Purchase Price; Assumption of Liabilities.
----------------------------------------------------------------
(a) At the Closing, PPAP agrees to acquire and assume, and PPL agrees to
contribute and assign, the Contributed Assets for the amount calculated and
payable as set forth below (the "Purchase Price"):
(i) The Purchase Price is the number of Units equal to Gross Shares
- Excess Purchaser Equity Shares.
(ii) The terms defined below shall apply for purposes of calculating
the Purchase Price under subsection (i) above:
"CAD" equals the pro forma cash (or funds) available for
distribution of PPL REIT for the 12-month period set forth in the
Distribution Policy section of the final "red-herring" prospectus for the
IPO.
"Continuing Investor Shares" equals the Continuing Investor Share
Purchase Price divided by the IPO Price (as defined in Section 1.01
hereof).
(5)
<PAGE>
"Continuing Investor Share Purchase Price" equals 50% of that portion
of the "Purchase Price" (as defined in the PPAP Purchase Agreement) payable
under the PPAP Purchase Agreement to the Continuing Investors.
"Continuing Investors" means Idaho, Ameritech and American (each as
defined in the definition of "PPAP Purchase Agreement" below).
"Distribution Rate" means the dollar amount estimated to be paid as
the initial annual distribution on one Common Share of PPL REIT, as set
forth in the final "red-herring" prospectus for the IPO.
"Excess Purchaser Equity Shares" means
[(Purchaser Equity) - (Target Equity)] * .50
--------------------------------------------
IPO Price
"Gross Shares" equals
[(CAD) * (Payout Ratio)] - [(Public Shares
+ Continuing Investor Shares + Trustee
Shares + Real Estate Equity Shares) * Distribution Rate]
--------------------------------------------------------
Distribution Rate
"Payout Ratio" means the CAD payout ratio (expressed as a percentage)
assumed in the final "red-herring" prospectus for the IPO in estimating the
initial annual distribution for PPL REIT.
"PPAP Purchase Agreement" means the Purchase Agreement among PPL,
Prentiss Property Acquisition, L.P., Exxon Corporation Master Trust
("Exxon"), Public Employee Retirement System of Idaho ("Idaho"), Ameritech
Pension Trust ("Ameritech") and The American Airlines Fixed Benefit Trust
("American"), dated June 12, 1996.
"Public Shares" means the number of Common Shares sold to public
investors in the IPO, disregarding Common Shares issued pursuant to (i) the
PPAP Purchase Agreement and (ii) the exercise of the overallotment option
granted to the underwriters of the IPO.
"Purchaser Equity" shall have the same definition as set forth in the
PPAP Purchase Agreement, without deduction for the Excess Purchaser Equity
Shares.
"Real Estate Equity Shares" means the aggregate number of Units
payable to the transferors of property or interests
(6)
<PAGE>
in property under the Real Estate Contracts (as defined in the Recitals to
this Agreement).
"Target Equity" shall have the same definition as set forth in the
PPAP Purchase Agreement.
"Trustee Shares" means the number of Common Shares issued to the
initial independent trustees of PPL REIT, as set forth in the final
prospectus for the IPO.
(b) PPAP will not issue fractional Units. If the calculation in Section
2.01(a) yields a fractional Unit, the number of Units will be rounded to the
nearest whole number of Units.
(c) PPAP may designate an Affiliate to take title to some or all of the
Purchase Assets, or any part thereof.
1.022 Assumption of Liabilities. At the Closing, PPAP will assume, and
-------------------------
PPL will assign, the Contributed Assets. Except as specifically set forth herein
with respect to the performance by PPAP (or its assignee or designee) of
obligations arising under the Assumed Contracts from and after the Closing, PPAP
does not and will not assume any liability or obligation of any kind of PPL or
relating to the business of PPL or the Fixed Assets or Miscellaneous Assets or
the performance by PPL under the Assumed Contracts or Miscellaneous Assets prior
to the Closing, whether absolute or contingent, accrued or unaccrued, asserted
or unasserted, known or unknown, or otherwise.
1.023 Excluded Assets. PPAP shall only acquire and assume, and have the
---------------
right to acquire and assume, the Contributed Assets. PPAP shall have no rights
with respect to assets of PPL other than the Contributed Assets, including
without limitation the assets set forth on Schedule 2.03 (the "Excluded
-------------
Assets").
1.024 Independent Consideration. Concurrently herewith PPAP has paid to
-------------------------
PPL the sum of one hundred dollars ($100), which shall be independent
consideration (the "Independent Consideration") for the agreements of PPL set
forth herein. The Independent Consideration shall be in addition to the
Purchase Price. If the Closing does not occur for any reason, the Independent
Consideration shall be deemed earned and shall be retained by PPL.
1.025 Investment Representations and Warranties. PPL, for itself and on
-----------------------------------------
behalf of each Principal (each, a "Representing Party"), hereby represents and
warrants as follows, and at Closing, each Representing Party shall execute and
deliver to PPAP a certificate confirming the representations and warranties set
forth below.
(7)
<PAGE>
(a) Investment Representations and Warranties. The Representing Party
-----------------------------------------
understands the risks of, and other considerations relating to, accepting Units.
The Representing Party is an "accredited investor" as defined in the Securities
Act, and by reason of its or his business and financial experience, together
with the business and financial experience of those persons, if any, retained by
it or him to represent or advise it or him with respect to the transactions
contemplated by the Agreement, (i) has such knowledge, sophistication and
experience in financial and business matters and in making investment decisions
of this type, and the Representing Party is capable of evaluating the merits and
risks of an investment in PPAP and of making an informed investment decision,
(ii) is capable of protecting its or his own interest or has engaged
representatives or advisors to assist it or him in protecting its or his
interest, and (iii) is capable of bearing the economic risk of such investment.
The Representing Party will on or before closing complete, execute and deliver
to PPAP (i) the Prospective Subscriber Questionnaire in substantially the form
attached to those Real Estate Contracts under which Units are to be issued, and
(ii) the "lockup" letter agreement in substantially the form attached to those
Real Estate Contracts under which Units are to be issued.
(b) The Representing Party understands that an investment in PPAP
involves substantial risks. The Representing Party has been given the
opportunity to make a thorough investigation of the proposed activities of PPAP.
The Representing Party has been afforded the opportunity to obtain any
information deemed necessary by the Representing Party. The Representing Party
confirms that all documents, records, and books pertaining to its or his
investment in PPAP and requested by it or him have been made available or
delivered to the Representing Party. The Representing Party has had an
opportunity to ask questions of and receive answers from PPAP, or from a person
or persons acting on PPAP's behalf, concerning the terms and conditions of the
transactions contemplated by the Agreement and the Representing Party's
acquisition of Units. The Representing Party has reviewed and understands the
terms and provisions of the partnership agreement of PPAP which will be in
effect as of the Closing Date. The Representing Party agrees that, upon its or
his receipt of Units issued hereunder, the Representing Party will become a
limited partner of PPAP. The Representing Party agrees to promptly execute and
deliver partnership agreement signature pages and any and all additional
documents or instruments necessary or desirable, in the discretion of PPAP, to
further or better evidence (i) the Representing Party's desire to become a
limited partner, (ii) the admission of the Representing Party as a partner of
PPAP or (iii) the exemption from federal and state securities laws under which
the Units to be issued hereunder are issued. The Representing Party has relied
upon, and is making an investment decision, solely upon such information as has
been provided to the Representing Party in writing by PPAP.
(8)
<PAGE>
(c) The Units to be issued hereunder by PPAP will be acquired by the
Representing Party for its or his 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, or the grant of any participation therein, without prejudice, however,
to the Representing Party's right (subject to the terms of the partnership
agreement of PPAP) at all times to sell or otherwise dispose of all or any part
of its Units under an exemption from such registration available under the
Securities Act and applicable state securities laws. PPL was not formed for the
specific purpose of acquiring an interest in PPAP.
(d) The Representing Party acknowledges that (i) the Units to be issued
hereunder by PPAP have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect; (ii) PPAP's reliance on such exemptions is predicated in
part on the accuracy and completeness of the representations, warranties and
covenants of the Representing Party contained herein; (iii) such Units,
therefore, cannot be resold unless registered under the Securities Act and
applicable state securities laws, or unless an exemption from registration is
available; (iv) there is no public market for such Units; (v) Units issued
hereunder are not transferable without the prior written consent of the general
partner of PPAP; and (vi) PPAP has no obligation or intention to register such
Units for resale under the Securities Act or any state securities laws or to
take any action that would make available any exemption from the registration
requirements of such laws. The Representing Party hereby acknowledges that
because of the restrictions on transfer or assignment of such Units to be issued
hereunder set forth in the partnership agreement of PPAP and/or in a share
restriction agreement, the Representing Party may have to bear the economic risk
of the investment commitment evidenced by the Agreement and any Units acquired
hereby for an indefinite period of time, and that, under the terms of the
partnership agreement of PPAP, as it will be in effect on the Closing Date,
Units will not be redeemable at the request of the holder thereof for cash (or
at the option of PPL REIT, for common stock in PPL REIT) prior to the first
anniversary of their issuance.
(e) The Representing Party is domiciled in or resides in Texas or Georgia
and has no present intention of becoming a resident of any country, state or
jurisdiction other than Texas or Georgia.
(9)
<PAGE>
ARTICLE III.
CLOSING
1.031 The Closing and the Closing Date. The acquisition of the
--------------------------------
Contributed Assets contemplated by the terms and conditions of this Agreement
shall be consummated at the Closing to be held on the Closing Date.
1.032 PPL's Obligations at the Closing.
--------------------------------
(a) At the Closing, PPL shall do the following:
(i) Execute, acknowledge, and deliver to PPAP good and sufficient
bills of sale, and assignments and assumption agreements of the Contributed
Assets (the "Assignment") in the form approved by the parties conveying the
Assumed Contracts and title in and to the Fixed Assets and Miscellaneous
Assets free and clear of all liens or encumbrances;
(ii) Execute, acknowledge and deliver to PPAP a Closing Certificate
(herein so called) in the form approved by the parties which shall, among
other things, certify, represent and warrant to PPAP as of the date of
Closing, that each of the representations and warranties contained in
Section 2.05 and 4.01 of this Agreement is and continues to be true and
correct on the date of Closing in all material respects, provided, should
an event occurring during the pendency of this Agreement make any of such
representations and warranties not correct on the Closing Date, such non-
compliance shall be indicated and described on the Closing Certificate;
(iii) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to PPAP, stating, under penalty of perjury, PPL's
U.S. taxpayer identification number and that PPL is not a "foreign person"
within the meaning of Section 1445 of the Code;
(iv) Deliver to PPAP satisfactory evidence that all necessary
corporate action has been taken with respect to the consummation of the
transaction contemplated hereby;
(v) Deliver to PPAP the originally executed Assumed Contracts,
including amendments;
(vi) Execute and deliver to PPAP the Lockup Agreements;
(10)
<PAGE>
(vii) Deliver to PPAP original executed copies of the consents of
each party other than PPL to the assignment to PPAP (or its assignee or
designee) of each Service Contract that is not terminable on thirty (30)
days (or less) notice; and
(viii) Deliver to PPAP such other assignments and documents as may be
required pursuant to the provisions hereof or mutually agreed by counsel
for PPL and PPAP to be necessary to fully consummate the transaction
contemplated hereby.
(b) If PPL fails or is unable to deliver any of the items set forth in
this Section 3.02 at the Closing, PPAP may (i) elect to waive such failure and
close the transaction, or (ii) exercise any one or more of its options under
Section 6.01(b) hereof.
1.033 PPAP's Obligations at the Closing.
---------------------------------
(a) At the Closing, and upon receipt of all items to be delivered to
PPAP under Section 3.02 above, PPAP shall do the following:
(i) Deliver the Purchase Price in accordance with Section 2.01
hereof;
(ii) Execute and deliver to PPL counterparts of the Assignments to
be executed and delivered by PPL pursuant to Section 3.02 above;
(iii) Deliver to PPL such other instruments or documents as may be
required pursuant to the terms hereof or mutually agreed by counsel for PPL
and PPAP to be necessary to fully consummate the transaction contemplated
hereby.
(b) If PPAP fails or is unable to deliver any items set forth in this
Section 3.03 at the Closing, PPL may (i) elect to waive such failure and close
the transaction, or (ii) exercise its remedies under Section 6.02(b) hereof.
(11)
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES, SURVIVAL, COVENANTS
1.041 Representations and Warranties of PPL :
--------------------------------------
PPL hereby represents and warrants to PPAP the following:
(a) Formation and Qualification. PPL has been duly formed and is validly
---------------------------
existing as a corporation under the laws of the State of Delaware, and is duly
registered or qualified to do business in the State of Texas and in each other
jurisdiction where its assets or operations require it to be so qualified. The
execution, delivery and performance of this Agreement and all other documents,
instruments and agreements to be executed and delivered by PPL hereunder are
within the corporate power of PPL and have been duly authorized by all necessary
and appropriate corporate power.
(b) No Violation. Neither the execution and delivery of this Agreement
------------
nor the consummation of the transaction contemplated hereby conflict with or
will result in a material breach of any of the provisions of, or constitute a
default under, any agreement or instrument to which PPL is a party or by which
it or any of the Contributed Assets is bound. Notwithstanding the foregoing, no
such representation is made by PPL with respect to the assignment hereunder of
any Service Contract terminable by the other party for any reason on 30 days (or
less) notice. There are no actions, voluntary or involuntary, pending against
PPL under any bankruptcy, reorganization, arrangement, insolvency or similar
federal or state statute. PPL has taken no action, and is aware of no act,
deed, writing or fact, which would prevent or impede its ability to sell and
assign the Assumed Contracts to PPAP.
(c) FIRPTA. PPL is not a "foreign person" as defined in Section
------
1445(f)(3) of the Code of 1986.
(d) Litigation. As of the date hereof, to PPL's Actual Knowledge, there
----------
is not any pending, nor has PPL received written notice of, any threatened
proceeding, suit or action against PPL which, if adversely decided, would
prevent or materially delay the consummation of the transactions contemplated by
this Agreement or materially adversely affect the Contributed Assets.
(e) Financial Statements. To PPL's Actual Knowledge, the PPL Financial
--------------------
Statements present fairly the financial condition of PPL as of their respective
dates and the results of operations of PPL for the periods reflected therein.
(12)
<PAGE>
(f) Books and Records. PPL has made available to PPAP all Books and
-----------------
Records. All such Books and Records are in all material respects true, complete
and correct.
(g) Employee Benefit Plans. All employee benefit plans (as defined in
----------------------
ERISA Section 3(3)) and other benefit plans or arrangements, including
employment or termination agreements and stock-based compensation awards, to
which PPL or an ERISA Affiliate is a party (the "PPL Benefit Plans") are set
forth on Schedule 4.01(g). True, correct and complete copies of the PPL Benefit
----------------
Plans, associated trust documents, and, if applicable, the most recent
Determination Letter (as defined below), Form 5500 and summary plan description
for each PPL Benefit Plan have been made available to PPAP. Any PPL Benefit
Plan intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter (a "Determination Letter") from the Internal
Revenue Service and has received or timely filed for a Determination Letter with
respect to plan amendments required by "TRA" (as defined in Rev. Proc. 93-39,
1993-2 C.B. 513). To PPL's Actual Knowledge, nothing has occurred which would
prevent or cause the loss of qualification under Section 401(a) of the Code.
All contributions required to be made by PPL under the terms of a PPL Benefit
Plan, including employee deferrals under a qualified cash or deferred
arrangement (within the meaning of Code Section 401(k)), either (A) have been
timely contributed to the trustee of such plan or (B) to the extent any such
deferrals or contributions are not required by the terms of the plan or
applicable law to have been contributed as of the date hereof, have been
properly accrued for contribution to the trustee of such plan, and such accruals
are reflected in the PPL Financial Statements. Neither PPL nor any ERISA
Affiliate has ever maintained or contributed to a plan subject to Title IV or
Section 302 of ERISA or Section 412 of the Code. Except as set forth on
Schedule 4.01(g), PPL has no obligation to provide retiree health and life
- ----------------
benefits under any PPL Benefit Plan, other than benefits mandated by Section
4980B of the Code. Each PPL Benefit Plan has been operated and administered in
all material respects in accordance with its terms and with applicable law, and
all filings disclosures and notices required by ERISA or the Code (including
notices under Section 4980B of the Code) have been timely made. There is no
material pending legal action, suit or claim relating to the PPL Benefit Plans,
or, to PPL's Actual Knowledge, threatened claims, actions or lawsuits, other
than routine claims for benefits in the ordinary course.
(h) Labor Matters. Except as set forth in Schedule 4.01(h), PPL is not a
------------- ----------------
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor union organization.
Except as set forth in Schedule 4.01(h), to the knowledge of PPL, there are no
----------------
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of PPL.
(13)
<PAGE>
(i) Contracts and Commitments. Each Assumed Contract executed on or
-------------------------
before the date hereof is in full force and effect, has not been modified or
supplemented or amended, and is a valid and binding obligation of PPL
enforceable in accordance with its terms. As of Closing, each Assumed Contract
will be in full force and effect, shall not have been modified or supplemented
or amended, and will be a valid and binding obligation of PPL enforceable in
accordance with its terms. PPL has performed each term, covenant and condition
of each of the Assumed Contracts that is to be performed by it at or before the
date hereof, except to the extent any such non-performance has been waived or is
not material. No event has occurred that would, with the passage of time or
compliance with any applicable notice requirements, constitute a default by PPL
or, to PPL's Actual Knowledge, any other party under any of the Assumed
Contracts, and, to PPL's Actual Knowledge, no party to any of the Assumed
Contracts intends to cancel, terminate or exercise any option under any of the
Assumed Contracts. Copies of the Assumed Contracts have been or will be
delivered or made available to PPAP and when delivered were or will be true,
correct and complete. The list of Service Contracts attached as Exhibit A-2
contains a complete and accurate list of the names of the parties, the date of
each Service Contract (and any amendments thereto) the space and property
covered thereby and the current fee(s) payable thereunder. To PPL's Actual
Knowledge, no party to a Service Contract is currently contesting (in writing)
any fee charged under any of the Service Contracts or is currently claiming (in
writing) any overcharge of expenses. PPL has not received notice of a default
that has not been cured under any of the Assumed Contracts. PPL's historical
billing practices to clients under the Service Contracts is consistent with the
requirements of each Service Contract.
(j) Title. PPL is the sole owner of good and marketable title to all of
-----
the Contributed Assets, free and clear of any and all mortgages, liens
encumbrances, pledges or security interests. Upon delivery of the Contributed
Assets at the Closing and upon payment of the Purchase Price, good and
marketable title to all of the Contributed Assets, free and clear of any and all
mortgages, liens, encumbrances, pledges or security interests will pass to PPAP.
(k) Compliance with Existing Laws. PPL possesses all material
-----------------------------
Authorizations, each of which is fully paid, valid and in full force and effect,
no material provision, condition or limitation of any of the Authorizations has
been breached or violated or will be breached or violated by the consummation of
the transactions contemplated by this Agreement and will not be revoked,
invalidated or violated by the consummation of the transactions contemplated by
this agreement. To PPL's Actual Knowledge, it has not received from any
governmental authority with jurisdiction written notice within the past three
years, of any
(14)
<PAGE>
violation of any provision of any governmental ordinance, resolution, statute,
rule, order or regulation, including but not limited to those of environmental
agencies or insurance boards of underwriters, with respect to the ownership,
operation, use, maintenance or condition of, or goods or services provided
under, the Insurance Assets, the Alliance Interest, the Fixed Assets or the
Miscellaneous Assets, or any part thereof, which has not been remedied.
(l) Insurance. PPL has obtained and maintained in full force and effect
---------
since January 1, 1990 with reputable insurance companies and in commercially
reasonable amounts casualty, liability and other insurance policies with respect
to its office and industrial property management, facilities management,
leasing, development and related businesses.
(m) Project-Level Representations. With respect to each Project and each
-----------------------------
real property owned, directly or indirectly, by PPAP (each, a "PPAP Project"),
other than those Projects which are the subjects of the Real Estate Contracts
listed as items (a) and (i)-(l) on Exhibit A-1, PPL hereby makes representations
and warranties in the form of those representations and warranties provided by
the selling entity in Sections 4.01(g)-(s) of the Agreement of Purchase and Sale
by and between Prentiss Properties Itasca, Inc. and PPL, dated as of August 5,
1996, the form of which representations and warranties is hereby incorporated by
reference (including the definitions of defined terms) as if set forth in full
herein. PPL shall make such representations regardless of whether for each such
Project or PPAP Project the respective selling entity or selling entities
provided such representations and warranties in its respective Real Estate
Contract.
1.042 Representations and Warranties of PPAP . PPAP hereby represents and
---------------------------------------
warrants to PPL the following:
(a) Formation and Qualification. PPAP has been duly formed and is
---------------------------
validly existing as a limited partnership under the laws of the State of
Delaware, and is duly registered or qualified to do business in the State of
Texas and in each other jurisdiction where its assets or operations require it
to be so qualified. The execution, delivery and performance of this Agreement
and all other documents, instruments and agreements to be executed and delivered
by PPAP hereunder are within the corporate power of PPAP and have been duly
authorized by all necessary and appropriate corporate power.
(b) No Violation. The consummation of the transactions contemplated by
------------
this Agreement will not conflict with or will result in a material breach of any
of the provisions of, or constitute a default under, any agreement or instrument
to which PPAP is a party or by which it is bound. There are no actions,
(15)
<PAGE>
voluntary or involuntary, pending against PPAP under any bankruptcy,
reorganization, arrangement, insolvency or similar federal or state statute.
(c) Litigation. As of the date hereof PPAP has not received written
----------
notice of any threatened proceeding, suit or action against PPAP which, if
adversely decided, would prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
(d) No Brokers. PPAP has not entered into any contract, arrangement or
----------
understanding with any person or firm which may result in the obligation of PPL
or PPAP to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby, other than to Lehman
Brothers, Inc. in connection with the IPO. PPAP is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
1.043 Survival of Representations and Warranties. Except as otherwise
------------------------------------------
set forth herein, the representations and warranties set forth in Sections 4.01
and 4.02 hereof shall be continuing and shall be true and correct on and as of
the Closing Date with the same force and effect as if made at that time, and all
of such representations and warranties, other than those set forth in
subparagraphs 4.01 (a) and (b) and 4.02(a) and (b), shall survive the Closing
for a period of twelve (12) months, at which time they shall expire and
terminate and be of no further force and effect unless a claim for breach
thereof has been instituted within such twelve (12) month period. The
representations and warranties set forth in Sections 4.01(a) and (b) and 4.02(a)
and (b) shall survive the Closing without limitation of time constraints.
1.044 Obligation to Notify Parties of Change. If, prior to the Closing
--------------------------------------
Date, either PPL or PPAP becomes aware that any representation or warranty set
forth in Sections 4.01 or 4.02 hereof which was true and correct on the date
hereof has become incorrect in any material respect, either prior to or at
Closing, due to changes in conditions or the discovery of information by PPL or
PPAP of which PPL or PPAP was unaware on the date hereof, PPL or PPAP, as the
case may be, shall immediately notify the other party hereto thereof and upon
receipt of such notification, if such change is material and adverse with
respect to the Contributed Assets or the acquisition of the Contributed Assets,
PPAP or PPL, as the case may be, shall have the option of terminating this
(16)
<PAGE>
Agreement whereupon this Agreement shall become null and void and of no further
force or effect and neither party shall have any further obligation one to the
other. If a party receiving notice of such change does not exercise its option
to terminate this Agreement by reason of any such change in conditions,
appropriate modifications shall be made in the terms hereof to reflect the
change in the conditions to the mutual satisfaction of PPL and PPAP.
1.045 Operation of PPL and Contributed Assets Prior to Closing. PPL
--------------------------------------------------------
shall (a) continue to diligently provide services under the Service Contracts in
the ordinary course of business between the date hereof and the Closing Date,
(b) keep, observe, and perform or cause to be performed all of its obligations
and (c) not terminate or cause the termination of any Service Contract except as
the result of the default of the other party thereto thereunder. PPL shall
notify PPAP if any material Service Contract is terminated after the date of
this Agreement.
ARTICLE V.
CONDITIONS TO CLOSING
1.051 Conditions Precedent to PPAP's Obligations. The obligations of
------------------------------------------
PPAP hereunder to consummate the transactions contemplated hereby are subject to
the satisfaction, as of the Closing Date, or within the time periods specified
herein below, of each of the following conditions (any of which may be waived in
whole or in part in writing by PPAP at or prior to the Closing):
(a) The representations and warranties of PPL set forth herein shall be
true in all material respects on and as of the Closing Date with the same force
and effect as if such representations and warranties have been made on and as of
the Closing Date:
(b) PPL shall have performed, observed and complied with all of the
covenants, agreements and conditions required by this Agreement to be performed,
observed and complied in all material respects with by PPL prior to or as of the
Closing Date;
(c) The closings of the IPO and the PPAP Purchase Agreement (as defined
in Section 2.01(a)(ii)) shall have occurred; and
(d) PPAP shall have received a consent from each party to any Service
Contract which is not terminable on 30 days or less notice and which requires
consent to assignments, to the assignment of the Service Contract to PPAP
hereunder.
1.052 Consequences of The Failure of Section 5.01 Conditions
------------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to PPAP's
- ---------
obligations to consummate the transaction contemplated hereby as set forth in
Section 5.01 above are as follows:
(17)
<PAGE>
(a) In the event that the Closing Date has been established, PPAP is
ready, willing and able to consummate the acquisition of the Contributed Assets
and the conditions set forth in subparagraphs (a) and/or (b) of Section 5.01
have not been satisfied, PPL shall be deemed in default hereunder and PPAP shall
have the option to either (i) waive those conditions and proceed with the
Closing or (ii) exercise its rights and remedies set forth in Article VI.
(b) In the event on or before the Closing Date the conditions set forth
in subparagraphs (c), (d) or (e) of Section 5.01 above have not been satisfied,
PPAP shall have the option to either (i) waive those conditions and proceed with
the Closing or (ii) terminate this Agreement whereupon this Agreement shall
become null and void and of no further force or effect and neither party shall
have any further obligation one to the other.
1.053 Conditions Precedent to PPL's Obligation to Close.
-------------------------------------------------
(a) Other Agreements. Notwithstanding anything to the contrary contained
----------------
herein, the obligations of PPL to consummate the transaction contemplated hereby
are expressly conditioned upon the closing of the IPO and assignment of the Real
Estate Contracts to PPAP. In the event of the failure of such conditions, PPL
shall have the option to either (i) waive those conditions precedent and proceed
with the Closing or (ii) terminate this Agreement in which event this Agreement
shall become null and void and of no further force or effect, and neither party
shall have any further obligation one to the other, except to the extent that
any obligation survives the earlier termination of this Agreement.
(b) Outside Closing Date. In the event (i) the condition precedent to
--------------------
PPAP's obligations to consummate the transaction contemplated hereby set forth
in Section 5.01(c) has not been satisfied on or before December 31, 1996, in a
manner to permit the transactions contemplated hereby and by the Real Estate
Contracts to be consummated and funded by such date, or (ii) PPAP has not
designated a Closing Date within a sufficient period of time to permit the
timely closing of the transaction contemplated hereby on or before December 31,
1996, or (iii) PPAP has not designated a Closing Date within ten (10) business
days following the date the IPO has occurred, then in such event this Agreement
shall terminate and become null and void and of no further force or effect on
the earlier of December 31, 1996, or on the tenth (10th) business day following
the date of the occurrence of the IPO, and neither party shall have any further
obligation one to the other.
ARTICLE VI.
DEFAULTS AND REMEDIES
(18)
<PAGE>
1.061 PPL's Defaults; PPAP's Remedies.
-------------------------------
(a) PPL's Defaults. PPL shall be deemed to be in default hereunder in
--------------
the event that any of PPL's representations hereunder are determined to be false
or misleading in any material respect or in the event PPL shall fail in any
material respect to meet, comply with, or perform any covenant, agreement, or
obligation on its part required within the time limits and in the manner
required in this Agreement.
(b) PPAP's Remedies. In the event PPL shall be deemed to be in default
---------------
hereunder for any other reason, by virtue of the occurrence of any one or more
of the events specified in Section 6.01(a) above, PPAP may at its election (i)
bring suit against PPL to enforce specific performance of this Agreement
together with such actions as may be available at law or in equity to recover
PPAP's actual out-of-pocket costs in the performance of reasonable due
diligence, or (ii) terminate this Agreement. In the remedy of specific
performance is not available, PPAP shall have no remedy for damages other than
the aforementioned out-of-pocket costs. Notwithstanding anything to the contrary
contained herein, PPL's liability for a breach of any representation or warranty
hereunder or any other default by PPL hereunder shall be limited to the return
of the Units that PPL received at Closing.
1.062 PPAP's Default; PPL's Remedies.
------------------------------
(a) PPAP's Defaults. PPAP shall be deemed to be in default hereunder in
---------------
the event that any of PPAP's representations hereunder are determined to be
false or misleading in any material respect or in the event that PPAP shall fail
in any material respect to meet, comply with, or perform any covenant,
agreement, or obligation on its part required within the time limits and in the
manner required in this Agreement.
(b) PPL's Remedy. IN THE EVENT PPAP SHALL BE DEEMED TO BE IN DEFAULT AS
------------
SET FORTH IN SECTION 6.02(a) ABOVE PRIOR TO CLOSING AND PPL DOES NOT WAIVE SUCH
DEFAULT, PPL, AS ITS SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, SHALL BE
ENTITLED TO RETAIN THE INDEPENDENT CONSIDERATION, IT BEING AGREED BETWEEN PPAP
AND PPL THAT SUCH SUM SHALL BE LIQUIDATED DAMAGES FOR SUCH DEFAULT OF PPAP
BECAUSE OF THE DIFFICULTY, INCONVENIENCE AND UNCERTAINTY OF ASCERTAINING ACTUAL
DAMAGES FOR SUCH DEFAULT. IN PLACING THEIR INITIALS AT THE PLACES PROVIDED, EACH
PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE
FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED THE CONSEQUENCES
OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME THIS AGREEMENT WAS MADE
NOTWITHSTANDING THE FOREGOING, THE PROVISIONS OF THIS SECTION 6.02(b) SHALL NOT
LIMIT IN ANY MANNER PPAP'S INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 8.01 OR
8.03 HEREOF.
PPL'S INITIALS:
----------
(19)
<PAGE>
PPAP'S INITIALS:
----------
1.063 Attorneys' Fees. Should either party employ an attorney or
---------------
attorneys to enforce any of the provisions hereof or to protect its interest in
any manner arising under this Agreement, the non prevailing party in any action
pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
ARTICLE VII.
CLOSING COSTS; POST CLOSING ADJUSTMENTS
1.071 Closing Costs. Costs of closing the transaction contemplated
-------------
hereby shall be allocated between PPL and PPAP as follows:
(a) PPL shall pay the costs, if any, incurred by PPL in connection with
the performance of its obligations hereunder.
(b) PPAP shall pay the costs incurred in respect to any transfer, deed,
stamp or other similar conveyance taxes and the costs, if any, incurred by PPAP
in connection with the performance of its obligations hereunder.
(c) All other expenses incurred by PPL or PPAP with respect to the
Closing, including, but not limited to, attorneys' fees of PPAP and PPL, shall
be borne and paid exclusively by the party incurring same, without
reimbursement, except to the extent otherwise specifically provided herein.
1.072 Post-Closing Adjustments.
------------------------
(a) PPL shall pay to PPAP in cash any prepaid fees received by PPL under
the Service Contracts for periods after the Closing Date, within 30 days after
the Closing Date, or promptly upon receipt if received after the Closing Date;
(b) PPAP shall promptly pay to PPL any fees received by PPAP under the
Service Contracts for periods prior to the Closing Date;
(c) If on or after the Closing PPAP receives any bill or invoice all or a
portion of which relates to periods prior to the Closing Date, PPAP will refer
such bill (or the portion thereof that relates to periods prior to the Closing
Date) to PPL and PPL agrees to pay such bill or invoice (or portion thereof)
promptly upon receipt. If PPL does not pay such bill (or portion thereof) in a
timely manner, PPAP may, at its option, pay such bill or invoice and PPL shall
become liable to PPAP for the full amount of such payment.
(20)
<PAGE>
(d) If on or after the Closing PPL receives any bill or invoice which
relates to periods on or after the Closing Date, PPL will refer such bill to
PPAP, accompanied by PPL's check representing payment for the allocable portion
of such bill, if any, representing charges relating to periods prior to the
Closing Date, and PPAP agrees to pay such bill or invoice promptly upon receipt.
If PPAP does not pay such bill in a timely manner, PPL may, at its option, pay
such bill or invoice and PPAP shall become liable to PPL for the full amount of
such payment.
ARTICLE VIII.
INDEMNIFICATION
1.081 Brokerage Commissions. Each party hereto represents and warrants
---------------------
to the other that such party has incurred no liability to any real estate broker
or agent with respect to the payment of any commission regarding the
consummation of the transaction contemplated hereby. It is agreed that if any
claims for commissions or fees, including, without limitation, brokerage fees,
finder's fees, or commissions, are ever made against PPL or PPAP in connection
with this transaction, all such claims shall be handled and paid by the party
whose actions or alleged commitments form the basis of such claim and such party
shall indemnify and hold harmless the other from and against all such claims or
demands with respect to any brokerage fees, finder's fees, or agents'
commissions or other compensation asserted by any person, firm, or corporation
in connection with this Agreement or the transactions contemplated hereby. The
provisions of this Section 8.01 shall expressly survive the early termination of
this Agreement.
1.082 PPL Indemnity. PPL agrees to indemnify and hold PPAP harmless of
-------------
and from all liabilities, claims, demands and expenses, of any kind or nature,
known or unknown, fixed or contingent, arising or accruing on or before the
Closing Date related to the ownership, maintenance an/or operation of or under
the Contributed Assets, and all expenses related thereto, including, without
limitation, court costs and attorneys' fees. Subject to the limitation on
remedies set forth in Section 6.01(b), the foregoing indemnity shall also apply
to any such claims, demands, causes of action, losses, damages, liabilities,
costs or expenses asserted against or incurred by PPAP at any time or from time
to time by reason of or arising out of the breach of any representation or
warranty of PPL set forth herein.
1.083 PPAP Indemnity. PPAP agrees to indemnify and hold PPL harmless
--------------
of and from all liabilities, claims, demands and expenses, of any kind or
nature, known or unknown, fixed or contingent, arising or accruing subsequent to
the Closing Date related to the ownership, maintenance and/or operation of or
under the Contributed Assets, and all expenses related thereto, including,
without limitation, court costs and attorneys' fees.
(21)
<PAGE>
The foregoing indemnity shall also apply to any such claims, demands, causes of
action, losses, damages, liabilities, costs or expenses asserted against or
incurred by PPL at any time or from time to time by reason of or arising out of
the breach of any representation or warranty of PPAP set forth herein.
ARTICLE IX.
EMPLOYEES
1.091 Property Employees. PPAP and/or an Affiliate of PPAP
------------------
(collectively, the "Post-Closing Employer") shall offer employment to all
persons employed by PPL "on-site" at a Project or employed at a central or
regional office substantially all of whose business time is devoted to the
ownership, operation, or providing of services, or maintenance of the
Contributed Assets ("Employees"), such employment to be offered at such base
salary as is paid to the Employees as of the Closing Date (such base salaries
not to be increased materially following the date of this Agreement), such
employment to commence at Closing, provided however that the Post-Closing
Employer shall not be obligated to assume or be responsible for any obligations
of PPL prior to Closing, including without limitation obligations to or in
respect to such persons, and any other obligations for any claims for salary or
pursuant to any PPL Benefit Plan. PPL agrees to make adequate disclosure and
give any notice required by law to Employees before Closing with respect to the
transactions contemplated hereby and the effects on benefits and severance of
all Employees, and to pay on behalf of itself (or cause to be paid) any and all
vacation, severance pay and other claims for periods of service prior to Closing
of any or all of Employees. Nothing in this Agreement shall limit the Post-
Closing Employer from taking any action at any time after Closing in respect of
its employees or the terms and conditions of employment. Nothing in this
Agreement is intended to give any Employees any right to continued employment
after Closing. As of the Closing Date, the Employees are all employees of PPL.
The rights of any Employees who may be hired by the Post-Closing Employer
in respect of employee benefits on or after Closing shall be governed by the
terms of the employee plans or programs (if any) maintained, established or
contributed to by PPAP or an Affiliate of PPAP, and such employees will have no
rights or claims against PPAP, any Affiliate of PPAP or any of PPAP's or an
Affiliate of PPAP's employee benefit plans or program except as they may be
entitled to benefits accrued thereunder as a result of their employment by the
Post-Closing Employer on or after Closing. Employees will not be third party
beneficiaries of this Agreement. PPL shall have no liability for any matter
concerning any such plan.
(22)
<PAGE>
1.092 Indemnification. (a) PPL will remain fully responsible for and
---------------
will defend, indemnify and hold PPAP and its Affiliates and their respective
partners, officers, directors, shareholders, employees and agents harmless from
and against any and all liabilities and obligations arising prior to Closing out
of PPL's relationship with Employees and any termination, layoff, or other
alteration by PPL of Employees' status, compensation or benefits, including
without limitation any such liabilities or obligations for (without in any case
determining or admitting that any Employee is covered by any of the following):
(i) vacation pay and severance pay arising prior to Closing; (ii) any claims
arising prior to Closing under any federal or state law, statute, executive
order, or regulation, governing wages, hours, fair employment practices, or
other terms and conditions of employment, including but not limited to Title VII
of the Civil Rights Act of 1964, 42 U.S.C. Section 1981, the Age Discrimination
in Employment Act of 1967, the National Labor Relations Act, the Fair Labor
Standards Act, the Equal Pay Act, the Rehabilitation Act, the Americans with
Disabilities Act, the Worker Adjustment and Retraining Notification Act and
ERISA relating to the operations of PPL or the PPL Benefit Plans; (iii) any
claims arising prior to Closing for breach of an employment contract, whether
brought under the common law or pursuant to statute, for wrongful discharge, or
for any causes of action arising from the termination of employment by PPL; (iv)
all employee benefit plans or programs, including the PPL Benefit Plans and any
other welfare, pension, retirement, savings and profit sharing plan; and (v) all
of Employees' vested or owned benefits and rights with respect to PPL, if any,
and all expenses attributable thereto. PPL agrees to be financially responsible
for all worker's compensation claims having any accident date prior to Closing,
even if such claims are brought against PPAP or any Affiliate of PPAP after
Closing.
PPL shall also be fully responsible for health claims incurred by (a)
former PPL employees whose employment with PPL terminates prior to the Closing
Date and (b) the "qualified beneficiaries," within the meaning of Section 4980B
of the Code, of such former employees, if such claims are payable under a health
plan or policy of PPL, PPAP, or an Affiliate of PPAP as a result of an election
offered to and made by such former employees or qualified beneficiaries in
accordance with Section 4980B of the Code. PPL shall be responsible for the
claims described in the preceding sentence whether or not PPAP or an Affiliate
of PPAP (a) is deemed to be a PPL Successor (as defined below) or (b) pays such
claims, and PPL will defend, indemnify and hold PPAP and its Affiliates and
their respective partners, officers, directors, shareholders, employees and
agents harmless from and against any such claims. As used in this paragraph, a
"PPL Successor" is any entity that is treated under applicable law as a
successor of PPL for purposes of the health care continuation coverage
requirements of Section 4980B of the Code.
(23)
<PAGE>
(b) PPAP will remain fully responsible for and will defend, indemnify and
hold PPL and its Affiliates and their respective partners, officers, directors,
shareholders and employees and agents harmless from and against any and all
liabilities and obligations arising after the Closing Date out of PPAP's
relationship with Employees for (without in any case determining or admitting
that any Employee is covered by any of the following): (i) vacation pay and
severance pay arising after Closing; (ii) any claims arising after Closing under
any federal or state law, statute, executive order, or regulation, governing
wages, hours, fair employment practices, or other terms and conditions of
employment, including but not limited to Title VII of the Civil Rights Act of
1964, 42 U.S.C. Section 1981, the Age Discrimination in Employment Act of 1967,
the National Labor Relations Act, the Fair Labor Standards Act, the Equal Pay
Act, the Rehabilitation Act, the Americans with Disabilities Act, the Worker
Adjustment and Retraining Notification Act and ERISA relating to the operations
of PPAP or any of its Affiliates or the benefit plans of PPAP; (iii) any claims
arising after Closing for breach of an employment contract, whether brought
under the common law or pursuant to statute, for wrongful discharge, or for any
causes of action arising from the termination of employment by PPAP or any of
its Affiliates; (iv) all employee benefit plans or programs and any welfare,
pension, retirement, savings and profit sharing plan; and (v) all of Employees'
vested or owned benefits and rights with respect to PPAP or any of its
Affiliates, if any; and all expenses attributable thereto. PPAP agrees to be
financially responsible for all worker's compensation claims having any accident
date after Closing.
ARTICLE X.
MISCELLANEOUS
1.101 Notice. Whenever any notice may be given or is required to be
------
given under the terms of this Agreement, the same shall be given in writing and
either sent by certified mail, return receipt requested, postage pre-paid or by
a national overnight delivery service, delivery pre-paid or delivered by hand
with written receipt acknowledged, or by telecopy followed by another permitted
means of delivery. For purposes of giving notice hereunder the addresses of the
respective parties are:
If to PPAP:
Mr. Dennis J. DuBois
c/o Prentiss Properties Limited, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
Facsimile: (214) 748-1742
(24)
<PAGE>
If to PPL:
Mr. Michael V. Prentiss
c/o Prentiss Properties Limited, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
Facsimile: (214) 748-1742
or to such other address as any party shall specify by written notice, so given,
and such notice shall be deemed to have been delivered as of the date so
delivered.
Any notice required or given hereunder shall be deemed received when
received if sent by telecopy, hand or overnight delivery service, or seven (7)
days after posting if sent by certified mail, return receipt requested.
1.102 Assignment; Successors and Assigns. PPAP shall have the right,
----------------------------------
without the consent of PPL, to assign any or all of its rights under this
Agreement to any Affiliate of PPAP or PPL REIT, or to designate any Affiliate of
PPAP or PPL REIT to take ownership hereunder of any or all of the Contributed
Assets. PPL shall not assign any or all of its rights hereunder without the
prior consent of PPAP. All rights and obligations of the parties hereto under
this Agreement shall inure to and be binding on their respective successors and
assigns.
1.103 Severability. If any provision of this Agreement shall be in
------------
violation of any applicable law or unenforceable for any reason, the invalidity
or unenforceability of any provision shall not invalidate or render
unenforceable any other provision hereof, which other provisions shall remain in
full force and effect.
1.104 Entire Agreement. This Agreement and the other documents
----------------
contemplated hereby and thereby constitute the entire agreement between the
parties hereto and thereto with respect to the transactions contemplated hereby
and supersedes all prior discussions, understandings, agreements and
negotiations between the parties hereto.
1.105 Modification. This Agreement may be modified only by a written
------------
instrument duly executed by the parties hereto.
1.106 Incorporation by Reference. All of the Exhibits and Schedules
--------------------------
attached hereto are by this reference incorporated herein and made a part
hereof.
1.107 Cooperation; Further Assurances. PPL covenants and agrees to
-------------------------------
sign, execute and deliver or cause to be signed, executed and delivered and to
do or make, or to cause to be done or made, upon the written request of PPAP,
any and all agreements,
(25)
<PAGE>
assignments, instruments, papers, deeds, acts or things, supplemental,
confirmatory or otherwise, as may be reasonably required for the purpose of or
in connection with the transactions contemplated hereby, including but not
limited to qualifying the issuance of Units hereunder for an exemption under the
Securities Act and applicable state securities laws.
1.108 Time is of the Essence. Time is of the essence with respect to
----------------------
every provision of this Agreement.
1.109 Days. If any action is required to be performed, or if any
----
notice, consent or other communication is given, on a day that is a Saturday or
Sunday or a legal holiday in the jurisdiction in which the action is required to
be performed or in which is located the intended recipient of such notice,
consent or other communication, such performance shall be deemed to be required,
and such notice, consent or other communication shall be deemed to be given, on
the first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
10.10 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED, PERFORMED AND
--------------
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT
THAT THE LAWS OF THE JURISDICTION IN WHICH ANY REAL PROPERTY IS LOCATED ARE
MANDATORILY APPLICABLE TO A PROVISION OF THIS AGREEMENT.
10.11 Survival of Representations and Warranties. The representations
------------------------------------------
and warranties contained herein shall survive the Closing for 12 months from the
date of Closing.
10.12 Counterparts. To facilitate execution, this Agreement may be
------------
executed in as many counterparts as may be required. It shall not be necessary
that the signatures on behalf of all parties appear on each counterpart hereof.
All counterparts hereof shall collectively constitute a single agreement.
10.13 No Third Party Beneficiaries. There are no third-party
----------------------------
beneficiaries of this Agreement, express or implied, and no party who is not a
signatory to this Agreement shall have any rights or remedies hereunder.
10.14 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
[Signatures appear on next page]
(26)
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of the parties hereto as of the date first above written.
PPAP:
PRENTISS PROPERTY ACQUISITION PARTNERS, L.P.,
a Delaware limited partnership
By: Prentiss Property Acquisition, L.P., a
Delaware limited partnership
By: Prentiss Property Acquisition, Inc., a
Delaware corporation
By: /s/ Michael V. Prentiss
---------------------------------
Its: Chairman and CEO
---------------------------------
PPL:
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/ Michael V. Prentiss
-------------------------------------
Its: Chairman and CEO
-------------------------------------
PRINCIPALS:
/s/ Michael V. Prentiss
- ------------------------------------------
MICHAEL V. PRENTISS
/s/ Thomas F. August
- ------------------------------------------
THOMAS F. AUGUST
/s/ Dennis J. DuBois
- ------------------------------------------
DENNIS J. DuBOIS
/s/ Richard B. Bradshaw, JR.
- ------------------------------------------
RICHARD B. BRADSHAW, JR.
<PAGE>
EXHIBIT A-1
REAL ESTATE CONTRACTS
---------------------
(a) Agreement of Purchase and Sale by and between Lapco Industrial Parks and
Prentiss Properties Limited, Inc.
(b) Agreement of Purchase and Sale of Partnership Interests by and among
Prentiss O'Hare Illinois, Inc. and Prentiss O'Hare Illinois II, Inc., as selling
partners, and Prentiss Properties Limited, Inc., as Purchaser, dated August 5,
1996.
(c) Agreement of Purchase and Sale of Partnership Interest by and between
Prentiss Properties Itasca, L.P., as Selling Partner, and Prentiss Properties
Limited, Inc., as Purchaser, dated August 5, 1996.
(d) Agreement of Purchase and Sale of Partnership Interest by and between
Prentiss Properties Austin, L.P., as Selling Partner, and Prentiss Properties
Limited, Inc., as Purchaser, dated August 5, 1996.
(e) Agreement of Purchase and Sale of Partnership Interests by and among LW-
RTC, Inc., LW-LP, Inc. and NP Investment VI Co., as Selling Partners, and
Prentiss Properties Limited, Inc., as Purchaser, dated August 5, 1996.
(f) Agreement of Purchase and Sale of Partnership Interest and Option Agreement
by and between 11,000 Burnet Road Corporation, as Selling Partner, and Prentiss
Properties Limited, Inc., as Purchaser, dated August 5, 1996.
(g) Agreement of Purchase and Sale of Partnership Interests by and among
Fairview Eleven, Inc., Michael V. Prentiss, Thomas F. August, Dennis J. DuBois
and Richard B. Bradshaw, Jr., as Selling Partners, and Prentiss Properties
Limited, Inc., as Purchaser, dated August 5, 1996.
(h) Agreement of Purchase and Sale of Partnership Interests by and between
Prentiss Properties C-2 Investors, L.P., as Selling Partner, and Prentiss
Properties Limited, Inc., as Purchaser, dated August 5, 1996.
(i) Agreement of Sale (Real Property) by and between LW-SSP2, L.P. ("Seller")
and Prentiss Properties Limited, Inc. ("Purchaser") (One Northwestern Plaza).
(j) Agreement of Sale (Real Property) by and between Property Asset Management,
Inc. ("Seller") and Prentiss Properties Limited, Inc. ("Purchaser") (9050
Junction Drive).
(i)
<PAGE>
(k) Agreement of Sale (Real Property) by and between Property Asset Management,
Inc. ("Seller") and Prentiss Properties Limited, Inc. ("Purchaser")
(Cottonwood).
(l) Agreement of Sale (Real Property) by and between Property Asset Management,
Inc. ("Seller") and Prentiss Properties Limited, Inc. ("Purchaser") (West Loop).
(m) Contingent Agreement of Purchase and Sale of Partnership Interests, Option
and Right of First Refusal by and between Prentiss Properties Burnett, Inc. and
Prentiss Properties Burnett II, Inc., as Selling Partners, and Prentiss
Properties Limited, Inc., as Purchaser, dated August 5, 1996.
(n) Option to Purchase dated February 16, 1996, by and between Park West
Commerce Center, L.L.C. and Prentiss Properties Limited, Inc.
(o) Option to Purchase, dated February 16, 1996, by and between Continental
Executive Park, L.L.C. and Prentiss Properties Limited, Inc., as amended by
First Amendment to Option to Purchase, dated May 6, 1996.
(p) Agreement of Sale of Partnership Interest, dated August 5, 1996, by and
among New York Life Insurance Company, a New York mutual insurance company,
Prentiss Properties Limited, Inc., a Delaware corporation, and Prentiss
Properties Austin L.P., a Delaware limited partnership.
(ii)
<PAGE>
EXHIBIT A-2
SERVICE CONTRACTS
(iii)
<PAGE>
EXHIBIT B
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF PPAP
(iv)
<PAGE>
SCHEDULE 2.03
EXCLUDED ASSETS
(v)
<PAGE>
SCHEDULE 4.01(g)
EMPLOYEE BENEFIT PLANS
(vi)
<PAGE>
SCHEDULE 4.01(h)
LABOR MATTERS
Any matters addressed in
(i) the attached correspondence From Roger D. Meade, Esquire, to Mr.
John O'Donnell, Field Examiner, NLRB Resident Office, Region 5, dated July 17,
1996, and the attached exhibits; or
(ii) the attached Collective Bargaining Agreement by and between
Building Owners and Managers Association of San Francisco and the International
Union of Operating Engineers, Stationary Engineers, Local No. 39, 09/01/95 -
08/31/98.
(vii)
<PAGE>
EXHIBIT 10.8
AGREEMENT OF PURCHASE AND
SALE OF PARTNERSHIP INTEREST
BY AND BETWEEN
PRENTISS PROPERTIES AUSTIN, L.P.
AS SELLING PARTNER
AND
PRENTISS PROPERTIES LIMITED, INC.
AS PURCHASER
Dated: AS OF AUGUST 5, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; PURCHASE PRICE. . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Sale and Delivery of the Partnership Interest. . . . 5
Section 1.3 Purchase Price for the Partnership Interest. . . . . 6
Section 1.4 Independent Consideration. . . . . . . . . . . . . . 6
Section 1.5 Payment of Purchase Price. . . . . . . . . . . . . . 6
ARTICLE II APPROVAL OF DOCUMENTS; INSPECTIONS . . . . . . . . . . . . . 6
Section 2.1 Items To Be Furnished to Purchaser . . . . . . . . . 6
Section 2.2 Inspection . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Purchaser's Acknowledgement. . . . . . . . . . . . . 8
ARTICLE III THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNER WITH RESPECT
THERETO. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 The Closing and the Closing Date . . . . . . . . . . 8
Section 3.2 Selling Partner's Obligations at the Closing . . . . 8
Section 3.3 Purchaser's Obligations at the Closing . . . . . . . 9
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . . . 10
Section 4.1 Representations and Warranties of Selling Partner. . 10
Section 4.2 Knowledge Standard . . . . . . . . . . . . . . . . . 17
Section 4.3 Survival of Representations and Warranties . . . . . 17
Section 4.4 Selling Partner's Obligation to Notify Purchaser of
Change . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.5 Operation of Project Prior to Closing. . . . . . . . 17
Section 4.6 Representations and Warranties of Owners of Selling
Partner. . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE V CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . 18
Section 5.1 Conditions Precedent to Purchaser's Obligations. . . 18
Section 5.2 Consequences of the Failure of Section 5.1
Conditions Precedent . . . . . . . . . . . . . . . . 19
Section 5.3 Outside Closing Date . . . . . . . . . . . . . . . . 19
ARTICLE VI DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . 20
Section 6.1 Selling Partner's Defaults; Purchaser's Remedies . . 20
Section 6.2 Purchaser's Default; Selling Partner's Remedies. . . 20
Section 6.3 Attorneys' Fees. . . . . . . . . . . . . . . . . . . 21
ARTICLE VII CLOSING COSTS; POST-CLOSING ADJUSTMENTS. . . . . . . . . . . 21
Section 7.1 Closing Costs. . . . . . . . . . . . . . . . . . . . 21
Section 7.2 Post-Closing Adjustments with Respect to Available
Cash . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 22
Section 8.1 Brokerage Commissions. . . . . . . . . . . . . . . . 22
Section 8.2 Selling Partner's Indemnity. . . . . . . . . . . . . 22
i
<PAGE>
Section 8.3 Purchaser's Indemnity. . . . . . . . . . . . . . . . 22
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.1 Survival of Terms. . . . . . . . . . . . . . . . . . 22
Section 9.2 Binding Effect . . . . . . . . . . . . . . . . . . . 22
Section 9.3 Entire Agreement; Modifications. . . . . . . . . . . 23
Section 9.4 Headings . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.5 Interpretation and Construction. . . . . . . . . . . 23
Section 9.6 Notice . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.7 Additional Acts. . . . . . . . . . . . . . . . . . . 24
Section 9.8 Applicable Law . . . . . . . . . . . . . . . . . . . 24
Section 9.9 Assignment . . . . . . . . . . . . . . . . . . . . . 24
Section 9.10 Time of the Essence. . . . . . . . . . . . . . . . . 25
Section 9.11 Conditions . . . . . . . . . . . . . . . . . . . . . 25
Section 9.12 Severability . . . . . . . . . . . . . . . . . . . . 25
Section 9.13 Counterparts . . . . . . . . . . . . . . . . . . . . 25
Section 9.14 Tax Returns and Tax Audit. . . . . . . . . . . . . . 25
EXHIBITS:
"A" - Description of Land
"B" - Items to be Furnished to Purchaser
"C" - Closing Certificate
"D" - Prospective Subscriber Questionnaire
"E" - Investor Letter
ii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
OF PARTNERSHIP INTEREST
-----------------------
THIS AGREEMENT OF PURCHASE AND SALE is made and entered into by and between
PRENTISS PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"), and
PRENTISS PROPERTIES AUSTIN, L.P., a Delaware limited partnership ("Selling
Partner"), as of the Effective Date.
W I T N E S S E T H:
===================
Selling Partner, as the sole general partner, and New York Life Insurance
Company, a New York corporation ("NYL"), as the sole limited partner, formed
AUSTEX ASSOCIATES LIMITED PARTNERSHIP, a Georgia limited partnership (the
"Partnership") for the purpose of investing in and acting as managing venturer
of Broadmoor Austin Associates, a Texas joint venture ("Broadmoor") which owns
a leasehold interest in the Land (as hereinafter defined).
The Partnership was formed pursuant to the terms and conditions of that
certain Limited Partnership Agreement dated September 20, 1990, by and between
Selling Partner and NYL (the "Partnership Agreement").
Selling Partner owns and holds a fifty percent (50%) general partnership
interest (the "Partnership Interest") in the Partnership and desires to sell the
Partnership Interest on, and subject to, the terms and conditions of this
Agreement.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Selling Partner
hereby agree as follows:
ARTICLE I
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by or
is under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other
than corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the
1
<PAGE>
controlled Person; and "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of the controlled Person.
(b) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this Agreement
of Purchase and Sale.
(c) "Available Cash" means all cash funds of the Partnership
--------------
generated by the operation of the Project or otherwise through the Closing
Date (whether collected prior to or subsequent to the Closing Date after
(i) payment of or provision for all operating expenses of the Partnership
payable as of the Closing Date, and (ii) provision for a reasonable
reserve to pay accrued and unpaid expenses.
(d) "Books and Records" means all financial and other books and
-----------------
records maintained by or for the benefit of Broadmoor (or the Partnership,
if the context requires) in connection with the operation of the Project
and Broadmoor and all building plans, specifications and drawings,
engineering, soils and geological reports, environmental reports and other
documents prepared in connection with the construction, maintenance,
repair, management or operation of the Project which are within the
possession or control of Broadmoor (or the Partnership, if the context
requires), or Broadmoor's (or the Partnership's, if the context requires)
Affiliates, agents or representatives, or Selling Partner.
(e) "Broadmoor" means Broadmoor Austin Associates, a Texas joint
---------
venture.
(f) "Business day" means a day that is not a Saturday, a Sunday,
------------
a legal holiday or a day on which banks are required or permitted by law
or other governmental action to close in Dallas, Texas.
(g) "Closing" means the consummation of the purchase of the
-------
Partnership Interest by Purchaser from Selling Partner in accordance with
the terms and provisions of Article III, which Closing shall be held at
the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., Suite 4100, 1700
Pacific Avenue, Dallas, Texas 75201-4618 on the Closing Date commencing
at 10:00 a.m. Central Daylight Time.
(h) "Closing Date" means a Business day which shall be established
------------
by Purchaser by written notice delivered to Selling Partner, which date
shall be no earlier than five (5) days following the date of such notice,
except that from and after the date the IPO shall have occurred, such date
shall be no earlier than ten (10) days following the date of such notice;
provided, however, that in no event shall the Closing Date be a date later
than December 31, 1996.
(i) "Cut Off Date" means July 1, 1994.
------------
(j) "Effective Date" means the date on which this Agreement shall
--------------
be fully executed and unconditionally delivered by Purchaser and Selling
Partner.
2
<PAGE>
(k) "Environmental Laws" means all applicable existing federal,
------------------
state and local statutes, ordinances, orders, rules and regulations
issued, promulgated or adopted by any governmental authority having
jurisdiction over the Project relating to environmental pollution or
protection, including, without limitation, the Resource Conservation and
Recovery Act of 1976, 43 U.S.C. (S) 6901 et seq., the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
(S) 9601 et seq., as amended by the Superfund Amendments and
Reauthorization Act of 1986, the Hazardous Materials Transportation Act, 49
U.S.C.(S) 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C.
(S) 1251 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et set., the Toxic
Substances Control Act, 15 U.S.C. (S) 2601-2629, the Safe Drinking Water
Act, 42 U.S.C. (S) 300f et seq., together with all existing rules,
regulations and orders promulgated thereunder, and all similar applicable
existing local, state and federal statutes and regulations promulgated
pursuant thereto.
(l) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(m) "Ground Lease" means that certain Land Lease Agreement between
------------
IBM, as lessor, and Broadmoor, as lessee, dated as of May 9, 1990, with
respect to the Land, as amended by that certain First Amendment to Land
Lease Agreement dated September 20, 1990.
(n) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "restricted hazardous waste", or "toxic substances" or
words of similar import under any Environmental Laws, (ii) any oil,
petroleum or petroleum derived substances, any flammable substances or
explosives, any radioactive materials, any asbestos or any substance
containing more than 0.1 percent asbestos, any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts
per million, and any urea formaldehyde insulation, and (iii) any other
chemical, material or substance, exposure to which is prohibited, limited
or regulated by any Environmental Laws.
(o) "IBM" means International Business Machines Corporation, a New
---
York corporation.
(p) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the office buildings,
parking lots and all other amenities, together with Broadmoor's interest,
if any, in all machinery, fixtures and equipment used in the general
operation of such buildings and improvements, and/or affixed to or located
upon the Land, along with all accessions and additions thereto, excluding
therefrom any machinery, fixtures, equipment or personal property owned by
the Tenant at the Project.
3
<PAGE>
(q) "IPO" means the proposed initial public offering of securities
---
in the PPL REIT.
(r) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
hereof for all purposes, together with all and singular all right, title
and interest of Broadmoor, reversionary or otherwise, in and to all
easements in or upon the Land and all other rights and appurtenances
belonging or in anywise pertaining thereto, if any, including any right,
title, and interest of Broadmoor in and to any land lying in the bed of
any street, road or access way, right-of-way, alley, opened or proposed,
in front of, at a side of or adjoining the Land to the centerline thereof.
(s) "Leasehold" means the leasehold interest owned by Broadmoor
---------
pursuant to the Ground Lease.
(t) "Miscellaneous Assets" means all contract rights, leases,
concessions, assignable warranties, and other items of intangible personal
property owned by Broadmoor (but only to the extent assignable) and
relating to Broadmoor's leasehold in the Land and the ownership and
operation of the Improvements, including, but not limited to, (i) the
Service Contracts, (ii) the Permits, (iii) the Space Lease,
(iv) assignable utility and similar deposits, (v) prepaid license and
permit fees, (vi) the Warranties, (vii) the Books and Records, and (viii)
the Leasehold.
(u) "Partnership" means Austex Associates Limited Partnership, a
-----------
Georgia limited partnership.
(v) "Partnership Agreement" means that certain Limited Partnership
---------------------
Agreement dated September 20, 1990, pursuant to which the Partnership was
formed.
(w) "Partnership Interest" means the fifty percent (50%) general
--------------------
partnership interest in the Partnership owned by Selling Partner.
(x) "Permits" means all licenses and permits issued to or for the
-------
benefit of Broadmoor and used or relating to the ownership or operation of
the Project in accordance with its current use.
(y) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(z) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by Broadmoor, located on or in the Land and the Improvements and used or
usable in connection with any part of the Project. The term "Personal
Property" specifically excludes any and all bank accounts of the
Partnership or Broadmoor and the sums deposited therein, title to which
shall be retained by the Selling Partner, as owner of the Partnership
interest and as owner of the interests of NYL in the Partnership.
4
<PAGE>
(aa) "PPAP" means Prentiss Properties Acquisition Partners, L.P.,
----
a Delaware limited partnership.
(bb) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct the
IPO, and to acquire directly or indirectly all or a portion of the
Partnership Interest and interests in other real properties, assets,
partnerships and related service businesses.
(cc) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(dd) "Purchase Price" means the sum of $1000.00
--------------
(ee) "Purchaser" means Prentiss Properties Limited, Inc., a
---------
Delaware corporation.
(ff) "Securities Act" means the Securities Act of 1933, as amended.
--------------
(gg) "Selling Partner" means Prentiss Properties Austin, L.P.
---------------
(hh) "Selling Partner's Actual Knowledge" shall have the meaning
----------------------------------
set forth in Section 4.2.
(ii) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of Broadmoor affecting the
operation of the Project, copies of which are to be delivered to Purchaser
pursuant to Section 2.1 hereof.
(jj) "Space Lease" means that certain Lease Agreement between
-----------
Broadmoor, as landlord, and IBM, as tenant, dated as of May 9, 1990, as
amended on September 20, 1990, April 22, 1991, and January 1, 1992, for
the use or occupancy of the Improvements, together with all rents, issues,
profits, and deposits thereunder and all amendments thereto.
(kk) "State" means the State in which the Project is situated.
-----
(ll) "Units" means units of limited partnership interest in PPAP.
-----
(mm) "Warranties" means all warranties and guaranties relating to
----------
the Project, or any part thereof, or to the Personal Property or
Improvements, or construction thereof.
Section 1.2 Sale and Delivery of the Partnership Interest. Selling
----------- ---------------------------------------------
Partner hereby agrees to sell, transfer and assign the Partnership Interest to
Purchaser or its designees, and Purchaser hereby agrees to purchase the
Partnership Interest from Selling Partner, upon and subject to the terms and
provisions hereinafter set forth. Purchaser (or its permitted assignee) may
designate an Affiliate to take title to up to one percent (1%) of the
Partnership Interest.
Section 1.3 Purchase Price for the Partnership Interest. The Purchase
----------- -------------------------------------------
Price shall be payable to Selling Partner on the Closing Date, plus or minus
prorations and adjustments as
5
<PAGE>
hereinafter provided. The Purchase Price shall be payable to Selling Partner in
the manner set forth in Section 1.5 below.
Section 1.4 Independent Consideration. Concurrently herewith Purchaser
----------- -------------------------
has paid to Selling Partner the sum of $100.00, which shall be independent
consideration (the "Independent Consideration") for the agreement of Selling
Partner set forth herein. The Independent Consideration shall be in addition to
the Purchase Price. If the Closing does not occur for any reason, the
Independent Consideration shall be deemed earned and shall be retained by
Selling Partner.
Section 1.5 Payment of Purchase Price. Purchaser shall pay the Purchase
----------- -------------------------
Price by the delivery of Units. The number of Units to be delivered to Selling
Partner shall be calculated by dividing the Purchase Price by the mid-point of
the offering price range for one (1) common share of beneficial interest of the
PPL REIT as set forth in the final "red-herring" prospectus for the IPO. Selling
Partner acknowledges that PPAP will not issue fractional Units. Thus, the result
of the calculation set forth above will be rounded to the nearest whole number
of Units (.50 rounded down). Upon satisfaction of the obligations set forth in
Section 3.2(a)(vi) and the requirements of Section 4.6 hereof, Selling Partner
may distribute Units to the direct and indirect owners of Selling Partner.
ARTICLE II
APPROVAL OF DOCUMENTS; INSPECTIONS
----------------------------------
Section 2.1 Items To Be Furnished to Purchaser. Within thirty (30) days
----------- ----------------------------------
after the Effective Date, Selling Partner shall cause the Partnership and/or
Broadmoor to furnish to Purchaser, true, correct, complete, and legible copies
of the items listed on Exhibit "B" attached hereto and made a part hereof for
all purposes. In addition to the foregoing, Selling Partner shall make available
(or cause Broadmoor to make available) to Purchaser for its review either at the
Project or at such other place as may be reasonably convenient to Purchaser and
Selling Partner (or Broadmoor) copies of all other records relating to the
ownership and operation of the Project and the Partnership, in Selling
Partner's, the Partnership's or Broadmoor's possession or control.
Section 2.2 Inspection.
----------- ----------
(a) During the period commencing on the Effective Date and ending
on the Closing Date or the earlier termination of this Agreement (the
"Inspection Period"), Purchaser, upon reasonable notice to Selling
Partner, the Partnership and Broadmoor, shall have reasonable access to
the Project, the Partnership's and Broadmoor's Books and Records, either
personally or by authorized agent, to inspect the Project and the Books
and Records of the Partnership and Broadmoor, the items delivered pursuant
to this Article II and any other documents and records available which are
normally maintained in the operation of the Project, the Partnership or
Broadmoor.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Selling Partner will fully cooperate and
cause the Partnership and Broadmoor to fully cooperate with Purchaser, at
no cost or expense to Selling Partner or the Partnership, in the conduct
of Purchaser's inspection of the Project and the Books and Records of the
Partnership and Broadmoor. Such inspections (and any inspections
performed in accordance
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<PAGE>
with the sentence next following) may be conducted at all reasonable times,
so long as such activities do not unreasonably interfere with the Tenants
in occupancy. Selling Partner will (and will cause Broadmoor to) permit
Purchaser and current and prospective underwriters involved in the IPO, and
the agents, attorneys, accountants, and representatives of all of the
foregoing, upon reasonable notice (but without having to obtain further
approval), to enter upon and inspect the Project, at reasonable times
during normal working hours, all premises leased to Tenants, all mechanical
equipment, systems, and fixtures forming a part thereof, and all Books and
Records. Selling Partner will permit (and will cause Broadmoor to permit)
Purchaser and the underwriters involved in the IPO, and the agents,
attorneys, accountants, and representatives of all of the foregoing, at no
cost or expense to Selling Partner, the Partnership or Broadmoor, to audit
the Books and Records, and to conduct such investigations, tests, or
inspections as Purchaser deems appropriate including, without limitation,
sampling studies to ascertain whether or not there is any Hazardous
Substance on, in, or under the Project. In conducting any such entry,
investigation, test, or inspection, no party permitted entry hereunder will
unreasonably interfere with the operation of the Project or the peaceable
possession by individual Tenants of their respective premises. To the
extent that Persons other than Purchaser join in such inspections,
Purchaser shall secure from such Persons their agreement to hold any such
information in confidence pending the closing of the transaction
contemplated hereby, with the exception of the use of such materials during
the disclosure process in connection with the IPO.
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance on terms and amounts reasonably satisfactory to
Selling Partner and the Partnership covering any accident arising in
connection with the presence of Purchaser, its agents and representatives
on the Project and shall deliver a certificate of insurance verifying such
coverage to Selling Partner prior to entry upon the Project.
(d) Purchaser agrees to fully and completely repair and restore the
Project in the event of any damage whatsoever occurring by Purchaser,
Purchaser's Affiliates or consultants during the pendency of this
Agreement. Purchaser hereby indemnifies and holds Selling Partner, the
Partnership and Broadmoor harmless from and against any loss, damage,
injury, claim or cause of action Selling Partner, the Partnership or
Broadmoor may suffer or incur as a result of Purchaser's inspections of the
Project undertaken pursuant to this Agreement. The indemnity set forth in
this subparagraph (d) shall survive the Closing or the termination of this
Agreement.
(e) If, during the Inspection Period, Purchaser shall discover any
condition or circumstance, which in Purchaser's sole discretion, judgment
and opinion makes Purchaser's investment in the Partnership an
unacceptable risk, Purchaser shall be entitled, as its sole and exclusive
remedy, to terminate this Agreement by giving written notice to Selling
Partner, on or before the expiration of the Inspection Period, whereupon
this Agreement shall terminate, and upon such termination, neither Selling
Partner nor Purchaser shall have any further obligation or liability
hereunder.
Section 2.3 Purchaser's Acknowledgement. Purchaser acknowledges that,
----------- ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Partnership Interest shall be acquired on a basis that is without
representation or warranty, including any representations or warranties relating
to the Project, which as of the Closing Date shall be in its present condition,
subject to reasonable use, wear, tear and natural deterioration between the
Effective Date and the
7
<PAGE>
Closing Date. In such regard, there shall be no reduction in the Purchase Price
for any change in the condition of the Project by reason of any events,
subsequent to the Effective Date, except by reason of condemnation or casualty.
Purchaser further acknowledges that it has not been induced by nor has it relied
upon any representations, warranties or other statements, whether express or
implied, made by Selling Partner, or any of its agents, employees or other
representatives, which are not expressly set forth in this Agreement or in the
materials to be delivered to Purchaser in accordance with the terms and
provisions hereof.
ARTICLE III
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNER WITH RESPECT THERETO
-----------------------------------------------------
Section 3.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Partnership Interest contemplated by the terms and conditions of this Agreement
shall be consummated at the Closing to be held on the Closing Date.
Section 3.2 Selling Partner's Obligations at the Closing.
----------- --------------------------------------------
(a) At the Closing, Selling Partner shall do the following:
(i) Execute and deliver to Purchaser a good and sufficient
assignment of partnership interest (the "Assignment")
(with warranty limited to Selling Partner's acts) in the
form approved by Purchaser and Selling Partner conveying
the title in and to the Partnership Interest free and
clear of all liens or encumbrances;
(ii) Execute and deliver to Purchaser an amendment to the
Partnership Agreement (the "Amendment"), in the form
approved by Purchaser and Selling Partner, covering the
withdrawal of Selling Partner and the admittance of
Purchaser or its designees as partners in the
Partnership and such other matters as Purchaser may
reasonably require;
(iii) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under
penalty of perjury, Selling Partner's U.S. taxpayer
identification numbers and that Selling Partner is not
a foreign person within the meaning of Section 1445 of
the Internal Revenue Code;
(iv) Execute and deliver to Purchaser a Closing Certificate
(herein so called), in the form and containing the
content of the Closing Certificate attached hereto as
"Exhibit "C" and made a part hereof for all purposes;
------------
(v) Deliver or cause the Partnership to deliver to Purchaser
satisfactory evidence that all necessary corporate,
partnership, or other action on
8
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the part of Selling Partner has been taken with respect to
the consummation of the transaction contemplated hereby;
(vi) Complete, execute, and deliver, and cause any direct or
indirect owner of Selling Partner receiving Units to
complete, execute, and deliver, to PPAP or any other
transferor of the Units (a) the Prospective Subscriber
Questionnaire attached hereto as Exhibit "D", and
-----------
(b) the Investor Letter attached hereto as Exhibit"E";
----------
and
(vii) Deliver to Purchaser such other assignments and
documents as may be required pursuant to the provisions
hereof or mutually agreed by counsel for Selling Partner
and Purchaser to be necessary to fully consummate the
transaction contemplated hereby.
(b) If Selling Partner fails or is unable to deliver any of the
items set forth in this Section 3.2 at the Closing, Purchaser may
(i) elect to waive such failure and close the transaction, or
(ii) exercise any one or more of its options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered
to Purchaser under Section 3.2 above, Purchaser shall do the following:
(i) Deliver the Purchase Price in accordance with
Section 1.5 hereof;
(ii) Execute and deliver to Selling Partner counterparts of
the Assignment to be executed and delivered by Selling
Partner pursuant to Section 3.2 above;
(iii) Execute and deliver to Selling Partner counterparts of
the Amendment to be executed and delivered by Selling
Partner pursuant to Section 3.2 above;
(iv) Deliver to Selling Partner satisfactory evidence that
all necessary corporate, partnership, or other action by
Purchaser has been taken with respect to the
consummation of the transaction contemplated hereby; and
(v) Deliver to Selling Partner such other instruments or
documents as may be required pursuant to the terms
hereof or mutually agreed by counsel for Selling Partner
and Purchaser to be necessary to fully consummate the
transaction contemplated hereby.
(b) If Purchaser fails or is unable to deliver any items set forth
in this Section 3.3 at the Closing, Selling Partner may (i) elect to waive
such failure and close the transaction, or (ii) exercise its remedies
under Section 6.2(b) hereof.
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<PAGE>
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 4.1 Representations and Warranties of Selling Partner. Selling
----------- -------------------------------------------------
Partner hereby represents and warrants to Purchaser, as of the date hereof and
as of the Closing Date, the following:
(a) Selling Partner is the legal and beneficial owner of the
Partnership Interest. The Partnership Interest is owned by Selling
Partner free and clear of all liens, security interests, pledges,
assessments, charges, adverse claims, restrictions and other encumbrances
created by Selling Partner or its predecessor in interest, except as set
forth in the Partnership Agreement. Other than the rights and obligations
arising under this Agreement and the Partnership Agreement, the
Partnership Interest is not subject to any rights of any other person to
acquire the same, nor is the Partnership Interest subject to any
restrictions on transfer thereof, except for restrictions imposed by the
Partnership Agreement and applicable federal and state securities laws.
(b) The Partnership has been duly formed and is validly existing
as a partnership under the laws of the State of Georgia, and is duly
registered or qualified to do business in the State of Texas.
(c) To Selling Partner's Actual Knowledge, neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under, any agreement or
instrument to which the Partnership is a party or by which it is bound.
To Selling Partner's Actual Knowledge, there are no actions, voluntary or
involuntary, pending against the Partnership under any bankruptcy,
reorganization, arrangement, insolvency or similar federal or state
statute.
(d) Selling Partner has been duly formed and is validly existing
as a limited partnership under the laws of the State of Delaware, and is
duly registered or qualified to do business in the State of Texas. The
execution, delivery and performance of this Agreement and all other
documents, instruments and agreements to be executed and delivered by
Selling Partner pursuant to this Agreement (collectively, "Selling
Partner's Documents") are within the partnership power of Selling Partner
and have been duly authorized by all necessary and appropriate partnership
action.
(e) Neither the execution and delivery of this Agreement and
Selling Partner's Documents nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under, (i) the
partnership agreement of Selling Partner or (ii) any agreement or
instrument to which Selling Partner is a party or by which it is bound.
There are no actions, voluntary or involuntary, pending against Selling
Partner under any bankruptcy, reorganization, arrangement, insolvency or
similar federal or state statute.
(f) Selling Partner is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended.
10
<PAGE>
(g) With respect to the Space Lease:
(i) As of the date hereof, there are no tenant leases,
tenancy agreements, licenses, occupancy agreements or
any amendments, renewals, assignments, subletting and
guaranties thereof, or surrender agreements and
termination agreements related thereto, affecting the
Project, or any portion thereof, other than the Space
Lease, and any subleases, licenses or occupancy
agreements which (A) have been entered into by IBM with
third parties, and (B) not been described in writing to
Selling Partner.
(ii) The copy of the Space Lease heretofore delivered by
Selling Partner to Purchaser is a true, complete and
correct copy of the Space Lease.
(iii) To Selling Partner's Actual Knowledge, the Space Lease is in
full force and effect and has not been amended, modified or
extended, except as disclosed to Purchaser in writing. To
Selling Partner's Actual Knowledge, except as disclosed to
Purchaser in writing, Broadmoor has performed and observed
in all material respects, for all periods following the Cut
Off Date, all of (and is not in material default, excluding
any grace periods, in the performance or observance of) the
terms, covenants and conditions on Broadmoor's part to be
performed or observed under the Space Lease. Except as
otherwise disclosed to Purchaser in writing, neither the
Partnership, Broadmoor nor Selling Partner has given, nor
has the Partnership, Broadmoor or Selling Partner received,
any written notice of a default under the Space Lease which
remains uncured.
(iv) To Selling Partner's Actual Knowledge, IBM is not
currently contesting (in writing) any item of rent
charged under the Space Lease or is currently claiming
(in writing) an overcharge of operating expenses; and
(b) is not entitled to any concessions or abatements,
rebates, set-offs or free rent with respect to any item
of rent for any period subsequent to the Closing, and
all items of an inducement nature to be performed by the
landlord under the Space Lease prior to the Closing Date
have been performed, nor does IBM have any option or
right of first offer or first refusal to purchase the
Project or any part thereof.
(v) To Selling Partner's Actual Knowledge, except as
otherwise disclosed to Purchaser in writing, Broadmoor's
historical billing practices to IBM for additional rents
and percentage rents are consistent with the
requirements of the Space Lease.
(h) With respect to the Ground Lease:
11
<PAGE>
(i) As of the date hereof, there are no tenant leases,
tenancy agreements, licenses, occupancy agreements or
any amendments, renewals, assignments, subletting and
guaranties thereof, or surrender agreements and
termination agreements related thereto, affecting the
Land, or any portion thereof, other than the Ground
Lease.
(ii) The copy of the Ground Lease heretofore delivered by
Selling Partner to Purchaser is a true, complete and
correct copy of the Ground Lease.
(iii) To Selling Partner's Actual Knowledge, the Ground Lease is
in full force and effect and has not been amended, modified
or extended, except as disclosed to Purchaser in writing. To
Selling Partner's Actual Knowledge, except as disclosed to
Purchaser in writing, Broadmoor has performed and observed
in all material respects, for all periods following the Cut
Off Date, all of (and is not in material default, excluding
any grace periods, in the performance or observance of) the
terms, covenants and conditions on Broadmoor's part to be
performed or observed under the Ground Lease. Except as
otherwise disclosed to Purchaser in writing, neither the
Partnership, Broadmoor nor Selling Partner has given, nor
has the Partnership, Broadmoor or Selling Partner received,
any written notice of a default under the Ground Lease which
remains uncured.
(iv) To Selling Partner's Actual Knowledge, IBM is not
currently contesting (in writing) any item of rent
charged under the Ground Lease and is not currently
claiming (in writing) any deficiency with respect to
sums payable by Broadmoor as lessee under the Ground
Lease; all items of an inducement nature to be performed
by the landlord under the Ground Lease prior to the
Closing Date have been performed, and IBM does not have
any option or right of first offer or first refusal to
purchase the Improvements or any part thereof.
(i) With respect to the Service Contracts:
(i) As of the date hereof, there are no written equipment
leases or service, maintenance or other similar
contracts or agreements affecting the Project, or any
portion thereof, other than (A) the Service Contracts
and (B) any equipment leases or other contracts or
agreements that may have been entered into by IBM with
third parties; and
(ii) Each Service Contract is in full force and effect and
has not been amended except as disclosed to Purchaser in
writing by Selling Partner. Neither Broadmoor, the
Partnership, nor Selling Partner has given, nor has
Broadmoor, the Partnership or Selling Partner received,
any written notice of a default under any of the Service
12
<PAGE>
Contracts which remains uncured, except as disclosed to
Purchaser in writing by Selling Partner.
(j) As of the date hereof, to Selling Partner's Actual Knowledge
there is not any pending, nor has Broadmoor, the Partnership, or Selling
Partner received written notice of any threatened:
(i) proceeding, suit, or action against Broadmoor, the
Partnership, or Selling Partner which, if adversely
decided, would prevent or materially delay the
consummation of the transaction contemplated by this
Agreement or materially adversely affect the Project or
the Partnership or Broadmoor, including, without
limitation, pending or threatened suits, actions, or
proceedings with respect to all or part of the Project
(a) for condemnation, (b) alleging any violation of any
Governmental Regulation, (c) which could result in the
imposition of a lien against the Project or (d) which
could increase real property taxes or assessments levied
against the Project (other than the normal and routine
assessment and reassessment process conducted by
applicable governmental authorities); or
(ii) proceeding to change or redefine the zoning
classification applicable to any portion of the Project
that would cause the Project to become a "non-
conforming" use; or
(iii) proceeding to change any road patterns or grades that
would materially adversely affect access to any roads
providing a means of ingress to or egress from the
Project; or
(iv) proceeding seeking a reduction of real estate taxes
imposed on the Project or any portion thereof; or
(v) pending imposition of any special or other assessments
for public betterments that may affect any portion of
the Project or the ownership thereof.
(k) To Selling Partner's Actual Knowledge (i) the Project does not
violate any Governmental Regulation in any material respect, and (ii) the
current operation and use of the Project complies in all material respects
with all applicable Governmental Regulations.
(l) To Selling Partner's Actual Knowledge, all Permits required
for the continued use and occupancy of the Project (as the same is
presently used under the Space Lease) have been obtained from all
appropriate governmental authorities, are fully paid for, are in full
force and effect, and will not be revoked, invalidated or violated by the
consummation of the transaction contemplated by this Agreement. To
Selling Partner's Actual Knowledge, the Project remains in compliance in
all material respects with all applicable requirements and conditions with
respect to the issuance of the Permits, which were in effect at the time
of the issuance thereof.
13
<PAGE>
(m) Except as previously disclosed in writing by Selling Partner
to Purchaser, to Selling Partner's Actual Knowledge, the Project has not
been designated as a landmark and is not located in a conservation or
historic district or in an area that has been identified as having special
flood hazards.
(n) To Selling Partner's Actual Knowledge, the Project is an
independent unit which, as of the date hereof, does not rely on any
facilities (other than the facilities of public utility companies) located
on any property not included in the Project to (i) fulfill the
requirements of any Governmental Regulation, (ii) provide structural
support or furnish any essential building system or utility or (iii)
fulfill the requirements of the Space Lease. No building or other
improvement not included in the Project relies on any part of the Project
to (1) fulfill the requirements of any Governmental Regulation, or (2)
provide structural support or furnish any essential building system or
utility.
(o) To Selling Partner's Actual Knowledge, for any period
following the Cut Off Date, there has not been any material damage to any
portion of the Project caused by fire or other casualty that has not been
repaired or restored.
(p) To Selling Partner's Actual Knowledge, the real property and
improvements that constitute the Project are assessed as one tax lot that
is separate and distinct from the tax lot allocated to any other parcel of
land or any other improvements.
(q) To Selling Partner's Actual Knowledge and except as otherwise
disclosed in any environmental report delivered by Selling Partner to
Purchaser with respect to the Project ("Environmental Report"), (i) no
Hazardous Materials have been stored, disposed of, released, or
transported at or from the Project or any portion thereof, in violation
of, or requiring remediation under, any Environmental laws (the foregoing
representation does not apply to the customary and ordinary application,
storage and use of chemicals for landscape maintenance, janitorial
services, and pest control); and (ii) there have been no and are no (A)
aboveground or underground storage tanks; (B) polychlorinated biphenyls
("PCBs") or PCB-containing equipment; (C) asbestos containing materials;
(D) lead based paints; or (E) dry-cleaning facilities in, on, under or at
the Project; or (F) wetlands located on or at the Project.
(r) There are now in full force and effect with reputable
insurance companies, casualty and liability insurance policies with
respect to the Project in commercially reasonable amounts.
(s) To Selling Partner's Actual Knowledge, the operating
statements for the Project provided by Selling Partner, the Partnership or
Broadmoor to Purchaser present fairly the financial condition of the
Project as of their respective dates and the results of the Project's
operations for the periods reflected therein.
(t) The Partnership has no employees and is not a party to any
union, labor or collective bargaining agreement affecting the Project.
(u) The Partnership has filed all income, franchise, sales,
payroll and other tax returns and reports of every nature required to be
filed by it accurately reflecting all taxes owing to the United States or
any other government, government subdivision or taxing
14
<PAGE>
authority, and it has paid in full or made adequate provision for the
payment of all taxes and duties (including penalties and interest) for
which it has or may have liability. Selling Partner has no knowledge of any
unassessed tax deficiency proposed or threatened against the Partnership or
Broadmoor as a result of the operation of its business. There are no liens
on the assets of the Partnership or Broadmoor as a result of any tax
liabilities except for taxes not yet due and payable. There are, as of the
date of this Agreement, no, and after the date of this Agreement there will
not be any, tax deficiencies (including penalties and interest) of any kind
assessed against or relating to the Partnership or Broadmoor with respect
to any taxable periods ending on or before, or including, the Closing Date
of a character or nature that would result in liens or claims on any of the
Property, or on Broadmoor's title to or use of the Property, or that would
result in any claim against the Partnership or Broadmoor.
(v) The copies of the Partnership Agreement heretofore delivered
to Purchaser are true and correct copies of the documents governing the
formation and existence of the Partnership and there are no other
agreements, documents or other instruments of any nature which govern the
relationship of the partners in the Partnership or its assets.
(w) With respect to the receipt of Units:
(i) Selling Partner (A) understands the risks of, and other
considerations relating to accepting Units in connection
with its sale of the Partnership Interests pursuant to
this Agreement; (B) is an "accredited investor" as
defined in the Securities Act; and (C) by reason of its
business and financial experience, together with the
business and financial experience of those persons, if
any, retained by it to represent or advise it with
respect to the transaction contemplated by this
Agreement, has such knowledge, sophistication and
experience in financial and business matters and in
making investment decisions of this type, that (1) it is
capable of evaluating the merits and risks of an
investment in PPAP and of making an informed investment
decision, and (2) is capable of protecting its own
interest or has engaged representatives or advisors to
assist it in protecting its interest, and (D) is capable
of bearing the economic risk of such investment.
(ii) Selling Partner (A) understands and acknowledges that an
investment in PPAP involves substantial risks; (B) has
been given the opportunity to make a thorough
investigation of the proposed activities of PPAP;
(C) has been afforded the opportunity to obtain any
information deemed necessary by Selling Partner;
(D) confirms that all documents, records, and books
pertaining to its investment in PPAP and requested by
Selling Partner have been made available or delivered to
Selling Partner; (E) has had an opportunity to ask
questions of and receive answers from PPAP, or from a
person or persons acting on PPAP's behalf, concerning
the terms and conditions of the transaction contemplated
by the Agreement and its acquisition of Units; and
(F) has relied upon, and is making its investment
15
<PAGE>
decisions solely upon such information as has been
provided to Selling Partner in writing by PPAP.
(iii) The Units to be transferred to Selling Partner pursuant
to this Agreement will be acquired by Selling Partner
for its 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, or the grant of any
participation therein, without prejudice, however, to
Selling Partner's right (subject to the terms of the
partnership agreement of PPAP) at all times to sell or
otherwise dispose of all or any part of its Units under
an exemption from such registration available under the
Securities Act and applicable state securities law, and
subject, nevertheless, to the disposition of its assets
being at all times within its control. Selling Partner
was not formed for the specific purpose of acquiring an
interest in PPAP.
(iv) Selling Partner acknowledges that (A) the Units to be
issued to Selling Partner will not have been registered
under the Securities Act or state securities laws by
reason of a specific exemption or exemptions from
registration under the Securities Act and applicable
state securities laws and, if such Units are to be
represented by certificates, such certificates will bear
a legend to such effect; (B) Purchaser's reliance on
such exemptions is predicated in part on the accuracy
and completeness of the representations, warranties and
covenants of Selling Partner contained herein; (C) such
Units, therefore, cannot be resold unless registered
under the Securities Act and applicable state securities
laws, or unless an exemption from registration is
available; (D) there will be no public market for such
Units; (E) Units to be issued to Selling Partner will
not be transferable without the prior written consent of
the general partner of PPAP which consent shall not be
withheld if the general partner of PPAP determines that
the transfer of same is a valid private placement under
applicable Federal and State securities laws; (F) PPAP
has no obligation or intention to register such Units
for resale under the Securities Act or any state
securities laws or to take any action that would make
available any exemption from the registration
requirements of such law; (G) because of the
restrictions on transfer or assignment of such Units to
be issued hereunder set forth in the partnership
agreement of PPAP and/or in a stock restriction
agreement, Selling Partner may have to bear the economic
risk of the investment commitment evidenced by this
Agreement and any Units acquired hereby for an
indefinite period of time, and (H) under the terms of
the partnership agreement of PPAP, as it will be in
effect on the Closing Date, Units will not be redeemable
at the request of the holder thereof for cash (or at the
option of PPL REIT, for common stock in PPL REIT) prior
to the first anniversary of their issuance.
16
<PAGE>
(v) The address set forth for Selling Partner in the
Agreement is the address of Selling Partner's principal
place of business or residence, as applicable, and
Selling Partner has no present intention of becoming a
resident of any country, state or jurisdiction other
than the country and state in which principle place of
business or residence, as applicable, is cited.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the term
----------- ------------------
"Selling Partner's Actual Knowledge" is used it shall be limited to the
knowledge of Thomas F. August and Dennis J. DuBois. Notwithstanding anything
herein contained to the contrary, in the event that prior to Closing Purchaser
has knowledge of any fact or circumstance that would make any of the
representations or warranties of Selling Partner set forth herein untrue or
incorrect, Selling Partner shall not be deemed to be in default hereunder by
reason of the fact that such representation or warranty is in fact untrue or
incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
----------- ------------------------------------------
otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall be continuing and shall be true and correct on and as
of the Closing Date with the same force and effect as if made at that time, and
all of such representations and warranties, other than those set forth is
Subsections 4.1 (a), (b), (c), (d), (e), (f) and (w) hereof, shall survive the
Closing for a period of twelve (12) months, at which time they shall expire and
terminate and be of no further force and effect unless a claim for breach
thereof has been instituted within such twelve (12) month period. The
representations and warranties set forth in Subsections 4.1 (a), (b), (c), (d),
(e), (f) and (w) hereof, shall survive the Closing without limitation of time
constraints.
Section 4.4 Selling Partner's Obligation to Notify Purchaser of Change.
----------- ----------------------------------------------------------
If, prior to the Closing Date, either Selling Partner or the Partnership becomes
aware that any representation or warranty set forth in Section 4.1 hereof which
was true and correct on the date hereof has become incorrect in any material
respect, either prior to or at Closing, due to changes in conditions or the
discovery of information by Selling Partner or the Partnership of which Selling
Partner was unaware on the date hereof, Selling Partner shall immediately notify
Purchaser thereof. Upon receipt of such notification, if such change is material
and adverse with respect to the acquisition of the Partnership Interest,
Purchaser shall have the option of terminating this Agreement whereupon this
Agreement shall become null and void and of no further force or effect and
neither party shall have any further obligation one to the other. If Purchaser
does not exercise its option to terminate this Agreement by reason of any such
change in conditions, appropriate modifications shall be made in the terms
hereof to reflect the change in the conditions to the mutual satisfaction of
Selling Partner and Purchaser.
Section 4.5 Operation of Project Prior to Closing. Selling Partner, to
----------- -------------------------------------
the extent it has the power to do so under the Partnership Agreement, shall (a)
continue to cause Broadmoor's property manager to diligently operate the
Improvements and the Project in the ordinary course of business between the date
hereof and the Closing Date, (b) cause Broadmoor to keep, observe, and perform
or cause to be performed all of its obligations as landlord under the Space
Lease and as lessee under the Ground Lease, (c) prevent Broadmoor from
terminating or causing the termination of the Space Lease except as the result
of the default of the Tenant thereunder or the replacement of a suitable
substitute, and (d) cause Broadmoor to maintain and operate the Project in
substantially the same condition and repair as exists on the Effective Date,
reasonable wear and tear and normal replacements excepted.
17
<PAGE>
Section 4.6 Representations and Warranties of Owners of Selling Partner.
----------- -----------------------------------------------------------
In the event Selling Partner at Closing transfers or directs the transfer of
Units to any direct or indirect owners (the "Owners") of any interest in Selling
Partner, as a condition to the obligation of Purchaser to consummate the
transaction contemplated hereby, the Owners shall execute and deliver at Closing
a certificate containing the representations and warranties stated in Section
4.1(v)(i) through (v), inclusive, as applicable to Owners, provided, however,
that the Owners' liability for a breach of any representation or warranty
contained in such certificate will be limited to Owners returning the Units they
receive at Closing.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
Section 5.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Selling Partner set
forth herein shall be true in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties have been made on and as of the Closing Date;
(b) Selling Partner shall have performed, observed and complied
with all of the covenants, agreements and conditions required by this
Agreement to be performed, observed and complied in all material respects
with by Selling Partner prior to or as of the Closing Date;
(c) Purchaser, on or before the expiration of the Inspection
Period, shall have performed such inspections, investigations and tests as
Purchaser desires, in accordance with the terms of Article II of this
Agreement, and Purchaser shall have determined, in Purchaser's sole
discretion, that the Project is suitable for Purchaser's intended use;
(d) Selling Partner shall have delivered to Purchaser a
certificate or certificates as may be acceptable to Purchaser stating that
a search has been conducted by a party acceptable to Purchaser of both the
state and county records in which financing statements and security
agreements are filed under the Uniform Commercial Code of the State and
that such searches indicate that, except security interests or liens to be
released at Closing, no security interests or liens of any kind or nature,
including, but not limited to, any equipment financing or leasing
arrangements, are claimed by any Person against the Partnership Interest,
the Personal Property, or the Improvements, or any part thereof;
(e) The closing of the IPO shall have occurred;
(f) No material adverse change in the condition or operation of
the Project or the Partnership or Broadmoor as they exist on the Effective
Date shall have occurred between the Effective Date and the Closing Date,
which change negatively and adversely affects the Project, the Partnership
or Broadmoor in any material manner;
18
<PAGE>
(g) Purchaser shall have received the signed written consent of
IBM to the assignment of the Partnership Interest contemplated by this
Agreement;
(h) The Project shall have suffered no casualty loss which has not
been repaired or condemnation which would materially and adversely affect
the Project, the Partnership, or Broadmoor;
(i) Purchaser shall have acquired a fifty percent (50%) limited
partnership in the Partnership from NYL not later than the closing of the
transaction contemplated by this Agreement; and
(j) Purchaser shall have acquired a nine-tenths percent (0.9%)
joint venture interest in Broadmoor from 11,000 Burnet Road Corporation,
a Texas corporation.
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of the
Partnership Interest and the conditions set forth in Subsections 5.1 (a)
and/or (b) hereof have not been satisfied, Selling Partner shall be deemed
in default hereunder and Purchaser shall have the option to either
(i) waive those conditions and proceed with the Closing or (ii) exercise
it rights and remedies set forth in Article VI.
(b) In the event (i) on or prior to the expiration of the
Inspection Period, Purchaser has determined that the Project is not suited
for Purchaser's intended use or that the transaction contemplated by this
Agreement is an unsatisfactory investment for Purchaser, or (ii) on or
before the Closing Date the conditions set forth in Subsections 5.1 (d),
(e), (f), (g), (h), (i) or (j) hereof have not been satisfied, Purchaser
shall have the option to either (1) waive those conditions and proceed
with the Closing or (2) terminate this Agreement whereupon this Agreement
shall become null and void and of no further force or effect and neither
party shall have any further obligation one to the other.
Section 5.3 Outside Closing Date. In the event (a) the condition
----------- --------------------
precedent to Purchaser's obligation to consummate the transaction contemplated
hereby set forth in Section 5.1(e) has not been satisfied on or before December
31, 1996, in a manner to permit the transaction contemplated hereby to be
consummated and funded by such date, or (b) Purchaser has not designated a
Closing Date within a sufficient period of time to permit the timely Closing of
the transaction contemplated hereby on or before December 31, 1996, or (c)
Purchaser has not designated a Closing Date within ten (10) Business days
following the date the IPO has occurred, then in such event this Agreement shall
terminate and become null and void and of no further force or effect on the
earlier of December 31, 1996, or on the tenth (10th) Business day following the
date of the occurrence of the IPO, and neither party shall have any further
obligation one to the other.
19
<PAGE>
ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Selling Partner's Defaults; Purchaser's Remedies.
----------- ------------------------------------------------
(a) Selling Partner's Defaults. Selling Partner shall be deemed
--------------------------
to be in default hereunder in the event that any of the representations
hereunder are determined to be false or misleading in any material respect
or in the event Selling Partner shall fail in any material respect to
meet, comply with, or perform any covenant, agreement, or obligation on
its part required within the time limits and in the manner required in
this Agreement.
(b) Purchaser's Remedies. In the event Selling Partner shall be
--------------------
deemed to be in default hereunder for any other reason, by virtue of the
occurrence of any one or more of the events specified in Section 6.1(a)
above, Purchaser may at its election (i) bring suit against Selling
Partner to enforce specific performance of this Agreement together with
such actions as may be available at law or in equity to recover
Purchaser's actual out-of-pocket costs in the performance of reasonable
due diligence, or (ii) terminate this Agreement. If the remedy of specific
performance is not available Purchaser shall have no remedy for damages
other that the aforementioned out-of-pocket costs. Notwithstanding
anything to the contrary contained herein, to the extent any action is
instituted by Purchaser from and after the Closing Date in respect to a
breach of a warranty or representation hereunder, Selling Partner's
liability relating to such breach shall be limited to Selling Partner's
returning the Units it receives at Closing.
Section 6.2 Purchaser's Default; Selling Partner's Remedies.
----------- -----------------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material
respect to meet, comply with, or perform any covenant, agreement, or
obligation on its part required within the time limits and in the manner
required in this Agreement.
(b) Selling Partner's Remedy. IN THE EVENT PURCHASER SHALL BE
------------------------
DEEMED TO BE IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR TO
CLOSING AND SELLING PARTNER DOES NOT WAIVE SUCH DEFAULT, SELLING PARTNER,
AS SELLING PARTNER'S SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, SHALL BE
ENTITLED TO RETAIN THE INDEPENDENT CONSIDERATION, IT BEING AGREED BETWEEN
PURCHASER AND SELLING PARTNER THAT SUCH SUM SHALL BE LIQUIDATED DAMAGES
FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE DIFFICULTY, INCONVENIENCE AND
UNCERTAINTY OF ASCERTAINING ACTUAL DAMAGES FOR SUCH DEFAULT. IN PLACING
THEIR INITIALS AT THE PLACES PROVIDED, EACH PARTY SPECIFICALLY CONFIRMS
THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS
REPRESENTED BY COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED
DAMAGES
20
<PAGE>
PROVISION AT THE TIME THIS AGREEMENT WAS MADE. NOTWITHSTANDING THE
FOREGOING, THE PROVISIONS OF THIS SECTION 6.2 (b) SHALL NOT LIMIT IN ANY
MANNER PURCHASER'S INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 8.1 OR 8.3
HEREOF.
SELLING PARTNER'S INITIALS: /s/ TFA
-------
PURCHASER'S INITIALS: /s/ TFA
Section 6.3 Attorneys' Fees. Should either party employ an attorney
----------- ---------------
or attorneys to enforce any of the provisions hereof or to protect its interest
in any manner arising under this Agreement, the non prevailing party in any
action pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
ARTICLE VII
CLOSING COSTS; POST-CLOSING ADJUSTMENTS
---------------------------------------
Section 7.1 Closing Costs. Costs of closing the transaction
----------- -------------
contemplated hereby shall be allocated between Selling Partner and Purchaser as
follows:
(a) Selling Partner shall pay the costs, if any, incurred by
Selling Partner in connection with the performance of its obligations
hereunder.
(b) Purchaser shall pay the costs, if any, incurred by Purchaser
in connection with the performance of its obligations hereunder.
Section 7.2 Post-Closing Adjustments with Respect to Available Cash.
----------- -------------------------------------------------------
Purchaser and Selling Partner acknowledge that all Available Cash relating to
the operations of the Partnership prior to the Closing Date shall be retained by
and remain the property of the existing partners (including Selling Partner)
owning interests in the Partnership immediately prior to the consummation of the
transaction contemplated hereby. Purchaser and Selling Partner further
acknowledge that it may not be possible to determine or compute the exact amount
of undistributed Available Cash as of the Closing Date. Therefore, Purchaser
hereby agrees that it shall cause the Partnership, as soon as reasonably
practicable following the Closing Date, to determine and compute the amount of
undistributed Available Cash through the Closing Date and to pay over and
distribute such sums to Selling Partner and the other partners of the
Partnership in the manner contemplated by the Partnership Agreement, as if the
transaction contemplated hereby had not been consummated. To the extent
requested by Selling Partner, Purchaser and/or the Partnership shall provide
adequate back up and substantiation as to the manner in which undistributed
Available Cash has been determined, including verification by the Partnership's
independent accountants if requested by Selling Partner.
21
<PAGE>
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the payment of any commission regarding
the consummation of the transaction contemplated hereby. It is agreed that if
any claims for commissions or fees, including, without limitation, brokerage
fees, finder's fees, or commissions, are ever made against Selling Partner or
Purchaser in connection with this transaction, all such claims shall be handled
and paid by the party whose actions or alleged commitments form the basis of
such claim and such party shall indemnify and hold harmless the other from and
against all such claims or demands with respect to any brokerage fees, finder's
fees, or agents' commissions or other compensation asserted by any person, firm,
or corporation in connection with this Agreement or the transactions
contemplated hereby. The provisions of this Section 8.1 shall expressly survive
the early termination of this Agreement.
Section 8.2 Selling Partner's Indemnity. Selling Partner agrees to
----------- ---------------------------
indemnify and hold Purchaser harmless of and from all liabilities, claims,
demands and expenses, of any kind or nature, known or unknown, fixed or
contingent, arising or accruing on or before the Closing Date related to the
ownership of the Partnership Interest, and all expenses related thereto,
including, without limitation, court costs and attorneys' fees. The foregoing
indemnity shall also apply to any claims, demands, causes of action, losses,
damages, liabilities, costs or expenses asserted against or incurred by
Purchaser at any time or from time to time by reason of or arising out of the
breach of any representation or warranty of Selling Partner set forth herein.
Selling Partner's liability with respect thereto shall be governed by Section
6.1(b) hereof.
Section 8.3 Purchaser's Indemnity. Purchaser agrees to indemnify and
----------- ---------------------
hold Selling Partner harmless of and from all liabilities, claims, demands and
expenses, of any kind or nature, known or unknown, fixed or contingent, arising
and accruing subsequent to the Closing Date related to the ownership of the
Partnership Interest, and all expenses related thereto, including, without
limitation, court costs and attorneys' fees.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise expressly
----------- -----------------
provided for herein, the terms and provisions hereof shall survive the Closing.
The acceptance of the closing documents by Purchaser and payment of the Purchase
Price shall be deemed full compliance by Selling Partner and Purchaser of all of
their respective obligations arising under this Agreement and Purchaser and
Selling Partner each expressly waives any noncompliance by the other party
hereto with any prior obligations other than those obligations which expressly
survive the Closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
Section 9.3 Entire Agreement; Modifications. This Agreement embodies
----------- -------------------------------
and constitutes the entire understanding between the parties with respect to the
transactions contemplated
22
<PAGE>
herein, and all prior or contemporaneous agreements, understandings,
representations, and statements, oral or written, are merged into this
Agreement. Neither this Agreement nor any provision hereof may be waived,
modified, amended, discharged, or terminated except by an instrument in writing
signed by the party against which the enforcement of such waiver, modification,
amendment, discharge, or termination is sought, and then only to the extent set
forth in such instrument.
Section 9.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Selling Partner and Purchaser, each of
which has been represented by counsel of its own selection, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Consequently, the terms and provisions of this Agreement shall
be interpreted and construed in accordance with their usual and customary
meanings, and Selling Partner and Purchaser hereby expressly waive and
disclaim, in connection with the interpretation and construction of this
Agreement, any rule of law or procedure requiring otherwise, including
without limitation, any rule of law to the effect that ambiguous or
conflicting terms or provisions contained in this Agreement shall be
interpreted or construed against the party whose attorney prepared this
Agreement or any earlier draft of this Agreement.
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail return
receipt, signed by the addressee or the addressee's agent or representative, (b)
if by telegram, by a telegram receipt signed by the addressee or the addressee's
agent or representative, (c) if hand delivered (including delivery by any
overnight or other delivery service), by a delivery receipt signed by the
addressee or the addressee's agent or representative, or (d) if sent by
facsimile transmission, with confirmation of receipt at the facsimile number to
which it was sent. Each party's initial address for delivery of any Notice is
designated below, but any party from time to time may designate a different
address for delivery of any Notice by delivering to the other party Notice of
such different address; provided, however, neither party may designate an
address for delivery of Notice not located within the United States. Each party
hereto covenants and agrees to mail copies of any Notice to the parties
designated to receive copies of any Notice below, but the failure of the
addressee for any copy actually to receive such copy shall not render the Notice
ineffective.
23
<PAGE>
If to Selling Partner: Prentiss Properties Austin, L.P.
1717 Main Street, Suite 5000
Dallas, Texas
Attention: Thomas F. August, President
Telephone No.: (214) 761-5009
Facsimile No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Facsimile No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
Section 9.7 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Selling
Partner or Purchaser, Selling Partner and Purchaser hereby agree to perform,
execute, and/or deliver or cause to be performed, executed, and/or delivered at
the Closing or thereafter, all such further acts, deeds, and assurances as
Purchaser or Selling Partner, as the case may be, may reasonably require to (a)
evidence and vest in the Purchaser the ownership of, and title to, the
Partnership Interest, and (b) consummate the transactions contemplated
hereunder. The covenants set forth in this Section 9.7 shall survive the
Closing.
Section 9.8 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
----------- --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 9.9 Assignment. Purchaser shall have the right, without the
----------- ----------
consent of Selling Partner, to assign its rights under this Agreement and all
rights hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Such assignment may be in respect to all or any portion
of the Partnership Interest and Purchaser may assign its rights hereunder to
more than one Person each of whom shall acquire an allocable portion of the
Partnership Interest. Upon such assignment Purchaser shall be relieved of its
obligations hereunder, so long as the PPL REIT or any entity in which the PPL
REIT has a controlling interest assumes all applicable obligations of
24
<PAGE>
Purchaser hereunder and confirms the undertakings or representations of
Purchaser hereunder. No other assignment may be made without the prior written
consent of Selling Partner.
Section 9.10 Time of the Essence. Time is of the essence of this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
Section 9.11 Conditions. All covenants, warranties and obligations
------------ ----------
of Selling Partner or Purchaser contained in this Agreement are deemed to be
conditions to the other parties' obligations herein. All conditions to
Purchaser's or Selling Partner's obligations, whether specifically stated in
this Agreement or pursuant to the preceding sentence, and all rights of
Purchaser or Selling Partner herein are imposed solely and exclusively for the
benefit of the other party and their respective assigns and any or all of such
conditions or rights may be waived in whole or in part by the party in question
at any time in such party's sole discretion.
Section 9.12 Severability. If any provision in this Agreement is
------------ ------------
invalid, illegal, or unenforceable, such provision shall be construed as
narrowly as possible to allow Purchaser and Selling Partner to be afforded the
benefits and protection of this Agreement. Such provision shall be severable
from the rest of this Agreement and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and shall continue in full force and effect.
Section 9.13 Counterparts. Two or more duplicate originals of the
------------ ------------
written instrument containing this Agreement may be signed by the parties, each
of which shall be deemed an original but all of which together shall constitute
one and the same agreement.
Section 9.14 Tax Returns and Tax Audit. The responsibility for filing
------------ -------------------------
the Partnership return of the Partnership for federal and state income or
franchise tax (if any) for the partial year ending the Closing Date (the
"Partial Year Return") shall be Selling Partner's. Further, should such Partial
Year Return or Returns for prior years be audited, the responsibility for
dealing with settling and paying any tax liability shall be Selling Partner's,
and in such regard the retiring Selling Partner shall hold Purchaser and the
Partnerships harmless from any loss, cost or expense (including reasonable
attorneys fees and other professional fees) as a result of any liability arising
as a result of such audits or in respect to federal or state tax liability for
periods of time prior to the Closing Date. Should Purchaser or the Partnership
be included in such audits, Selling Partner shall furnish Purchaser or the
Partnership with all necessary information to permit Purchaser or the
Partnership to respond to the appropriate authorities in a timely and responsive
manner. The responsibility for filing the Partnership's Partial Year Return for
federal and state income, or franchise tax (if any) for the partial year
commencing on the Closing Date shall be Purchaser's. Further, should such
Partial Year Return be audited, the responsibility for dealing with settling and
paying any tax liability shall be Purchaser's, and in such regard Purchaser
shall hold Selling Partner harmless from any loss, cost or expense (including
reasonable attorneys fees and other professional fees) as a result of any
liability arising as a result of such audits or in respect to federal or state
tax liability for periods of time from and after the Closing Date. Should
Selling Partner be included in such audits, Purchaser shall furnish Selling
Partner with all necessary information to permit Selling Partner to respond to
the appropriate authorities in a timely and responsive manner.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLING PARTNER:
---------------
PRENTISS PROPERTIES AUSTIN, L.P.,
a Delaware limited partnership
By: Prentiss Properties Austin, Inc., a
Delaware corporation, its general
partner
By: /S/: THOMAS F. AUGUST
------------------------------------------
Name: THOMAS F. AUGUST
----------------------------------------
Title: VICE PRESIDENT
---------------------------------------
Date of Execution: As of August 5, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /S/ THOMAS F. AUGUST
---------------------------------------
Name: THOMAS F. AUGUST
-------------------------------------
Title: VICE PRESIDENT
------------------------------------
Date of Execution: As of August 5, 1996
26
<PAGE>
EXHIBIT 10.9
AGREEMENT OF PURCHASE AND
SALE OF PARTNERSHIP INTERESTS
BY AND AMONG
PRENTISS PROPERTIES BURNETT, INC.
AND
PRENTISS PROPERTIES BURNETT II, INC.
AS SELLING PARTNERS
AND
PRENTISS PROPERTIES LIMITED, INC.
AS PURCHASER
Dated: AS OF AUGUST 5, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; PURCHASE PRICE . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Sale and Delivery of the Partnership Interests. . . . 7
Section 1.3 Purchase Price for the Partnership Interests. . . . . 7
Section 1.4 Independent Consideration . . . . . . . . . . . . . . 7
ARTICLE II APPROVAL OF DOCUMENTS; INSPECTIONS. . . . . . . . . . 9
Section 2.1 Items To Be Furnished to Purchaser . . . . . . . . . 9
Section 2.2 Estoppel Certificates . . . . . . . . . . . . . . . . 9
Section 2.3 Inspection. . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4 Purchaser's Acknowledgement . . . . . . . . . . . . . 10
ARTICLE III THE CLOSING DATE AND THE CLOSING; OBLIGATIONS OF
PURCHASER AND SELLING PARTNERS WITH RESPECT THERETO . 11
Section 3.1 The Closing and the Closing Date. . . . . . . . . . . 11
Section 3.2 Selling Partners' Obligations at the Closing. . . . . 11
Section 3.3 Purchaser's Obligations at the Closing. . . . . . . . 12
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . 13
Section 4.1 Representations and Warranties of Selling Partners. . 13
Section 4.2 Knowledge Standard. . . . . . . . . . . . . . . . . . 20
Section 4.3 Survival of Representations and Warranties. . . . . . 20
Section 4.4 Selling Partners' Obligation to Notify Purchaser of
Change. . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.5 Operation of Project Prior to Closing . . . . . . . . 21
ARTICLE V CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . 21
Section 5.1 Conditions Precedent to Purchaser's Obligations . . . 21
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.3 Outside Closing Date. . . . . . . . . . . . . . . . . 23
ARTICLE VI DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . 23
Section 6.1 Selling Partners' Defaults; Purchaser's Remedies. . . 23
Section 6.2 Purchaser's Default; Selling Partners' Remedies . . . 23
Section 6.3 Attorneys' Fees . . . . . . . . . . . . . . . . . . . 24
i
<PAGE>
ARTICLE VII CLOSING COSTS; POST-CLOSING ADJUSTMENTS . . . . . . . 24
Section 7.1 Closing Costs . . . . . . . . . . . . . . . . . . . . 24
Section 7.2 Post-Closing Adjustments with Respect to Available
Cash. . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 25
Section 8.1 Brokerage Commissions . . . . . . . . . . . . . . . . 25
Section 8.2 Selling Partners' Indemnity . . . . . . . . . . . . . 25
Section 8.3 Purchaser's Indemnity . . . . . . . . . . . . . . . . 25
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 25
Section 9.1 Survival of Terms . . . . . . . . . . . . . . . . . . 25
Section 9.2 Binding Effect. . . . . . . . . . . . . . . . . . . . 26
Section 9.3 Entire Agreement; Modifications . . . . . . . . . . . 26
Section 9.4 Headings. . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.5 Interpretation and Construction . . . . . . . . . . . 26
Section 9.6 Notice. . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.7 Additional Acts . . . . . . . . . . . . . . . . . . . 27
Section 9.8 Applicable Law. . . . . . . . . . . . . . . . . . . . 27
Section 9.9 Assignment. . . . . . . . . . . . . . . . . . . . . . 28
Section 9.10 Time of the Essence . . . . . . . . . . . . . . . . . 28
Section 9.11 Conditions. . . . . . . . . . . . . . . . . . . . . . 28
Section 9.12 Severability. . . . . . . . . . . . . . . . . . . . . 28
Section 9.13 Counterparts. . . . . . . . . . . . . . . . . . . . . 28
Section 9.14 Tax Returns and Tax Audit . . . . . . . . . . . . . . 28
EXHIBITS:
"A" - Description of Land
"B" - Items to be Furnished to Purchaser
"C" - Form of Estoppel Certificate
"D" - Closing Certificate
"E" - Prospective Subscriber Questionnaire
"F" - Investor Letter
ANNEX I - Terms and Conditions of Determination of
Fair Market Value
ii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
OF PARTNERSHIP INTERESTS
------------------------
THIS AGREEMENT OF PURCHASE AND SALE is made and entered into by and among
BURNETT PLAZA ASSOCIATES a Delaware corporation ("Purchaser"), and PRENTISS
PROPERTIES BURNETT, INC., a Texas corporation ("Burnett Inc.") and PRENTISS
PROPERTIES BURNETT II, INC., a Texas corporation ("Burnett II") (Burnett Inc.
and Burnett II being collectively called the "Selling Partners"), as of the
Effective Date.
W I T N E S S E T H:
===================
BURNETT PLAZA ASSOCIATES, a Texas joint venture (the "Partnership") was
formed pursuant to the terms and conditions of that certain Joint Venture
Agreement (the "Venture Agreement"), dated February 25, 1981, by and between CF
Fort Worth Associates ("CF"), The First National Bank of Fort Worth ("First
National") and Southland Royalty Company ("Southland"), as amended by that
certain First Amendment to Joint Venture Agreement, dated December 23, 1983,
Supplement of Joint Venture Agreement, dated October 12, 1984, Second Amendment
to Joint Venture Agreement, dated January 1, 1985, Third Amendment to Joint
Venture Agreement, dated October 6, 1986, and Fourth Amendment to Burnett Plaza
Associates Joint Venture Agreement, dated June 7, 1989 (the Venture Agreement,
as amended, herein called the "Partnership Agreement"). Burnett, Inc. is the
successor-in-interest to CF and First National in the Partnership, and SRC
Realty Company, a Texas corporation ("SRC"), is the successor-in-interest to
Southland in the Partnership.
Burnett Inc. is the owner and holder of a seventy-five percent (75%)
venture interest and Burnett II has contracted to buy a twenty-five (25%) joint
venture interest in the Partnership from SRC (collectively, the "Partnership
Interests"). Purchaser, on its behalf and on behalf of certain Affiliates,
desires to contract to purchase and acquire the Partnership Interests.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Selling Partners
hereby agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Adjusted UPRC Lease Terms" means the terms and conditions of
-------------------------
the renewed, extended and modified UPRC Lease (i) providing (a) a term of
not less than seven (7) years, (b) a rental structure which generates an
annual rental stream, when taking into consideration projected revenues
from the remaining Leases, that will generate a net operating income for
the Project of approximately $10,800,000.00, will produce a contribution
to PPAP's funds from operations of approximately $4,850,000.00 and a funds
from operations yield to PPAP of a minimum of 12.125%, and (ii) covering
a minimum of approximately 439,000 square feet of net rentable area.
(b) "Alternative UPRC Lease Terms" means the terms and conditions
----------------------------
of the renewed, extended and modified UPRC Lease (i) providing (a) a term
of not less than seven (7) years, (b) a rental structure which generates
an annual rental stream, when taking into consideration projected revenues
from the remaining Leases, that will generate a net operating income for
the Project of less than $10,800,000.00, will produce a contribution to
PPAP's funds from operations of less than approximately $4,850,000.00 and
a funds from operations yield to PPAP of less than a minimum of 12.125%,
and (ii) covering a minimum of approximately 439,000 square feet of net
rentable area.
(c) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by or
is under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other
than corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the controlled Person; and "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of the controlled
Person.
(d) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this Agreement
of Purchase and Sale.
(e) "Available Cash" means all cash funds of the Partnership
--------------
generated by the operation of the Project or otherwise through the Closing
Date (whether collected prior to or subsequent to the Closing Date) after
(i) payment of or provision for all operating expenses of the Project or
the Partnership payable as of the Closing Date and (ii) provision for a
reasonable reserve to pay accrued and unpaid expenses from the operation
of the Partnership and the Project.
2
<PAGE>
(f) "Books and Records" means all financial and other books and
-----------------
records maintained by or for the benefit of the Partnership in connection
with the operation of the Project and the Partnership and all building
plans, specifications and drawings, engineering, soils and geological
reports, environmental reports and other documents prepared in connection
with the construction, maintenance, repair, management or operation of the
Project which are within the possession or control of the Partnership, or
the Partnership's Affiliates, agents or representatives, or Selling
Partners.
(g) "Burnett Inc." means PRENTISS PROPERTIES BURNETT, INC., a
-----------
Texas corporation.
(h) "Burnett II" means PRENTISS PROPERTIES BURNETT II, INC., a
----------
Texas corporation.
(i) "Business day" means a day that is not a Saturday, a Sunday,
------------
a legal holiday or a day on which banks are required or permitted by law
or other governmental action to close in Dallas, Texas.
(j) "Closing" means the consummation of the purchase of the
-------
Partnership Interests by Purchaser from Selling Partners in accordance
with the terms and provisions of Article III, which Closing shall be held
at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., Suite 4100,
1700 Pacific Avenue, Dallas, Texas 75201-4618 on the Closing Date
commencing at 10:00 a.m. Central Daylight Time.
(k) "Closing Date" means a Business day which shall be established
------------
by Purchaser by written notice delivered to Selling Partners, which date
shall be no earlier than forty-five (45) days following the date of such
notice.
(l) "Cut Off Date" means July 1, 1994.
------------
(m) "Effective Date" shall mean the date on which this Agreement
--------------
shall be fully executed and unconditionally delivered by Purchaser and
Selling Partners.
(n) "Environmental Laws" means all applicable existing federal,
------------------
state and local statutes, ordinances, orders, rules and regulations issued,
promulgated or adopted by any governmental authority having jurisdiction
over the Project relating to environmental pollution or protection,
including, without limitation, the Resource Conservation and Recovery Act
of 1976, 43 U.S.C. (S) 6901 et seq., the Comprehensive Environmental
-- ---
Response, Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et
--
seq., as amended by the Superfund Amendments and Reauthorization Act of
---
1986, the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et
--
seq., the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq.,
--- -- ---
the Clean Air Act, 42 U.S.C. (S) 7401 et set., the Toxic Substances Control
-- ---
Act, 15 U.S.C. (S) 2601-2629, the Safe Drinking Water Act, 42 U.S.C. (S)
300f et seq., together with all existing rules, regulations and orders
-- ---
promulgated thereunder, and all similar applicable existing local, state
and federal statutes and regulations promulgated pursuant thereto.
3
<PAGE>
(o) "Estoppel Certificates" means the estoppel certificates to be
---------------------
delivered by each Tenant in accordance with the provisions of Section 2.2
hereof.
(p) "Fair Market Value" means the fair market value of the
-----------------
Project, as determined in accordance with the provisions set forth on
Annex I attached hereto and made a part hereof for all purposes.
-------
(q) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(r) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "restricted hazardous waste", or "toxic substances" or
words of similar import under any Environmental Laws, (ii) any oil,
petroleum or petroleum derived substances, any flammable substances or
explosives, any radioactive materials, any asbestos or any substance
containing more than 0.1 percent asbestos, any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts
per million, and any urea formaldehyde insulation, and (iii) any other
chemical, material or substance, exposure to which is prohibited, limited
or regulated by any Environmental Laws.
(s) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the office buildings,
parking lots and all other amenities, together with the Partnership's
interest, if any, in all machinery, fixtures and equipment used in the
general operation of such buildings and improvements, and/or affixed to or
located upon the Land, along with all accessions and additions thereto,
excluding therefrom any machinery, fixtures, equipment or personal
property owned by Tenants at the Project.
(t) "IPO" means the proposed initial public offering of securities
---
in the PPL REIT.
(u) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
-----------
hereof for all purposes, together with all and singular all right, title
and interest of the Partnership, reversionary or otherwise, in and to all
easements in or upon the Land and all other rights and appurtenances
belonging or in anywise pertaining thereto, if any, including any right,
title, and interest of the Partnership in and to any land lying in the bed
of any street, road or access way, right-of-way, alley, opened or
proposed, in front of, at a side of or adjoining the Land to the
centerline thereof.
4
<PAGE>
(v) "Leases" means all leases, licenses, franchises, concessions
------
and other occupancy agreements for the use or occupancy of any portion of
the Project, together with all rents, issues, profits, and deposits
thereunder and all amendments thereto.
(w) "Major Leases" means any Lease covering in excess of the
------------
lesser of (i) ten percent (10%) of net rentable area in the Project, or
(ii) 5,000 square feet of net rentable area in the Project, as reflected
in the Rent Roll, as hereinafter defined.
(x) "Miscellaneous Assets" means all contract rights, leases,
--------------------
concessions, assignable warranties, and other items of intangible personal
property owned by the Partnership (but only to the extent assignable) and
relating to the ownership or operation of the Land and Improvements,
including, but not limited to, (i) the Service Contracts, (ii) the
Permits, (iii) assignable utility and similar deposits, (iv) prepaid
license and permit fees, (v) the Warranties, (vi) the Books and Records,
and (vii) the Leases.
(y) "Outside Closing Date" means (i) December 31, 1996, in the
--------------------
event the conditions precedent to Purchaser's obligations to consummate
the transaction contemplated hereby set forth in Section 5.1(e) have not
been satisfied on or before such date, or (b) December 31, 1996, in the
event Purchaser has not designated a Closing Date on or before such date.
(z) "Partnership" means BURNETT PLAZA ASSOCIATES, a joint venture
-----------
formed under the laws of the State of Texas.
(aa) "Partnership Agreement" means that certain Joint Venture
---------------------
Agreement dated as of February 25, 1981, pursuant to which the Partnership
was formed, as amended by those certain amendments described in the first
recital paragraph of this Agreement.
(bb) "Partnership Interests" means the seventy-five percent (75%)
---------------------
joint venture interest in the Partnership owned by Burnett, Inc. and the
twenty-five percent (25%) joint venture interest in the Partnership to be
acquired by Burnett II.
(cc) "Permits" means all licenses and permits issued to or for the
-------
benefit of the Partnership and used or relating to the ownership or
operation of the Project in accordance with its current use.
(dd) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(ee) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by the Partnership, located on or in the Land and the Improvements and
used or usable in connection with any part of the Project. The term
"Personal Property" specifically excludes any and all bank accounts of the
Partnership and any sums deposited therein, title to which shall be
retained by the Selling Partners.
5
<PAGE>
(ff) "PPAP" means PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
----
a Delaware limited partnership.
(gg) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct the
IPO, and to acquire directly or indirectly all or a portion of the
Partnership Interests and interests in other real properties, assets,
partnerships and related service businesses.
(hh) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(ii) "Purchase Price" means the sum of $118,000,000.00 less the
--------------
then unpaid principal balance of the TIAA Debt, subject to the adjustment
thereof in the manner set forth in Section 1.5 hereof.
(a) "Purchaser" means PRENTISS PROPERTIES LIMITED, INC., a
---------
Delaware corporation.
(jj) "Rent Roll" shall have the meaning set forth in Section
---------
4.1(g)(i) of this Agreement.
(kk) "Securities Act" means the Securities Act of 1933, as amended.
--------------
(ll) "Selling Partners" means Burnett Inc. and Burnett II.
----------------
(mm) "Selling Partners' Actual Knowledge" shall have the meaning
----------------
set forth in Section 4.2 hereof.
(nn) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of the Partnership affecting the
operation of the Project, copies of which are to be delivered to Purchaser
pursuant to Section 2. hereof.
(oo) "State" means the State in which the Project is situated.
-----
(pp) "Tenant" means any Person occupying any portion of the Project
------
under or pursuant to a Lease.
(qq) "TIAA" means Teachers Insurance and Annuity Association of
----
America, a New York corporation.
(rr) "TIAA Debt" means the indebtedness of the Partnership owing to
---------
TIAA in the approximate amount of $109,373,330.79 which is secured by a
lien on the Project.
6
<PAGE>
(ss) "TIAA Estoppel" means an estoppel certificate in form and
-------------
content satisfactory to Purchaser executed by TIAA with respect to the
Loan.
(tt) "Units" means units of limited partnership interest in PPAP.
-----
(uu) "UPRC" means Union Pacific Resources Corporation, a Tenant in
----
the Project.
(vv) "UPRC Lease" means that certain Lease, by and between the
----------
Partnership, as landlord, and UPRC, as tenant, covering approximately
439,000 square feet of net rentable area in the Project, having a current
expiration date of November 30, 1998.
(ww) "Warranties" means all warranties and guaranties relating to
----------
the Project, or any part thereof, or to the Personal Property or
Improvements, or construction thereof.
Section 1.2 Sale and Delivery of the Partnership Interests. Selling
----------- ----------------------------------------------
Partners hereby agree to sell, transfer and assign the Partnership Interests to
Purchaser or its designees, and Purchaser hereby agrees to purchase the
Partnership Interests from Selling Partners, upon and subject to the terms and
provisions hereinafter set forth. Purchaser (or its permitted assignee) may
designate an Affiliate to take title to up to one percent (1%) of the
Partnership Interests.
Section 1.3 Purchase Price for the Partnership Interests. The Purchase
----------- --------------------------------------------
Price shall be payable to Selling Partner on the Closing Date. The Purchase
Price shall be payable to Selling Partner by the delivery of Units. Subject to
the provisions of Section 1.5 hereof in respect to the adjustment of the
Purchase Price, the number of Units to be delivered to Selling Partners shall be
calculated by dividing the Purchase Price by the quoted market price of (one)
share of common stock of beneficial interest in the PPL REIT at the close of
business on the last business day immediately preceding the Closing Date.
Selling Partners acknowledge that PPAP will not issue fractional Units. Thus,
the result of the calculation set forth above will be rounded to the nearest
whole number of Units (.50 rounded down).
Section 1.4 Independent Consideration. Concurrently herewith Purchaser
----------- -------------------------
has paid to Selling Partners the sum of $100.00 each, which shall be independent
consideration (the "Independent Consideration") for the agreements of Selling
Partners set forth herein. The Independent Consideration shall be in addition to
the Purchase Price. If the Closing does not occur for any reason, the
Independent Consideration shall be deemed earned and shall be retained by each
of Selling Partners.
Section 1.5 Adjustment to Purchase Price.
----------- ----------------------------
(a) In the event the UPRC Lease is modified upon the Adjusted UPRC
Lease Terms, the Purchase Price shall be adjusted so that PPAP will
realize, on a projected basis, a 12.125% yield on its funds from
operations.
(b) In the event the UPRC Lease is modified upon terms and
conditions substantially different from the Adjusted UPRC Lease Terms or
the Alternative UPRC Lease Terms, Purchaser shall have the right and
option (the "Purchase Option") to acquire the
7
<PAGE>
Partnership Interests based upon a Purchase Price computed by deducting
from the then Fair Market Value of the Project less the unpaid principal
balance of the TIAA Debt. The Purchase Option shall remain in effect for a
period (the "Option Period") ending on March 31, 1999 and may be exercised
by the delivery of written notice from Purchaser to Selling Partners, which
notice shall specify a Closing Date and shall commence the procedure for
establishing the Fair Market Value of the Project. In such event, the
conditions set forth in Section 5.1 shall be deemed to be satisfied and the
parties shall thereafter consummate the transaction contemplated hereby in
accordance with the provisions of Article III hereof based upon the
Purchase Price computed in accordance with the provisions of this
subparagraph (b).
(c) From and after the expiration of the Option Period and ending
on the Outside Closing Date, Purchaser shall have the right to match any
offers received by the Selling Partners to purchase their Partnership
Interests or by the Partnership to purchase the Project. In the event the
Selling Partner or the Partnership receives binding offers ("Third Party
Offers") from unaffiliated third parties the terms of which are acceptable
to the Selling Partners, Purchaser shall have the right to purchase the
Partnership Interests or the Project, as the case may be, upon the same
terms and conditions as are contained in the Offers. In such event
Purchaser shall execute and deliver a new contract covering the
Partnership Interests or the Project, as the case may be, within thirty
(30) days following notice by Selling Partners of the existence of the
Offers, such contract to contain the same terms and conditions as may be
set forth in the Offers or written contracts relating thereto.
(d) Purchaser acknowledges that the terms and conditions of the
TIAA Debt, as restructured, may require payments of debt service that the
Partnership may be unable to fund in the event that the UPRC Lease is not
renewed and extended upon terms sufficient to provide adequate revenue to
meet debt service requirements. Additionally there may be additional
covenants under the instruments securing the TIAA Debt that may go into
default in the event the UPRC Lease is not modified or the transaction
contemplated hereby is not consummated within periods of time that differ
from the time period described above. In such regard Selling Partners
shall use reasonable efforts to keep the TIAA Debt free from default,
however Selling Partners shall be under no obligation to fund any sums to
pay debt service to the extent operating revenue is insufficient to meet
debt service requirements. Should the TIAA Debt go into default and the
Project be conveyed to TIAA or its designee by foreclosure or deed in lieu
thereof this Agreement shall terminate on the date of transfer and
thereafter this Agreement shall become null and void and of no further
force or effect and neither party shall have any further obligation one to
the other.
Section 1.6 TIAA Debt and UPRC Lease Restructure. Selling Partners and
----------- ------------------------------------
the Purchaser acknowledge that the Partnership shall continue its efforts to
complete the restructure of the TIAA Debt and to conclude lease negotiations
with UPRC to the end that the UPRC Lease will be modified in compliance with the
New UPRC Lease Terms. Selling Partners shall keep Purchaser advised as to the
progress of negotiations and upon completion of negotiations Selling Partners
shall furnish Purchaser with a detailed outline of the terms and conditions of
the restructured TIAA Debt and the terms and conditions of the modified UPRC
Lease, together with the copies of operative documents. In the event that the
TIAA Debt is restructured and the UPRC Lease is modified in a
8
<PAGE>
manner so as to satisfy the New UPRC Lease Terms or the Adjusted UPRC Lease
Terms, the Outside Closing Date shall be accelerated to a date that is ninety
(90) days following the last to occur of the foregoing restructures.
ARTICLE II
APPROVAL OF DOCUMENTS; INSPECTIONS
----------------------------------
Section 2.1 Items To Be Furnished to Purchaser. Within thirty (30) days
----------- ----------------------------------
after the Effective Date, Selling Partners shall cause the Partnership to
furnish to Purchaser, true, correct, complete, and legible copies of the items
listed on Exhibit "B" attached hereto and made a part hereof for all purposes.
-----------
In addition to the foregoing, Selling Partners shall make available to Purchaser
for its review either at the Project or at such other place as may be reasonably
convenient to Purchaser and Selling Partners copies of all other records
relating to the ownership and operation of the Project and the Partnership, in
Selling Partners' or the Partnership's possession or control. To the extent that
the Closing Date is delayed beyond December 31, 1996, the Selling Partners at
the request of the Purchaser shall update the information furnished to Purchaser
pursuant to this Section 2.1.
Section 2.2 Estoppel Certificates. On or before ten (10) days following
----------- ---------------------
the date Selling Partners receive notice of Purchaser's intent to close the
transaction contemplated hereby, Selling Partners will cause the Partnership to
deliver to each Tenant a form of Estoppel Certificate, to be in the form and
contain the content of the Estoppel Certificate attached hereto as Exhibit "C"
-----------
and made a part hereof for all purposes, and will use its reasonable efforts to
cause each Tenant to execute and deliver to Purchaser an Estoppel Certificate on
or before the Closing Date.
Section 2.3 Inspection.
----------- ----------
(a) During the period commencing on the Effective Date and ending
on the Closing Date or the earlier termination of this Agreement (the
"Inspection Period"), Purchaser, upon reasonable notice to Selling
Partners shall have reasonable access to the Project and the Partnership's
Books and Records, either personally or by authorized agent, to inspect
the Project and the Books and Records of the Partnership, the items
delivered pursuant to this Article II and any other documents and records
available which are normally maintained in the operation of the Project or
the Partnership.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Selling Partners will fully cooperate and
cause the Partnership to fully cooperate with Purchaser, at no cost or
expense to Selling Partners or the Partnership, in the conduct of
Purchaser's inspection of the Project and the Books and Records of the
Partnership. Such inspections (and any inspections performed in
accordance with the sentence next following) may be conducted at all
reasonable times, so long as such activities do not unreasonably interfere
with the Tenants in occupancy. Selling Partners will permit Purchaser and
current and prospective underwriters involved in the IPO, and the agents,
attorneys, accountants, and representatives of all of the foregoing, upon
reasonable notice (but without having to obtain further approval), to
enter upon and inspect the Project, at reasonable times during normal
9
<PAGE>
working hours, all premises leased to Tenants, all mechanical equipment,
systems, and fixtures forming a part thereof, and all Books and Records.
Selling Partners will permit Purchaser and the underwriters involved in
the IPO, and the agents, attorneys, accountants, and representatives of
all of the foregoing, at no cost or expense to Selling Partners or the
Partnership, to audit the Books and Records, and to conduct such
investigations, tests, or inspections as Purchaser deems appropriate
including, without limitation, sampling studies to ascertain whether or
not there is any Hazardous Substance on, in, or under the Project. In
conducting any such entry, investigation, test, or inspection, no party
permitted entry hereunder will unreasonably interfere with the operation
of the Project or the peaceable possession by individual Tenants of their
respective premises. To the extent that Persons other than Purchaser join
in such inspections, Purchaser shall secure from such Persons their
agreement to hold any such information in confidence pending the closing
of the transaction contemplated hereby, with the exception of the use of
such materials during the disclosure process in connection with the IPO.
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance in terms and amounts reasonably satisfactory to
Selling Partners and the Partnership covering any accident arising in
connection with the presence of Purchaser, its agents and representatives
on the Project and shall deliver a certificate of insurance verifying such
coverage to Selling Partners prior to entry upon the Project.
(d) Purchaser agrees to fully and completely repair and restore
the Project in the event of any damage whatsoever occurring by Purchaser,
Purchaser's Affiliates or consultants during the pendency of this
Agreement. Purchaser hereby indemnifies and holds Selling Partners
harmless from and against any loss, damage, injury, claim or cause of
action Selling Partners or the Partnership may suffer or incur as a result
of Purchaser's inspections of the Project undertaken pursuant to this
Agreement. The indemnity set forth in this subparagraph (d) shall survive
the Closing or the termination of this Agreement.
(e) If, during the Inspection Period, Purchaser shall discover any
condition or circumstance, which in Purchaser's sole discretion, judgment
and opinion makes Purchaser's investment in the Partnership an
unacceptable risk, Purchaser shall be entitled, as its sole and exclusive
remedy, to terminate this Agreement by giving written notice to Selling
Partner, on or before the expiration of the Inspection Period, whereupon
this Agreement shall terminate, and upon such termination, neither Selling
Partner nor Purchaser shall have any further obligation or liability
hereunder.
Section 2.4 Purchaser's Acknowledgement. Purchaser acknowledges that,
----------- ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Partnership Interests shall be acquired on a basis that is
without representation or warranty, including any representations or warranties
relating to the Project, which as of the Closing Date shall be in its present
condition, subject to reasonable use, wear, tear and natural deterioration
between the Effective Date and the Closing Date. In such regard, there shall be
no reduction in the Purchase Price for any change in the condition of the
Project by reason of any events, subsequent to the Effective Date, except by
reason of condemnation or casualty. Purchaser further acknowledges that it has
not been induced by nor has it relied upon any representations, warranties or
other statements, whether express or implied, made
10
<PAGE>
by Selling Partners, or any of its agents, employees or other representatives,
which are not expressly set forth in this Agreement or in the materials to be
delivered to Purchaser in accordance with the terms and provisions hereof.
ARTICLE III
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNERS WITH RESPECT THERETO
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Section 3.1 The Closing and the Closing Date. The purchase of the
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Partnership Interests contemplated by the terms and conditions of this Agreement
shall be consummated at the Closing to be held on the Closing Date.
Section 3.2 Selling Partners' Obligations at the Closing.
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(a) At the Closing, Selling Partners shall do the following:
(i) Execute and deliver to Purchaser a good and sufficient
assignment of partnership interests (the "Assignment")
(with warranty limited to Selling Partners' acts) in
the form approved by Purchaser and Selling Partners,
conveying the title in and to the Partnership Interests
free and clear of all liens or encumbrances;
(ii) Execute and deliver to Purchaser an amendment to the
Partnership Agreement (the "Amendment"), in the form
approved by Purchaser and Selling Partners, covering
the withdrawal of Selling Partners and the admittance
of Purchaser or its designees as partners in the
Partnership and such other matters as Purchaser may
reasonably require;
(iii) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under
penalty of perjury, Selling Partners' U.S. taxpayer
identification number and that Selling Partners are not
foreign persons within the meaning of Section 1445 of
the Internal Revenue Code;
(iv) Execute and deliver to Purchaser a Closing Certificate
(herein so called), in the form and containing the
content of the Closing Certificate attached hereto as
"Exhibit "D" and made a part hereof for all purposes;
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(v) Deliver to Purchaser Estoppel Certificates from the
Tenants under Major Leases (including UPRC, if
applicable) and the Tenants under non-Major Leases who
have executed and delivered Estoppel Certificates,
together with Selling Partners' certificate, in respect
to the Tenants under non-Major Leases who have failed
to deliver
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Estoppel Certificates, to the effect that the
information contained in the Estoppel Certificates
presented to the Tenants under non-Major Leases in
question is true and correct and no known defaults on
the part of such Tenants exist or with the passage of
time will exist;
(vi) Deliver or cause the Partnership to deliver to
Purchaser satisfactory evidence that all necessary
corporate, partnership, or other action on the part of
Selling Partners has been taken with respect to the
consummation of the transaction contemplated hereby;
(vii) Complete, execute, and deliver to PPAP (a) the
Prospective Subscriber Questionnaire attached hereto
as Exhibit "E", and (b) the Investor Letter attached
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hereto as Exhibit"F";
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(viii) Deliver the TIAA Estoppel to Purchaser; and
(ix) Deliver to Purchaser such other assignments and
documents as may be required pursuant to the
provisions hereof or mutually agreed by counsel for
Selling Partners and Purchaser to be necessary to
fully consummate the transaction contemplated hereby.
(b) If Selling Partners fail or are unable to deliver any of the
items set forth in this Section 3.2 at the Closing, Purchaser may
(i) elect to waive such failure and close the transaction, or
(ii) exercise any one or more of its options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
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(a) At the Closing, and upon receipt of all items to be delivered
to Purchaser under Section 3.2 above, Purchaser shall do the following:
(i) Deliver the Purchase Price in accordance with
Section 1.5 hereof;
(ii) Execute and deliver to Selling Partners counterparts
of the Assignment to be executed and delivered by
Selling Partners pursuant to Section 3.2 above;
(iii) Execute and deliver to Selling Partners counterparts
of the Amendment to be executed and delivered by
Selling Partners pursuant to Section 3.2 above;
(iv) Deliver to Selling Partners satisfactory evidence that
all necessary corporate, partnership, or other action
by Purchaser has been taken with respect to the
consummation of the transaction contemplated hereby;
and
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(v) Deliver to Selling Partners such other instruments or
documents as may be required pursuant to the terms
hereof or mutually agreed by counsel for Selling
Partners and Purchaser to be necessary to fully
consummate the transaction contemplated hereby.
(b) If Purchaser fails or is unable to deliver any items set forth
in this Section 3.3 at the Closing, Selling Partners may (i) elect to
waive such failure and close the transaction, or (ii) exercise their
remedies under Section 6.2(b) hereof.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
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Section 4.1 Representations and Warranties of Selling Partners. Each of
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Selling Partners hereby represents and warrants to Purchaser, as of the date
hereof and as of the Closing Date, the following:
(a) Each of Selling Partners is the legal and beneficial owner of
the respective Partnership Interest owned by Selling Partner in question.
The Partnership Interests are owned by Selling Partners free and clear of
all liens, security interests, pledges, assessments, charges, adverse
claims, restrictions and other encumbrances created by Selling Partners or
their predecessors in interest, except as set forth in the Partnership
Agreement. Other than the rights and obligations arising under this
Agreement and the Partnership Agreement, the Partnership Interests are not
subject to any rights of any other person to acquire the same, nor are the
Partnership Interests subject to any restrictions on transfer thereof,
except for restrictions imposed by the Partnership Agreement and
applicable federal and state securities laws.
(b) The Partnership has been duly formed and is validly existing
as a joint venture under the laws of the State of Texas, and is qualified
to do business in the such State.
(c) To Selling Partners' Actual Knowledge, neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under, any agreement or
instrument to which the Partnership is a party or by which it is bound.
To Selling Partners' Actual Knowledge, there are no actions, voluntary or
involuntary, pending against the Partnership under any bankruptcy,
reorganization, arrangement, insolvency or similar federal or state
statute.
(d) Each of Selling Partners has been formed and is validly
existing as a corporation under the laws of the State of Texas, and is
duly registered or qualified to do business in the State of Texas. The
execution, delivery and performance of this Agreement and all other
documents, instruments and agreements to be executed and delivered by
Selling Partners pursuant to this Agreement (collectively, "Selling
Partners' Documents") are within the corporate power of Selling Partners
and have been duly authorized by all necessary and appropriate corporate
action.
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(e) Neither the execution and delivery of this Agreement and
Selling Partners' Documents nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under, (i) the
partnership agreement/corporate documents of Selling Partners or (ii) any
agreement or instrument to which Selling Partners are a party or by which
they are bound. There are no actions, voluntary or involuntary, pending
against Selling Partners under any bankruptcy, reorganization,
arrangement, insolvency or similar federal or state statute.
(f) Selling Partners are not "foreign persons" as defined in
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended.
(g) With respect to the Leases:
(i) As of the date of the rent roll to be delivered pursuant to
Section 2.1 hereof (the rent roll to be so delivered, as
same may be updated from time to time, hereinafter called
the "Rent Roll"), there are no tenant leases, tenancy
agreements, licenses, occupancy agreements or any
amendments, renewals, assignments, subletting and
guaranties thereof, or surrender agreements and termination
agreements related thereto, affecting the Project, or any
portion thereof, other than the Leases set forth in the
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Rent Roll and any subleases, licenses or occupancy
agreements which have (a) been entered into by Tenants of
the Project with third parties and (b) not been disclosed
in writing to Selling Partners.
(ii) The Rent Roll shall contain a complete and accurate list of
the names of the Tenants, the date of each Lease (and any
amendments thereto), the space covered thereby and the
current rental payable thereunder. The information
contained in the Rent Roll shall be true, complete and
correct in all material respects as of the date of the Rent
Roll.
(iii) The copies of the Leases heretofore delivered by Selling
Partners to Purchaser are true, complete and correct
copies of the Leases.
(iv) To Selling Partners' Actual Knowledge, each of the Leases
is in full force and effect and has not been amended,
modified or extended, except as set forth in the Rent Roll.
To Selling Partners' Actual Knowledge, except as set forth
in the Rent Roll or otherwise disclosed to Purchaser in
writing, including, without limitation, information set
forth in the Estoppel Certificates, the Partnership has
performed and observed in all material respects, for all
periods following the Cut Off Date, all of (and is not in
material default, excluding any grace periods, in the
performance or observance of) the terms, covenants and
conditions on the Partnership's part to be performed or
observed under the Leases. Except as set forth in the Rent
Roll or otherwise disclosed to Purchaser in writing,
neither the
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Partnership nor Selling Partners has given, nor
has the Partnership or Selling Partners received, any
written notice of a default under any of the Leases which
remains uncured.
(v) To Selling Partners' Actual Knowledge, except as set forth
in the Rent Roll or the Leases, no Tenant under any of the
Leases (a) is currently contesting (in writing) any item of
rent charged under any of the Leases or is currently
claiming (in writing) an overcharge of operating expenses;
(b) is entitled to any concessions or abatements, rebates,
set-offs or free rent with respect to any item of rent for
any period subsequent to the Closing, and all items of an
inducement nature to be performed by the landlord under the
Leases prior to the Closing Date have been performed, or
(c) has any option or right of first offer or first refusal
to purchase the Project or any part thereof.
(vi) To Selling Partners' Actual Knowledge, except as noted in
the Rent Roll, the Partnership's historical billing
practices to Tenants for additional rents and percentage
rents is consistent with the requirements of each Lease.
(h) With respect to the Service Contracts:
(i) As of the date hereof, there are no written equipment
leases or service, maintenance or other similar contracts
or agreements affecting the Project, or any portion
thereof, other than (A) the Service Contracts and (B) any
equipment leases or other contracts or agreements that may
have been entered into by Tenants (or subtenants of
Tenants) of the Project with third parties; and
(ii) Each Service Contract is in full force and effect and has
not been amended except as disclosed to Purchaser in
writing by Selling Partners. Neither the Partnership nor
Selling Partners have given, nor have Selling Partners or
the Partnership received, any written notice of a default
under any of the Service Contract which remains uncured,
except as disclosed to Purchaser in writing by Selling
Partners.
(i) As of the date hereof, to Selling Partners' Actual Knowledge
there is not any pending, nor has the Partnership or Selling
Partners received written notice of any threatened:
(i) proceeding, suit or action against the Partnership or
Selling Partners which, if adversely decided, would prevent
or materially delay the consummation of the transaction
contemplated by this Agreement or materially adversely
affect the Project or the Partnership, including, without
limitation, pending or threatened suits, actions or
proceedings with respect to all or part of the Project (a)
for condemnation, (b)
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alleging any violation of any Governmental Regulation, (c)
which could result in the imposition of a lien against the
Project or (d) which could increase real property taxes or
assessments levied against the Project (other than the
normal and routine assessment and reassessment process
conducted by applicable governmental authorities), or
(ii) proceeding to change or redefine the zoning classification
applicable to any portion of the Project that would cause
the Project to become a "non-conforming" use, or
(iii) proceeding to change any road patterns or grades that would
materially adversely affect access to any roads providing a
means of ingress to or egress from the Project, or
(iv) proceeding seeking a reduction of real estate taxes imposed
on the Project or any portion thereof, other than pending
proceedings against the Tarrant County Appraisal District
seeking a reduction in appraised value, or
(v) pending imposition of any special or other assessments for
public betterments that may affect any portion of the
Project or the ownership thereof.
(j) To Selling Partners' Actual Knowledge (i) the Project does not
violate any Governmental Regulation in any material respect, and (ii) the
current operation and use of the Project complies in all material respects
with all applicable Governmental Regulations.
(k) To Selling Partners' Actual Knowledge, all Permits required
for the continued use and occupancy of the Project (as the same is
presently used under the Leases) have been obtained from all appropriate
governmental authorities, are fully paid for, are in full force and
effect, and will not be revoked, invalidated or violated by the
consummation of the transaction contemplated by this Agreement. To
Selling Partners' Actual Knowledge, the Project remains in compliance in
all material respects with all applicable requirements and conditions with
respect to the issuance of the Permits, which were in effect at the time
of the issuance thereof.
(l) Except as previously disclosed in writing by Selling Partners
to Purchaser, to Selling Partners' Actual Knowledge the Project has not
been designated as a landmark or is not located in a conservation or
historic district or in an area that has been identified as having special
flood hazards.
(m) To Selling Partners' Actual Knowledge, the Project is an
independent unit which, as of the date hereof, does not rely on any
facilities (other than the facilities of public utility companies) located
on any property not included in the Project to (i) fulfill the
requirements of any Governmental Regulation, (ii) provide structural
support or furnish any
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essential building system or utility or (iii) fulfill the requirements of
any of the Leases. No building or other improvement not included in the
Project relies on any part of the Project to (1) fulfill the requirements
of any Governmental Regulation, or (2) provide structural support or
furnish any essential building system or utility.
(n) To Selling Partners' Actual Knowledge, for any period
following the Cut Off Date, there has not been any material damage to any
portion of the Project caused by fire or other casualty that has not been
repaired or restored.
(o) To Selling Partners' Actual Knowledge, the real property and
improvements that constitute the Project are assessed as one tax lot that
is separate and distinct from the tax lot allocated to any other parcel of
land or any other improvements.
(p) To Selling Partners' Actual Knowledge and except as otherwise
disclosed in any environmental report delivered by Selling Partners to
Purchaser with respect to the Project ("ENVIRONMENTAL REPORT"), (i) no
Hazardous Materials have been stored, disposed of, released or transported
at or from the Project, or any portion thereof, in violation of, or in a
manner requiring remediation under, any Environmental Laws; (the foregoing
representation does not apply to the customary and ordinary application,
storage and use of chemicals for landscape maintenance, janitorial
services, and pest control), and (ii) there have been no and are no (A)
aboveground or underground storage tanks; (B) polychlorinated biphenyls
("PCBs") or PCB-containing equipment; (C) asbestos containing materials;
(D) lead based paints; (E) dry-cleaning facilities in, on, under or at the
Project; or (F) wetlands located on or at the Project.
(q) There is now in full force and effect with reputable insurance
companies, casualty and liability insurance policies with respect to the
Project in commercially reasonable amounts.
(r) To Selling Partners' Actual Knowledge, the Rent Roll and the
operating statements for the Project provided by Selling Partners or the
Partnership to Purchaser present fairly the financial condition of the
Project as of their respective dates and the results of the Project's
operations for the periods reflected therein.
(s) The Partnership has no employees and is not a party to any
union, labor or collective bargaining agreement affecting the Project.
(t) The Partnership has filed all income, franchise, sales,
payroll and other tax returns and reports of every nature required to be
filed by it accurately reflecting all taxes owing to the United States or
any other government, government subdivision or taxing authority, and it
has paid in full or made adequate provision for the payment of all taxes
and duties (including penalties and interest) for which it has or may
have liability. None of Selling Partners has any knowledge of any
unassessed tax deficiency proposed or threatened against the Partnership
as a result of the operation of its business. There are no liens on the
assets of the Partnership as a result of any tax liabilities except for
taxes not yet due and payable. There are, as of the date of this
Agreement, no, and after the date of this Agreement
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there will not be any, tax deficiencies (including penalties and interest)
of any kind assessed against or relating to the Partnership with respect to
any taxable periods ending on or before, or including, the Closing Date of
a character or nature that would result in liens or claims on any of the
Property, or on the Partnership's title to or use of the Property, or that
would result in any claim against the Partnership.
(u) The copies of the Partnership Agreement and the amendments
thereto previously delivered to Purchaser by Selling Partners are true and
correct copies of the documents governing the formation and existence of
the Partnership and there are no other agreements, documents or other
instruments of any nature which govern the relationship of the partners in
the Partnership or its assets.
(v) With respect to the receipt of Units:
(i) Selling Partner (A) understands the risks of, and other
considerations relating to accepting Units in connection
with its sale of the Partnership Interests to PPAP
pursuant to this Agreement; (B) is an "accredited
investor" as defined in the Securities Act; and (C) by
reason of its business and financial experience,
together with the business and financial experience of
those persons, if any, retained by it to represent or
advise it with respect to the transaction contemplated
by this Agreement, has such knowledge, sophistication
and experience in financial and business matters and in
making investment decisions of this type, that (1) it is
capable of evaluating the merits and risks of an
investment in PPAP and of making an informed investment
decision, and (2) is capable of protecting its own
interest or has engaged representatives or advisors to
assist it in protecting its interest, and (D) is capable
of bearing the economic risk of such investment.
(ii) Selling Partner (A) understands and acknowledges that an
investment in PPAP involves substantial risks; (B) has
been given the opportunity to make a thorough
investigation of the proposed activities of PPAP; (C)
has been afforded the opportunity to obtain any
information deemed necessary by Selling Partner; (D)
confirms that all documents, records, and books
pertaining to its investment in PPAP and requested by
Selling Partner have been made available or delivered to
Selling Partner; (E) has had an opportunity to ask
questions of and receive answers from PPAP, or from a
person or persons acting on PPAP's behalf, concerning
the terms and conditions of the transaction contemplated
by this Agreement and its acquisition of Units; and (F)
has relied upon, and is making its investment decisions,
solely upon such information as has been provided to
Selling Partner in writing by PPAP.
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(iii) The Units to be transferred to Selling Partner pursuant to
this Agreement will be acquired by Selling Partner for its
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, or the grant of any participation
therein, without prejudice, however, to Selling Partner's
right (subject to the terms of the partnership agreement of
PPAP) at all times to sell or otherwise dispose of all or
any part of its Units under an exemption from such
registration available under the Securities Act and
applicable state securities laws, and subject,
nevertheless, to the disposition of its assets being at all
times within its control. Selling Partner was not formed
for the specific purpose of acquiring an interest in PPAP.
(iv) Selling Partner acknowledges that (A) the Units to be
issued to Selling Partner will not have been registered
under the Securities Act or state securities laws by reason
of a specific exemption or exemptions from registration
under the Securities Act and applicable state securities
laws and, if such Units are to be represented by
certificates, such certificates will bear a legend to such
effect; (B) Purchaser's reliance on such exemptions is
predicated in part on the accuracy and completeness of the
representations, warranties and covenants of Selling
Partner contained herein; (C) such Units, therefore, cannot
be resold unless registered under the Securities Act and
applicable state securities laws, or unless an exemption
from registration is available; (D) there will be no public
market for such Units; (E) Units to be issued to Selling
Partner will not be transferable without the prior written
consent of the general partner of PPAP which consent shall
not be withheld if the general partner of PPAP determines
that the transfer of same is a valid private placement
under applicable Federal and State securities laws; (F)
PPAP has no obligation or intention to register such Units
for resale under the Securities Act or any state securities
laws or to take any action that would make available any
exemption from the registration requirements of such laws;
(G) because of the restrictions on transfer or assignment
of such Units to be issued hereunder set forth in the
partnership agreement of PPAP and/or in a stock restriction
agreement, Selling Partner may have to bear the economic
risk of the investment commitment evidenced by this
Agreement and any Units acquired hereby for an indefinite
period of time, and (H) under the terms of the partnership
agreement of PPAP, as it will be in effect on the Closing
Date, Units will not be redeemable at the request of the
holder thereof for cash (or at the option of the PPL REIT,
for common stock in the PPL REIT prior to the first
anniversary of their issuance.
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(v) The addresses set forth for Selling Partners in this
Agreement are the addresses of Selling Partners'
principal place of business or residence, as applicable,
and Selling Partners have no present intention of
becoming a resident of any country, state or
jurisdiction other than the country and state in which
principle place of business or residence, as applicable,
is cited.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the term
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"Selling Partners' Actual Knowledge" is used it shall be limited to the
knowledge of Thomas F. August and Dennis J. DuBois. Notwithstanding anything
herein contained to the contrary, in the event that prior to Closing Purchaser
has knowledge of any fact or circumstance that would make any of the
representations or warranties of Selling Partners set forth herein untrue or
incorrect, Selling Partners shall not be deemed to be in default hereunder by
reason of the fact that such representation or warranty is in fact untrue or
incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
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otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall be continuing and shall be true and correct on and as
of the Closing Date with the same force and effect as if made at that time, and
all of such representations and warranties, other than those set forth is
Subsections 4.1(a), (b), (c), (d), (e), (f) and (v) above, shall survive the
Closing for a period of twelve (12) months, at which time they shall expire and
terminate and be of no further force and effect unless a claim for breach
thereof has been instituted within such twelve (12) month period. The
representations and warranties set forth in Subsections 4.1(a), (b), (c), (d),
(e), (f) and (v) above, shall survive the Closing without limitation of time
constraints.
Section 4.4 Selling Partners' Obligation to Notify Purchaser of Change.
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If, prior to the Closing Date, either Selling Partners or the Partnership become
aware that any representation or warranty set forth in Section 4.1 hereof which
was true and correct on the date hereof has become incorrect in any material
respect, either prior to or at Closing, due to changes in conditions or the
discovery of information by Selling Partners or the Partnership of which Selling
Partners were unaware on the date hereof, Selling Partners shall immediately
notify Purchaser thereof. Upon receipt of such notification, if such change is
material and adverse with respect to the acquisition of the Partnership
Interests, Purchaser shall have the option of terminating this Agreement
whereupon this Agreement shall become null and void and of no further force or
effect and neither party shall have any further obligation one to the other. If
Purchaser does not exercise its option to terminate this Agreement by reason of
any such change in conditions, appropriate modifications shall be made in the
terms hereof to reflect the change in the conditions to the mutual satisfaction
of Selling Partners and Purchaser.
Section 4.5 Operation of Project Prior to Closing. Selling Partners
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shall (a) continue to cause the Partnership's property manager to diligently
operate the Improvements and the Project in the ordinary course of business
between the date hereof and the Closing Date, (b) cause the Partnership to keep,
observe, and perform or cause to be performed all of its obligations as landlord
under the Leases, (c) prevent the Partnership from terminating or causing the
termination of any Lease except as the result of the default of the Tenant
thereunder or the replacement of a suitable substitute, and (d) cause the
Partnership to maintain and operate the Project in substantially the same
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condition and repair as exists on the Effective Date, reasonable wear and tear
and normal replacements excepted.
ARTICLE V
CONDITIONS TO CLOSING
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Section 5.1 Conditions Precedent to Purchaser's Obligations. The
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obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Selling Partners set
forth herein shall be true in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties have been made on and as of the Closing Date;
(b) Selling Partners shall have performed, observed and complied
with all of the covenants, agreements and conditions required by this
Agreement to be performed, observed and complied in all material respects
with by Selling Partners prior to or as of the Closing Date;
(c) Purchaser, on or before the expiration of the Inspection
Period, shall have performed such inspections, investigations and tests as
Purchaser desires, in accordance with the terms of Article II of this
Agreement, and Purchaser shall have determined, in Purchaser's sole
discretion, that the Project is suitable for Purchaser's intended use;
(d) Selling Partners shall have delivered to Purchaser a
certificate or certificates as may be acceptable to Purchaser stating that
a search has been conducted by a party acceptable to Purchaser of both the
state and county records in which financing statements and security
agreements are filed under the Uniform Commercial Code of the State and
that such searches indicate that, except security interests or liens to be
released at Closing, no security interests or liens of any kind or nature,
including, but not limited to, any equipment financing or leasing
arrangements, are claimed by any Person against the Partnership Interests,
the Personal Property, or the Improvements, or any part thereof;
(e) The closing of the IPO shall have occurred;
(f) Purchaser shall have received from each Tenant under a Major
Lease an Estoppel Certificate duly executed by each such Tenant, without
material change to the form of Estoppel Certificate submitted to the
Tenant in question;
(g) No material adverse change in the condition or operation of
the Project or the Partnership as they exist on the Effective Date shall
have occurred between the Effective Date and the Closing Date, which
change negatively and adversely affects the Project or the Partnership in
any material manner;
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(h) The Project shall have suffered no casualty loss which has not
been repaired or condemnation which would materially and adversely affect
the Project or the Partnership;
(i) The Loan with TIAA shall have been restructured on terms and
conditions satisfactory to Purchaser; and the TIAA Estoppel shall have
been duly executed by TIAA and delivered to Purchaser;
(j) The Board of Trustees (including a majority of the Independent
Trustees) shall have approved PPAP's acquisition of the Project.
(k) Burnett II shall have acquired the twenty-five percent (25%)
Partnership Interest from SRC; and
(l) The Lease with UPRC Lease shall have been extended, renewed
and modified in substantial compliance with the New UPRC Lease Terms.
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
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Precedent. The consequences of the failure of the conditions precedent to
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of the
Partnership Interests and the conditions set forth in Subsections 5.1 (a)
and/or (b) hereof have not been satisfied, Selling Partners shall be
deemed in default hereunder and Purchaser shall have the option to either
(i) waive those conditions and proceed with the Closing or (ii) exercise
it rights and remedies set forth in Article VI.
(b) In the event (i) on or prior to the expiration of the
Inspection Period, Purchaser has determined that the Project is not suited
to Purchaser's intended use or that the transaction contemplated by this
Agreement is not a satisfactory investment, or (ii) on or before the
Outside Closing Date, the conditions set forth in subsections 5.1 (d),
(e), (f), (g), (h), (i), (j), (k), or (l) above have not been satisfied,
Purchaser shall have the option to either (1) waive those conditions and
proceed with the Closing or (2) terminate this Agreement whereupon this
Agreement shall become null and void and of no further force or effect and
neither party shall have any further obligation one to the other.
Section 5.3 Outside Closing Date. In the event the transaction
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contemplated hereby has not been consummated on or before the Outside Closing
Date, then in such event this Agreement shall terminate and become null and void
and of no further force or effect, and neither party shall have any further
obligation one to the other.
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ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Selling Partners' Defaults; Purchaser's Remedies.
----------- ------------------------------------------------
(a) Selling Partners' Defaults. Selling Partners shall be deemed
--------------------------
to be in default hereunder in the event that any of Selling Partners'
representations hereunder are determined to be false or misleading in any
material respect or in the event Selling Partners shall fail in any
material respect to meet, comply with, or perform any covenant, agreement,
or obligation on its part required within the time limits and in the
manner required in this Agreement.
(b) Purchaser's Remedies. In the event Selling Partners shall be
--------------------
deemed to be in default hereunder for any other reason, by virtue of the
occurrence of any one or more of the events specified in Section 6.1(a)
above, Purchaser may at its election (i) bring suit against Selling
Partners to enforce specific performance of this Agreement together with
such actions as may be available at law or in equity to recover
Purchaser's actual out-of-pocket costs in the performance of reasonable
due diligence, or (ii) terminate this Agreement. If the remedy of specific
performance is not available Purchaser shall have no remedy for damages
other that the aforementioned out-of-pocket costs. Notwithstanding
anything else to the contrary contained herein, to the extent any action
is instituted by Purchaser from and after the Closing Date in respect to
a breach of a warranty or representation hereunder, Selling Partners'`
liability relating to such breach shall be limited to Selling Partners'
returning the Units which they receive at Closing.
Section 6.2 Purchaser's Default; Selling Partners' Remedies.
----------- -----------------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material
respect to meet, comply with, or perform any covenant, agreement, or
obligation on its part required within the time limits and in the manner
required in this Agreement.
(b) Selling Partners' Remedy. IN THE EVENT PURCHASER SHALL BE
------------------------
DEEMED TO BE IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR TO
CLOSING AND SELLING PARTNERS DO NOT WAIVE SUCH DEFAULT, SELLING PARTNERS,
AS SELLING PARTNERS' SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, SHALL BE
ENTITLED TO RETAIN THE INDEPENDENT CONSIDERATION, IT BEING AGREED BETWEEN
PURCHASER AND SELLING PARTNERS THAT SUCH SUM SHALL BE LIQUIDATED DAMAGES
FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE DIFFICULTY, INCONVENIENCE AND
UNCERTAINTY OF ASCERTAINING ACTUAL DAMAGES FOR SUCH DEFAULT. IN PLACING
THEIR INITIALS AT THE PLACES PROVIDED, EACH PARTY SPECIFICALLY CONFIRMS
THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS
REPRESENTED BY COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED
DAMAGES PROVISION AT THE TIME THIS AGREEMENT WAS MADE. NOTWITHSTANDING
23
<PAGE>
THE FOREGOING, THE PROVISIONS OF THIS SECTION 6.2 (b) SHALL NOT LIMIT IN
ANY MANNER PURCHASER'S INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 8.1 OR
8.3 HEREOF.
SELLING PARTNERS' INITIALS:
_____
_____
PURCHASER'S INITIALS: _____
Section 6.3 Attorneys' Fees. Should either party employ an attorney
----------- ---------------
or attorneys to enforce any of the provisions hereof or to protect its interest
in any manner arising under this Agreement, the non prevailing party in any
action pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
ARTICLE VII
CLOSING COSTS; POST-CLOSING ADJUSTMENTS
---------------------------------------
Section 7.1 Closing Costs. Costs of closing the transaction
----------- -------------
contemplated hereby shall be allocated between Selling Partners and Purchaser as
follows:
(a) Selling Partners shall pay the costs, if any, incurred by
Selling Partners in connection with the performance of its obligations
hereunder.
(b) Purchaser shall pay the costs, if any, incurred by Purchaser
in connection with the performance of its obligations hereunder.
Section 7.2 Post-Closing Adjustments with Respect to Available Cash.
----------- -------------------------------------------------------
Purchaser and Selling Partners acknowledge that all Available Cash relating to
the operations of the Partnership prior to the Closing Date shall be retained by
and remain the property of the Selling Partners. Purchaser and Selling Partners
further acknowledge that it may not be possible to determine or compute the
exact amount of undistributed Available Cash as of the Closing Date. Therefore,
Purchaser hereby agrees that it shall cause the Partnership, as soon as
reasonably practicable following the Closing Date, to determine and compute the
amount of undistributed Available Cash through the Closing Date and to pay over
and distribute such sums to Selling Partners in the manner contemplated by the
Partnership Agreement, as if the transaction contemplated hereby had not been
consummated. To the extent requested by Selling Partners, Purchaser and/or the
Partnership shall provide adequate back up and substantiation as to the manner
in which undistributed Available Cash has been determined, including
verification by the Partnership's independent accountants if requested by
Selling Partners.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the
24
<PAGE>
payment of any commission regarding the consummation of the transaction
contemplated hereby. It is agreed that if any claims for commissions or fees,
including, without limitation, brokerage fees, finder's fees, or commissions,
are ever made against Selling Partners or Purchaser in connection with this
transaction, all such claims shall be handled and paid by the party whose
actions or alleged commitments form the basis of such claim and such party shall
indemnify and hold harmless the other from and against all such claims or
demands with respect to any brokerage fees, finder's fees, or agents'
commissions or other compensation asserted by any person, firm, or corporation
in connection with this Agreement or the transactions contemplated hereby. The
provisions of this Section 8.1 shall expressly survive the early termination of
this Agreement.
Section 8.2 Selling Partners' Indemnity. Selling Partners agree to
----------- ---------------------------
indemnify and hold Purchaser harmless of and from all liabilities, claims,
demands and expenses, of any kind or nature, known or unknown, fixed or
contingent, arising or accruing on or before the Closing Date related to the
ownership of their respective Partnership Interests, and all expenses related
thereto, including, without limitation, court costs and attorneys' fees. The
foregoing indemnity shall also apply to any claims, demands, causes of action,
losses, damages, liabilities, costs or expenses asserted against or incurred by
Purchaser at any time or from time to time by reason of or arising out of the
breach of any representation or warranty of Selling Partners set forth herein.
Selling Partners' liability with respect thereto shall be governed by the
provisions of Section 6.1(b) hereof.
Section 8.3 Purchaser's Indemnity. Purchaser agrees to indemnify and
----------- ---------------------
hold Selling Partners harmless of and from all liabilities, claims, demands and
expenses, of any kind or nature, known or unknown, fixed or contingent, arising
and accruing subsequent to the Closing Date related to the ownership of the
Partnership Interests, and all expenses related thereto, including, without
limitation, court costs and attorneys' fees.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise expressly
----------- -----------------
provided for herein, the terms and provisions hereof shall survive the Closing.
The acceptance of the closing documents by Purchaser and payment of the Purchase
Price shall be deemed full compliance by Selling Partners and Purchaser of all
of their respective obligations arising under this Agreement and Purchaser and
Selling Partners each expressly waives any noncompliance by the other party
hereto with any prior obligations other than those obligations which expressly
survive the Closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
Section 9.3 Entire Agreement; Modifications. This Agreement embodies
----------- -------------------------------
and constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged, or terminated except by an instrument in
writing signed by the party against which the enforcement of such waiver,
modification, amendment, discharge, or termination is sought, and then only to
the extent set forth in such instrument.
25
<PAGE>
Section 9.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Selling Partners and Purchaser, each of
which has been represented by counsel of its own selection, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Consequently, the terms and provisions of this Agreement shall
be interpreted and construed in accordance with their usual and customary
meanings, and Selling Partners and Purchaser hereby expressly waive and
disclaim, in connection with the interpretation and construction of this
Agreement, any rule of law or procedure requiring otherwise, including
without limitation, any rule of law to the effect that ambiguous or
conflicting terms or provisions contained in this Agreement shall be
interpreted or construed against the party whose attorney prepared this
Agreement or any earlier draft of this Agreement.
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail return
receipt, signed by the addressee or the addressee's agent or representative, (b)
if by telegram, by a telegram receipt signed by the addressee or the addressee's
agent or representative, (c) if hand delivered (including delivery by any
overnight or other delivery service), by a delivery receipt signed by the
addressee or the addressee's agent or representative, or (d) if sent by
facsimile transmission, with confirmation of receipt at the facsimile number to
which it was sent. Each party's initial address for delivery of any Notice is
designated below, but any party from time to time may designate a different
address for delivery of any Notice by delivering to the other party Notice of
such different address; provided, however, neither party may designate an
address for delivery of Notice not located within the United States. Each party
hereto covenants and agrees to mail copies of any Notice to the parties
designated to receive copies of any Notice below, but the failure of the
addressee for any copy actually to receive such copy shall not render the Notice
ineffective.
If to Selling Partners: Prentiss Properties Burnett, Inc.
Prentiss Properties Burnett II, Inc. Suite
5000 1717 Main Street Dallas, Texas 75201
Telephone No.: (214) 761-1440 Facsimile
No.: (214) 748-1742
26
<PAGE>
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Fax No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Fax No.: (214) 969-4343
Section 9.7 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Selling
Partners or Purchaser, Selling Partners and Purchaser hereby agree to perform,
execute, and/or deliver or cause to be performed, executed, and/or delivered at
the Closing or thereafter, all such further acts, deeds, and assurances as
Purchaser or Selling Partners, as the case may be, may reasonably require to (a)
evidence and vest in the Purchaser the ownership of, and title to, the
Partnership Interests, and (b) consummate the transactions contemplated
hereunder. The covenants set forth in this Section 9.7 shall survive the
Closing.
Section 9.8 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
----------- --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 9.9 Assignment. Purchaser shall have the right, without the
----------- ----------
consent of Selling Partner, to assign its rights under this Agreement and all
rights hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Such assignment may be in respect to all or any portion of
the Partnership Interest and Purchaser may assign its rights hereunder to more
than one Person each of whom shall acquire an allocable portion of the
Partnership Interest. Upon such assignment, Purchaser shall be relieved of its
obligations hereunder so long as the PPL REIT or any entity in which the PPL
REIT has a controlling interest assumes all applicable obligations of Purchaser
hereunder and confirms the undertakings or representations of Purchaser
hereunder. No other assignment may be made without the prior written consent of
Selling Partner.
Section 9.10 Time of the Essence. Time is of the essence of this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
27
<PAGE>
Section 9.11 Conditions. All covenants, warranties and obligations
------------ ----------
of Selling Partners or Purchaser contained in this Agreement are deemed to be
conditions to the other parties' obligations herein. All conditions to
Purchaser's or Selling Partners' obligations, whether specifically stated in
this Agreement or pursuant to the preceding sentence, and all rights of
Purchaser or Selling Partners herein are imposed solely and exclusively for the
benefit of the other party and their respective assigns and any or all of such
conditions or rights may be waived in whole or in part by the party in question
at any time in such party's sole discretion.
Section 9.12 Severability. If any provision in this Agreement is
------------ ------------
invalid, illegal, or unenforceable, such provision shall be construed as
narrowly as possible to allow Purchaser and Selling Partners to be afforded the
benefits and protection of this Agreement. Such provision shall be severable
from the rest of this Agreement and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and shall continue in full force and effect.
Section 9.13 Counterparts. Two or more duplicate originals of the
------------ ------------
written instrument containing this Agreement may be signed by the parties, each
of which shall be an original but all of which together shall constitute one and
the same agreement.
Section 9.14 Tax Returns and Tax Audit. The responsibility for filing
------------ -------------------------
the Partnership return for federal and state income or franchise tax (if any)
for the partial year ending the Closing Date (the "Partial Year Return") shall
be Selling Partners'. Further, should such Partial Year Return or Returns for
prior years be audited, the responsibility for dealing with settling and paying
any tax liability shall be Selling Partners', and in such regard the retiring
Selling Partners shall hold Purchaser and the Partnership harmless from any
loss, cost or expense (including reasonable attorneys fees and other
professional fees) as a result of any liability arising as a result of such
audits or in respect to federal or state tax liability for periods of time prior
to the Closing Date. Should Purchaser or the Partnership be included in such
audits, Selling Partners shall furnish Purchaser or the Partnership with all
necessary information to permit Purchaser or the Partnership to respond to the
appropriate authorities in a timely and responsive manner. The responsibility
for filing the Partnership's Partial Year Return for federal and state income or
franchise tax (if any) for the partial year commencing on the Closing Date shall
be Purchaser's. Further, should such Partial Year Return be audited, the
responsibility for dealing with settling and paying any tax liability shall be
Purchaser's, and in such regard Purchaser shall hold Selling Partners harmless
from any loss, cost or expense (including reasonable attorneys fees and other
professional fees) as a result of any liability arising as a result of such
audits or in respect to federal or state tax liability for periods of time from
and after the Closing Date. Should Selling Partners be included in such audits,
Purchaser shall furnish Selling Partners with all necessary information to
permit Selling Partners to respond to the appropriate authorities in a timely
and responsive manner.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLING PARTNERS:
----------------
PRENTISS PROPERTIES BURNETT, INC.,
a Texas corporation
By: /s/: THOMAS F. AUGUST
-------------------------------------
Name: THOMAS F. AUGUST
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
Date of Execution: As of August 5, 1996
PRENTISS PROPERTIES BURNETT II, INC.,
a Texas corporation
By: /s/: THOMAS F. AUGUST
-------------------------------------
Name: THOMAS F. AUGUST
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
Date of Execution: As of August 5, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/: THOMAS F. AUGUST
-------------------------------------
Name: THOMAS F. AUGUST
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
Date of Execution: As of August 5, 1996
29
<PAGE>
EXHIBIT 10.10
AGREEMENT OF PURCHASE AND
SALE OF PARTNERSHIP INTEREST
AND OPTION AGREEMENT
BY AND BETWEEN
11,000 BURNET ROAD CORPORATION
AS SELLING PARTNER
AND
PRENTISS PROPERTIES LIMITED, INC.
AS PURCHASER
Dated: AS OF AUGUST 5, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; PURCHASE PRICE. . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Sale and Delivery of the Partnership Interest. . . . 6
Section 1.3 Purchase Price for the Partnership Interest. . . . . 6
Section 1.4 Independent Consideration. . . . . . . . . . . . . . 6
Section 1.5 Payment of Purchase Price. . . . . . . . . . . . . . 6
ARTICLE II APPROVAL OF DOCUMENTS; INSPECTIONS . . . . . . . . . . . . . 6
Section 2.1 Items to be Furnished to Purchaser . . . . . . . . . 6
Section 2.2 Estoppel Certificates. . . . . . . . . . . . . . . . 6
Section 2.3 Inspection . . . . . . . . . . . . . . . . . . . . . 7
Section 2.4 Purchaser's Acknowledgement. . . . . . . . . . . . . 8
ARTICLE III THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNER WITH RESPECT
THERETO. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 The Closing and the Closing Date . . . . . . . . . . 8
Section 3.2 Selling Partner's Obligations at the Closing . . . . 8
Section 3.3 Purchaser's Obligations at the Closing . . . . . . . 9
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . . . 10
Section 4.1 Representations and Warranties of Selling Partner. . 10
Section 4.2 Knowledge Standard . . . . . . . . . . . . . . . . . 17
Section 4.3 Survival of Representations and Warranties . . . . . 17
Section 4.4 Selling Partner's Obligation to Notify Purchaser of
Change . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.5 Operation of Project Prior to Closing. . . . . . . . 18
ARTICLE V CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . 18
Section 5.1 Conditions Precedent to Purchaser's Obligations. . . 18
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
Precedent. . . . . . . . . . . . . . . . . . . . . . 19
Section 5.3 Outside Closing Date . . . . . . . . . . . . . . . . 20
ARTICLE VI DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . 20
Section 6.1 Selling Partner's Defaults; Purchaser's Remedies . . 20
Section 6.2 Purchaser's Default; Selling Partner's Remedies. . . 20
Section 6.3 Attorneys' Fees. . . . . . . . . . . . . . . . . . . 21
ARTICLE VII CLOSING COSTS; POST-CLOSING ADJUSTMENTS. . . . . . . . . . . 21
Section 7.1 Closing Costs. . . . . . . . . . . . . . . . . . . . 21
Section 7.2 Post-Closing Adjustments with Respect to Available
Cash . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 22
Section 8.1 Brokerage Commissions. . . . . . . . . . . . . . . . 22
Section 8.2 Selling Partner's Indemnity. . . . . . . . . . . . . 22
i
<PAGE>
Section 8.3 Purchaser's Indemnity. . . . . . . . . . . . . . . . 22
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.1 Survival of Terms. . . . . . . . . . . . . . . . . . 23
Section 9.2 Binding Effect . . . . . . . . . . . . . . . . . . . 23
Section 9.3 Entire Agreement; Modifications. . . . . . . . . . . 23
Section 9.4 Headings . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.5 Interpretation and Construction. . . . . . . . . . . 23
Section 9.6 Notice . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.7 Additional Acts. . . . . . . . . . . . . . . . . . . 24
Section 9.8 Applicable Law . . . . . . . . . . . . . . . . . . . 25
Section 9.9 Assignment . . . . . . . . . . . . . . . . . . . . . 25
Section 9.10 Time of the Essence. . . . . . . . . . . . . . . . . 25
Section 9.11 Conditions . . . . . . . . . . . . . . . . . . . . . 25
Section 9.12 Severability . . . . . . . . . . . . . . . . . . . . 25
Section 9.13 Counterparts . . . . . . . . . . . . . . . . . . . . 25
ARTICLE X OPTION TO PURCHASE REMAINING INTEREST. . . . . . . . . . . . 25
EXHIBITS:
"A" - Description of Land
"B" - Items to be Furnished to Purchaser
"C" - Forms of Tenant Estoppel Certificate
"D" - Closing Certificate
"E" - Prospective Subscriber Questionnaire
"F" - Investor Letter
ii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
OF PARTNERSHIP INTEREST AND OPTION AGREEMENT
--------------------------------------------
THIS AGREEMENT OF PURCHASE AND SALE is made and entered into by and between
PRENTISS PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"), and
11,000 BURNET ROAD CORPORATION, a Texas corporation ("Selling Partner"), as of
the Effective Date.
W I T N E S S E T H:
===================
Selling Partner and International Business Machines Corporation, a New York
corporation ("IBM"), on April 26, 1990, formed Broadmoor Austin Associates, a
Texas joint venture ("Partnership") for the purpose of acquiring and owning a
leasehold interest (the "Leasehold") in the Land (as hereinafter defined) and
constructing thereon seven office buildings with parking garages and related
improvements.
The Partnership was formed pursuant to the terms and conditions of that
certain Joint Venture Agreement dated April 26, 1990, by and between Selling
Partner and IBM (the "Original Partnership Agreement"). The Original Partnership
Agreement was amended to reflect the admission of Austin Associates Limited
Partnership, a Delaware limited partnership ("Austin LP"), and restated in its
entirety pursuant to that certain Amended and Restated Joint Venture Agreement
dated as of May 9, 1990, by and among Austin LP, Selling Partner and IBM (the
"Restated Partnership Agreement"). The Restated Partnership Agreement was
amended pursuant to that certain First Amendment to Amended and Restated Joint
Venture Agreement dated as of September 20, 1990, by and among Selling Partner,
IBM, Austex Associates Limited Partnership, a Georgia limited partnership, and
Austin LP (the "First Amendment") (the Original Partnership Agreement as amended
and restated by the Restated Partnership Agreement and the First Amendment is
hereinafter called the "Partnership Agreement").
Selling Partner owns and holds a one percent (1%) joint venture interest
in the Partnership. Purchaser, on its behalf and on behalf of certain
Affiliates, desires to contract to purchase and acquire a ninety percent (90%)
interest in Selling Partner's one percent (1%) joint venture interest [the
resulting nine-tenths percent (0.9%) joint venture interest being hereinafter
called the ("Partnership Interest")]. In addition, Purchaser desires to obtain
an option to purchase and acquire the remaining one-tenth percent (0.1%) joint
venture interest owned by Selling Partner in the Partnership (the "Optional
Partnership Interest").
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Selling Partner
hereby agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by or
is under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other
than corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the controlled Person; and "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of the controlled
Person.
(b) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this Agreement
of Purchase and Sale.
(c) "Available Cash" means all cash funds of the Partnership
--------------
generated by the operation of the Project or otherwise through the Closing
Date (whether collected prior to or subsequent to the Closing Date after
(i) payment of or provision for all operating expenses of the Project and
the Partnership payable as of the Closing Date, and (ii) provision for a
reasonable reserve to pay accrued and unpaid expenses.
(d) "Books and Records" means all financial and other books and
-----------------
records maintained by or for the benefit of the Partnership in connection
with the operation of the Project and the Partnership and all building
plans, specifications and drawings, engineering, soils and geological
reports, environmental reports and other documents prepared in connection
with the construction, maintenance, repair, management or operation of the
Project which are within the possession or control of the Partnership, or
the Partnership's Affiliates, agents or representatives, or Selling
Partner.
(e) "Business day" means a day that is not a Saturday, a Sunday,
------------
a legal holiday or a day on which banks are required or permitted by law
or other governmental action to close in Dallas, Texas.
(f) "Closing" means the consummation of the purchase of the
-------
Partnership Interest by Purchaser from Selling Partner in accordance with
the terms and provisions of Article III, which Closing shall be held at
the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., Suite 4100, 1700
Pacific Avenue, Dallas, Texas 75201-4618 on the Closing Date commencing
at 10:00 a.m. Central Daylight Time.
(g) "Closing Date" means a Business day which shall be established
------------
by Purchaser by written notice delivered to Selling Partner, which date
shall be no earlier than five (5) days following the date of such notice,
except that from and after the date the IPO
2
<PAGE>
shall have occurred, such date shall be no earlier than ten (10) days
following the date of such notice; provided, however, that in no event
shall the Closing Date be a date later than December 31, 1996.
(h) "Cut Off Date" means July 1, 1994.
------------
(i) "Effective Date" shall mean the date on which this Agreement
--------------
shall be fully executed and unconditionally delivered by Purchaser and
Selling Partner.
(j) "Environmental Laws" means all applicable existing federal,
------------------
state and local statutes, ordinances, orders, rules and regulations
issued, promulgated or adopted by any governmental authority having
jurisdiction over the Project relating to environmental pollution or
protection, including, without limitation, the Resource Conservation and
Recovery Act of 1976, 43 U.S.C. (S) 6901 et seq., the Comprehensive
-- ---
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
(S) 9601 et seq., as amended by the Superfund Amendments and
-- ---
Reauthorization Act of 1986, the Hazardous Materials Transportation Act, 49
U.S.C. (S) 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C.
-- ---
(S) 1251 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et set., the Toxic
-- --- -- ---
Substances Control Act, 15 U.S.C. (S) 2601-2629, the Safe Drinking Water
Act, 42 U.S.C. (S) 300f et seq., together with all existing rules,
-- ---
regulations and orders promulgated thereunder, and all similar applicable
existing local, state and federal statutes and regulations promulgated
pursuant thereto.
(k) "Estoppel Certificates" means the estoppel certificates to be
---------------------
delivered by IBM in accordance with the provisions of Section 2.2 hereof.
(l) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(m) "Ground Lease" means that certain land lease with respect to
------------
the Land between the Partnership, as lessee, and IBM, as lessor, dated as
of May 9, 1990, as amended on September 20, 1990,
(n) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "restricted hazardous waste", or "toxic substances" or
words of similar import under any Environmental Laws, (ii) any oil,
petroleum or petroleum derived substances, any flammable substances or
explosives, any radioactive materials, any asbestos or any substance
containing more than 0.1 percent asbestos, any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts
per million, and any urea formaldehyde insulation, and (iii) any other
chemical, material or substance, exposure to which is prohibited, limited
or regulated by any Environmental Laws.
3
<PAGE>
(o) "IBM" means International Business Machines Corporation, a New
---
York corporation.
(p) "IBM Lease" means that certain Lease Agreement dated as of
---------
May 9, 1990, as amended on September 20, 1990, April 22, 1991, and
January 1, 1992, between the Partnership, as Landlord, and IBM, as Tenant,
for space in the Improvements.
(q) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the office buildings,
garages, parking lots and all other amenities, together with the
Partnership's interest, if any, in all machinery, fixtures and equipment
used in the general operation of such buildings and improvements, and/or
affixed to or located upon the Land, along with all accessions and
additions thereto, excluding therefrom any machinery, fixtures, equipment
or personal property owned the Tenant at the Project.
(r) "IPO" means the proposed initial public offering of securities
---
in the PPL REIT.
(s) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
hereof for all purposes, together with all and singular all right, title
and interest of the Partnership, reversionary or otherwise, in and to all
easements in or upon the Land and all other rights and appurtenances
belonging or in anywise pertaining thereto, if any, including any right,
title, and interest of the Partnership in and to any land lying in the bed
of any street, road or access way, right-of-way, alley, opened or
proposed, in front of, at a side of or adjoining the Land to the
centerline thereof.
(t) "Leasehold" means the leasehold interest owned by the
---------
Partnership pursuant to the Ground Lease.
(u) "Miscellaneous Assets" means all contract rights, leases,
--------------------
concessions, assignable warranties, and other items of intangible personal
property owned by the Partnership (but only to the extent assignable) and
relating to the leasing of the Land and the ownership and operation of the
Improvements, including, but not limited to, (i) the Service Contracts,
(ii) the Permits, (iii) assignable utility and similar deposits,
(iv) prepaid license and permit fees, (v) the Warranties, (vi) the Books
and Records, (vii) the IBM Lease and (viii) the Leasehold.
(v) "Optional Partnership Interest" means the remaining ten
-----------------------------
percent (10%) of Selling Partner's one percent (1%) interest in the
Partnership.
(w) "Partnership" means Broadmoor Austin Associates, a Texas joint
-----------
venture.
(x) "Partnership Agreement" means that certain Original
---------------------
Partnership Agreement as amended and restated by the Restated Agreement
and the First Amendment.
(y) "Partnership Interest" means ninety percent (90%) of the one
--------------------
percent (1%) joint venture interest in the Partnership owned by Selling
Partner.
4
<PAGE>
(z) "Permits" means all licenses and permits issued to or for the
-------
benefit of the Partnership and used or relating to the ownership or
operation of the Project in accordance with its current use.
(aa) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(bb) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by the Partnership, located on or in the Land and the Improvements and
used or usable in connection with any part of the Project.
(cc) "PPAP" means Prentiss Properties Acquisition Partners, L.P.,
----
a Delaware limited partnership.
(dd) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct the
IPO, and to acquire directly or indirectly all or a portion of the
Partnership Interest and interests in other real properties, assets,
partnerships and related service businesses.
(ee) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(ff) "Purchase Price" means the sum of $1,000.00.
--------------
(gg) "Purchaser" means Prentiss Properties Limited, Inc., a
---------
Delaware corporation.
(hh) "Selling Partner" means 11,000 Burnet Road Corporation, a
---------------
Texas corporation.
(ii) "Securities Act" means the Securities Act of 1933, as
--------------
amended.
(jj) "Selling Partner's Actual Knowledge" shall have the meaning
----------------------------------
set forth in Section 4.2.
(kk) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of the Partnership affecting the
operation of the Project, copies of which are to be delivered to Purchaser
pursuant to Section 2.1 hereof.
(ll) "State" means the State in which the Project is situated.
-----
(mm) "Units" means units of limited partnership interest in PPAP.
-----
(nn) "Warranties" means all warranties and guaranties relating to
----------
the Project, or any part thereof, or to the Personal Property or
Improvements, or construction thereof.
5
<PAGE>
Section 1.2 Sale and Delivery of the Partnership Interest. Selling
----------- ---------------------------------------------
Partner hereby agrees to sell, transfer and assign the Partnership Interest to
Purchaser or its designees, and Purchaser hereby agrees to purchase the
Partnership Interest from Selling Partner, upon and subject to the terms and
provisions hereinafter set forth. Purchaser (or its permitted assignee) may
designate an Affiliate to take title to up to one percent (1%) of the
Partnership Interest.
Section 1.3 Purchase Price for the Partnership Interest. The Purchase
----------- -------------------------------------------
Price shall be payable to Selling Partner on the Closing Date, plus or minus
prorations and adjustments as hereinafter provided. The Purchase Price shall be
payable to Selling Partner in the manner set forth in Section 1.5 below.
Section 1.4 Independent Consideration. Concurrently herewith Purchaser
----------- -------------------------
has paid to Selling Partner the sum of $100.00, which shall be independent
consideration (the "Independent Consideration") for the agreement of Selling
Partner set forth herein. The Independent Consideration shall be in addition to
the Purchase Price. If the Closing does not occur for any reason, the
Independent Consideration shall be deemed earned and shall be retained by
Selling Partner.
Section 1.5 Payment of Purchase Price. Purchaser shall pay the Purchase
----------- -------------------------
Price by the delivery of Units. The number of Units to be delivered to Selling
Partner shall be calculated by dividing the Purchase Price by the mid-point of
the offering price range for one (1) common share of beneficial interest of the
PPL REIT as set forth in the final "red-herring" prospectus for the IPO. Selling
Partner acknowledges that PPAP will not issue fractional Units. Thus, the result
of the calculation set forth above will be rounded to the nearest whole number
of Units (.50 rounded down).
ARTICLE II
APPROVAL OF DOCUMENTS; INSPECTIONS
----------------------------------
Section 2.1 Items to be Furnished to Purchaser. Within thirty (30) days
----------- ----------------------------------
after the Effective Date, Selling Partner shall cause the Partnership to furnish
to Purchaser, true, correct, complete, and legible copies of the items listed on
Exhibit "B" attached hereto and made a part hereof for all purposes. In addition
- -----------
to the foregoing, Selling Partner shall make available to Purchaser for its
review either at the Project or at such other place as may be reasonably
convenient to Purchaser and Selling Partner copies of all other records relating
to the ownership and operation of the Project and the Partnership, in Selling
Partner's or the Partnership's possession or control.
Section 2.2 Estoppel Certificates. Within thirty (30) days after the
----------- ---------------------
Effective Date, Selling Partner will cause the Partnership to deliver to IBM the
Estoppel Certificates, to be in the form and contain the content of the Estoppel
Certificates attached hereto as Exhibit "C" and made a part hereof for all
-----------
purposes, and will use its reasonable efforts to cause IBM to execute and
deliver to Purchaser the Estoppel Certificates on or before the Closing Date.
6
<PAGE>
Section 2.3 Inspection.
----------- ----------
(a) During the period commencing on the Effective Date and ending
on the Closing Date or the earlier termination of this Agreement (the
"Inspection Period"), Purchaser, upon reasonable notice to Selling Partner
and the Partnership, shall have reasonable access to the Project and the
Partnership's Books and Records, either personally or by authorized agent,
to inspect the Project and the Books and Records of the Partnership, the
items delivered pursuant to this Article II and any other documents and
records available which are normally maintained in the operation of the
Project or the Partnership.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Selling Partner will fully cooperate and
cause the Partnership to fully cooperate with Purchaser, at no cost or
expense to Selling Partner or the Partnership, in the conduct of
Purchaser's inspection of the Project and the Books and Records of the
Partnership. Such inspections (and any inspections performed in
accordance with the sentence next following) may be conducted at all
reasonable times, so long as such activities do not unreasonably interfere
with the Tenants in occupancy. Selling Partner will (and will cause the
Partnership to) permit Purchaser and current and prospective underwriters
involved in the IPO, and the agents, attorneys, accountants, and
representatives of all of the foregoing, upon reasonable notice (but
without having to obtain further approval), to enter upon and inspect the
Project, at reasonable times during normal working hours, all premises
leased to Tenants, all mechanical equipment, systems, and fixtures forming
a part thereof, and all Books and Records. Selling Partner will permit
(and will cause the Partnership to permit) Purchaser and the underwriters
involved in the IPO, and the agents, attorneys, accountants, and
representatives of all of the foregoing, at no cost or expense to Selling
Partner or the Partnership, to audit the Books and Records, and to conduct
such investigations, tests, or inspections as Purchaser deems appropriate
including, without limitation, sampling studies to ascertain whether or
not there is any Hazardous Substance on, in, or under the Project. In
conducting any such entry, investigation, test, or inspection, no party
permitted entry hereunder will unreasonably interfere with the operation
of the Project or the peaceable possession by individual Tenants of their
respective premises. To the extent that Persons other than Purchaser join
in such inspections, Purchaser shall secure from such Persons their
agreement to hold any such information in confidence pending the closing
of the transaction contemplated hereby, with the exception of the use of
such materials during the disclosure process in connection with the IPO.
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance in terms and amounts reasonably satisfactory to
Selling Partner and the Partnership covering any accident arising in
connection with the presence of Purchaser, its agents and representatives
on the Project and shall deliver a certificate of insurance verifying such
coverage to Selling Partner prior to entry upon the Project.
(d) Purchaser agrees to fully and completely repair and restore
the Project in the event of any damage whatsoever occurring by Purchaser,
Purchaser's Affiliates or consultants during the pendency of this
Agreement. Purchaser hereby indemnifies and holds Selling Partner and the
Partnership harmless from and against any loss, damage, injury, claim or
cause of action Selling Partner or the Partnership may suffer or incur as a
result of
7
<PAGE>
Purchaser's inspections of the Project undertaken pursuant to this
Agreement. The indemnity set forth in this subparagraph (d) shall survive
the Closing or the termination of this Agreement.
(e) If, during the Inspection period, Purchaser shall discover any
condition or circumstance, which in Purchaser's sole discretion, judgment
and opinion makes Purchaser's investment in the Partnership an
unacceptable risk, Purchaser shall be entitled, as its sole and exclusive
remedy, to terminate this Agreement by giving written notice to Selling
Partner, on or before the expiration of the Inspection Period, whereupon
this Agreement shall terminate, and upon such termination, neither Selling
Partner nor Purchaser shall have any further obligation or liability
hereunder.
Section 2.4 Purchaser's Acknowledgement. Purchaser acknowledges that,
----------- ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Partnership Interest shall be acquired on a basis that is without
representation or warranty, including any representations or warranties relating
to the Project, which as of the Closing Date shall be in its present condition,
subject to reasonable use, wear, tear and natural deterioration between the
Effective Date and the Closing Date. In such regard, there shall be no reduction
in the Purchase Price for any change in the condition of the Project by reason
of any events, subsequent to the Effective Date, except by reason of
condemnation or casualty. Purchaser further acknowledges that it has not been
induced by nor has it relied upon any representations, warranties or other
statements, whether express or implied, made by Selling Partner, or any of its
agents, employees or other representatives, which are not expressly set forth in
this Agreement or in the materials to be delivered to Purchaser in accordance
with the terms and provisions hereof.
ARTICLE III
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNER WITH RESPECT THERETO
-----------------------------------------------------
Section 3.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Partnership Interest contemplated by the terms and conditions of this Agreement
shall be consummated at the Closing to be held on the Closing Date.
Section 3.2 Selling Partner's Obligations at the Closing.
----------- --------------------------------------------
(a) At the Closing, Selling Partner shall do the following:
(i) Execute and deliver to Purchaser a good and
sufficient assignment of partnership interest
(the "Assignment") (with warranty limited to
Selling Partner's acts) in the form approved by
Purchaser and Selling Partner conveying the title
in and to the Partnership Interest free and clear
of all liens or encumbrances;
(ii) Execute and deliver to Purchaser an amendment to
the Partnership Agreement (the "Amendment"), in
the form approved by Purchaser, Selling Partner
and IBM, covering
8
<PAGE>
the withdrawal of Selling Partner and the admittance of
Purchaser or its designees as partners in the
Partnership and such other matters as Purchaser may
reasonably require;
(iii) Execute, acknowledge and deliver an affidavit in
form reasonably acceptable to Purchaser, stating,
under penalty of perjury, Selling Partner's U.S.
taxpayer identification number and that Selling
Partner is not a foreign person within the
meaning of Section 1445 of the Internal Revenue
Code;
(iv) Execute and deliver to Purchaser a Closing
Certificate (herein so called), in the form and
containing the content of the Closing Certificate
attached hereto as "Exhibit "D" and made a part
hereof for all purposes;
(v) Deliver to Purchaser the Estoppel Certificates
from IBM with respect to the IBM Lease and the
Ground Lease;
(vi) Deliver or cause the Partnership to deliver to
Purchaser satisfactory evidence that all
necessary corporate, partnership, or other action
on the part of Selling Partner has been taken
with respect to the consummation of the
transaction contemplated hereby;
(vii) Complete, execute, and deliver to PPAP or any
other transferor of the Units (A) the Prospective
Subscriber Questionnaire attached hereto as
Exhibit "E", and (B) the letter agreement
-----------
attached hereto as Exhibit "F"; and
-----------
(viii) Deliver to Purchaser such other assignments and
documents as may be required pursuant to the
provisions hereof or mutually agreed by counsel
for Selling Partner and Purchaser to be necessary
to fully consummate the transaction contemplated
hereby.
(b) If Selling Partner fails or is unable to deliver any of the
items set forth in this Section 3.2 at the Closing, Purchaser may (i) elect to
waive such failure and close the transaction, or (ii) exercise any one or more
of its options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered
to Purchaser under Section 3.2 above, Purchaser shall do the following:
(i) Deliver the Purchase Price in accordance with
Section 1.5 hereof;
9
<PAGE>
(ii) Execute and deliver to Selling Partner
counterparts of the Assignment to be executed and
delivered by Selling Partner pursuant to
Section 3.2 above;
(iii) Execute and deliver to Selling Partner
counterparts of the Amendment to be executed and
delivered by Selling Partner pursuant to
Section 3.2 above;
(iv) Deliver to Selling Partner satisfactory evidence
that all necessary corporate, partnership, or
other action by Purchaser has been taken with
respect to the consummation of the transaction
contemplated hereby; and
(v) Deliver to Selling Partner such other instruments
or documents as may be required pursuant to the
terms hereof or mutually agreed by counsel for
Selling Partner and Purchaser to be necessary to
fully consummate the transaction contemplated
hereby.
(b) If Purchaser fails or is unable to deliver any items set forth
in this Section 3.3 at the Closing, Selling Partner may (i) elect to waive
such failure and close the transaction, or (ii) exercise its remedies
under Section 6.2(b) hereof.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 4.1 Representations and Warranties of Selling Partner. Selling
----------- -------------------------------------------------
Partner hereby represents and warrants to Purchaser, as of the date hereof and
as of the Closing Date, the following:
(a) Selling Partner is the legal and beneficial owner of the
Partnership Interest. The Partnership Interest is owned by Selling
Partner free and clear of all liens, security interests, pledges,
assessments, charges, adverse claims, restrictions and other encumbrances
created by Selling Partner or its predecessor in interest, except as set
forth in the Partnership Agreement. Other than the rights and obligations
arising under this Agreement and the Partnership Agreement, the
Partnership Interest is not subject to any rights of any other person to
acquire the same, nor is the Partnership Interest subject to any
restrictions on transfer thereof, except for restrictions imposed by the
Partnership Agreement and applicable federal and state securities laws.
(b) The Partnership has been duly formed and is validly existing
as a joint venture under the laws of the State of Texas.
(c) To Selling Partner's Actual Knowledge, neither the execution
and deliver of this Agreement nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under,
10
<PAGE>
any agreement or instrument to which the Partnership is a party or by which
it is bound. To Selling Partner's actual knowledge, there are no actions,
voluntary or involuntary, pending against the Partnership under any
bankruptcy, reorganization, arrangement, insolvency or similar federal or
state statute.
(d) Selling Partner has been duly formed and is validly existing
as a corporation under the laws of the State of Texas, and is duly
registered or qualified to do business in the State of Texas. The
execution, delivery and performance of this Agreement and all other
documents, instruments and agreements to be executed and delivered by
Selling Partner pursuant to this Agreement (collectively, "Selling
Partner's Documents") are within the corporate power of Selling Partner
and have been duly authorized by all necessary and appropriate corporate
action.
(e) Neither the execution and deliver of this Agreement and
Selling Partner's Documents nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under, (i) the corporate
documents of Selling Partner or (ii) any agreement or instrument to which
Selling Partner is a party or by which it is bound. There are no actions,
voluntary or involuntary, pending against Selling Partner under any
bankruptcy, reorganization, arrangement, insolvency or similar federal or
state statute.
(f) Selling Partner is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended.
(g) With respect to the Space Lease:
(i) As of the date hereof, there are no tenant leases,
tenancy agreements, licenses, occupancy agreements
or any amendments, renewals, assignments,
subletting and guaranties thereof, or surrender
agreements and termination agreements related
thereto, affecting the Project, or any portion
thereof, other than the Space Lease, and any
subleases, licenses, or occupancy agreements which
(A) have been entered into by IBM with third
parties, and (B) not disclosed in writing to
Selling Partner.
(ii) The copy of the Space Lease heretofore delivered by
Selling Partner to Purchaser is a true, complete
and correct copy of the Space Lease.
(iii) To Selling Partner's Actual Knowledge, the Space
Lease is in full force and effect and has not been
modified or extended, except as disclosed to
Purchaser in writing. To Selling Partner's Actual
Knowledge, except as disclosed to Purchaser in
writing, including, without limitation, information
set forth in any estoppel certificates, Broadmoor
has performed and observed in all material
respects, for all periods
11
<PAGE>
following the Cut Off Date, all of (and is not in
material default, excluding any grace periods, in
the performance or observance of) the terms,
covenants and conditions on Broadmoor's part to be
performed or observed under the Space Lease. Except
as otherwise disclosed to Purchaser in writing,
neither the Partnership, Broadmoor nor Selling
Partner has given, nor has the Partnership,
Broadmoor or Selling Partner received, any written
notice of a default under the Space Lease which
remains uncured.
(iv) To Selling Partner's Actual Knowledge and except as
otherwise disclosed to Purchaser in writing, IBM is
not (a) currently contesting (in writing) any item
of rent charged under the Space Lease or (b)
currently claiming (in writing) an overcharge of
operating expenses; or (c) entitled to any
concessions or abatements, rebates, set-offs or
free rent with respect to any item of rent for any
period subsequent to the Closing, and all items of
an inducement nature to be performed by the
landlord under the Space Lease prior to the Closing
Date have been performed, nor does IBM have any
option or right of first offer or first refusal to
purchase the Project or any part thereof.
(v) To Selling Partner's Actual Knowledge, except as
otherwise disclosed to Purchaser in writing,
Broadmoor's historical billing practices to IBM for
additional rents and percentage rents are
consistent with the requirements of the Space
Lease.
(h) With respect to the Ground Lease:
(i) As of the date hereof, there are no tenant leases,
tenancy agreements, licenses, occupancy agreements
or any amendments, renewals, assignments,
subletting and guaranties thereof, or surrender
agreements and termination agreements related
thereto, affecting the Land or any portion thereof,
other than the Ground Lease.
(ii) The copy of the Ground Lease heretofore delivered
by Selling Partner to Purchaser is a true, complete
and correct copy of the Ground Lease.
(iii) To Selling Partner's Actual Knowledge, the Ground
Lease is in full force and effect and has not been
amended, modified or extended, except as disclosed
to Purchaser in writing. To Selling Partner's
Actual Knowledge, except as disclosed to Purchaser
in writing, Broadmoor has performed and observed in
all material respects, all of (and is not in
material default, excluding any grace periods, in
the performance or
12
<PAGE>
observance of) the terms, covenants and conditions
on Broadmoor's part to be performed or observed
under the Ground Lease. Except as otherwise
disclosed to Purchaser in writing, neither the
Partnership, Broadmoor, nor Selling Partner has
given, nor has the Partnership, Broadmoor, or
Selling Partner received, any written notice of a
default under the Ground Lease which remains
uncured.
(iv) To Selling Partner's Actual Knowledge and except as
otherwise disclosed to Purchaser in writing, (a)
IBM is not (i) currently contesting (in writing)
any item of rent charged under the Ground Lease or
(ii) claiming (in writing) a deficit in any amount
payable by lessee thereunder; (b) all items of an
inducement nature to be performed by the landlord
under the Ground Lease prior to the Closing Date
have been performed; and (c) IBM does not have any
option or right of first offer or first refusal to
purchase the Project or any part thereof.
(i) With respect to the Service Contracts:
(i) As of the date hereof, there are no written
equipment leases or service, maintenance or other
similar contracts or agreements affecting the
Project, or any portion thereof, other than (A) the
Service Contracts and (B) any equipment leases or
other contracts or agreements that may have been
entered into by Tenant of the Project with third
parties; and
(ii) Each Service Contract is in full force and effect
and has not been amended except as disclosed to
purchase in writing by Selling Partner. Neither
Broadmoor, the Partnership, nor Selling Partner has
given, nor has Broadmoor, the Partnership or
Selling Partner received, any written notice of a
default under any of the Service Contracts which
remains uncured, except as disclosed to Purchaser
in writing by Selling Partner.
(j) As of the date hereof, to Selling Partner's Actual Knowledge
there is not any pending, nor has Broadmoor, the Partnership, or Selling
Partner received written notice of any threatened:
(i) proceeding, suit, or action against Broadmoor, the
Partnership, or Selling Partner which, if adversely
decided, would prevent or materially delay the
consummation of the transaction contemplated by
this Agreement or materially adversely affect the
Project or the Partnership or Broadmoor, including,
without limitation, pending or threatened suits,
actions, or proceedings with respect to all or part
of the
13
<PAGE>
Project (a) for condemnation, (b) alleging any
violation of any Governmental Regulation, (c) which
could result in the imposition of a lien against
the Project or (d) which could increase real
property taxes or assessments levied against the
Project (other than the normal and routine
assessment and reassessment process conducted by
applicable governmental authorities); or
(ii) proceeding to change or redefine the zoning
classification applicable to any portion of the
Project that would cause the Project to become a
"non-conforming" use; or
(iii) proceeding to change any road patterns or grades
that would materially adversely affect access to any
roads providing a means of ingress to or egress from
the Project; or
(iv) proceeding seeking a reduction of real estate
taxes imposed on the Project or any portion
thereof; or
(v) pending imposition of any special or other
assessments for public betterments that may affect
any portion of the Project or the ownership thereof.
(k) To Selling Partner's Actual Knowledge, the Project does not
violate any Governmental Regulation in any material respect, and the
current operation and use of the Project complies in all material respects
with all applicable Governmental Regulations.
(l) To Selling Partner's Actual Knowledge, all Permits required
for the continued use and occupancy of the Project (as the same is
presently used under the Ground Lease and the Space Lease) have been
obtained from all appropriate governmental authorities, are fully paid
for, are in full force and effect, and will not be revoked, invalidated or
violated by the consummation of the transaction contemplated by this
Agreement. To Selling Partner's Actual Knowledge, the Project remains in
compliance in all material respects with all applicable requirements and
conditions with respect to the issuance of the Permits, which were in
effect at the time of the issuance thereof.
(m) Except as previously disclosed in writing by Selling Partner
to Purchaser, to Selling Partner's Actual Knowledge, the Project has not
been designated as a landmark and is not located in a conservation or
historic district or in an area that has been identified as having special
flood hazards.
(n) To Selling Partner's Actual Knowledge, the Project is an
independent unit which, as of the date hereof, does not rely on any
facilities (other than the facilities of public utility companies) located
on any property not included in the Project to (i) fulfill the
requirements of any Governmental Regulation, (ii) provide structural
support or furnish any essential building system or utility or (iii)
fulfill the requirements of the Space Lease. No building or other
improvement not included in the Project relies on any part of the Project
14
<PAGE>
to (1) fulfill the requirements of any Governmental Regulation, or (2)
provide structural support or furnish any essential building system or
utility.
(o) To Selling Partner's Actual Knowledge, for any period
following the Cut Off Date, there has not been any material damage to any
portion of the Project caused by fire or other casualty that has not been
repaired or restored.
(p) To Selling Partner's Actual Knowledge, the real property and
improvements that constitute the Project are assessed as one tax lot that
is separate and distinct from the tax lot allocated to any other parcel of
land or any other improvements.
(q) To Selling Partner's Actual Knowledge and except as otherwise
disclosed in any environmental report delivered by Selling Partner to
Purchaser with respect to the Project ("Environmental Report"), (i) no
Hazardous Materials have been stored, disposed of, released, or
transported at or from the Project or any portion thereof, in violation
of, or requiring remediation under, any Environmental laws (the foregoing
representation does not apply to the customary and ordinary application,
storage and use of chemicals for landscape maintenance, janitorial
services, and pest control); and (ii) there have been no and are no (A)
aboveground or underground storage tanks; (B) polychlorinated biphenyls
("PCBs") or PCB-containing equipment; (C) asbestos containing materials;
(D) lead based paints; or (E) dry-cleaning facilities in, on, under or at
the Project; or (F) wetlands located on or at the Project.
(r) There are now in full force and effect with reputable
insurance companies, casualty and liability insurance policies with
respect to the Project in commercially reasonable amounts.
(s) To Selling Partner's Actual Knowledge, the operating
statements for the Project provided by Selling Partner, the Partnership or
Broadmoor to Purchaser present fairly the financial condition of the
Project as of their respective dates and the results of the Project's
operations for the periods reflected therein.
(t) The Partnership has no employees and is not a party to any
union, labor or collective bargaining agreement affecting the Project.
(u) The Partnership has filed all income, franchise, sales,
payroll and other tax returns and reports of every nature required to be
filed by it accurately reflecting all taxes owing to the United States or
any other government, government subdivision or taxing authority, and it
has paid in full or made adequate provision for the payment of all taxes
and duties (including penalties and interest) for which it has or may have
liability. Selling Partner has no knowledge of any unassessed tax
deficiency proposed or threatened against the Partnership or Broadmoor as
a result of the operation of its business. There are no liens on the
assets of the Partnership or Broadmoor as a result of any tax liabilities
except for taxes not yet due and payable. There are, as of the date of
this Agreement, no, and after the date of this Agreement there will not be
any, tax deficiencies (including penalties and interest) of any kind
assessed against or relating to the Partnership or Broadmoor with respect
to any taxable periods ending on or before, or including, the Closing Date
of a character or nature that would result in liens or claims on any of
the Property, or on Broadmoor's title to or use of the Property, or that
would result in any claim against the Partnership or Broadmoor.
15
<PAGE>
(v) The copies of the Partnership Agreement that have been
previously delivered by Selling Partner to Purchaser are true and correct
copies of the documents governing the formation and existence of the
Partnership and there are no other agreements, documents or other
instruments of any nature which govern the relationship of the partners in
the Partnership or its assets.
(w) Selling Partner (i) understands the risks of, and other
considerations relating to accepting Units in connection with its sale of
the Partnership Interests pursuant to this Agreement; (ii) is an
"accredited investor" as defined in the Securities Act, and (iii) by
reason of its business and financial experience, together with the
business and financial experience of those persons, if any, retained by it
to represent or advise it with respect to the transaction contemplated by
this Agreement, has such knowledge, sophistication and experience in
financial and business matters and in making investment decisions of this
type, that (1) it is capable of evaluating the merits and risks of an
investment in PPAP and of making an informed investment decision, and (2)
is capable of protecting its own interest or has engaged representatives
or advisors to assist it in protecting its interest, and (D) is capable of
bearing the economic risk of such investment.
(x) Selling Partner (1) understands and acknowledges that an
investment in PPAP involves substantial risks; (2) has been given the
opportunity to make a thorough investigation of the proposed activities of
PPAP; and (3) has been afforded the opportunity to obtain any information
deemed necessary by Selling Partner; (4) confirms that all documents,
records, and books pertaining to its investment in PPAP and requested by
Selling Partner have been made available or delivered to Selling Partner;
(5) has had an opportunity to ask questions of and receive answers from
PPAP, or from a person or persons acting on PPAP's behalf, concerning the
terms and conditions of the transaction contemplated by this Agreement and
its acquisition of Units; and (6) has relied upon, and is making its
investment decisions, solely upon such information as has been provided to
Selling Partner in writing by PPAP.
(y) The Units to be transferred to Selling Partner pursuant to
this Agreement will be acquired by Selling Partner for its 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, or the grant of any
participation therein, without prejudice, however, to Selling Partner's
right (subject to the terms of the partnership agreement of PPAP) at all
times to sell or otherwise dispose of all or any part of its Units under
an exemption from such registration available under the Securities Act and
applicable state securities laws, and subject, nevertheless, to the
disposition of its assets being at all times within its control. Selling
Partner was not formed for the specific purpose of acquiring an interest
in PPAP.
(z) Selling Partner acknowledges that (1) the Units to be issued
to Selling Partner will no have been registered under the Securities Act
or state securities laws by reason of a specific exemption or exemptions
from registration under the Securities Act and applicable state securities
laws and, if such Units are to be represented by certificates, such
certificates will bear a legend to such effect; (2) Purchaser's reliance
on such exemptions is predicated in part on the accuracy and completeness
of the representations, warranties and covenants of Selling Partner
contained herein; (3) such Units, therefore, cannot be resold unless
registered under the Securities Act and applicable state securities laws,
or unless an
16
<PAGE>
exemption from registration is available; (4) there will be no public
market for such Units; (5) Units to be issued to Selling Partner will not
be transferable without the prior written consent of the general partner of
PPAP which consent shall not be withheld if the general partner of PPAP
determines that the transfer of same is a valid private placement under
applicable Federal and State securities laws; (6) PPAP has no obligation or
intention to register such Units for resale under the Securities Act or any
state securities laws or to take any action that would make available any
exemption from the registration requirements of such laws; (7) because of
the restrictions on transfer or assignment of such Units to be issued
hereunder set forth in the partnership agreement of PPAP and/or in a stock
restriction agreement, Selling Partner may have to bear the economic risk
of the investment commitment evidenced by this Agreement and any Units
acquired hereby for an indefinite period of time, and (8), under the terms
of the partnership agreement of PPAP, as it will be in effect on the
Closing Date, Units will not be redeemable at the request of the holder
thereof for cash (or at the option of the PPL REIT, for common stock in the
PPL REIT) prior to the first anniversary of their issuance.
(aa) The address set forth for Selling Partner in this Agreement
is the address of Selling Partner's principal place of business or
residence, as applicable, and Selling Partner has no present intention of
becoming a resident of any country, state or jurisdiction other than the
country and state in which principle place of business or residence, as
applicable, is cited.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the term
----------- ------------------
"Selling Partner's Actual Knowledge" is used it shall be limited to the
knowledge of Thomas F. August and Dennis J. DuBois. Notwithstanding anything
herein contained to the contrary, in the event that prior to Closing Purchaser
has knowledge of any fact or circumstance that would make any of the
representations or warranties of Selling Partner set forth herein untrue or
incorrect, Selling Partner shall not be deemed to be in default hereunder by
reason of the fact that such representation or warranty is in fact untrue or
incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
----------- ------------------------------------------
otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall be continuing and shall be true and correct on and as
of the Closing Date with the same force and effect as if made at that time, and
all of such representations and warranties, other than those set forth in
Subsections 4.1(a), (b), (c), (d), (e), (f), (w), (x), (y), (z), and (aa)
hereof, shall survive the Closing for a period of twelve (12) months, at which
time they shall expire and be of no further force and effect unless a claim for
breach thereof has been instituted within such twelve (12) month period. The
representations and warranties set forth in Subsections 4.1(a), (b), (c), (d),
(e), (f), (w), (x), (y), (z), and (aa) hereof shall survive the Closing without
limitation or time constraints.
Section 4.4 Selling Partner's Obligation to Notify Purchaser of Change.
----------- ----------------------------------------------------------
If, prior to the Closing Date, either Selling Partner or the Partnership becomes
aware that any representation or warranty set forth in Section 4.1 hereof which
was true and correct on the date hereof has become incorrect in any material
respect, either prior to or at Closing, due to changes in conditions or the
discovery of information by Selling Partner or the Partnership of which Selling
Partner was unaware on the date hereof, Selling Partner shall immediately notify
Purchaser thereof. Upon receipt of such notification, if such change is material
and adverse with respect to the acquisition of the Partnership Interest,
Purchaser shall have the option of terminating this Agreement whereupon this
Agreement shall become null and void and of no further force or effect and
neither party shall have any further
17
<PAGE>
obligation one to the other. If Purchaser does not exercise its option to
terminate this Agreement by reason of any such change in conditions, appropriate
modifications shall be made in the terms hereof to reflect the change in the
conditions to the mutual satisfaction of Selling Partner and Purchaser.
Section 4.5 Operation of Project Prior to Closing. To the extent that it
----------- -------------------------------------
has the power to do so under the Partnership Agreement, Selling Partner shall
(a) continue to cause the Partnership's property manager to diligently operate
the Improvements and the Project in the ordinary course of business between the
date hereof and the Closing Date, (b) cause the Partnership to keep, observe,
and perform or cause to be performed all of its obligations as landlord under
the IBM Lease and as lessee under the Ground Lease, (c) prevent the Partnership
from terminating or causing the termination of IBM Lease except as the result of
the default of the Tenant thereunder or the replacement of a suitable
substitute, and (d) cause the Partnership to maintain and operate the Project in
substantially the same condition and repair as exists on the Effective Date,
reasonable wear and tear and normal replacements excepted.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
Section 5.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Selling Partner set
forth herein shall be true in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties have been made on and as of the Closing Date;
(b) Selling Partner shall have performed, observed and complied
with all of the covenants, agreements and conditions required by this
Agreement to be performed, observed and complied in all material respects
prior to or as of the Closing Date;
(c) Purchaser, on or before the expiration of the Inspection
Period, shall have performed such inspections, investigations and tests as
Purchaser desires, in accordance with the terms of Article II of this
Agreement, and Purchaser shall have determined, in Purchaser's sole
discretion, that the Project is suitable for Purchaser's intended use;
(d) Selling Partner shall have delivered to Purchaser a
certificate or certificates as may be acceptable to Purchaser stating that
a search has been conducted by a party acceptable to Purchaser of both the
state and county records in which financing statements and security
agreements are filed under the Uniform Commercial Code of the State and
that such searches indicate that, except security interests or liens to be
released at Closing, no security interests or liens of any kind or nature,
including, but not limited to, any equipment financing or leasing
arrangements, are claimed by any Person against the Partnership Interest,
the Personal Property or the Improvements, or any part thereof;
(e) The closing of the IPO shall have occurred;
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<PAGE>
(f) Purchaser shall have received the Estoppel Certificates duly
executed by IBM with respect to the IBM Lease and the Ground Lease without
material change to the form of Estoppel Certificates submitted to IBM.
(g) No material adverse change in the condition or operation of
the Project or the Partnership as they exist on the Effective Date shall
have occurred between the Effective Date and the Closing Date, which
change negatively and adversely affects the Project or the Partnership in
any material manner;
(h) Purchaser shall have received the signed written consent of
IBM to the assignment of the Partnership Interest contemplated by this
Agreement;
(i) The Project shall have suffered no unrepaired casualty loss
or condemnation which would materially and adversely affect the Project or
the Partnership.
(j) Purchaser or its affiliate shall have acquired a fifty percent
(50%) limited partnership in Austex Associates, L.P., a Georgia limited
partnership ("Austex L.P.") from NYL not later than the closing of the
transaction contemplated by this Agreement; and
(k) Purchaser or its affiliate shall have acquired a fifty percent
(50%) general partnership interest in Austex L.P., from Prentiss
Properties Austin, L.P., a Delaware limited partnership, not later than
the closing of the transaction contemplated by this Agreement.
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of the
Partnership Interest and the conditions set forth in Subsections 5.1 (a)
and/or (b) hereof have not been satisfied, Selling Partner shall be deemed
in default hereunder and Purchaser shall have the option to either
(i) waive those conditions and proceed with the Closing or (ii) exercise
it rights and remedies set forth in Article VI.
(b) In the event (i) on or prior to the expiration of the
Inspection Period, Purchaser has determined that the Project is not suited
for Purchaser's intended use or that the transaction contemplated by this
Agreement is not a satisfactory investment, or (ii) on or before the
Closing Date the conditions set forth in Subsections 5.1 (d), (e), (f),
(g), (h), (i), (j) or (k) hereof have not been satisfied, Purchaser shall
have the option to either (1) waive those conditions and proceed with the
Closing or (2) terminate this Agreement whereupon this Agreement shall
become null and void and of no further force or effect and neither party
shall have any further obligation one to the other.
Section 5.3 Outside Closing Date. In the event (a) the condition
----------- --------------------
precedent to Purchaser's obligations to consummate the transaction contemplated
hereby set forth in Section 5.1(e) has not been satisfied on or before December
31, 1996, in a manner to permit the transaction contemplated hereby to be
consummated and funded by such date, or (b) Purchaser has not designated a
Closing Date within a sufficient period of time to permit the timely Closing of
the
19
<PAGE>
transaction contemplated hereby on or before December 31, 1996, or (c)
Purchaser has not designated a Closing Date within ten (10) Business days
following the date the IPO has occurred, then in such event this Agreement shall
terminate and become null and void and of no further force or effect on the
earlier of December 31, 1996, or on the tenth (10th) Business day following the
date of the occurrence of the IPO, and neither party shall have any further
obligation one to the other.
ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Selling Partner's Defaults; Purchaser's Remedies.
----------- ------------------------------------------------
(a) Selling Partner's Defaults. Selling Partner shall be deemed
--------------------------
to be in default hereunder in the event that any of the representations
hereunder are determined to be false or misleading in any material respect
or in the event Selling Partner shall fail in any material respect to
meet, comply with, or perform any covenant, agreement, or obligation on
its part required within the time limits and in the manner required in
this Agreement.
(b) Purchaser's Remedies. In the event Selling Partner shall be
--------------------
deemed to be in default hereunder for any other reason, by virtue of the
occurrence of any one or more of the events specified in Section 6.1(a)
above, Purchaser may at its election (i) bring suit against Selling
Partner to enforce specific performance of this Agreement together with
such actions as may be available at law or in equity to recover
Purchaser's actual out-of-pocket costs in the performance of reasonable
due diligence, or (ii) terminate this Agreement. If the remedy of specific
performance is not available Purchaser shall have no remedy for damages
other that the aforementioned out-of-pocket costs. Notwithstanding
anything to the contrary contained herein, to the extent any action is
instituted by Purchaser from and after the Closing Date in respect to a
breach of a warranty or representation hereunder, Selling Partner's
liability relating to such breach shall be limited to Selling Partner's
returning the Units it receives at Closing.
Section 6.2 Purchaser's Default; Selling Partner's Remedies.
----------- -----------------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material
respect to meet, comply with, or perform any covenant, agreement, or
obligation on its part required within the time limits and in the manner
required in this Agreement.
(b) Selling Partner's Remedy. IN THE EVENT PURCHASER SHALL BE
------------------------
DEEMED TO BE IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR TO
CLOSING AND SELLING PARTNER DOES NOT WAIVE SUCH DEFAULT, SELLING PARTNER,
AS SELLING PARTNER'S SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, SHALL BE
ENTITLED TO RETAIN THE INDEPENDENT CONSIDERATION, IT BEING AGREED BETWEEN
PURCHASER AND SELLING PARTNER THAT SUCH SUM SHALL BE LIQUIDATED DAMAGES
FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE DIFFICULTY, INCONVENIENCE AND
UNCERTAINTY OF ASCERTAINING ACTUAL DAMAGES FOR SUCH DEFAULT. IN PLACING
THEIR INITIALS AT THE PLACES PROVIDED, EACH
20
<PAGE>
PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND
THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED THE
CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME THIS
AGREEMENT WAS MADE. NOTWITHSTANDING THE FOREGOING, THE PROVISIONS OF THIS
SECTION 6.2 (b) SHALL NOT LIMIT IN ANY MANNER PURCHASER'S INDEMNITY
OBLIGATIONS SET FORTH IN SECTIONS 8.1 OR 8.3 HEREOF.
SELLING PARTNER'S INITIALS: /s/ TFA
------------------
PURCHASER'S INITIALS: /s/ TFA
------------------
Section 6.3 Attorneys' Fees. Should either party employ an attorney or
----------- ---------------
attorneys to enforce any of the provisions hereof or to protect its interest in
any manner arising under this Agreement, the non prevailing party in any action
pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
ARTICLE VII
CLOSING COSTS; POST-CLOSING ADJUSTMENTS
---------------------------------------
Section 7.1 Closing Costs. Costs of closing the transaction contemplated
----------- -------------
hereby shall be allocated between Selling Partner and Purchaser as follows:
(a) Selling Partner shall pay the costs, if any, incurred by
Selling Partner in connection with the performance of its obligations
hereunder.
(b) Purchaser shall pay the costs, if any, incurred by Purchaser
in connection with the performance of its obligations hereunder.
Section 7.2 Post-Closing Adjustments with Respect to Available Cash.
----------- -------------------------------------------------------
Purchaser and Selling Partner acknowledge that all Available Cash relating to
the operations of the Partnership prior to the Closing Date shall be retained by
and remain the property of the existing partners (including Selling Partner)
owning interests in the Partnership immediately prior to the consummation of the
transaction contemplated hereby. Purchaser and Selling Partner further
acknowledge that it may not be possible to determine or compute the exact amount
of undistributed Available Cash as of the Closing Date. Therefore, Purchaser
hereby agrees that it shall cause the Partnership, as soon as reasonably
practicable following the Closing Date, to determine and compute the amount of
undistributed Available Cash through the Closing Date and to pay over and
distribute such sums to Selling Partner and the other partners of the
Partnership in the manner contemplated by the Partnership Agreement, as if the
transaction contemplated hereby had not been consummated. To the extent
requested by Selling Partner, Purchaser shall provide adequate back up and
substantiation as to the manner in which undistributed Available Cash has been
determined, including verification by the Partnership's independent accountants
if requested by Selling Partner.
21
<PAGE>
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the payment of any commission regarding
the consummation of the transaction contemplated hereby. It is agreed that if
any claims for commissions or fees, including, without limitation, brokerage
fees, finder's fees, or commissions, are ever made against Selling Partner or
Purchaser in connection with this transaction, all such claims shall be handled
and paid by the party whose actions or alleged commitments form the basis of
such claim and such party shall indemnify and hold harmless the other from and
against all such claims or demands with respect to any brokerage fees, finder's
fees, or agents' commissions or other compensation asserted by any person, firm,
or corporation in connection with this Agreement or the transactions
contemplated hereby. The provisions of this Section 8.1 shall expressly survive
the early termination of this Agreement.
Section 8.2 Selling Partner's Indemnity. Selling Partner agrees to
----------- ---------------------------
indemnify and hold Purchaser harmless of and from all liabilities, claims,
demands and expenses, of any kind or nature, known or unknown, fixed or
contingent, arising or accruing on or before the Closing Date related to the
ownership of the Partnership Interest, and all expenses related thereto,
including, without limitation, court costs and attorneys' fees. The foregoing
indemnity shall also apply to any claims, demands, causes of action, losses,
damages, liabilities, costs or expenses asserted against or incurred by
Purchaser at any time or from time to time by reason of or arising out of the
breach of any representation or warranty of Selling Partner set forth herein.
Selling Partner's liability with respect thereto shall be governed by the
provisions of Section 6.1(b) hereof.
Section 8.3 Purchaser's Indemnity. Purchaser agrees to indemnify and hold
----------- ---------------------
Selling Partner harmless of and from all liabilities, claims, demands and
expenses, of any kind or nature, known or unknown, fixed or contingent, arising
and accruing subsequent to the Closing Date related to the ownership of the
Partnership Interest, and all expenses related thereto, including, without
limitation, court costs and attorneys' fees.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise expressly
----------- -----------------
provided for herein, the terms and provisions hereof shall survive the Closing.
The acceptance of the closing documents by Purchaser and payment of the Purchase
Price shall be deemed full compliance by Selling Partner and Purchaser of all of
their respective obligations arising under this Agreement and Purchaser and
Selling Partner each expressly waives any noncompliance by the other party
hereto with any prior obligations other than those obligations which expressly
survive the Closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
22
<PAGE>
Section 9.3 Entire Agreement; Modifications. This Agreement embodies and
----------- -------------------------------
constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged, or terminated except by an instrument in
writing signed by the party against which the enforcement of such waiver,
modification, amendment, discharge, or termination is sought, and then only to
the extent set forth in such instrument.
Section 9.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Selling Partner and Purchaser, each of
which has been represented by counsel of its own selection, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Consequently, the terms and provisions of this Agreement shall
be interpreted and construed in accordance with their usual and customary
meanings, and Selling Partner and Purchaser hereby expressly waive and
disclaim, in connection with the interpretation and construction of this
Agreement, any rule of law or procedure requiring otherwise, including
without limitation, any rule of law to the effect that ambiguous or
conflicting terms or provisions contained in this Agreement shall be
interpreted or construed against the party whose attorney prepared this
Agreement or any earlier draft of this Agreement.
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail return
receipt, signed by the addressee or the addressee's agent or representative, (b)
if by telegram, by a telegram receipt signed by the addressee or the addressee's
agent or representative, (c) if hand delivered (including delivery by any
overnight or other delivery service), by a delivery receipt signed by the
addressee or the addressee's agent or representative, or (d) if sent by
facsimile transmission, with confirmation of receipt at the facsimile number to
which it was sent. Each party's initial address for delivery of any Notice is
designated below, but any party from time to time may designate a different
address for delivery of any Notice by delivering to the other party Notice of
such different address; provided, however, neither party may designate an
address for delivery of Notice not located within the United States. Each party
hereto covenants and agrees to mail copies of any Notice to the parties
designated to receive copies of any Notice below, but the failure of the
addressee for any copy actually to receive such copy shall not render the Notice
ineffective.
23
<PAGE>
If to Selling Partner: 11,000 Burnet Road Corporation
1717 Main Street, Suite 5000
Dallas, Texas
Attention: Thomas F. August, President
Telephone No.: (214) 761-5009
Facsimile No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Facsimile No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
Section 9.7 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Selling
Partner or Purchaser, Selling Partner and Purchaser hereby agree to perform,
execute, and/or deliver or cause to be performed, executed, and/or delivered at
the Closing or thereafter, all such further acts, deeds, and assurances as
Purchaser or Selling Partner, as the case may be, may reasonably require to (a)
evidence and vest in the Purchaser the ownership of, and title to, the
Partnership Interest, and (b) consummate the transactions contemplated
hereunder. The covenants set forth in this Section 9.7 shall survive the
Closing.
Section 9.8 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
----------- --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 9.9 Assignment. Purchaser shall have the right, without the
----------- ----------
consent of Selling Partner, to assign its rights under this Agreement and all
rights hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Such assignment may be in respect to all or any portion of
the Partnership Interest and Purchaser may assign its rights hereunder to more
than one Person each of whom shall acquire an allocable portion of the
Partnership Interest. Upon such assignment Purchaser shall be relieved of its
obligations hereunder, so long as the PPL REIT or any entity in which the PPL
REIT has a controlling interest assumes all applicable obligations of
24
<PAGE>
Purchaser hereunder and confirms the undertakings or representations of
Purchaser hereunder. No other assignment may be made without the prior written
consent of Selling Partner.
Section 9.10 Time of the Essence. Time is of the essence of this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
Section 9.11 Conditions. All covenants, warranties and obligations of
------------ ----------
Selling Partner or Purchaser contained in this Agreement are deemed to be
conditions to the other parties' obligations herein. All conditions to
Purchaser's or Selling Partner's obligations, whether specifically stated in
this Agreement or pursuant to the preceding sentence, and all rights of
Purchaser or Selling Partner herein are imposed solely and exclusively for the
benefit of the other party and their respective assigns and any or all of such
conditions or rights may be waived in whole or in part by the party in question
at any time in such party's sole discretion.
Section 9.12 Severability. If any provision in this Agreement is invalid,
------------ ------------
illegal, or unenforceable, such provision shall be construed as narrowly as
possible to allow Purchaser and Selling Partner to be afforded the benefits and
protection of this Agreement. Such provision shall be severable from the rest
of this Agreement and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and shall
continue in full force and effect.
Section 9.13 Counterparts. Two or more duplicate originals of the written
------------ ------------
instrument containing this Agreement may be signed by the parties, each of which
shall be deemed an original but all of which together shall constitute one and
the same agreement.
ARTICLE X
OPTION TO PURCHASE REMAINING INTEREST
-------------------------------------
In consideration of the sum of $100.00 paid by Purchaser to Selling Partner
concurrently herewith, which shall be independent consideration for Selling
Partner's agreements in this Article X and which shall be non-refundable,
Selling Partner hereby grants to Purchaser and its permitted assignees an option
(the "Option") to purchase the Optional Partnership Interest in the Partnership,
on and subject to the following terms and conditions. The Purchaser's or
permitted assignee's right to exercise the Option is conditioned upon the prior
acquisition of the Partnership Interest by Purchaser or its permitted assignee
as provided by this Agreement. Purchaser or its permitted assignee may exercise
the Option to purchase the Optional Partnership Interest by giving written
notice to Selling Partner (the "Option Notice") within thirty (30) days
following the expiration of three hundred sixty-six (366) days after the
acquisition of the Partnership Interest by Purchaser or its permitted assignee
(the "Exercise Period"). The Purchase Price for the Optional Partnership
Interest shall be $100.00 and shall be payable in Units as provided in Section
1.5 hereof. The Closing Date for the purchase and sale of the Optional
Partnership Interest shall be a Business day established in the Option Notice to
Selling Partner, but such Closing Date shall be not more than ten (10) days
after the date of Purchaser's Option Notice. If Purchaser or its permitted
assignee fails to exercise the Option as provided herein prior to the expiration
of the Exercise Period, then the Option
25
<PAGE>
shall terminate if Selling Partner gives Purchaser written notice (the "Option
Default Notice") that the Option was not timely exercised and Purchaser or its
permitted assignee then fails to exercise the Option within ten (10) Business
days after receipt of Selling Partner's Option Default Notice. If Purchaser or
its permitted assignee fails to exercise the Option and close within said ten
(10) Business day period, this Option shall terminate and neither Purchaser nor
its permitted assignee shall have any further right to buy the Optional
Partnership Interest. If the Option is exercised, the Optional Partnership
Interest shall be transferred and conveyed to Purchaser or its permitted
assignee in the same manner as set forth in Article III hereof.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLING PARTNER:
----------------
11,000 BURNET ROAD CORPORATION,
a Texas corporation
By: /s/ THOMAS F. AUGUST
----------------------------
Name: THOMAS F. AUGUST
--------------------------
Title: VICE PRESIDENT
-------------------------
Dated of Execution: As of August 5, 1996
PURCHASER:
----------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/ THOMAS F. AUGUST
-----------------------------
Name: THOMAS F. AUGUST
---------------------------
Title: VICE PRESIDENT
--------------------------
Date of Execution: As of August 5, 1996
27
<PAGE>
EXHIBIT 10.11
AGREEMENT OF PURCHASE AND
SALE OF PARTNERSHIP INTERESTS
BY AND AMONG
FAIRVIEW ELEVEN, INC.,
MICHAEL V. PRENTISS,
THOMAS F. AUGUST,
DENNIS J. DUBOIS
AND
RICHARD B. BRADSHAW, JR.
AS SELLING PARTNERS
AND
PRENTISS PROPERTIES LIMITED, INC.
AS PURCHASER
Dated: AS OF AUGUST 5, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; PURCHASE PRICE . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Sale and Delivery of the Partnership Interests. . . . 6
Section 1.3 Purchase Price for the Partnership Interests. . . . . 6
Section 1.4 Independent Consideration . . . . . . . . . . . . . . 6
Section 1.5 Payment of Purchase Price . . . . . . . . . . . . . . 6
ARTICLE II APPROVAL OF DOCUMENTS; INSPECTIONS . . . . . . . . . 6
Section 2.1 Items to be Furnished to Purchaser. . . . . . . . . . 6
Section 2.2 Estoppel Certificates . . . . . . . . . . . . . . . . 6
Section 2.3 Inspection. . . . . . . . . . . . . . . . . . . . . . 7
Section 2.4 Purchaser's Acknowledgement . . . . . . . . . . . . . 8
ARTICLE III THE CLOSING DATE AND THE CLOSING; OBLIGATIONS OF
PURCHASER AND SELLING PARTNERS WITH RESPECT THERETO . 8
Section 3.1 The Closing and the Closing Date. . . . . . . . . . . 8
Section 3.2 Selling Partners' Obligations at the Closing. . . . . 9
Section 3.3 Purchaser's Obligations at the Closing. . . . . . . . 10
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . 11
Section 4.1 Representations and Warranties of Selling Partners. . 11
Section 4.2 Knowledge Standard. . . . . . . . . . . . . . . . . . 18
Section 4.3 Survival of Representations and Warranties. . . . . . 19
Section 4.4 Selling Partners' Obligation to Notify Purchaser of
Change. . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.5 Operation of Project Prior to Closing . . . . . . . . 19
ARTICLE V CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . 19
Section 5.1 Conditions Precedent to Purchaser's Obligations . . . 19
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.3 Outside Closing Date. . . . . . . . . . . . . . . . . 21
ARTICLE VI DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . 21
Section 6.1 Selling Partners' Defaults; Purchaser's Remedies. . . 21
Section 6.2 Purchaser's Default; Selling Partners' Remedies . . . 22
Section 6.3 Attorneys' Fees . . . . . . . . . . . . . . . . . . . 22
i
<PAGE>
ARTICLE VII CLOSING COSTS; POST-CLOSING ADJUSTMENTS . . . . . . . 23
Section 7.1 Closing Costs . . . . . . . . . . . . . . . . . . . . 23
Section 7.2 Post-Closing Adjustments with Respect to Available
Cash. . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 23
Section 8.1 Brokerage Commissions . . . . . . . . . . . . . . . . 23
Section 8.2 Selling Partners' Indemnity . . . . . . . . . . . . . 24
Section 8.3 Purchaser's Indemnity . . . . . . . . . . . . . . . . 24
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 24
Section 9.1 Survival of Terms . . . . . . . . . . . . . . . . . . 24
Section 9.2 Binding Effect. . . . . . . . . . . . . . . . . . . . 24
Section 9.3 Entire Agreement; Modifications . . . . . . . . . . . 24
Section 9.4 Headings. . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.5 Interpretation and Construction . . . . . . . . . . . 25
Section 9.6 Notice. . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.7 Additional Acts . . . . . . . . . . . . . . . . . . . 27
Section 9.8 Applicable Law. . . . . . . . . . . . . . . . . . . . 27
Section 9.9 Assignment. . . . . . . . . . . . . . . . . . . . . . 27
Section 9.10 Time of the Essence . . . . . . . . . . . . . . . . . 27
Section 9.11 Conditions. . . . . . . . . . . . . . . . . . . . . . 27
Section 9.12 Severability. . . . . . . . . . . . . . . . . . . . . 28
Section 9.13 Counterparts. . . . . . . . . . . . . . . . . . . . . 28
Section 9.14 Tax Returns and Tax Audit . . . . . . . . . . . . . . 28
EXHIBITS:
"A" - Description of Land
"B" - Items To Be Furnished to Purchaser
"C" - Form of Estoppel Certificate
"D" - Closing Certificate
"E" - Prospective Subscriber Questionnaire
"F" - Investor Letter
SCHEDULES:
Schedule 1.1(v) - Partnership Interests
ii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
OF PARTNERSHIP INTERESTS
------------------------
THIS AGREEMENT OF PURCHASE AND SALE is made and entered into by and
among PRENTISS PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"),
and FAIRVIEW ELEVEN, INC., a Delaware corporation ("Fairview Eleven"), MICHAEL
V.PRENTISS ("Prentiss"), THOMAS F. AUGUST ("August"), DENNIS J. DUBOIS
("DuBois") and RICHARD B. BRADSHAW, JR. ("Bradshaw") (Fairview Eleven, Prentiss,
August, DuBois and Bradshaw being collectively called "Selling Partners"), as of
the Effective Date.
W I T N E S S E T H:
===================
Selling Partners formed FAIRVIEW ELEVEN INVESTORS, L.P., a Delaware
limited partnership (the "Partnership"), for the purpose of owning and operating
an office building located at 3141 Fairview Park Drive, Fairfax, Virginia.
The Partnership was formed pursuant to the terms and conditions of that
certain Limited Partnership Agreement (the "Original Partnership Agreement"),
dated as of February 9, 1996, by and among Fairview Eleven, as the sole general
partner and Prentiss, August, DuBois and Bradshaw, as the limited partners (the
Original Partnership Agreement, as amended, herein called the "Partnership
Agreement").
Selling Partners are the owners and holders of all of the partnership
interests (the "Partnership Interests") in the Partnership and they desire to
sell the Partnership Interests on, and subject to, the terms and conditions of
this Agreement.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Selling Partners
hereby agree as follows:
ARTICLE I
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by
or is under common control or ownership with the Person in question.
For purposes of this definition "own" or "ownership" means ownership by
one Person of ten percent (10%) or more of the voting stock of the
1
<PAGE>
controlled Person, in the case of a corporation, or, in the case of
Persons other than corporations, entitlement of the controlling Person,
directly or indirectly, to receive ten percent (10%) or more of the
dividends, profits or similar economic benefit from the controlled
Person; and "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of the controlled Person.
(b) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this
Agreement of Purchase and Sale.
(c) "Available Cash" means all cash funds of the Partnership
--------------
generated by the operation of the Project or otherwise through the
Closing Date (whether collected prior to or subsequent to the Closing
Date) after (i) payment of or provision for all operating expenses of
the Project or the Partnership payable as of the Closing Date and (ii)
provision for a reasonable reserve to pay accrued and unpaid expenses
from the operation of the Partnership and the Project.
(d) "Books and Records" means all financial and other books and
-----------------
records maintained by or for the benefit of the Partnership in
connection with the operation of the Project and the Partnership and
all building plans, specifications and drawings, engineering, soils and
geological reports, environmental reports and other documents prepared
in connection with the construction, maintenance, repair, management or
operation of the Project which are within the possession or control of
the Partnership, or the Partnership's Affiliates, agents or
representatives, or Selling Partners.
(e) "Business day" means a day that is not a Saturday, a Sunday,
------------
a legal holiday or a day on which banks are required or permitted by
law or other governmental action to close in Dallas, Texas.
(f) "Closing" means the consummation of the purchase of the
-------
Partnership Interests by Purchaser from Selling Partners in accordance
with the terms and provisions of Article III, which Closing shall be
held at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., Suite
4100, 1700 Pacific Avenue, Dallas, Texas 75201-4618 on the Closing Date
commencing at 10:00 a.m. Central Daylight Time.
(g) "Closing Date" means a Business day which shall be established
------------
by Purchaser by written notice delivered to Selling Partners, which
date shall be no earlier than five (5) days following the date of such
notice, except that from and after the date the IPO shall have
occurred, such date shall be no earlier than ten (10) days following
the date of such notice; provided, however, that in no event shall the
Closing Date be a date later than December 31, 1996.
(h) "Cut Off Date" means the date the Partnership acquired fee
------------
simple title to the Project.
(i) "Effective Date" means the date on which this Agreement shall
--------------
be fully executed and unconditionally delivered by Purchaser and
Selling Partners.
2
<PAGE>
(j) "Environmental Laws" means all applicable existing federal,
------------------
state and local statutes, ordinances, orders, rules and regulations
issued, promulgated or adopted by any governmental authority having
jurisdiction over the Project relating to environmental pollution or
protection, including, without limitation, the Resource Conservation
and Recovery Act of 1976, 43 U.S.C. (S) 6901 et seq., the Comprehensive
------
Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. (S) 9601 et seq., as amended by the Superfund Amendments and
------
Reauthorization Act of 1986, the Hazardous Materials Transportation
Act, 49 U.S.C. (S) 1801 et seq., the Federal Water Pollution Control
------
Act, 33 U.S.C. (S) 1251 et seq., the Clean Air Act, 42 U.S.C. 7401 et
------ --
set., the Toxic Substances Control Act, 15 U.S.C. (S) 2601-2629, the
---
Safe Drinking Water Act, 42 U.S.C. (S) 300f et seq., together with all
------
existing rules, regulations and orders promulgated thereunder, and all
similar applicable existing local, state and federal statutes and
regulations promulgated pursuant thereto.
(k) "Estoppel Certificates" means the estoppel certificates to be
---------------------
delivered by each tenant in accordance with the provisions of Section
2.2 hereof.
(l) "Fairview Eleven" means Fairview Eleven, Inc., a Delaware
---------------
corporation.
(m) "Fairview Eleven's Actual Knowledge" shall have the meaning
----------------------------------
set forth in Section 4.2 hereof.
(n) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees,
health and environmental laws and regulations and any and all other
laws, requirements, standards and regulations or appropriate
supervising boards of fire underwriters and other matters of all
governmental authorities or courts of competent jurisdiction having
jurisdiction over the Project, including, but not limited to the
Americans with Disabilities Act.
(o) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "restricted hazardous waste", or "toxic substances"
or words of similar import under any Environmental Laws, (ii) any oil,
petroleum or petroleum derived substances, any flammable substances or
explosives, any radioactive materials, any asbestos or any substance
containing more than 0.1 percent asbestos, any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts
per million, and any urea formaldehyde insulation, and (iii) any other
chemical, material or substance, exposure to which is prohibited,
limited or regulated by any Environmental Laws.
(p) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real
property, located on the Land including, but not limited to, the office
buildings, parking lots and all other amenities, together with the
Partnership's interest, if any, in all machinery, fixtures and
equipment used in the general operation of such buildings and
improvements, and/or affixed to or located upon the Land,
3
<PAGE>
along with all accessions and additions thereto, excluding therefrom
any machinery, fixtures, equipment or personal property owned by
Tenants at the Project.
(q) "IPO" means the proposed initial public offering of
---
securities in the PPL REIT.
(r) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
-----------
hereof for all purposes, together with all and singular all right,
title and interest of the Partnership, reversionary or otherwise, in
and to all easements in or upon the Land and all other rights and
appurtenances belonging or in anywise pertaining thereto, if any,
including any right, title, and interest of the Partnership in and to
any land lying in the bed of any street, road or access way, right-of-
way, alley, opened or proposed, in front of, at a side of or adjoining
the Land to the centerline thereof.
(s) "Leases" means all leases, licenses, franchises, concessions
------
and other occupancy agreements for the use or occupancy of any portion
of the Project, together with all rents, issues, profits, and deposits
thereunder and all amendments thereto.
(t) "Major Leases" means any Lease covering in excess of the
------------
lesser of (i) ten percent (10%) of net rentable area in the Project, or
(ii) 5,000 square feet of net rentable area in the Project, as
reflected in the Rent Roll, as hereinafter defined.
(u) "Miscellaneous Assets" means all contract rights, leases,
--------------------
concessions, assignable warranties, and other items of intangible
personal property owned by the Partnership (but only to the extent
assignable) and relating to the ownership or operation of the Land and
Improvements, including, but not limited to, (i) the Service Contracts,
(ii) the Permits, (iii) assignable utility and similar deposits, (iv)
prepaid license and permit fees, (v) the Warranties, (vi) the Books and
Records, and (vii) the Leases.
(v) "Partnership" means Fairview Eleven Investors, L.P., a
-----------
Delaware limited partnership.
(w) "Partnership Agreement" means that certain Limited Partnership
--------------------
Agreement dated as of February 9, 1996, pursuant to which the
Partnership was formed.
(x) "Partnership Interests" means the partnership interests in the
---------------------
Partnership owned by Selling Partners, the type and percentage interest
in the Partnership held by each of Selling Partners being set forth on
Schedule 1.1(v) attached hereto and made a part hereof for all
------
purposes.
(y) "Permits" means all licenses and permits issued to or for the
-------
benefit of the Partnership and used or relating to the ownership or
operation of the Project in accordance with its current use.
4
<PAGE>
(z) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other
entity, or a government or any political subdivision or agency thereof.
(aa) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now
owned by the Partnership, located on or in the Land and the
Improvements and used or usable in connection with any part of the
Project. The term "Personal Property" specifically excludes any and all
bank accounts of the Partnership and the sums deposited therein, title
to which shall be retained by the Selling Partners.
(bb) "PPAP" means Prentiss Properties Acquisition Partners, L.P.,
----
a Delaware limited partnership.
(cc) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct
the IPO, and to acquire directly or indirectly all or a portion of the
Partnership Interests and interests in other real properties, assets,
partnerships and related service businesses.
(dd) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(ee) "Purchase Price" means the sum of $1,000.00.
--------------
(ff) "Purchaser" means Prentiss Properties Limited, Inc., a
---------
Delaware corporation.
(gg) "Rent Roll" shall have the meaning set forth in Section
---------
4.1(b)(v) of this Agreement.
(hh) "Securities Act" means the Securities Act of 1933, as
--------------
amended.
(ii) "Selling Partners" means Fairview Eleven, Prentiss, August,
----------------
DuBois, and Bradshaw.
(jj) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of the Partnership affecting
the operation of the Project, copies of which are to be delivered to
Purchaser pursuant to Section 2.1 hereof.
(kk) "State" means the Commonwealth of Virginia.
-----
(ll) "Tenant" means any Person occupying any portion of the
------
Project under or pursuant to a Lease.
(mm) "Units" means units of "limited partnership" interest in
-----
PPAP.
5
<PAGE>
(nn) "Warranties" means all warranties and guaranties relating to
----------
the Project, or any part thereof, or to the Personal Property or
Improvements, or construction thereof.
Section 1.2 Sale and Delivery of the Partnership Interests. Selling
----------- ----------------------------------------------
Partners hereby agree to sell, transfer and assign the Partnership Interests to
Purchaser or its designees, and Purchaser hereby agrees to purchase the
Partnership Interests from Selling Partners, upon and subject to the terms and
provisions hereinafter set forth. Purchaser (or its permitted assignee) may
designate an Affiliate to take title to up to one percent (1%) of the
Partnership Interests.
Section 1.3 Purchase Price for the Partnership Interests. The
----------- --------------------------------------------
Purchase Price shall be payable to Selling Partner on the Closing Date, plus or
minus prorations and adjustments as hereinafter provided. The Purchase Price
shall be payable to Selling Partner in the manner set forth in Section 1.5
below.
Section 1.4 Independent Consideration. Concurrently herewith
----------- -------------------------
Purchaser has paid to Selling Partners the sum of $100.00 each, which shall be
independent consideration (the "Independent Consideration") for the agreements
of Selling Partners set forth herein. The Independent Consideration shall be in
addition to the Purchase Price. If the Closing does not occur for any reason,
the Independent Consideration shall be deemed earned and shall be retained by
each of Selling Partners.
Section 1.5 Payment of Purchase Price. Purchaser shall pay the
----------- -------------------------
Purchase Price by the delivery of Units. The number of Units to be delivered to
Selling Partners shall be calculated by dividing the Purchase Price by the mid-
point of the offering price range for one (1) common share of beneficial
interest of the PPL REIT as set forth in the final "red-herring" prospectus for
the IPO. Selling Partners acknowledge that PPAP will not issue fractional Units.
Thus, the result of the calculation set forth above will be rounded to the
nearest whole number of Units (.50 rounded down).
ARTICLE II
APPROVAL OF DOCUMENTS; INSPECTIONS
----------------------------------
Section 2.1 Items to be Furnished to Purchaser. Within thirty (30)
----------- ----------------------------------
days after the Effective Date, Selling Partners shall cause the Partnership to
furnish to Purchaser, true, correct, complete, and legible copies of the items
listed on Exhibit "B" attached hereto and made a part hereof for all purposes.
-----------
In addition to the foregoing, Selling Partners shall make available to Purchaser
for its review either at the Project or at such other place as may be reasonably
convenient to Purchaser and Selling Partners copies of all other records
relating to the ownership and operation of the Project and the Partnership, in
Selling Partners' or the Partnership's possession or control.
Section 2.2 Estoppel Certificates. Within thirty (30) days after the
----------- ---------------------
Effective Date, Selling Partners will cause the Partnership to deliver to each
Tenant a form of Estoppel Certificate, to be in the form and contain the content
of the Estoppel Certificate attached hereto as Exhibit "C" and made a part
-----------
hereof for all purposes, and will use its reasonable efforts to
6
<PAGE>
cause each Tenant to execute and deliver to Purchaser an Estoppel Certificate on
or before the Closing Date.
Section 2.3 Inspection.
----------- ----------
(a) During the period commencing on the Effective Date and ending
on the Closing Date or the earlier termination of this Agreement (the
"Inspection Period"), Purchaser, upon reasonable notice to Selling
Partners and the Partnership, shall have reasonable access to the
Project and the Partnership's Books and Records, either personally or
by authorized agent, to inspect the Project and the Books and Records
of the Partnership, the items delivered pursuant to this Article II and
any other documents and records available which are normally maintained
in the operation of the Project or the Partnership.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Selling Partners will fully cooperate
and cause the Partnership to fully cooperate with Purchaser, at no cost
or expense to Selling Partners or the Partnership, in the conduct of
Purchaser's inspection of the Project and the Books and Records of the
Partnership. Such inspections (and any inspections performed in
accordance with the sentence next following) may be conducted at all
reasonable times, so long as such activities do not unreasonably
interfere with the Tenants in occupancy. Selling Partners will permit
Purchaser and current and prospective underwriters involved in the IPO,
and the agents, attorneys, accountants, and representatives of all of
the foregoing, upon reasonable notice (but without having to obtain
further approval), to enter upon and inspect the Project, at reasonable
times during normal working hours, all premises leased to Tenants, all
mechanical equipment, systems, and fixtures forming a part thereof, and
all Books and Records. Selling Partners will permit Purchaser and the
underwriters involved in the IPO, and the agents, attorneys,
accountants, and representatives of all of the foregoing, at no cost or
expense to Selling Partners or the Partnership, to audit the Books and
Records, and to conduct such investigations, tests, or inspections as
Purchaser deems appropriate including, without limitation, sampling
studies to ascertain whether or not there is any Hazardous Substance
on, in, or under the Project. In conducting any such entry,
investigation, test, or inspection, no party permitted entry hereunder
will unreasonably interfere with the operation of the Project or the
peaceable possession by individual Tenants of their respective
premises. To the extent that Persons other than Purchaser join in such
inspections, Purchaser shall secure from such Persons their agreement
to hold any such information in confidence pending the closing of the
transaction contemplated hereby, with the exception of the use of such
materials during the disclosure process in connection with the IPO.
7
<PAGE>
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance on terms and amounts reasonably satisfactory to
Selling Partners and the Partnership covering any accident arising in
connection with the presence of Purchaser, its agents and
representatives on the Project and shall deliver a certificate of
insurance verifying such coverage to Selling Partners prior to entry
upon the Project.
(d) Purchaser agrees to fully and completely repair and restore
the Project in the event of any damage whatsoever occurring by
Purchaser, Purchaser's Affiliates or consultants during the pendency of
this Agreement. Purchaser hereby indemnifies and holds Selling Partners
harmless from and against any loss, damage, injury, claim or cause of
action Selling Partners or the Partnership may suffer or incur as a
result of Purchaser's inspections of the Project undertaken pursuant to
this Agreement. The indemnity set forth in this subparagraph (d) shall
survive the Closing or the termination of this Agreement.
(e) If, during the Inspection Period, Purchaser shall discover any
condition or circumstance, which in Purchaser's sole discretion,
judgment and opinion makes Purchaser's investment in the Partnership an
unacceptable risk, Purchaser shall be entitled, as its sole and
exclusive remedy, to terminate this Agreement by giving written notice
to Selling Partners, on or before the expiration of the Inspection
Period, whereupon this Agreement shall terminate, and upon such
termination, neither Selling Partners nor Purchaser shall have any
further obligation or liability hereunder.
Section 2.4 Purchaser's Acknowledgement. Purchaser acknowledges
----------- ---------------------------
that, with the exception of the representations and warranties set forth in this
Agreement, the Partnership Interests shall be acquired on a basis that is
without representation or warranty, including any representations or warranties
relating to the Project, which as of the Closing Date shall be in its present
condition, subject to reasonable use, wear, tear and natural deterioration
between the Effective Date and the Closing Date. In such regard, there shall be
no reduction in the Purchase Price for any change in the condition of the
Project by reason of any events, subsequent to the Effective Date, except by
reason of condemnation or casualty. Purchaser further acknowledges that it has
not been induced by nor has it relied upon any representations, warranties or
other statements, whether express or implied, made by Selling Partners, or any
of its agents, employees or other representatives, which are not expressly set
forth in this Agreement or in the materials to be delivered to Purchaser in
accordance with the terms and provisions hereof.
ARTICLE III
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNERS WITH RESPECT THERETO
------------------------------------------------------
Section 3.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Partnership Interests contemplated by the terms and conditions of this Agreement
shall be consummated at the Closing to be held on the Closing Date.
8
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Section 3.2 Selling Partners' Obligations at the Closing.
----------- --------------------------------------------
(a) At the Closing, Selling Partners shall do the following:
(i) Execute and deliver to Purchaser a good and sufficient
assignment of partnership interests (the "Assignment")
(with warranty limited to Selling Partners' acts) in
the form approved by Purchaser and Selling Partners,
conveying the title in and to the Partnership Interests
free and clear of all liens or encumbrances;
(ii) Execute and deliver to Purchaser an amendment to the
Partnership Agreement (the "Amendment"), in the form
approved by Purchaser and Selling Partners, covering
the withdrawal of Selling Partners and the admittance
of Purchaser or its designees as partners in the
Partnership and such other matters as Purchaser may
reasonably require;
(iii) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under
penalty of perjury, Selling Partners' U.S. taxpayer
identification numbers and that Selling Partners are
not foreign persons within the meaning of Section 1445
of the Internal Revenue Code;
(iv) Execute and deliver to Purchaser a Closing Certificate
(herein so called), in the form and containing the
content of the Closing Certificate attached hereto as
"Exhibit "D" and made a part hereof for all purposes;
------------
(v) Deliver to Purchaser Estoppel Certificates from the
Tenants under Major Leases and the Tenants under non-
Major Leases who have executed and delivered Estoppel
Certificates, together with Selling Partners'
certificate, in respect to the Tenants under non-Major
Leases who have failed to deliver Estoppel
Certificates, to the effect that the information
contained in the Estoppel Certificates presented to the
Tenants under non-Major Leases in question is true and
correct and no known defaults on the part of such
Tenants exist or with the passage of time will exist;
(vi) Deliver or cause the Partnership to deliver to
Purchaser satisfactory evidence that all necessary
corporate, partnership, or other action on the part of
Selling Partners has been taken with respect to the
consummation of the transaction contemplated hereby;
(vii) Complete, execute, and deliver to PPAP or any other
transferor of the Units (a) the Prospective Subscriber
Questionnaire attached hereto as
9
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Exhibit "E" and (b) the Investor Letter attached hereto
-----------
as Exhibit "F"; and
-----------
(viii) Deliver to Purchaser such other assignments and
documents as may be required pursuant to the provisions
hereof or mutually agreed by counsel for Selling
Partners and Purchaser to be necessary to fully
consummate the transaction contemplated hereby.
(b) If Selling Partners fail or are unable to deliver any of the
items set forth in this Section 3.2 at the Closing, Purchaser may
(i) elect to waive such failure and close the transaction, or (ii)
exercise any one or more of its options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered
to Purchaser under Section 3.2 above, Purchaser shall do the following:
(i) Deliver the Purchase Price in accordance with
Section 1.5 hereof;
(ii) Execute and deliver to Selling Partners counterparts of
the Assignment to be executed and delivered by Selling
Partners pursuant to Section 3.2 above;
(iii) Execute and deliver to Selling Partners counterparts of
the Amendment to be executed and delivered by Selling
Partners pursuant to Section 3.2 above;
(iv) Deliver to Selling Partners satisfactory evidence that
all necessary corporate, partnership, or other action
by Purchaser has been taken with respect to the
consummation of the transaction contemplated hereby;
and
(v) Deliver to Selling Partners such other instruments or
documents as may be required pursuant to the terms
hereof or mutually agreed by counsel for Selling
Partners and Purchaser to be necessary to fully
consummate the transaction contemplated hereby.
(b) If Purchaser fails or is unable to deliver any items set forth
in this Section 3.3 at the Closing, Selling Partners may (i) elect to
waive such failure and close the transaction, or (ii) exercise their
remedies under Section 6.2(b) hereof.
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ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 4.1 Representations and Warranties of Selling Partners.
----------- --------------------------------------------------
(a) Each of Selling Partners hereby represents and warrants to
Purchaser (for itself or himself, as appropriate), as of the date
hereof and as of the Closing Date, the following:
(i) Selling Partner is the legal and beneficial owner of
the respective Partnership Interest owned by Selling
Partner in question, free and clear of all liens,
security interests, pledges, assessments, charges,
adverse claims, restrictions and other encumbrances
created by Selling Partner or its or his predecessor in
interest, except as set forth in the Partnership
Agreement. Other than the rights and obligations
arising under this Agreement and the Partnership
Agreement, the Partnership Interest is not subject to
any rights of any other person to acquire the same, nor
is the Partnership Interest subject to any restrictions
on transfer thereof, except for restrictions imposed by
the Partnership Agreement and applicable federal and
state securities laws.
(ii) Selling Partner is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code of
1986, as amended.
(b) Fairview Eleven hereby represents and warrants to Purchaser,
as of the date hereof and as of the Closing Date as follows.
(i) The Partnership has been duly formed and is validly
existing as a limited partnership under the laws of the
State of Delaware, and is duly registered or qualified
to do business in the State.
(ii) To Fairview Eleven's Actual Knowledge, neither the
execution and deliver of this Agreement nor the
consummation of the transaction contemplated hereby
conflicts with or will result in a material breach of
any of the provisions of, or constitute a default
under, any agreement or instrument to which the
Partnership is a party or by which it is bound. To
Fairview Eleven's Actual Knowledge, there are no
actions, voluntary or involuntary, pending against the
Partnership under any bankruptcy, reorganization,
arrangement, insolvency or similar federal or state
statute.
(iii) Fairview Eleven has been formed and is validly existing
as a corporation under the laws of the State of
Delaware, and is duly registered or qualified to do
business in the State. The execution,
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delivery and performance of this Agreement and all
other documents, instruments and agreements to be
executed and delivered by Fairview Eleven pursuant to
this Agreement (collectively, "Fairview Eleven's
Documents") are within the corporate power of Fairview
Eleven and have been duly authorized by all necessary
and appropriate corporate action.
(iv) Neither the execution and deliver of this Agreement and
Fairview Eleven's Documents nor the consummation of the
transaction contemplated hereby conflicts with or will
result in a material breach of any of the provisions
of, or constitute a default under, (i) the corporate
documents of Fairview Eleven or (ii) any agreement or
instrument to which Fairview Eleven is a party or by
which it is bound. There are no actions, voluntary or
involuntary, pending against Fairview Eleven, or to
Fairview Eleven's Actual Knowledge against Selling
Partners, under any bankruptcy, reorganization,
arrangement, insolvency or similar federal or state
statute.
(v) With respect to the Leases:
(A) As of the date of the rent roll to be delivered
pursuant to Section 2.1 hereof (the "Rent Roll"),
there are no tenant leases, tenancy agreements,
licenses, occupancy agreements or any amendments,
renewals, assignments, subletting and guaranties
thereof, or surrender agreements and termination
agreements related thereto, affecting the
Project, or any portion thereof, other than the
----------
Leases set forth in the Rent Roll and any
subleases, licenses or occupancy agreements which
have (a) been entered into by Tenants of the
Project with third parties and (b) not been
disclosed in writing to Fairview Eleven.
(B) The Rent Roll shall contain a complete and
accurate list of the names of the Tenants, the
date of each Lease (and any amendments thereto),
the space covered thereby and the current rental
payable thereunder. The information contained in
the Rent Roll shall be true, complete and correct
in all material respects as of the date of the
Rent Roll.
(C) The copies of the Leases heretofore delivered by
Fairview Eleven to Purchaser are true, complete
and correct copies of the Leases.
(D) To Fairview Eleven's Actual Knowledge, each of
the Leases is in full force and effect and has
not been amended, modified or extended, except as
set forth in the Rent Roll. To Fairview
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<PAGE>
Eleven's Actual Knowledge, except as set forth in
the Rent Roll or otherwise disclosed to Purchaser
in writing, including, without limitation,
information set forth in the Estoppel Certificates,
the Partnership has performed and observed in all
material respects, for all periods following the
Cut Off Date, all of (and is not in material
default, excluding any grace periods, in the
performance or observance of) the terms, covenants
and conditions on the Partnership's part to be
performed or observed under the Leases. Except as
set forth in the Rent Roll or otherwise disclosed
to Purchaser in writing, neither the Partnership
nor Selling Partners have given, nor has the
Partnership or Selling Partners received, any
written notice of a default under any of the Leases
which remains uncured.
(E) To Fairview Eleven's Actual Knowledge, except as
set forth in the Rent Roll or the Leases, no
Tenant under any of the Leases (1) is currently
contesting (in writing) any item of rent charged
under any of the Leases or is currently claiming
(in writing) an overcharge of operating expenses;
(2) is entitled to any concessions or abatements,
rebates, set-offs or free rent with respect to
any item of rent for any period subsequent to the
Closing, and all items of an inducement nature to
be performed by the landlord under the Leases
prior to the Closing Date have been performed, or
(3) has any option or right of first offer or
first refusal to purchase the Project or any part
thereof.
(F) To Fairview Eleven's Actual Knowledge, except as
noted in the Rent Roll, the Partnership's
historical billing practices to Tenants for
additional rents and percentage rents is
consistent with the requirements of each Lease.
(vi) With respect to the Service Contracts:
(A) As of the date hereof, there are no written
equipment leases or service, maintenance or other
similar contracts or agreements affecting the
Project, or any portion thereof, other than (1)
the Service Contracts and (2) any equipment
leases or other contracts or agreements that may
have been entered into by Tenants (or subtenants
of Tenants) of the Project with third parties;
and
(B) Each Service Contract is in full force and effect
and has not been amended except as disclosed in
writing to Purchaser by Fairview Eleven. Neither
the Partnership nor Fairview
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<PAGE>
Eleven has given, nor has the Partnership or
Fairview Eleven received, any written notice of a
default under any of the Service Contract which
remains uncured, except as otherwise disclosed to
Purchaser in writing by Fairview Eleven.
(vii) As of the date hereof, to Fairview Eleven's Actual
Knowledge there is not any pending, nor has the
Partnership or Selling Partners received written notice
of any threatened:
(A) proceeding, suit or action against the
Partnership or Selling Partners which, if
adversely decided, would prevent or materially
delay the consummation of the transaction
contemplated by this Agreement or materially
adversely affect the Project or the Partnership,
including, without limitation, pending or
threatened suits, actions or proceedings with
respect to all or part of the Project (1) for
condemnation, (2) alleging any violation of any
Governmental Regulation, (3) which could result
in the imposition of a lien against the Project,
or (4) which could increase real property taxes
or assessments levied against the Project (other
than the normal and routine assessment and
reassessment process conducted by applicable
governmental authorities), or
(B) proceeding to change or redefine the zoning
classification applicable to any portion of the
Project that would cause the Project to become a
"non-conforming" use, or
(C) proceeding to change any road patterns or grades
that would materially adversely affect access to
any roads providing a means of ingress to or
egress from the Project, or
(D) proceeding seeking a reduction of real estate
taxes imposed on the Project or any portion
thereof, or
(E) pending imposition of any special or other
assessments for public betterments that may
affect any portion of the Project or the
ownership thereof.
(viii) To Fairview Eleven's Actual Knowledge (A) the Project
does not violate any Governmental Regulation in any
material respect and (B) the current operation and use
of the Project complies in all material aspects with
all applicable Governmental Regulations.
(ix) To Fairview Eleven's Actual Knowledge, all Permits
required for the continued use and occupancy of the
Project (as the same is presently used under the
Leases) have been obtained from all appropriate
14
<PAGE>
governmental authorities, are fully paid for, are in
full force and effect, and will not be revoked,
invalidated or violated by the consummation of the
transaction contemplated by this Agreement, and the
Project remains in compliance in all material respects
with all applicable requirements and conditions with
respect to the issuance of the Permits, which were in
effect at the time of the issuance thereof.
(x) Except as previously disclosed to Purchaser in writing,
to Fairview Eleven's Actual Knowledge, the Project has
not been designated as a landmark and is not located in
a conservation or historic district or in an area that
has been identified as having special flood hazards.
(xi) To Fairview Eleven's Actual Knowledge, the Project is
an independent unit which, as of the date hereof, does
not rely on any facilities (other than the facilities
of public utility companies) located on any property
not included in the Project to (a) fulfill the
requirements of any Governmental Regulation, (b)
provide structural support or furnish any essential
building system or utility or (c) fulfill the
requirements of any of the Leases. No building or other
improvement not included in the Project relies on any
part of the Project to (x) fulfill the requirements of
any Governmental Regulation, or (y) provide structural
support or furnish any essential building system or
utility.
(xii) To Fairview Eleven's Actual Knowledge, for any period
following the Cut Off Date, there has not been any
material damage to any portion of the Project caused by
fire or other casualty that has not been repaired or
restored.
(xiii) To Fairview Eleven's Actual Knowledge, the real
property and improvements that constitute the Project
are assessed as one tax lot that is separate and
distinct from the tax lot allocated to any other parcel
of land or any other improvements.
(xiv) To Fairview Eleven's Actual Knowledge except as
otherwise disclosed in any environmental report
delivered by Selling Partners to Purchaser with respect
to the Project ("Environmental Report"), (i) no
Hazardous Materials have been stored, disposed of,
released or transported at or from the Project, or any
portion thereof, in violation of, or in a manner
requiring remediation under, any Environmental Laws
(the foregoing representation does not apply to the
customary and ordinary application, storage and use of
chemicals for landscape maintenance, janitorial
services, and pest control), and (ii) there have been
no and are no (A) above ground or underground storage
tanks; (B) polychlorinated biphenyls ("PCBs") or PCB-
containing
15
<PAGE>
equipment; (C) asbestos containing materials; (D) lead
based paints; or (E) dry-cleaning facilities in, on,
under or at the Project; or (F) wetlands located on or
at the Project.
(xv) There are now in full force and effect with reputable
insurance companies, casualty and liability insurance
policies with respect to the Project in commercially
reasonable amounts.
(xvi) To Fairview Eleven's Actual Knowledge, the Rent Roll
and the operating statements for the Project provided
by Selling Partners or the Partnership to Purchaser
present fairly the financial condition of the Project
as of their respective dates and the results of the
Project's operations for the periods reflected therein.
(xvii) The Partnership has no employees and is not a party to
any union, labor or collective bargaining agreement
affecting the Project.
(xviii) The Partnership has filed all income, franchise, sales,
payroll and other tax returns and reports of every
nature required to be filed by it accurately reflecting
all taxes owing to the United States or any other
government, government subdivision or taxing authority,
and it has paid in full or made adequate provision for
the payment of all taxes and duties (including
penalties and interest) for which it has or may have
liability. None of Selling Partners has any knowledge
of any unassessed tax deficiency proposed or threatened
against the Partnership as a result of the operation of
its business. There are no liens on the assets of the
Partnership as a result of any tax liabilities except
for taxes not yet due and payable. There are, as of the
date of this Agreement, no, and after the date of this
Agreement there will not be any, tax deficiencies
(including penalties and interest) of any kind assessed
against or relating to the Partnership with respect to
any taxable periods ending on or before, or including,
the Closing Date of a character or nature that would
result in liens or claims on any of the Property, or on
the Partnership's title to or use of the Property, or
that would result in any claim against the Partnership.
(xix) The copies of the Partnership Agreement and the
amendments thereto heretofore delivered to Purchaser by
Fairview Eleven are true and correct copies of the
documents governing the formation and existence of the
Partnership and there are no other agreements,
documents or other instruments of any nature which
govern the relationship of the partners in the
Partnership or its assets.
(c) With respect to receipt of the Units, each of Selling Partners
hereby represents and warrants to Purchaser (for himself or
itself), as of the date hereof and as of the Closing Date, the
following:
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(i) Selling Partner (A) understands the risks of, and other
considerations relating to accepting Units in
connection with its sale of the Partnership Interests
pursuant to this Agreement; (B) is an "accredited
investor" as defined in the Securities Act, and (C) by
reason of its business and financial experience,
together with the business and financial experience of
those persons, if any, retained by it to represent or
advise it with respect to the transaction contemplated
by this Agreement, (1) has such knowledge,
sophistication and experience in financial and business
matters and in making investment decisions of this
type, that it is capable of evaluating the merits and
risks of an investment in PPAP and of making an
informed investment decision, and (2) is capable of
protecting its own interest or has engaged
representatives or advisors to assist it in protecting
its interest, and (D) is capable of bearing the
economic risk of such investment.
(ii) Selling Partner (A) understands and acknowledges that
an investment in PPAP involves substantial risks; (B)
has been given the opportunity to make a thorough
investigation of the proposed activities of PPAP; (C)
has been afforded the opportunity to obtain any
information deemed necessary by Selling Partner; (D)
confirms that all documents, records, and books
pertaining to its investment in PPAP and requested by
Selling Partner have been made available or delivered
to Selling Partner; (E) has had an opportunity to ask
questions of and receive answers from PPAP, or from a
person or persons acting PPAP's behalf, concerning the
terms and conditions of the transaction contemplated by
this Agreement and its acquisition of Units; and (F)
has relied upon, and is making its investment
decisions, solely upon such information as has been
provided to Selling Partner in writing by PPAP.
(iii) The Units to be transferred to Selling Partner pursuant
to this Agreement will be acquired by Selling Partner
for its 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, or the grant of
any participation therein, without prejudice, however,
to Selling Partner's right (subject to the terms of the
partnership agreement of PPAP) at all times to sell or
otherwise dispose of all or any part of its Units under
an exemption form such registration available under the
Securities Act and applicable state securities laws,
and subject, nevertheless, to the disposition of its
assets being at all times within its control, and
Selling Partner was not formed for the specific purpose
of acquiring an interest in PPAP.
(iv) Selling Partner acknowledges that (A) the Units to be
issued to Selling Partner will not be registered under
the Securities Act or state
17
<PAGE>
securities laws by reason of a specific exemption or
exemptions from registration under the Securities Act
and applicable state securities laws and, if such Units
are to be represented by certificates, such
certificates will bear a legend to such effect; (B)
Purchaser's reliance on such exemptions is predicated
in part on the accuracy and completeness of the
representations, warranties and covenants of Selling
Partner contained herein; (C) such Units, therefore,
will not be able to be resold unless registered under
the Securities Act and applicable state securities
laws, or unless an exemption from registration is
available; (D) there will be no public market for such
Units; (E) Units to be issued to Selling Partner will
not be transferable without the prior written consent
of the general partner of PPAP, which consent shall not
be withheld if the general partner of PPAP determines
that the transfer of same is a valid private placement
under applicable Federal and State securities laws; (F)
PPAP has no obligation or intention to register such
Units for resale under the Securities Act or any state
securities laws or to take any action that would make
available any exemption from the registration
requirements of such laws; (G) because of the
restrictions on transfer or assignment of such Units to
be issued hereunder set forth in the partnership
agreement of PPAP and/or in a stock restriction
agreement, Selling Partner may have to bear the
economic risk of the investment commitment evidenced by
this Agreement and any Units acquired pursuant hereto
for an indefinite time; and (H) under the terms of the
partnership agreement of PPAP, as it will be in effect
on the Closing Date, Units will not be redeemable at
the request of the holder thereof for cash (or at the
option of PPL Reit, for common stock in PPL REIT) prior
to the first anniversary of their issuance.
(v) The address set forth for Selling Partner in this
Agreement is the address of Selling Partner's principal
place of business or residence, as applicable, and
Selling Partner has no present intention of becoming a
resident of any country, state or jurisdiction other
than the country and state in which principle place of
business or residence, as applicable, is cited.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the
----------- ------------------
term "Fairview Eleven's Actual Knowledge" is used it shall be limited to the
knowledge of Thomas F. August and Dennis J. DuBois. Notwithstanding anything
herein contained to the contrary, in the event that prior to Closing Purchaser
has knowledge of any fact or circumstance that would make any of the
representations or warranties of Selling Partners or Fairview Eleven set forth
herein untrue or incorrect, Selling Partners shall not be deemed to be in
default hereunder by reason of the fact that such representation or warranty is
in fact untrue or incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
----------- ------------------------------------------
otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall
18
<PAGE>
be continuing and shall be true and correct on and as of the Closing Date with
the same force and effect as if made at that time, and all of such
representations and warranties, other than those set forth is Subsections
4.1(a), (b)(i) through (iv) inclusive, and (c)(i) through (v), inclusive hereof,
shall survive the Closing for a period of twelve (12) months, at which time they
shall expire and terminate and be of no further force and effect unless a claim
for breach thereof has been instituted within such twelve (12) month period. The
representations and warranties set forth in Subsections 4.1(a), (b)(i) through
(iv) inclusive, and (c)(i) through (v) inclusive, above, shall survive the
Closing without limitation of time constraints.
Section 4.4 Selling Partners' Obligation to Notify Purchaser of
----------- ---------------------------------------------------
Change. If, prior to the Closing Date, either Selling Partners or the
- ------
Partnership become aware that any representation or warranty set forth in
Section 4.1 hereof which was true and correct on the date hereof has become
incorrect in any material respect, either prior to or at Closing, due to changes
in conditions or the discovery of information by Selling Partners or the
Partnership of which Selling Partners were unaware on the date hereof, Selling
Partners shall immediately notify Purchaser thereof. Upon receipt of such
notification, if such change is material and adverse with respect to the
acquisition of the Partnership Interests, Purchaser shall have the option of
terminating this Agreement whereupon this Agreement shall become null and void
and of no further force or effect and neither party shall have any further
obligation one to the other. If Purchaser does not exercise its option to
terminate this Agreement by reason of any such change in conditions, appropriate
modifications shall be made in the terms hereof to reflect the change in the
conditions to the mutual satisfaction of Selling Partners and Purchaser.
Section 4.5 Operation of Project Prior to Closing. Fairview Eleven
----------- -------------------------------------
shall (a) continue to cause the Partnership's property manager to diligently
operate the Improvements and the Project in the ordinary course of business
between the date hereof and the Closing Date, (b) cause the Partnership to keep,
observe, and perform or cause to be performed all of its obligations as landlord
under the Leases, (c) prevent the Partnership from terminating or causing the
termination of any Lease except as the result of the default of the Tenant
thereunder or the replacement of a suitable substitute, and (d) cause the
Partnership to maintain and operate the Project in substantially the same
condition and repair as exists on the Effective Date, reasonable wear and tear
and normal replacements excepted.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
Section 5.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Selling Partners set
forth herein shall be true in all material respects on and as of the
Closing Date with the same force and effect as if such representations
and warranties have been made on and as of the Closing Date;
19
<PAGE>
(b) Selling Partners shall have performed, observed and complied
with all of the covenants, agreements and conditions required by this
Agreement to be performed, observed and complied in all material
respects with by Selling Partners prior to or as of the Closing Date;
(c) Purchaser, on or before the expiration of the Inspection
Period, shall have performed such inspections, investigations and tests
as Purchaser desires, in accordance with the terms of Article II of
this Agreement, and Purchaser shall have determined, in Purchaser's
sole discretion, that the Project is suitable for Purchaser's intended
use;
(d) Selling Partners shall have delivered to Purchaser a
certificate or certificates as may be acceptable to Purchaser stating
that a search has been conducted by a party acceptable to Purchaser of
both the state and county records in which financing statements and
security agreements are filed under the Uniform Commercial Code of the
State and that such searches indicate that, except security interests
or liens to be released at Closing, no security interests or liens of
any kind or nature, including, but not limited to, any equipment
financing or leasing arrangements, are claimed by any Person against
the Partnership Interests, the Personal Property or the Improvements,
or any part thereof;
(e) The closing of the IPO shall have occurred;
(f) Purchaser shall have received from each Tenant under a Major
Lease an Estoppel Certificate duly executed by each Tenant, without
material change to the form of Estoppel Certificate submitted to the
Tenant in question;
(g) No material adverse change in the condition or operation of
the Project or the Partnership as they exist on the Effective Date
shall have occurred between the Effective Date and the Closing Date,
which change negatively and adversely affects the Project or the
Partnership in any material manner; and
(h) The Project shall have suffered no unrepaired casualty loss
or condemnation which materially and adversely affects the Project or
the Partnership; and
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of
the Partnership Interests and the conditions set forth in Subsections
5.1(a) and/or (b) hereof have not been satisfied, Selling Partners
shall be deemed in default hereunder and Purchaser shall have the
option to either (1) waive those conditions and proceed with the
Closing or (2) exercise it rights and remedies set forth in Article VI.
20
<PAGE>
(b) In the event (i) on or prior to the expiration of the
Inspection Period, Purchaser has determined that the Project is not
suited to Purchaser's intended use or that the transaction contemplated
by this Agreement is not a satisfactory investment, or (ii) on or
before the Closing Date the conditions set forth in Subsections 5.1
(d), (e), (f), (g), or (h) hereof have not been satisfied, Purchaser
shall have the option to either (1) waive those conditions and proceed
with the Closing or (2) terminate this Agreement whereupon this
Agreement shall become null and void and of no further force or effect
and neither party shall have any further obligation one to the other.
Section 5.3 Outside Closing Date. In the event (i) the condition
----------- --------------------
precedent to Purchaser's obligations to consummate the transaction contemplated
hereby set forth in Section 5.1(e) has not been satisfied on or before December
31, 1996, in a manner to permit the transaction contemplated hereby to be
consummated and funded by such date, or (ii) Purchaser has not designated a
Closing Date within a sufficient period of time to permit the timely closing of
the transaction contemplated hereby on or before December 31, 1996, or (iii)
Purchaser has not designated a Closing Date within ten (10) Business days
following the date the IPO has occurred, then in such event this Agreement shall
terminate and become null and void and of no further force or effect on the
earlier of December 31, 1996, or on the tenth (10th) Business day following the
date of the occurrence of the IPO, and neither party shall have any further
obligation one to the other.
ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Selling Partners' Defaults; Purchaser's Remedies.
----------- ------------------------------------------------
(a) Selling Partners' Defaults. Selling Partners shall be deemed
--------------------------
to be in default hereunder in the event that any of Selling Partners'
representations hereunder are determined to be false or misleading in
any material respect or in the event Selling Partners shall fail in any
material respect to meet, comply with, or perform any covenant,
agreement, or obligation on its part required within the time limits
and in the manner required in this Agreement.
(b) Purchaser's Remedies. In the event Selling Partners shall be
--------------------
deemed to be in default hereunder for any other reason, by virtue of
the occurrence of any one or more of the events specified in Section
6.1(a) above, Purchaser may at its election (i) bring suit against
Selling Partners to enforce specific performance of this Agreement
together with such actions as may be available at law or in equity to
recover Purchaser's actual out-of-pocket costs in the performance of
reasonable due diligence, terminate this Agreement. If the remedy of
specific performance is not available Purchaser shall have no remedy
for damages other that the aforementioned out-of-pocket costs.
Notwithstanding anything to the contrary contained herein, to the
extent any action is instituted by Purchaser from and after the Closing
Date in respect to a breach of a warranty or representation hereunder,
Selling Partners' liability relating to such breach shall be limited to
Selling Partners' returning the Units they receive at Closing.
21
<PAGE>
Section 6.2 Purchaser's Default; Selling Partners' Remedies.
----------- -----------------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material
respect to meet, comply with, or perform any covenant, agreement, or
obligation on its part required within the time limits and in the
manner required in this Agreement.
(b) Selling Partners' Remedy. IN THE EVENT PURCHASER SHALL BE
------------------------
DEEMED TO BE IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR TO
CLOSING AND SELLING PARTNERS DO NOT WAIVE SUCH DEFAULT, SELLING
PARTNERS, AS SELLING PARTNERS' SOLE AND EXCLUSIVE REMEDY FOR SUCH
DEFAULT, SHALL BE ENTITLED TO RETAIN THE INDEPENDENT CONSIDERATION, IT
BEING AGREED BETWEEN PURCHASER AND SELLING PARTNERS THAT SUCH SUM SHALL
BE LIQUIDATED DAMAGES FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE
DIFFICULTY, INCONVENIENCE AND UNCERTAINTY OF ASCERTAINING ACTUAL
DAMAGES FOR SUCH DEFAULT. IN PLACING THEIR INITIALS AT THE PLACES
PROVIDED, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE
STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY
COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES
PROVISION AT THE TIME THIS AGREEMENT WAS MADE. NOTWITHSTANDING THE
FOREGOING, THE PROVISIONS OF THIS SECTION 6.2 (b) SHALL NOT LIMIT IN
ANY MANNER PURCHASER'S INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 8.1
OR 8.3 HEREOF.
SELLING PARTNER'S INITIALS:
Fairview Eleven TFA
Prentiss MVP
August TFA
DuBois DJD
Bradshaw RB
PURCHASER'S INITIALS: TFA
Section 6.3 Attorneys' Fees. Should either party employ an attorney
----------- ---------------
or attorneys to enforce any of the provisions hereof or to protect its interest
in any manner arising under this Agreement, the non prevailing party in any
action pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
ARTICLE VII
CLOSING COSTS; POST-CLOSING ADJUSTMENTS
---------------------------------------
Section 7.1 Closing Costs. Costs of closing the transaction
----------- -------------
contemplated hereby shall be allocated between Selling Partners and Purchaser as
follows:
22
<PAGE>
(a) Selling Partners shall pay the costs, if any, incurred by
Selling Partners in connection with the performance of its obligations
hereunder.
(b) Purchaser shall pay the costs, if any, incurred by Purchaser
in connection with the performance of its obligations hereunder.
Section 7.2 Post-Closing Adjustments with Respect to Available Cash.
----------- -------------------------------------------------------
Purchaser and Selling Partners acknowledge that all Available Cash relating to
the operations of the Partnership prior to the Closing Date shall be retained by
and remain the property of the Selling Partners. Purchaser and Selling Partners
further acknowledge that it may not be possible to determine or compute the
exact amount of undistributed Available Cash as of the Closing Date. Therefore,
Purchaser hereby agrees that it shall cause the Partnership, as soon as
reasonably practicable following the Closing Date, to determine and compute the
amount of undistributed Available Cash through the Closing Date and to pay over
and distribute such sums to Selling Partners in the manner contemplated by the
Partnership Agreement, as if the transaction contemplated hereby had not been
consummated. To the extent requested by Selling Partners, Purchaser shall
provide adequate back up and substantiation as to the manner in which
undistributed Available Cash has been determined, including verification by the
Partnership's independent accountants if requested by Selling Partners.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the payment of any commission regarding
the consummation of the transaction contemplated hereby. It is agreed that if
any claims for commissions or fees, including, without limitation, brokerage
fees, finder's fees, or commissions, are ever made against Selling Partners or
Purchaser in connection with this transaction, all such claims shall be handled
and paid by the party whose actions or alleged commitments form the basis of
such claim and such party shall indemnify and hold harmless the other from and
against all such claims or demands with respect to any brokerage fees, finder's
fees, or agents' commissions or other compensation asserted by any person, firm,
or corporation in connection with this Agreement or the transactions
contemplated hereby. The provisions of this Section 8.1 shall expressly survive
the early termination of this Agreement.
Section 8.2 Selling Partners' Indemnity. Each of Selling Partners
----------- ---------------------------
agrees to indemnify and hold Purchaser harmless of and from all liabilities,
claims, demands and expenses, of any kind or nature, known or unknown, fixed or
contingent, arising or accruing on or before the Closing Date related to the
ownership of their respective Partnership Interests, and all expenses related
thereto, including, without limitation, court costs and attorneys' fees. The
foregoing indemnity shall also apply to such claims, demands, causes of action,
losses, damages, liabilities, costs or expenses asserted against or incurred by
Purchaser at any time or from time to time by reason of or arising out of the
breach of any representation or warranty of Selling Partners set forth herein.
Selling Partners' liability with respect thereto shall be governed by the
provisions of Section 6.1(b) hereof.
23
<PAGE>
Section 8.3 Purchaser's Indemnity. Purchaser agrees to indemnify
----------- ---------------------
and hold Selling Partners harmless of and from all liabilities, claims, demands
and expenses, of any kind or nature, known or unknown, fixed or contingent,
arising and accruing subsequent to the Closing Date related to the ownership of
the Partnership Interests, and all expenses related thereto, including, without
limitation, court costs and attorneys' fees.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise
----------- -----------------
expressly provided for herein, the terms and provisions hereof shall survive the
Closing. The acceptance of the closing documents by Purchaser and payment of the
Purchase Price shall be deemed full compliance by Selling Partners and Purchaser
of all of their respective obligations arising under this Agreement and
Purchaser and Selling Partners each expressly waives any noncompliance by the
other party hereto with any prior obligations other than those obligations which
expressly survive the Closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon
----------- --------------
and shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
Section 9.3 Entire Agreement; Modifications. This Agreement
----------- -------------------------------
embodies and constitutes the entire understanding between the parties with
respect to the transactions contemplated herein, and all prior or
contemporaneous agreements, understandings, representations, and statements,
oral or written, are merged into this Agreement. Neither this Agreement nor any
provision hereof may be waived, modified, amended, discharged, or terminated
except by an instrument in writing signed by the party against which the
enforcement of such waiver, modification, amendment, discharge, or termination
is sought, and then only to the extent set forth in such instrument.
Section 9.4 Headings. The headings contained in this Agreement are
----------- --------
for reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female
gender and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Selling Partners and Purchaser, each of
which has been represented by counsel of its own selection, and neither
of which has acted under duress nor compulsion, whether legal, economic
or otherwise. Consequently, the terms and provisions of this Agreement
shall be interpreted and construed in accordance with their usual and
customary meanings, and Selling Partners and Purchaser hereby expressly
waive and disclaim, in connection with the interpretation and
construction of this Agreement, any rule of law or procedure requiring
otherwise, including without limitation, any rule of law to the effect
that ambiguous or conflicting terms or provisions contained in this
Agreement shall be
24
<PAGE>
interpreted or construed against the party whose attorney prepared this
Agreement or any earlier draft of this Agreement.
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail return
receipt, signed by the addressee or the addressee's agent or representative, (b)
if by telegram, by a telegram receipt signed by the addressee or the addressee's
agent or representative, (c) if hand delivered (including delivery by any
overnight or other delivery service), by a delivery receipt signed by the
addressee or the addressee's agent or representative, or (d) if sent by
facsimile transmission, with confirmation of receipt at the facsimile number to
which it was sent. Each party's initial address for delivery of any Notice is
designated below, but any party from time to time may designate a different
address for delivery of any Notice by delivering to the other party Notice of
such different address; provided, however, neither party may designate an
address for delivery of Notice not located within the United States. Each party
hereto covenants and agrees to mail copies of any Notice to the parties
designated to receive copies of any Notice below, but the failure of the
addressee for any copy actually to receive such copy shall not render the Notice
ineffective.
If to Selling Partners: Fairview Eleven, Inc.
c/o Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-1440
Fax No.: (214) 748-1742
Michael V. Prentiss
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-1440
Fax No.: (214) 748-1742
Thomas F. August
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Fax No.: (214) 748-1742
25
<PAGE>
Dennis J. DuBois
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5011
Fax No.: (214) 748-4634
Richard B. Bradshaw, Jr.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-1440
Fax No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P
1700 Pacific, Suite 4100
Dallas, Texas 75201
Telephone No.: (214) 969-2808
Fax No.: (214)969-4343
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Fax No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Fax No.: (214) 969-4343
Section 9.7 Additional Acts. In addition to the acts and deeds
----------- ---------------
recited herein and contemplated to be performed, executed, and/or delivered by
Selling Partners or Purchaser, Selling Partners and Purchaser hereby agree to
perform, execute, and/or deliver or cause to be performed, executed, and/or
delivered at the Closing or thereafter, all such further acts, deeds, and
assurances as Purchaser or Selling Partners, as the case may be, may reasonably
require to (i) evidence and vest in the Purchaser the ownership of, and title
to, the Partnership Interests, and (ii) consummate the transactions contemplated
hereunder. The covenants set forth in this Section 9.7 shall survive the
Closing.
26
<PAGE>
Section 9.8 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER
----------- --------------
AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 9.9 Assignment. Purchaser shall have the right, without the
----------- ----------
consent of Selling Partners, to assign its rights under this Agreement to the
PPL REIT or to any entity in which the PPL REIT has a controlling interest. Such
assignment may be in respect to all or any portion of the Partnership Interests
and Purchaser may assign its rights hereunder to more than one Person each of
whom shall acquire an allocable portion of the Partnership Interests. Upon such
assignment Purchaser shall be relieved of its obligations hereunder, so long as
the PPL REIT or any entity in which the PPL REIT has a controlling interest
assumes all applicable obligations of Purchaser hereunder and confirms the
undertakings or representations of Purchaser hereunder. No other assignment may
be made without the prior written consent of Selling Partners.
Section 9.10 Time of the Essence. Time is of the essence of this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
Section 9.11 Conditions. All covenants, warranties and obligations
------------ ----------
of Selling Partners or Purchaser contained in this Agreement are deemed to be
conditions to the other parties' obligations herein. All conditions to
Purchaser's or Selling Partners' obligations, whether specifically stated in
this Agreement or pursuant to the preceding sentence, and all rights of
Purchaser or Selling Partners herein are imposed solely and exclusively for the
benefit of the other party and their respective assigns and any or all of such
conditions or rights may be waived in whole or in part by the party in question
at any time in such party's sole discretion.
Section 9.12 Severability. If any provision in this Agreement is
------------ ------------
invalid, illegal, or unenforceable, such provision shall be construed as
narrowly as possible to allow Purchaser and Selling Partners to be afforded the
benefits and protection of this Agreement. Such provision shall be severable
from the rest of this Agreement and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and shall continue in full force and effect.
Section 9.13 Counterparts. Two or more duplicate originals of the
------------ ------------
written instrument containing this Agreement may be signed by the parties, each
of which shall be an original but all of which together shall constitute one and
the same agreement.
Section 9.14 Tax Returns and Tax Audit. The responsibility for
filing the Partnership return for federal and state income or franchise tax (if
any) for the partial year ending the Closing Date (the "Partial Year Return")
shall be Selling Partners'. Further, should such Partial Year Return or Returns
for prior years be audited, the responsibility for dealing with settling and
paying any tax liability shall be Selling Partners', and in such regard the
retiring Selling Partners shall hold Purchaser and the Partnership harmless from
any loss, cost or expense (including reasonable attorneys fees and other
professional fees) as a result of any liability arising as a result of such
audits or in respect to federal or state tax liability for periods of time prior
to the Closing Date. Should Purchaser or the Partnership be included in such
audits, Selling Partners shall furnish Purchaser or
27
<PAGE>
the Partnership with all necessary information to permit Purchaser or the
Partnership to respond to the appropriate authorities in a timely and responsive
manner. The responsibility for filing the Partnership's Partial Year Return for
federal and state income or franchise tax (if any) for the partial year
commencing on the Closing Date shall be Purchaser's. Further, should such
Partial Year Return be audited, the responsibility for dealing with settling and
paying any tax liability shall be Purchaser's, and in such regard Purchaser
shall hold Selling Partners harmless from any loss, cost or expense (including
reasonable attorneys fees and other professional fees) as a result of any
liability arising as a result of such audits or in respect to federal or state
tax liability for periods of time from and after the Closing Date. Should
Selling Partners be included in such audits, Purchaser shall furnish Selling
Partners with all necessary information to permit Selling Partners to respond to
the appropriate authorities in a timely and responsive manner.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLING PARTNERS:
----------------
FAIRVIEW ELEVEN, INC.
a Delaware corporation
By: /s/ Thomas F. August
-----------------------------------------
Name: Thomas F. August
---------------------------------------
Title: Vice President
--------------------------------------
Date of Execution: As of August 5, 1996
/s/ Michael V. Prentiss
--------------------------------------------
MICHAEL V. PRENTISS
Date of Execution: As of August 5, 1996
/s/ Thomas F. August
--------------------------------------------
THOMAS F. AUGUST
Date of Execution: As of August 5,1996
/s/ Dennis J. DuBois
--------------------------------------------
DENNIS J. DUBOIS
Date of Execution: As of August 5, 1996
/s/ R. Bradshaw, Jr.
--------------------------------------------
RICHARD B. BRADSHAW, JR.
Date of Execution: As of August 5, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /S/: THOMAS F. AUGUST
-----------------------------------------
Name: THOMAS F. AUGUST
---------------------------------------
Title: VICE PRESIDENT
--------------------------------------
Date of Execution: As of August 5, 1996
29
<PAGE>
Exhibit 10.12
AGREEMENT OF PURCHASE AND
SALE OF PARTNERSHIP INTEREST
BY AND BETWEEN
PRENTISS PROPERTIES ITASCA, L.P.
AS SELLING PARTNER
AND
PRENTISS PROPERTIES LIMITED, INC.
AS PURCHASER
Dated: AS OF AUGUST 5, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; PURCHASE PRICE............................ 1
Section 1.1 Definitions............................................ 1
Section 1.2 Sale and Delivery of the Partnership Interest.......... 5
Section 1.3 Purchase Price for the Partnership Interest............ 5
Section 1.4 Independent Consideration.............................. 5
Section 1.5 Payment of Purchase Price.............................. 6
ARTICLE II APPROVAL OF DOCUMENTS; INSPECTIONS..................... 6
Section 2.1 Items to be Furnished to Purchaser..................... 6
Section 2.2 Estoppel Certificates.................................. 6
Section 2.3 Inspection............................................. 6
Section 2.4 Purchaser's Acknowledgement............................ 7
ARTICLE III THE CLOSING DATE AND THE CLOSING; OBLIGATIONS OF
PURCHASER AND SELLING PARTNER WITH RESPECT
THERETO................................................ 8
Section 3.1 The Closing and the Closing Date....................... 8
Section 3.2 Selling Partner's Obligations at the Closing........... 8
Section 3.3 Purchaser's Obligations at the Closing................. 9
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS.............. 10
Section 4.1 Representations and Warranties of Selling Partner...... 10
Section 4.2 Knowledge Standard..................................... 16
Section 4.3 Survival of Representations and Warranties............. 17
Section 4.4 Selling Partner's Obligation to Notify Purchaser of
Change................................................. 17
Section 4.5 Operation of Project Prior to Closing.................. 17
Section 4.6 Representations and Warranties of Owners of Selling
Partner................................................ 17
ARTICLE V CONDITIONS TO CLOSING.................................. 18
Section 5.1 Conditions Precedent to Purchaser's Obligations........ 18
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
Precedent.............................................. 19
Section 5.3 Outside Closing Date................................... 19
ARTICLE VI DEFAULTS AND REMEDIES.................................. 19
Section 6.1 Selling Partner's Defaults; Purchaser's Remedies....... 19
Section 6.2 Purchaser's Default; Selling Partner's Remedies........ 20
Section 6.3 Attorneys' Fees........................................ 20
i
<PAGE>
ARTICLE VII CLOSING COSTS; POST-CLOSING ADJUSTMENTS................ 21
Section 7.1 Closing Costs.......................................... 21
Section 7.2 Post-Closing Adjustments with Respect to Available
Cash................................................... 21
ARTICLE VIII INDEMNIFICATION........................................ 21
Section 8.1 Brokerage Commissions.................................. 21
Section 8.2 Selling Partner's Indemnity............................ 22
Section 8.3 Purchaser's Indemnity.................................. 22
ARTICLE IX MISCELLANEOUS.......................................... 22
Section 9.1 Survival of Terms...................................... 22
Section 9.2 Binding Effect......................................... 22
Section 9.3 Entire Agreement; Modifications........................ 22
Section 9.4 Headings............................................... 22
Section 9.5 Interpretation and Construction........................ 23
Section 9.6 Notice................................................. 23
Section 9.7 Additional Acts........................................ 24
Section 9.8 Applicable Law......................................... 24
Section 9.9 Assignment............................................. 24
Section 9.10 Time of the Essence.................................... 24
Section 9.11 Conditions............................................. 24
Section 9.12 Severability........................................... 25
Section 9.13 Counterparts........................................... 25
EXHIBITS:
"A" - Description of Land
"B" - Items to be Furnished to Purchaser
"C" - Form of Tenant Estoppel Certificate
"D" - Closing Certificate
"E" - Prospective Subscriber Questionnaire
"F" - Investor Letter
ii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
OF PARTNERSHIP INTERESTS
------------------------
THIS AGREEMENT OF PURCHASE AND SALE is made and entered into by and between
PRENTISS PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"), and
PRENTISS PROPERTIES ITASCA, L.P. ("Selling Partner"), as of the Effective Date.
W I T N E S S E T H:
===================
Selling Partner and other partners, on May 20, 1991, formed PRENTISS/COPLEY
ITASCA ASSOCIATES, a general partnership (the "Partnership"), for the purpose of
developing, owning and operating the Spring Lake Business Park located in
Itasca, Illinois.
The Partnership was formed pursuant to the terms and conditions of that
certain Partnership Agreement dated May 20, 1991, by and between Selling Partner
and other partners (the "Partnership Agreement"). Selling Partner owns the
Partnership Interest (as hereinafter defined) in the Partnership and desires to
sell it on and subject to the terms and conditions of this Agreement (as
hereinafter defined).
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Selling Partner
hereby agree as follows:
ARTICLE I
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by or
is under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other
than corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the controlled Person; and "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of the controlled
Person.
(b) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this Agreement
of Purchase and Sale.
1
<PAGE>
(c) "Available Cash" means all cash funds of the Partnership
--------------
generated by the operation of the Project or otherwise through the Closing
Date (whether collected prior to or subsequent to the Closing Date) after
(i) payment of or provision for all operating expenses of the Project or
the Partnership payable as of the Closing Date and (ii) provision for a
reasonable reserve to pay accrued and unpaid expenses from the operation
of the Partnership and the Project.
(d) "Business day" means a day that is not a Saturday, a Sunday,
------------
a legal holiday or a on which banks are required or permitted by law
or other governmental action to close in Dallas, Texas.
(e) "Books and Records" shall mean all financial and other books
-----------------
and records maintained by or for the benefit of the Partnership in
connection with the operation of the Project and the Partnership and all
building plans, specifications and drawings, engineering, soils and
geological reports, environmental reports and other documents prepared in
connection with the construction, maintenance, repair, management or
operation of the Project which are within the possession or control of
Selling Partner, the Partnership, or the Partnership's Affiliates, agents
or representatives.
(f) "Closing" means the consummation of the purchase of the
-------
Partnership Interests by Purchaser from Selling Partner in accordance with
the terms and provisions of Article III, which Closing shall be held at
the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., Suite 4100, 1700
Pacific Avenue, Dallas, Texas 75201-4618 on the Closing Date commencing
at 10:00 a.m. Central Daylight Time.
(g) "Closing Date" means a Business day which shall be established
------------
by Purchaser by written notice delivered to Selling Partner, which date
shall be no earlier than five (5) days following the date of such notice,
except that from and after the date the IPO shall have occurred, such date
shall be no earlier than ten (10) days following the date of such notice;
provided, however, that in no event shall the Closing Date be a date later
than December 31, 1996.
(h) "Cut Off Date" means the later of July 1, 1994, or the date the
------------
Partnership acquired fee simple title to the Project.
(i) "Effective Date" shall mean the date on which this Agreement
--------------
shall be fully executed and unconditionally delivered by Purchaser and
Selling Partner.
(j) "Environmental Laws" means all applicable existing federal,
------------------
state and local statutes, ordinances, orders, rules and regulations
issued, promulgated or adopted by any governmental authority having
jurisdiction over the Project relating to environmental pollution or
protection, including, without limitation, the Resource Conservation and
Recovery Act of 1976, 43 U.S.C. "S" 6901 et seq., the Comprehensive
-- ---
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
"S" 9601 et seq., as amended by the Superfund Amendments and
-- ---
Reauthorization Act of 1986, the Hazardous Materials Transportation Act, 49
U.S.C. "S" 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C.
-- ---
"S" 1251 et seq., the Clean Air Act, 42 U.S.C. "S" 7401 et set., the Toxic
-- --- -- ---
Substances Control Act, 15 U.S.C. "S" 2601-2629, the Safe Drinking Water
Act, 42 U.S.C. "S" 300f et seq.,
-- ---
2
<PAGE>
together with all existing rules, regulations and orders promulgated
thereunder, and all similar applicable existing local, state and federal
statutes and regulations promulgated pursuant thereto.
(k) "Estoppel Certificates" means the estoppel certificates to be
---------------------
delivered by each tenant in accordance with the provisions of Section 2.2
hereof.
(l) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(m) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "restricted hazardous waste", or "toxic substances" or
words of similar import under any Environmental Laws, (ii) any oil,
petroleum or petroleum derived substances, any flammable substances or
explosives, any radioactive materials, any asbestos or any substance
containing more than 0.1 percent asbestos, any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts
per million, and any urea formaldehyde insulation, and (iii) any other
chemical, material or substance, exposure to which is prohibited, limited
or regulated by any Environmental Laws.
(n) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the (office/warehouse)
buildings, parking lots and all other amenities, together with the
Partnership's interest, if any, in all machinery, fixtures and equipment
used in the general operation of such buildings and improvements, and/or
affixed to or located upon the Land, along with all accessions and
additions thereto, excluding therefrom any machinery, fixtures, equipment
or personal property owned by Tenants at the Project.
(o) "IPO" means the proposed initial public offering of securities
---
in the PPL REIT.
(p) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
----------
hereof for all purposes, together with all and singular all right, title
and interest of the Partnership, reversionary or otherwise, in and to all
easements in or upon the Land and all other rights and appurtenances
belonging or in anywise pertaining thereto, if any, including any right,
title, and interest of the Partnership in and to any land lying in the bed
of any street, road or access way, right-of-way, alley, opened or
proposed, in front of, at a side of or adjoining the Land to the
centerline thereof.
3
<PAGE>
(q) "Leases" means all leases, licenses, franchises, concessions
------
and other occupancy agreements for the use or occupancy of any portion of
the Project, together with all rents, issues, profits, and deposits
thereunder and all amendments thereto.
(r) "Major Leases" means any Lease covering in excess of the
------------
lesser of (i) ten percent (10%) of net rentable area in the Project, or
(ii) 5,000 square feet of net rentable area in the Project, as reflected
in the Rent Roll, as hereinafter defined.
(s) "Miscellaneous Assets" means all contract rights, leases,
--------------------
concessions, assignable warranties, and other items of intangible personal
property owned by the Partnership (but only to the extent assignable) and
relating to the ownership or operation of the Land and Improvements,
including, but not limited to, (i) the Service Contracts, (ii) the
Permits, (iii) the Leases, (iv) assignable utility and similar deposits,
(v) prepaid license and permit fees, (vi) the Warranties and (vii) the
Books and Records.
(t) "PPAP" means Prentiss Properties Acquisition Partners, L.P.,
----
a Delaware limited partnership.
(u) "Partnership" means Prentiss/Copley Itasca Associates, a
-----------
Delaware general partnership.
(v) "Partnership Agreement" means that certain Partnership
---------------------
Agreement dated May 20, 1991, pursuant to which the Partnership was
formed.
(w) "Partnership Interest" means a twenty-five percent (25%)
--------------------
general partnership in the Partnership owned by Selling Partner.
(x) "Permits" means all licenses and permits issued to or for the
-------
benefit of the Partnership and used or relating to the ownership or
operation of the Project in accordance with its current use.
(y) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(z) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by the Partnership, located on or in the Land and the Improvements and
used or usable in connection with any part of the Project. The term
"Personal Property" specifically excludes any and all bank accounts of the
Partnership and all sums deposited therein, title to which shall be
retained by the Partnership.
(aa) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct the
IPO, and to acquire directly or indirectly all or a portion of the
Partnership Interests and interests in other real properties, assets,
partnerships and related service businesses.
4
<PAGE>
(bb) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(cc) "Purchase Price" means the sum of $1,000.00.
--------------
(dd) "Purchaser" means Prentiss Properties Limited, Inc., a
---------
Delaware corporation.
(ee) "Rent Roll shall have the meaning set forth in
---------
Section 4.1(g)(i) of this Agreement.
(ff) "Securities Act" means the Securities Act of 1933 as amended.
--------------
(gg) "Selling Partner" means Prentiss Properties Itasca, L.P., a
---------------
Delaware limited partnership.
(hh) "Selling Partner's Actual Knowledge" shall have the meaning
----------------------------------
set forth in Section 4.2.
(ii) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of the Partnership affecting the
operation of the Project, copies of which shall be delivered to Purchaser
pursuant to Section 2.1 hereof.
(jj) "State" means the State in which the Project is situated.
-----
(kk) "Tenant" means any Person occupying any portion of the Project
------
under or pursuant to a Lease.
(ll) "Units" means units of limited partnership interest in PPAP.
-----
(mm) "Warranties" means all warranties and guaranties relating to
----------
the Project, or any part thereof, or to the Personal Property or
Improvements, or construction thereof.
Section 1.2 Sale and Delivery of the Partnership Interest. Selling
----------- ---------------------------------------------
Partner hereby agrees to sell, transfer and assign the Partnership Interest to
Purchaser or its designees, and Purchaser hereby agrees to purchase the
Partnership Interest from Selling Partner, upon and subject to the terms and
provisions hereinafter set forth. Purchaser (or its permitted assignee) may
designate an Affiliate to take title to up to one percent (1%) of the
Partnership Interest.
Section 1.3 Purchase Price for the Partnership Interest. The Purchase
----------- -------------------------------------------
Price shall be payable to Selling Partner on the Closing Date, plus or minus
prorations and adjustments as hereinafter provided. The Purchase Price shall be
payable to Selling Partner in the manner set forth in Section 1.5 below.
Section 1.4 Independent Consideration. Concurrently herewith Purchaser
----------- -------------------------
has paid to Selling Partner the sum of $100.00, which shall be independent
consideration (the "Independent Consideration") for the agreement of Selling
Partner set forth herein. The Independent
5
<PAGE>
Consideration shall be in addition to the Purchase Price. If the Closing does
not occur for any reason, the Independent Consideration shall be deemed earned
and shall be retained by Selling Partner.
Section 1.5 Payment of Purchase Price. Purchaser shall pay the Purchase
----------- -------------------------
Price by the delivery of Units. The number of Units to be delivered to Selling
Partner shall be calculated by dividing the Purchase Price by the mid-point of
the offering price range for one (1) common share of beneficial interest of the
PPL REIT as set forth in the final "red-herring" prospectus for the IPO. Selling
Partner acknowledges that PPAP will not issue fractional Units. Thus, the result
of the calculation set forth above will be rounded to the nearest whole number
of Units (.50 rounded down). Upon satisfaction of the obligations set forth in
Section 3.2(a)(vii) and the requirements of Section 4.6 hereof, Selling Partner
may distribute Units to any direct or indirect owners of Selling Partner.
ARTICLE II
APPROVAL OF DOCUMENTS; INSPECTIONS
----------------------------------
Section 2.1 Items to be Furnished to Purchaser. Within thirty (30) days
----------- ----------------------------------
after the Effective Date, Selling Partner shall cause the Partnership to furnish
to Purchaser, true, correct, complete, and legible copies of the items listed on
Exhibit "B" attached hereto and made a part hereof for all purposes. In addition
- -----------
to the foregoing, Selling Partners shall make available to Purchaser for its
review either at the Project or at such other place as may be reasonably
convenient to Purchaser and Selling Partner copies of all other records relating
to the ownership and operation of the Project and the Partnership, in Selling
Partner's or the Partnership's possession or control.
Section 2.2 Estoppel Certificates. Within thirty (30) days after the
----------- ---------------------
Effective Date, Selling Partner will cause the Partnership to deliver to each
Tenant a form of Estoppel Certificate, to be in the form and contain the content
of the Estoppel Certificate attached hereto as Exhibit "C" and made a part
-----------
hereof for all purposes, and will use its reasonable efforts to cause each
Tenant to execute and deliver to Purchaser an Estoppel Certificate on or before
the Closing Date.
Section 2.3 Inspection.
----------- ----------
(a) During the period commencing on the Effective Date and ending
on the Closing Date or the earlier termination of this Agreement (the
"Inspection Period"), Purchaser, upon reasonable notice to Selling Partner
and the Partnership, shall have reasonable access to the Project and the
Partnership's Books and Records, either personally or by authorized agent,
to inspect the Project and the Books and Records of the Partnership, the
items delivered pursuant to this Article II and any other documents and
records available which are normally maintained in the operation of the
Project or the Partnership.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Selling Partner will fully cooperate and
cause the Partnership to fully cooperate with Purchaser, at no cost or
expense to Selling Partner or the Partnership, in the conduct of
Purchaser's inspection of the Project and the Books and Records of the
Partnership. Such inspections (and any inspections performed in
accordance with the sentence next following) may be conducted at all
reasonable times, so long as such activities do not unreasonably interfere
with the Tenants in occupancy. Selling Partner will permit Purchaser and
current
6
<PAGE>
and prospective underwriters involved in the IPO, and the agents,
attorneys, accountants, and representatives of all of the foregoing, upon
reasonable notice (but without having to obtain further approval), to
enter upon and inspect the Project, at reasonable times during normal
working hours, all premises leased to Tenants, all mechanical equipment,
systems, and fixtures forming a part thereof, and all Books and Records.
Selling Partner will permit Purchaser and the underwriters involved in the
IPO, and the agents, attorneys, accountants, and representatives of all of
the foregoing, at no cost or expense to Selling Partner or the
Partnership, to audit the Books and Records, and to conduct such
investigations, tests, or inspections as Purchaser deems appropriate
including, without limitation, sampling studies to ascertain whether or
not there is any Hazardous Substance on, in, or under the Project. In
conducting any such entry, investigation, test, or inspection, no party
permitted entry hereunder will unreasonably interfere with the operation
of the Project or the peaceable possession by individual Tenants of their
respective premises. To the extent that Persons other than Purchaser join
in such inspections, Purchaser shall secure from such Persons their
agreement to hold any such information in confidence pending the closing
of the transaction contemplated hereby, with the exception of the use of
such materials during the disclosure process in connection with the IPO.
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance on terms and amounts reasonably satisfactory to
Selling Partner and the Partnership covering any accident arising in
connection with the presence of Purchaser, its agents and representatives
on the Project and shall deliver a certificate of insurance verifying such
coverage to Selling Partner prior to entry upon the Project.
(d) Purchaser agrees to fully and completely repair and restore
the Project in the event of any damage whatsoever occurring by Purchaser,
Purchaser's Affiliates or consultants during the pendency of this
Agreement. Purchaser hereby indemnifies and holds Selling Partner
harmless from and against any loss, damage, injury, claim or cause of
action Selling Partner or the Partnership may suffer or incur as a result
of Purchaser's inspections of the Project undertaken pursuant to this
Agreement. The indemnity set forth in this subparagraph (d) shall survive
the Closing or the termination of this Agreement.
(e) If, during the Inspection Period, Purchaser shall discover any
condition or circumstance, which in Purchaser's sole discretion, judgment
and opinion makes Purchaser's investment in the Partnership an
unacceptable risk, Purchaser shall be entitled, as its sole and exclusive
remedy, to terminate this Agreement by giving written notice to Selling
Partner, on or before the expiration of the Inspection Period, whereupon
this Agreement shall terminate, and upon such termination, neither Selling
Partner nor Purchaser shall have any further obligation or liability
hereunder.
Section 2.4 Purchaser's Acknowledgement. Purchaser acknowledges that,
----------- ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Partnership Interests shall be acquired on a basis that is
without representation or warranty, including any representations or warranties
relating to the Project, which as of the Closing Date shall be in its present
condition, subject to reasonable use, wear, tear and natural deterioration
between the Effective Date and the Closing Date. In such regard, there shall be
no reduction in the Purchase Price for any change in the condition of the
Project by reason of any events, subsequent to the Effective Date, except by
reason of condemnation or casualty. Purchaser further acknowledges that it has
not been induced by nor has
7
<PAGE>
it relied upon any representations, warranties or other statements, whether
express or implied, made by Selling Partner, or any of its agents, employees or
other representatives, which are not expressly set forth in this Agreement or in
the materials to be delivered to Purchaser in accordance with the terms and
provisions hereof.
ARTICLE III
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNER WITH RESPECT THERETO
-----------------------------------------------------
Section 3.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Partnership Interest contemplated by the terms and conditions of this Agreement
shall be consummated at the Closing to be held on the Closing Date.
Section 3.2 Selling Partner's Obligations at the Closing.
----------- --------------------------------------------
(a) At the Closing, Selling Partner shall do the following:
(i) Execute and deliver to Purchaser a good and sufficient
assignment of partnership interest (the "Assignment") (with
warranty limited to Selling Partner's acts) in the form
approved by Purchaser and Selling Partner conveying the
title in and to the Partnership Interest free and clear of
all liens or encumbrances;
(ii) Execute and deliver to Purchaser an amendment to the
Partnership Agreement (the "Amendment"), in the form
approved by Purchaser and Selling Partner, covering the
withdrawal of Selling Partner and the admittance of
Purchaser or its designees as partners in the Partnership
and such other matters as Purchaser may reasonably require;
(iii) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under penalty
of perjury, Selling Partner's U.S. taxpayer identification
number and that Selling Partner is not a foreign person
within the meaning of Section 1445 of the Internal Revenue
Code;
(iv) Execute and deliver to Purchaser a Closing Certificate
(herein so called), in the form and containing the content
of the Closing Certificate attached hereto as "Exhibit "D"
-----------
and made a part hereof for all purposes;
(v) Deliver to Purchaser Estoppel Certificates from Tenants
under the Major Leases and the Tenants under non-Major
Leases who have executed and delivered Estoppel
Certificates, together with Selling Partner's
certificate, in respect to the Tenants under non-Major
Leases who have failed to deliver Estoppel Certificates,
to the effect that the information contained in the
Estoppel Certificates presented to the
8
<PAGE>
Tenants under non-Major Leases in question is true and
correct and no known defaults on the part of such Tenants
exist or with the passage of time will exist;
(vi) Deliver or cause the Partnership to deliver to Purchaser
satisfactory evidence that all necessary corporate,
partnership, or other action on the part of Selling
Partner has been taken with respect to the consummation of
the transaction contemplated hereby;
(vii) Complete, execute, and deliver, and cause any direct or
indirect owner of Selling Partner who receives Units, to
complete, execute, and deliver, to PPAP or any other
transferor of the Units (A) the Prospective Subscriber
Questionnaire attached hereto as Exhibit "E" and (B) the
-----------
Investor Letter attached hereto as Exhibit "F"; and
-----------
(viii) Deliver to Purchaser such other assignments and documents
as may be required pursuant to the provisions hereof or
mutually agreed by counsel for Selling Partner and
Purchaser to be necessary to fully consummate the
transaction contemplated hereby.
(b) If Selling Partner fails or is unable to deliver any of the
items set forth in this Section 3.2 at the Closing, Purchaser may
(i) elect to waive such failure and close the transaction, or
(ii) exercise any one or more of its options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered
to Purchaser under Section 3.2 above, Purchaser shall do the following:
(i) Deliver the Purchase Price in accordance with
Section 1.5 hereof;
(ii) Execute and deliver to Selling Partner counterparts of the
Assignment to be executed and delivered by Selling Partner
pursuant to Section 3.2 above;
(iii) Execute and deliver to Selling Partner counterparts of the
Amendment to be executed and delivered by Selling Partner
pursuant to Section 3.2 above;
(iv) Deliver to Selling Partner satisfactory evidence that all
necessary corporate, partnership, or other action by
Purchaser has been taken with respect to the consummation
of the transaction contemplated hereby; and
(v) Deliver to Selling Partner such other instruments or
documents as may be required pursuant to the terms
hereof or mutually agreed by counsel for Selling Partner
and Purchaser to be necessary to fully consummate the
transaction contemplated hereby.
9
<PAGE>
(b) If Purchaser fails or is unable to deliver any items set
forth in this Section 3.3 at the Closing, Selling Partner may (i)
elect to waive such failure and close the transaction, or
(ii) exercise its remedies under Section 6.2(b) hereof.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 4.1 Representations and Warranties of Selling Partner. Selling
----------- -------------------------------------------------
Partner hereby represents and warrants to Purchaser, as of the date hereof and
as of the Closing Date, the following:
(a) Selling Partner is the legal and beneficial owner of the
Partnership Interest. The Partnership Interest is owned by Selling
Partner free and clear of all liens, security interests, pledges,
assessments, charges, adverse claims, restrictions and other encumbrances
created by Selling Partner or its predecessor in interest, except as set
forth in the Partnership Agreement. Other than the rights and obligations
arising under this Agreement and the Partnership Agreement, the
Partnership Interest is not subject to any rights of any other person to
acquire the same, nor is the Partnership Interest subject to any
restrictions on transfer thereof, except for restrictions imposed by the
Partnership Agreement and applicable federal and state securities laws.
(b) The Partnership has been duly formed and is validly existing
as a partnership under the laws of the State of Delaware, and is duly
registered or qualified to do business in the State of Illinois.
(c) To Selling Partner's Actual Knowledge, neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under, any agreement or
instrument to which the Partnership is a party or by which it is bound.
To Selling Partner's Actual Knowledge, there are no actions, voluntary or
involuntary, pending against the Partnership under any bankruptcy,
reorganization, arrangement, insolvency or similar federal or state
statute.
(d) Selling Partner has been duly formed and is validly existing
as a limited partnership under the laws of the State of Delaware, and is
duly registered or qualified to do business in the State of Illinois. The
execution, delivery and performance of this Agreement and all other
documents, instruments and agreements to be executed and delivered by
Selling Partner pursuant to this Agreement (collectively, "Selling
Partner's Documents") are within the partnership power of Selling Partner
and have been duly authorized by all necessary and appropriate partnership
action.
(e) Neither the execution and delivery of this Agreement and
Selling Partner's Documents nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under, (i) the
partnership agreement of Selling Partner or (ii) any agreement or
instrument to which Selling Partner is a party or by which it is bound.
There are no actions, voluntary or involuntary, pending against Selling
Partner under any bankruptcy, reorganization, arrangement, insolvency or
similar federal or state statute.
10
<PAGE>
(f) Selling Partner is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended.
(g) With respect to the Leases:
(i) As of the date of the rent roll to be delivered pursuant to
Section 2.1 hereof (the "Rent Roll"), there are no tenant
leases, tenancy agreements, licenses, occupancy agreements
or any amendments, renewals, assignments, subletting and
guaranties thereof, or surrender agreements and termination
agreements related thereto, affecting the Project, or any
portion thereof, other than the Leases set forth in the
----------
Rent Roll and any subleases, licenses or occupancy
agreements which have (a) been entered into by tenants of
the Project with third parties and (b) not been disclosed
in writing to Selling Partner.
(ii) The Rent Roll shall contain a complete and accurate list of
the names of the Tenants, the date of each Lease (and any
amendments thereto), the space covered thereby and the
current rental payable thereunder. The information
contained in the Rent Roll shall be true, complete and
correct in all material respects as of the date of the Rent
Roll.
(iii) The copies of the Leases heretofore delivered by Selling
Partner to Purchaser are true, complete and correct copies
of the Leases.
(iv) To Selling Partner's Actual Knowledge, each of the Leases
is in full force and effect and has not been amended,
modified or extended, except as set forth in the Rent Roll.
To Selling Partner's Actual Knowledge, except as set forth
in the Rent Roll or otherwise disclosed to Purchaser in
writing, including, without limitation, information set
forth in the Estoppel Certificates, the Partnership has
performed and observed in all material respects, for all
periods following the Cut Off Date, all of (and is not in
material default, excluding any grace periods, in the
performance or observance of) the terms, covenants and
conditions on the Partnership's part to be performed or
observed under the Leases. Except as set forth in the Rent
Roll or otherwise disclosed to Purchaser in writing,
neither the Partnership nor Selling Partner has given, nor
has the Partnership or Selling Partner received, any
written notice of a default under any of the Leases which
remains uncured.
(v) To Selling Partner's Actual Knowledge, except as set forth
in the Rent Roll or the Leases, or otherwise disclosed to
Purchaser in writing, no Tenant under any of the Leases (a)
is currently contesting (in writing) any item of rent
charged under any of the Leases or is currently claiming
(in writing) an overcharge of operating expenses; (b) is
entitled to any concessions or abatements, rebates, set-
offs or free rent with respect to any item of rent for any
period subsequent to the Closing, and all items of an
inducement nature to be performed by the
11
<PAGE>
landlord under the Leases prior to the Closing Date have
been performed, or (c) has any option or right of first
offer or first refusal to purchase the Project or any part
thereof.
(vi) To Selling Partner's Actual Knowledge, except as noted in
the Rent Roll, or otherwise disclosed to Purchaser in
writing, the Partnership's historical billing practices to
Tenants for additional rents and percentage rents is
consistent with the requirements of each Lease.
(h) With respect to the Service Contracts:
(i) As of the date hereof, there are no written equipment
leases or service, maintenance or other similar contracts
or agreements affecting the Project, or any portion
thereof, other than (a) the Service Contracts and (ii) any
equipment leases or other contracts or agreements that may
have been entered into by Tenants (or subtenants of
Tenants) of the Project with third parties; and
(ii) Each Service Contract is in full force and effect and has
not been amended except as disclosed to Purchaser in
writing by Selling Partner. Neither the Partnership nor
Selling Partner has given, nor has the Partnership or
Selling Partner received, any written notice of a default
under any of the Service Contracts which remains uncured,
except as disclosed to Purchaser in writing by Selling
Partner.
(i) As of the date hereof, to Selling Partner's Actual Knowledge
there is not any pending, nor has the Partnership or Selling Partner
received written notice of any threatened:
(i) proceeding, suit or action against the Partnership or
Selling Partner which, if adversely decided, would prevent
or materially delay the consummation of the transaction
contemplated by this Agreement or materially adversely
affect the Project or the Partnership, including, without
limitation, pending or threatened suits, actions or
proceedings with respect to all or part of the Project (a)
for condemnation, (b) alleging any violation of any
Governmental Regulation, (c) which could result in the
imposition of a lien against the Project or (d) which could
increase real property taxes or assessments levied against
the Project (other than the normal and routine assessment
and reassessment process conducted by applicable
governmental authorities), or
(ii) proceeding to change or redefine the zoning classification
applicable to any portion of the Project that would cause
the Project to become a "non-conforming" use, or
(iii) proceeding to change any road patterns or grades that would
materially adversely affect access to any roads providing a
means of ingress to or egress from the Project, or
12
<PAGE>
(iv) proceeding seeking a reduction of real estate taxes
imposed on the Project or any portion thereof, or
(v) pending imposition of any special or other assessments
for public betterments that may affect any portion of
the Project or the ownership thereof.
(j) To Selling Partner's Actual Knowledge, the Project does not
violate any Governmental Regulation in any material respect and the
current operation and use of the Project complies in all material respects
with all applicable Governmental Regulations.
(k) To Selling Partner's Actual Knowledge, all Permits required
for the continued use and occupancy of the Project (as the same is
presently used under the Leases) have been obtained from all appropriate
governmental authorities, are fully paid for, are in full force and
effect, and will not be revoked, invalidated or violated by the
consummation of the transaction contemplated by this Agreement. To
Selling Partner's Actual Knowledge, the Project remains in compliance in
all material respects with all applicable requirements and conditions with
respect to the issuance of the Permits, which were in effect at the time
of the issuance thereof.
(l) Except as previously disclosed in writing by Selling Partner to
Purchaser, to Selling Partner's Actual Knowledge the Project has not been
designated as a landmark and is not located in a conservation or historic
district or in an area that has been identified as having special flood
hazards.
(m) To Selling Partner's Actual Knowledge, the Project is an
independent unit which, as of the date hereof, does not rely on any
facilities (other than the facilities of public utility companies) located
on any property not included in the Project to (i) fulfill the
requirements of any Governmental Regulation, (ii) provide structural
support or furnish any essential building system or utility or (iii)
fulfill the requirements of any of the Leases. No building or other
improvement not included in the Project relies on any part of the Project
to (1) fulfill the requirements of any Governmental Regulation, or (2)
provide structural support or furnish any essential building system or
utility.
(n) To Selling Partner's Actual Knowledge, for any period
following the Cut Off Date, there has not been any material damage to any
portion of the Project caused by fire or other casualty that has not been
repaired or restored.
(o) To Selling Partner's Actual Knowledge, the real property and
improvements that constitute the Project are assessed as one tax lot that
is separate and distinct from the tax lot allocated to any other parcel of
land or any other improvements.
(p) To Selling Partner's Actual Knowledge, and except as otherwise
disclosed in any environmental report delivered by Selling Partner to
Purchaser with respect to the Project ("Environmental Report"), (i) no
Hazardous Materials have been stored, disposed of, released or transported
at or from the Project, or any portion thereof, in violation of, or
requiring remediation under, any Environmental Laws (the foregoing
representation does not apply to the customary and ordinary application,
storage and use of chemicals for landscape
13
<PAGE>
maintenance, janitorial services, and pest control); and (ii) there have
been no and are no (A) aboveground or underground storage tanks; (B)
polychlorinated biphenyls ("PCBs") or PCB-containing equipment; (C)
asbestos containing materials; (D) lead based paints; or (E) dry-cleaning
facilities in, on, under or at the Project; or (F) wetlands located on or
at the Project.
(q) There is now in full force and effect with reputable insurance
companies, casualty and liability insurance policies with respect to the
Project in commercially reasonable amounts.
(r) To Selling Partner's Actual Knowledge, the Rent Roll and the
operating statements for the Project provided by Selling Partner or the
Partnership to Purchaser present fairly the financial condition of the
Project as of their respective dates and the results of the Project's
operations for the periods reflected therein.
(s) The Partnership has no employees and is not a party to any
union, labor or collective bargaining agreement affecting the Project.
(t) The Partnership has filed all income, franchise, sales,
payroll and other tax returns and reports of every nature required to be
filed by it accurately reflecting all taxes owing to the United States or
any other government, government subdivision or taxing authority, and it
has paid in full or made adequate provision for the payment of all taxes
and duties (including penalties and interest) for which it has or may
have liability. Selling Partner has no knowledge of any unassessed tax
deficiency proposed or threatened against the Partnership as a result of
the operation of its business. There are no liens on the assets of the
Partnership as a result of any tax liabilities except for taxes not yet
due and payable. There are, as of the date of this Agreement, no, and
after the date of this Agreement there will not be any, tax deficiencies
(including penalties and interest) of any kind assessed against or
relating to the Partnership with respect to any taxable periods ending on
or before, or including, the Closing Date of a character or nature that
would result in liens or claims on any of the Property, or on the
Partnership's title to or use of the Property, or that would result in any
claim against the Partnership.
(u) The copies of the Partnership Agreement and the amendments
thereto previously delivered to Purchaser by Selling Partner are true and
correct copies of the documents governing the formation and existence of
the Partnership and there are no other agreements, documents or other
instruments of any nature which govern the relationship of the partners in
the Partnership or its assets.
(v) With respect to the receipt of Units:
(i) Selling Partner (A) understands the risks of, and other
considerations relating to accepting Units in connection
with its sale of the Partnership Interests pursuant to
this Agreement; (B) is an "accredited investor" as
defined in the Securities Act, and (C) by reason of its
business and financial experience, together with the
business and financial experience of those persons, if
any, retained by it to represent or advise it with
respect to the transaction contemplated by the
Agreement, has such knowledge, sophistication and
experience in
14
<PAGE>
financial and business matters and in making investment
decisions of this type, that (1) it is capable of
evaluating the merits and risks of an investment in PPAP
and of making an informed investment decision, and (2) is
capable of protecting its own interest or has engaged
representatives or advisors to assist it in protecting its
interest, and (D) is capable of bearing the economic risk
of such investment.
(ii) Selling Partner (A) understands and acknowledges that an
investment in PPAP involves substantial risks; (B) has been
given the opportunity to make a thorough investigation of
the proposed activities of PPAP; (C) has been afforded the
opportunity to obtain any information deemed necessary by
Selling Partner; (D) confirms that all documents, records,
and books pertaining to its investment in PPAP and
requested by Selling Partner have been made available or
delivered to Selling Partner; (E) has had an opportunity to
ask questions of and receive answers from PPAP, or from a
person or persons acting on PPAP's behalf, concerning the
terms and conditions of the transaction contemplated by the
Agreement and its acquisition of Units; and (F) has relied
upon, and is making its investment decisions solely upon
such information as has been provided to Selling Partner in
writing by PPAP.
(iii) The Units to be transferred to Selling Partner pursuant to
this Agreement will be acquired by Selling Partner for its
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, or the grant of any participation
therein, without prejudice, however, to Selling Partner's
right (subject to the terms of the partnership agreement of
PPAP) at all times to sell or otherwise dispose of all or
any part of its Units under an exemption from such
registration available under the Securities Act and
applicable state securities law, and subject, nevertheless,
to the disposition of its assets being at all times within
its control. Selling Partner was not formed for the
specific purpose of acquiring an interest in PPAP.
(iv) Selling Partner acknowledges that (A) the Units to be
issued to Selling Partner will not have been registered
under the Securities Act or state securities laws by reason
of a specific exemption or exemptions from registration
under the Securities Act and applicable state securities
laws and, if such Units are to be represented by
certificates, such certificates will bear a legend to such
effect; (B) Purchaser's reliance on such exemptions is
predicated in part on the accuracy and completeness of the
representations, warranties and covenants of Selling
Partner contained herein; (C) such Units, therefore, cannot
be resold unless registered under the Securities Act and
applicable state securities laws, or unless an exemption
from registration is available; (D) there will be no public
market for such Units; (E) Units to be issued to Selling
Partner will not be
15
<PAGE>
transferable without the prior written consent of the
general partner of PPAP which consent shall not be withheld
if the general partner of PPAP determines that the transfer
of same is a valid private placement under applicable
Federal and State securities laws; (F) PPAP has no
obligation or intention to register such Units for resale
under the Securities Act or any state securities laws or to
take any action that would make available any exemption
from the registration requirements of such law; (G) because
of the restrictions on transfer or assignment of such Units
to be issued hereunder set forth in the partnership
agreement of PPAP and/or in a stock restriction agreement,
Selling Partner may have to bear the economic risk of the
investment commitment evidenced by this Agreement and any
Units acquired hereby for an indefinite period of time, and
(H) under the terms of the partnership agreement of PPAP,
as it will be in effect on the Closing Date, Units will not
be redeemable at the request of the holder thereof for cash
(or at the option of PPL REIT, for common stock in PPL
REIT) prior to the first anniversary of their issuance.
(v) The address set forth for Selling Partner in this Agreement
is the address of Selling Partner's principal place of
business or residence, as applicable, and Selling Partner
has no present intention of becoming a resident of any
country, state or jurisdiction other than the country and
state in which principle place of business or residence, as
applicable, is cited.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the term
----------- ------------------
"Selling Partner's Actual Knowledge" is used it shall be limited to the
knowledge of Thomas F. August or Dennis J. DuBois. Notwithstanding anything
herein contained to the contrary, in the event that prior to Closing Purchaser
has knowledge of any fact or circumstance that would make any of the
representations or warranties of Selling Partner set forth herein untrue or
incorrect, Selling Partner shall not be deemed to be in default hereunder by
reason of the fact that such representation or warranty is in fact untrue or
incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
----------- ------------------------------------------
otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall be continuing and shall be true and correct on and as
of the Closing Date with the same force and effect as if made at that time, and
all of such representations and warranties, other than those set forth is
Subsections 4.1(a), (b), (c), (d), (e), (f) and (v) above, shall survive the
Closing for a period of twelve (12) months, at which time they shall expire and
terminate and be of no further force and effect unless a claim for breach
thereof has been instituted within such twelve (12) month period. The
representations and warranties set forth in Subsections 4.1(a), (b), (c), (d),
(e), (f) and (v) above, shall survive the Closing without limitation of time
constraints.
Section 4.4 Selling Partner's Obligation to Notify Purchaser of Change.
----------- ----------------------------------------------------------
If, prior to the Closing Date, either Selling Partner or the Partnership becomes
aware that any representation or warranty set forth in Section 4.1 hereof which
was true and correct on the date hereof has become incorrect in any material
respect, either prior to or at Closing, due to changes in conditions or the
discovery of information by Selling Partner or the Partnership of which Selling
Partner was unaware
16
<PAGE>
on the date hereof, Selling Partner shall immediately notify Purchaser thereof.
Upon receipt of such notification, if such change is material and adverse with
respect to the acquisition of the Project, Purchaser shall have the option of
terminating this Agreement whereupon this Agreement shall become null and void
and of no further force or effect and neither party shall have any further
obligation one to the other. If Purchaser does not exercise its option to
terminate this Agreement by reason of any such change in conditions, appropriate
modifications shall be made in the terms hereof to reflect the change in the
conditions to the mutual satisfaction of Selling Partner and Purchaser.
Section 4.5 Operation of Project Prior to Closing. Selling Partner shall
----------- -------------------------------------
to the extent it has the power to do so under the Partnership Agreement (a)
continue to cause the Partnership's property manager to diligently operate the
Improvements and the Project in the ordinary course of business between the date
hereof and the Closing Date, (b) cause the Partnership to keep, observe, and
perform or cause to be performed all of its obligations as landlord under the
Leases, (c) prevent the Partnership from terminating or causing the termination
of any Lease except as the result of the default of the Tenant thereunder or the
replacement of a suitable substitute, and (d) cause the Partnership to maintain
and operate the Project in substantially the same condition and repair as exists
on the Effective Date, reasonable wear and tear and normal replacements
excepted.
Section 4.6 Representations and Warranties of Owners of Selling Partner.
----------- -----------------------------------------------------------
In the event Selling Partner at Closing transfers or directs the transfer of
Units to any direct or indirect owners (the "Owners") of any interest in Selling
Partner, as a condition to the obligation of Purchaser to consummate the
transaction contemplated hereby, the Owners shall execute and deliver at Closing
a certificate containing the representations and warranties stated in Section
4.1(v)(i) through (v), inclusive, as applicable to Owners, provided, however,
that the Owners' liability for a breach of any representation or warranty
contained in such certificate will be limited to Owners returning the Units they
receive at Closing.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
Section 5.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Selling Partner set
forth herein shall be true in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties have been made on and as of the Closing Date;
(b) Selling Partner shall have performed, observed and complied
with all of the covenants, agreements and conditions required by this
Agreement to be performed, observed and complied in all material respects
with by Selling Partner prior to or as of the Closing Date;
(c) Purchaser, on or before the expiration of the Inspection
Period, shall have performed such inspections, investigations and tests as
Purchaser desires, in accordance with
17
<PAGE>
the terms of Article II of this Agreement, and Purchaser shall have
determined, in Purchaser's sole discretion, that the Project is suitable
for Purchaser's intended use;
(d) Selling Partner shall have delivered to Purchaser a
certificate or certificates as may be acceptable to Purchaser stating that
a search has been conducted by a party acceptable to Purchaser of both the
state and county records in which financing statements and security
agreements are filed under the Uniform Commercial Code of the State and
that such searches indicate that, except security interests or liens to be
released at Closing, no security interests or liens of any kind or nature,
including, but not limited to, any equipment financing or leasing
arrangements, are claimed by any Person against the Partnership Interest,
the Personal Property or the Improvements, or any part thereof;
(e) The closing of the IPO shall have occurred;
(f) Purchaser shall have received from each Major Tenant an
Estoppel Certificate duly executed by each Tenant, without material change
to the form of Estoppel Certificate submitted to the Tenant in question;
(g) No material adverse change in the condition or operation of
the Project or the Partnership as they exist on the Effective Date shall
have occurred between the Effective Date and the Closing Date, which
change negatively and adversely affects the Project or the Partnership in
any material manner;
(h) The Project shall have suffered no unrepaired casualty loss or
condemnation which would materially and adversely affect the Project or
the Partnership; and
(i) If required by the Partnership Agreement, the written consent
to the transfer of the Partnership Interest as contemplated hereby shall
have been executed by the other partner in the Partnership and delivered
to Purchaser.
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of the
Partnership Interests and the conditions set forth in subparagraphs (a)
and/or (b) of Section 5.1 have not been satisfied, Selling Partner shall
be deemed in default hereunder and Purchaser shall have the option to
either (i) waive those conditions and proceed with the Closing or (ii)
exercise it rights and remedies set forth in Article VI.
(b) In the event (i) on or prior to the expiration of the
Inspection Period, Purchaser has determined that the Project is not suited
for Purchaser's intended use or that the transaction contemplated by this
Agreement is not a satisfactory investment, or (ii) on or before the
Closing Date the conditions set forth in subparagraphs (d) (e), (f), (g),
(h), or (i) of Section 5.1 above have not been satisfied, Purchaser shall
have the option to either (1) waive those conditions and proceed with the
Closing or (2) terminate this Agreement
18
<PAGE>
whereupon this Agreement shall become null and void and of no further force
or effect and neither party shall have any further obligation one to the
other.
Section 5.3 Outside Closing Date. In the event (i) the condition
----------- --------------------
precedent to Purchaser's obligations to consummate the transaction contemplated
hereby set forth in Section 5.1(e) has not been satisfied on or before December
31, 1996, in a manner to permit the transaction contemplated hereby to be
consummated and funded by such date, or (ii) Purchaser has not designated a
Closing Date within a sufficient period of time to permit the timely Closing of
the transaction contemplated hereby on or before December 31, 1996, or (iii)
Purchaser has not designated a Closing Date within ten (10) Business days
following the date the IPO has occurred, then in such event this Agreement shall
terminate and become null and void and of no further force or effect on the
earlier of December 31, 1996, or on the tenth (10th) Business day following the
date of the occurrence of the IPO, and neither party shall have any further
obligation one to the other.
ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Selling Partner's Defaults; Purchaser's Remedies.
----------- ------------------------------------------------
(a) Selling Partner's Defaults. Selling Partner shall be deemed
--------------------------
to be in default hereunder in the event that any of the representations
hereunder are determined to be false or misleading in any material respect
or in the event Selling Partner shall fail in any material respect to
meet, comply with, or perform any covenant, agreement, or obligation on
its part required within the time limits and in the manner required in
this Agreement.
(b) Purchaser's Remedies. In the event Selling Partner shall be
--------------------
deemed to be in default hereunder for any other reason, by virtue of the
occurrence of any one or more of the events specified in Section 6.1(a)
above, Purchaser may at its election (i) bring suit against Selling
Partner to enforce specific performance of this Agreement together with
such actions as may be available at law or in equity to recover
Purchaser's actual out-of-pocket costs in the performance of reasonable
due diligence, or (ii) terminate this Agreement. If the remedy of specific
performance is not available Purchaser shall have no remedy for damages
other that the aforementioned out-of-pocket costs. Notwithstanding
anything to the contrary contained herein, to the extent any action is
instituted by Purchaser from and after the Closing Date in respect to a
breach of a warranty or representation hereunder, Selling Partner's
liability under this Agreement shall be limited to Selling Partner's
returning the Units it receives at Closing.
Section 6.2 Purchaser's Default; Selling Partner's Remedies.
----------- -----------------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material
respect to meet, comply with, or perform any covenant, agreement, or
obligation on its part required within the time limits and in the manner
required in this Agreement.
(b) Selling Partner's Remedy. IN THE EVENT PURCHASER SHALL BE
------------------------
DEEMED TO BE IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR
19
<PAGE>
TO CLOSING AND SELLING PARTNER DOES NOT WAIVE SUCH DEFAULT, SELLING
PARTNER, AS SELLING PARTNER'S SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT,
SHALL BE ENTITLED TO RETAIN THE INDEPENDENT CONSIDERATION, IT BEING AGREED
BETWEEN PURCHASER AND SELLING PARTNER THAT SUCH SUM SHALL BE LIQUIDATED
DAMAGES FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE DIFFICULTY,
INCONVENIENCE AND UNCERTAINTY OF ASCERTAINING ACTUAL DAMAGES FOR SUCH
DEFAULT. IN PLACING THEIR INITIALS AT THE PLACES PROVIDED, EACH PARTY
SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE
FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED THE
CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME THIS
AGREEMENT WAS MADE. NOTWITHSTANDING THE FOREGOING, THE PROVISIONS OF THIS
SECTION 6.2 (b) SHALL NOT LIMIT IN ANY MANNER PURCHASER'S INDEMNITY
OBLIGATIONS SET FORTH IN SECTIONS 8.1 OR 8.3 HEREOF.
SELLING PARTNER'S INITIALS: /s/ TFA
----------
PURCHASER'S INITIALS: /s/ TFA
----------
Section 6.3 Attorneys' Fees. Should either party employ an attorney
----------- ---------------
or attorneys to enforce any of the provisions hereof or to protect its interest
in any manner arising under this Agreement, the non prevailing party in any
action pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
ARTICLE VII
CLOSING COSTS; POST-CLOSING ADJUSTMENTS
---------------------------------------
Section 7.1 Closing Costs. Costs of closing the transaction contemplated
----------- -------------
hereby shall be allocated between Selling Partner and Purchaser as follows:
(a) Selling Partner shall pay the costs, if any, incurred by
Selling Partner in connection with the performance of its obligations
hereunder.
(b) Purchaser shall pay the costs, if any, incurred by Purchaser
in connection with the performance of its obligations hereunder.
Section 7.2 Post-Closing Adjustments with Respect to Available Cash.
----------- -------------------------------------------------------
Purchaser and Selling Partner acknowledge that all Available Cash relating to
the operations of the Partnership prior to the Closing Date shall be retained by
and remain the property of the existing partners (including Selling Partner)
owning interests in the Partnership immediately prior to the consummation of the
transaction contemplated hereby. Purchaser and Selling Partner further
acknowledge that it may not be possible to determine or compute the exact amount
of undistributed Available Cash as of the Closing Date. Therefore, Purchaser
hereby agrees that it shall cause the Partnership, as soon as reasonably
practicable following the Closing Date, to determine and compute the amount of
undistributed Available Cash through the Closing Date and to pay over and
distribute
20
<PAGE>
such sums to Selling Partner and the other partners of the Partnership in the
manner contemplated by the Partnership Agreement, as if the transaction
contemplated hereby had not been consummated. To the extent requested by Selling
Partner, Purchaser and/or the Partnership shall provide adequate back up and
substantiation as to the manner in which undistributed Available Cash has been
determined, including verification by the Partnership's independent accountants
if requested by Selling Partner.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the payment of any commission regarding
the consummation of the transaction contemplated hereby. It is agreed that if
any claims for commissions or fees, including, without limitation, brokerage
fees, finder's fees, or commissions, are ever made against Selling Partner or
Purchaser in connection with this transaction, all such claims shall be handled
and paid by the party whose actions or alleged commitments form the basis of
such claim and such party shall indemnify and hold harmless the other from and
against all such claims or demands with respect to any brokerage fees, finder's
fees, or agents' commissions or other compensation asserted by any person, firm,
or corporation in connection with this Agreement or the transactions
contemplated hereby. The provisions of this Section 8.1 shall expressly survive
the early termination of this Agreement.
Section 8.2 Selling Partner's Indemnity. Selling Partner agrees to
----------- ---------------------------
indemnify and hold Purchaser harmless of and from all liabilities, claims,
demands and expenses, of any kind or nature, known or unknown, fixed or
contingent, arising or accruing on or before the Closing Date related to the
ownership of the Partnership Interest, and all expenses related thereto,
including, without limitation, court costs and attorneys' fees. The foregoing
indemnity shall also apply to any claims, demands, causes of action, losses,
damages, liabilities, costs or expenses asserted against or incurred by
Purchaser at any time or from time to time by reason of or arising out of the
breach of any representation or warranty of Selling Partner set forth herein,
subject to limitation. Selling Partner's liability with respect thereto shall be
governed by the provisions of Section 6.1(b) hereof.
Section 8.3 Purchaser's Indemnity. Purchaser agrees to indemnify and
----------- ---------------------
hold Selling Partner harmless of and from all liabilities, claims, demands and
expenses, of any kind or nature, known or unknown, fixed or contingent, arising
and accruing subsequent to the Closing Date related to the ownership of the
Partnership Interest, and all expenses related thereto, including, without
limitation, court costs and attorneys' fees.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise expressly
----------- -----------------
provided for herein, the terms and provisions hereof shall survive the Closing.
The acceptance of the closing documents by Purchaser and payment of the Purchase
Price shall be deemed full compliance by
21
<PAGE>
Selling Partner and Purchaser of all of their respective obligations arising
under this Agreement and Purchaser and Selling Partner each expressly waives any
noncompliance by the other party hereto with any prior obligations other than
those obligations which expressly survive the Closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
Section 9.3 Entire Agreement; Modifications. This Agreement embodies and
----------- -------------------------------
constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged, or terminated except by an instrument in
writing signed by the party against which the enforcement of such waiver,
modification, amendment, discharge, or termination is sought, and then only to
the extent set forth in such instrument.
Section 9.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Selling Partner and Purchaser, each of
which has been represented by counsel of its own selection, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Consequently, the terms and provisions of this Agreement shall
be interpreted and construed in accordance with their usual and customary
meanings, and Selling Partner and Purchaser hereby expressly waive and
disclaim, in connection with the interpretation and construction of this
Agreement, any rule of law or procedure requiring otherwise, including
without limitation, any rule of law to the effect that ambiguous or
conflicting terms or provisions contained in this Agreement shall be
interpreted or construed against the party whose attorney prepared this
Agreement or any earlier draft of this Agreement.
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail return
receipt, signed by the addressee or the addressee's agent or representative, (b)
if by telegram, by a telegram receipt signed by the addressee or the addressee's
agent or representative, (c) if hand delivered (including delivery by any
overnight or other delivery service), by a delivery receipt signed by the
addressee or the addressee's agent or representative, or (d) if sent by
facsimile transmission, with confirmation of receipt at the facsimile number to
which it was sent. Each party's initial address for delivery of any Notice is
designated below, but any party from time to time may designate a different
address for delivery of any Notice by delivering to the other party Notice of
such different address; provided, however, neither party
22
<PAGE>
may designate an address for delivery of Notice not located within the United
States. Each party hereto covenants and agrees to mail copies of any Notice to
the parties designated to receive copies of any Notice below, but the failure of
the addressee for any copy actually to receive such copy shall not render the
Notice ineffective.
If to Selling Partner: Prentiss Properties Itasca, L.P.
1717 Main Street, Suite 5000
Dallas, Texas 75201
Attention: Thomas F. August
Telephone No.: (214) 761-5009
Fax No.: (214) 748-1742
With copies to: Dennis DuBois, Esq.
1717 Main Street,Suite 5000
Dallas, Texas 75201
Telephone No.: (214) 761-5011
Fax No.: (214) 748-1742
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Fax No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Fax No.: (214) 969-4343
Section 9.7 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Selling
Partner or Purchaser, Selling Partner and Purchaser hereby agree to perform,
execute, and/or deliver or cause to be performed, executed, and/or delivered at
the Closing or thereafter, all such further acts, deeds, and assurances as
Purchaser or Selling Partner, as the case may be, may reasonably require to (i)
evidence and vest in the Purchaser the ownership of, and title to, the
Partnership Interest, and (ii) consummate the transactions contemplated
hereunder. The covenants set forth in this Section 9.7 shall survive the
Closing.
Section 9.8 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
----------- --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 9.9 Assignment. Purchaser shall have the right, without the
----------- ----------
consent of Selling Partner, to assign its rights under this Agreement and all
rights hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Such assignment may be in respect to all or any portion of
the Partnership Interest and Purchaser may assign its rights hereunder to more
than
23
<PAGE>
one Person each of whom shall acquire an allocable portion of the Partnership
Interest. Upon such assignment Purchaser shall be relieved of its obligations
hereunder, so long as the PPL REIT or any entity in which the PPL REIT has a
controlling interest assumes all applicable obligations of Purchaser hereunder
and confirms the undertakings or representations of Purchaser hereunder. No
other assignment may be made without the prior written consent of Selling
Partner.
Section 9.10 Time of the Essence. Time is of the essence of this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
Section 9.11 Conditions. All covenants, warranties and obligations
------------ ----------
of Selling Partner or Purchaser contained in this Agreement are deemed to be
conditions to the other parties' obligations herein. All conditions to
Purchaser's or Selling Partner's obligations, whether specifically stated in
this Agreement or pursuant to the preceding sentence, and all rights of
Purchaser or Selling Partner herein are imposed solely and exclusively for the
benefit of the other party and their respective assigns and any or all of such
conditions or rights may be waived in whole or in part by the party in question
at any time in such party's sole discretion.
Section 9.12 Severability. If any provision in this Agreement is
------------ ------------
invalid, illegal, or unenforceable, such provision shall be construed as
narrowly as possible to allow Purchaser and Selling Partner to be afforded the
benefits and protection of this Agreement. Such provision shall be severable
from the rest of this Agreement and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and shall continue in full force and effect.
Section 9.13 Counterparts. Two or more duplicate originals of the
------------ ------------
written instrument containing this Agreement may be signed by the parties, each
of which shall be deemed an original but all of which together shall constitute
one and the same agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLING PARTNER:
---------------
PRENTISS PROPERTIES ITASCA, L.P.,
a Delaware limited partnership
By: Prentiss Properties Itasca, Inc.,
a Delaware corporation, as its
general partner
By: /s/: THOMAS F. AUGUST
--------------------------------------
Name: THOMAS F. AUGUST
------------------------------------
Title: VICE PRESIDENT
-----------------------------------
Dated of Execution: As of August 5, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/: THOMAS F. AUGUST
--------------------------------------
Name: THOMAS F. AUGUST
------------------------------------
Title: VICE PRESIDENT
-----------------------------------
Date of Execution: As of August 5, 1996
25
<PAGE>
EXHIBIT 10.13
AGREEMENT OF PURCHASE AND
SALE OF PARTNERSHIP INTERESTS
BY AND AMONG
PRENTISS O'HARE ILLINOIS, INC.
AND
PRENTISS O'HARE ILLINOIS II, INC.
AS SELLING PARTNERS
AND
PRENTISS PROPERTIES LIMITED, INC.
AS PURCHASER
Dated: AS OF AUGUST 5, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; PURCHASE PRICE . . . . . . . . . . . . 1
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Sale and Delivery of the Partnership Interests . . . 7
Section 1.3 Purchase Price for the Partnership Interests . . . . 7
Section 1.4 Independent Consideration. . . . . . . . . . . . . . 7
ARTICLE II APPROVAL OF DOCUMENTS; INSPECTIONS . . . . . . . . . 8
Section 2.1 Items to be Furnished to Purchaser . . . . . . . . . 8
Section 2.2 Estoppel Certificates. . . . . . . . . . . . . . . . 8
Section 2.3 Inspection . . . . . . . . . . . . . . . . . . . . . 8
Section 2.4 Purchaser's Acknowledgement. . . . . . . . . . . . . 9
ARTICLE III THE CLOSING DATE AND THE CLOSING; OBLIGATIONS OF
PURCHASER AND SELLING PARTNERS WITH RESPECT THERETO. 10
Section 3.1 The Closing and the Closing Date . . . . . . . . . . 10
Section 3.2 Selling Partners' Obligations at the Closing . . . . 10
Section 3.3 Purchaser's Obligations at the Closing . . . . . . . 11
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . 12
Section 4.1 Representations and Warranties of Selling Partners . 12
Section 4.2 Knowledge Standard . . . . . . . . . . . . . . . . . 20
Section 4.3 Survival of Representations and Warranties . . . . . 20
Section 4.4 Selling Partners' Obligation to Notify Purchaser of
Change . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.5 Operation of Project Prior to Closing. . . . . . . . 21
Section 4.6 Limitation on Disposition of Project and
Maintenance of Debt . . . . . . . . . . . . . . . . 21
ARTICLE V CONDITIONS TO CLOSING . . . . . . . . . . . . . . . 21
Section 5.1 Conditions Precedent to Purchaser's Obligations. . . 21
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
Precedent. . . . . . . . . . . . . . . . . . . . . . 22
Section 5.3 Outside Closing Date . . . . . . . . . . . . . . . . 23
Section 5.4 Conditions Precedent to Selling Partner's
Obligations. . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . 23
Section 6.1 Selling Partners' Defaults; Purchaser's Remedies . . 23
Section 6.2 Purchaser's Default; Selling Partners' Remedies. . . 24
i
<PAGE>
Section 6.3 Attorneys' Fees. . . . . . . . . . . . . . . . . . . 25
ARTICLE VII CLOSING COSTS; POST-CLOSING ADJUSTMENTS . . . . . . 25
Section 7.1 Closing Costs. . . . . . . . . . . . . . . . . . . . 25
Section 7.2 Post-Closing Adjustments with Respect to Available
Cash . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . 25
Section 8.1 Brokerage Commissions. . . . . . . . . . . . . . . . 25
Section 8.2 Selling Partners' Indemnity. . . . . . . . . . . . . 26
Section 8.3 Purchaser's Indemnity. . . . . . . . . . . . . . . . 26
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 26
Section 9.1 Survival of Terms. . . . . . . . . . . . . . . . . . 26
Section 9.2 Binding Effect . . . . . . . . . . . . . . . . . . . 26
Section 9.3 Entire Agreement; Modifications. . . . . . . . . . . 26
Section 9.4 Headings . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.5 Interpretation and Construction. . . . . . . . . . . 27
Section 9.6 Notice . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.7 Additional Acts. . . . . . . . . . . . . . . . . . . 28
Section 9.8 Applicable Law . . . . . . . . . . . . . . . . . . . 28
Section 9.9 Assignment . . . . . . . . . . . . . . . . . . . . . 28
Section 9.10 Time of the Essence. . . . . . . . . . . . . . . . . 29
Section 9.11 Conditions . . . . . . . . . . . . . . . . . . . . . 29
Section 9.12 Severability . . . . . . . . . . . . . . . . . . . . 29
Section 9.13 Counterparts . . . . . . . . . . . . . . . . . . . . 29
Section 9.14 Tax Returns and Tax Audit. . . . . . . . . . . . . . 29
EXHIBITS:
"A" - Description of Land
"B" - Items to be Furnished to Purchaser
"C" - Form of Tenant Estoppel Certificate
"D" - Closing Certificate
"E" - Prospective Subscriber Questionnaire
"F" - Investor Letter
ii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
OF PARTNERSHIP INTERESTS
------------------------
THIS AGREEMENT OF PURCHASE AND SALE is made and entered into by and among
PRENTISS PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"), and
PRENTISS O'HARE ILLINOIS, INC., an Illinois corporation ("O'Hare, Inc.") and
PRENTISS O'HARE ILLINOIS II, INC., an Illinois corporation ("O'Hare II")
(together the "Selling Partners"), as of the Effective Date.
W I T N E S S E T H:
===================
Selling Partners' predecessors-in-interest, on May 21, 1996, formed O'HARE
TECH CENTER ASSOCIATES, L.P.-II, an Illinois limited partnership (the
"Partnership"), for the purpose of developing, owning and operating Bachman
Creek Plaza, an office building located in Dallas, Texas.
The Partnership was formed pursuant to the terms and conditions of that
certain Agreement of Limited Partnership (the "Original Partnership Agreement"),
dated May 21, 1996, by and among O'Hare, Inc., O'Hare Development Group, Inc.,
an Illinois corporation, Thomas Kapsalis, John Drummond and Lawrence Okrent (the
Original Partnership Agreement, as amended, herein called the "Partnership
Agreement"). O'Hare II acquired its interests in the Partnership subsequent to
the date of formation.
Selling Partners are the owners and holders of all of the partnership
interests (the "Partnership Interests") in the Partnership. It is anticipated
that prior to the Closing Date, as hereinafter defined, O'Hare, Inc. will own
general and limited partnership interests constituting 99.9% of the Partnership
Interests and O'Hare II will own limited partnership interests constituting .1%
of the Partnership Interests. Purchaser, on its behalf and on behalf of certain
Affiliates, desires to contract to purchase and acquire the Partnership
Interests.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Selling Partners
hereby agree as follows:
ARTICLE I
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
1
<PAGE>
(a) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by or
is under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other
than corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the controlled Person; and "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of the controlled
Person.
(b) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this Agreement
of Purchase and Sale.
(c) "Available Cash" means all cash funds of the Partnership
--------------
generated by the operation of the Project or otherwise through the Closing
Date (whether collected prior to or subsequent to the Closing Date) after
(i) payment of or provision for all operating expenses of the Project or
the Partnership payable as of the Closing Date, and (ii) provision for a
reasonable reserve to pay accrued and unpaid expenses from the operation
of the Partnership and the Project.
(d) "Books and Records" shall mean all financial and other books
-----------------
and records maintained by or for the benefit of the Partnership in
connection with the operation of the Project and the Partnership and all
building plans, specifications and drawings, engineering, soils and
geological reports, environmental reports and other documents prepared in
connection with the construction, maintenance, repair, management or
operation of the Project which are within the possession or control of the
Partnership, or the Partnership's Affiliates, agents or representatives,
or Selling Partners.
(e) "Business day" means a day that is not a Saturday, a Sunday,
------------
a legal holiday or a day on which banks are required or permitted by law
or other governmental action to close in Dallas, Texas.
(f) "Closing" means the consummation of the purchase of the
-------
Partnership Interests by Purchaser from Selling Partners in accordance
with the terms and provisions of Article III, which Closing shall be held
at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., Suite 4100,
1700 Pacific Avenue, Dallas, Texas 75201-4618 on the Closing Date
commencing at 10:00 a.m. Central Daylight Time.
(g) "Closing Date" means a Business day which shall be established
------------
by Purchaser by written notice delivered to Selling Partners, which date
shall be no earlier than five (5) days following the date of such notice,
except that from and after the date the IPO shall have occurred, such date
shall be no earlier than ten (10) days following the date of such notice;
provided, however, that in no event shall the Closing Date be a date later
than December 31, 1996.
2
<PAGE>
(h) "Condominium Regime" means the condominium regime created by
------------------
that certain Declaration of Condominium Regime for the Plaza at Bachman
Creek dated February 24, 1986.
(i) "Effective Date" shall mean the date on which this Agreement
--------------
shall be fully executed and unconditionally delivered by Purchaser and
Selling Partners.
(j) "Environmental Laws" means all applicable existing federal,
------------------
state and local statutes, ordinances, orders, rules and regulations
issued, promulgated or adopted by any governmental authority having
jurisdiction over the Project relating to environmental pollution or
protection, including, without limitation, the Resource Conservation and
Recovery Act of 1976, 43 U.S.C. (S) 6901 et seq., the Comprehensive
------
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
(S) 9601 et seq., as amended by the Superfund Amendments and
------
Reauthorization Act of 1986, the Hazardous Materials Transportation Act, 49
U.S.C. (S) 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C.
------
(S) 1251 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et set., the Toxic
------ ------
Substances Control Act, 15 U.S.C. (S) 2601-2629, the Safe Drinking Water
Act, 42 U.S.C. (S) 300f et seq., together with all existing rules,
------
regulations and orders promulgated thereunder, and all similar applicable
existing local, state and federal statutes and regulations promulgated
pursuant thereto.
(k) "Estoppel Certificates" means the estoppel certificates to be
---------------------
delivered by each tenant in accordance with the provisions of Section 2.2
hereof.
(l) "First Lien Debt" means that certain indebtedness in the
---------------
original principal amount of $6,500,000.00 to be secured by a first lien
on the Project.
(m) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(n) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "restricted hazardous waste", or "toxic substances" or
words of similar import under any Environmental Laws, (ii) any oil,
petroleum or petroleum derived substances, any flammable substances or
explosives, any radioactive materials, any asbestos or any substance
containing more than 0.1 percent asbestos, any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts
per million, and any urea formaldehyde insulation, and (iii) any other
chemical, material or substance, exposure to which is prohibited, limited
or regulated by any Environmental Laws.
3
<PAGE>
(o) "Improvement Costs" means certain costs which are incurred
-----------------
prior to the Closing Date or will be incurred subsequent to the Closing
Date by the Partnership with respect to (i) the renovation of the
Improvements, and (ii) the performance of the Partnership's obligations
under the Prentiss Lease and any other Lease covering the Project for the
construction of tenant improvements and other costs required to be paid by
the landlord under the Leases in question, the funds to pay such costs to
be funded from proceeds of the Improvement Cost Loan or funds deposited
into the Improvement Cost Escrow.
(p) "Improvement Cost Loan" means that certain loan in an amount
---------------------
of up to $450,000.00 to be made to the Partnership from a financial
institution for the purpose of funding the Improvement Costs in excess of
that funds are available from funds to be deposited into the Improvement
Cost Escrow by the Partnership.
(q) "Improvement Cost Escrow" means that certain escrow
-----------------------
arrangement created by the Partnership in respect to the payment of
Improvement Costs, the funds placed into such escrow being funded from the
proceeds of the First Lien Debt.
(r) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the office buildings,
parking lots and all other amenities, together with the Partnership's
interest, if any, in all machinery, fixtures and equipment used in the
general operation of such buildings and improvements, and/or affixed to or
located upon the Land, along with all accessions and additions thereto,
excluding therefrom any machinery, fixtures, equipment or personal
property owned by Tenants at the Project.
(s) "IPO" means the proposed initial public offering of securities
---
in the PPL REIT.
(t) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
-----------
hereof for all purposes, together with all and singular all right, title
and interest of the Partnership, reversionary or otherwise, in and to all
easements in or upon the Land and all other rights and appurtenances
belonging or in anywise pertaining thereto, if any, including any right,
title, and interest of the Partnership in and to any land lying in the bed
of any street, road or access way, right-of-way, alley, opened or
proposed, in front of, at a side of or adjoining the Land to the
centerline thereof.
(u) "Leases" means all leases, licenses, franchises, concessions
------
and other occupancy agreements for the use or occupancy of any portion of
the Project, together with all rents, issues, profits, and deposits
thereunder and all amendments thereto.
(v) "Major Leases" means any Lease covering in excess of the
------------
lesser of (i) ten percent (10%) of net rentable area in the Project, or
(ii) 5,000 square feet of net rentable area in the Project, as reflected
in the Rent Roll, as hereinafter defined.
4
<PAGE>
(w) "Miscellaneous Assets" means all contract rights, leases,
--------------------
concessions, assignable warranties, and other items of intangible personal
property owned by the Partnership (but only to the extent assignable) and
relating to the ownership or operation of the Land and Improvements,
including, but not limited to, (i) the Service Contracts, (ii) the
Permits, (iii) the Leases, (iv) assignable utility and similar deposits,
(v) prepaid license and permit fees, (vi) the Warranties and (vii) the
Books and Records.
(x) "O'Hare, Inc." means PRENTISS O'HARE ILLINOIS, INC., an
------------
Illinois corporation.
(y) "O'Hare, Inc.'s Actual Knowledge" shall have the meaning set
-------------------------------
forth in Section 4.2 hereof.
(z) "O'Hare II" means PRENTISS O'HARE ILLINOIS II, INC., an
---------
Illinois corporation.
(aa) "Partnership" means O'HARE TECH CENTER ASSOCIATES L.P.-II, an
-----------
Illinois limited partnership.
(bb) "Partnership Agreement" means that certain Agreement of Limited
---------------------
Partnership dated May 21, 1996, pursuant to which the Partnership was
formed.
(cc) "Partnership Interests" means the general and limited
---------------------
partnership interests in the Partnership owned by O'Hare, Inc. and the
limited partnership interest in the Partnership owned by O'Hare II.
(dd) "Permits" means all licenses and permits issued to or for the
-------
benefit of the Partnership and used or relating to the ownership or
operation of the Project in accordance with its current use.
(ee) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(ff) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by the Partnership, located on or in the Land and the Improvements and
used or usable in connection with any part of the Project. The term
"Personal Property" specifically excludes any and all bank accounts of the
Partnership and any sums deposited therein, title to which shall be
retained by the partners of the Partnership (other than the Improvement
Cost Escrow which shall be retained by the Partnership).
(gg) "PPAP" means PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
----
a Delaware limited partnership.
5
<PAGE>
(hh) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct the
IPO, and to acquire directly or indirectly all or a portion of the
Partnership Interests and interests in other real properties, assets,
partnerships and related service businesses.
(ii) "Prentiss Lease" means that certain lease for space in the
--------------
Project to be entered into by the Partnership and Prentiss Properties
Limited, Inc.
(jj) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(kk) "Purchase Price" means the sum of (i) $3,314.568.00, plus (ii)
--------------
the Purchaser's assumption of certain guaranty obligations of O'Hare II,
plus (iii) the Purchaser's agreement to fund into the Partnership
necessary sums to pay in full the unpaid principal balance of the
Improvement Cost Loan, plus (iv) Purchaser's agreement to fund into the
Partnership necessary sums to pay the Improvement Costs in excess of sums
held in the Improvement Cost Escrow or funds available under the
Improvement Cost Loan.
(ll) "Purchaser" means PRENTISS PROPERTIES LIMITED, INC., a
---------
Delaware corporation.
(mm) "Rent Roll" shall have the meaning set forth in Section
---------
4.1(b)(iii)(A) of this Agreement.
(nn) "Securities Act" means the Securities Act of 1933, as amended.
--------------
(oo) "Selling Partners" means O'Hare, Inc. and O'Hare II.
----------------
(pp) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of the Partnership affecting the
operation of the Project, copies of which will be delivered to Purchaser
pursuant to Section 2.1 hereof.
(qq) "State" means the State in which the Project is situated.
-----
(rr) "Tenant" means any Person occupying any portion of the Project
------
under or pursuant to a Lease.
(ss) "Units" means units of limited partnership interest in PPAP.
-----
(tt) "Warranties" means all warranties and guaranties relating to
----------
the Project, or any part thereof, or to the Personal Property or
Improvements, or construction thereof.
Section 1.2 Sale and Delivery of the Partnership Interests. Selling
----------- ----------------------------------------------
Partners hereby agree to sell, transfer and assign the Partnership Interests to
Purchaser or its designees or assigns, and
6
<PAGE>
Purchaser hereby agrees to purchase the Partnership Interests from Selling
Partners, upon and subject to the terms and provisions hereinafter set forth.
Purchaser may designate one or more Affiliates to take title of up to one
percent (1%) of the Partnership Interests.
Section 1.3 Purchase Price for the Partnership Interests. The Purchase
----------- --------------------------------------------
Price shall be payable to the Selling Partner on the Closing Date plus or minus
prorations and adjustments as hereinafter provided. The Purchase Price shall be
allocated among the Selling Partners and payable in the manner set forth in
Section 1.5 below.
Section 1.4 Independent Consideration. Concurrently herewith Purchaser
----------- -------------------------
has paid to Selling Partners the sum of $100.00 each, which shall be independent
consideration (the "Independent Consideration") for the agreements of Selling
Partners set forth herein. The Independent Consideration shall be in addition to
the Purchase Price. If the Closing does not occur for any reason, the
Independent Consideration shall be deemed earned and shall be retained by each
of Selling Partners.
Section 1.5 Payment of Purchase Price. The payment of the Purchase Price
----------- -------------------------
shall be made as follows:
(a) TO O'HARE, INC. By the delivery of that number of Units which
---------------
shall be calculated by dividing the sum of $3,314,568.00 by the mid-point
of the offering price range for one (1) common share of beneficial
interest of the PPL REIT as set forth in the final "red-herring"
prospectus for the IPO. O'Hare, Inc. acknowledges that PPAP will not
issue fractional Units. Thus, the result of the calculation set forth
above will be rounded to the nearest whole number of Units (.50 rounded
down).
(b) TO O'HARE II The assumption by Purchaser of the guaranty
------------
obligations of O'Hare II under the First Lien Debt.
(c) TO O'HARE, INC. AND O'HARE II The agreement by Purchaser to
-----------------------------
fund into the Partnership sums necessary to pay the unpaid principal
balance of the Improvement Loan plus sums necessary to fund the costs
related to the Improvement Costs in excess of the amounts held in the
Improvement Cost Escrow or funds available under the Improvement Loan.
Section 1.6 Additional Consideration From O'Hare,Inc. to Purchaser. In
----------- ----------------------------------------------------
consideration for sums to be received pursuant to Section 1.5 hereof by O'Hare,
Inc., O'Hare, Inc. hereby agrees for the benefit of Purchaser that O'Hare, Inc.
shall execute and deliver a guaranty agreement, to be in the form and contain
the content as may be reasonably approved by O'Hare, Inc. and Purchaser, whereby
O'Hare, Inc. guarantees indebtedness of Purchaser in the amount of $1,345,507.
The indebtedness to be guaranteed by O'Hare, Inc. shall have a term in excess of
three (3) years. O'Hare, Inc.'s guaranty obligations shall expire on December
31, 1998. The aforementioned guaranty agreement shall be executed and delivered
on the Closing Date or thereafter and the direction of Purchaser, so long as the
request to deliver the guaranty agreement is made within six (6) months
following the Closing Date.
7
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ARTICLE II
APPROVAL OF DOCUMENTS; INSPECTIONS
----------------------------------
Section 2.1 Items to be Furnished to Purchaser. Within thirty (30) days
----------- ----------------------------------
after the Effective Date, Selling Partners shall cause the Partnership to
furnish to Purchaser, true, correct, complete, and legible copies of the items
listed on Exhibit "B" attached hereto and made a part hereof for all purposes.
-----------
In addition to the foregoing, Selling Partners shall make available to Purchaser
for its review either at the Project or at such other place as may be reasonably
convenient to Purchaser and Selling Partners copies of all other records
relating to the ownership and operation of the Project and the Partnership, in
Selling Partners's or the Partnership's possession or control.
Section 2.2 Estoppel Certificates. Within thirty (30) days after the
----------- ---------------------
Effective Date, Selling Partners will cause the Partnership to deliver to each
Tenant a form of Estoppel Certificate, to be in the form and contain the content
of the Estoppel Certificate attached hereto as Exhibit "C" and made a part
-----------
hereof for all purposes, and will use its reasonable efforts to cause each
Tenant to execute and deliver to Purchaser an Estoppel Certificate on or before
the Closing Date.
Section 2.3 Inspection.
----------- ----------
(a) During the period commencing on the Effective Date and ending
on the Closing Date or the earlier termination of this Agreement (the
"Inspection Period"), Purchaser, upon reasonable notice to Selling
Partners and the Partnership, shall have reasonable access to the Project
and the Partnership's Books and Records, either personally or by
authorized agent, to inspect the Project and the Books and Records of the
Partnership, the items delivered pursuant to this Article II and any other
documents and records available which are normally maintained in the
operation of the Project or the Partnership.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Selling Partners will fully cooperate and
cause the Partnership to fully cooperate with Purchaser, at no cost or
expense to Selling Partners or the Partnership, in the conduct of
Purchaser's inspection of the Project and the Books and Records of the
Partnership. Such inspections (and any inspections performed in
accordance with the sentence next following) may be conducted at all
reasonable times, so long as such activities do not unreasonably interfere
with the Tenants in occupancy. Selling Partners will permit Purchaser and
current and prospective underwriters involved in the IPO, and the agents,
attorneys, accountants, and representatives of all of the foregoing, upon
reasonable notice (but without having to obtain further approval), to
enter upon and inspect the Project, at reasonable times during normal
working hours, all premises leased to Tenants, all mechanical equipment,
systems, and fixtures forming a part thereof, and all Books and Records.
Selling Partners will permit Purchaser and the underwriters involved in
the IPO, and the agents, attorneys, accountants, and representatives of
all of the foregoing, at no cost or expense to Selling Partners or the
Partnership, to audit the Books and Records, and to conduct such
investigations, tests, or inspections as Purchaser deems appropriate
including, without limitation, sampling studies to ascertain whether or
not there is any Hazardous Substance on, in, or under the Project. In
conducting any such entry, investigation, test, or inspection, no party
permitted entry
8
<PAGE>
hereunder will unreasonably interfere with the operation of the Project or
the peaceable possession by individual Tenants of their respective
premises. To the extent that Persons other than Purchaser join in such
inspections, Purchaser shall secure from such Persons their agreement to
hold any such information in confidence pending the closing of the
transaction contemplated hereby, with the exception of the use of such
materials during the disclosure process in connection with the IPO.
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance in terms and amounts reasonably satisfactory to
Selling Partners and the Partnership covering any accident arising in
connection with the presence of Purchaser, its agents and representatives
on the Project and shall deliver a certificate of insurance verifying such
coverage to Selling Partners prior to entry upon the Project.
(d) Purchaser agrees to fully and completely repair and restore
the Project in the event of any damage whatsoever occurring by Purchaser,
Purchaser's Affiliates or consultants during the pendency of this
Agreement. Purchaser hereby indemnifies and holds Selling Partners
harmless from and against any loss, damage, injury, claim or cause of
action Selling Partners or the Partnership may suffer or incur as a result
of Purchaser's inspections of the Project undertaken pursuant to this
Agreement. The indemnity set forth in this subparagraph (d) shall survive
the Closing or the termination of this Agreement.
(e) If, during the Inspection Period, Purchaser shall discover any
condition or circumstance, which in Purchaser's sole discretion, judgment
and opinion makes Purchaser's investment in the Partnerships an
unacceptable risk, Purchaser shall be entitled, as its sole and exclusive
remedy, to terminate this Agreement by giving written notice to Selling
Partners, on or before the expiration of the Inspection Period, whereupon
this Agreement shall terminate, and upon such termination, neither Selling
Partners nor Purchaser shall have any further obligation or liability
hereunder.
Section 2.4 Purchaser's Acknowledgement. Purchaser acknowledges that,
----------- ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Partnership Interests shall be acquired on a basis that is
without representation or warranty, including any representations or warranties
relating to the Project, which as of the Closing Date shall be in its present
condition, subject to reasonable use, wear, tear and natural deterioration
between the Effective Date and the Closing Date. In such regard, there shall be
no reduction in the Purchase Price for any change in the condition of the
Project by reason of any events, subsequent to the Effective Date, except by
reason of condemnation or casualty. Purchaser further acknowledges that it has
not been induced by nor has it relied upon any representations, warranties or
other statements, whether express or implied, made by Selling Partners, or any
of its agents, employees or other representatives, which are not expressly set
forth in this Agreement or in the materials to be delivered to Purchaser in
accordance with the terms and provisions hereof.
9
<PAGE>
ARTICLE III
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND Selling Partners WITH RESPECT THERETO
------------------------------------------------------
Section 3.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Partnership Interests contemplated by the terms and conditions of this Agreement
shall be consummated at the Closing to be held on the Closing Date.
Section 3.2 Selling Partners' Obligations at the Closing.
----------- --------------------------------------------
(a) At the Closing, Selling Partners shall do the following:
(i) Execute and deliver to Purchaser a good and sufficient
assignment of partnership interests (the "Assignment")
(with warranty limited to Selling Partners' acts) in the
form approved by Purchaser and Selling Partners,
conveying the title in and to the Partnership Interests
free and clear of all liens or encumbrances;
(ii) Execute and deliver to Purchaser an amendment to the
Partnership Agreement (the "Amendment"), in the form
approved by Purchaser and Selling Partners, covering the
withdrawal of Selling Partners and the admittance of
Purchaser or its designees as partners in the
Partnership and such other matters as Purchaser may
reasonably require;
(iii) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under
penalty of perjury, Selling Partners' U.S. taxpayer
identification number and that Selling Partners are not
foreign persons within the meaning of Section 1445 of
the Internal Revenue Code;
(iv) Execute and deliver to Purchaser a Closing Certificate
(herein so called), in the form and containing the
content of the Closing Certificate attached hereto as
"Exhibit "D" and made a part hereof for all purposes;
-----------
(v) Deliver to Purchaser Estoppel Certificates from the
Tenants under Major Leases and the Tenants under non-
Major Leases who have executed and delivered Estoppel
Certificates, together with Selling Partners'
certificate, in respect to the Tenants under non-Major
Leases who have failed to deliver Estoppel Certificates,
to the effect that the information contained in the
Estoppel Certificates presented to the Tenants under
non-Major Leases in question is true and correct and no
known defaults on the part of such Tenants exist or with
the passage of time will exist;
10
<PAGE>
(vi) Deliver or cause the Partnership to deliver to Purchaser
satisfactory evidence that all necessary corporate,
partnership, or other action on the part of Selling
Partners have been taken with respect to the
consummation of the transaction contemplated hereby;
(vii) Complete, execute, and deliver to PPAP or any other
transferor of the Units (1) the Prospective Subscriber
Questionnaire attached hereto as Exhibit "E"; and (2)
-----------
the Investor Letter attached hereto as Exhibit "F";
-----------
(viii) Deliver to Purchaser such other assignments and
documents as may be required pursuant to the
provisions hereof or mutually agreed by counsel
for Selling Partners and Purchaser to be
necessary to fully consummate the transaction
contemplated hereby; and
(ix) Cause O'Hare, Inc., at Purchaser's direction, to execute
and deliver the guaranty agreement contemplated by
Section 1.6 hereof.
(b) If Selling Partners fail or are unable to deliver any of the
items set forth in this Section 3.2 at the Closing, Purchaser may
(i) elect to waive such failure and close the transaction, or
(ii) exercise any one or more of its options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered
to Purchaser under Section 3.2 above, Purchaser shall do the following:
(i) Deliver the Purchase Price in accordance with
Section 1.5 hereof;
(ii) Execute and deliver to Selling Partners counterparts of
the Assignment to be executed and delivered by Selling
Partners pursuant to Section 3.2 above;
(iii) Execute and deliver to Selling Partners counterparts of
the Amendment to be executed and delivered by Selling
Partners pursuant to Section 3.2 above;
(iv) Deliver to Selling Partners satisfactory evidence that
all necessary corporate, partnership, or other action by
Purchaser has been taken with respect to the
consummation of the transaction contemplated hereby;
(v) Execute and deliver to Selling Partners such agreements
as may be reasonably necessary to (a) satisfy O'Hare II
that Purchaser has assumed the guaranty obligations of
O'Hare II under the First Lien Debt and (b) evidence
Purchaser's agreement to fund sums into the
11
<PAGE>
Partnership as contemplated in this Agreement in respect to
the payment of Improvement Costs; and
(vi) Deliver to Selling Partners such other instruments or
documents as may be required pursuant to the terms
hereof or mutually agreed by counsel for Selling
Partners and Purchaser to be necessary to fully
consummate the transaction contemplated hereby.
(b) If Purchaser fails or is unable to deliver any items set forth
in this Section 3.3 at the Closing, Selling Partners may (i) elect to
waive such failure and close the transaction, or (ii) exercise their
remedies under Section 6.2(b) hereof.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 4.1 Representations and Warranties of Selling Partners.
----------- --------------------------------------------------
(a) Selling Partners hereby represent and warrant to Purchaser, as
of the date hereof and as of the Closing Date, the following:
(i) Each Selling Partner is the legal and beneficial owner
of the respective Partnership Interest owned by the
Selling Partner in question. The Partnership Interests
are owned by each Selling Partners free and clear of all
liens, security interests, pledges, assessments,
charges, adverse claims, restrictions and other
encumbrances created by either of the Selling Partners
or their predecessors in interest, except as set forth
in the Partnership Agreement. Other than the rights and
obligations arising under this Agreement and the
Partnership Agreement, the Partnership Interests are not
subject to any rights of any other person to acquire the
same, nor are the Partnership Interests subject to any
restrictions on transfer thereof, except for
restrictions imposed by the Partnership Agreement and
applicable federal and state securities laws.
(ii) Each Selling Partner has been duly formed and is validly
existing as a corporation under the laws of the State of
its domicile, and is or will be as of the Closing Date
duly registered or qualified to do business in the State
of Texas. The execution, delivery and performance of
this Agreement and all other documents, instruments and
agreements to be executed and delivered by Selling
Partners pursuant to this Agreement (collectively,
"Selling Partners' Documents") are within the corporate
power of Selling Partners and have been duly authorized
by all necessary and appropriate corporate action.
12
<PAGE>
(iii) To the Selling Partner's Actual Knowledge, neither the
execution and deliver of this Agreement and Selling
Partners' Documents nor the consummation of the
transaction contemplated hereby conflicts with or will
result in a material breach of any of the provisions of,
or constitute a default under, (a) the corporate
documents of Selling Partners or (b) any agreement or
instrument to which Selling Partners are a party or by
which they are bound. To the Selling Partner's Actual
Knowledge, there are no actions, voluntary or
involuntary, pending against either of the Selling
Partners under any bankruptcy, reorganization,
arrangement, insolvency or similar federal or state
statute.
(iv) Neither Selling Partner is a "foreign persons" as
defined in Section 1445(f)(3) of the Internal Revenue
Code of 1986, as amended.
(b) O'Hare I hereby represents and warrants to Purchaser, as of
the date hereof and as of the Closing Date, the following:
(i) The Partnership has been duly formed and is validly
existing as a limited partnership under the laws of the
State of Illinois, and will be at Closing duly
registered or qualified to do business in the State of
Texas.
(ii) Neither the execution and delivery of this Agreement nor
the consummation of the transaction contemplated hereby
conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under,
any agreement or instrument to which the Partnership is
a party or by which it is bound. There are no actions,
voluntary or involuntary, pending against the
Partnership under any bankruptcy, reorganization,
arrangement, insolvency or similar federal or state
statute.
(iii) With respect to the Leases:
(A) As of the date of the Rent Roll to be delivered
pursuant to Section 2.1 hereof (the "Rent Roll"),
there will be no tenant leases, tenancy
agreements, licenses, occupancy agreements or any
amendments, renewals, assignments, subletting and
guaranties thereof, or surrender agreements and
termination agreements related thereto, affecting
the Project, or any portion thereof, other than
the Leases set forth in the Rent Roll and any
subleases, licenses or occupancy agreements which
have (1) been entered into by Tenants of the
Project with third parties and (2) not been
disclosed in writing to O'Hare, Inc.
13
<PAGE>
(B) The Rent Roll shall contain a complete and
accurate list of the names of the Tenants, the
date of each Lease (and any amendments thereto),
the space covered thereby and the current rental
payable thereunder. The information to be
contained in the Rent Roll shall be true,
complete and correct in all material respects as
of the date of the Rent Roll.
(C) The copies of the Leases heretofore or hereafter
delivered by Selling Partners to Purchaser are or
shall be true, complete and correct copies of the
Leases.
(D) To the Actual Knowledge of O'Hare, Inc., each of
the Leases is in full force and effect and has
not been amended, modified or extended, except as
set forth in the Rent Roll. To O'Hare, Inc.'s
Actual Knowledge, except as set forth in the Rent
Roll or otherwise disclosed to Purchaser in
writing, the Partnership will have performed and
observed in all material respects as of the
Closing Date, for all periods following the date
of the acquisition of the Project by the
Partnership, all of (and will not in material
default, excluding any grace periods, in the
performance or observance of the terms, covenants
and conditions on the Partnership's part to be
performed or observed under the Leases. Except
as set forth in the Rent Roll or otherwise
disclosed to Purchaser in writing, neither the
Partnership nor Selling Partners will have given,
nor will have the Partnership or Selling Partners
received, any written notice of a default under
any of the Leases which remains uncured.
(E) To O'Hare, Inc.'s Actual Knowledge, except as set
forth in the Rent Roll or the Leases or otherwise
disclosed to Purchaser in writing, no Tenant
under any of the Leases (1) is currently or will
be contesting (in writing) any item of rent
charged under any of the Leases or is currently
or will be claiming (in writing) an overcharge of
operating expenses; (2) is entitled to any
concessions or abatements, rebates, set-offs or
free rent with respect to any item of rent for
any period subsequent to the Closing, and all
items of an inducement nature to be performed by
the landlord under the Leases prior to the
Closing Date will have been performed prior to
the Closing Date, or (3) has or will have any
option or right of first offer or first refusal
to purchase the Project or any part thereof.
(F) To the Actual Knowledge of O'Hare, Inc., except
as noted in the Rent Roll or otherwise disclosed
to Purchaser in writing, the Partnership's
historical billing practices to Tenants for
14
<PAGE>
additional rents and percentage rents is
consistent with the requirements of each Lease.
(iv) With respect to the Service Contracts:
(A) As of the Closing Date, there are no written
equipment leases or service, maintenance or other
similar contracts or agreements affecting the
Project, or any portion thereof, other than (1)
the Service Contracts and (2) any equipment
leases or other contracts or agreements that may
have been entered into by Tenants (or subtenants
of Tenants) of the Project with third parties;
and
(B) Each Service Contract will be, as of the Closing
Date, in full force and effect and will not have
been amended except as disclosed to Purchaser in
writing by O'Hare, Inc. As of the Closing Date,
neither the Partnership nor Selling Partners
shall have given, nor will have the Partnership
or Selling Partners received, any written notice
of a default under any of the Service Contract
which remains uncured, except as may be disclosed
to Purchaser in writing by Selling Partners on or
prior to the Closing Date.
(v) As of the date hereof, to O'Hare, Inc.'s Actual
Knowledge, there is not any pending, nor has the
Partnership or Selling Partners received written notice
of any threatened:
(A) proceeding, suit or action against the
Partnership or Selling Partners which, if
adversely decided, would prevent or materially
delay the consummation of the transaction
contemplated by this Agreement or materially
adversely affect the Project or the Partnership,
including, without limitation, pending or
threatened suits, actions or proceedings with
respect to all or part of the Project (1) for
condemnation, (2) alleging any violation of any
Governmental Regulation, (3) which could result
in the imposition of a lien against the Project
or (4) which could increase real property taxes
or assessments levied against the Project (other
than the normal and routine assessment and
reassessment process conducted by applicable
governmental authorities), or
(B) proceeding to change or redefine the zoning
classification applicable to any portion of the
Project that would cause the Project to become a
"non-conforming" use, or
15
<PAGE>
(C) proceeding to change any road patterns or grades
that would materially adversely affect access to
any roads providing a means of ingress to or
egress from the Project, or
(D) proceeding seeking a reduction of real estate
taxes imposed on the Project or any portion
thereof, or
(E) pending imposition of any special or other
assessments for public betterments that may
affect any portion of the Project or the
ownership thereof.
(vi) To O'Hare, Inc.'s Actual Knowledge (a) the Project does
not violate any Governmental Regulation in any material
respect, and (b) the current operation and use of the
Project complies in all material respects with all
applicable Governmental Regulations.
(vii) To O'Hare, Inc.'s Actual Knowledge, (A) all Permits
required for the continued use and occupancy of the
Project (as the same is presently used under the Leases)
have been obtained from all appropriate governmental
authorities, are fully paid for, are in full force and
effect, and will not be revoked, invalidated or violated
by the consummation of the transaction contemplated by
this Agreement, and (B) the Project remains in
compliance in all material respects with all applicable
requirements and conditions with respect to the issuance
of the Permits, which were in effect at the time of the
issuance thereof.
(viii) Except as previously disclosed in writing by O'Hare, Inc.
to Purchaser, to O'Hare, Inc.'s Actual Knowledge, the
Project has not been designated as a landmark or is not
located in a conservation or historic district or in an
area that has been identified as having special flood
hazards.
(ix) To O'Hare, Inc.'s Actual Knowledge, other than the
burdens affecting the Project as a result of the
Condominium Regime, the Project is an independent unit
which, as of the date hereof, does not rely on any
facilities (other than the facilities of public utility
companies) located on any property not included in the
Project to (A) fulfill the requirements of any
Governmental Regulation, (B) provide structural support
or furnish any essential building system or utility or
(C) fulfill the requirements of any of the Leases.
Except as may be reflected in the Condominium Regime, no
building or other improvement not included in the
Project relies on any part of the Project to (1) fulfill
the requirements of any Governmental Regulation, or (2)
provide structural support or furnish any essential
building system or utility.
16
<PAGE>
(x) To O'Hare, Inc.'s Actual Knowledge, for any period
following the Cut Off Date, there has not been any
material damage to any portion of the Project caused by
fire or other casualty that has not been repaired or
restored.
(xi) To O'Hare, Inc.'s Actual Knowledge, the real property
and improvements that constitute the Project together
with the Partnership's interests in the Condominium
Regime are assessed as one tax lot that is separate and
distinct from the tax lot allocated to any other parcel
of land or any other improvements.
(xii) To O'Hare, Inc.'s Actual Knowledge, except as otherwise
disclosed in any environmental report delivered by
Selling Partners to Purchaser with respect to the
Project ("Environmental Report"), (A) no Hazardous
Materials have been stored, disposed of, released or
transported at or from the Project, or any portion
thereof, in violation of, or requiring remediation
under, any Environmental Laws (the foregoing
representation does not apply to the customary and
ordinary application, storage and use of chemicals for
landscape maintenance, janitorial services, and pest
control); and (B) there have been no and are no (1)
aboveground or underground storage tanks; (2)
polychlorinated biphenyls ("PCBs") or PCB-containing
equipment; (3) asbestos containing materials; (4) lead
based paints; or (E) dry-cleaning facilities in, on,
under or at the Project; or (5) wetlands located on or
at the Project.
(xiii) There is now in full force and effect with reputable
insurance companies, casualty and liability insurance
policies with respect to the Project in commercially
reasonable amounts.
(xiv) To O'Hare, Inc.'s Actual Knowledge, the Rent Roll and the
operating statements for the Project provided by Selling
Partners or the Partnership to Purchaser present fairly the
financial condition of the Project as of their respective
dates and the results of the Project's operations for the
periods reflected therein.
(xv) The Partnership has no employees and is not a party to
any union, labor or collective bargaining agreement
affecting the Project.
(xvi) The Partnership has filed all income, franchise, sales,
payroll and other tax returns and reports of every
nature required to be filed by it accurately reflecting
all taxes owing to the United States or any other
government, government subdivision or taxing authority,
and it has paid in full or made adequate provision for
the payment of all taxes and duties (including
penalties and interest) for which it has or may have
liability. None of Selling Partners has any knowledge
of any
17
<PAGE>
unassessed tax deficiency proposed or threatened against
the Partnership as a result of the operation of its
business. There are no liens on the assets of the
Partnership as a result of any tax liabilities except for
taxes not yet due and payable. There are, as of the date of
this Agreement, no, and after the date of this Agreement
there will not be any, tax deficiencies (including
penalties and interest) of any kind assessed against or
relating to the Partnership with respect to any taxable
periods ending on or before, or including, the Closing Date
of a character or nature that would result in liens or
claims on any of the Property, or on the Partnership's
title to or use of the Property, or that would result in
any claim against the Partnership.
(xvii) The copies of the Partnership Agreement and the amendments,
if any, heretofore delivered to Purchaser by Selling
Partners are true and correct copies of the documents
governing the formation and existence of the Partnership
and there are no other agreements, documents or other
instruments of any nature which govern the relationship of
the partners in the Partnership or its assets.
(c) With respect to receipt of the Units, O'Hare, Inc. warrants
and represents to Purchaser and to PPAP, as of the date hereof and as of
the Closing Date, as follows:
(i) O'Hare, Inc. (A) understands the risks of, and other
considerations relating to accepting Units in connection
with its sale of the Partnership Interests pursuant to
this Agreement; (B) is an "accredited investor" as
defined in the Securities Act, (C) by reason of its
business and financial experience, together with the
business and financial experience of those persons, if
any, retained by it to represent or advise it with
respect to the transaction contemplated by this
Agreement, (1) has such knowledge, sophistication and
experience in financial and business matters and in
making investment decisions of this type, that it is
capable of evaluating the merits and risks of an
investment in PPAP and of making an informed investment
decision, and (2) is capable of protecting its own
interest or has engaged representatives or advisors to
assist it in protecting its interest, and (D) is capable
of bearing the economic risk of such investment.
(ii) O'Hare, Inc. (A) understands and acknowledges that an
investment in PPAP involves substantial risks; (B) has
been given the opportunity to make a thorough
investigation of the proposed activities of PPAP; (C)
has been afforded the opportunity to obtain any
information deemed necessary by Selling Partner; (D)
confirms that all documents, records, and books
pertaining to its investment in PPAP and requested by
Selling Partner have been made available or delivered to
Selling Partner; (E) has had an opportunity to ask
18
<PAGE>
questions of and receive answers from PPAP, or from a
person or persons acting on PPAP's behalf, concerning
the terms and conditions of the transaction contemplated
by this Agreement and its acquisition of Units; and (F)
has relied upon, and is making its investment decisions,
solely upon such information as has been provided to
Selling Partner in writing by PPAP.
(iii) The Units to be transferred to O'Hare, Inc. pursuant to
this Agreement will be acquired by O'Hare, Inc. for its
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, or the grant of any
participation therein, without prejudice, however, to
O'Hare, Inc.'s right (subject to the terms of the
partnership agreement of PPAP) at all times to sell or
otherwise dispose of all or any part of its Units under
an exemption from such registration available under the
Securities Act and applicable state securities laws, and
subject, nevertheless, to the disposition of its assets
being at all times within its control. O'Hare, Inc. was
not formed for the specific purpose of acquiring an
interest in PPAP.
(iv) O'Hare, Inc. acknowledges that (A) the Units to be
issued to O'Hare, Inc. will not have not been registered
under the Securities Act or state securities laws by
reason of a specific exemption or exemptions from
registration under the Securities Act and applicable
state securities laws and, if such Units are to be
represented by certificates, such certificates will bear
a legend to such effect; (B) Purchaser's reliance on
such exemptions is predicated in part on the accuracy
and completeness of the representations, warranties and
covenants of O'Hare, Inc. contained herein; (C) such
Units, therefore, will not be able to be resold unless
registered under the Securities Act and applicable state
securities laws, or unless an exemption from
registration is available; (D) there will be no public
market for such Units; (E) Units to be issued to O'Hare,
Inc. will not be transferable without the prior written
consent of the general partner of PPAP which consent
shall not be withheld if the general partner of PPAP
determines that the transfer of same is a valid private
placement under applicable Federal and State securities
laws; (F) PPAP has no obligation or intention to
register such Units for resale under the Securities Act
or any state securities laws or to take any action that
would make available any exemption from the registration
requirements of such laws; (G) because of the
restrictions on transfer or assignment of such Units to
be issued hereunder set forth in the partnership
agreement of PPAP and/or in a stock restriction
agreement, O'Hare, Inc. may have to bear the economic
risk of the investment commitment evidenced by this
Agreement and any Units acquired hereby for an
indefinite period of time, and (H) under the
19
<PAGE>
terms of the partnership agreement of PPAP, as it will be
in effect on the Closing Date, Units will not be redeemable
at the request of the holder thereof for cash (or at the
option of the PPL REIT, for common stock in the PPL REIT)
prior to the first anniversary of their issuance.
(v) The address set forth for O'Hare, Inc. in this Agreement
is the address of O'Hare, Inc.'s principal place of
business or residence, as applicable, and O'Hare, Inc.
has no present intention of becoming a resident of any
country, state or jurisdiction other than the country
and state in which principle place of business or
residence, as applicable, is cited.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the term
----------- ------------------
"O'Hare, Inc.'s Actual Knowledge" or the term "Selling Partners' Actual
Knowledge" is used it shall be limited to the knowledge of Thomas F. August and
Dennis J. DuBois. Notwithstanding anything herein contained to the contrary, in
the event that Purchaser prior to Closing has knowledge of any fact or
circumstance that would make any of the representations or warranties of Selling
Partners set forth herein untrue or incorrect, Selling Partners shall not be
deemed to be in default hereunder by reason of the fact that such representation
or warranty is in fact untrue or incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
----------- ------------------------------------------
otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall be continuing and shall be true and correct on and as
of the Closing Date with the same force and effect as if made at that time, and
all of such representations and warranties, other than those set forth is
Subsections 4.1 (a)(i) through (iv) inclusive, (b)(i), (b)(ii), and (c)(i)
through (v) inclusive above, shall survive the Closing for a period of twelve
(12) months, at which time they shall expire and terminate and be of no further
force and effect unless a claim for breach thereof has been instituted within
such twelve (12) month period. The representations and warranties set forth in
Subsections 4.1 (a)(i) through (iv) inclusive, (b)(i), (b)(ii), and (c)(i)
through (v) inclusive, above, shall survive the Closing without limitation of
time constraints.
Section 4.4 Selling Partners' Obligation to Notify Purchaser of Change.
----------- ----------------------------------------------------------
If, prior to the Closing Date, either Selling Partners or the Partnership become
aware that any representation or warranty set forth in Section 4.1 hereof which
was true and correct on the date hereof has become incorrect in any material
respect, either prior to or at Closing, due to changes in conditions or the
discovery of information by Selling Partners or the Partnership of which Selling
Partners were unaware on the date hereof, Selling Partners shall immediately
notify Purchaser thereof. Upon receipt of such notification, if such change is
material and adverse with respect to the acquisition of the Project, Purchaser
shall have the option of terminating this Agreement whereupon this Agreement
shall become null and void and of no further force or effect and neither party
shall have any further obligation one to the other. If Purchaser does not
exercise its option to terminate this Agreement by reason of any such change in
conditions, appropriate modifications shall be made in the terms hereof to
reflect the change in the conditions to the mutual satisfaction of Selling
Partners and Purchaser.
20
<PAGE>
Section 4.5 Operation of Project Prior to Closing. Selling Partners
----------- -------------------------------------
shall (a) continue to cause the Partnership's property manager to diligently
operate the Improvements and the Project in the ordinary course of business
between the date hereof and the Closing Date, (b) cause the Partnership to keep,
observe, and perform or cause to be performed all of its obligations as landlord
under the Leases, (c) prevent the Partnership from terminating or causing the
termination of any Major Lease except as the result of the default of the Tenant
thereunder or the replacement of a suitable substitute, and (d) cause the
Partnership to maintain and operate the Project in substantially the same
condition and repair as exists on the Effective Date, reasonable wear and tear
and normal replacements excepted.
Section 4.6 Limitation on Disposition of Project and Maintenance of
----------- -------------------------------------------------------
Debt. Purchaser agrees that it shall not allow the Partnership to dispose of the
- ----
Project prior to December 31, 1999, unless such disposition is structured as a
tax-deferred like-kind exchange under Section 1031 of the Internal Revenue Code
of 1986, as amended (which exchange will not include any cash consideration to
Purchaser or its Affiliates in excess of customary costs and expenses incurred
by Purchaser or its Affiliates in connection with negotiating and closing the
acquisition of replacement property for the purpose of effecting such exchange).
Purchaser will cause the Partnership to elect to use the "traditional method"
for computing allocations of income, gain, loss, and deductions attributable to
the Project as set forth in Treasury Regulation (S)1.704-3. Purchaser further
agrees that from the Closing continuously through December 31, 1998, it shall
cause the Partnership to maintain an outstanding balance on a line of credit or
other indebtedness of at least $1,345,507.00, which amount shall be guaranteed
by O'Hare, Inc. as contemplated by the provisions of Section 1.6 hereof. The
provisions of this Section 4.6 will survive the Closing.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
Section 5.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Selling Partners set
forth herein shall be true in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties have been made on and as of the Closing Date;
(b) Selling Partners shall have performed, observed and complied
with all of the covenants, agreements and conditions required by this
Agreement to be performed, observed and complied in all material respects
with by Selling Partners prior to or as of the Closing Date;
(c) Purchaser, on or before the expiration of the Inspection
Period, shall have performed such inspections, investigations and tests as
Purchaser desires, in accordance with
21
<PAGE>
the terms of Article II of this Agreement, and Purchaser shall have
determined, in Purchaser's sole discretion, that the Project is suitable
for Purchaser's intended use;
(d) Purchaser shall have received a certificate or certificates as
may be acceptable to Purchaser stating that a search has been conducted by
a party acceptable to Purchaser of both the state and county records in
which financing statements and security agreements are filed under the
Uniform Commercial Code of the State and that such searches indicate that,
except security interests or liens to be released at Closing, no security
interests or liens of any kind or nature, including, but not limited to,
any equipment financing or leasing arrangements, are claimed by any Person
against the Partnership Interests, Personal Property, or the Improvements,
or any part thereof;
(e) The closing of the IPO shall have occurred;
(f) Purchaser shall have received from each Tenant under a Major
Lease an Estoppel Certificate duly executed by each Tenant, without
material change to the form of Estoppel Certificate submitted to the
Tenant in question;
(g) No material adverse change in the condition or operation of
the Project or the Partnership as they exist on the Effective Date shall
have occurred between the Effective Date and the Closing Date, which
change negatively and adversely affects the Project or the Partnership in
any material manner; and
(h) The Project shall have suffered no casualty loss which has not
been repaired or condemnation between the Effective Date and the Closing
Date which would materially and adversely affects the Project the
Partnership.
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of the
Partnership Interests and the conditions set forth in subsections 5.1 (a)
and/or (b) hereof have not been satisfied, Selling Partners shall be
deemed in default hereunder and Purchaser shall have the option to either
(i) waive those conditions and proceed with the Closing or (ii) exercise
it rights and remedies set forth in Article VI.
(b) In the event (i) on or prior to the expiration of the
Inspection Period, Purchaser has determined that the Project is not
suitable for Purchaser's intended use, or (ii) on or before the Closing
Date the conditions set forth in subsections 5.1 (d), (e), (f), (g), or
(h) hereof above have not been satisfied, Purchaser shall have the option
to either (i) waive those conditions and proceed with the Closing or
(ii) terminate this Agreement whereupon this Agreement shall become null
and void and of no further force or effect and neither party shall have
any further obligation one to the other.
22
<PAGE>
Section 5.3 Outside Closing Date. In the event (i) the condition
----------- --------------------
precedent to Purchaser's obligations to consummate the transaction contemplated
hereby set forth in Section 5.1(e) has not been satisfied on or before December
31, 1996, in a manner to permit the transaction contemplated hereby to be
consummated and funded by such date, or (ii) Purchaser has not designated a
Closing Date within a sufficient period of time to permit the timely closing of
the transaction contemplated hereby on or before December 31, 1996, or (iii)
Purchaser has not designated a Closing Date within ten (10) Business days
following the date the IPO has occurred, then in such event this Agreement shall
terminate and become null and void and of no further force or effect on the
earlier of December 31, 1996, or on the tenth (10th) Business day following the
date of the occurrence of the IPO, and neither party shall have any further
obligation one to the other.
Section 5.4 Conditions Precedent to Selling Partner's Obligations. The
----------- -----------------------------------------------------
obligations of Selling Partner's to consummate the transactions contemplated
hereby are subject to the consummation of the Partnership's acquisition of the
Project pursuant to that certain Agreement of Purchase and Sale, dated May 6,
1996, by and between Pellinore Real Estate Corporation, as seller, and Prentiss
Properties Limited, Inc., as purchaser (the "Project Purchase Agreement"). In
the event on or prior to the Closing Date the transaction contemplated by the
Project Purchase Agreement is not consummated, this Agreement shall terminate
whereupon this Agreement shall become null and void and of no further force or
effect and no party hereto shall have any further obligation one to the other.
ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Selling Partners' Defaults; Purchaser's Remedies.
----------- ------------------------------------------------
(a) Selling Partners' Defaults. Selling Partners shall be deemed
--------------------------
to be in default hereunder in the event that any of Selling Partners'
representations hereunder are determined to be false or misleading in any
material respect or in the event Selling Partners shall fail in any
material respect to meet, comply with, or perform any covenant, agreement,
or obligation on its part required within the time limits and in the
manner required in this Agreement.
(b) Purchaser's Remedies. In the event Selling Partners shall be
--------------------
deemed to be in default hereunder for any other reason, by virtue of the
occurrence of any one or more of the events specified in Section 6.1(a)
above, Purchaser may at its election (i) bring suit against Selling
Partners to enforce specific performance of this Agreement together with
such actions as may be available at law or in equity to recover
Purchaser's actual out-of-pocket costs in the performance of reasonable
due diligence, or (ii) terminate this Agreement. If the remedy of specific
performance is not available Purchaser shall have no remedy for damages
other that the aforementioned out-of-pocket costs. Notwithstanding
anything to the contrary contained herein, to the extent any action is
instituted by Purchaser from and after the Closing Date in respect to a
breach of a warranty or representation hereunder, Selling Partners'
liability relating to such breach shall be limited to Selling Partners'
returning any Units they receive at Closing.
23
<PAGE>
Section 6.2 Purchaser's Default; Selling Partners' Remedies.
----------- -----------------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material
respect to meet, comply with, or perform any covenant, agreement, or
obligation on its part required within the time limits and in the manner
required in this Agreement.
(b) Selling Partners' Remedy. IN THE EVENT PURCHASER SHALL BE
------------------------
DEEMED TO BE IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR TO
CLOSING AND SELLING PARTNERS DO NOT WAIVE SUCH DEFAULT, SELLING PARTNERS,
AS SELLING PARTNERS' SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, SHALL BE
ENTITLED TO RETAIN THE INDEPENDENT CONSIDERATION, IT BEING AGREED BETWEEN
PURCHASER AND SELLING PARTNERS THAT SUCH SUM SHALL BE LIQUIDATED DAMAGES
FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE DIFFICULTY, INCONVENIENCE AND
UNCERTAINTY OF ASCERTAINING ACTUAL DAMAGES FOR SUCH DEFAULT. IN PLACING
THEIR INITIALS AT THE PLACES PROVIDED, EACH PARTY SPECIFICALLY CONFIRMS
THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS
REPRESENTED BY COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED
DAMAGES PROVISION AT THE TIME THIS AGREEMENT WAS MADE. NOTWITHSTANDING THE
FOREGOING, THE PROVISIONS OF THIS SECTION 6.2 (b) SHALL NOT LIMIT IN ANY
MANNER PURCHASER'S INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 8.1 OR 8.3
HEREOF.
SELLING PARTNERS' INITIALS: /s/ TFA
--------
/s/ TFA
--------
PURCHASER'S INITIALS: /s/ TFA
--------
Section 6.3 Attorneys' Fees. Should either party employ an attorney
----------- ---------------
or attorneys to enforce any of the provisions hereof or to protect its interest
in any manner arising under this Agreement, the non prevailing party in any
action pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
ARTICLE VII
CLOSING COSTS; POST-CLOSING ADJUSTMENTS
---------------------------------------
Section 7.1 Closing Costs. Except as otherwise expressly provided in
----------- -------------
this Agreement, costs of closing the transaction contemplated hereby shall be
allocated between Selling Partners and Purchaser as follows:
(a) Selling Partners shall pay the costs, if any, incurred by
Selling Partners in connection with the performance of its obligations
hereunder.
24
<PAGE>
(b) Purchaser shall pay the costs, if any, incurred by Purchaser
in connection with the performance of its obligations hereunder.
Section 7.2 Post-Closing Adjustments with Respect to Available Cash.
----------- -------------------------------------------------------
Purchaser and Selling Partners acknowledge that all Available Cash relating to
the operations of the Partnership prior to the Closing Date shall be retained by
and remain the property of the Selling Partners. Purchaser and Selling Partners
further acknowledge that it may not be possible to determine or compute the
exact amount of undistributed Available Cash as of the Closing Date. Therefore,
Purchaser hereby agrees that it shall cause the Partnership, as soon as
reasonably practicable following the Closing Date, to determine and compute the
amount of undistributed Available Cash through the Closing Date and to pay over
and distribute such sums to the Selling Partners in the manner contemplated by
the Partnership Agreement, as if the transaction contemplated hereby had not
been consummated. To the extent requested by the Selling Partners, Purchaser
and/or the Partnership shall provide adequate back up and substantiation as to
the manner in which undistributed Available Cash has been determined, including
verification by the Partnership's independent accountants, if requested by the
Selling Partners.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the payment of any commission regarding
the consummation of the transaction contemplated hereby. It is agreed that if
any claims for commissions or fees, including, without limitation, brokerage
fees, finder's fees, or commissions, are ever made against Selling Partners or
Purchaser in connection with this transaction, all such claims shall be handled
and paid by the party whose actions or alleged commitments form the basis of
such claim and such party shall indemnify and hold harmless the other from and
against all such claims or demands with respect to any brokerage fees, finder's
fees, or agents' commissions or other compensation asserted by any person, firm,
or corporation in connection with this Agreement or the transactions
contemplated hereby. The provisions of this Section 8.1 shall expressly survive
the early termination of this Agreement.
Section 8.2 Selling Partners' Indemnity. Selling Partners agree to
----------- ---------------------------
indemnify and hold Purchaser harmless of and from all liabilities, claims,
demands and expenses, of any kind or nature, known or unknown, fixed or
contingent, arising or accruing on or before the Closing Date related to the
ownership of their respective Partnership Interests, and all expenses related
thereto, including, without limitation, court costs and attorneys' fees. The
foregoing indemnity shall also apply to any claims, demands, causes of action,
losses, damages, liabilities, costs or expenses asserted against or incurred by
Purchaser at any time or from time to time by reason of or arising out of the
breach of any representation or warranty of Selling Partners set forth herein.
Selling Partners' liability with respect thereto shall be governed by the
provisions of Section 6.1(b) hereof.
Section 8.3 Purchaser's Indemnity. Purchaser agrees to indemnify and
----------- ---------------------
hold Selling Partners harmless of and from all liabilities, claims, demands and
expenses, of any kind or nature, known or unknown, fixed or contingent, arising
and accruing subsequent to the Closing Date related
25
<PAGE>
to the ownership of the Partnership Interests, and all expenses related thereto,
including, without limitation, court costs and attorneys' fees. In addition,
Purchaser will indemnify and hold O'Hare, Inc. harmless from all liabilities and
expenses incurred by O'Hare, Inc. resulting from its recognition of income
arising directly from Purchaser's breach of Section 4.6 hereof.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise expressly
----------- -----------------
provided for herein, the terms and provisions hereof shall survive the Closing.
The acceptance of the closing documents by Purchaser and payment of the Purchase
Price shall be deemed full compliance by Selling Partners and Purchaser of all
of their respective obligations arising under this Agreement and Purchaser and
Selling Partners each expressly waives any noncompliance by the other party
hereto with any prior obligations other than those obligations which expressly
survive the closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
Section 9.3 Entire Agreement; Modifications. This Agreement embodies
----------- -------------------------------
and constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged, or terminated except by an instrument in
writing signed by the party against which the enforcement of such waiver,
modification, amendment, discharge, or termination is sought, and then only to
the extent set forth in such instrument.
Section 9.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Selling Partners and Purchaser, each of
which has been represented by counsel of its own selection, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Consequently, the terms and provisions of this Agreement shall
be interpreted and construed in accordance with their usual and customary
meanings, and Selling Partners and Purchaser hereby expressly waive and
disclaim, in connection with the interpretation and construction of this
Agreement, any rule of law or procedure requiring otherwise, including
without limitation, any rule of law to the effect that ambiguous or
conflicting terms or provisions contained in this Agreement shall be
26
<PAGE>
interpreted or construed against the party whose attorney prepared this
Agreement or any earlier draft of this Agreement.
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail return
receipt, signed by the addressee or the addressee's agent or representative, (b)
if by telegram, by a telegram receipt signed by the addressee or the addressee's
agent or representative, (c) if hand delivered (including delivery by any
overnight or other delivery service), by a delivery receipt signed by the
addressee or the addressee's agent or representative, or (d) if sent by
facsimile transmission, with confirmation of receipt at the facsimile number to
which it was sent. Each party's initial address for delivery of any Notice is
designated below, but any party from time to time may designate a different
address for delivery of any Notice by delivering to the other party Notice of
such different address; provided, however, neither party may designate an
address for delivery of Notice not located within the United States. Each party
hereto covenants and agrees to mail copies of any Notice to the parties
designated to receive copies of any Notice below, but the failure of the
addressee for any copy actually to receive such copy shall not render the Notice
ineffective.
If to Selling Partners: Prentiss O'Hare Illinois, Inc.
Prentiss O'Hare Illinois II, Inc.
Attention: Mr. Thomas F. August
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Facsimile No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
27
<PAGE>
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Facsimile No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
Section 9.7 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Selling
Partners or Purchaser, Selling Partners and Purchaser hereby agree to perform,
execute, and/or deliver or cause to be performed, executed, and/or delivered at
the Closing or thereafter, all such further acts, deeds, and assurances as
Purchaser or Selling Partners, as the case may be, may reasonably require to (i)
evidence and vest in the Purchaser the ownership of, and title to, the
Partnership Interests, and (ii) consummate the transactions contemplated
hereunder. The covenants set forth in this Section 9.7 shall survive the
Closing.
Section 9.8 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
----------- --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 9.9 Assignment. Purchaser shall have the right, without the
----------- ----------
consent of Selling Partners, to assign its rights under this Agreement and all
rights hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Such assignment may be in respect to all or any portion of
the Partnership Interests and Purchaser may assign the its rights hereunder to
more than one Person each of whom shall acquire an allocable portion of the
Partnership Interest. Upon such assignment Purchaser shall be relieved of its
obligations hereunder, so long as the PPL REIT or any entity in which the PPL
REIT has a controlling interest assumes all applicable obligations of Purchaser
hereunder and confirms the undertakings or representations of Purchaser
hereunder. No other assignment may be made without the prior written consent of
Selling Partners.
Section 9.10 Time of the Essence. Time is of the essence of this
----------- -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
Section 9.11 Conditions. All covenants, warranties and obligations
----------- ----------
of Selling Partners or Purchaser contained in this Agreement are deemed to be
conditions to the other parties' obligations herein. All conditions to
Purchaser's or Selling Partners's obligations, whether specifically stated in
this Agreement or pursuant to the preceding sentence, and all rights of
Purchaser or Selling Partners
28
<PAGE>
herein are imposed solely and exclusively for the benefit of the other party and
their respective assigns and any or all of such conditions or rights may be
waived in whole or in part by the party in question at any time in such party's
sole discretion.
Section 9.12 Severability. If any provision in this Agreement is
----------- ------------
invalid, illegal, or unenforceable, such provision shall be construed as
narrowly as possible to allow Purchaser and Selling Partners to be afforded the
benefits and protection of this Agreement. Such provision shall be severable
from the rest of this Agreement and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and shall continue in full force and effect.
Section 9.13 Counterparts. Two or more duplicate originals of the
----------- ------------
written instrument containing this Agreement may be signed by the parties, each
of which shall be an original but all of which together shall constitute one and
the same agreement.
Section 9.14 Tax Returns and Tax Audit. The responsibility for filing
----------- -------------------------
the Partnership return for federal and state income or franchise tax (if any)
for the partial year ending the Closing Date (the "Partial Year Return") shall
be Selling Partners. Further, should such Partial Year Return or Returns for
prior years be audited, the responsibility for dealing with settling and paying
any tax liability shall be Selling Partners, and in such regard the retiring
Selling Partners shall hold Purchaser and the Partnership harmless from any
loss, cost or expense (including reasonable attorneys fees and other
professional fees) as a result of any liability arising as a result of such
audits or in respect to federal or state tax liability for periods of time prior
to the Closing Date. Should Purchaser or the Partnership be included in such
audits, Selling Partners shall furnish Purchaser or the Partnership with all
necessary information to permit Purchaser or the Partnership to respond to the
appropriate authorities in a timely and responsive manner. The responsibility
for filing the Partnership's Partial Year Return for federal and state income or
franchise tax (if any) for the partial year commencing on the Closing Date shall
be Purchasers. Further, should such Partial Year Return be audited, the
responsibility for dealing with settling and paying any tax liability shall be
Purchasers, and in such regard Purchaser shall hold Selling Partners harmless
from any loss, cost or expense (including reasonable attorneys fees and other
professional fees) as a result of any liability arising as a result of such
audits or in respect to federal or state tax liability for periods of time from
and after the Closing Date. Should Selling Partners be included in such audits,
Purchaser shall furnish Selling Partners with all necessary information to
permit Selling Partners to respond to the appropriate authorities in a timely
and responsive manner.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLING PARTNERS:
----------------
PRENTISS O'HARE ILLINOIS, INC.,
an Illinois corporation
By: /S/: THOMAS F. AUGUST
-------------------------------------------
Name: THOMAS F. AUGUST
-----------------------------------------
Title: VICE PRESIDENT
----------------------------------------
Date of Execution: As of August 5, 1996
PRENTISS O'HARE ILLINOIS II, INC.,
an Illinois corporation
By: /S/: THOMAS F. AUGUST
-------------------------------------------
Name: THOMAS F. AUGUST
-----------------------------------------
Title: VICE PRESIDENT
----------------------------------------
Date of Execution: As of August 5, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /S/: THOMAS F. AUGUST
-------------------------------------------
Name: THOMAS F. AUGUST
-----------------------------------------
Title: VICE PRESIDENT
----------------------------------------
Date of Execution: As of August 5, 1996
30
<PAGE>
Exhibit 10.14
AGREEMENT OF PURCHASE AND
SALE OF PARTNERSHIP INTERESTS
BY AND BETWEEN
PRENTISS PROPERTIES C-2 INVESTORS, L.P.
AS SELLING PARTNER
AND
PRENTISS PROPERTIES LIMITED, INC.
AS PURCHASER
Dated: AS OF AUGUST 5, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS; PURCHASE PRICE. . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Sale and Delivery of the Partnership Interests. . . . 6
Section 1.3 Purchase Price for the Partnership Interests. . . . . 7
Section 1.4 Independent Consideration . . . . . . . . . . . . . . 7
Section 1.5 Payment of Purchase Price . . . . . . . . . . . . . . 7
ARTICLE II. APPROVAL OF DOCUMENTS; INSPECTIONS . . . . . . . . . . . . 8
Section 2.1 Items to be Furnished to Purchaser. . . . . . . . . . 8
Section 2.2 Estoppel Certificates . . . . . . . . . . . . . . . . 8
Section 2.3 Inspection. . . . . . . . . . . . . . . . . . . . . . 8
Section 2.4 Purchaser's Acknowledgement . . . . . . . . . . . . . 9
ARTICLE III. THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNER WITH RESPECT
THERETO. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.1 The Closing and the Closing Date. . . . . . . . . . . 10
Section 3.2 Selling Partner' Obligations at the Closing . . . . . 10
Section 3.3 Purchaser's Obligations at the Closing. . . . . . . . 11
ARTICLE IV. REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . . 12
Section 4.1 Representations and Warranties of Selling
Partner . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Knowledge Standard. . . . . . . . . . . . . . . . . . 19
Section 4.3 Survival of Representations and Warranties. . . . . . 19
Section 4.4 Selling Partner's Obligation to Notify Purchaser
of Change . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.5 Operation of Project Prior to Closing . . . . . . . . 19
Section 4.6 Representations and Warranties of Owners of
Selling Partner . . . . . . . . . . . . . . . . . . . 19
ARTICLE V. CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . 20
Section 5.1 Conditions Precedent to Purchaser's Obligations . . . 20
Section 5.2 Consequences of the Failure of Section 5.1
Conditions Precedent. . . . . . . . . . . . . . . . . 21
Section 5.3 Outside Closing Date. . . . . . . . . . . . . . . . . 21
ARTICLE VI. DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . 22
Section 6.1 Selling Partner's Defaults; Purchaser's
Remedies. . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.2 Purchaser's Default; Selling Partner's Remedies . . . 22
Section 6.3 Attorneys' Fees . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII. CLOSING COSTS; POST-CLOSING ADJUSTMENTS. . . . . . . . . . 23
Section 7.1 Closing Costs . . . . . . . . . . . . . . . . . . . . 23
Section 7.2 Post-Closing Adjustments with Respect to Available
Cash. . . . . . . . . . . . . . . . . . . . . . . . . 23
i
<PAGE>
ARTICLE VIII. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 24
Section 8.1 Brokerage Commissions . . . . . . . . . . . . . . . . 24
Section 8.2 Selling Partner's Indemnity . . . . . . . . . . . . . 24
Section 8.3 Purchaser's Indemnity . . . . . . . . . . . . . . . . 24
ARTICLE IX. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.1 Survival of Terms . . . . . . . . . . . . . . . . . . 24
Section 9.2 Binding Effect. . . . . . . . . . . . . . . . . . . . 25
Section 9.3 Entire Agreement; Modifications . . . . . . . . . . . 25
Section 9.4 Headings. . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.5 Interpretation and Construction . . . . . . . . . . . 25
Section 9.6 Notice. . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.7 Additional Acts . . . . . . . . . . . . . . . . . . . 26
Section 9.8 Applicable Law. . . . . . . . . . . . . . . . . . . . 26
Section 9.9 Assignment. . . . . . . . . . . . . . . . . . . . . . 27
Section 9.10 Time of the Essence . . . . . . . . . . . . . . . . . 27
Section 9.11 Conditions. . . . . . . . . . . . . . . . . . . . . . 27
Section 9.12 Severability. . . . . . . . . . . . . . . . . . . . . 27
Section 9.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.14 Tax Returns and Tax Audit . . . . . . . . . . . . . . 27
EXHIBITS:
"A" - Description of Land
"B" - Items to be Furnished to Purchaser
"C" - Form of Tenant Estoppel Certificate
"D" - Closing Certificate
"E" - Prospective Subscriber Questionnaire
"F" - Investor Letter
ii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
OF PARTNERSHIP INTERESTS
------------------------
THIS AGREEMENT OF PURCHASE AND SALE is made and entered into by and
between PRENTISS PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"),
and PRENTISS PROPERTIES C-2 INVESTORS, L.P., a Texas limited partnership
("Selling Partner"), as of the Effective Date.
W I T N E S S E T H:
===================
NP Investment VI Co., a Delaware company ("NP Co.") and LW-LP, Inc., a
Delaware corporation ("LW-LP"), on August 31, 1995, formed PL PROPERTIES
ASSOCIATES, L.P., a Delaware limited partnership ("PL LP"), for the purpose of
owning, operating and selling the Project, as hereinafter defined.
PL LP was formed pursuant to the terms and conditions of that certain
Agreement of Limited Partnership (the "Original PL LP Partnership Agreement"),
dated August 31, 1995, by NP Co. and LW-LP, which was amended and restated in
that certain Amended and Restated Agreement of Limited Partnership dated as of
September 5, 1995, by and among LePren Partners, L.P., a Delaware limited
partnership ("LePren"), as the general partner, and LW-LP and Selling Partner,
as limited partners (the Original Partnership Agreement, as amended and
restated, the "PL LP Partnership Agreement").
NP Co. and Selling Partner, as the general partners, and LW-RTC, Inc.,
a Delaware corporation ("LW-RTC"), as the limited partner, formed LePren for the
purpose of having LePren serve as general partner of PL LP. LePren was formed
pursuant to the terms and conditions of that certain Agreement of Limited
Partnership dated as of September 5, 1995, by and among NP Co., C-2 and LW-RTC
(the "LePren Partnership Agreement").
Selling Partner is the owner and holder of the Partnership Interests
(as hereinafter defined) in the Partnerships (as hereinafter defined) as set
forth on the attached Schedule 1.1(v) and desires to sell its Partnership
--------------
Interests on and subject to the terms and conditions of this Agreement (as
hereinafter defined).
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Selling Partner
hereby agree as follows:
1
<PAGE>
ARTICLE I.
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by or
is under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other
than corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the controlled Person; and "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of the controlled
Person.
(b) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this Agreement
and Purchase of Sale.
(c) "Available Cash" means all cash funds of the Partnerships
--------------
generated by the operation of the Project or otherwise through the Closing
Date (whether collected prior to or subsequent to the Closing Date) after
(i) payment of or provision for all operating expenses of the Project or
the Partnerships payable as of the Closing Date and (ii) provision for a
reasonable reserve to pay accrued and unpaid expenses from the operation
of the Partnerships and the Project.
(d) "Books and Records" shall mean all financial and other books
-----------------
and records maintained by or for the benefit of PL LP (or the
Partnerships, if the context requires) in connection with the operation of
the Project and PL LP (or the Partnerships if the context requires) and
all building plans, specifications and drawings, engineering, soils and
geological reports, environmental reports and other documents prepared in
connection with the construction, maintenance, repair, management or
operation of the Project which are within the possession or control of
Selling Partner, PL LP (or the Partnerships if the context requires), or
PL LP's (or the Partnerships' if the context requires) Affiliates, agents
or representatives.
(e) "Business day" means a day that is not a Saturday, a Sunday,
------------
a legal holiday or a day on which banks are required or permitted by law
or other governmental action to close in Dallas, Texas.
(f) "Closing" means the consummation of the purchase of the
-------
Partnership Interests by Purchaser from Selling Partner in accordance with
the terms and provisions of Article III, which Closing shall be held at
the offices of Akin, Gump, Strauss, Hauer & Feld,
2
<PAGE>
L.L.P., Suite 4100, 1700 Pacific Avenue, Dallas, Texas 75201-4618 on the
Closing Date commencing at 10:00 a.m. Central Daylight Time.
(g) "Closing Date" means a Business day which shall be established
------------
by Purchaser by written notice delivered to Selling Partner, which date
shall be no earlier than five (5) days following the date of such notice,
except that from and after the date the IPO shall have occurred, such date
shall be no earlier than ten (10) days following the date of such notice;
provided, however, that in no event shall the Closing Date be a date later
than December 31, 1996.
(h) "Cut Off Date" means the date the Partnership acquired fee
------------
simple title to the Project.
(i) "Effective Date" shall mean the date on which this Agreement
--------------
shall be fully executed and unconditionally delivered by Purchaser and
Selling Partner.
(j) "Environmental Laws" means all applicable existing federal,
------------------
state and local statutes, ordinances, orders, rules and regulations
issued, promulgated or adopted by any governmental authority having
jurisdiction over the Project relating to environmental pollution or
protection, including, without limitation, the Resource Conservation and
Recovery Act of 1976, 43 U.S.C. "S" 6901 et seq., the Comprehensive
-- ---
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
"S" 9601 et seq., as amended by the Superfund Amendments and
-- ---
Reauthorization Act of 1986, the Hazardous Materials Transportation Act, 49
U.S.C. "S" 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C.
-- ---
"S" 1251 et seq., the Clean Air Act, 42 U.S.C. "S" 7401 et set., the Toxic
-- --- -- ---
Substances Control Act, 15 U.S.C. "S" 2601-2629, the Safe Drinking Water
Act, 42 U.S.C. "S" 300f et seq., together with all existing rules,
-- ---
regulations and orders promulgated thereunder, and all similar applicable
existing local, state and federal statutes and regulations promulgated
pursuant thereto.
(k) "Estoppel Certificates" means the estoppel certificates to be
---------------------
delivered by each Tenant in accordance with the provisions of Section 2.2
hereof.
(l) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(m) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "restricted hazardous waste", or "toxic substances" or
words of similar import under any Environmental Laws, (ii) any oil,
petroleum or petroleum derived substances, any flammable substances or
explosives, any
3
<PAGE>
radioactive materials, any asbestos or any substance containing more than
0.1 percent asbestos, any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million, and any
urea formaldehyde insulation, and (iii) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
Environmental Laws.
(n) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the office buildings,
parking lots and all other amenities, together with PL LP's interest, if
any, in all machinery, fixtures and equipment used in the general
operation of such buildings and improvements, and/or affixed to or located
upon the Land, along with all accessions and additions thereto, excluding
therefrom any machinery, fixtures, equipment or personal property owned by
Tenants at the Project.
(o) "IPO" means the proposed initial public offering of securities
---
in the PPL REIT.
(p) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
----------
hereof for all purposes, together with all and singular all right, title
and interest of PL LP, reversionary or otherwise, in and to all easements
in or upon the Land and all other rights and appurtenances belonging or in
anywise pertaining thereto, if any, including any right, title, and
interest of PL LP in and to any land lying in the bed of any street, road
or access way, right-of-way, alley, opened or proposed, in front of, at a
side of or adjoining the Land to the centerline thereof.
(q) "Lehman Contract" means that certain Agreement of Purchase and
---------------
Sale of Partnership Interests by and among Purchaser and the Lehman
Partners, dated of even date herewith.
(r) "Lehman Partners" means LW-RTC, LW-LP and NP Co., as those
---------------
terms are defined in the recitals hereof.
(s) "LePren" means LePren Partners, L.P., a Delaware limited
------
partnership.
(t) "LePren Partnership Agreement" means that certain Agreement of
----------------------------
Limited Partnership dated as of September 5, 1995, pursuant to which
LePren was formed.
(u) "Leases" means all leases, licenses, franchises, concessions
------
and other occupancy agreements for the use or occupancy of any portion of
the Project, together with all rents, issues, profits, and deposits
thereunder and all amendments thereto.
(v) "Major Leases" means any Lease covering in excess of the
------------
lesser of (i) ten percent (10%) of net rentable area in the Project, or
(ii) 5,000 square feet of net rentable area in the Project, as reflected
in the Rent Roll, as hereinafter defined.
4
<PAGE>
(w) "Miscellaneous Assets" means all contract rights, leases,
--------------------
concessions, assignable warranties, and other items of intangible personal
property owned by PL LP (but only to the extent assignable) and relating
to the ownership or operation of the Land and Improvements, including, but
not limited to, (i) the Service Contracts, (ii) the Permits, (iii) the
Leases, (iv) assignable utility and similar deposits, (v) prepaid license
and permit fees, (vi) the Warranties and (vii) the Books and Records.
(x) "Partnerships" means PL LP and LePren.
------------
(y) "Partnership Agreements" means the PL LP Partnership Agreement
----------------------
and the LePren Partnership Agreement.
(z) "Partnership Interests" means all partnership interests in PL
---------------------
LP and in LePren owned by Selling Partner.
(aa) "Permits" means all licenses and permits issued to or for the
-------
benefit of PL LP and used or relating to the ownership or operation of the
Project in accordance with its current use.
(bb) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(cc) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by PL LP located on or in the Land and the Improvements and used or usable
in connection with any part of the Project. The term "Personal Property"
specifically excludes any and all bank accounts of the Partnerships and
the sums deposited therein, title to which shall be retained by the Lehman
Partners and Selling Partner.
(dd) "PL LP" means PL Properties Associates L.P. a Delaware limited
-----
partnership.
(ee) "PL LP Partnership Agreement" means that certain Amended and
---------------------------
Restated Agreement of Limited Partnership, dated September 5, 1995,
pursuant to which LePren was substituted as the general partner, Selling
Partner was added as a limited partner in PL LP and the Original PL LP
Partnership Agreement was restated in its entirety.
(ff) "PPAP" means Prentiss Properties Acquisition Partners, L.P.,
----
a Delaware limited partnership.
(gg) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct the
IPO, and to acquire directly or indirectly all or a portion of the
Partnership Interests and interests in other real properties, assets,
partnerships and related service businesses.
5
<PAGE>
(hh) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(ii) "Purchase Price" means the sum of $2,201,006.00, as adjusted
--------------
pursuant to the provisions of Section 1.3 (b) hereof.
(jj) "Purchaser" means Prentiss Properties Limited, Inc., a
---------
Delaware corporation.
(kk) "Rent Roll" shall have the meaning set forth in Section
---------
4.1(g)(i) of this Agreement.
(ll) "Securities Act" means the Securities Act of 1933, as amended.
--------------
(mm) "Selling Partner" means Prentiss Properties C-2 Investors,
---------------
L.P., a Texas limited partnership.
(nn) "Selling Partner's Actual Knowledge" shall have the meaning
----------------------------------
set forth in Section 4.2 hereof.
(oo) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of the Partnership affecting the
operation of the Project, copies of which shall be delivered to Purchaser
pursuant to Section 2.1 hereof.
(pp) "State" means the State in which the Project is situated.
-----
(qq) "Tenant" means any Person occupying any portion of the Project
------
under or pursuant to a Lease.
(rr) "Trigger Date" means March 1, 1996.
------------
(ss) "Units" means units of limited partnership interest in PPAP.
-----
(tt) "Warranties" means all warranties and guaranties relating to
----------
the Project, or any part thereof, or to the Personal Property or
Improvements, or construction thereof.
Section 2.2 Sale and Delivery of the Partnership Interests. Selling
----------- ----------------------------------------------
Partner hereby agrees to sell, transfer and assign the Partnership Interests to
Purchaser or its designees, and Purchaser hereby agrees to purchase the
Partnership Interests from Selling Partner, upon and subject to the terms and
provisions hereinafter set forth. Purchaser (or its permitted assignee) may
designate an Affiliate to take title to up to one percent (1%) of the
Partnership Interests.
Section 1.3 Purchase Price for the Partnership Interests.
----------- --------------------------------------------
(a) Purchase Price. The Purchase Price shall be payable to
Selling Partner on the Closing Date, plus or minus prorations and
adjustments as hereinafter provided. The
6
<PAGE>
Purchase Price shall be payable to Selling Partner in the manner set forth
in Section 1.5 hereof.
(b) Adjustment to the Purchase Price. In the event that during
--------------------------------
the period between the Trigger Date and the Closing Date, PL LP expends
any sums of money in connection with
(i) the betterment of or enhancement of the value of the
Project [excluding expenditures (which are to be borne
by the Partnerships or Selling Partner from available
cash of the Partnerships or other sources) (a) which
relate to routine repair and maintenance of the Project
necessary to maintain the Project in its current
condition, or (b) which are required to comply with
written commitments to Tenants pursuant to the Leases
entered into prior to the Trigger Date or (c) which are
required to comply with any violation of Governmental
Regulations existing on the Trigger Date (not to exceed
one percent (1%) of the Purchase Price)], or
(ii) a tenancy created from and after the Trigger Date, which
has been approved by Purchaser, including, without
limitation, any leasing commissions or tenant
improvement expenses.
then in such event the Purchase Price shall be increased by ten percent
(10%) of the amounts so expended by the PL LP.
Section 1.4 Independent Consideration. Concurrently herewith Purchaser
----------- -------------------------
has to Selling Partner the sum of $100.00, which shall be independent
consideration (the "Independent Consideration") for the agreements of Selling
Partner set forth herein. The Independent Consideration shall be in addition to
the Purchase Price. If the Closing does not occur for any reason, the
Independent Consideration shall be deemed earned and shall be retained by each
of Selling Partner.
Section 1.5 Payment of Purchase Price. Purchaser shall pay the Purchase
----------- -------------------------
Price by the delivery of Units. The number of Units to be delivered to Selling
Partner shall be calculated by dividing the Purchase Price by the mid-point of
the offering price range for one (1) common share of beneficial interest of the
PPL REIT as set forth in the final "red-herring" prospectus for the IPO. Selling
Partner acknowledges that PPAP will not issue fractional Units. Thus, the
results of the calculation set forth above will be rounded to the nearest whole
number of Units (.50 rounded down). Upon satisfaction of the obligations set
forth in Section 3.2(a)(vi) and the requirements of Section 4.6 hereof, Selling
Partner may distribute Units to direct and indirect owners of Selling Partner.
7
<PAGE>
ARTICLE II.
APPROVAL OF DOCUMENTS; INSPECTIONS
----------------------------------
Section 2.1 Items to be Furnished to Purchaser. Within thirty (30) days
----------- ----------------------------------
after the Effective Date, Selling Partner shall cause the Partnerships to
furnish to Purchaser, true, correct, complete, and legible copies of the items
listed on Exhibit "B" attached hereto and made a part hereof for all purposes.
----------
In addition to the foregoing, Selling Partner shall make available to Purchaser
for its review either at the Project or at such other place as may be reasonably
convenient to Purchaser and Selling Partner copies of all other records relating
to the ownership and operation of the Project and the Partnerships, in Selling
Partner's or the Partnerships' possession or control.
Section 2.2 Estoppel Certificates. Within thirty (30) days after the
----------- ---------------------
Effective Date, Selling Partner will cause PL LP to deliver to each Tenant a
form of Estoppel Certificate, in the form and contain the content of the
Estoppel Certificate attached hereto as Exhibit "C" and made a part hereof for
-----------
all purposes, and will use its reasonable efforts to cause each Tenant to
execute and deliver to Purchaser an Estoppel Certificate on or before the
Closing Date.
Section 2.3 Inspection.
----------- ----------
(a) During the period commencing on the Effective Date and ending
on the Closing Date or the earlier termination of this Agreement (the
"Inspection Period"), Purchaser, upon reasonable notice to Selling Partner
and the Partnerships, shall have reasonable access to the Project and the
Partnerships' Books and Records, either personally or by authorized agent,
to inspect the Project and the Books and Records of the Partnerships, the
items delivered pursuant to this Article II and any other documents and
records available which are normally maintained in the operation of the
Project or the Partnerships.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Selling Partner will fully cooperate and
cause the Partnerships to fully cooperate with Purchaser, at no cost or
expense to Selling Partner or the Partnerships, in the conduct of
Purchaser's inspection of the Project and the Books and Records of the
Partnerships. Such inspections (and any inspections performed in
accordance with the sentence next following) may be conducted at all
reasonable times, so long as such activities do not unreasonably interfere
with the Tenants in occupancy. Selling Partner will permit Purchaser and
current and prospective underwriters involved in the IPO, and the agents,
attorneys, accountants, and representatives of all of the foregoing, upon
reasonable notice (but without having to obtain further approval), to
enter upon and inspect the Project, at reasonable times during normal
working hours, all premises leased to Tenants, all mechanical equipment,
systems, and fixtures forming a part thereof, and all Books and Records.
Selling Partner will permit Purchaser and the underwriters involved in the
IPO, and the agents, attorneys, accountants, and representatives of all of
the foregoing, at no cost or expense to Selling Partner or the
Partnerships, to audit the Books and Records, and to conduct such
investigations, tests, or inspections as Purchaser deems appropriate
including, without limitation, sampling studies to ascertain whether or
not there is any Hazardous Substance on, in, or under the Project. In
conducting any such entry, investigation, test, or inspection, no party
permitted entry
8
<PAGE>
hereunder will unreasonably interfere with the operation of the Project or
the peaceable possession by individual Tenants of their respective
premises. To the extent that Persons other than Purchaser join in such
inspections, Purchaser shall secure from such Persons their agreement to
hold any such information in confidence pending the closing of the
transaction contemplated hereby, with the exception of the use of such
materials during the disclosure process in connection with the IPO.
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance in terms and amounts reasonably satisfactory to
Selling Partner and the Partnership covering any accident arising in
connection with the presence of Purchaser, its agents and representatives
on the Project and shall deliver a certificate of insurance verifying such
coverage to Selling Partner prior to entry upon the Project.
(d) Purchaser agrees to fully and completely repair and restore
the Project in the event of any damage whatsoever occurring by Purchaser,
Purchaser's Affiliates or consultants during the pendency of this
Agreement. Purchaser hereby indemnifies and holds Selling Partner
harmless from and against any loss, damage, injury, claim or cause of
action Selling Partner or the Partnerships may suffer or incur as a result
of Purchaser's inspections of the Project undertaken pursuant to this
Agreement. The indemnity set forth in this subparagraph (d) shall survive
the Closing or the termination of this Agreement.
(e) If, during the Inspection period, Purchaser shall discover any
condition or circumstance, which in Purchaser's sole discretion, judgment
and opinion makes Purchaser's investment in the Partnerships an
unacceptable risk, Purchaser shall be entitled, as its sole and exclusive
remedy, to terminate this Agreement by giving written notice to Selling
Partner, on or before the expiration of the Inspection Period, whereupon
this Agreement shall terminate, and upon such termination, neither Selling
Partner nor Purchaser shall have any further obligation or liability
hereunder.
Section 2.4 Purchaser's Acknowledgement. Purchaser acknowledges that,
----------- ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Partnership Interests shall be acquired on a basis that is
without representation or warranty, including any representations or warranties
relating to the Project, which as of the Closing Date shall be in its present
condition, subject to reasonable use, wear, tear and natural deterioration
between the Effective Date and the Closing Date. In such regard, there shall be
no reduction in the Purchase Price for any change in the condition of the
Project by reason of any events, subsequent to the Effective Date, except by
reason of condemnation or casualty. Purchaser further acknowledges that it has
not been induced by nor has it relied upon any representations, warranties or
other statements, whether express or implied, made by Selling Partner, or any of
its agents, employees or other representatives, which are not expressly set
forth in this Agreement or in the materials to be delivered to Purchaser in
accordance with the terms and provisions hereof.
9
<PAGE>
ARTICLE III.
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNER WITH RESPECT THERETO
-----------------------------------------------------
Section 3.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Partnership Interests contemplated by the terms and conditions of this Agreement
shall be consummated at the Closing to be held on the Closing Date.
Section 3.2 Selling Partner' Obligations at the Closing.
----------- -------------------------------------------
(a) At the Closing, Selling Partner shall do the following:
i) Execute and deliver to Purchaser a good and sufficient
assignment of partnership interests (the "Assignment")
(with warranty limited to Selling Partner's acts) in the
form approved by Purchaser and Selling Partner,
conveying the title in and to the Partnership Interests
free and clear of all liens or encumbrances;
ii) Execute and deliver to Purchaser an amendment to the
Partnership Agreements (the "Amendment"), in the form
approved by Purchaser and Selling Partner, covering the
withdrawal of Selling Partner and the admittance of
Purchaser or its designees as partners in the
Partnerships and such other matters as Purchaser may
reasonably require;
iii) Execute, acknowledge, and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under
penalty of perjury, Selling Partner's U.S. taxpayer
identification number and that Selling Partner is not
foreign persons within the meaning of Section 1445 of
the Internal Revenue Code;
iv) Execute and deliver to Purchaser a Closing Certificate
(herein so called), in the form and containing the
content of the Closing Certificate attached hereto as
"Exhibit "D" and made a part hereof for all purposes;
-----------
v) Deliver to Purchaser Estoppel Certificates from the
Tenants under Major Leases and the Tenants under non-
Major Leases who have executed and delivered Estoppel
Certificates, together with Selling Partner's
certificate, in respect to the Tenants under non-Major
Leases who have failed to deliver Estoppel Certificates,
to the effect that the information contained in the
Estoppel Certificates presented to the Tenants under
non-Major Leases in question is true and correct and no
known defaults on the part of such Tenants exist or with
the passage of time will exist;
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vi) Deliver or cause the Partnerships to deliver to Purchaser
satisfactory evidence that all necessary corporate,
partnership, or other action on the part of Selling Partner
has been taken with respect to the consummation of the
transaction contemplated hereby;
vii) Complete, execute, and deliver, and cause any direct or
indirect owner of Selling Partner receiving Units to
complete, execute, and deliver, to PPAP or any other
transferor of the Units (a) the Prospective Subscriber
Questionnaire attached hereto as Exhibit "E" and (b) the
-----------
Investor Letter attached hereto as Exhibit "F"; and
-----------
viii) Deliver to Purchaser such other assignments and documents
as may be required pursuant to the provisions hereof or
mutually agreed by counsel for Selling Partner and
Purchaser to be necessary to fully consummate the
transaction contemplated hereby.
(b) If Selling Partner fails or is unable to deliver any of the
items set forth in this Section 3.2 at the Closing, Purchaser may
(i) elect to waive such failure and close the transaction, or
(ii) exercise any one or more of its options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered
to Purchaser under Section 3.2 above, Purchaser shall do the following:
i) Deliver the Purchase Price in accordance with
Section 1.5 hereof;
ii) Execute and deliver to Selling Partner counterparts of
the Assignment to be executed and delivered by Selling
Partner pursuant to Section 3.2 above;
iii) Execute and deliver to Selling Partner counterparts of
the Amendment to be executed and delivered by Selling
Partner pursuant to Section 3.2 above;
iv) Deliver to Selling Partner satisfactory evidence that
all necessary corporate, partnership, or other action by
Purchaser has been taken with respect to the
consummation of the transaction contemplated hereby; and
v) Deliver to Selling Partner such other instruments or
documents as may be required pursuant to the terms
hereof or mutually agreed by counsel for Selling Partner
and Purchaser to be necessary to fully consummate the
transaction contemplated hereby.
11
<PAGE>
(b) If Purchaser fails or is unable to deliver any items set forth
in this Section 3.3 at the Closing, Selling Partner may (i) elect to waive
such failure and close the transaction, or (ii) exercise their remedies
under Section 6.2(b) hereof.
ARTICLE IV.
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 4.1 Representations and Warranties of Selling Partner. Selling
----------- -------------------------------------------------
Partner hereby represents and warrants to Purchaser, as of the date hereof and
as of the Closing Date, the following:
(a) Selling Partner is the legal and beneficial owner of the
Partnership Interests. The Partnership Interests are owned by Selling
Partner free and clear of all liens, security interests, pledges,
assessments, charges, adverse claims, restrictions and other encumbrances
created by Selling Partner or its predecessors in interest, except as set
forth in the Partnership Agreements. Other than the rights and obligations
arising under this Agreement and the Partnership Agreements, the
Partnership Interests are not subject to any rights of any other person to
acquire the same, nor are the Partnership Interests subject to any
restrictions on transfer thereof, except for restrictions imposed by the
Partnership Agreements and applicable federal and state securities laws.
(b) The Partnerships have been duly formed and are validly
existing as limited partnerships under the laws of the State of Delaware,
and are duly registered or qualified to do business in the State of Texas.
(c) To Selling Partner's Actual Knowledge, neither the execution
and deliver of this Agreement nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under, any agreement or
instrument to which the Partnerships are a party or by which they are
bound. To Selling Partner's Actual Knowledge, there are no actions,
voluntary or involuntary, pending against Selling Partners or the
Partnerships under any bankruptcy, reorganization, arrangement, insolvency
or similar federal or state statute.
(d) Selling Partner has been duly formed and is validly existing
as a limited partnership under the laws of the State of Texas. The
execution, delivery and performance of this Agreement and all other
documents, instruments and agreements to be executed and delivered by
Selling Partner pursuant to this Agreement (collectively, "Selling
Partner's Documents") are within the corporate power of Selling Partner
and have been duly authorized by all necessary and appropriate corporate
action.
(e) Neither the execution and deliver of this Agreement and
Selling Partner's Documents nor the consummation of the transaction
contemplated hereby conflicts with or will result in a material breach of
any of the provisions of, or constitute a default under, (i) the
partnership documents of Selling Partner or (ii) any agreement or
instrument to which Selling Partner is a party or by which it is bound.
There are no actions, voluntary or
12
<PAGE>
involuntary, pending against Selling Partner under any bankruptcy,
reorganization, arrangement, insolvency or similar federal or state
statute.
(f) Selling Partner is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended.
(g) With respect to the Leases:
i) As of the date of the rent roll to be delivered pursuant to
Section 2.1 hereof (the "Rent Roll"), there are no tenant
leases, tenancy agreements, licenses, occupancy agreements
or any amendments, renewals, assignments, subletting and
guaranties thereof, or surrender agreements and termination
agreements related thereto, affecting the Project, or any
portion thereof, other than the Leases set forth in the
----------
Rent Roll and any subleases, licenses or occupancy
agreements which have (a) been entered into by Tenants of
the Project with third parties and (b) not been disclosed
in writing to Selling Partner.
ii) The Rent Roll shall contain a complete and accurate list of
the names of the Tenants, the date of each Lease (and any
amendments thereto), the space covered thereby and the
current rental payable thereunder. The information
contained in the Rent Roll shall be true, complete and
correct in all material respects as of the date of the Rent
Roll.
iii) The copies of the Leases heretofore delivered by Selling
Partner to Purchaser are true, complete and correct
copies of the Leases.
iv) To Selling Partner's Actual Knowledge, each of the Leases
is in full force and effect and has not been amended,
modified or extended, except as set forth in the Rent Roll.
To Selling Partner's Actual Knowledge, except as set forth
in the Rent Roll or otherwise disclosed to Purchaser in
writing, including, without limitation, information set
forth in the Estoppel Certificates, PL LP has performed and
observed in all material respects, for all periods
following the Cut Off Date, all of (and is not in material
default, excluding any grace periods, in the performance or
observance of) the terms, covenants and conditions on PL
LP's part to be performed or observed under the Leases.
Except as set forth in the Rent Roll or otherwise disclosed
to Purchaser in writing, neither Selling Partner nor PL LP
has given, nor has PL LP or Selling Partner received, any
written notice of a default under any of the Leases which
remains uncured.
v) To Selling Partner's Actual Knowledge, except as set forth
in the Rent Roll or the Leases, no Tenant under any of the
Leases (a) is currently contesting (in writing) any item of
rent charged under any of the
13
<PAGE>
Leases or is currently claiming (in writing) an overcharge
of operating expenses; (b) is entitled to any concessions
or abatements, rebates, set-offs or free rent with respect
to any item of rent for any period subsequent to the
Closing, and all items of an inducement nature to be
performed by the landlord under the Leases prior to the
Closing Date have been performed, or (c) has any option or
right of first offer or first refusal to purchase the
Project or any part thereof; and
vi) To Selling Partner's Actual Knowledge, except as noted in
the Rent Roll, PL LP's historical billing practices to
Tenants for additional rents and percentage rents is
consistent with the requirements of each Lease.
(h) With respect to the Service Contracts:
i) As of the date hereof, there are no written equipment
leases or service, maintenance or other similar contracts
or agreements affecting the Project, or any portion
thereof, other than (a) the Service Contracts copies of
which have been delivered to Purchaser and (ii) any
equipment leases or other contracts or agreements that may
have been entered into by Tenants (or subtenants of
Tenants) of the Project with third parties; and
ii) Each Service Contract is in full force and effect and has
not been amended except as discussed in writing to
Purchaser. Neither Selling Partner nor the Partnerships
have given, nor have the Partnerships or Selling Partner
received, any written notice of a default under any of the
Service Contract which remains uncured, except as discussed
in writing to Purchaser.
(i) As of the date hereof, to Selling Partner's Actual Knowledge
there is not any pending, nor have the Partnerships or Selling Partner
received written notice of any threatened:
i) proceeding, suit or action against the Partnerships or
Selling Partner which, if adversely decided, would prevent
or materially delay the consummation of the transaction
contemplated by this Agreement or materially adversely
affect the Project or the Partnerships, including, without
limitation, pending or threatened suits, actions or
proceedings with respect to all or part of the Project (a)
for condemnation, (b) alleging any violation of any
Governmental Regulation, (c) which could result in the
imposition of a lien against the Project or (d) which could
increase real property taxes or assessments levied against
the Project (other than the normal and routine assessment
and reassessment process conducted by applicable
governmental authorities), or
14
<PAGE>
ii) proceeding to change or redefine the zoning classification
applicable to any portion of the Project that would cause
the Project to become a "non-conforming" use, or
iii) proceeding to change any road patterns or grades that would
materially adversely affect access to any roads providing a
means of ingress to or egress from the Project, or
iv) proceeding seeking a reduction of real estate taxes imposed
on the Project or any portion thereof, or
v) pending imposition of any special or other assessments for
public betterments that may affect any portion of the
Project or the ownership thereof.
(j) To Selling Partner's Actual Knowledge (i) the Project does not
violate any Governmental Regulation in any material respect and (ii) the
current operation and use of the Project complies in all material respects
with all applicable Governmental Regulations.
(k) To Selling Partner's Actual Knowledge, (i) all Permits
required for the continued use and occupancy of the Project (as the same
is presently used under the Leases) have been obtained from all
appropriate governmental authorities, are fully paid for, are in full
force and effect, and will not be revoked, invalidated or violated by the
consummation of the transaction contemplated by this Agreement, and (ii)
the Project remains in compliance in all material respects with all
applicable requirements and conditions with respect to the issuance of the
Permits, which were in effect at the time of the issuance thereof.
(l) Except as otherwise disclosed in writing by Selling Partner to
Purchaser, to Selling Partner's Actual Knowledge the Project has not been
designated as a landmark and is not located in a conservation or historic
district or in an area that has been identified as having special flood
hazards.
(m) To Selling Partner's Actual Knowledge, the Project is an
independent unit which, as of the date hereof, does not rely on any
facilities (other than the facilities of public utility companies) located
on any property not included in the Project to (i) fulfill the
requirements of any Governmental Regulation, (ii) provide structural
support or furnish any essential building system or utility or (iii)
fulfill the requirements of any of the Leases. No building or other
improvement not included in the Project relies on any part of the Project
to (1) fulfill the requirements of any Governmental Regulation, or (2)
provide structural support or furnish any essential building system or
utility.
(n) To Selling Partner's Actual Knowledge, for any period
following the Cut Off Date, there has not been any material damage to any
portion of the Project caused by fire or other casualty that has not been
repaired or restored.
15
<PAGE>
(o) To Selling Partner's Actual Knowledge, the real property and
improvements that constitute the Project are assessed as one tax lot that
is separate and distinct from the tax lot allocated to any other parcel of
land or any other improvements.
(p) To Selling Partner's Actual Knowledge, except as otherwise
disclosed in any environmental report delivered by Selling Partner to
Purchaser with respect to the Project ("Environmental Report"), (i) no
Hazardous Materials have been stored, disposed of, released or transported
at or from the Project, or any portion thereof, in violation of, or
requiring remediation under, any Environmental Laws (the foregoing
representation does not apply to the customary and ordinary application,
storage and use of chemicals for landscape maintenance, janitorial
services, and pest control), and (ii) there have been no and are no (A)
aboveground or underground storage tanks; (B) polychlorinated biphenyls
("PCBs") or PCB-containing equipment; (C) asbestos containing materials;
(D) lead based paints; or (E) dry-cleaning facilities in, on, under or at
the Project; or (F) wetlands located on or at the Project.
(q) There is now in full force and effect with reputable insurance
companies, casualty and liability insurance policies with respect to the
Project in commercially reasonable amounts.
(r) To Selling Partner's Actual Knowledge, the Rent Roll and the
operating statements for the Project provided by Selling Partner or PL LP
to Purchaser present fairly the financial condition of the Project as of
their respective dates and the results of the Project's operations for the
periods reflected therein.
(s) The Partnerships have no employees and are not a party to any
union, labor or collective bargaining agreement affecting the Project.
(t) The Partnerships have filed all income, franchise, sales,
payroll and other tax returns and reports of every nature required to be
filed by it accurately reflecting all taxes owing to the United States or
any other government, government subdivision or taxing authority, and it
has paid in full or made adequate provision for the payment of all taxes
and duties (including penalties and interest) for which it has or may
have liability. Selling Partner has no knowledge of any unassessed tax
deficiency proposed or threatened against the Partnerships as a result of
the operation of its business. There are no liens on the assets of the
Partnerships as a result of any tax liabilities except for taxes not yet
due and payable. There are, as of the date of this Agreement, no, and
after the date of this Agreement there will not be any, tax deficiencies
(including penalties and interest) of any kind assessed against or
relating to the Partnerships with respect to any taxable periods ending on
or before, or including, the Closing Date of a character or nature that
would result in liens or claims on any of the Property, or on the
Partnerships' title to or use of the Property, or that would result in any
claim against the Partnerships.
(u) The copies of the Partnership Agreements and the amendments
thereto heretofore delivered to Purchaser by Selling Partner are true and
correct copies of the documents governing the formation and existence of
the Partnerships and there are no other
16
<PAGE>
agreements, documents, or other instruments of any nature which govern the
relationship of the partners in the Partnerships or their assets.
(v) With respect to the receipt of Units:
(i) Selling Partner (A) understands the risks of, and other
considerations relating to accepting Units in connection
with its sale of the Partnership Interests pursuant to this
Agreement; (B) is an "accredited investor" as defined in
the Securities Act, and (C) by reason of its business and
financial experience, together with the business and
financial experience of those persons, if any, retained by
it to represent or advise it with respect to the
transaction contemplated by this Agreement, has such
knowledge, sophistication and experience in financial and
business matters and in making investment decisions of this
type, that (1) it is capable of evaluating the merits and
risks of an investment in PPAP and of making an informed
investment decision, and (2) is capable of protecting its
own interest or has engaged representatives or advisors to
assist it in protecting its interest, and (D) is capable of
bearing the economic risk of such investment.
(ii) Selling Partner (A) understands and acknowledges that an
investment in PPAP involves substantial risks; (B) has been
given the opportunity to make a thorough investigation of
the proposed activities of PPAP; (C) has been afforded the
opportunity to obtain any information deemed necessary by
Selling Partner; (D) confirms that all documents, records,
and books pertaining to its investment in PPAP and
requested by Selling Partner have been made available or
delivered to Selling Partner; (E) has had an opportunity to
ask questions of and receive answers from PPAP, or from a
person or persons acting on PPAP's behalf, concerning the
terms and conditions of the transaction contemplated by
this Agreement and its acquisition of Units; and (F) has
relied upon, and is making its investment decisions solely
upon such information as has been provided to Selling
Partner in writing by PPAP.
(iii) The Units to be transferred to Selling Partner pursuant to
this Agreement will be acquired by Selling Partner for its
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, or the grant of any participation
therein, without prejudice, however, to Selling Partner's
right (subject to the terms of the partnership agreement of
PPAP) at all times to sell or otherwise dispose of all or
any part of its Units under an exemption from such
registration available under the Securities Act and
applicable state securities law, and subject, nevertheless,
to the disposition of its assets being at all times within
17
<PAGE>
its control. Selling Partner was not formed for the
specific purpose of acquiring an interest in PPAP.
(iv) Selling Partner acknowledges that (A) the Units to be
issued to Selling Partner will not have been registered
under the Securities Act or state securities laws by reason
of a specific exemption or exemptions from registration
under the Securities Act and applicable state securities
laws and, if such Units are to be represented by
certificates, such certificates will bear a legend to such
effect; (B) Purchaser's reliance on such exemptions is
predicated in part on the accuracy and completeness of the
representations, warranties and covenants of Selling
Partner contained herein; (C) such Units, therefore, cannot
be resold unless registered under the Securities Act and
applicable state securities laws, or unless an exemption
from registration is available; (D) there will be no public
market for such Units; (E) Units to be issued to Selling
Partner will not be transferable without the prior written
consent of the general partner of PPAP which consent shall
not be withheld if the general partner of PPAP determines
that the transfer of same is a valid private placement
under applicable Federal and State securities laws; (F)
PPAP has no obligation or intention to register such Units
for resale under the Securities Act or any state securities
laws or to take any action that would make available any
exemption from the registration requirements of such law;
(G) because of the restrictions on transfer or assignment
of such Units to be issued hereunder set forth in the
partnership agreement of PPAP and/or in a stock restriction
agreement, Selling Partner may have to bear the economic
risk of the investment commitment evidenced by this
Agreement and any Units acquired hereby for an indefinite
period of time, and (H) under the terms of the partnership
agreement of PPAP, as it will be in effect on the Closing
Date, Units will not be redeemable at the request of the
holder thereof for cash (or at the option of PPL REIT, for
common stock in PPL REIT) prior to the first anniversary of
their issuance.
(v) The address set forth for Selling Partner in this Agreement
is the address of Selling Partner's principal place of
business or residence, as applicable, and Selling Partner
has no present intention of becoming a resident of any
country, state or jurisdiction other than the country and
state in which principle place of business or residence, as
applicable, is cited.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the term
----------- ------------------
"Selling Partner's Actual Knowledge" is used it shall be limited to the
knowledge of Thomas F. August and Dennis J. DuBois. Notwithstanding anything
herein contained to the contrary, in the event that prior to Closing Purchaser
has knowledge of any fact or circumstance that would make any of the
representations or warranties of Selling Partner set forth herein untrue or
incorrect, Selling Partner
18
<PAGE>
shall not be deemed to be in default hereunder by reason of the fact that such
representation or warranty is in fact untrue or incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
----------- ------------------------------------------
otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall be continuing and shall be true and correct on and as
of the Closing Date with the same force and effect as if made at that time, and
all of such representations and warranties, other than those set forth in
Subsections 4.1 (a), (b), (c), (d), (e), (f) and (v) above, shall survive the
Closing for a period of twelve (12) months, at which time they shall expire and
terminate and be of no further force and effect unless a claim for breach
thereof has been instituted within such twelve (12) month period. The
representations and warranties set forth in Subsections 4.1 (a), (b), (c), (d),
(e), (f) and (v) above, shall survive the Closing without limitation of time
constraints.
Section 4.4 Selling Partner's Obligation to Notify Purchaser of Change.
----------- ----------------------------------------------------------
If, prior to the Closing Date, either Selling Partner or the Partnerships become
aware that any representation or warranty set forth in Section 4.1 hereof which
was true and correct on the date hereof has become incorrect in any material
respect, either prior to or at Closing, due to changes in conditions or the
discovery of information by Selling Partner or the Partnerships of which Selling
Partner was unaware on the date hereof, Selling Partner shall immediately notify
Purchaser thereof. Upon receipt of such notification, if such change is material
and adverse with respect to the acquisition of the Partnership Interests,
Purchaser shall have the option of terminating this Agreement whereupon this
Agreement shall become null and void and of no further force or effect and
neither party shall have any further obligation one to the other. If Purchaser
does not exercise its option to terminate this Agreement by reason of any such
change in conditions, appropriate modifications shall be made in the terms
hereof to reflect the change in the conditions to the mutual satisfaction of
Selling Partner and Purchaser.
Section 4.5 Operation of Project Prior to Closing. To the extent Selling
----------- -------------------------------------
Partner has the power to do so under the Partnership Agreements, Selling Partner
shall (a) continue to cause PL LP's property manager to diligently operate the
Improvements and the Project in the ordinary course of business between the date
hereof and the Closing Date, (b) cause PL LP to keep, observe, and perform or
cause to be performed all of its obligations as landlord under the Leases, (c)
prevent PL LP from terminating or causing the termination of any Lease except as
the result of the default of the Tenant thereunder or the replacement of a
suitable substitute, and (d) cause PL LP to maintain and operate the Project in
substantially the same condition and repair as exists on the Effective Date,
reasonable wear and tear and normal replacements excepted.
Section 4.6 Representations and Warranties of Owners of Selling Partner.
----------- -----------------------------------------------------------
In the event Selling Partner at Closing transfers or directs the transfer of
Units to any direct or indirect owners (the "Owners") of any interest in Selling
Partner, as a condition to the obligation of Purchaser to consummate the
transaction contemplated hereby, the Owners shall execute and deliver at Closing
a certificate containing the representations and warranties stated in Section
4.1(v)(i) through (v), inclusive, as applicable to Owners, provided, however,
that the Owners' liability for a breach of any representation or warranty
contained in such certificate will be limited to Owners returning the Units they
receive at Closing.
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<PAGE>
ARTICLE V.
CONDITIONS TO CLOSING
---------------------
Section 5.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Selling Partner set
forth herein shall be true in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties have been made on and as of the Closing Date;
(b) Selling Partner in all material respects shall have performed,
observed and complied with all of the covenants, agreements and conditions
required by this Agreement to be performed, observed and complied with by
Selling Partner prior to or as of the Closing Date;
(c) Purchaser, on or before the expiration of the Inspection
Period, shall have performed such inspections, investigations and tests as
Purchaser desires, in accordance with the terms of Article II of this
Agreement, and Purchaser shall have determined, in Purchaser's sole
discretion, that the Project is suitable for Purchaser's intended use;
(d) Selling Partner shall have delivered to Purchaser a
certificate or certificates as may be acceptable to Purchaser stating that
a search has been conducted by a party acceptable to Purchaser of both the
state and county records in which financing statements and security
agreements are filed under the Uniform Commercial Code of the State and
that such searches indicate that, except security interests or liens to be
released at Closing, no security interests or liens of any kind or nature,
including, but not limited to, any equipment financing or leasing
arrangements, are claimed by any Person against the Partnership Interests,
the Personal Property, or the Improvements, or any part thereof;
(e) The closing of the IPO shall have occurred ;
(f) Purchaser shall have received from each Major Tenant an
Estoppel Certificate duly executed by each Tenant, without material change
to the form of Estoppel Certificate submitted to the Tenant in question;
(g) No material adverse change in the condition or operation of
the Project or the Partnership as they exist on the Effective Date shall
have occurred between the Effective Date and the Closing Date, which
change negatively and adversely affects the Project or the Partnership in
any material manner;
(h) The Project shall have suffered no unrepaired casualty loss or
condemnation which would materially and adversely affect the Project or
the Partnership; and
20
<PAGE>
(i) Purchaser shall have acquired the remaining partnership
interests in LePren and PL LP from the Lehman Partners pursuant to the
Lehman Contract.
Section 5.2 Consequences of the Failure of Section 5.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of the
Partnership Interests and the conditions set forth in Subsections 5.1 (a)
and/or (b) have not been satisfied, Selling Partner shall be deemed in
default hereunder and Purchaser shall have the option to either (i) waive
those conditions and proceed with the Closing or (ii) exercise it rights
and remedies set forth in Article VI.
(b) In the event (i) on or prior to the expiration of the
Inspection Period, Purchaser has determined that the Project is not suited
for Purchaser's intended use or that the transaction contemplated by this
Agreement is not a satisfactory investment, or (ii) on or before the
Closing Date the conditions set forth in Subsections 5.1 (d), (e), (f),
(g), or (i) above have not been satisfied, Purchaser shall have the option
to either (1) waive those conditions and proceed with the Closing or
(2) terminate this Agreement whereupon this Agreement shall become null
and void and of no further force or effect and neither party shall have
any further obligation one to the other.
Section 5.3 Outside Closing Date. In the event (a) the condition
----------- --------------------
precedent to Purchaser's obligations to consummate the transaction contemplated
hereby set forth in Section 5.1(e) has not been satisfied on or before December
31, 1996, in a manner to permit the transaction contemplated hereby to be
consummated and funded by such date, or (b) Purchaser has not designated a
Closing Date within a sufficient period of time to permit the timely Closing of
the transaction contemplated hereby on or before December 31, 1996, or (c)
Purchaser has not designated a Closing Date within ten (10) Business days
following the date the IPO has occurred, then in such event this Agreement shall
terminate and become null and void and of no further force or effect on the
earlier of December 31, 1996, or on the tenth (10th) Business day following the
date of the occurrence of the IPO, and neither party shall have any further
obligation one to the other.
ARTICLE VI.
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Selling Partner's Defaults; Purchaser's Remedies.
----------- ------------------------------------------------
(a) Selling Partner's Defaults. Selling Partner shall be deemed
to be in default hereunder in the event that any of Selling Partner'
representations hereunder are determined to be false or misleading in any
material respect or in the event Selling Partner shall fail in any
material respect to meet, comply with, or perform any covenant, agreement,
or obligation on its part required within the time limits and in the
manner required in this Agreement.
21
<PAGE>
(b) Purchaser's Remedies. In the event Selling Partner shall be
--------------------
deemed to be in default hereunder for any other reason, by virtue of the
occurrence of any one or more of the events specified in Section 6.1(a)
above, Purchaser may at its election (i) bring suit against Selling
Partner to enforce specific performance of this Agreement together with
such actions as may be available at law or in equity to recover
Purchaser's actual out-of-pocket costs in the performance of reasonable
due diligence, or (ii) terminate this Agreement. If the remedy of specific
performance is not available Purchaser shall have no remedy for damages
other that the aforementioned out-of-pocket costs. Notwithstanding
anything to the contrary contained herein, to the extent any action is
instituted by Purchaser from and after the Closing Date in respect to a
breach of a warranty or representation hereunder, Selling Partner's
liability relating to such breach shall be limited to Selling Partner's
returning the Units it receives at Closing.
Section 6.2 Purchaser's Default; Selling Partner's Remedies.
----------- -----------------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material
respect to meet, comply with, or perform any covenant, agreement, or
obligation on its part required within the time limits and in the manner
required in this Agreement.
(b) Selling Partner' Remedy. IN THE EVENT PURCHASER SHALL BE
-----------------------
DEEMED TO BE IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR TO
CLOSING AND SELLING PARTNER DOES NOT WAIVE SUCH DEFAULT, SELLING PARTNER,
AS Selling PARTNER'S SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, SHALL BE
ENTITLED TO RETAIN THE INDEPENDENT CONSIDERATION, IT BEING AGREED BETWEEN
PURCHASER AND SELLING PARTNER THAT SUCH SUM SHALL BE LIQUIDATED DAMAGES
FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE DIFFICULTY, INCONVENIENCE AND
UNCERTAINTY OF ASCERTAINING ACTUAL DAMAGES FOR SUCH DEFAULT. IN PLACING
THEIR INITIALS AT THE PLACES PROVIDED, EACH PARTY SPECIFICALLY CONFIRMS
THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS
REPRESENTED BY COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED
DAMAGES PROVISION AT THE TIME THIS AGREEMENT WAS MADE. NOTWITHSTANDING THE
FOREGOING, THE PROVISIONS OF THIS SECTION 6.2 (b) SHALL NOT LIMIT IN ANY
MANNER PURCHASER'S INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 8.1 OR 8.3
HEREOF.
SELLING PARTNER'S INITIALS: /s/ TFA
---------
PURCHASER'S INITIALS: /s/ TFA
---------
Section 6.3 Attorneys' Fees. Should either party employ an attorney
----------- ---------------
or attorneys to enforce any of the provisions hereof or to protect its interest
in any manner arising under this Agreement, the non-prevailing party in any
action pursued in courts of competent jurisdiction (the
22
<PAGE>
finality of which is not legally contested) agrees to pay to the prevailing
party all reasonable costs, damages, and expenses, including attorneys' fees,
expended or incurred in connection therewith.
ARTICLE VII.
CLOSING COSTS; POST-CLOSING ADJUSTMENTS
---------------------------------------
Section 7.1 Closing Costs. Costs of closing the transaction contemplated
----------- -------------
hereby shall be allocated between Selling Partner and Purchaser as follows:
(a) Selling Partner shall pay the costs, if any, incurred by
Selling Partner in connection with the performance of its obligations
hereunder.
(b) Purchaser shall pay the costs, if any, incurred by Purchaser
in connection with the performance of its obligations hereunder.
Section 7.2 Post-Closing Adjustments with Respect to Available Cash.
----------- -------------------------------------------------------
Purchaser and Selling Partner acknowledge that all Available Cash relating to
the operations of the Partnerships prior to the Closing Date shall be retained
by and remain the property of the existing partners (including the Selling
Partners) owning interests in the Partnerships immediately prior to the
consummation of the transaction contemplated hereby. Purchaser and Selling
Partner further acknowledge that it may not be possible to determine or compute
the exact amount of undistributed Available Cash as of the Closing Date.
Therefore, Purchaser hereby agrees that it shall cause the Partnerships, as soon
as reasonably practicable following the Closing Date, to determine and compute
the amount of undistributed Available Cash through the Closing Date and to pay
over and distribute such sums to the Selling Partner and the other partners of
the Partnerships in the manner contemplated by the Partnership Agreements, as if
the transaction contemplated hereby had not been consummated. To the extent
requested by the Selling Partner, Purchaser shall provide adequate back up and
substantiation as to the manner in which undistributed Available Cash has been
determined, including verification by the Partnerships' independent accountants
if requested by the Selling Partner.
ARTICLE VIII.
INDEMNIFICATION
---------------
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the payment of any commission regarding
the consummation of the transaction contemplated hereby. It is agreed that if
any claims for commissions or fees, including, without limitation, brokerage
fees, finder's fees, or commissions, are ever made against Selling Partner or
Purchaser in connection with this transaction, all such claims shall be handled
and paid by the party whose actions or alleged commitments form the basis of
such claim and such party shall indemnify and hold harmless the other from and
against all such claims or demands with respect to any brokerage fees, finder's
fees, or agents' commissions or other compensation asserted by any person, firm,
or corporation in
23
<PAGE>
connection with this Agreement or the transactions contemplated hereby. The
provisions of this Section 8.1 shall expressly survive the early termination of
this Agreement.
Section 8.2 Selling Partner's Indemnity. Selling Partner agrees to
----------- ---------------------------
indemnify and hold Purchaser harmless of and from all liabilities, claims,
demands and expenses, of any kind or nature, known or unknown, fixed or
contingent, arising or accruing on or before the Closing Date related to the
ownership of the Partnership Interests, and all expenses related thereto,
including, without limitation, court costs and attorneys' fees. The foregoing
indemnity shall also apply to any claims, demands, causes of action, losses,
damages, liabilities, costs or expenses asserted against or incurred by
Purchaser at any time or from time to time by reason of or arising out of the
breach of any representation or warranty of Selling Partner set forth herein.
Selling Partner's liability with respect thereto shall be governed by the
provisions of Section 6.1(b) hereof.
Section 8.3 Purchaser's Indemnity. Purchaser agrees to indemnify and
----------- ---------------------
hold Selling Partner harmless of and from all liabilities, claims, demands and
expenses, of any kind or nature, known or unknown, fixed or contingent, arising
and accruing subsequent to the Closing Date related to the ownership of the
Partnership Interests, and all expenses related thereto, including, without
limitation, court costs and attorneys' fees.
ARTICLE IX.
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise expressly
----------- -----------------
provided for herein, the terms and provisions hereof shall survive the Closing.
The acceptance of the closing documents by Purchaser and payment of the Purchase
Price shall be deemed full compliance by Selling Partner and Purchaser of all of
their respective obligations arising under this Agreement and Purchaser and
Selling Partner each expressly waives any noncompliance by the other party
hereto with any prior obligations other than those obligations which expressly
survive the Closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
Section 9.3 Entire Agreement; Modifications. This Agreement embodies and
----------- -------------------------------
constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged, or terminated except by an instrument in
writing signed by the party against which the enforcement of such waiver,
modification, amendment, discharge, or termination is sought, and then only to
the extent set forth in such instrument.
Section 9.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
24
<PAGE>
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(b) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(c) The terms and provisions of this Agreement represent the
results of negotiations between Selling Partner and Purchaser, each of
which has been represented by counsel of its own selection, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Consequently, the terms and provisions of this Agreement shall
be interpreted and construed in accordance with their usual and customary
meanings, and Selling Partner and Purchaser hereby expressly waive and
disclaim, in connection with the interpretation and construction of this
Agreement, any rule of law or procedure requiring otherwise, including
without limitation, any rule of law to the effect that ambiguous or
conflicting terms or provisions contained in this Agreement shall be
interpreted or construed against the party whose attorney prepared this
Agreement or any earlier draft of this Agreement.
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail return
receipt, signed by the addressee or the addressee's agent or representative, (b)
if by telegram, by a telegram receipt signed by the addressee or the addressee's
agent or representative, (c) if hand delivered (including delivery by any
overnight or other delivery service), by a delivery receipt signed by the
addressee or the addressee's agent or representative, or (d) if sent by
facsimile transmission, with confirmation of receipt at the facsimile number to
which it was sent. Each party's initial address for delivery of any Notice is
designated below, but any party from time to time may designate a different
address for delivery of any Notice by delivering to the other party Notice of
such different address; provided, however, neither party may designate an
address for delivery of Notice not located within the United States. Each party
hereto covenants and agrees to mail copies of any Notice to the parties
designated to receive copies of any Notice below, but the failure of the
addressee for any copy actually to receive such copy shall not render the Notice
ineffective.
If to Selling Partner: Prentiss Properties C-2 Investors, L.P.
c/o Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-1440
Facsimile No.: (214) 748-1742
25
<PAGE>
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Facsimile No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
Section 9.7 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Selling
Partner or Purchaser, Selling Partner and Purchaser hereby agree to perform,
execute, and/or deliver or cause to be performed, executed, and/or delivered at
the Closing or thereafter, all such further acts, deeds, and assurances as
Purchaser or Selling Partner, as the case may be, may reasonably require to (a)
evidence and vest in the Purchaser the ownership of, and title to, the
Partnership Interests, and (b) consummate the transactions contemplated
hereunder. The covenants set forth in this Section 9.7 shall survive the
Closing.
Section 9.8 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
----------- --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 9.9 Assignment. Purchaser shall have the right, without the
----------- ----------
consent of Selling Partners, to assign its rights under this Agreement and all
rights hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Such assignment may be in respect to all or any portion of
the Partnership Interests and Purchaser may assign the its rights hereunder to
more than one Person each of whom shall acquire an allocable portion of the
Partnership Interests. Upon such assignment Purchaser shall be relieved of its
obligations hereunder, so long as the PPL REIT or any entity in which the PPL
REIT has a controlling interest assumes all applicable obligations of Purchaser
hereunder and confirms the undertakings or representations of Purchaser
hereunder. No other assignment may be made without the prior written consent of
Selling Partners.
Section 9.10 Time of the Essence. Time is of the essence of this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls
26
<PAGE>
on a day other than a Business day, the period for such performance, or the
giving of any notice hereunder shall be extended to the end of the next Business
day.
Section 9.11 Conditions. All covenants, warranties and obligations
------------ ----------
of Selling Partner or Purchaser contained in this Agreement are deemed to be
conditions to the other parties' obligations herein. All conditions to
Purchaser's or Selling Partner's obligations, whether specifically stated in
this Agreement or pursuant to the preceding sentence, and all rights of
Purchaser or Selling Partner herein are imposed solely and exclusively for the
benefit of the other party and their respective assigns and any or all of such
conditions or rights may be waived in whole or in part by the party in question
at any time in such party's sole discretion.
Section 9.12 Severability. If any provision in this Agreement is
------------ ------------
invalid, illegal, or unenforceable, such provision shall be construed as
narrowly as possible to allow Purchaser and Selling Partner to be afforded the
benefits and protection of this Agreement. Such provision shall be severable
from the rest of this Agreement and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and shall continue in full force and effect.
Section 9.13 Counterparts. Two or more duplicate originals of this
------------ ------------
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same agreement.
Section 9.14 Tax Returns and Tax Audit. The responsibility for filing
------------ -------------------------
the Partnership return of the Partnerships' for federal and state income or
franchise tax (if any) for the partial year ending the Closing Date (the
"Partial Year Return") shall be Selling Partner's and the Lepren Partners.
Further, should such Partial Year Return or Returns for prior years be audited,
the responsibility for dealing with settling and paying any tax liability shall
be Selling Partner's and the Lepren Partners, and in such regard the retiring
Selling Partner shall hold Purchaser and the Partnerships harmless from any
loss, cost or expense (including reasonable attorneys fees and other
professional fees) as a result of any liability arising as a result of such
audits or in respect to federal or state tax liability for periods of time prior
to the Closing Date. Should Purchaser or the Partnerships be included in such
audits, Selling Partner shall furnish Purchaser or the Partnerships with all
necessary information to permit Purchaser or the Partnerships to respond to the
appropriate authorities in a timely and responsive manner. The responsibility
for filing the Partnerships' Partial Year Return for federal and state income,
or franchise tax (if any) for the partial year commencing on the Closing Date
shall be Purchaser's. Further, should such Partial Year Return be audited, the
responsibility for dealing with settling and paying any tax liability shall be
Purchaser's, and in such regard Purchaser shall hold Selling Partner harmless
from any loss, cost or expense (including reasonable attorneys fees and other
professional fees) as a result of any liability arising as a result of such
audits or in respect to federal or state tax liability for periods of time from
and after the Closing Date. Should Selling Partner be included in such audits,
Purchaser shall furnish Selling Partner with all necessary information to permit
Selling Partner to respond to the appropriate authorities in a timely and
responsive manner.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLING PARTNER:
---------------
PRENTISS PROPERTIES C-2 INVESTORS, L.P.,
a Texas limited partnership
By: PDO Three, Inc.,
a Delaware corporation, its general partner
By: /s/: THOMAS F. AUGUST
-------------------------------------
Name: THOMAS F. AUGUST
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
Date of Execution: As of August 5, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/: THOMAS F. AUGUST
-------------------------------------
Name: THOMAS F. AUGUST
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
Date of Execution: As of August 5, 1996
28
<PAGE>
EXHIBIT 10.15
AGREEMENT OF SALE OF PARTNERSHIP INTEREST
-----------------------------------------
AGREEMENT OF SALE OF PARTNERSHIP INTEREST (this "Agreement") is made as of
the 5th day of August, 1996, by and among NEW YORK LIFE INSURANCE COMPANY, a New
York mutual insurance company ("Seller"), PRENTISS PROPERTIES LIMITED, INC., a
Delaware corporation ("Buyer"), and PRENTISS PROPERTIES AUSTIN L.P., a Delaware
limited partnership ("PPALP").
BACKGROUND
----------
A. Seller is the sole limited partner and PPALP is the sole general
partner of Austex Associates Limited Partnership, a Georgia limited partnership
(the "Partnership"), formed pursuant to that certain Limited Partnership
Agreement of Austex Associates Limited Partnership dated as of September 20,
1990 (the "Partnership Agreement"). (All terms used but not defined herein shall
have the meanings given for such terms in the Partnership Agreement.)
B. PPALP wishes Seller to sell Seller's interest in the Partnership to
Buyer, and, upon such transfer, Seller wishes to be released of its obligations
under the Partnership Agreement, but in each case, only upon the terms and
conditions hereunder set forth.
AGREEMENTS
----------
For and in consideration of Ten Dollars ($10.00), the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Agreement to Sell. At the Closing (as hereinafter defined), Seller,
------------------
with PPALP's consent and agreement, evidenced by its execution hereof, shall
sell and assign to Buyer, and Buyer shall purchase and accept from Seller, all
of Seller's ownership interest in the Partnership, consisting of a fifty percent
(50%) limited partnership interest in the Partnership, together with all of the
rights and benefits accruing thereto under the Partnership Agreement, including,
without limitation, those specifically referred to in Paragraphs 2.2 and 2.3
hereof ("Seller's Interest").
2. Purchase Price.
--------------
2.1 The total purchase price for Seller's Interest (the "Purchase
Price") shall be equal to the sum of the following amounts:
(a) $15,700,000.00 (representing the return of Seller's initial
Capital Contribution);
<PAGE>
(b) a sum representing Seller's share of Available Cash from the
date of inception of the Partnership through the Closing Date (as
hereinafter defined), less Seller's share of Available Cash previously
----
distributed to Seller pursuant to Section 4.1 of the Partnership Agreement;
and
(c) $1,300,000.00.
The Purchase Price shall be paid to Seller on the Closing Date in United States
dollars, by Federal Reserve System wire transfer of immediately available funds
in New York, New York, to such order or account of Seller or such other person
as Seller shall designate in writing to Buyer. The Purchase Price represents the
total amount payable to Seller with respect to Seller's Interest.
2.2 Provided that Closing hereunder occurs, and subject to Paragraphs
2.3 and 7 of this Agreement, Seller relinquishes any rights it may have to any
net worth, equity, cash flow distributions and any other distributions,
withdrawals or payments of any kind from the Partnership from and after the
Closing Date (as hereinafter defined).
2.3 All items of income, gain, loss, deduction or credit accruing
pursuant to the Partnership Agreement prior to the Closing Date shall be
allocated to PPALP and Seller in accordance with the terms of the Partnership
Agreement as in effect prior to Closing; all items of income, gain, loss,
deduction or credit accruing pursuant to the Partnership Agreement as of and
subsequent to the Closing Date shall be allocated fifty percent (50%) to PPALP
and fifty percent (50%) to Buyer (or between PPALP and any permitted assignee of
Buyer with respect to the transfer of Seller's Interest hereunder), or as such
parties may agree, by reason of the conveyance of Seller's Interest pursuant to
this Agreement. Nothing contained herein shall relieve the remaining partners of
the Partnership from the obligation of conducting any annual audit or performing
any other accounting or tax services presently required under the Partnership
Agreement for the year in which the Closing occurs, to the end that Seller may
close out its books with respect to Seller's Interest, and Seller, Buyer and
PPALP hereby agree to cooperate reasonably and in good faith to satisfy such
obligation(s).
2.4 Earnest Money. Simultaneously herewith, Buyer has deposited with
-------------
Commonwealth Land Title Company, 1700 Pacific Avenue, Suite 4700, Dallas, Texas
75201, Attention: Ms. Beverly Griesse (the "Escrow Agent") the sum of Two
Hundred Fifty Thousand and 00/l00 Dollars ($250,000.00) as the earnest money
deposit under this Agreement, which deposit, together with any interest or other
income earned thereon (collectively, the "Earnest Money"), shall be held,
invested and disbursed pursuant to the respective terms and provisions hereof
and of that certain Escrow Agreement of even date herewith, among Seller, Buyer
and the Escrow Agent. Whenever the Earnest
-2-
<PAGE>
Money is by the terms hereof to be disbursed by the Escrow Agent, Seller and
Buyer agree promptly to execute and deliver such notice or notices as shall be
necessary or, in the opinion of the Escrow Agent, appropriate to authorize the
Escrow Agent to make such disbursement.
3. Closing.
-------
(a) The consummation of the purchase and sale of Seller's Interest (the
"Closing") shall take place on the earlier to occur of (i) the date of the
closing of the initial public offering of securities in a corporation or real
estate investment trust to be formed by Buyer and/or its affiliates, or (ii) the
ninetieth (9Oth) day after the date of this Agreement (the "Closing Date"),
beginning at 10:00 a.m. at the office of the Escrow Agent, or at such other date
and time as may be mutually acceptable to Seller and Buyer. PPALP, Buyer and
Seller agree to provide such documents and letters of instruction as will be
necessary to conduct the Closing in escrow with the Escrow Agent. Buyer shall
pay all transfer taxes, premiums and other fees for title insurance requested by
Buyer, recording charges and other costs and expenses relating to closing this
transaction, except each party shall pay its own legal and accounting fees in
connection with this transaction. Seller and Buyer shall share the fee of the
Escrow Agent equally.
(b) At the Closing, Seller, PPALP and Buyer, as applicable, shall
execute and/or deliver the following documents:
(i) An Assignment of Partnership Interest, in the form attached
hereto as Exhibit "A";
(ii) A Release, in the form attached hereto as Exhibit "B"; and
(iii) Closing Certificates in the forms attached hereto as Exhibit
"C-l", Exhibit "C-2" and Exhibit "C-3", respectively.
4. Seller's Representations and Warranties. Seller represents and warrants
---------------------------------------
to Buyer, as of the date hereof and as of the Closing Date, as follows:
(a) Seller is a mutual insurance company, duly organized, validly
existing and in good standing under the laws of the State of New York and duly
qualified to do business in the States of Georgia and Texas;
(b) Seller is the owner of Seller's Interest, free and clear of any
liens, security agreements, pledge agreements, restrictions, claims, rights or
encumbrances whatsoever;
(c) Seller has the full authority and right to enter into this Agreement
and consummate the transactions contemplated herein and has duly and validly
executed
-3-
<PAGE>
this Agreement, any and all required corporate and other approvals, consents and
authorizations with respect hereto having been obtained;
(d) Seller is not in an insolvent condition, and no voluntary or
involuntary bankruptcy or insolvency proceedings are pending or, to Seller's
actual knowledge, contemplated by or against Seller.
(e) Seller's execution, delivery and performance of this Agreement
does not and will not violate or contravene any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect and applicable to Seller, or its organizational documents,
or result in a breach of or constitute a default under any agreement to which
Seller is bound;
(f) Seller has not previously transferred Seller's Interest to any
person or entity, and no person or entity has any right to purchase Seller's
Interest; and
(g) Seller will warrant and forever defend title to Seller's Interest
being conveyed to Buyer or its assignee hereby against the claims of all persons
whomsoever claiming by, through or under Seller.
5. PPALP's Representations and Warranties. PPALP represents and warrants
--------------------------------
to Seller, as of the date hereof and as of the Closing Date, as follows:
(a) PPALP is a limited partnership, duly formed, validly existing and
in good standing under the laws of the State of Delaware and duly qualified to
do business in the States of Georgia and Texas;
(b) PPALP has the full authority and right to enter into this
Agreement and consummate the transactions contemplated herein and has duly and
validly executed this Agreement, and all required partnership, corporate and
other approvals, consents and authorizations with respect hereto having been
obtained;
(c) PPALP is not in an insolvent condition, and no voluntary or
involuntary bankruptcy proceedings are pending or, to PPALP's actual knowledge,
contemplated by or against PPALP; and
(d) The execution, delivery and performance of this Agreement by PPALP
do not and will not violate or contravene any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect and applicable to PPALP, or its organizational documents, or
result in a breach of or constitute a default under any agreement to which PPALP
is bound.
5. Buyer's Representations and Warranties. Buyer represents and warrants
--------------------------------------
to Seller, as of the date hereof and as of the Closing Date, as follows:
-4-
<PAGE>
(a) Buyer is a corporation, duly formed, validly existing and in good
standing under the laws of the State of Delaware and duly qualified to do
business in the States of Georgia and Texas;
(b) Buyer has the full authority and right to enter into this
Agreement and consummate the transactions contemplated herein and has duly and
validly executed this Agreement, and all required corporate and other approvals,
consents and authorizations with respect hereto having been obtained;
(c) Buyer is not in an insolvent condition, and no voluntary or
involuntary bankruptcy proceedings are pending or, to Buyer's actual knowledge,
contemplated by or against Buyer; and
(d) The execution, delivery and performance of this Agreement by Buyer
do not and will not violate or contravene any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect and applicable to Buyer, or its organizational documents, or
result in a breach of or constitute a default under any agreement to which Buyer
is bound.
7. Indemnification.
----------------
(a) Notwithstanding anything herein to the contrary, Seller agrees to
indemnify and defend PPALP and Buyer and the officers, directors, shareholders,
partners, agents, servants, employees, heirs, executors, administrators,
personal and legal representatives, successors and assigns of each, against all
losses, damages, suits, actions, obligations, expenses, costs, claims and
liabilities of any nature whatsoever, including reasonable legal fees and
disbursements, (i) arising out of any default or breach of any warranty,
representation, agreement or covenant of Seller contained herein, or (ii)
incurred by PPALP or Buyer or any of their respective officers, directors,
shareholders, partners, agents, servants, employees, heirs, executors,
administrators, personal and legal representatives, successors or assigns, after
the Closing Date and arising out of any acts of Seller prior to the Closing Date
in violation of the terms of the Partnership Agreement, of which PPALP and Buyer
had no actual knowledge as of the Closing Date.
(b) Notwithstanding anything herein to the contrary, PPALP and Buyer,
jointly and severally, agree to indemnify and defend Seller and its affiliates
and related entities, and the officers, directors, shareholders, partners,
agents, servants, employees, heirs, executors, administrators, personal and
legal representatives, successors and assigns of each, against all losses,
damages, suits, actions, obligations, expenses, costs, claims or liabilities of
any nature whatsoever, including reasonable legal fees and disbursements, (i)
arising out of any default or breach of any warranty, representation, agreement
or covenant of PPALP and/or Buyer contained herein, or (ii) incurred by Seller
or its affiliates or related entities, or any of their respective officers,
directors, shareholders, partners, agents, servants, employees, heirs,
executors, administrators, personal and legal representatives, successors or
assigns, after the Closing Date which
-5-
<PAGE>
arises out of any obligation or liability of the Partnership (other than those
which are, by their nature, exclusively Seller's, rather than the Partnership's,
obligations, which shall include, without limitation, Seller's personal income
tax liability), except to the extent covered by the indemnification set forth in
Paragraph 7(a) above.
(c) In the event that any indemnitee makes a claim against any
indemnitor with respect to an indemnified obligation hereunder, such indemnitee
shall notify the indemnitor(s), and each indemnitor shall have the right, at its
expense, to participate in and assume the defense of any such claim (unless the
legal interests of the indemnitor and the indemnitee in such case are materially
adverse, in which case the indemnitee shall be entitled to retain separate
counsel at the indemnitor's expense). In the event of any such assumption of
defense hereunder, each indemnitee shall cooperate with each indemnitor
reasonably and in good faith. No indemnitee shall settle or compromise any claim
hereunder without the prior written consent of any affected indemnitor, which
consent shall not be unreasonably withheld or delayed.
8. Conditions Precedent to Buyer's Obligation To Close. Seller and Buyer
---------------------------------------------------
agree that Buyer shall have fifteen (15) days from the date of this Agreement in
which to conduct its due diligence with respect to Seller's Interest. In the
event that Buyer is not satisfied with the results of such due diligence, Buyer,
in its sole and absolute discretion, shall notify Seller in writing of such
dissatisfaction on or before said fifteenth (l5th) day, whereupon this Agreement
shall automatically terminate, the Earnest Money shall be returned to Buyer and
no party shall have any further obligation hereunder. In addition, Buyer's
obligation to close hereunder shall be further conditioned upon (a) no Event of
Default under the IBM Lease having occurred and then continuing as of the
Closing Date; (b) there being no uncured default or event of default under the
documents securing the existing financing of the Project (unless such default or
event of default is attributable to PPALP or any of PPALP's affiliates); (c) the
Project not having suffered any uninsured casualty, condemnation or violation of
environmental law which materially reduces the value of Seller's Interest; (d)
Seller's delivery of the Closing Certificate in the form of Exhibit "C-3" hereto
on the Closing Date, dated as of the Closing Date; (e) Seller's delivery of a
FIRPTA affidavit on the Closing Date; and (f) Buyer's receipt of IBM's consent
to the transfer of Seller's Interest to Buyer (or any permitted assignee of
Buyer under Paragraph 16 below). In the event that any of the foregoing
conditions to Buyer's obligation to close hereunder are not, or cannot be,
satisfied on or prior to the Closing Date, at Buyer's option, by prompt written
notice to Seller, Buyer may terminate this Agreement, whereupon the Earnest
Money shall be returned to Buyer and no party shall have any further obligation
hereunder.
9. Brokers. Each of the parties hereto represents and warrants to each of
-------
the other parties hereto than no broker or agent was employed or utilized by
such party with regard to the sale of Seller's Interest. Seller agrees to
indemnify and defend Buyer and PPALP from any claim for compensation made by any
broker or agent with respect to the purchase and sale of Seller's Interest
because of Seller's actions or alleged actions. Buyer and PPALP, jointly and
severally, agree to indemnify and defend Seller from any claim for
-6-
<PAGE>
compensation made by any broker or agent with respect to the purchase and sale
of Seller's Interest because of Buyer's actions or alleged actions.
10. Notice. Any notice to be given under this Agreement shall be deemed to
------
have been given (a) if and when hand-delivered, (b) three (3) days after being
mailed by United States registered or certified mail, postage prepaid, return
receipt requested, or (c) when receipt is confirmed if sent by nationally-
recognized overnight courier service, addressed to Seller at c/o Greystone
Realty Corporation, Two Pickwick Plaza, Greenwich, Connecticut 06830, Attention:
Ms. Jean-Marie Murphy, Senior Vice President, with copies to Alston & Bird, One
Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424,
Attention: William R. Klapp, Jr., Esq.; and addressed to Buyer or PPALP at c/o
Prentiss Properties Limited, Inc., 1717 Main Street, Suite 5000, Dallas, Texas
75201, Attention: Mr. Thomas F. August, President and Chief Operating Officer,
with a copy to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue,
Suite 4100, Dallas, Texas 75201-4675, Attention: Randall M. Ratner, P.C..
11. Agreement Binding. This Agreement shall be binding upon, and shall
-----------------
inure to the benefit of, the parties hereto and their respective successors and
assigns.
12. Construction. This Agreement shall be governed by, and construed in
------------
accordance with, the internal laws of the State of Georgia, without reference to
the conflicts of laws or choice of law provisions thereof.
13. Further Assurances. The parties hereto agree to take such further
------------------
actions and to execute and deliver such further documents, agreements and
instruments as may be reasonably necessary or appropriate to carry out the
purposes of this Agreement, provided that none of the foregoing will result in
--------
the incurrence of additional potential liability to Seller.
14. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which,
when taken together, shall constitute but one and the same instrument.
15. Time of Essence. Time shall be of the essence with respect to each
---------------
provision of this Agreement.
16. Assignment. Buyer may, but only at the Closing, assign all of its
----------
rights and obligations hereunder to (a) PPALP or a corporation or real estate
investment trust (or any affiliate thereof, including, without limitation, any
partnership, a majority of the partnership interests in which are owned by said
real estate investment trust) to be formed by Buyer and/or one or more of
Buyer's affiliates, or (b) any of Buyer's affiliates.
17. Entire Agreement. This Agreement, together with the attached exhibits,
----------------
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior negotiations, representations,
agreements, promises and
-7-
<PAGE>
contracts, whether oral or written, as to Seller's Interest. In particular, this
Agreement overrides and supersedes any and all prior agreements contained in the
Partnership Agreement or otherwise concerning the sale, transfer or right to
purchase Seller's Interest, including specifically, but without limitation, the
procedures contained in Articles VII, X and XI of the Partnership Agreement, and
the parties to this Agreement hereby waive any provisions of the Partnership
Agreement which would otherwise restrict, limit or impose requirements or
conditions on the transactions contemplated under this Agreement or conflict
with any of the terms hereof. Notwithstanding any of the foregoing to the
contrary, however, in the event that the Closing does not occur for any reason
other than a default by Seller hereunder, all of Seller's rights contained in
the Partnership Agreement shall be deemed reinstated and in full force and
effect.
18. Remedies. Each party shall have all remedies available at law or in
--------
equity for the other's breach of this Agreement; provided, however, in strict
derogation of the foregoing, in the event of Buyer's failure, refusal or
inability to close the transactions contemplated hereby by the Closing Date, the
Escrow Agent is hereby directed to immediately pay the Earnest Money to Seller,
which shall constitute Seller's sole and exclusive remedy for such failure,
refusal or inability, the Earnest Money being intended not as a penalty, but as
liquidated damages pursuant to Official Code of Georgia Annotated (s) 13-6-7.
19. Survival. Each representation and warranty of PPALP, Buyer and Seller
--------
herein shall survive the Closing, without regard to any investigation conducted
by or on behalf of the party to whom such representation and warranty is made.
20. Attorneys' Fees. In the event of any litigation or dispute between
---------------
PPALP and Buyer, on the one hand, and Seller, on the other, arising out of or in
any way connected with this Agreement resulting in any litigation, then the
prevailing party in such litigation shall be entitled to recover its cost of
prosecuting and/or defending such action, including, without limitation,
reasonable attorneys' fees and costs at trial and all appellate levels. The
provisions of this Paragraph 20 shall survive the Closing.
[SIGNATURES BEING ON NEXT PAGE]
-8-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has, or has caused to be,
set forth his or its hand and seal as of the day and year first above written.
SELLER:
-------
NEW YORK LIFE INSURANCE COMPANY, a
New York mutual insurance company
By: Greystone Realty Corporation, a Delaware
corporation, as duly-authorized agent for New
York Life Insurance Company
By:/s/ Jean-Marie Murphy
-----------------------------------
Jean-Marie Murphy
Senior Vice President
BUYER:
------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By:/s/ Thomas F. August
-------------------------------------
Name: Thomas F. August
-------------------------------
Title: President
-------------------------------
PPALP:
-----
PRENTISS PROPERTIES AUSTIN, L.P., a
Delaware limited partnership
By: Prentiss Properties Austin, Inc., a
Delaware corporation, its sole general
partner
By: /s/ Thomas F. August
-------------------------------------
Thomas F. August
Vice President
-9-
<PAGE>
Charles J. Lauckhardt and Michael V. Prentiss are separately executing this
Agreement on behalf of the Partnership for the purpose of confirming that this
Agreement has been Approved by the Executive Committee of the Partnership.
------------------------------------
CHARLES J. LAUCKHARDT
/s/ MICHAEL V. PRENTISS
------------------------------------
MICHAEL V. PRENTISS
-10-
<PAGE>
EXHIBIT "A"
-----------
ASSIGNMENT OF PARTNERSHIP INTEREST
----------------------------------
FOR AND IN CONSIDERATION OF TEN DOLLARS ($10.00) AND OTHER GOOD AND
VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, NEW YORK LIFE INSURANCE
COMPANY, a New York mutual insurance company ("Assignor"), hereby sells,
assigns, transfers and conveys to _________________________, a
_________ ("Assignee"), Seller's Interest (as defined in that certain Agreement
of Sale of Partnership Interest (the "Agreement") dated as of August 5, 1996,
among Prentiss Properties Limited, Inc., a Delaware corporation, Prentiss
Properties Austin, L.P., a Delaware limited partnership and Assignor). Assignee
hereby accepts Seller's Interest and, except as expressly provided to the
contrary in the Agreement, expressly assumes all of Assignor's obligations and
liabilities with respect thereto arising on and after the date of this
Assignment.
Assignor hereby represents and warrants to Assignee that Seller's Interest
is free and clear of all liens, security agreements, pledge agreements,
restrictions, claims, rights or encumbrances of any nature whatsoever. Assignor
hereby warrants and agrees to forever defend Assignee's title to the Seller's
Interest, against the claims of all persons whomsoever claiming by, through or
under Assignor.
This Assignment is made as of _______________________, 1996.
ASSIGNOR:
---------
NEW YORK LIFE INSURANCE COMPANY, a
New York mutual insurance company
By: Greystone Realty Corporation, a Delaware
corporation, as duly-authorized agent for New
York Life Insurance Company
By:
---------------------------------
Jean-Marie Murphy
Senior Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>
ASSIGNEE:
---------
------------------------------, a
-------------
By:
------------------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
EXHIBIT "B"
-----------
RELEASE
-------
THIS RELEASE is made as of the __ day of _________, 1996 by PRENTISS
PROPERTIES AUSTIN, L.P., a Delaware limited partnership ("PPALP") and PRENTISS
PROPERTIES LIMITED, INC., a Delaware corporation] ("PPL"), in favor of NEW YORK
LIFE INSURANCE COMPANY, a New York mutual insurance company ("NYL").
BACKGROUND
----------
A. NYL was the sole limited partner and PPALP was the sole general partner
in Austex Associates Limited Partnership, a Georgia limited partnership (the
"Partnership"), formed pursuant to that certain Limited Partnership Agreement of
Austex Associates Limited Partnership dated as of September 20, 1990 (the
"Partnership Agreement"). (All terms used but not defined herein shall have the
meanings given for such terms in the Partnership Agreement.)
B. By an Assignment of Partnership Interest dated as of _________, 1996,
NYL has sold, conveyed and assigned to ____________ its fifty percent (50%)
limited partnership interest in the Partnership, pursuant to an Agreement of
Sale of Partnership Interest dated as of August 5, 1996 (the "Agreement of
Sale"). The partnership interest so assigned is referred to herein as the
"Assigned Interest".
AGREEMENTS
----------
For and in consideration of the Agreement of Sale, the premises contained
herein and therein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
1. PPALP and PPL, jointly and severally, each for itself and on behalf of
its successors and assigns, does hereby forever release and discharge NYL and
its heirs, executors, personal and legal representatives, shareholders,
officers, directors, administrators, successors, assigns, affiliates and other
related entities, agents, servants and employees (collectively, the "NYL
Releasees"), from any and all claims, damages, causes of action, actions,
demands, suits, rights, costs, expenses (including, without limitation,
attorney's' fees and disbursements), interest and compensation whatsoever,
whether at law or in equity, that PPALP or PPL, or any of its successors or
assigns, now has, ever had or ever can have, whether known or unknown, (a)
arising out of or on account of the ownership or conveyance of the Assigned
Interest, or (b) relating to the formation, operation or existence of the
Partnership or NYL's participation therein, including, but not limited to, any
of the foregoing which arise out of any NYL reimbursement, indemnification or
similar obligations under the Partnership Agreement or
<PAGE>
any other document or instrument delivered in connection therewith; provided,
---------
however, that nothing herein shall abrogate or limit the indemnification rights
- -------
granted to PPL and PPALP by NYL under the Agreement of Sale or any of the rights
set forth in the Agreement of Sale or the exhibits attached thereto; and
provided further, that the foregoing release shall not apply to any obligations
- ----------------
which were or are, by their nature, exclusively NYL's, rather the Partnership's,
obligations, which shall include, without limitation, NYL's personal income tax
liability.
Signed, sealed and delivered, as of the day and year first above written.
PPALP:
------
PRENTISS PROPERTIES AUSTIN, L.P., a
Delaware limited partnership
By: Prentiss Properties Austin, Inc., a Delaware
corporation, its sole general partner
By:
----------------------------
Thomas F. August
Vice President
PPL:
----
[PRENTISS PROPERTIES LIMITED,
INC., a Delaware corporation]
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
-2-
<PAGE>
EXHIBIT "C-1"
-------------
CLOSING CERTIFICATE
-------------------
In connection with the Agreement of Sale of Partnership Interest (the
"Agreement") dated as of the 5th day of August, 1996, by and among Prentiss
Properties Limited, Inc., a Delaware corporation, Prentiss Properties Austin,
L.P., a Delaware limited partnership, and New York Life Insurance Company, a New
York mutual insurance company, the undersigned hereby certifies that, as of the
date hereof, (a) there has not been any misrepresentation or breach of any
representation or warranty given by it as described in the Agreement, and (b)
all such representations and warranties are true and correct as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has caused its hand and seal to be
hereunto affixed by its duly authorized officer as of the __ day of _________,
1996.
PRENTISS PROPERTIES AUSTIN, L.P., a
Delaware limited partnership
By: Prentiss Properties Austin, Inc., a Delaware
corporation, its sole general partner
By:___________________________________
Thomas F. August
Vice President
<PAGE>
EXHIBIT "C-2"
-------------
CLOSING CERTIFICATE
-------------------
In connection with the Agreement of Sale of Partnership Interest (the
"Agreement") dated as of the 5th day of August, 1996, by and among Prentiss
Properties Limited, Inc., a Delaware corporation, Prentiss Properties Austin,
L.P., a Delaware limited partnership, and New York Life Insurance Company, a New
York mutual insurance company, the undersigned hereby certifies that, as of the
date hereof, (a) there has not been any misrepresentation or breach of any
representation or warranty given by it as described in the Agreement, and (b)
all such representations and warranties are true and correct as of the date
hereo(Pounds)
IN WITNESS WHEREOF, the undersigned has caused its hand and seal to be
hereunto affixed by its duly authorized officer as of the day of ,
1996.
[PRENTISS PROPERTIES LIMITED,
INC., a Delaware corporation
By:
-------------------------
Name:
--------------------
Title: ]
------------------
<PAGE>
EXHIBIT "C-3"
-------------
CLOSING CERTIFICATE
-------------------
In connection with the Agreement of Sale of Partnership Interest (the
"Agreement") dated as ofthe 5th day of August, 1996, by and among Prentiss
Properties Limited, Inc., a Delaware corporation, Prentiss Properties Austin,
L.P., a Delaware limited partnership, and New York Life Insurance Company, a New
York mutual insurance company ("NYL"), the undersigned hereby certifies that, as
of the date hereof, (a) there has not been any misrepresentation or breach of
any representation or warranty given by NYL as described in the Agreement, and
(b) all such representations and warranties are true and correct as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has caused its hand and seal as of the
__ day of ______, 1996.
NEW YORK LIFE INSURANCE COMPANY, a New York mutual
insurance company
By: Greystone Realty Corporation, a Delaware
corporation, as duly-authorized agent for New
York Life Insurance Company
By:
---------------------------------
Jean-Marie Murphy
Senior Vice President
<PAGE>
Exhibit 10.16
PURCHASE AGREEMENT
------------------
Prentiss Properties Acquisition Partners, L.P.
(Partnership Interests)
THIS AGREEMENT, made as of the 12th day of June, 1996 (the
"Agreement"), by and between Prentiss Properties Limited, Inc., a Delaware
corporation (the "Purchaser"), each of the limited partners of Prentiss
Properties Acquisition Partners, L.P., a Delaware limited partnership (the
"Limited Partnership"), as set forth on Exhibit A (each, a "Seller" and,
---------
collectively, "Sellers"), and Prentiss Property Acquisition, L.P., a Delaware
limited partnership ("PPA" and collectively with the Sellers, the "Partners").
R E C I T A T I O N S:
A. The Partners constitute all of the present partners of and own
100% of the present partnership interests in the Limited Partnership.
B. The Limited Partnership is the owner of certain properties
described in Exhibit B attached hereto (each, a "Property" and, collectively,
---------
the "Properties").
C. Purchaser intends to form PPL REIT (as defined herein) as a
publicly traded real estate investment trust ("REIT"), as defined in Section
856 - 860 of the federal Internal Revenue Code of 1986, as amended, which will
directly or indirectly own interests in the Properties and other office and
industrial properties and developable land acquired in connection with its
initial public offering and thereafter.
D. Purchaser intends that PPL REIT will be an "umbrella partnership"
REIT, or "UPREIT," and that PPL REIT or a wholly-owned subsidiary of PPL REIT
will serve as the general partner of the Limited Partnership upon and after the
Closing (as defined herein).
E. For its respective share of the Purchase Price (as defined herein)
and other consideration, and upon the terms and conditions hereinafter set
forth, each Seller has agreed to sell all of its partnership interest in the
Limited Partnership to the Purchaser, and the Purchaser has agreed to purchase
the Seller's entire partnership interest in the Limited Partnership; At the same
time, PPA's general partner interest in the Limited Partnership will be
converted to a limited partner interest in the Limited Partnership.
NOW, THEREFORE, in consideration of the premises and in consideration
of the mutual covenants, promises and undertakings of the parties hereinafter
set forth, and for other good and
<PAGE>
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed:
1. DEFINITIONS. Certain of the defined terms used in this Agreement
-----------
are defined below:
"Affiliate" shall mean, with respect to any person, any person
controlling, controlled by or under common control with, such person.
"Appraisal" shall mean the appraisal rendered by the Appraiser in
accordance with the Engagement Letter, dated April 24, 1996, between the Limited
Partnership and the Appraiser, attached as Exhibit C.
---------
"Appraiser" shall mean Landauer Associates, Inc.
"Brokerage Commission" shall mean the amount that would be paid to a
party not affiliated with Purchaser for brokerage services upon a sale of the
Properties, as determined by the Appraiser as of the Appraisal Date.
"Cash Flow" shall mean Net Operating Revenues, as defined in Article
II of the Partnership Agreement.
"Closing" shall mean the closing of the purchase and sale (or
exchange) of the partnership interests of the Limited Partnership pursuant to
this Agreement.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Shares" shall mean the common stock or shares of PPL REIT.
"ERISA" shall mean the Employee Retirement Income and Security Act of
1974, as amended.
"Excess Purchaser Equity" shall mean 50% of the excess, if any, of (i)
the Purchaser Equity over (ii) the Target Equity. Any Excess Purchaser Equity
shall be allocated to American, Ameritech and Idaho (each as defined in Exhibit
-------
A) 16.6666%, 41.6666% and 41.6666%, respectively.
- -
"IPO" means the proposed initial public offering of securities in PPL
REIT.
"Net Equity Value" shall mean the
(i) the Properties Fair Market Value,
<PAGE>
plus
(ii) the Other Assets Value,
plus
(iii) any cash and short-term deposits (excluding escrowed funds
controlled by third parties) of the Limited Partnership on the date
of the Appraisal,
minus
(iv) the amount of the indebtedness of the Limited Partnership as of the
date of the Appraisal, as reflected on Exhibit D,
---------
minus
(v) the Prepayment Penalty Impact,
minus
(vi) the Transaction Costs,
but in no event less than $117.5 million.
"Offering Price" shall mean the initial price at which Common Shares
are sold in the IPO.
"Other Assets Value" shall be the net book value of all assets and
liabilities on the GAAP balance sheet of the Limited Partnership (determined on
an accrual basis) as of the date of the Appraisal, other than cash and short-
term deposits (but including escrowed funds controlled by third parties),
indebtedness (as reflected on Exhibit D) and the Properties.
---------
"PPA" means Prentiss Property Acquisition, L.P., a Delaware limited
partnership which is the sole general partner of the Limited Partnership.
"PPA Affiliate" shall mean PPA, PPA Corp., any partner of PPA, any
shareholder of Purchaser or PPA Corp. and any partner or shareholder of any
entity that owns or is owned, directly or indirectly, by Purchaser, PPA Corp.,
PPA or one or more of their respective partners or shareholders; provided,
however, that none of the Sellers and none of PPL REIT, the Limited Partnership
or any direct or indirect subsidiary of PPL REIT or the Limited Partnership
shall be considered a PPA Affiliate.
"PPA Corp." means Prentiss Property Acquisition, Inc., a Delaware
corporation which is the sole general partner of PPA.
3
<PAGE>
"PPL REIT" means a corporation or real estate investment trust to be
formed by the Purchaser to operate as a REIT under the Code to conduct the IPO,
and to directly or indirectly acquire interests in the Properties, other real
and personal property and related service businesses.
"Partner's Organizational Documents" shall mean, as applicable, the
current (i) partnership agreement of each Partner organized as a limited
partnership, (ii) operative trust documents of each Partner organized as a
common law or business trust, including but not limited to the trust agreement
or indenture, or (iii) effective authorizing statute and operative governing or
authorizing documents of each Partner organized as a state agency, each as
amended.
"Partnership Agreement" shall mean the Amended and Restated Agreement
of Limited Partnership of the Limited Partnership, dated as of July 13, 1990, as
amended by the First, Second and Third Amendments to Amended and Restated
Agreement of Limited Partnership of the Limited Partnership, dated as of July
13, 1990, January 11, 1991, and May 20, 1993, respectively.
"Prepayment Penalty Impact" shall mean eighty five percent (85%) of
the total of the prepayment fees and penalties actually paid on the indebtedness
secured by the Properties on the date of the Closing, if any; Exhibit D
---------
summarizes the prepayment fees and penalties that would be payable under the
terms of the agreements governing the indebtedness secured by the Properties if
such indebtedness were due and paid in full on the date of the Closing.
"Properties" shall mean the real properties and improvements thereon
in which the Limited Partnership owns an interest on the date of the Appraisal.
"Properties Fair Market Value" shall mean the value of the Properties
as determined by the Appraisal.
"Purchase Price" shall mean the sum of
(i) the Net Equity Value,
plus
(ii) the positive or negative amount equal to (a) Cash Flow attributable to
the period beginning on the day after the date of the Appraisal and
ending on the day before the Closing Date (determined on an accrual
basis), plus (b) amounts spent or accrued for tenant improvements,
leasing commissions, capital
4
<PAGE>
improvements and other related costs during such period, minus (c)
Cash Flow distributed to the Partners during that period,
but in no event less than $120.0 million.
"Purchaser Equity" shall mean the value of any cash, Common Shares,
interests in the Limited Partnership, or leasing, management or other service
agreements directly or indirectly received or retained by Purchaser or any PPA
Affiliate in consideration of the sale, contribution, or transfer of properties
or management, leasing and development businesses, or interests therein or in
the Limited Partnership, directly or indirectly to PPL REIT, the Limited
Partnership or any direct or indirect subsidiary thereof in connection with the
IPO. For this purpose, the value of any Common Shares or interests in the
Limited Partnership that are redeemable for Common Shares shall be the Offering
Price. The value of any leasing, management or other service agreement referred
to above, if any, shall be the net present value of any expected net profit to
be earned by PPL REIT or its direct or indirect subsidiaries after the Closing
under such agreements. Amounts received by Affiliates that are entities and
that are not wholly owned (either directly or indirectly) by Purchaser or a PPA
Affiliate shall be included in Purchaser Equity only to the extent of the direct
or indirect ownership interest of Purchaser and the PPA Affiliates.
"Target Equity" shall mean the sum of (i) $72 million and (ii) any
amounts invested on or after May 1, 1996, by the Purchaser or any PPA Affiliate
(other than the Limited Partnership) in properties that are acquired by PPL REIT
or the Limited Partnership in connection with the IPO. For this purpose,
amounts invested by PPA Affiliates that are entities and that are not wholly
owned (either directly or indirectly) by Purchaser or PPA Affiliates shall be
included in Target Equity only to the extent of the direct or indirect ownership
interest of Purchaser and the PPA Affiliates.
"Transaction Costs" shall mean (i) .35% of the Properties Fair Market
Value plus (ii) the Brokerage Commission.
2. ASSIGNMENT BY PURCHASER: The Purchaser may, without the consent of
-----------------------
the Partners, assign its rights and obligations hereunder to PPL REIT or to any
PPA Affiliate (i) formed in connection with structuring and completing the IPO
and (ii) controlled by Purchaser and/or one or more of its shareholders;
provided that prior to the effectiveness and as a condition precedent to any
such assignment, the assignee shall execute and deliver to the Partners a
written instrument of assumption in the form of Exhibit E. Notwithstanding the
---------
foregoing, no assignment shall act as a release or novation of any duty,
obligation, or
5
<PAGE>
liability of Purchaser hereunder, and Purchaser shall remain directly and
primarily responsible therefor. Purchaser shall also be responsible for the
performance hereunder of any permitted assigns. Any assignment or attempted
assignment that does not comply with all of the terms and conditions hereof
shall be null and void.
3. TRANSFER CONSIDERATION: For the consideration and in accordance
----------------------
with and subject to the other terms and conditions herein set forth:
3.1 Exxon: If the Closing occurs, Exxon (as defined in Exhibit A)
------ ---------
shall sell and assign all of its partnership interest in the Limited
Partnership at the Closing to the Purchaser, and the Purchaser shall
purchase and accept such interest and become a substituted limited partner
with respect to such partnership interest, in exchange for cash equal to
Exxon's share of the Purchase Price.
3.2 American, Ameritech and Idaho: If the Closing occurs,
-----------------------------
American, Ameritech and Idaho shall each sell all of their respective
partnership interests in the Limited Partnership at the Closing to the
Purchaser, and the Purchaser shall purchase and accept such interest and
become a substituted limited partner with respect to such partnership
interest, in exchange for:
(a) a number of Common Shares equal to (i) 50% of their
respective shares of the Purchase Price and any Excess Purchaser Equity
divided by (ii) the Offering Price; and
(b) cash equal to 50% of their respective shares of the
Purchase Price and any Excess Purchaser Equity.
3.3 PPA. PPA (as defined in Exhibit A) shall exchange its interest
--- ---------
in the Limited Partnership for new interests in the Limited Partnership
which are redeemable for Common Shares with a value, based on the Offering
Price, equal to PPA's share of the Purchase Price.
3.4 Allocation of Purchase Price Among Partners. A Partner's share
-------------------------------------------
of the Purchase Price is the amount that such Partner would receive under
paragraph 5.5 (c) of the Partnership Agreement if (i) all assets and
liabilities of the Limited Partnership were transferred to the Purchaser
for an amount equal to the Purchase Price, (ii) the provision of paragraph
5.5(c)(iv) relating to the payment of a "Disposition Fee," is deemed
inapplicable and is disregarded, except to the extent such fees have been
previously earned and accrued on the books of the Limited Partnership, and
(iii) the provisions of paragraph 5.5(a), (b), (d) and (e) are deemed
inapplicable and are
6
<PAGE>
disregarded. In allocating the Purchase Price among the Partners, no item shall
be accounted for to the extent such item was included in the calculation of the
Purchase Price. A model of the allocation of the Purchase Price, assuming
various hypothetical Purchase Prices, is attached as Exhibit F hereto to
---------
illustrate an example of the allocation pursuant to this Section 3.4.
3.5 Right of Inspection: Without limiting any Partner's rights to inspect
-------------------
and copy books and records of the Limited Partnership under Section 12.1 of the
Partnership Agreement (which rights shall survive the Closing and continue in
effect as to each Partner in connection with any matter arising out of or
related to the period prior to Closing), each Seller and each Seller's
authorized representatives shall have the right to inspect and verify the
calculation of the Purchase Price and the allocation of the Purchase Price, and
to receive from PPA upon request reasonably detailed recapitulations thereof.
3.6 Estimated Purchase Price; Post-Closing Adjustments; Disputes. Not
------------------------------------------------------------
less than ten (10) business days prior to the Closing, PPA shall make a good
faith estimate of the Purchase Price and the allocation of the Purchase Price
pursuant to Section 3.4, and shall provide to each Seller and to the Purchaser a
reasonably detailed written statement showing the calculations thereof. The
consideration paid to the Partners at Closing shall be based upon such estimated
Purchase Price, subject to any modification as to which the parties agree prior
to Closing. Within thirty (30) calendar days after the Closing, PPA shall
reconcile with actual receipts and expenditures any accruals included in the
calculations of Other Assets Value and Cash Flow in determining the Purchase
Price, shall adjust the Purchase Price accordingly and shall provide to (a) each
Seller and to the Purchaser written statements showing, in reasonable detail,
the calculation of such adjusted Purchase Price and the allocation of such
adjusted Purchase Price pursuant to Section 3.4 and (b) each of Ameritech,
American and Idaho and to the Purchaser written statements certified by Coopers
& Lybrand or another "Big 6" accounting firm showing, in reasonable detail, the
calculation of Excess Purchaser Equity. Purchaser and the Partners agree to
settle, in cash, within ten (10) business days thereafter (or, if Purchaser or
any Seller disputes PPA's calculation of the Purchase Price, within ten (10)
business days after the determination of the Purchase Price by an independent
auditor as provided below) any differences between the Purchase Price as
estimated for purposes of the Closing and the Purchase Price as finally
determined in accordance with this Section 3.6. Any payments required to be made
by the Partners to settle the adjustment shall be
7
<PAGE>
made pro rata by each Partner in accordance with the percentage of the Purchase
Price received by the Partner at Closing. All payments to settle the adjustment
shall be made by the methods specified in Section 7 as applicable to the
Closing. Purchaser and the Partners agree that any dispute regarding the
calculation of the adjustment to the Purchase Price hereunder shall be resolved
by one "big 6" firm of independent auditors selected by Sellers acting
collectively. Purchaser and the Partners agree that any dispute regarding the
calculation of the Excess Purchaser Equity hereunder shall be resolved by one
"big 6" firm of independent auditors selected by Ameritech, American and Idaho
acting collectively. If a dispute arises regarding the calculation of both the
Purchase Price and the Excess Purchaser Equity, Purchaser and Sellers agree that
a single "big 6" firm of independent auditors selected by Sellers acting
collectively shall resolve both disputes.
3.7 Conduct of Partnership Business. PPA (a) represents and warrants to
-------------------------------
each Seller that, since year-end 1995, the business of the Limited Partnership
has been conducted in the ordinary course consistent with past practice and (b)
agrees that the business of the Limited Partnership will continue to be
conducted in the ordinary course consistent with past practice until the earlier
to occur of the Closing Date or the termination of this Agreement, including
without limitation, distributions of Net Operating Revenues (as defined in the
Partnership Agreement), (c) agrees that until the earlier to occur of the
Closing Date or the termination of this Agreement, no prepayments of the
indebtedness secured by the Properties shall be made without the consent of the
Sellers and, (d) represents and warrants that, to its knowledge, the Limited
Partnership has never incurred any unrelated business taxable income. Without
limiting the foregoing, PPA agrees not to establish or maintain any reserves in
excess of $500,000 through the Closing Date. This paragraph 3.7 is not intended
to alter any of the provisions of the Partnership Agreement or otherwise
applicable to the conduct of the Limited Partnership's business following a
termination of the Agreement prior to Closing.
3.8 Additional Cost Adjustment. If the Purchase Price exceeds $126.3
--------------------------
million, American, Ameritech, and Idaho agree to reimburse Exxon for the fees
(up to a maximum aggregate amount of $60,000) and expenses (up to a maximum
aggregate amount of $15,000) incurred by Exxon to VCK Capital Advisors, Ltd.
Each of American, Ameritech, and Idaho shall be responsible for a proportionate
share of such reimbursement in accordance with the same respective percentages
set forth in the definition of Excess Purchaser Equity. If the estimated
Purchase Price determined in
8
<PAGE>
accordance with paragraph 3.6 above exceeds $126.3 million, the Purchaser
will deduct such reimbursements (against Exxon's written statement
therefor) from the respective cash amounts otherwise payable to American,
Ameritech, and Idaho at Closing and shall add such reimbursements to the
cash amount otherwise payable to Exxon at Closing. If (i) deductions are
made in accordance with the preceding sentence but the Purchase Price as
finally determined in accordance with paragraph 3.6 above does not exceed
$126.3 million, Exxon shall repay such deducted amounts to American,
Ameritech, and Idaho, or (ii) if the estimated Purchase Price is less than
$126.3 million but the final Purchase Price exceeds such amount, American,
Ameritech, and Idaho shall pay such reimbursable amounts to Exxon, in each
case by deduction or additional payment, as necessary, in accordance with
the procedures for post-Closing adjustments set forth in paragraph 3.6
above.
4. PARTNERS' REPRESENTATIONS AND WARRANTIES: To induce the Purchaser to
----------------------------------------
enter into this Agreement and perform its obligations hereunder, each Partner
severally, but not jointly, makes the following representations and warranties
to the Purchaser; provided, however, that each Partner makes the following
representations and warranties with respect to itself and its partnership
interest in the Limited Partnership only, and no Partner has any duties or
obligations with respect to the representations or warranties of any other
Partner; and provided further, that the Partners acknowledge and agree that the
Purchaser and its permitted assigns are entitled to rely and have relied upon
each:
4.1 Organization and Power: The Partner is either (a) an ERISA,
----------------------
common law or business trust validly existing as a trust under federal
law or the laws of its state of formation, (b) a state agency and has full
trust power and authority to enter into and perform its obligations under
this Agreement or (c) a limited partnership duly validly existing
as a limited partnership under the laws of its state of formation.
4.2 Authority and Binding Effect: The execution and delivery of
-----------------------------
this Agreement and the performance by the Partner of its obligations
hereunder have been duly authorized by all necessary trust, partnership or
state action. This Agreement constitutes the legal, valid and binding
agreement of the Partner, enforceable against Partner in accordance with
its terms, subject to (i) limitations under applicable law on rights to
indemnification, (ii) the effects of any applicable bankruptcy,
reorganization, moratorium or similar laws and (iii) general principles of
equity and (iv) limitations imposed by the "prohibited transaction"
provisions of ERISA.
9
<PAGE>
4.3 No Encumbrances; Right to Sell: (a) The Partner is the sole owner of
-------------------------------
a partnership interest in the Limited Partnership in the percentage set forth on
Exhibit A, (b) the Partner has good title to its partnership interest in the
- ---------
Limited Partnership, (c) the Partner's partnership interest in the Limited
Partnership is free and clear of any liens, encumbrances, pledges and security
interests whatsoever other than as created pursuant to the Partnership
Agreement, (d) the Partner has not granted any other person or entity an option
to purchase or a right of first refusal upon its partnership interest in the
Limited Partnership and (e) except for any consents required by the Partnership
Agreement and the satisfaction of the requirements contained in Article IX of
the Partnership Agreement, no consent of any third party is required in order
for such Partner to perform its obligations hereunder.
4.4 No Violation: The execution and delivery of, and the performance by
------------
each Partner of such Partner's obligations under this Agreement do not and will
not (a) contravene, or constitute a default under, any (i) provisions of the
Partner's Organizational Documents or, (ii) to the knowledge of the Partner,
without investigation, and subject to paragraph 6(a)(ii)(B), (x) any material
law or regulation applicable to the Partner, provided that no representation or
warranty is made by any Seller with respect to the limitations imposed by the
"prohibited transaction" provisions of ERISA, (y) assuming compliance with the
conditions and requirements relating to transfers of partnership interests in
the partnership contained in the Partnership Agreement, any material agreement,
note, mortgage, indenture, lease, franchise, license or other instrument to
which the Partner is a party or by which it is bound, or (z) any material
judgement, injunction, order or decree binding upon such the Partner or its
assets or to which such Partner's partnership interest in the Limited
Partnership is subject, except in each case where any such contravention or
default would not have the effect of preventing the Partner from performing its
obligations under this Agreement, or (b) result in the creation of any lien or
other encumbrance on the Partner's partnership interest in the Limited
Partnership; provided, however, that no representation or warranty is made by
any Seller with respect to any law or regulation applicable to the Seller, or
any agreement, note, mortgage, indenture, lease, franchise, license or other
instrument, or any judgment, injunction, order or decree, which might be binding
upon the Seller or its assets, in either case by reason of the Seller's status
as a limited partner of the Limited Partnership.
10
<PAGE>
4.5 No Litigation. To the Partner's knowledge, without
-------------
investigation, and subject to paragraph 6(a)(ii)(B), there is no action,
suit or proceeding, pending or threatened in writing, against or affecting
the Partner in any court or before any arbitrator or before any
governmental body or agency which challenges the validity or enforceability
of this Agreement.
4.6 Binding Stock Election: American, Ameritech and Idaho each
----------------------
acknowledge that, as of the date hereof, (a) each such Seller is
irrevocably bound to accept Common Shares as part of each such Seller's
transfer consideration in the proportions described in paragraph 3 hereto,
(b) that it can fend for itself, (c) that it can bear the economic risk of
its investment in Common Shares, (d) that it has such knowledge and
experience in financial and business matters that they are capable of
evaluating the merits and risks of an investment in Common Shares and (e)
that it is acquiring the Common Shares for investment and not with the
present intention of participating in a distribution.
4.7 No Broker. Each Partner warrants and represents to the
---------
Purchaser that the Partner has not retained any real estate broker,
business broker, finder or other person entitled to a commission or other
compensation in connection with this transaction other than VCK Capital
Advisors, Ltd., for whose costs and expenses Purchaser shall not be liable
in any event in excess of any amounts paid by Purchaser prior to the date
hereof; and provided further, that this representation and warranty shall
exclude any (i) compensation payable by the Limited Partnership to the
Appraiser and (ii) payment to PPA or any PPA Affiliate of any "Disposition
Fee" (as defined in the Partnership Agreement) previously earned and
accrued on the books of the Limited Partnership. Any commissions or other
compensation payable to any underwriter in connection with the IPO shall be
payable only by Purchaser.
5. PURCHASER'S REPRESENTATIONS AND WARRANTIES: To induce the Partners
------------------------------------------
to enter into this Agreement and to sell or transfer their respective
partnership interests in the Limited Partnership to the Purchaser, the Purchaser
hereby makes the following representations and warranties, upon each of which
the Purchaser acknowledges and agrees that the Partners are entitled to rely and
have relied:
5.1 Identity of Directors, Partners and Officers. Exhibit G sets
-------------------------------------------- ---------
forth all of the partners of PPA and all of the officers, directors and
shareholders of Purchaser and PPA Corp.
11
<PAGE>
5.2 Organization and Power: The Purchaser is a corporation duly
----------------------
incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power and authority to enter into
and perform its obligations under this Agreement.
5.3 Authority and Binding Effect: The execution and delivery of
----------------------------
this Agreement and the performance by the Purchaser of its obligations
hereunder have been duly authorized by all necessary corporate action. This
Agreement constitutes the legal, valid and binding agreement of the
Purchaser, enforceable against Purchaser in accordance with its terms,
subject to (i) limitations under applicable law on rights to
indemnification, (ii) the effects of any applicable bankruptcy,
reorganization, moratorium or similar laws and (iii) general principles of
equity.
5.4 No Violation: The execution and delivery of the Agreement
------------
Purchaser and the performance by the Purchaser of its obligations hereunder
do not and will not (a) contravene, or constitute a default under, any (i)
provisions of its Articles of Incorporation or Bylaws, (ii) applicable law
or regulation, (iii) agreement, note, mortgage, indenture, lease,
franchise, license or other instrument to which Purchaser is a party or by
which it is bound, or (iv) judgment, injunction, order, decree or other
instrument binding upon the Purchaser or its assets, or (b) result in the
creation of any lien or other encumbrance on any asset of the Purchaser.
5.5 No Litigation. To the Purchaser's knowledge, without
-------------
investigation, there is no action, suit or proceeding, pending or
threatened in writing, against or affecting the Purchaser in any court or
before any arbitrator or before any governmental body or agency which in
any manner raises any question affecting the validity or enforceability of
this Agreement or any other agreement or instrument to which the Purchaser
is a party or by which it is bound and that is to be used in connection
with, or is contemplated by, this Agreement.
5.6 No Broker. Purchaser warrants and represents to each Partner
---------
that the Purchaser has not retained any real estate broker, business
broker, finder or other person entitled to a commission or other
compensation in connection with this transaction, excluding any (i)
compensation payable by the Limited Partnership to the Appraiser and (ii)
payment to PPA or any PPA Affiliate of any "Disposition Fee" (as defined in
the Partnership Agreement) previously earned and accrued on the books of
the Limited Partnership. Any commissions or other compensation payable to
any underwriter
12
<PAGE>
in connection with the IPO shall be payable only by Purchaser.
5.7 REOC Status. Purchaser warrants and represents to each Partner
------------
that the Limited Partnership is a "real estate operating company," within
the meaning of the regulations issued by the United States Department of
Labor at section 2510.3-101 of part 2510 of chapter XXV, title 29 of the
United States Code of Federal Regulations.
5.8 Securities Law. Purchaser understands that the sale of the
---------------
partnership interests in the Limited Partnership hereunder has not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
or any state securities laws. Purchaser will not sell, transfer or
otherwise dispose of such interests, directly or indirectly, without an
effective registration under the 1933 Act and such state securities laws or
a valid exemption therefrom.
5.9 HSR Act. Purchaser represents and warrants that as a result of
-------
the transactions to be consummated by Purchaser, Sellers are not required
to file notice pursuant to the Hart Scott Rodino Antitrust Improvements Act
of 1976, as amended, with respect to the sale and purchase of the
partnership interests pursuant to this Agreement.
5.10 No Capital Gains Dividends Contemplated. Purchaser does not
---------------------------------------
currently contemplate PPL REIT making within one year after the Closing any
capital gain dividends, within the meaning of Section 857(b)(3)(C) of the
Code.
6. CONDITIONS PRECEDENT:
--------------------
(a) Purchaser's Conditions. The Purchaser's obligations hereunder,
----------------------
including the Purchaser's obligation to close the transaction contemplated
hereby and to pay or transfer consideration to the Sellers, are subject to the
satisfaction of the following conditions precedent and the compliance by the
Sellers, with the following covenants:
(i) Assignments: Simultaneously with the Purchaser's delivery to
-----------
each Seller of the purchase consideration to which each Seller is entitled
under paragraph 3 hereof, each Seller shall have delivered to or for the
benefit of the Purchaser, on or before the Closing, an Assignment pursuant
to the provisions of paragraph 7 hereof, fully executed by such Seller.
13
<PAGE>
(ii) Representations and Warranties True and Correct:
-----------------------------------------------
(A) Each Seller shall deliver to Purchaser at Closing a certificate
signed by an authorized party stating that its representations and warranties
made in this Agreement are true and correct in all material respects as of the
date of the Closing (with such modifications of the representations made in
paragraphs 4.4(a)(ii) and 4.5 as may be necessary as provided in subparagraph
(B) below) as if then made.
(B) Seller shall, in the certificate delivered in accordance with
subparagraph (a) or in another writing delivered to Purchaser before Closing,
modify the representations and warranties given by it in paragraphs 4.4(a)(ii)
and 4.5 on the date hereof if, after execution of this Agreement and before
Closing, the Seller gains knowledge of any matter that causes such
representations and warranties made on the date hereof, or as of the date of
such subsequent certification, to be untrue in any material respect. Prior to
the Closing, Seller shall confirm or modify the representations and warranties
in paragraphs 4.4(a)(ii) and 4.5 in a writing delivered to Purchaser within five
business days after Purchaser's request therefor; provided, that Purchaser may
make only one such request. If modified, the representations and warranties made
by Seller in paragraphs 4.4(a)(ii) and 4.5 as so modified by the certificate or
writing shall be deemed to have been made on the date hereof and shall
supersede, replace and cancel the previous forms of such representations and
warranties given by it for all purposes hereof, including but not limited to
paragraph 9(a). The Seller shall use its best efforts to promptly provide the
Purchaser with material information on the nature of any modifications, in
sufficient detail to permit Purchaser to evaluate the effects, if any, of the
facts underlying such modifications on (i) the Seller's interest in the Limited
Partnership and (ii) the transactions contemplated by this Agreement.
(C) Notwithstanding any provision to the contrary contained herein,
Seller shall not have any liability whatsoever and shall not be deemed to be in
breach of this Agreement, and Purchaser shall not have any remedy at law or in
equity or any right to damages, indemnification or any other entitlement to
reimbursement of any kind with respect thereto, as a result of any of Seller's
representations and warranties contained in paragraphs 4.4(a)(ii) or 4.5
14
<PAGE>
being or becoming untrue subsequent to the date of this Agreement if
such representations and warranties, as modified in writing to
Purchaser at or prior to Closing, would be true and correct in all
material respects according to their terms. However, if Purchaser
determines in good faith that, as a result of matters disclosed in
any such modification, it would be impractical or inadvisable for
Purchaser to proceed with the transactions contemplated by this
Agreement, Purchaser shall have the sole and exclusive right and
remedy not to consummate the transactions contemplated herein due to
the failure of a condition precedent to be satisfied, but Purchaser
shall have no other rights or remedies of any kind. The parties
recognize, however, that Purchaser may, in its sole discretion, waive
the satisfaction of any such condition precedent, but shall have no
obligation to do so.
(iii) Acquisition of all Partnership Interests: At Closing, the
----------------------------------------
Purchaser shall have acquired from the Sellers all of their limited
partnership interests in the Limited Partnership, it being agreed that if
the Purchaser cannot acquire all of such partnership interests in the
Limited Partnership at Closing, the Purchaser shall have the absolute
right, if it so elects, to decline to close the transactions contemplated
by this Agreement.
(iv) Public Offering: The closing of the IPO shall have occurred.
---------------
(v) FIRPTA. Each Seller shall deliver to the Purchaser a duly
------
executed certification setting forth the Seller's address and Federal tax
identification number and certifying that the Seller is not a "foreign
person" for purposes of the provisions of Section 1445 (as may be amended)
of the Code.
(b) Sellers' Conditions. The respective obligations of the Sellers
-------------------
hereunder, including each Seller's obligation to sell and assign its partnership
interest in the Limited Partnership as contemplated hereby, are subject to the
satisfaction of the following conditions precedent and the compliance by the
Purchaser and its assigns, if any, with the following covenants (except that
only the conditions set forth in Section 6(b)(i)-(v) shall apply to Exxon):
(i) Delivery of Purchase Price Estimate: Not less than ten (10)
-----------------------------------
business days prior to Closing, each Seller shall have received a written
estimate of the Purchase Price as provided in paragraph 3.6.
15
<PAGE>
(ii) Receipt of Purchase Consideration: Simultaneously with each Seller's
---------------------------------
delivery to the Purchaser of an Assignment pursuant to the provisions of
paragraph 7 hereof, each Seller shall have received the purchase consideration
to which each Seller is entitled under paragraph 3 hereof.
(iii) Representations and Warranties True and Correct: Purchaser and its
-----------------------------------------------
assigns, if any, shall deliver to each Seller at Closing a certificate signed by
an authorized party stating that their representations and warranties made in
this Agreement are true and correct as of the date of the Closing as if then
made and that the Purchaser and its assigns, if any, have performed all of its
covenants and other obligations under this Agreement. In addition, Purchaser and
each of its permitted assigns shall represent and warrant to each Seller that
none of them is a "party in interest" to any Seller within the meaning of
Section 3(14) of ERISA (or that, to the extent that Purchaser is a "party in
interest," an exemption from the "prohibited transaction" rules of ERISA is
available).
(iv) Receipt of Legal Opinion: Each Seller shall have been furnished
------------------------
with a legal opinion of Hunton & Williams, counsel for the Purchaser and its
assigns, if any, or such other counsel approved by Sellers in writing, in the
form attached hereto as Exhibit H; In addition, each Seller shall have been
---------
furnished with a legal opinion of Hunton & Williams, or such other counsel
approved by Sellers in writing, that (a) it will recognize no income or gain
upon its sale and assignment of its partnership interest in the Limited
Partnership that would constitute unrelated business taxable income ("UBTI")
(within the meaning of Section 512 of the Code) and (b) the transactions
contemplated hereby will not result in any income or gain to the Limited
Partnership that would constitute UBTI that would be allocable to any of the
partners of the Limited Partnership.
(v) Public Offering: The closing of the IPO shall have occurred.
---------------
(vi) PPL REIT Management. PPL REIT's senior management, as reflected in
--------------------
the prospectus distributed in connection with the IPO, shall include
substantially all of the senior managers of the Purchaser currently rendering
substantial senior management services to the Limited Partnership, including
William Reister.
(vii) Reliance on corporate, securities and tax opinions: Ameritech,
--------------------------------------------------
American and Idaho shall each receive letters entitling them to rely on the
opinions of Hunton & Williams to PPL REIT (or its Board) with respect to general
corporate (or trust, if PPL REIT is organized as a trust),
16
<PAGE>
securities and tax matters included as exhibits to the registration statement
filed by PPL REIT with the Securities and Exchange Commission in connection with
the IPO. The opinions shall be in form and substance customary in initial public
offerings of similar securities by a REIT involving an UPREIT structure and
holding properties and organized and operating in substantially the same manner
as PPL REIT. Such opinions shall specifically cover the due formation and valid
existence of PPL REIT, the due authorization and issuance of the Common Shares
issued to the Sellers pursuant to this Agreement, and the execution,
authorization and delivery by, and the enforceability against, PPL REIT, of this
Agreement, the Registration Rights Agreement and any other agreements in favor
of the Sellers executed pursuant to this Agreement. Ameritech, American and
Idaho shall also receive from Hunton & Williams substantially the same opinions
that Hunton & Williams renders to the underwriters of the IPO under the related
underwriting agreement, other than opinions covering (i) matters not affecting
them or (ii) agreements or instruments to which they are not parties.
(viii) Ownership Limitation. The Articles of Incorporation or Declaration
--------------------
of Trust, as applicable, of PPL REIT shall include customary ownership
limitation provisions designed to prevent ownership by any person of more than
9.9% of any class of stock of PPL REIT, with such exceptions as are necessary to
permit greater ownership by Purchaser and its Affiliates.
(ix) IPO Proceeds. The gross proceeds raised in the IPO shall be at least
------------
$200 million.
(x) One Class of Securities. Upon the closing of the IPO, PPL REIT
-----------------------
shall have issued only Common Shares of a single series, and no other class of
stock or other securities or rights to obtain or acquire other securities shall
have been issued or shall be outstanding, except for options to purchase Common
Shares granted to officers or trustees/directors of PPL REIT which are
outstanding upon the closing of the IPO, as disclosed in the prospectus used in
connection with the IPO.
(xi) QIU. A "qualified independent underwriter," as defined in Schedule E
---
of the Bylaws of the National Association of Securities Dealers, Inc. (or any
successor rule or provision), shall have delivered to PPL REIT a letter in
customary form with respect to the Offering Price.
(xii) Registration Rights Agreement. PPL REIT shall have executed and
-----------------------------
delivered to each of Ameritech, American and Idaho a registration rights
agreement in substantially the form attached as Exhibit J.
---------
17
<PAGE>
(c) Waiver. (i) Purchaser may waive all or part of any or all of the
------
conditions set forth in Section 6(a), (ii) Exxon, for itself, may waive all or
part of any or all of the conditions set forth in Section 6(b)(i)-(v) and (iii)
each of Ameritech, American and Idaho, for itself, may waive all or part of any
or all of the conditions set forth in Section 6(b)(i)-(xii), in each case in the
sole discretion of the waiving party and only by a writing signed by the waiving
party and delivered by the waiving party to each other party hereto.
7. CLOSING: Closing shall occur, if at all, upon the closing of
--------
the IPO, which shall be no later than December 31, 1996, unless said date has
been extended by written agreement executed by the Purchaser and each of the
Partners. If the Closing has not occurred by the date provided in the foregoing
sentence, this Agreement shall automatically terminate and be of no further
force or effect, other than paragraph 13 which shall survive the termination. At
the Closing, each Seller shall deliver to Purchaser an assignment of such
Seller's entire partnership interest in the Limited Partnership, in the form
attached hereto as Exhibit I, fully executed and acknowledged (individually, the
---------
"Assignment" and collectively, the "Assignments"). Notwithstanding anything to
the contrary in the Partnership Agreement, the Assignments shall be effective on
the Closing Date. The Closing will occur at the offices of the Purchaser, or
such other place as the Purchaser and the Sellers may mutually agree. At the
Closing, the Purchaser will (a) deliver the cash portion of the Purchase Price
and Excess Purchaser Equity to the Sellers by wire transfer of immediately
available funds (to the respective accounts specified by each Seller at least
five days prior to Closing) pursuant to the provisions of paragraphs 3.1 and
3.2(b), (b) deliver the balance of the Purchase Price and Excess Purchaser
Equity in the form of certificates representing Common Shares pursuant to the
provisions of paragraph 3.2(a) to American, Ameritech and Idaho or, upon written
instructions to the Purchaser, their custodian designee(s) and (c) deliver to
PPA such documentation as is necessary to evidence its ownership of the
interests in the Limited Partnership to which it is entitled hereunder, and
comply with any reasonable requests to further or better evidence PPA's
ownership.
8. LIABILITY OF PURCHASER; ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION
------------------------------------------------------------------
OF SELLERS: (a) At Closing, Purchaser will accept the assignment of the
- ----------
Sellers'interests in the Limited Partnership and assume all of Sellers' duties
under the Partnership Agreement accruing from and after Closing. Purchaser
agrees to indemnify and hold the Sellers harmless from and against any and all
claims, demands, debts, liabilities, expenses and causes of action, including
reasonable attorney's fees, which relate to liabilities or obligations of
Purchaser arising from
18
<PAGE>
Purchaser's ownership of the interests and which arise as a result of events
that occur from and after Closing.
(b) If the Closing occurs, Purchaser shall indemnify and save and hold
harmless Sellers from and against any loss, cost, claim, expense (including,
without limitation, reasonable attorneys' fees and expenses) and liability
whatsoever on or with respect to or in connection with all contracts,
agreements, leases, obligations, duties, and liabilities of the Limited
Partnership (the "Indemnified Obligations") and any claim asserted against any
of Sellers by a person or persons with respect thereto at any time or times. It
is expressly stipulated and agreed that the Indemnified Obligations as to which
Purchaser shall indemnify Sellers (A) include, without limitation, any claims of
liabilities of any of Sellers based on actual or alleged NEGLIGENCE of any of
Sellers or the Limited Partnership or based on actual or alleged STRICT
LIABILITY of any of Sellers or the Limited Partnership and (B) exclude the
obligation of Sellers under this Agreement.
(c) Each Seller shall promptly notify Purchaser of any claim or action of
a third party against such Seller with respect to an Indemnified Obligation for
which such Seller may seek indemnification. Upon receipt of such notice,
Purchaser shall have the right, at its expense, to participate in and assume the
defense of such claim or action. If Purchaser does assume the defense of such
claim or action, such Seller shall cooperate fully with Purchaser in the defense
of such claim or action, and such Seller may at its election continue to
participate in the defense and may retain its own counsel at such Seller's
expense. No Seller shall settle or compromise any claim or action against it for
which an indemnity claim is made or is expected to be made under this section
without the consent of Purchaser, which consent shall not unreasonably be
delayed or withheld.
(d) It is expressly stipulated and understood that if Purchaser or PPA
causes the Limited Partnership to admit partners, to borrow funds or to sell or
participate in the sale of securities of any nature incident to the Closing for
any purpose whatsoever (including, without limitation, the IPO), none of Sellers
shall be required to or shall incur any liability or responsibility whatsoever
(either in an individual capacity or in any capacity as a partner) in connection
with the admission of such partners, repayment of any such loan indebtedness or
in connection with such borrowing transaction or sale of securities in the IPO
or otherwise, or with respect to any covenant, agreement, representation,
warranty, or undertaking of the Limited Partnership, PPA or Purchaser, in
connection with such admission, borrowing transaction or sale of securities, nor
shall any of Sellers (either in an individual capacity or in any capacity as a
partner of the Limited Partnership) provide or make or be responsible in any
respect for any information provided to,
19
<PAGE>
or any warranty or representation whatsoever made to or for the benefit of, any
lender, underwriter, or any other person in connection with any such admission,
loan or sale of securities or to induce any person to be admitted to the Limited
Partnership or to make or advance any such loan or purchase any such securities
(including, without limitation, pursuant to the IPO) or assist PPA, the Limited
Partnership or Purchaser in admitting such partners, obtaining any such loan or
issuing or selling any such securities. If any such admission to the Limited
Partnership, loan transaction or sale of securities in connection with the IPO
or otherwise shall be effected by Purchaser or the Limited Partnership,
Purchaser and PPA shall indemnify and save and hold harmless Sellers from and
against any loss, cost, claim, expense (including, without limitation,
reasonable attorneys' fees and expenses) and liability whatsoever. Effective
upon the Closing, PPA hereby releases each of the Sellers from any further
obligations, liabilities, or duties under the Partnership Agreement or any
contract or agreement of the Limited Partnership.
(e) Each of the Limited Partnership and PPA hereby releases each of the
Sellers from any further obligations, liabilities or duties to the Limited
Partnership or any Partner from and after the Closing under the Partnership
Agreement, applicable law or any contract or agreement of the Limited
Partnership.
(f) From and after the Closing, each of the Sellers hereby releases each
of the other Sellers from any further obligations, liabilities or duties to the
Limited Partnership or, in connection with the Limited Partnership, to any
Seller, arising under the Partnership Agreement or the Act (as defined in the
Partnership Agreement). Effective as of the Closing, each Seller acknowledges
that, to its knowledge, it has no claim or cause of action against any other
Seller in connection with the Limited Partnership that has not been disclosed in
writing to such other Seller prior to Closing. This paragraph 8(f) shall not
release any Seller from any obligation such Seller may have to pay or refund
amounts to another Seller under paragraphs 3.6 or 3.8 of this Agreement.
9. WAIVER; INDEMNIFICATION; SURVIVAL:
---------------------------------
(a) Each representation and warranty of a Partner herein shall
survive the Closing of the transaction contemplated hereby, without regard to
any investigation conducted by or on behalf of the Purchaser. Each Partner,
severally and not jointly, does hereby indemnify and hold Purchaser harmless
from and against any out-of-pocket costs and expenses (including reasonable
attorneys' fees and costs) that may at any time be incurred by the Purchaser,
whether before or after Closing, as a result of any breach by such Partner of
any of such Partner's representations, warranties, covenants or obligations set
forth
20
<PAGE>
herein. Notwithstanding any other provision to the contrary contained in this
Agreement or in any agreement contemplated by this Agreement, the Partners shall
not have any obligation to make any such indemnification payments which, in the
aggregate, exceed the lesser of (i) Purchaser's out-of pocket costs and expenses
(including reasonable attorneys' fees and costs) and (iii) $3 million.
Notwithstanding the foregoing, unless the Purchaser shall have filed suit
against a Seller alleging a breach or alleged breach of said Seller's
warranties, representations, covenants or obligations and seeking
indemnification pursuant to the preceding sentence within eighteen (18) months
following the Closing, all such warranties, representations, covenants and
obligations shall be terminated and of no further force and effect, and the
Purchaser will have no right thereafter to make, file or prosecute any claims
against such Seller arising out of the breach or alleged breach thereof.
(b) Each representation and warranty of the Purchaser herein shall
survive the Closing of the transaction contemplated hereby, without regard to
any investigation conducted by or on behalf of the Partners. The Purchaser does
hereby indemnify and hold the Partners harmless from and against any claims,
costs, penalties, damages, losses, liabilities and expenses (including
reasonable attorneys' fees and costs) that may at any time be incurred by the
Partners, whether before or after Closing, as a result of any breach by
Purchaser of any of Purchaser's representations, warranties, covenants or
obligations set forth herein or in any other document delivered by such Partner
pursuant hereto.
10. DEFAULT:
-------
In the event that any Seller shall default in its obligation to
deliver its limited partnership interest in the Limited Partnership to Purchaser
in accordance with the terms of this Agreement (a "Defaulting Seller"), the
Purchaser shall, in addition to a claim for indemnification against such
Defaulting Seller pursuant to Section 9 of this Agreement, have the right to
bring an action for specific performance, it being acknowledged that each
partnership interest in the Limited Partnership which is the subject matter of
this Agreement, is unique in nature and that an action for damages may not
provide an adequate remedy to the Purchaser in the event of such default.
In the event of default by the Purchaser, the Partners shall have
such remedies as against the Purchaser as shall be available at law or in
equity.
In the event of any litigation or dispute between the parties arising
out of or in any way connected with this Agreement, resulting in any litigation,
then the prevailing party
21
<PAGE>
in such litigation shall be entitled to recover its costs of prosecuting and/or
defending such action, including, without limitation, reasonable attorneys' fees
and costs at trial and all appellate levels. The provisions of this paragraph
shall survive the Closing of the transaction contemplated hereby.
11. TRANSFER RESTRICTIONS: American, Ameritech and Idaho each
---------------------
acknowledges and agrees that (i) the Common Shares have not been, and will not
be when received by them, registered under the Securities Act of 1933, as
amended (the "Act"), and may not be sold or transferred by them except pursuant
to a registration statement effective under the Act or an applicable exemption
from the Act, (ii) it is acquiring Common Shares for investment and not with a
view toward distribution and, (ii) without the consent of the managing
underwriter of the IPO, for a period of one year after the Closing Date, it will
not offer, sell, contract to sell or otherwise transfer or dispose of any Common
Shares that it receives hereunder.
12. SELLER CONSENTS: If the Closing occurs, each Partner consents to the
---------------
transfer or, in the case of PPA, conversion, by each of the other Partners of
its partnership interest in the Limited Partnership at Closing and agrees that
all of the conditions and requirements under the Partnership Agreement with
respect to the transfer or, in the case of PPA, conversion of each Partner's
partnership interest in the Limited Partnership as contemplated by this
Agreement have been satisfied. American, Ameritech and Idaho each consents to
the inclusion in the prospectus and press releases prepared in connection with
the IPO of (i) its name, (ii) descriptions of (A) its interest in the Limited
Partnership prior to the Closing, (B) its Common Share ownership after the IPO
and (C) this Agreement and documents and agreements ancillary to, or prepared or
executed in connection with, this Agreement, and (iii) related matters;
provided, however, that such references shall be provided to the parties for
- -------- -------
their review and comment not less than ten (10) days before first public use and
their comments thereon shall be considered in good faith by Purchaser and PPL
REIT; provided, however, that no Seller shall have any liability or obligation
whatsoever with respect to any such prospectus or press release or any
information therein. Neither Exxon's name nor any derivative thereof shall be
disclosed, referred to or otherwise used in any prospectuses, press releases or
other agreements or material prepared in connection with the IPO except with
Exxon's prior written consent, which may be withheld in Exxon's sole discretion.
13. FAILED DEAL COSTS: Notwithstanding any provision to the contrary
-----------------
contained herein or in the Partnership Agreement, in the event that the
Purchaser shall not consummate its purchase of the partnership interests of the
Sellers as provided for herein
22
<PAGE>
for any reason other than a default by a Seller, the Limited Partnership shall
reimburse each non-defaulting Seller's out-of-pocket fees and expenses incurred
in connection with this Agreement, including fees and expenses of attorneys and
real estate advisors, promptly upon presentation by such Seller of documentation
of its fees and expenses, provided that the Limited Partnership shall not have
any obligation to reimburse any Seller for its fees and expenses in an amount in
excess of $100,000.
14. BOARD SEAT:
----------
(a) Ameritech, American and Idaho acting as a group shall have the right,
exercisable at any time between the date hereof and the first anniversary of the
IPO by giving written notice to PPL REIT, to nominate one person who is
acceptable to Ameritech, American and Idaho acting as a group, on the one hand,
and Purchaser (or its permitted assign), on the other hand (the "Nominee"), as a
member of the board of directors (or trustees, if PPL REIT is organized as a
trust) of PPL REIT.
(b) Within, (i) 30 days after receipt of such notice, if the IPO has not
closed prior to receipt of the notice, Purchaser (or its permitted assign) shall
cause its shareholders to elect the Nominee to the board of PPL REIT and, (ii)
60 days after receipt of such notice, if the IPO has closed before receipt of
the notice, Purchaser (or its permitted assign) shall (A) prepare and file with
the Securities and Exchange Commission ("SEC") a notice of a special meeting of
the PPL REIT shareholders to be held within six weeks of the mailing of the
notice to the PPL shareholders, to which notice a proxy statement shall be
attached in which the Nominee is presented for election to the board with
customary language of support from management, (B) mail such proxy statement to
the PPL shareholders by means customary for proxy statement mailings and (C) if
a quorum is not present on the scheduled meeting date, continue such meeting in
the manner provided by applicable law until a quorum is present.
(d) If the Nominee is nominated before the IPO has closed, the Nominee
shall agree to promptly cooperate with management in preparing the registration
statement required in connection with the IPO and any amendments thereto,
including providing all information required to be included therein by
applicable law and signing the registration statement or a consent to the use of
the Nominee's name therein which shall be filed as an exhibit thereto, and
otherwise cooperating in the manner required of all members of the board in
connection with the IPO. If the Nominee is nominated after the IPO has closed,
the Nominee shall promptly cooperate with management in preparing the special
meeting notice and proxy statement, including providing all information required
to be included therein by applicable law.
23
<PAGE>
(e) The right to nominate the Nominee shall not be exercisable in the six
week period prior to the projected closing date of the IPO as set forth in a
writing delivered to American, Ameritech and Idaho no earlier than two weeks
prior to the start of such six week period, or in the two month period after the
closing of the IPO.
(f) The Nominee shall serve a term commencing on the date of the
Nominee's election and expiring not earlier than the first anniversary of the
Nominee's election.
15. MISCELLANEOUS:
-------------
15.1 Completeness; Modification; Waiver. This Agreement constitutes
----------------------------------
the entire agreement between the parties hereto with respect to the
transactions contemplated hereby and supersedes all prior discussions,
understandings, agreements and negotiations between the parties hereto.
This Agreement may be modified only by a written instrument duly executed
by the parties hereto. No term or condition of this Agreement shall be
deemed waived in whole or in part, except by an instrument in writing
signed by an authorized representative of each party which references
specifically the term or condition to be waived and which states explicitly
that the term or condition is waived. No waiver of any term or condition
hereof by any party hereto shall be deemed or construed to be (a) a waiver
by such party of any other term or condition hereof or (b) a waiver of such
term or condition for any party, any period or any purpose other than as
expressly set forth in the written instrument.
15.2 No Assignments. The Partners and, except as described in
--------------
paragraph 2 above, the Purchaser, may not assign this Agreement or their
rights hereunder. Any assignment or attempted assignment that does not
comply with all of the terms and conditions hereof shall be null and void.
15.3 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the parties hereto and their respective permitted successors
and assigns.
15.4 Days. If any action is required to be performed, or if any
----
notice, consent or other communication is given, on a day that is a
Saturday or Sunday or a legal holiday in the jurisdiction in which the
action is required to be performed or in which is located the intended
recipient of such notice, consent or other communication, such performance
shall be deemed to be required, and such notice, consent or other
communication shall be deemed to be given, on the first business day
following such Saturday, Sunday or
24
<PAGE>
legal holiday. Unless otherwise specified herein, all references herein to
a "day" or "days" shall refer to calendar days and not business days.
15.5 Governing Law; Venue. This Agreement and all documents
--------------------
referred to herein shall be governed by and construed and interpreted in
accordance with the laws of the State of Delaware. Any and all disputes,
unless all of the parties to the dispute otherwise agree, shall be brought
and maintained within that state, and the parties hereby waive any right to
bring an action in any other jurisdiction. If any judicial authority holds
or declares that the law of another jurisdiction is applicable, this
Agreement shall remain enforceable under the laws of that jurisdiction.
15.6 Counterparts. To facilitate execution, this Agreement may be
------------
executed in as many counterparts as may be required. It shall not be
necessary that the signature on behalf of all parties hereto appear on each
counterpart hereof. All counterparts hereof shall collectively constitute a
single agreement.
15.7 Severability. If any term, covenant or condition of this
------------
Agreement, or the application thereof to any person or circumstance, shall
to any extent be invalid or unenforceable, the remainder of this Agreement,
or the application of such term, covenant or condition to other persons or
circumstances, shall not be affected thereby, and each term, covenant or
condition of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
15.8 Costs. Regardless of whether Closing occurs hereunder, and
-----
except as otherwise expressly provided in paragraphs 3.8, 8, 9 or 13 or
elsewhere herein, each party hereto shall be responsible for its own costs
in connection with this Agreement and the transactions contemplated hereby,
including without limitation fees of attorneys and accountants, except that
the fees and expenses of the Appraiser shall be born by the Limited
Partnership as provided in the Engagement Letter. The Limited Partnership
shall not bear any costs of the IPO or the proposed formation of PPL REIT.
15.9 Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be delivered by
hand, transmitted by facsimile transmission, sent prepaid by Federal
Express (or a comparable overnight delivery service) or sent by the United
States mail, certified, postage prepaid, return receipt requested, at the
addresses and with such copies as designated below. Any notice, request,
demand or other communication delivered
25
<PAGE>
sent in the manner aforesaid shall be deemed given or made (as the case
may be) when actually delivered to the intended recipient.
If to Exxon, Ameritech, American, or Idaho:
to their respective addresses set forth
on Exhibit A
------------
With a copy to, if to Ameritech:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601-9705
Andrew J. McDonough, Esq.
and
With a copy to, if to Idaho
Foster Pepper & Shefelmen
1111 Third Avenue
34th Floor
Seattle, Washington 98101
Attn: Douglas S. Palmer, Jr., Esq.
If to PPA or Purchaser:
Prentiss Properties Limited, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
Attn: Mr. Thomas F. August
With a copy to:
Hunton & Williams
951 E. Byrd Street
Riverfront Plaza, East Tower
Richmond, Virginia 23220
Attn: Mark Murphy, Esq.
or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or
designate different or other persons or entities to receive copies by
notifying the other party in a manner described in this paragraph.
15.10 Incorporation by Reference. All of the exhibits attached
--------------------------
hereto are by this reference incorporated herein and made a part hereof.
26
<PAGE>
15.11 Survival. Subject to paragraph 9 hereof, all of the
--------
representations, warranties, covenants and agreements of the Partners and the
Purchaser (and any assigns of the Purchaser) made in, or pursuant to, this
Agreement shall survive Closing and shall not merge into the Assignment or any
other document or instrument executed and delivered in connection herewith,
including without limitation the indemnification of the Partners by Purchaser
contemplated by paragraphs 8 and 9 above.
15.12 Further Assurances. (a) Each Seller agrees to comply with
------------------
reasonable information requests by the Purchaser and its representatives after
the date hereof which are reasonably designed to elicit whether and to what
extent Purchaser is a "party in interest" to any Seller within the meaning of
Section 3(14) of the ERISA. Such requests will include requesting from each
Seller a representation and warranty, upon which Purchaser may rely in making
the representation and warranty referred to in the second sentence of Section
6(b)(iii), with respect to whether and to what extent such Seller owns direct or
indirect ownership interests in the entities set forth on a list to be submitted
to the Sellers within 14 days of the date hereof and specifically identified as
being submitted for such purpose. Each Seller agrees to respond to such
submission in writing to Purchaser within thirty (30) business days of receipt
of the submission.
(b) Each Partner and the Purchaser each covenant and agree further to
sign, execute and deliver, or cause to be signed, executed and delivered, and to
do or make, or cause to be done or made, upon the written request of the other
party, any and all customary agreements, instruments, papers, deeds, acts or
things, supplemental, confirmatory or otherwise, as may be customary in
transactions of the type contemplated by this Agreement and in respect of the
organization and operation of an UPREIT partnership and reasonably required by
either party hereto for the purpose of or in connection with (i) consummating
the sale of the partnership interests in the Limited Partnership, (ii) with
respect to American, Ameritech and Idaho, the issuance of Common Shares
hereunder and (ii) reflecting after the Closing that the Sellers are no longer
partners of the Limited Partnership.
15.13 No Partnership or Third Party Beneficiary. This Agreement does
-----------------------------------------
not and shall not be construed to create a partnership, joint venture or any
other relationship between the parties hereto except the relationship of the
Partners and Purchaser specifically established hereby; provided, however, that
nothing herein shall be construed as changing the relationship of the Partners
as partners of the
27
<PAGE>
Limited Partnership. No person or party is intended to be or shall be
construed to be a third party beneficiary of this agreement or any
provision hereof.
15.14 Time of Essence. Time is of the essence with respect to
---------------
every provision hereof.
15.15 Headings. Headings are included herein for convenience of
--------
reference only, and shall in no way be construed to define, alter, or
modify any of the provisions hereof.
IN WITNESS WHEREOF, each Partner and the Purchaser have executed this
Agreement as of the date set forth above.
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/ Thomas F. August
-----------------------------
Name: Thomas F. August
---------------------------
Title: President and COO
--------------------------
Date: 5/17/96
---------------------------
28
<PAGE>
PARTNERS:
--------
PPA:
---
PRENTISS PROPERTY ACQUISITION, L.P.,
a Delaware limited partnership
By: Prentiss Property Acquisition, Inc.,
a Delaware corporation, its general
partner
By: /s/ Thomas F. August
-----------------------------------
Name: Thomas F. August
----------------------------------
Title: President
---------------------------------
Date: May 17, 1996
---------------------------------
EXXON:
-----
The Bank of New York, as Custodian for AEtna Life Insurance
Company under a separate account custody agreement dated as of
August 13, 1986, and as Trustee under a master annuity trust
fund agreement with EXXON CORPORATION, effective as of January
1, 1984
By: /s/ Richard J. Barry
-----------------------------------
Name: Richard J. Barry
----------------------------------
Title: Vice President
---------------------------------
Date: May 23, 1996
---------------------------------
IDAHO:
-----
PUBLIC EMPLOYEE RETIREMENT SYSTEM OF IDAHO
By: /s/ Alan H. Winkle
-----------------------------------
Name: Alan H. Winkle
----------------------------------
Title: Director
---------------------------------
Date: May 21, 1996
---------------------------------
29
<PAGE>
AMERITECH:
---------
By State Street Bank and Trust Company, as Trustee of
AMERITECH PENSION TRUST
By: /s/ S. Hunkeler
------------------------------------
Name: S. Hunkeler
----------------------------------
Title: Vice President
---------------------------------
Date: June 11, 1996
----------------------------------
AMERICAN:
--------
Nationsbank, N.A., as Trustee of THE AMERICAN AIRLINES, INC.
MASTER FIXED BENEFIT TRUST
By: /s/ Stephanie Drake
------------------------------------
Name: Stephanie Drake
----------------------------------
Title: Client Service Officer
---------------------------------
Date: May 20, 1996
----------------------------------
30
<PAGE>
EXHIBIT INDEX
EXHIBIT A - PARTNERS OF THE LIMITED PARTNERSHIP
EXHIBIT B - PROPERTIES
EXHIBIT C - APPRAISAL ENGAGEMENT LETTER
EXHIBIT D - DEBT BALANCES, REPAYMENT SCHEDULE AND PREPAYMENT
PENALTY CALCULATIONS
EXHIBIT E - FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT F - ILLUSTRATIVE EXAMPLES OF PURCHASE PRICE ALLOCATION
EXHIBIT G - IDENTITY OF PARTNERS, OFFICERS AND DIRECTORS
EXHIBIT H - LEGAL OPINIONS
EXHIBIT I - ASSIGNMENT OF INTERESTS AND ASSUMPTION AGREEMENT
EXHIBIT J - REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT A
PARTNERS OF THE LIMITED PARTNERSHIP
<PAGE>
PARTNERS OF THE LIMITED PARTNERSHIP PERCENTAGE INTERESTS
- ----------------------------------- --------------------
PPA:
- ---
1. Prentiss Property Acquisition, L.P., a 2.5000%
Delaware limited partnership
Referred to herein as "PPA"
SELLERS:
- -------
2. The Bank of New York, as Custodian for 39.0%
Aetna Life Insurance Company under a
separate account custody agreement
dated as of August 13, 1986, and as
Trustee under a master annuity trust
fund agreement with EXXON CORPORATION,
effective as of January 1, 1984
Fiduciary address:
5959 Las Colinas Boulevard
Irving, Texas 75039-2296
Attention: J.E. Bayne
Referred to herein as "Exxon"
With a copy to:
Exxon Corporation
5959 Las Colinas Boulevard
Irving, Texas 75039-2296
Attention: Mr. Phil Dranse
3. Public Employee Retirement System of Idaho 24.375%
Statehouse
Boise, Idaho 83720
Attention: Isabelle Fowler
Referred to herein as "Idaho"
4. AMERITECH PENSION TRUST 24.375%
State Street Bank and Trust
Company as Trustee
111 W. Monroe Street
Chicago, Illinois 60603
Attention: Mr. John A. Roberts, Jr.
Referred to herein as "Ameritech"
(i)
<PAGE>
5. The American Airlines, Inc. Master 9.75%
Fixed Benefit Trust
Nationsbank, Trustee
1201 Main Street
32nd Floor
P.O. Box 832222
Dallas, Texas 75283-2222
Attention: Melissa Kirtley
Referred to herein as "American"
(ii)
<PAGE>
EXHIBIT B
PROPERTIES
<PAGE>
========================================================
Property Name Location
--------------------------------------------------------
Cumberland Office Park Atlanta
--------------------------------------------------------
5307 East Mockingbird Dallas
--------------------------------------------------------
Walnut Glen Tower Dallas
--------------------------------------------------------
8521 Leesburg Pike Tysons Corner
--------------------------------------------------------
Kansas City Industrial Kansas City
--------------------------------------------------------
Dallas Industrial Portfolio Dallas
--------------------------------------------------------
Milwaukee Industrial Park Milwaukee
--------------------------------------------------------
Baltimore Industrial Baltimore
========================================================
(i)
<PAGE>
EXHIBIT C
APPRAISAL ENGAGEMENT LETTER
<PAGE>
EXHIBIT D
DEBT BALANCES, REPAYMENT SCHEDULE
AND PREPAYMENT PENALTY CALCULATIONS
<PAGE>
<TABLE>
<CAPTION>
A. Description of PPAP Debt
- -----------------------------------------------------------------------------------------------------
Interest
Principal Rate
Original as per Maturity Monthly
Face Value of 4/30/96 Annum Date Payment
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Leesburg* 5,200,000 5,096,758 8.50% 9/1/99 41,872
Kansas City (KC) 9,500,000 9,500,000 8.75% 7/1/99 69,271
Milwaukee 10,323,479 10,323,479 8.125% 5/1/00 69,899
Dallas/KC (Dallas) 6,900,000 6,900,000 8.30% 10/1/01 47,725
Walnut Green (WG)* 15,000,000 14,518,902 7.50% 1/31/01 110,849
---------- ---------- -------
Total* 46,923,479 46,339,139 339,616
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Principal values at the Closing Date will be determined by the amortization
schedules of the loans.
B. Methodology for Calculation of Prepayment Penalties
Leesburg has no prepayment penalty.
Prepayment Penalties
The Prepayment Penalty for each of KC, Milwaukee, and Dallas is the greater of
1% of the outstanding principal balance as of the Closing Date, or a Present
Value Penalty as defined below. The Prepayment Penalty for WG is the greater of
1% of the outstanding principal balance as of the Closing Date multiplied by the
quotient of the number of full and partial months remaining to the scheduled
maturity date, divided by the number of full and partial months of the original
maturity of the note, or a Present Value Penalty as defined below.
Present Value Penalty
The Present Value Penalty for each of KC, Milwaukee, and WG is determined by
discounting on a monthly basis all scheduled payments of principal and interest
which would have been due as of the Closing Date for the months remaining up to
and including the scheduled maturity dates, utilizing appropriate Discount Rates
as discussed below, and subtracting from the sums of those discounted payments
the outstanding principal balances being prepaid.
The Present Value Penalty for Dallas is equal to the sum of the Semi-Annual
Difference (SAD) multiplied by the Present Value Factor (PVF) plus $1,000. The
SAD is equal to the product of the Semi-Annual Yield Differential (SAYD)
multiplied by the outstanding principal balance on
(i)
<PAGE>
the Closing Date divided by two. The SAYD is equal to the difference between the
Bond Equivalent Rate (BER) and the Discount Rate. In the event such difference
is zero or less, the SAYD shall be deemed to be zero. The BER is computed as
follows:
2*[(1 + (Loan Interest Rate/12))6 - 1]
The PVF is computed as follows:
[1/i] - [1/(i(1+i)n)]
For the purpose of computing the PVF:
i) "i" is equal to one-half of the Discount Rate; and
ii) "n" is equal to the number of months left to the maturity of the Note
divided by six (rounded up to the nearest whole number).
Discount Rates
The Discount Rates to be applied in the KC and Milwaukee calculations are the
rates of the individual U.S. Treasury Bill/Note/Bond each having a maturity date
closest to the scheduled maturity date of the notes, as reported in the Wall
Street Journal on the fifth business day preceding the Closing Date, plus one
hundred basis points, and converted to a monthly equivalent yield by dividing
the annualized rate by 12. The Discount Rate to be applied in the WG
calculation is determined the same way as for KC and Milwaukee except that there
is not a one hundred basis point addition on top of the Treasury yield. The
---
Discount Rate to be applied in the Dallas calculation is determined the same way
as for KC and Milwaukee except that the rate remains as an annual rate and is
not converted to a monthly rate by dividing by 12 (the one hundred basis points
- ---
are still added on).
<PAGE>
C. Examples
Examples of Prepayment Penalty Calculation for KC Debt at 9/30/96 (same
methodology applies for Milwaukee and a similar methodology applies to WG with
the specific exceptions to formulas as noted above taken into account):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Monthly Present
Remaining Treasury Discount Discount Value of
Date Payments Rate Rate Rate Payment
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/1/96 69,271 6.26% 7.26% 0.605% 69,271
11/1/96 69,271 6.26% 7.26% 0.605% 68,854
-- -- -- -- -- --
6/1/99 69,271 6.26% 7.26% 0.605% 57,116
7/1/99 9,569,271 6.26% 7.26% 0.605% 7,842,751
---------- ---------
Total 11,855,208 9,921,891
Principal Prepaid 9,500,000
---------
Present Value Penalty 421,891
1% of Principal Prepaid 95,000
---------
Prepayment Penalty (Max of previous two lines) 421,891
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Example of Prepayment Penalty Calculation for Dallas Debt at 9/30/96:
-----------------------------------------------------------------------------------------------
Line
Reference Calculation of Formula Value
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) Loan Interest Rate per contract 8.30%
(2) BER per formula 8.44%
(3) Discount Rate Treasury + 1% 7.44%
---------
(4) SAYD (2) - (3) 1.00%
(5) Outstanding Principal per contract 6,900,000
---------
(6) SAD (4)*(5)/2 34,500
(7) Months Left to Maturity per contract 60
(8) PVF per formula 8.2241
---------
(9) Present Value Penalty (6)*(8) + 1,000 284,731
(10) 1% of Principal Prepaid .01*(5) 69,000
---------
(11) Prepayment Penalty Max of (9) and (10) 284,731
--------------------------------------------------------------------------------------
</TABLE>
(iii)
<PAGE>
EXHIBIT E
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
<PAGE>
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, made as of the ___ day of 1996
("Agreement"), between ____________________, a __________________ ("Assignor"),
and _______________________, a ________________________ ("Assignee"), recites
and provides as follows:
A. A Purchase Agreement, dated May __, 1996 (the "Purchase Agreement"), has
been executed between Prentiss Properties Limited, Inc., a Delaware corporation
("PPL"), and the partners of Prentiss Properties Acquisition Partners, L.P., a
Delaware limited partnership (collectively, "Partners").
B. The Purchase Agreement permits Assignor to assign its interest in the
Purchase Agreement, subject to the terms thereof.
C. The Assignor has agreed to assign its interests in the Purchase Agreement
to Assignee, and the Assignee has agreed to accept such assignment and assume
the Assignee's obligations under the Purchase Agreement, on the terms and
conditions set forth therein and herein.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration the receipt and sufficiency of which
is hereby acknowledge, it is agreed as follows
1. Assignor hereby transfers, grants, bargains, sells, conveys, assigns
and delivers to Assignee, and Assignee hereby accepts and assumes, all of
Assignor's rights, interests and obligations in, to and under the Purchase
Agreement.
2. Assignee hereby makes, for the benefit of each of the Partners, each of
the representations and warranties set forth in paragraph 5 of the Purchase
Agreement, which are incorporated herein by reference as if set forth in full,
except as follows: __________________________ [modifications may include only
those necessary to reflect accurately the form and domicile of Assignee and the
execution of this Agreement]
3. Assignee agrees to assume, perform and be bound by each and every term,
covenant, and condition of the Purchase Agreement applicable to PPL as if the
Assignee were named in addition to PPL in each instance.
4. As provided in the Purchase Agreement, this Agreement does not release,
or novate any duty, obligation or liability of PPL under the Purchase Agreement,
and PPL remains directly and primarily responsible therefor in addition to
Assignee.
5. Assignor and Assignee have jointly provided each Partner with notice
and a copy of this Agreement.
(i)
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have executed this
Agreement as of the date first written above.
ASSIGNOR:
______________________
______________________
ASSIGNEE:
______________________
______________________
(ii)
<PAGE>
EXHIBIT F
ILLUSTRATIVE EXAMPLE OF PURCHASE PRICE ALLOCATION
<PAGE>
EXHIBIT G
IDENTITY OF PARTNERS, OFFICERS AND DIRECTORS
<PAGE>
PRENTISS PROPERTY ACQUISITION, L.P.
General Partner:
- ---------------
Prentiss Property Acquisition, Inc.
Limited Partners:
- ----------------
Class A:
Michael V. Prentiss
Prentiss Credit Shelter (MVP) Trust, Dennis J. DuBois,
Trustee
Class B:
Michael V. Prentiss
Thomas F. August
Dennis J. DuBois
<PAGE>
EXHIBIT H
LEGAL OPINION
<PAGE>
1996
----------- --
The Exxon Annuity Trust
Public Employee Retirement System of Idaho
Ameritech Pension Trust
The American Airlines, Inc. Master
Fixed Benefit Trust
c/o The Exxon Annuity Trust
5959 Las Colinas Boulevard
Irving, Texas 75039-2296
Attention: Mr. Phil Dranse
Sale of Partnership Interests by PPAP Partners
----------------------------------------------
Gentlemen:
We have acted as counsel for , Inc., a
------------------------------
(the "Company"), in connection with the Company's acquisition
- -----------------
of the partnership interests of The Exxon Annuity Trust, Public Employee
Retirement System of Idaho, Ameritech Pension Trust and The American Airlines,
Inc. Master Fixed Benefit Trust (collectively, the "Sellers") in Prentiss
Properties Acquisition Partners, L.P., a Delaware limited partnership (the
"Partnership"), under the Purchase Agreement, dated as of April __, 1996 (the
"Purchase Agreement"), among the Sellers, Prentiss Property Acquisition, L.P., a
Delaware limited partnership ("PPA"), and Prentiss Properties Limited, Inc., a
Delaware corporation ("PPL").
The Company has succeeded to the rights of PPL under the Purchase
Agreement. We understand that the Company intends to (a) conduct an initial
public offering of its Common Shares and (b) fund the purchase of the Sellers'
partnership interests in the Partnership under the Purchase Agreement in part
with issuances of common shares of the Company ("Shares") and in part with cash
proceeds from the initial public offering.
Our opinion is being delivered at the Company's request pursuant to
paragraph 6(b)(iii) of the Purchase Agreement.
In this connection, we have examined:
(i)
<PAGE>
The Exxon Annuity Trust
Public Employee Retirement System of Idaho
Ameritech Pension Trust
The American Airlines, Inc. Master
Fixed Benefit Trust
, 1996
- ------------- ----
Page
----
(1) The Purchase Agreement;
(2) The Certificate of Limited Partnership of the Partnership on file
in the Office of the Secretary of State of the State of Delaware,
certified by the Office of the Secretary of State of the State of
Delaware;
(3) Signed copies of
a. the Amended and Restated Agreement of Limited Partnership of
the Partnership, dated as of July 13, 1990;
b. the First Amendment to Amended and Restated Agreement of
Limited Partnership of the Partnership, dated as of July 13,
1990; and
c. the Second Amendment to Amended and Restated Agreement of
Limited Partnership of the Partnership dated January 11, 1991;
d. the Third Amendment to Amended and Restated Agreement of
Limited Partnership of the Partnership dated May 20, 1993;
The four documents described above are herein collectively referred
to as the "Partnership Agreement."
(4) copies of the Company's [organizational documents most recently
filed with the appropriate authority in the jurisdiction of
domicile], certified by the [authority];
(5) a copy of the Company's Bylaws, certified by [a senior executive
officer] of the Company;
(6) The Certificate of Limited Partnership of PPA on file in the Office
of the Secretary of State of the State of Delaware, certified by
the Office of the Secretary of State of the State of Delaware;
(ii)
<PAGE>
The Exxon Annuity Trust
Public Employee Retirement System of Idaho
Ameritech Pension Trust
The American Airlines, Inc. Master
Fixed Benefit Trust
, 1996
- -------------------
Page
----
(7) A signed copy of the [Partnership Agreement] of PPA, dated as of
, 199 ;
------------- --
(8) The Certificate of Incorporation of Prentiss Properties
Acquisition, Inc., a Delaware corporation (the "PPA General
Partner"), on file in the Office of the Secretary of State of the
State of Delaware, certified by the Office of the Secretary of
State of the State of Delaware; and
(9) a copy of the Bylaws of the PPA General Partner, certified by [a
senior executive officer] of the PPA General Partner.
We also have reviewed the corporate and partnership proceedings of the
Company, the Partnership, PPA and the PPA General Partner, and such other
records and documents as we have considered necessary for the purposes of this
opinion.
For purposes of the opinions expressed below, we have assumed the (i)
authenticity of all documents submitted to us as originals, (ii) conformity to
the originals of all documents submitted as photostatic copies and the
authenticity of the originals, (iii) due authorization, execution and delivery
of all documents by all parties and the validity and binding effect thereof
(other than the authorization, execution and delivery of documents by the
Company and the validity and binding effect thereof on the Company), and (iv)
the genuineness of all signatures.
As to factual matters, we have relied on representations included in
the Purchase Agreement [and other agreements or instruments executed by the
parties, if any], on the certificates of officers of the Company and the PPA
General Partner attached as Exhibit A and on certificates of public officials.
---------
Based on the foregoing and such other information and documents as we
have considered necessary for the purposes hereof, we are of the opinion that:
(iii)
<PAGE>
The Exxon Annuity Trust
Public Employee Retirement System of Idaho
Ameritech Pension Trust
The American Airlines, Inc. Master
Fixed Benefit Trust
, 1996
- -------------------
Page
----
(i) all conditions and requirements under the Purchase Agreement and
Partnership Agreement with respect to the transfer of each Seller's
partnership interest in the Partnership under the Purchase Agreement have
been satisfied;
(ii) the sale of each Seller's partnership interest in the
Partnership under the Purchase Agreement is exempt from the registration
requirements of the Securities Act of 1933, as amended; and
(iii) the sale of each Seller's partnership interest in the
Partnership under the Purchase Agreement is exempt from the registration
requirements of the State of Texas.
In rendering the opinions in paragraph (ii) and (iii), we have assumed
that the Sellers' have offered their respective partnership interests in the
Partnership only to the Company.
With respect to the matters set forth in paragraph (i) above, we have
relied solely upon the Delaware Revised Limited Partnership Act and the Delaware
General Business Law. The opinion in paragraph (iii) above is based upon an
examination of the statutes and regulations of the State of Texas in the latest
unofficial compilations. The opinion is subject to the broad discretionary
powers of securities commissioners or other authorized officials to, among other
things, withdraw or deny the exempt status accorded by statute to particular
classes of securities or transactions, to impose additional requirements, to
require additional information, and to issue stop orders or to deny, withdraw,
revoke or suspend permits or registrations where such have been granted.
Our opinion is rendered as of the date hereof and we do not undertake
to advise you of any changes in the opinions expressed herein from matters that
may hereafter arise or be brought to our attention.
No one but the Sellers is entitled to rely on this opinion without our
prior written consent.
Very truly yours,
(iv)
<PAGE>
07652/02151
(v)
<PAGE>
EXHIBIT A-1
Officer's Certificate
The undersigned, , of
------------- ------------
, a corporation (the "Company"),
- ---------------------------------- --------
hereby certifies to Hunton & Williams that he has been duly elected, qualified
and is acting in such capacity and that, as such, he is familiar with the facts
herein certified and is duly authorized to certify the same, and hereby further
certifies, that
1. Attached as Exhibit A is true and correct copy of the Bylaws of
---------
the Company as in full force and effect on the date hereof, and no amendment or
other modification affecting such Bylaws has been authorized or executed other
than as shown in such Exhibit A.
---------
2. Attached as Exhibit B are resolutions of the Board of Directors of
---------
the Company ("Resolutions") adopted on , 1996 authorizing the
--------- ---
Company to (i) execute and deliver an Assignment of Interest and Assumption
Agreement between the Company and Prentiss Properties Limited, Inc., a Delaware
corporation ("PPL"), relating to the Purchase Agreement, dated as of April ,
--
1996 (the "Purchase Agreement"), among The Exxon Annuity Trust, Public Employee
Retirement System of Idaho, Ameritech Pension Trust and The American Airlines,
Inc. Master Fixed Benefit Trust (collectively, "Sellers"), PPA and PPL and
(ii) thereafter perform PPL's obligations under the Purchase Agreement.
3. The Resolutions were duly approved by each of the directors of the
Company in accordance with Delaware law and the Articles of Incorporation and
Bylaws of the Company. The Resolutions have not been repealed or amended and
are in full force and effect. Each person approving the Resolutions was, and at
all times since the date of the Resolutions has been, a duly elected and
incumbent member of the Board of Directors.
4. The Company is acquiring the interests of the Sellers in the
Partnership under the Purchase Agreement for investment purposes only and not
with a view toward distribution.
5. The Company is, or at the time of the Closing under the Purchase
Agreement will be, an "accredited investor" as defined Regulation D promulgated
under the Securities Act of 1933, as amended.
(i)
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto set his hand in the
capacities set forth above as of the day of 1996.
----- ---------
By:
----------------------
(ii)
<PAGE>
EXHIBIT A-2
Officer's Certificate
The undersigned, , of Prentiss Properties
------------- ------------
Acquisition, Inc., a Delaware corporation (the "Company"), hereby certifies to
Hunton & Williams that he has been duly elected, qualified and is acting in such
capacity and that, as such, he is familiar with the facts herein certified and
is duly authorized to certify the same, and hereby further certifies, that
1. The Company is the sole general partner of Prentiss Property
Acquisition, L.P., a Delaware limited partnership ("PPA").
2. PPA is the sole general partner of Prentiss Properties Acquisition
Partners, L.P., a Delaware limited partnership (the "Partnership").
3. Attached as Exhibit A is true and correct copy of the Bylaws of
---------
the Company as in full force and effect on the date hereof, and no amendment or
other modification affecting such Bylaws has been authorized or executed other
than as shown in such Exhibit A.
---------
4. Attached as Exhibit B is a complete and correct copy of the
---------
actions taken by written consent ("Consent") of the Board of Directors of the
Company dated April , 1996 authorizing PPA to (i) execute and deliver and
---
perform its obligations under the Purchase Agreement, dated as of April , 1996
---
(the "Purchase Agreement"), among The Exxon Annuity Trust, Public Employee
Retirement System of Idaho, Ameritech Pension Trust and The American Airlines,
Inc. Master Fixed Benefit Trust, PPA, and Prentiss Properties Limited, Inc., a
Delaware corporation and (ii) consent to the transfer of the Sellers' interests
in Prentiss Properties Acquisition Partners, L.P., a Delaware limited
partnership under the Purchase Agreement and take all action necessary to
further evidence such consent.
5. The resolutions adopted in the Consent were duly adopted and the
Consent was duly executed by each of the directors of the Company, all in
accordance with Delaware law and the Articles of Incorporation and Bylaws of the
Company. The resolutions adopted in the Consent have not been repealed or
amended and are in full force and effect. Each person executing the Consent
was, and at all times since the date of the Consent has been, a duly elected and
incumbent member of the Board of Directors.
(i)
<PAGE>
6. Attached hereto as Exhibit C are complete and correct copies of
---------
the
a. the Amended and Restated Agreement of Limited Partnership of the
Partnership, dated as of July 13, 1990;
b. the First Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership, dated as of July 13, 1990; and
c. the Second Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated January 11, 1991; and
d. the Third Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated May 20, 1993;
IN WITNESS WHEREOF, the undersigned has hereunto set his hand in the
capacities set forth above as of the day of 1996.
----- ---------
By:
----------------------
(ii)
<PAGE>
EXHIBIT I
ASSIGNMENT OF INTEREST AND ASSUMPTION AGREEMENT
(iii)
<PAGE>
ASSIGNMENT OF INTEREST AND ASSUMPTION AGREEMENT
-----------------------------------------------
THIS ASSIGNMENT made as of the day of , 1996, by and
----- ------------
between ("Assignor"), and Prentiss Properties Limited,
--------------------
Inc., a Delaware corporation ("Assignee") provides:
THAT Assignor, for and in consideration of the payment by Assignee of
$10.00 to Assignor and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, does hereby sell, transfer,
assign, convey and deliver to Assignee, and Assignee hereby accepts and assumes
all of Assignor's right, title and interest in and to the limited partnership
interest (the "Interest") in Prentiss Properties Acquisition Partners, L.P., a
Delaware limited partnership (the "Partnership"), which is presently registered
in the name of Assignor pursuant to that certain Amended and Restated Agreement
of Limited Partnership dated as of July 13, 1990, as amended by the First,
Second and Third Amendments to Amended and Restated Agreement of Limited
Partnership, dated as of July 13, 1990, January 11, 1991 and May 20, 1993,
respectively, (as amended, the "Partnership Agreement").
Assignor hereby certifies that the representations and warranties made
by Assignor in paragraph 4 of the Purchase Agreement, dated May ___, 1996, among
Assignor and certain other parties (the "Purchase Agreement"), subject to any
modifications made pursuant to paragraph 6(a)(ii)(B) of the Purchase Agreement,
are true and correct in all material respects as of the date hereof with the
same force and effect as though such representations and warranties had been
made at and as of the date of this Assignment, and shall survive the Closing as
set forth in Section 9 of the Purchase Agreement.
Assignee hereby certifies that the representations and warranties made
by Assignee in paragraph 5 of the Purchase Agreement, dated May ___, 1996, among
Assignor, Prentiss Properties Limited, Inc. and certain other parties (the
"Purchase Agreement"), are true and correct in all material respects as of the
date hereof with the same force and effect as though such representations and
warranties had been made at and as of the date of this Assignment, and shall
survive the Closing as set forth in Section 9 of the Purchase Agreement.
Assignee hereby certifies that it has complied with all agreements,
satisfied all conditions and performed all obligations which were required on
its part to be complied with, satisfied or performed at or prior to the date
hereof under the terms of the Purchase Agreement.
(i)
<PAGE>
Effective upon the execution and delivery of this Assignment, Assignor
hereby ceases to be a partner of the Partnership and Assignee hereby accepts the
assignment of the Interest and any and all liabilities and obligations
associated therewith.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment
of Interest and Assumption Agreement to be executed by their authorized
representatives, all as of the day and year first above written.
ASSIGNOR:
--------
------------------------------
------------------------------
By:
--------------------------
Title:
-----------------------
ASSIGNEE:
--------
------------------------------
------------------------------
By:
--------------------------
Title:
-----------------------
The undersigned hereby acknowledges on behalf of the Partnership that
Assignor has ceased to be a partner of the Partnership as of the effective date
of this Assignment and approves the admission of Assignee as a partner of the
Partnership in place of Assignor.
Prentiss Property Acquisition, L.P.,
sole general partner of Prentiss
Property Acquisition Partners, L.P.
By: Prentiss Property Acquisition,
Inc., its sole general partner
By:
-------------------------
Its:
(ii)
<PAGE>
EXHIBIT J
REGISTRATION RIGHTS AGREEMENT
(iii)
<PAGE>
REGISTRATION RIGHTS
REGISTRATION RIGHTS AGREEMENT, dated as of , 1996 between PPL
REIT, a (the "Company") and [American Airlines, Inc. Master
Fixed Benefit Trust] [Ameritech Pension Trust] [Public Employee Retirement
System of Idaho].
This Agreement is made pursuant to the Purchase Agreement dated of
even date herewith (the "Purchase Agreement") by and among the Company, the
Investor and the other partners of Prentiss Properties Acquisition Partners,
L.P. (the "Limited Partnership") identified therein. In order to induce the
Investor to exchange its interest in the Limited Partnership, the Company has
agreed to provide the registration rights set forth in this Agreement to the
Investor.
References herein to rules, regulations and forms promulgated by the
Securities and Exchange Commission (the "Commission") shall include rules,
regulations and forms succeeding to the functions thereof, whether or not
bearing the same designation.
1. Definitions. The following terms, as used herein, have the
-----------
following meanings (all terms defined herein in the singular to have the
correlative meanings when used in the plural and vice versa):
"Affiliate" means (i) when used with reference to any partnership, any
Person that, directly or indirectly, owns or controls 10% or more of either the
capital or profit interests of such partnership or is a partner of such
partnership or is a Person in which such partnership has a 10% or greater direct
or indirect equity interest and (ii) when used with reference to any
corporation, any Person that, directly or indirectly owns or controls 10% or
more of the outstanding voting securities of such corporation or is a person in
which such corporation has a 10% or greater direct or indirect equity interest.
In addition, the term "Affiliate," when used with reference to any Person, shall
also mean any other Person that, direct or indirectly, controls or is controlled
by or is under common control with such Person. As used in the preceding
sentence, (A) the term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
the entity referred to, whether through ownership of voting securities, by
contract or otherwise and (B) the terms "controlling" and "controls" shall have
meanings correlative to the foregoing. Notwithstanding the foregoing, the
Company will be deemed not to be an Affiliate of American, Ameritech or Idaho.
(i)
<PAGE>
"Agreement" means this Registration Rights Agreement, as the same
shall be amended, modified or supplemented from time to time.
"American" means American Airlines, Inc. Master Fixed Benefit Trust.
"Ameritech" means Ameritech Pension Trust.
"Closing" means the consummation of the Company's initial public
offering of Company Common Shares.
"Commercially Reasonable Efforts" means, when used with respect to any
obligation to be performed or term or provision to be observed hereunder, such
efforts as a prudent Person seeking the benefits of such performance or action
would make, use, apply or exercise to preserve, protect or advance its rights or
interests, provided, that such efforts do not require such Person to incur a
material financial cost or a substantial risk of material liability unless such
cost or liability (i) would customarily be incurred in the course of performance
or observance of the relevant obligation, term or provision, (ii) is caused or
would be caused by or results from the wrongful act or negligence of the Person
whose performance or observance is required hereunder or (iii) is not or would
not be excessive or unreasonable in view of the rights or interests to be
preserved, protected or advanced. Such efforts may include, without limitation,
the expenditure of such funds and retention by such Person of such accountants,
attorneys or other experts or advisors as may be necessary or appropriate to
effect the relevant action; the undertaking of any special audit or internal
investigation that may be necessary or appropriate to effect the relevant
action; and the commencement, termination or settlement of any action, suit or
proceeding involving such Person to the extent necessary or appropriate to
effect the relevant action.
"Commission" means the Securities and Exchange Commission.
"Company Common Shares" means the Common [shares of beneficial
interest] of [PPL REIT].
"Eligible Holders" means any of American, Ameritech or Idaho for as
long as each may retain respective rights under this Agreement.
"Idaho" means Public Employee Retirement System of Idaho.
"Registrable Shares" shall mean all shares of the Company Common
Shares issued to the Investor or any other
(ii)
<PAGE>
Eligible Holder pursuant to the Purchase Agreement dated May , 1996, between the
Company and the partners of Prentiss Properties Acquisition Partners, L.P., a
Delaware limited partnership.
"Lockup Period" shall mean 365-day period from the closing date of
the Company's initial public offering of Common Shares.
"Material Adverse Change" means (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities exchange
or in the over-the-counter market in the United States of America, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States of America, (iii) the commencement of a war, armed
hostilities or other international or national calamity involving the United
States of America, (iv) any limitation (whether or not mandatory) by any
governmental authority on, or any other event which materially affects the
extension of credit by banks or other financial institutions, (v) any material
adverse change in the Company's business, condition (financial or otherwise) or
prospects or (vi) a 15% or more decline in the Dow Jones Industrial average or
the Standard and Poor's Index of 400 Industrial Companies, in each case from the
date a Notice of Demand is made.
"Person" means a natural person, a corporation, a partnership, a
trust, a joint venture, any regulatory authority or any other entity or
organization.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
(i) all registration, filing, securities exchange listing and National
Association of Securities Dealers fees, (ii) all registration, filing,
qualification and other fees and expenses of complying with securities or blue
sky laws of all jurisdictions in which the securities are to be registered and
any legal fees and expenses incurred in connection with the blue sky
qualifications of Registrable Shares and the determination of their eligibility
for investment under the laws of all such jurisdictions, (iii) all word
processing, duplicating, printing, messenger and delivery expenses incurred by
the Company, (iv) the fees and disbursements of counsel for the Company and of
its independent public accountants, (v) any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities (but excluding
underwriting discounts and commissions and transfer taxes, if any, relating to
Registrable Shares being registered) and fees and expenses of other persons
retained or employed by the Company.
2. Shelf Registration. The Company agrees to file with the
------------------
Commission a shelf registration statement under Rule 415 of
(iii)
<PAGE>
the Securities Act of 1933, as amended (the "1933 Act"), with respect to the
resale by the Eligible Holders of all of their Registrable Shares ("Shelf
Registration"). The Company will use its best efforts to have the Shelf
Registration declared effective under the Securities Act no later than the first
anniversary of the Closing to permit resales in accordance with the method or
methods of disposition specified by the Eligible Holders to the Company in
writing, including but not limited to open market transactions and block
transfers, and to keep the Shelf Registration (or a successor shelf registration
statement) continuously effective until the earlier of (i) the date when all of
the Registrable Shares covered thereby are sold or (ii) the date on which all of
the holders, pursuant to Rule 144(k) under the Securities Act, may sell the
Registrable Shares without registration under the Securities Act (the
"Registration Period"). The Company shall supplement or make amendments to the
Shelf Registration, if required by the 1933 Act or the rules or regulations
promulgated thereunder.
3. Piggyback Registration.
----------------------
3.1 Notice. Subject to any limitations set forth herein, if at any
------
time after the Lockup Period the Company proposes to register any of the Company
Common Shares under the 1933 Act in connection with the public offering of such
securities solely for cash on a form that would also permit the registration of
the Registrable Shares, the Company shall, each such time, promptly give
Investor written notice of such determination. Upon the written request of
Investor, given within 10 days after mailing of any such notice by the Company,
the Company shall use its best efforts to cause to be registered under the 1933
Act and sold in the public offering all of the Registrable Shares that Investor
and any other Eligible Holder have requested be registered.
3.2 Priority in Piggyback Registrations. If (i) a registration
-----------------------------------
pursuant to this Section 3 involves an underwritten offering of the securities
being registered, whether or not for sale for the account of the Company, to be
distributed (on a firm commitment basis) by or through one or more underwriters
of nationally recognized standing under underwriting terms customary for such a
transaction and (ii) the managing underwriter of such underwritten offering
shall inform the Company and the Investor and any other participating Eligible
Holder of its belief that in its opinion the amount of securities requested to
be included in such registration exceeds the amount which can be sold in (or
during the time of) the offering within a price range acceptable to the Company,
then the Company shall include in such registration such amount of securities
which the Company is so advised can be sold in (or during the time of) such
offering at such price range as follows: first, all securities proposed by the
Company to be sold for its own account; and second, such
(iv)
<PAGE>
Registrable Shares requested to be included in such registration
by Investor (or its transferees or any other Eligible Holder or its
transferees or any of their respective Affiliates pro rata on the basis of the
amount of such securities so requested to be included in such registration
statement by such parties.
3.3 Obligations of the Company. Whenever required under Section 3
---------------------------
of this Agreement to effect the registration of any Registrable Shares, the
Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Shares and use Commercially Reasonable
Efforts to cause such registration statement to become and remain effective
for the earlier of three (3) months or the completion of the distribution
of the securities covered by such registration statement.
(b) prepare and file with the Commission such amendments,
supplements, exhibits to and other materials incorporated by reference into
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the 1933 Act with respect to the disposition of all securities covered by
such registration statement;
(c) furnish to the holders of Registrable Shares such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Stock owned by them; and
(d) use Commercially Reasonable Efforts to register and qualify
the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
appropriate for the distribution of the securities covered by the
registration statement, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, and further provided that if any jurisdiction in which the
securities shall be qualified shall require that expenses incurred in
connection with the qualification of the securities in that jurisdiction be
borne by selling shareholders, then such expenses shall be payable by
selling shareholders pro rata, to the extent required by such jurisdiction.
(v)
<PAGE>
(e) use Commercially Reasonable Efforts to list the Registrable
Securities on each national securities exchange or quotation system on
which the Common Stock is then listed, if the listing of such securities is
then permitted under the rules of such exchange or quotation system;
(f) (i) furnish to the Investor a reliance letter of counsel for
the Company, permitting the Investor to rely on the opinion of such counsel
given to the underwriters pursuant to the underwriting agreement executed
in connection with the registration of the Registrable Securities (or, in
lieu of a reliance letter, such opinion of counsel addressed to the
Investor), and (ii) upon the Investor's request, use all reasonable efforts
to furnish the Investor with a "comfort letter" signed by the Company's
independent public accountants covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) as are being furnished to the underwriters pursuant to the
underwriting agreement executed in connection with the registration of the
Registrable Securities; and
(g) notify the Investor immediately upon the happening of any
event as a result of which a prospectus included in a registration
statement, relating to a registration pursuant to Article 2 or 3 hereof, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, and at the request of the Investor prepare and
furnish to the Investor as many copies of a supplement to or an amendment
of such prospectus as the Investor reasonably request so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
4. Investor's obligation to furnish information. It shall be a condition
---------------------------------------------
precedent to the obligations of the Company to take any action pursuant to this
Agreement that the Investor shall furnish to the Company such information
regarding it and the Registrable Shares held by it and, with respect to the
registration described in Section 2, the intended method of disposition of such
securities as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company.
5. Registration Terms and Procedures.
----------------------------------
(vi)
<PAGE>
5.1 Registration Expenses. The Company will pay all Registration Expenses
---------------------
incurred in connection with a registration of Registrable Shares to be effected
hereunder.
5.2 Withdrawal. Investors or any other Eligible Holder participating in a
----------
registration pursuant to this Agreement shall be permitted to withdraw all or
part of its Registrable Shares from such registration at any time prior to the
effective date of the registration statement covering such securities.
6. Underwriting Requirements. The Company shall not be required to
--------------------------
include any of the Registrable Shares in a registration under Section 3 unless
the Investor accepts the terms of the proposed underwriting, including the
underwriting agreement, as agreed upon between the Company and the underwriters.
7. Delay of Registration. No holders of Registrable Shares shall have
----------------------
any right to take any action to restrain, enjoin or otherwise delay any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of these Registration Rights.
8. Indemnification. In the event any shares of Registrable Shares are
----------------
included in a registration statement under these registration rights,
(a) to the extent permitted by law, the Company will indemnify and hold
harmless Investor or other Eligible Holder requesting or joining in a
registration, against any losses, claims, damages or liabilities, joint or
several, to which they may become subject under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading or arise out of any violation by the Company of any rule or
regulation promulgated under the 1933 Act applicable to the Company and
relating to action or inaction required of the Company in connection with
any such registration; and will reimburse Investor or each Eligible Holder
for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such
(vii)
<PAGE>
settlement is effected by the Investor without the consent of the Company
(which consent shall not be unreasonably withheld) nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in connection with such registration statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by the Investor;
(b) to the extent permitted by law, each Investor and any other
Eligible Holder requesting or joining in a registration will indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls
the Company within the meaning of the 1933 Act and each agent and any
underwriter for the Company (within the meaning of the 1933 Act) against
any losses, claims, damages or liabilities to which the Company or any such
director, officer, controlling person, agent or underwriter may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written
information furnished by such holder expressly for use in connection with
such registration; and each such holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, agent or underwriter in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 8(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
such holder (which consent shall not be unreasonably withheld); and
(c) promptly after receipt by an indemnified party under this paragraph
of notice of the commencement of any
(viii)
<PAGE>
action, such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this paragraph, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not
relieve him of any liability that he may have to any indemnified party
otherwise than under this paragraph.
9. Termination of the Company's Obligations. The Company shall have no
-----------------------------------------
obligations pursuant to Section 3 with respect to any request or requests made
by Investor five years after the Closing.
10. Reports Under Securities Exchange Act of 1934. With a view to making
----------------------------------------------
available to the holders of Registrable Shares the benefits of Rule 144
promulgated under the 1933 Act and any other rule or regulation of the
Commission that may at any time permit a holder to sell securities of the
Company to the public without registration, the Company agrees to use its
Commercially Reasonable Efforts to:
(a) make and keep public information available, as those terms are
understood and used in Rule 144(c)(or any successor rule), at all times
subsequent to 90 days after the effective date of the first registration
statement covering an underwritten public offering filed by the Company;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Securities
Exchange Act of 1934, as amended (the "1934 Act"); and
(c) furnish to any holder so long as such holder owns any of the
Registrable Shares forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule 144
(or any successor rule) (at any time after 90 days after the effective date
of said first registration statement filed by the Company), and of the 1933
Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company
(ix)
<PAGE>
as may be reasonably requested in availing any holder of any rule
or regulation of the Commission permitting the selling of any such
securities without registration.
11. Lockup Agreement. In consideration for the Company agreeing to its
-----------------
obligations under this Agreement, the Investor agrees in connection with any
registration of the Company's securities with respect to which it has piggyback
rights under Section 3, upon the request of the Company or the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any Registrable Shares (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as the Company or the
underwriters may specify.
12. Transfer of Registration Rights. The registration rights of the
--------------------------------
Investor with respect to the Registrable Shares hereunder may be transferred to
any transferee who acquires at least 20% of the then outstanding Registrable
Shares held by Investor; provided, however, that the Company is given written
notice by the Investor at the time of such transfer stating the name and address
of the transferee and identifying the securities with respect to which the
rights under these registration rights are being assigned.
13. Amendments and Waivers. This Agreement may be amended, supplemented
----------------------
or modified at any time; provided that each of (i) the Investor, (ii) all other
Eligible Holders and (iii) the Company has provided its written consent to such
amendment, supplement or modification. Any term or condition of this Agreement
may be waived at any time by the party that is entitled to the benefit thereof,
but no such waiver shall be effective unless set forth in a written instrument
duly executed by or on behalf of the party waiving such term or condition. No
waiver by any party of any term or condition of this Agreement, in any one or
more instances, shall be deemed to be or construed as a waiver of the same term
or condition of this Agreement on any future occasion.
14. Entire Agreement. This Agreement supersedes all prior discussions and
----------------
agreements between the parties with respect to the subject matter hereof and
contains the sole and entire agreement between the parties hereto with respect
to the subject matter hereof.
15. Nominees for Beneficial Owners. In the event that any Registrable
------------------------------
Shares is held by a nominee for the beneficial owner thereof, the beneficial
owner thereof may, at its election, be treated as the holder of such Registrable
Shares for purposes of
(x)
<PAGE>
any request or other action by any Eligible Holder pursuant to this Agreement or
any determination of any amount of shares of Registrable Shares held by any
Eligible Holder of Registrable Shares contemplated by this Agreement. If the
beneficial owner of any Registrable Shares so elects, the Company may require
assurances reasonably satisfactory to it of such owner's beneficial ownership of
such Registrable Shares. For purposes of this Agreement, "beneficial ownership"
and "beneficial owner" refer to beneficial ownership as defined in Rule 13d-3
without regard to the 60-day provision in paragraph (d)(1)(i) thereof) under the
1934 Act.
16. Notices. All notices, requests and other communications hereunder
-------
must be in writing and will be deemed to have been duly given only if (i)
delivered personally, (ii) by facsimile transmission, (iii) by electronic mail
at the electronic addresses, if any, provided below, (iv) by UPS Next Day Air,
Federal Express or other nationally recognized courier service or (v) mailed
(first class postage prepaid) to the parties at the following addresses or
facsimile numbers:
If to the Company, to:
[PPL REIT]
1717 Main Street
Suite 5000
Dallas, Texas 75201
with a copy to:
Hunton & Williams
951 E. Byrd Street
Riverfront Plaza, East Tower
Richmond, Virginia 23219-4074
Attention: Mark A. Murphy, Esq.
If to Investor, to:
____________________________________
____________________________________
____________________________________
____________________________________
and to:
____________________________________
____________________________________
____________________________________
____________________________________
with a copy to:
(xi)
<PAGE>
____________________________________
____________________________________
____________________________________
____________________________________
17. Descriptive Headings. The descriptive headings of the several
--------------------
sections and paragraphs of this Agreement are inserted for convenience of
reference only and do not define or limit the provisions hereof or otherwise
affect the meaning hereof.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
(xii)
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
[PPL REIT]
By: ______________________________
Name:
Title:
[Investor]
By: ______________________________
Name:
Title:
(xiii)
<PAGE>
EXHIBIT 10.17
AGREEMENT OF PURCHASE AND SALE
------------------------------
AND
---
JOINT ESCROW INSTRUCTIONS
-------------------------
DATED: AUGUST 12, 1996
----------------------
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND
JOINT ESCROW INSTRUCTIONS
-------------------------
TABLE OF CONTENTS
-----------------
Page
----
1. Purchase and Sale........................................................ 2
2. Purchase Price........................................................... 2
3. Payment of Purchase Price................................................ 2
4. Escrow................................................................... 3
5. Condition of Title....................................................... 4
6. Title Policy............................................................. 4
7. Conditions to Close of Escrow............................................ 5
8. Deposits by Seller...................................................... 11
9. Deposits by Buyer....................................................... 12
10. Costs and Expenses...................................................... 12
11. Prorations.............................................................. 13
12. Disbursements and Other Actions by Escrow Holder........................ 15
13. Seller's Representations and Warranties................................. 15
14. Leasing Commissions Leases and Tenant Improvements for
Existing Leases and New Leases.......................................... 20
15. Buyer's Covenants, Representations and Warranties....................... 20
16. Buyer's Default; Seller's Remedies...................................... 23
17. Seller's Default; Buyer's Remedies...................................... 24
18. Damage or Condemnation Prior to Closing................................. 26
-i-
<PAGE>
TABLE OF CONTENTS (Continued)
-----------------
19. Notices................................................................. 26
20. Brokers................................................................. 28
21. Legal Fees.............................................................. 28
22. Assignment.............................................................. 28
23. Post Closing Access..................................................... 29
24. Miscellaneous........................................................... 29
EXHIBIT "A" LEGAL DESCRIPTION OF PACIFIC GATEWAY CENTER
EXHIBIT "B" GRANT DEED
EXHIBIT "C" FORM OF ESTOPPEL CERTIFICATE
EXHIBIT "D" FORM OF SELLER'S ESTOPPEL CERTIFICATE
EXHIBIT "E" FORM OF SHELL - HOLD HARMLESS
EXHIBIT "F" SELLER'S CERTIFICATE
EXHIBIT "G" ASSIGNMENT OF LEASE AND ASSUMPTION AGREEMENT
EXHIBIT "H" ASSIGNMENT OF CONTRACTS AND ASSUMPTION AGREEMENT
EXHIBIT "I" BILL OF SALE
EXHIBIT "J" SCHEDULE OF CONTRACTS
-ii-
<PAGE>
AGREEMENT OF PURCHASE AND SALE
------------------------------
AND
---
JOINT ESCROW INSTRUCTIONS
-------------------------
TO Commonwealth Land Title Company Escrow No._________________________
801 N. Grand Boulevard Escrow Officer:____________________
12th Floor Title Order No.____________________
Glendale, California 91203 Title Officer:_____________________
("Escrow Holder")
This AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS (this
"Agreement") is made and entered into as of this 12th day of August, 1996, by
- ----------
and between LAPCO INDUSTRIAL PARKS, a California joint venture ("Seller"), and
------
PRENTISS PROPERTIES LIMITED, INC., a Delaware corporation, with respect to the
following:
R E C I T A L S:
- - - - - - - -
A. Seller is the owner of the following properties (collectively the
"Property"):
- ---------
(1) that certain real property located in the City of Los Angeles,
County of Los Angeles, State of California, located within that certain
industrial park commonly referred to as the "Pacific Gateway Center", and
more particularly described on Exhibit "A" attached hereto (the "Land"),
----------- ----
together with eighteen (18) industrial building(s) located thereon,
containing approximately one million fifty-two thousand seven hundred eight
(1,252,708) square feet of leasable space, associated parking areas and
other improvements located thereon, including, without limitation, all
apparatus, equipment and appliances used in connection with the operation
and occupancy of such buildings, such as heating and air conditioning
systems and facilities used to provide any utility, refrigeration,
ventilation, trash or garbage disposal or other services (the
"Improvements"). Pacific Gateway Center is hereinafter sometimes referred
------------
to as the "Park" or as the "Real Property";
---- -------------
(2) Seller's rights, title and interest to the tangible personal
property, if any (collectively, "Personal Property") located on and used
-----------------
solely in connection with all or any portion of the Real Property
(excluding any personal property located at Seller's offsite management
office, if any);
(3) any and all rights Seller may have to use the name "Pacific
Gateway Center" and any other trade name now used in connection with the
Real Property and any contract or lease rights (including, without
limitation, the lessor's interest in and to all tenant leases, subleases
and tenancies, including all amendments, modifications, agreements,
records, correspondence and other documents affecting in any way a right to
occupy any portion of the improvements (the "Leases"), and Seller's
------
interest in all security deposits and prepaid rent, if any, under the
Leases and any and all guaranties of the Leases, utility contracts and,
-1-
<PAGE>
to
the extent assignable without the consent of third parties, other
agreements, rights and other intangible personal property owned by Seller
and relating to the ownership, use and operation of the Real Property and
Personal Property (collectively, the "Intangible Property"); and
-------------------
(4) all rights, privileges and easements appurtenant to the Real
Property, including, without limitation, all of Seller's right, title and
interest to all minerals, oil, gas and other hydrocarbon substances on and
under the Real Property, as well as all development rights, air rights,
water, water rights, riparian rights and water stock relating to the Real
Property and any rights-of-way or other appurtenances used in connection
with the beneficial use and enjoyment of the Real Property and all of
Seller's rights, title and interest in and to all roads and alleys
adjoining or servicing the Real Property.
B. Seller desires to sell the Property to Buyer and Buyer desires to
purchase the Property from Seller upon the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree that
the terms and conditions of this Agreement and the instructions to Escrow Holder
with regard to the escrow ("Escrow") created pursuant hereto are as follows:
A G R E E M E N T:
- - - - - - - - -
1. Purchase and Sale. Seller agrees to sell the Property to Buyer, and
-----------------
Buyer agrees to purchase the Property from Seller, upon the terms and conditions
herein set forth.
2. Purchase Price. The purchase price ("Purchase Price") for the
--------------
Property shall be Forty-Three Million Seven Hundred Fifty Thousand Dollars
($43,750,000.00).
3. Payment of Purchase Price. The Purchase Price for the Property shall
-------------------------
be paid by Buyer as follows:
(a) Option Consideration. Upon mutual execution of this Agreement
--------------------
Buyer shall pay to Seller in cash the sum of $100.00 (the "Signing Fee").
-----------
Within ten (10) days following the Opening of Escrow (as defined in
Paragraph 4(a) below), Buyer shall deposit, or cause to be deposited with
Escrow Holder, in cash, by certified or bank cashier's check made payable
to Seller, or by a confirmed wire transfer of funds (hereafter referred to
as "Immediately Available Funds"), the sum of Forty-nine Thousand Nine
---------------------------
Hundred Dollars ($49,900.00) (the "Option Consideration"). Upon payment to
--------------------
Seller, the Signing Fee is fully earned by Seller as consideration for
Seller entering into this Agreement. Upon deposit with Escrow Holder, the
Option Consideration is fully earned by Seller as consideration for Seller
granting Buyer the right to review the Property during the "Contingency
Period" (as defined in Paragraph 7(a)(i) below) upon the terms set forth
herein. The Signing Fee and Option Consideration shall be applied to the
Purchase Price upon the "Close of Escrow" (as
-2-
<PAGE>
defined in Paragraph 4(b) below). Notwithstanding the foregoing, if the
Close of Escrow does not occur based on the non-satisfaction of any
condition set forth in this Agreement for Buyer's benefit, Seller agrees
Buyer shall be entitled to a refund of some or all of the Option
Consideration to the extent Buyer has actually incurred and paid for third
party costs and fees (including, without limitation, fees for third party
consultants for legal, environmental and physical) (the "Third Party
-----------
Consultant Fees") in connection with the due diligence Buyer has undertaken
---------------
with respect to the Property. The Third Party Consultant Fees shall not
include any attorneys' fees Buyer has incurred in connection with the
review and negotiation of this Agreement. The refundable portion of the
Option Consideration is hereafter referred to as the "Refundable Option
-----------------
Consideration". The Refundable Option Consideration shall only be returned
-------------
to Buyer upon Seller's receipt of (i) all of the reports, studies and the
like which have been prepared on behalf of Buyer with respect to the
Property, and (ii) copies of the invoices marked paid or other evidence
acceptable to Seller evidencing the Third Party Consultant Fees for which
Buyer is requesting a return of the Option Consideration.
(b) Deposit. Upon the expiration of the Contingency Period, Buyer
-------
shall deposit, or cause to be deposited with Escrow Holder, in Immediately
Available Funds, a second deposit of Five Hundred Thousand Dollars
($500,000.00) (the "Deposit"). Escrow Holder shall place the Deposit in an
-------
interest bearing account which is reasonably acceptable to Buyer and
Seller. The Deposit and the interest accrued thereon shall be applied to
the Purchase Price upon the Close of Escrow and if this Agreement is not
terminated by Buyer prior to the expiration of the Contingency Period
pursuant to Paragraph 7(a)(i) below, the Deposit shall be nonrefundable to
Buyer unless the sale of the Property is not consummated under this
Agreement solely as a result of a default by Seller hereunder.
(c) Closing Funds. At least one (1) business day prior to the Close
-------------
of Escrow, Buyer shall deposit or cause to be deposited with Escrow Holder,
in Immediately Available Funds, the balance of the Purchase Price plus
Escrow Holder's estimate of Buyer's share of closing costs, prorations and
charges payable pursuant to this Agreement.
(d) Failure. Failure of Buyer to timely pay or deposit, as
-------
applicable, the Signing Fee, the Option Consideration or the Deposit shall
result in the automatic termination of this Agreement in which case Seller
may keep the payment or deposit(s) which has (have) been made, and both
Buyer and Seller shall be relieved of all further obligations and
liabilities under this Agreement, except for the Surviving Obligations
defined in Paragraph 7(a) hereof.
4. Escrow.
------
(a) Opening of Escrow. For purposes of this Agreement, the Escrow
-----------------
shall be deemed opened on the date Escrow Holder shall have received a
fully executed original or originally executed counterparts of this
Agreement from Seller and Buyer (the "Opening of Escrow"), and Escrow
-----------------
Holder shall notify Buyer and Seller, in writing, of the date Escrow is
opened. Buyer and Seller agree to execute, deliver and be bound by any
reasonable or customary supplemental escrow instructions of Escrow Holder
or other instruments as may
-3-
<PAGE>
reasonably be required by Escrow Holder in order to consummate the
transaction contemplated by this Agreement. Any such supplemental
instructions shall not conflict with, amend or supersede any portions of
this Agreement. To the extent of any inconsistency between the provisions
of such supplemental instructions and the provisions of this Agreement, the
provisions of this Agreement shall control.
(b) Close of Escrow. For purposes of this Agreement, the "Close of
--------------- --------
Escrow" shall be defined as the date that the grant deed (collectively, the
------
"Grant Deed"), the form of which is attached hereto as Exhibit "B",
---------- -----------
conveying the Property to Buyer, is recorded in the Official Records of Los
Angeles County, California (the "Official Records"). This Escrow shall
----------------
close on or before the close of business on the thirtieth (30th) day
following the expiration of the Contingency Period (the "Closing Date").
------------
5. Condition of Title. It shall be a condition to the Close of Escrow
------------------
for Buyer's benefit that title to the Property shall be conveyed to Buyer by the
Grant Deed subject to the following condition of title ("Approved Condition of
---------------------
Title"):
- -----
(a) a lien to secure payment of general and special real property
taxes and assessments, not delinquent;
(b) the lien of supplemental taxes assessed pursuant to Chapter 3.5
commencing with Section 75 of the California Revenue and Taxation Code;
(c) matters affecting the Condition of Title created by or with the
written consent of Buyer;
(d) all matters which are disclosed by the "Survey" (as defined in
Paragraph 7(a)(ii) below) except for any matters Buyer has disapproved and
Seller has agreed to eliminate or ameliorate by the Closing Date pursuant
to the terms and provisions of Paragraph 7(a)(ii) below;
(e) all exceptions which are disclosed by the "Title Report" described
in Paragraph 7(a)(ii) below which are approved or deemed approved by Buyer
as provided therein;
(f) all matters which would be disclosed by a physical inspection of
the Property; and
(g) all applicable laws, ordinances, rules and governmental
regulations (including, but not limited to, those relative to building,
zoning and land use) affecting the development, use, occupancy or enjoyment
of the Property.
6. Title Policy. Title shall be evidenced by the willingness of Escrow
------------
Holder in its capacity as title insurer ("Title Company") to issue its ALTA
-------------
Owner's Form Policy of Title Insurance ("Title Policy") in the amount of the
------------
Purchase Price showing title to the Property vested
-4-
<PAGE>
in Buyer. The Title Company shall also provide for reinsurance with direct
access with such companies and in such amounts as Buyer shall reasonably
require.
7. Conditions to Close of Escrow.
-----------------------------
(a) Conditions to Buyer's Obligations. Buyer's obligation to
---------------------------------
consummate the transaction contemplated by this Agreement is subject to the
satisfaction of the following conditions for Buyer's benefit (or Buyer's
waiver thereof, it being agreed that Buyer may waive any or all of such
conditions) on or prior to the dates designated below for the satisfaction
of such conditions. In the event Buyer terminates this Agreement and the
Escrow due to the nonsatisfaction of any of such conditions, then Buyer
shall be entitled to the return of the Refundable Option Consideration upon
the terms set forth in Paragraph 3(a) above, plus the Deposit and all
interest accrued thereon, and both Seller and Buyer shall be relieved of
all further obligations and liabilities under this Agreement (except for
the indemnity and insurance obligations of Buyer set forth in Paragraph
7(a)(i)(D) below, which shall survive any such termination (the "Surviving
---------
Obligations").
-----------
(i) Due Diligence Period. Buyer shall have a period (the
--------------------
"Contingency Period" herein) commencing on the date hereof and ending
------------------
upon the expiration of the ninetieth (90th) day thereafter, within
which to conduct inspections and due diligence of the Property in
accordance with the following provisions:
(A) The following terms shall have the following meanings:
(1) "Books and Records" means all financial and other
-----------------
books and records maintained by or for the benefit of Seller
solely in connection with the operation of the Property; all
plans, specifications, blueprints, maps, and surveys of the
Property, or any part thereof; Seller's interest in all licenses
or permits with respect to the Property; Seller's interest in all
warranties or guaranties relating to the Property, or any portion
thereof; the abstract of title, and Seller's interest in the
existing policy of title insurance covering the Property; Seller's
interest in any trade name or logos used in connection with the
Property; and all engineering, soils and geological reports and
other documents prepared in connection with the construction,
maintenance, repair, management or operation of the Property which
are within the possession or control of Seller, or Seller's
affiliates, agents or representatives.
(2) "Equipment Leases" means all leases, rental or other
----------------
agreements for the use of any of the FF&E, together with all
amendments thereto.
-5-
<PAGE>
(3) "FF&E" means all fixtures, furniture, furnishings,
----
equipment, machinery, apparatus, appliances, and other articles of
depreciable personal property now owned or leased by Seller and
located on the Property and used or usable in connection with any
part of the Property, subject to such depletions, and replacements
as shall occur and be made in the normal course of business
excluding, however property owned by tenants, employees or other
persons furnishing goods or services to the Property.
(4) "Permits" means all of Seller's right, title, and
-------
interest in all licenses and permits used or relating to the
ownership or operation of the Property in accordance with its
current use.
(5) "Contracts" means any and all service contracts,
---------
landscaping contracts, maintenance agreements, open purchase
orders and other contracts for the provision of labor, services,
materials or supplies to or for the benefit of the Property,
together with all amendments thereto by and between Seller or its
agents and the vendor providing any of the foregoing services.
(6) "Earthquake Guide" means the "The Commercial
----------------
Property Owner's Guide to Earthquake Safety" written and adopted
by the California Seismic Safety Commission, a copy of which has
been heretofore delivered by Seller to Buyer.
(B) During the Contingency Period, Buyer shall have
reasonable access to the Property, either personally or by
authorized agent, to inspect the Property, including all Books and
Records, Equipment Leases, Service Contracts, Permits, the
Earthquake Guide and the Environmental Reports, as hereinafter
defined.
(C) Such inspections may be conducted at all reasonable
times, so long as such activities do not unreasonably interfere
with the tenants of the Property. Without limiting the foregoing,
Seller will permit Buyer, and Buyer's attorney's, accountants,
engineers, surveyors, consultants, financiers, partners, investors,
lenders and bankers and such other third parties whose assistance
is required in connection with the completion of Buyer's due
diligence process and inspection of Property (the foregoing Persons
are herein called the "Interested Parties""), upon reasonable
------------------
notice (but without having to obtain further approval), to enter
upon and inspect the Property, including all premises leased to
tenants of the Property, all FF&E, the Improvements, and all Books
and Records and other miscellaneous assets located at the Property
or otherwise within the possession of Seller or Seller's agents.
Seller will permit Buyer, and the Interested Parties, at no cost or
expense to Seller, to audit the Books and Records, and to conduct
such investigations, tests, or inspections as Buyer
-6-
<PAGE>
deems appropriate. Furthermore, as a part of Buyer's inspections,
Buyer shall be entitled to cause such engineering and environmental
inspections to be conducted at the Property as Buyer may desire,
including, without limitation, inspections or studies which may
require the drilling of holes in the surface of the Land (but not
to ground water depth), or non-structural components of the
Improvements, the removal of small soil, carpet or similar samples,
and the conducting of air tests as Buyer may require.
(D) Buyer agrees to fully and completely repair and restore
the Property in the event of any damage whatsoever resulting from
the due diligence and similar inspections contemplated by
Subparagraph (C) above by Buyer or any of the Interested Parties
during the pendency of this Agreement. Buyer hereby indemnifies and
agrees to defend Seller against and hold Seller harmless from and
against any and all costs (including reasonable attorney's fees),
loss, damage, injury, claim or cause of action Seller may suffer or
incur as arising out of or in any way related to Buyer's
inspections of the Property as contemplated by Subparagraph (C)
above or the acts of the Interested Parties in regard thereto. The
obligations set forth in this Subparagraph (D) shall survive the
termination of this Agreement. In such regard Buyer shall maintain
in full force and effect a policy of general liability insurance
with a broad form liability endorsement having a combined single
limit of not less that $1,000,000.00 per occurrence, naming Seller
as an additional insured on such insurance.
(E) In the event Buyer disapproves, in its sole and absolute
discretion, of any matter reviewed or discovered during the
Contingency Period, or if for any other reason Buyer determines not
to proceed with the purchase of the Property, Buyer shall have the
absolute right to terminate this Agreement by the delivery of
written notice to Seller of termination on or before 12:00 midnight
of the last day of the Contingency Period. If Buyer terminates this
Agreement in accordance with this Subparagraph (E), thereafter
Seller and Buyer shall have no further obligations or liabilities
under this Agreement, one to the other, except with respect to the
Surviving Obligations.
(F) In the event Buyer fails to timely terminate this
Agreement in the manner specified in Subparagraph (E) above, Buyer
shall deposit with the Escrow Holder the Deposit on or before the
expiration of the Contingency Period, and Seller and Buyer shall
thereupon proceed to consummate the transaction contemplated hereby
in respect to the purchase and sale of the Property. The failure of
Buyer to timely make the Deposit shall be deemed to be Buyer's
election to terminate this Agreement. If Buyer terminates this
Agreement in accordance with this Paragraph 7(a)(i)(E) or (F),
thereafter Seller and Buyer shall have no further obligations or
liabilities under this Agreement, one to the other, except for the
Surviving Obligations.
-7-
<PAGE>
(ii) Buyer's Review of Title. Buyer shall have until September 24,
-----------------------
1996 (the "Title Review Period") to approve a standard preliminary Title
-------------------
Report from the Title Company for the Park (the "Title Report") and a recent
survey of the Park (the "Survey"). Buyer shall have until the end of the Title
Review Period to give Seller and Escrow Holder written notice ("Buyer's Title
-------------
Notice") of Buyer's disapproval or conditional approval of any matters shown
- ------
in the Report or disclosed by the Survey. The failure of Buyer to give Buyer's
Title Notice on or before the end of the Title Review Period shall be deemed to
constitute Buyer's approval of the condition of title to the Property.
If Buyer disapproves or conditionally approves any matter of title shown in
the Report, then Seller may, but shall have no obligation to, within ten (10)
days after its receipt of Buyer's Title Notice ("Seller's Election Period"),
------------------------
elect to eliminate or ameliorate to Buyer's satisfaction the disapproved or
conditionally approved titlematters by giving Buyer written notice
("Seller's Title Notice") of those disapproved or conditionally approved
---------------------
title matters, if any, which Seller agrees to so eliminate or ameliorate by the
Closing Date, provided, that, Seller shall have no obligation to pay any
consideration, initiate or threaten any legal proceedings or incur any liability
in order to eliminate or ameliorate such disapproved title matters. If Seller
does not elect to eliminate or ameliorate any disapproved or conditionally
approved title matters, or if Buyer disapproves Seller's Title Notice, or if
Seller fails to timely deliver Seller's Title Notice, then Buyer shall have the
right, upon delivery to Seller and Escrow Holder (on or before five (5) days
following the expiration of Seller's Election Period) of a written notice, to
either: (A) waive its prior disapproval, in which event said disapproved matters
shall be deemed approved; or (B) terminate this Agreement and the Escrow created
pursuant hereto, in which event Buyer shall be entitled to the return of the
Refundable Option Consideration and the Deposit, together with all interest
accrued thereon. Failure to take either one of the actions described in (A) and
(B) above shall be deemed to be Buyer's election to take the action described in
(A) above.
If, in Seller's Title Notice, Seller has agreed to either eliminate or
ameliorate to Buyer's satisfaction by the Closing Date certain disapproved or
conditionally approved title matters described in Buyer's Title Notice, but
Seller is unable to do so, then Buyer shall have the right (which shall be
Buyer's sole and exclusive right or remedy for such failure), upon delivery to
Seller and Escrow Holder (on or before one (1) business day prior to the Closing
Date) of a written notice to either: (x) waive its prior disapproval, in which
event said disapproved matters shall be deemed approved; or (y) terminate this
Agreement and the Escrow created pursuant hereto, in which event Buyer shall be
entitled to the return of the Refundable Option Consideration and the Deposit,
together with all interest accrued thereon. Failure to take either one of the
actions described in (x) and (y) above shall be deemed to be Buyer's election to
take the action described in (x) above.
-8-
<PAGE>
In the event this Agreement is terminated pursuant to any of the
provisions of this Paragraph 7(a)(ii), neither party shall have any
further rights or obligations hereunder except for the Surviving
Obligations.
Notwithstanding anything to the contrary above, Seller agrees that
it will cause any and all deeds of trust and mortgages which encumber
any portion of the Property to be fully reconveyed on the Close of
Escrow, and that Seller will be responsible for any and all prepayment
premiums which may accessed in connection with the repayment of such
loans.
(iii) Seller's Obligations. As of the Close of Escrow, Seller
--------------------
shall have performed all of the obligations required to be performed
by Seller under this Agreement.
(iv) Estoppel Certificates. Buyer shall have received estoppel
---------------------
certificates dated not earlier than October 15, 1996 ("Estoppel
--------
Certificates") from (i) all of the tenants of the Park whose leased
------------
premises are 60,000 square feet or larger, and tenants covering at
least seventy-five percent (75%) of the square footage leased under
the Leases for which the leased premises is less than 60,000 square
feet. The Estoppel Certificates may be either in the form of Exhibit
-------
"C" attached hereto or in the form required under the applicable
---
Lease. Seller shall use commercially reasonable efforts to obtain
tenant estoppel certificates from the tenants, provided, such
commercially reasonable efforts shall not be construed to require
Seller to threaten or initiate litigation, grant any concession or pay
any consideration. Buyer acknowledges that Seller will not be
obligated to request Estoppel Certificates from the tenants prior to
October 15, 1996.
In the event Seller has been unable to obtain the required number
of Estoppel Certificates prior to the Closing Date, Seller shall have
the right, but not the obligation, to extend from time to time the
Closing Date until the required Estoppel Certificates have been
obtained, provided that the Closing Date shall in no event be extended
for more than forty-five (45) days. If Seller has been unable to
obtain the required amount of Estoppel Certificates. Seller shall also
have the right, but not the obligation, to satisfy the Estoppel
Certificate condition set forth in this Paragraph 7(a)(iv) through the
delivery of Seller's own, separate certificate to Buyer ("Seller's
--------
Estoppel Certificate") for a sufficient number of Leases so that the
--------------------
Estoppel Certificates Seller has obtained, together with Seller's
Estoppel Certificates, satisfies such condition, provided, that,
Seller's Estoppel Certificates may not be provided for more than
twenty percent (20%) of the total square footage to be covered by the
above Estoppel Certificate requirements. The Seller's Estoppel
Certificate shall be substantially in the form of Exhibit "D" attached
-----------
hereto. The Seller's Estoppel Certificate shall survive the Close of
Escrow for a period of one year. If an Estoppel Certificate is
obtained after the Close of Escrow for a Lease for which a Seller's
Estoppel Certificate was delivered, such Estoppel Certificate shall
replace the Seller's Estoppel Certificate to the extent they are not
inconsistent, and Seller shall not have
-9-
<PAGE>
any obligations or liabilities under the Seller's Estoppel Certificate
to the extent that it is so replaced. Buyer agrees that it will use
its commercially reasonable efforts following the Close of Escrow to
obtain estoppel certificates from any tenants for whom a Seller's
Estoppel Certificate was delivered.
(v) Survey Re-Certification. The Survey shall have been
-----------------------
recertified to Buyer at any time during the term of this Agreement
(the "Survey Re-Certification". The cost of the Survey
----------------------
Re-Certification shall be the sole responsibility of Buyer.
(vi) Certificate Updating Representations and Warranties. Upon
---------------------------------------------------
the Close of Escrow, Seller shall deliver a certificate to Buyer (the
"Warranty Closing Certificate") whereby Seller shall restate the
-----------------------------
representations and warranties made by Seller in Paragraph 13 below as
of the Close of Escrow subject to any disclosures made in writing
pursuant to the provisions set forth immediately below. Buyer agrees
that if, at any time prior to the Closing Date, it has knowledge of
any information which would require the qualification of any of the
representations and warranties set forth in Paragraph 13 for such
representation and warranty to be true, it shall immediately notify
Seller in writing of such information. If Buyer has knowledge of the
inaccuracy of any representation or warranty made by Seller in this
Agreement and fails to so notify Seller in writing prior to the
Closing Date, then such representation or warranty shall be deemed to
be qualified so that the warranty shall be accurate, and Seller shall
have no liability therefor. When the representations and warranties
set forth above are remade by Seller as of the Close of Escrow, Seller
shall have the right to qualify such representations and warranties
with any information it receives concerning such representations and
warranties after the date of this Agreement. Within five (5) business
days of the date Seller has notified Buyer in writing that it will be
necessary to materially qualify any of the above representations and
warranties as provided above when they are restated as of the Close of
Escrow, Buyer must elect, by a writing received by Seller within such
five (5) business day period, to either (i) terminate this Agreement
and the Escrow, in which event the Refundable Option Consideration
shall be returned to Buyer (subject to the requirements of Paragraph
3(a) above), and the Deposit, together with all interest accrued
thereon, shall be returned to Buyer and neither party shall have any
further obligations or liabilities hereunder, except for the Surviving
Obligations, or (ii) proceed with the transaction contemplated by this
Agreement, in which event the above representations and warranties
shall be qualified when remade at the Close of Escrow as provided
above. In the event that Seller does not receive such written
notification from Buyer within such five (5) day period indicating
which election Buyer has decided to make, then Buyer will be deemed to
have elected to proceed with the transaction contemplated by this
Agreement, with the above representations and warranties qualified
when remade as of the Close of Escrow.
(vii) Shell Hold Harmless. On or before the Close of Escrow,
-------------------
Seller or PCIG (as defined in Paragraph 24(a) hereof) shall have, at
Seller's sole
-10-
<PAGE>
cost and expense, entered into a Release and Settlement Agreement with
Shell Oil Company ("Shell") relative to the environmental condition of
the Property substantially and materially in the form of Exhibit "E"
-----------
attached hereto (the "Shell Hold Harmless"). Buyer acknowledges that
Seller shall have no obligation to pay any more than Two Hundred
Thousand Dollars ($200,000.00) in consideration to Shell or to
initiate or threaten any legal proceedings or incur any liability in
order to enter into the Shell Hold Harmless. Buyer agrees to rely on
the Shell Hold Harmless and to reasonably and in good faith exhaust
its remedies against Shell under the Shell Hold Harmless before
proceeding against Seller for breach by Seller of any Environmental
Laws (as defined in Paragraph 13(q) hereof) or for breach of any of
Seller's representations and warranties contained in said Paragraph
13(q). If Buyer attempts to exhaust its remedies against Shell in
accordance with the terms of this Subparagraph (vii) when not barred
from doing so under applicable statue of imitations periods, then
Buyer and Seller agree that any statue of limitations which may be
raised by Seller in defense of any action by Buyer under this
Subparagraph (vii) shall be tolled during the period of time that
Buyer is reasonably and in good faith pursuing its remedies against
Shell under the Shell Hold Harmless and Seller shall not assert the
defense of laches or any other defense based upon delay in filing
litigation during this tolling period.
(b) Conditions to Seller's Obligations. For the benefit of Seller,
----------------------------------
the Close of Escrow shall be conditioned upon the occurrence or
satisfaction (or Seller's waiver thereof, it being agreed that Seller may
waive such condition) of the condition that Buyer shall have timely
performed all of the obligations required by the terms of this Agreement to
be performed by Buyer.
8. Deposits by Seller. At least one (1) business day prior to the Close
------------------
of Escrow, Seller shall deposit or cause to be deposited with Escrow Holder the
following documents and instruments
(a) Grant Deed. The Grant Deed, in the form attached hereto as Exhibit
---------- -------
"B", duly executed by Seller and acknowledged.
---
(b) Seller's Certificate of Non-Foreign Status. A certificate of non-
------------------------------------------
foreign status, for both federal and state ("Seller's Certificate"), duly
--------------------
executed by Seller, in the form attached hereto as Exhibit "F".
-----------
(c) Leases. The original Leases;
------
(d) Tenant Lease Assignment. A Tenant Lease Assignment ("Assignment of
----------------------- -------------
Lease"), duly executed by Seller in the form attached hereto as Exhibit
----- -------
"G", pursuant to which Seller shall assign to Buyer all of Seller's right,
title and interest in and to the Leases;
(e) Contracts. Any and all original Contracts;
---------
-11-
<PAGE>
(f) Assignment of Contracts and Assumption Agreement. An Assignment of
------------------------------------------------
Contracts and Assumption Agreement ("Assignment of Contracts"), duly
-----------------------
executed by Seller, in the form attached hereto as Exhibit "H", pursuant to
-----------
which Seller shall assign to Buyer all of Seller's right, title and
interest in, under and to the Contracts;
(g) Bill of Sale. A Bill of Sale ("Bill of Sale"), duly executed by
------------ ------------
Seller in the form attached hereto as Exhibit "I", conveying all of
-----------
Seller's right, title and interest in and to the Personal Property and the
Intangible Property;
(h) Tenant Letter. A letter signed by Seller and addressed to the
-------------
tenants advising the tenants of the sale of the Property to Buyer and
directing that all future rent payments and other charges are to be
forwarded to Buyer at an address to be supplied by Buyer;
(i) Survey Re-Certification. The Survey Re-Certification, unless the
-----------------------
same has previously been delivered to Buyer outside of Escrow; and
(j) Warranty Closing Certificate. The Warranty Closing Certificate,
----------------------------
duly executed by Seller.
9. Deposits by Buyer. Buyer shall deposit or cause to be deposited with
-----------------
Escrow Holder the Option Consideration and the Deposit, which, along with the
Signing Fee, are to be applied towards the payment of the Purchase Price and the
balance of the Purchase Price in the amounts and at the times set forth in
Paragraph 3 above. In addition, Buyer shall deposit with Escrow Holder prior to
the Close of Escrow the following documents and instruments:
(a) Assignment of Lease. Counterpart of the Assignment of Lease, duly
-------------------
executed by Buyer; and
(b) Assignment of Contracts. Counterpart of the Assignment of
-----------------------
Contracts, duly executed by Buyer.
10. Costs and Expenses. Seller shall pay for the cost of the Title
------------------
Policy, the Survey and the cost of any of the following endorsements to the
Title Policy which the Title Company is willing to issue: 116.1 (survey), 100
(modified), 123.1 (zoning), 116.4 (contiguity), 103.7 (access), 100.29 (mineral
rights), 103.1 (easements) and 103.5 (water rights). The escrow fee of Escrow
Holder shall be shared equally by Seller and Buyer. Seller shall pay all
documentary transfer taxes and recording fees payable in connection with the
recordation of the Grant Deed. Buyer and Seller shall pay, respectively, the
Escrow Holder's customary charges to buyers and sellers for document drafting
and miscellaneous charges. If, as a result of no fault of Buyer or Seller,
Escrow fails to close, Buyer and Seller shall share equally all of Escrow
Holder's fees and charges.
11. Prorations. The following prorations shall be made between Seller and
----------
Buyer on the Close of Escrow, computed as of the Close of Escrow:
-12-
<PAGE>
(a) Taxes and Assessments. Real and personal property taxes and
---------------------
assessments on the Property shall be prorated on the basis that Seller is
responsible for (i) all such taxes for the fiscal year of the applicable
taxing authorities occurring prior to the "Current Tax Period" (as
hereinafter defined) and (ii) that portion of such taxes for the Current
Tax Period determined on the basis of the number of days which have elapsed
from the first day of the Current Tax Period up to, but not including, the
Close of Escrow, whether or not the same shall be payable prior to the
Close of Escrow. The phrase "Current Tax Period" refers to the fiscal year
------------------
of the applicable taxing authority in which the Close of Escrow occurs. In
the event that as of the Close of Escrow the actual tax bills for the year
or years in question are not available and the amount of taxes to be
prorated as aforesaid cannot be ascertained, then rates and assessed
valuation of the previous year, with known changes, shall be used, and when
the actual amount of taxes and assessments for the year or years in
question shall be determinable, then such taxes and assessments will be
reprorated between the parties to reflect the actual amount of such taxes
and assessments.
(b) Rents. Rent and other receivables under the Leases (collectively,
-----
"Rents") shall be prorated as of the Close of Escrow on the basis of actual
-----
days elapsed and a three hundred sixty-five (365) day year and shall be
accounted for as follows:
(i) Rents due and collected in the month of the Close of Escrow
shall be prorated between Buyer and Seller;
(ii) Buyer shall be entitled to all Rents and other receivables
accruing after the Close of Escrow, and Seller shall be entitled to
all Rents collected after the Close of Escrow that were due and
payable prior to the Close of Escrow: and
(iii) All Rents received by Buyer following the Close of Escrow
shall be applied against the most recently accrued rent.
Notwithstanding the foregoing, Buyer agrees that for any Leases which
provide that the tenant is not obligated until after the Close of
Escrow to pay for any pass through charges for real property taxes
(the "Tax Pass Through Charges") which are attributable to any period
------------------------
prior to the Close of Escrow, that all Tax Pass Through Charges
collected by Buyer after the Close of Escrow shall first be paid to
Seller with respect to any period preceding the Close of Escrow.
Buyer will make a good faith effort after the Close of Escrow to collect
all rents in the usual course of Buyer's operation of the Property, but
Buyer will not be obligated to institute any lawsuit or other collection
procedures to collect delinquent rents. Buyer acknowledges and agrees that
Seller retains the right after the Close of Escrow to collect any and all
delinquent rent and other charges due under the Leases, provided, however,
that Seller shall not take any action of any kind that would disturb any
tenant's possession or occupancy of its premises or affect the validity or
enforceability of any Lease.
(c) Security Deposit. Buyer shall be credited and Seller shall be
----------------
charged with any security deposit and advanced rentals in the nature of a
security deposit made by the tenants
-13-
<PAGE>
under the Leases, provided, that, with respect to any security deposits
which are held in an interest bearing account or instrument for the benefit
of a tenant, such security deposits shall be delivered to Buyer through
Escrow upon the Close of Escrow and Buyer will not receive a credit there
or if Seller is holding any security deposits in the form of a letter of
credit, Seller will promptly arrange, following the Close of Escrow, for a
replacement letter of credit to be issued in favor of Buyer at Seller's
sole cost and expense.
(d) Utilities. Gas, water, electricity, heat, fuel, sewer and other
---------
utilities and the operating expenses relating to the Property shall be
prorated as of the Close of Escrow to that extent such items are not
directly paid for by the tenants under the Leases. Seller will notify all
utility companies servicing the Property of the sale of the Property to
Buyer and will request that such companies send Seller a final bill for the
period ending on the last day before the Close of Escrow. Buyer will notify
the utility companies that all utility bills for the period commencing on
the Close of Escrow are to be sent to Buyer. Seller hereby reserves the
right the receive the return of any and all utility deposits previously
made with the utility companies, and Buyer will arrange for substitute
deposits as may be required. If the parties hereto are unable to obtain
final meter readings as of the Close of Escrow then such expenses shall be
estimated as of the Close of Escrow based on the prior operating history of
the Property.
(e) Capital Expenditure Credit. Buyer shall receive a One Million
--------------------------
Dollar ($1,000,000.00) credit to the Purchase Price on account of certain
ADA and earthquake retrofit improvements, roof and parking lot repairs and
asbestos removal. Buyer may make to the improvements following the Close of
Escrow.
(f) Insurance Charges. Buyer shall receive a credit for any pass
-----------------
through charges collected by Seller under the Leases for insurance premiums
and costs to the extent such charges relate to a period following the Close
of Escrow.
At least one (1) business day prior to the Close of Escrow the parties
hereto shall agree upon all of the prorations to be made and submit a statement
to the Escrow Holder setting forth the same. In the event that any prorations,
apportionments or computations made under this Paragraph 11 shall require final
adjustment, then the parties hereto shall make the appropriate adjustments
promptly when accurate information becomes available and either party hereto
shall be entitled to an adjustment to correct the same. Any corrected adjustment
or proration will be paid in cash to the party entitled thereto and if not paid
within ten ( 10) days of receipt of a written demand therefor, such sums shall
thereafter bear interest at ten percent (10%) per annum, simple interest
12. Disbursements and Other Actions by Escrow Holder. Upon the Close of
------------------------------------------------
Escrow, Escrow Holder shall promptly undertake all of the following in the
manner indicated:
(a) Prorations. Prorate all matters referenced in Paragraph 11 based
----------
upon the statement delivered into Escrow signed by the parties.
-14-
<PAGE>
(b) Recording. Cause the Grant Deed and any other documents which the
---------
parties hereto may mutually direct, to be recorded in the Official Records.
(c) Funds. Disburse from funds deposited by Buyer with Escrow Holder
-----
towards payment of all items chargeable to the account of Buyer pursuant
hereto in payment of such costs, including, without limitation, the payment
of the Purchase Price to Seller, and disburse the balance of such funds, if
any, to Buyer.
(d) Title Policy. Direct the Title Company to issue the Title Policy
------------
to Buyer.
(e) Documents to Seller. Deliver to Seller counterparts of the
-------------------
Assignment of the Lease and the Assignment of Contracts executed by Buyer.
(f) Documents to Buyer. Deliver to Buyer the original Leases for the
------------------
Property, the Contracts, the Bill of Sale, the Seller's Certificate, the
Survey Re-Certification (unless previously delivered to Buyer), the
Warranty Closing Certificate, counterparts of the Assignment of the Lease
and the Assignment of Contracts executed by Seller and the letter described
in Paragraph 8(h) above addressed to the tenants advising the tenants of
this transaction.
13. Seller's Representations and Warranties. In consideration of Buyer
---------------------------------------
entering into this Agreement and as an inducement to Buyer to purchase the
Property from Seller, Seller hereby makes the following representations and
warranties to Buyer as of the date of this Agreement, each of which is material
and being relied upon by Buyer:
(a) Seller has the legal right, power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, and the
execution, delivery and performance of this Agreement have been duly
authorized and no other action by Seller is requisite to the valid and
binding execution, delivery and performance of this Agreement.
(b) To Seller's knowledge, there are no actions, suits, arbitration,
claims, attachments, proceedings, assignments for the benefit of creditors,
insolvency, bankruptcy, reorganization or other proceedings, actual or
proposed, pending or threatened by or against Seller, nor are any
contemplated by Seller, and which would materially and adversely affect the
operation or value of the Property or Seller's ability to perform its
obligations under this Agreement.
(c) Other than the Leases, the Contracts and the Approved Condition of
Title, there are no leases, surface or subsurface use agreements, tenancy
arrangements, service contracts, management agreements, or other
agreements, instruments or encumbrances created by Seller, or to Seller's
knowledge created by any other person or entity, which will be in force or
effect as of the Close of Escrow that grant to any person whomsoever or any
entity whatsoever, any right, title, interest or benefit in or to all or
any part of the Property or any right relating to the ownership, use,
operation, management, maintenance or repair of all or
-15-
<PAGE>
any part of the Property, and no person or entity has any rights to acquire
any of the foregoing by virtue of the acts of Seller.
(d) Except as shown on the schedule of Leases (the "Lease Schedule")
--------------
heretofore delivered by Seller to Buyer, with respect to the Leases: (i)
there are no other promises, amendments, agreements or commitments between
any tenant and Seller, nor are there any commitments which will be binding
on Buyer relating to the leased premises other than as expressly set forth
in such Leases; (ii) to Seller's knowledge, each Lease has not been
terminated, canceled or surrendered and no written notice of termination,
cancellation or surrender has been received by Seller; (iii) to Seller's
knowledge, there are no uncured monetary defaults by the landlord or the
tenant under any Lease nor any uncured non-monetary defaults by the
landlord or the tenant of a material obligation under any Lease; and (iv)
Seller has made available to Buyer true, current and complete copies of all
Leases (including all amendments thereof or supplements thereto).
(e) Seller has not received any written notices or written requests
from any mortgagee, insurance company, board of fire underwriters,
governmental agency or entity, or any other association having authority or
power over all or any portion of the Property, requesting the performance
of any work or alterations with respect to the Property or alleging a
violation of law or underwriting requirements with respect to the Property
which has not been performed or cured.
(f) Seller has no knowledge of any material uncured breach or default
by Seller or by any other party under the Contracts nor of any state of
fact which would with the passage of time or the giving of notice, or both,
constitute a material default by Seller or any other party under such
agreements.
(g) Seller has not received written notice from the supplier of water,
sewage, electricity, gas or telephone services to the Property stating that
such service is being or will be terminated, impaired or curtailed and
Seller has no knowledge that such termination, impairment or curtailment
may occur.
(h) Seller has not received written notice of any pending or
threatened condemnation or similar proceedings affecting the Property or
any part thereof, nor to Seller's knowledge are any such assessments or
proceedings contemplated by any governmental authority.
(i) Seller is not a "foreign person" within the meaning of Section
1445 of the Internal Revenue Code of 1986 as amended
(j) To Seller's knowledge, there are no pending or threatened actions,
suits or proceedings before or by any court or administrative agency (i)
which question the validity of this Agreement or any instrument or
agreement to be executed in connection herewith, or (ii) which seek to
restrain or prohibit this Agreement or the consummation of the transactions
contemplated hereby.
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<PAGE>
(k) This Agreement, when executed and delivered by Seller, shall
constitute the valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms.
(l) Neither the execution and delivery of this Agreement, nor the
incurring of the obligations herein set forth, nor the consummation of the
transactions provided for herein, nor compliance with the terms of this
Agreement, conflict with or result in a breach of any of the terms,
conditions, or provisions of, or constitute a default under, any bond,
note, or other evidence of indebtedness, or any contract, indenture,
mortgage, deed of trust, loan agreement, lease, or other agreement or
instrument to which Seller is a party or by which any of Seller's property
may be bound.
(m) Seller owns all of the Personal Property free and clear of all
liens and claims by third parties.
(n) No consents are needed from the partners of Seller or third
parties for Seller to fully and effectively convey the Property to Buyer.
(o) Seller has no employees. There are no employees of Seller's agent
(including the property manager) engaged in the operation or maintenance of
the Property for whom Buyer will be responsible after the Close of Escrow
unless Buyer agrees to employ such employees after the Close of Escrow.
(p) Attached hereto as Exhibit "J" is a true and complete list of all
-----------
Contracts in effect as of the date of this Agreement.
(q) To Seller's knowledge, except as disclosed in the Environmental
Reports, as hereinafter defined, the Property is not in violation of any
federal, state, local or administrative agency ordinance, law, rule,
regulation, order or requirement relating to environmental conditions or
Hazardous Material ("Environmental Laws"). Except as disclosed in the
------------------
Environmental Reports, neither Seller, nor to Seller's knowledge, any third
party, has used, manufactured, generated, treated, stored, disposed of, or
released any Hazardous Material on, under or about the Property or
transported any Hazardous Material over the Property in violation of the
Environmental Laws. Except as disclosed in the Environmental Reports,
neither Seller, nor to Seller's knowledge, any third party, has installed,
used or removed any storage tank on, from or in connection with the
Property except in full compliance with all Environmental Laws, and to
Seller's knowledge, there are no storage tanks or wells (whether existing
or abandoned) located on, under or about the Property. Except as disclosed
in the Environmental Reports, to Seller's knowledge, the Property does not
consist of any building materials that contain Hazardous Material. For
the purposes hereof, "Hazardous Material" shall mean any substance,
------------------
chemical, waste or other material which is listed, defined or otherwise
identified as "hazardous" or "toxic" under any federal, state, local or
administrative agency ordinance or law, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. (S)(S) 9601 et seq.; Resource Conservation and Recovery Act,
-- ---
42 U.S.C. (S)(S) 6901 et seq.;
-- ---
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Federal Water Pollution Control Act, 33 U.S.C. (S)(S) 1251 et seq.; Clean
-- ---
Air Act, 42 U.S.C. (S)(S) 7401 et seq.; Hazardous Materials Transportation
-- ---
Act, 49 U.S.C. (S)(S) 1471 et seq.; Toxic Substances Control Act, 15 U.S.C.
-- ---
(S)(S) 2601 et seq.; Refuse Act, 33 U.S.C. (S)(S) 407 et seq.; Emergency
-- --- -- ---
Planning and Community Right-To-Know Act, 42 U.S.C. (S)(S) 11001 et seq.;
-- ---
Occupational Safety and Health Act, 29 U.S.C. (S)(S) 65 et seq., to the
-- ---
extent it includes the emission of any Hazardous Material and includes any
Hazardous Material for which hazard communication standards have been
established; California Hazardous Substance Account Act, California Health
& Safety Code (S)(S) 25300 et seq.; California Asbestos Notification Laws,
-- ---
California Health & Safety Code (S)(S) 25915 et seq.; California Hazardous
-- ---
Waste Control Law, California Health & Safety Code (S)(S) 22100 et seq.;
-- ---
California Hazardous Materials Release Response Plans and Inventory Act,
California Health & Safety Code (S)(S) 25500 et seq., California Clean Air
-- ---
Act, California Health & Safety Code (S)(S) 39608 et seq.; California Toxic
-- ---
Pits Cleanup Act, California Health & Safety Code (S)(S) 25208 et seq;
-- ---
California Pipeline Safety Act, California Government Code (S)(S) 51010 et
--
seq.; California Toxic Air Contaminants Law, California Health & Safe Code
---
(S)(S) 39650 et seq.; California Porter-Cologne Water Quality Act,
-- ---
California Water Code (S)(S) 13000 et seq.; California Toxic Injection Well
-- ---
Control Act, California Health & Safety Code (S)(S) 25159.10 et seq.;
-- ---
California Underground Storage Tank Act, California Health & Safety Code
(S)(S) 25280 et seq.; California Occupational Carcinogens Control Act,
-- ---
California Labor Code (S)(S) 9000 et seq.; or any regulation, order, rule
-- ---
or requirement adopted thereunder, as well as any formaldehyde, urea,
polychlorinated biphenyls, petroleum, petroleum product or by-product,
crude oil, natural gas, natural gas liquids, liquefied natural gas or
synthetic gas usable for fuel or mixture thereof, radon, asbestos and
"source," "special nuclear" and "by-product" material as defined in the
Atomic Energy Act of 1985, 42 U.S.C. (S)(S) 3011 et seq. The term
-- ---
"Environmental Reports," as used in this Agreement, shall mean written
Phase I, Phase II or other similar environmental assessment reports,
evidencing the results of certain environmental assessments performed for
the purpose of assessing the environmental condition of the Real Property,
which will be identified in a writing delivered by Seller to Buyer within
fifteen (15) days following the Opening of Escrow. The term "Environmental
Reports" shall include all written Phase I, Phase II or other similar
environmental assessment reports relating to the Property in the possession
of Shell which are available for review by Buyer.
(r) To Seller's knowledge, Seller has provided Buyer with access to
all files and documents relating to the Property which are in the
possession of Seller or its property manager (the "Manager"), except for
-------
appraisals and financial analyses generated by or made on behalf of Seller
and those documents which are protected by the attorney-client and/or work
product privileges.
(s) Seller has not received any written notice indicating that any
tenant under any of the Leases is a debtor or debtor in possession in any
pending bankruptcy proceeding, voluntary or involuntary.
The above representations and warranties maybe qualified by a writing
delivered by Seller to Buyer within fifteen (15) days following the Opening of
Escrow, and Seller shall have no liability
-18-
<PAGE>
*************
for any such matters or disclosures
specifically set forth in such writing. In addition, to the extent the documents
and materials which have been or will be delivered or otherwise made available
to Buyer prior to the expiration of the Contingency Period contain certain
provisions or information that are inconsistent with the foregoing
representations and warranties, such representations and warranties shall be
deemed modified to the extent necessary to eliminate such inconsistency, and
Seller shall have no liability for such modifications.
As used in this Agreement, the words "Seller's knowledge" or words of
------------------
similar import shall be deemed to mean, and shall be limited to, the actual (as
distinguished from implied, imputed or constructive) knowledge of the following
individuals, without any duty of independent investigation or inquiry, Dennis
DuBois, Louay Alsadek, David Rinkliff, and Brigitte Bigham, all of whom are
employees of the Manager. For purposes of this Paragraph 13, Seller shall be
deemed to have received notice of a fact or item only if Seller or the Manager
has received a written notice thereof on or after July 1, 1994, except, that,
with respect to the representations set forth in Paragraph 13(q), Seller shall
be deemed to have received notice of a fact or item if Seller or the Manager
received a written notice thereof on or after October 15, 1987. Seller
represents and warrants to Buyer that the persons named above are those
employees of the Manager who are most likely to have knowledge of the facts and
circumstances which are the subject matter of the representations and warranties
contained in this Paragraph 13. Seller further represents and warrants to Buyer
that the persons named above are those employees of PPL who are most likely to
have knowledge of and/or received the written notices described in this
Paragraph 13. However, Buyer acknowledges that other employees of the Manager,
both past and present, including but not limited to the engineers for the
Property, may have knowledge of facts that are not known by the persons named
above.
The warranties and representations of Seller contained in this Paragraph 13
shall survive for a period of eighteen (18) months following the Close of
Escrow. No claim, suit or action may be brought by Buyer against Seller arising
from or relating to the representations and warranties contained in this
Agreement, nor under the Seller Estoppel Certificates, if any, unless (i) the
suit or action is properly filed and served no later than eighteen (18) months
after the Close of Escrow; or (ii) a written notice describing the claim in
detail is delivered to the Seller no later than eighteen (18) months after the
Close of Escrow and a suit or action is properly filed and served on Seller no
later than three (3) months following delivery of the notice.
Notwithstanding anything contained herein to the contrary, in no event
shall any provision hereof be construed to constitute an indemnity from Seller
to Buyer in respect to the environmental condition of the Property or any other
matter relating to environmental issues and the Property.
14. Leasing Commissions and Tenant Improvements for Existing Leases and
-------------------------------------------------------------------
New Leases.
- ----------
(a) Seller agrees that it shall be responsible for any and all leasing
commissions and tenant improvement work and allowances landlord is
responsible for under the existing Leases described on the Lease Schedule,
except those related to any options to expand the leased premises or to
extend the lease term. In furtherance of the foregoing, Buyer agrees that
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<PAGE>
if Creative Computers, which is a tenant in the Park, does not exercise the
express termination right under its Lease, Buyer shall be responsible for
the Twenty-One Thousand Seven Hundred Twenty-eight Dollar ($21,728.00)
commission to Lee & Associates upon the expiration of such lease
termination right. If Seller has not completed prior to the Close of
Escrow, any of the tenant improvement work for which the landlord is
responsible under the existing Leases described on the Lease Schedule,
Seller agrees that a holdback will be established in Escrow in an amount
equal to one hundred ten percent (110%) of the estimated cost to complete
such work and otherwise on terms reasonably acceptable to the parties.
(b) During the term of this Agreement, Seller agrees that it will not
enter into any new leases ("New Leases") or modify any of the existing
----------
Leases ("Lease Modifications") without first obtaining Buyer's written
-------------------
consent, which consent shall not be unreasonably withheld or delayed. If
any New Leases or Lease Modifications are entered into, Buyer shall be
solely responsible for any and all leasing commissions and tenant
improvement work or allowances thereunder. If Seller pays any leasing
commissions and/or tenant improvement costs or allowances for any New
Leases or Lease Modifications prior to the Close of Escrow, Seller shall
receive a credit for such sums upon the Close of Escrow. If Seller is to
commence any tenant improvement work under a New Lease or a Lease
Modification prior to the Close of Escrow, and such work will not be
completed prior to the Close of Escrow, Buyer shall have the right to
reasonably approve the contractor and the terms of the construction
contract for such work, and such construction contract shall be assigned to
Buyer upon the Close of Escrow.
15. Buyer's Covenants, Representations and Warranties. In consideration
-------------------------------------------------
of Seller entering into this Agreement and as an inducement to Seller to sell
the Property to Buyer, Buyer makes the following covenants, representations and
warranties, each of which is material and is being relied upon by Seller:
(a) Authority. Buyer has the legal right, power and authority to
---------
enter into this Agreement and to consummate the transactions contemplated
hereby, and the execution, delivery and performance of this Agreement have
been duly authorized and no other action by Buyer is requisite to the valid
and binding execution, delivery and performance of this Agreement.
(b) Investment Rental Property. Buyer is acquiring the Property as
--------------------------
investment rental property, and not for Buyer's own operation or use.
(c) Seller's Environmental Inquiry. Section 25359.7 of the California
------------------------------
Health and Safety Code requires owners of nonresidential property who know
or have reasonable cause to believe that any release of hazardous substance
has come to be located on or beneath real property to provide written
notice of that condition to a buyer of such real property. There is a
possibility that a release of a hazardous substance may have come to be
located on or beneath the Property, including the release, if any, of such
hazardous substances described in the Environmental Reports. By its
execution of this Agreement, Buyer (1) acknowledges its receipt of the
foregoing notice given pursuant to Section 25359.7 of the California Health
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<PAGE>
and Safety Code and that it is aware of the benefits conferred to Buyer by
Section 1542 of the California Civil Code and the risks it assumes by any
waiver of its benefits thereunder; (2) is or will become fully aware of the
matters described in the Environmental Reports, copies of which Buyer will
have reviewed prior to the expiration of the Contingency Period; and (3)
after receiving advice of its legal counsel, waives any and all rights or
remedies whatsoever, express or implied, Buyer may have against Seller
under Section 25359.7 of the California Health and Safety Code, including
remedies for actual damages, resulting from any unknown, unforeseen or
unanticipated presence or releases of hazardous substances from or on the
Property. The provisions of this paragraph shall survive the Close of
Escrow.
(d) As Is. Except for the express representations and warranties of
-----
Seller set forth in Paragraph 13 above, Buyer is acquiring the Property "AS
IS, WHERE IS" without any representation or warranty of Seller, express,
implied or statutory, as to the nature or condition of or title to the
Property or its fitness for Buyer's intended use of same. Buyer is, or as
of the expiration of the Contingency Period will be, familiar with the
Property. Buyer is relying solely upon, and as of the expiration of the
Contingency Period will have conducted, its own, independent inspection,
investigation and analysis of the Property as it deems necessary or
appropriate in so acquiring the Property from Seller, including, without
limitation, an analysis of any and all matters concerning the condition of
the Property and its suitability for Buyer's intended purposes, and a
review of all applicable laws, ordinances, rules and governmental
regulations (including, but not limited to, those relative to building,
zoning and land use) affecting the development, use, occupancy or enjoyment
of the Property.
Without limiting the generality of the foregoing, Buyer hereby
expressly waives and relinquishes any and all rights and remedies Buyer may
now or hereafter have against Seller with respect to the presence or
existence of Hazardous Materials on, in, under or about the Property which
are disclosed either in the Environmental Reports or the "Buyer's
Environmental Reports" (as defined below) (the "Known Hazardous
---------------
Materials"), including, without limitation, (i) any and all rights Buyer
---------
may now or hereafter have to seek contribution from Seller for Known
Hazardous Materials under Section 113(f)(i) of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"),
------
as amended by the Superfund Amendments and Reauthorization Act of 1986 (42
U.S.C. (S) 9613), as the same may be further amended or replaced by any
similar law, rule or regulation, (ii) any and all rights Buyer may now or
hereafter have against Seller for the Known Hazardous Materials under the
Carpenter-Presley-Tanner Hazardous Substance Account Act (California Health
and Safety Code, (S)(S) 25300 et seq.), as the same may be further
-- ---
amended or replaced by any similar law, rule or regulation, (iii) any and
all rights Buyer may now or hereafter have against Seller under the
Resource Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.) for
-- ---
the Known Hazardous Materials, (iv) any and all claims Buyer may now or
hereafter have against Seller with respect to the Known Hazardous Materials
under Section 107 of CERCLA (42 U.S.C. (S) 9607), and (v) any and all
claims Buyer may now or hereafter have against Seller, whether known or
unknown, now or hereafter existing, based on nuisance, trespass or any
other common law or statutory provisions for the Known Hazardous Materials.
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<PAGE>
"Buyer's Environmental Reports" shall refer to any final or draft
-----------------------------
environmental reports, studies, data and analyses Buyer obtains with
respect to the Property prior to the expiration of the Contingency Period.
Buyer agrees that it will deliver to Seller complete copies of Buyer's
Environmental Reports prior to the expiration of the Contingency Period.
(e) Limitation on Seller's Liability. Except for the express
--------------------------------
representations and warranties of Seller set forth in Paragraph 13, Buyer
represents and covenants that Seller shall not have any liability,
obligation or responsibility of any kind with respect to the following:
(i) The content or accuracy of the Survey, the Environmental
Reports, or any report, study, opinion or conclusion of any soils,
toxic, environmental or other engineer or other person or entity who
has examined the Property or any aspect thereof;
(ii) The content or accuracy of any information released to Buyer
by an engineer or planner in connection with the development of the
Property;
(iii) The availability of building or other permits or approvals
for the Property by any state or local governmental bodies with
jurisdiction over the Property;
(iv) The availability or capacity of sewer, water or other utility
connections to the Property;
(v) Any of the items delivered to Buyer pursuant to Buyer's
review of the condition of the Property;
(vi) The content or accuracy of the Offering Memorandum prepared
by Cushman & Wakefield for the Property; and
(vii) The content or accuracy of any other development or
construction cost, projection, financial or marketing analysis or
other information given to Buyer by Seller or reviewed by Buyer with
respect to the Property.
Notwithstanding anything contained herein to the contrary, in no event
shall any provision hereof be construed to constitute an indemnity from
Seller to Buyer in respect to the environmental condition of the Property
or any other matter relating to environmental issues and the Property.
16. Buyer's Default; Seller's Remedies.
-----------------------------------
(a) Buyer's Default. Buyer shall be deemed to be in default if in
----------------
respect to the transaction contemplated by this Agreement, at the Closing,
Buyer fails to deliver the Purchase Price or fails to meet, comply with, or
perform any covenant, agreement or
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<PAGE>
obligation on the part of Buyer within the time frames and in the manner
required in this Agreement, for any reason other than a default by Seller
hereunder or termination of this Agreement prior to Closing in accordance
with the terms hereof (any default under this clause (a) being a "Contract
--------
Default") .
-------
(b) Seller's Remedy.
---------------
(i) If Buyer is deemed to have committed a Contract Default,
Seller, as Seller's sole and exclusive remedy for such default, shall
be entitled to terminate all further rights of Buyer under this
Agreement, including, without limitation, any right to purchase the
Property, and to receive and retain the Option Consideration and the
Deposit, which shall be delivered to Seller by the Escrow Holder from
and after ten (10) days following receipt of written notice from
Seller that Buyer has defaulted under this Agreement, which notice
need not be accompanied by any other document or consent of any other
party hereto, unless the Escrow Holder receives notice from Buyer
within the ten (10) day period following receipt of Seller's notice,
that no Contract Default by Buyer hereunder has occurred, in which
event the Option Consideration and the Deposit shall be released only
in accordance with joint instructions from Seller and Buyer or with an
order of a court of competent jurisdiction. If Seller is entitled to
the Option Consideration and the Deposit in accordance with this
Paragraph 16, Buyer agrees to deliver, on written request of Seller,
such instructions as may be reasonably necessary to cause the Escrow
Holder to deliver the Option Consideration and the Deposit to Seller.
BUYER AND SELLER AGREE THAT BASED UPON THE CIRCUMSTANCES NOW
EXISTING, KNOWN AND UNKNOWN, IT WOULD BE IMPRACTICAL OR EXTREMELY
DIFFICULT TO ESTABLISH SELLER'S DAMAGE BY REASON OF BUYER'S DEFAULT
UNDER THIS AGREEMENT. ACCORDINGLY, BUYER AND SELLER AGREE THAT IN THE
EVENT OF THE OCCURRENCE OF A CONTRACT DEFAULT, IT WOULD BE REASONABLE
AT SUCH TIME TO AWARD SELLER, AS SELLER'S SOLE AND EXCLUSIVE REMEDY AT
LAW, "LIQUIDATED DAMAGES" EQUAL TO THE AMOUNT REPRESENTED BY THE SUM
OF THE OPTION CONSIDERATION PLUS THE DEPOSIT, PLUS ANY AND ALL ACCRUED
INTEREST THEREON. THEREFORE, SUBJECT TO THE FOREGOING, IF BUYER
COMMITS A CONTRACT DEFAULT UNDER THIS AGREEMENT, SELLER SHALL BE
ENTITLED TO THE OPTION CONSIDERATION AND THE DEPOSIT HELD BY ESCROW
HOLDER, TOGETHER WITH ALL INTEREST ACCRUED THEREON, AND BUYER SHALL BE
RELIEVED FROM ALL OTHER OBLIGATIONS AND LIABILITIES HEREUNDER.
(ii) NOTHING IN THIS PARAGRAPH 16 SHALL IMPAIR OR LIMIT THE
EFFECTIVENESS OR ENFORCEABILITY OF THE
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<PAGE>
INDEMNIFICATION OBLIGATIONS OF BUYER CONTAINED IN PARAGRAPHS
7(a)(i)(D) HEREOF.
(iii) SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND
UNDERSTAND THE PROVISIONS OF THIS PARAGRAPH 16 AND BY THEIR INITIALS
IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
/s/ DJD /s/ TFA
------------------------ ---------------
Seller's Initials Buyer's Initials]
17. Seller's Defaults; Buyer's Remedies.
-----------------------------------
(a) Seller's Defaults. Seller shall be deemed to be in default
------------------
under this Agreement if Seller fails to meet, comply with, or perform
any covenant, agreement, or obligation on its part required in this
Agreement, within the time limits and in the manner required in this
Agreement, for any reason other than a default by Buyer hereunder or
termination of this Agreement prior to Closing pursuant to the express
terms and conditions hereof.
(b) Buyer's Remedies. If Seller is deemed to be in default
-----------------
hereunder, Buyer may, at Buyer's option, do any one of the following:
(i) by written notice delivered to Seller, terminate this
Agreement by written notice delivered to Seller on or before ten
(10) days following occurrence of such default;
(ii) seek and receive specific performance of Seller's
obligations hereunder to sell the Property for the Purchase Price
and on the terms set forth herein following the expiration of a
five (5) day period following the delivery of a written notice to
Seller specifying the default in question; and/or
(iii) recover damages from Seller for any losses or costs
suffered by Buyer in connection with Seller's failure to perform is
obligations hereunder following the expiration of a five (5) day
period following the delivery of a written notice to Seller
specifying the default in question.
(c) Return of Deposit and the Refundable Option Consideration. Upon the
---------------------------------------------------------
occurrence of any event deemed to be a default by Seller under this
Agreement, the Refundable Option Consideration and the Deposit shall
be forthwith returned to Buyer by the Escrow Holder from and after ten
(10) days following the receipt of written notice from Buyer that
Seller has defaulted under this Agreement, unless the Escrow Holder
receives notice from Seller within such ten
-24-
<PAGE>
(10) day period that no default by Seller hereunder has occurred, in
which event the Refundable Option Consideration and the Deposit shall
be released only in accordance with joint instructions from Seller and
Buyer or with an order of a court of competent jurisdiction. If the
Refundable Option Consideration and the Deposit is to be returned to
Buyer in accordance with this Paragraph 17, Seller shall promptly, on
written request from Buyer, execute and deliver such documents as may
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<PAGE>
be required to cause the Escrow Holder to return the Refundable Option
Consideration and the Deposit to Buyer. NOTHING IN
(d) Buyer's and Seller's Acknowledgements. SELLER AND BUYER
-------------------------------------
ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS
PARAGRAPH 17 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND
BY ITS TERMS.
/s/ DJD /s/ TFA
---------------------- --------------
Seller's Initials Buyer's Initials]
18. Damage or Condemnation Prior to Closing. Seller shall promptly notify
---------------------------------------
Buyer of any casualty to the Property or any condemnation proceeding commenced
prior to the Close of Escrow. If any such damage or proceeding relates to or
may result in the loss of any material portion of the Property Buyer may, at its
option, elect either to: (i) to terminate this Agreement, in which event the
Refundable Option Consideration (subject to the requirements of Paragraph 3(a)
above) and the Deposit, plus all accrued interest thereon, shall be returned to
Buyer, or (ii) continue the Agreement in effect, in which event upon the Close
of Escrow, Buyer shall be entitled to any compensation, awards, or other
payments or relief resulting from such casualty or condemnation proceeding
relating to the Property (other than rental abatement proceeds attributable to
the period prior to the Close of Escrow) and there shall be no adjustment to the
Purchase Price, except that Buyer shall receive a credit to the Purchase Price
in an amount equal to the deductible under Seller's insurance policy. For
purposes of this Paragraph 18, damage to the Property or taking of a portion
thereof shall be deemed to involve a material portion thereof if the estimated
cost of restoration or repair, as estimated by Seller in its reasonable
discretion, of such damage or the amount of such the condemnation award with
respect to such taking shall exceed fifteen percent (15%) of the Purchase Price.
If any such damage or proceeding will not result in the loss of any material
portion of the Property, then this Agreement shall remain in effect, and upon
the Close of Escrow, Buyer shall be entitled to any compensation, awards or
other payments or relieve resulting from such casualty or condemnation
proceeding relating to the Property (other than rental abatement proceeds
attributable to the period prior to the Close of Escrow) and there shall no
adjustment to the Purchase Price except that Buyer shall receive a credit to the
Purchase Price in an amount equal to the deductible under Seller's insurance
policy. Seller hereby agrees that all insurance policies presently carried by
Seller with respect to the Property and in effect as of the date of this
Agreement shall be remain continuously in full force and effect from the date of
this Agreement through the date upon which the Close of Escrow occurs. Seller
shall deliver to Buyer a schedule of such insurance policies promptly following
the opening of Escrow.
19. Notices. All notices or other communications required or permitted
-------
hereunder shall be in writing, and shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested,
telegraphed, delivered or sent by telex, telecopy or cable and shall be deemed
received upon the earlier of (i) if personally delivered, the date of delivery
to the address of the person to receive such notice, (ii) if mailed, three (3)
business days after the date of posting by the United States post office,
certified mail, return receipt requested, or (iii) if given by telex or
-26-
<PAGE>
telecopy, when sent. Any notice, request, demand, direction or other
communication sent by telex or telecopy must be confirmed within forty-eight
(48) hours by letter mailed or delivered in accordance with the foregoing.
To Buyer: Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Attention: Mr. Thomas F. August, President
Telephone No.: (214) 761-5009
Fax No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Fax No.: (214) 969-4343
To Seller: LAPCO Industrial Parks
c/o Prentiss Properties Limited, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
Attention: Dennis J. DuBois, Esq.
Telephone: (214) 761-5011
Telecopy (214) 748-1742
With copies to: LAPCO Industrial Parks
c/o Prentiss Properties Limited. Inc.
970 West 190th Street
Suite 550
Torrance, California 90502
Attention:Mr. Louay Alsadek
Telephone:(310) 323-8300
Telecopy:(310) 327-7714
Allen, Matkins, Leck, Gamble & Mallory LLP
18400 Von Karman, Fourth Floor
Irvine, California 92612
Attention: Richard E. Stinehart, Esq
Telephone: (714) 553-1313
Telecopy: (714) 553-8354
-27-
<PAGE>
To Escrow Holder: Commonwealth Land Title Company
801 N. Grand Boulevard, 12th Floor
Glendale, California 91203
Attention:____________________
Telephone:(818) 552-7000
Telecopy:(818) 549-0249
Notice of change of address shall be given by written notice in the manner
detailed in this Paragraph 19. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given
shall be deemed to constitute receipt of the notice, demand, request or
communication sent.
20. Brokers. Upon the Close of Escrow, Seller shall pay real estate
-------
brokerage commissions to Cushman & Wakefield of California, Inc. with respect to
this transaction in accordance with Seller's separate agreements with said
broker and Seller hereby agrees to indemnify and hold Buyer free and harmless
from such commission obligations. The parties acknowledge that Cushman &
Wakefield of California, Inc. has acted as the sole agent of Seller in
connection with this transaction. If any additional claims for brokers' or
finders' fees for the consummation of this Agreement arise, then Buyer hereby
agrees to indemnify, save harmless and defend Seller from and against such
claims if they shall be based upon any alleged statement or representation or
agreement by Buyer, and Seller hereby agrees to indemnify, save harmless and
defend Buyer if such claims shall be based upon any alleged statement,
representation or agreement made by Seller.
21. Legal Fees. In the event of the bringing of any action or suit by a
----------
party hereto against another party hereunder by reason of any breach of any of
the covenants or agreements or any inaccuracies in any of the representations
and warranties on the part of the other party arising out of this Agreement,
then in that event, the prevailing party in such action or dispute, whether by
final judgment, or out of court settlement shall be entitled to have and recover
of and from the other party all costs and expenses of suit, including reasonable
attorneys' fees. Any judgment or order entered in any final judgment shall
contain a specific provision providing for the recovery of all costs and
expenses of suit, including reasonable attorneys' fees (collectively "Costs")
-----
incurred in enforcing, perfecting and executing such judgment. For the purposes
of this paragraph, Costs shall include, without limitation, attorneys' fees,
costs and expenses incurred in the following: (i) post judgment motions; (ii)
contempt proceeding; (iii) garnishment, levy, and debtor and third party
examination; (iv) discovery; and (v) bankruptcy litigation.
22. Assignment. Buyer shall have the right to assign its rights under
----------
this Agreement to any person in which Buyer has an economic interest, but such
assignment shall not relieve Buyer of its obligations under this Agreement.
Buyer shall not assign, transfer or convey its rights and/or obligations under
this Agreement and/or with respect to the Property to any other party without
the prior written consent of Seller, which consent Seller may withhold in its
sole, absolute and subjective discretion. Any attempted assignment without the
prior written consent of Seller shall be void and Buyer shall be deemed in
default hereunder. Any permitted assignments shall not relieve the assigning
party from its liability under this Agreement.
-28-
<PAGE>
23. Post Closing Access. For a period of four (4) years subsequent to the
-------------------
Close of Escrow, Seller, and its employees, representatives and agents, shall,
upon reasonable notice to Buyer, be entitled to access during normal business
hours to all documents, books and records given to Buyer by Seller at the Close
of Escrow or otherwise for tax and audit purposes, regulatory compliance and
cooperation with governmental investigations, and Seller shall have the right to
make copies of any such documents, books and records at Seller's expense.
24. Miscellaneous.
-------------
(a) Limitation of Liability. Notwithstanding anything to the contrary
-----------------------
in this Agreement, to the extent that The Prentiss/Copley Investment Group,
a Delaware general partnership and the managing partner of Seller ("PCIG"),
----
has any liability under this Agreement, whether as a partner of Seller or
otherwise, the liability of PCIG shall be limited to the assets of PCIG and
Seller, and the partners of PCIG shall not have any liability to Buyer or
Buyer's successors and assigns for the failure of Seller or PCIG to pay or
perform any of its obligations under this Agreement.
(b) Survival of Covenants. Subject to the terms of Paragraph 13
---------------------
hereof, the covenants, representations and warranties of Buyer set forth in
this Agreement shall survive the recordation of the Grant Deed and the
Close of Escrow and shall not be deemed merged into the Grant Deed upon
their recordation.
(c) Required Actions of Buyer and Seller. Buyer and Seller agree to
------------------------------------
execute such instruments and documents and to diligently undertake such
actions as may be required in order to consummate the purchase and sale
herein contemplated and shall use good faith efforts to accomplish the
Close of Escrow in accordance with the provisions hereof.
(d) Time of Essence. Time is of the essence of each and every term,
---------------
condition, obligation and provision hereof. All references herein to a
particular time of day shall be deemed to refer to Pacific Time.
(e) Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
(f) Captions. Any captions to, or headings of, the paragraphs or
--------
Subparagraphs of this Agreement are solely for the convenience of the
parties hereto, are not a part of this Agreement, and shall not be used for
the interpretation or determination of the validity of this Agreement or
any provision hereof
(g) No Obligations to Third Parties. Except as otherwise expressly
-------------------------------
provided herein, the execution and delivery of this Agreement shall not be
deemed to confer any rights upon, nor obligate any of the parties thereto,
to any person or entity other than the parties hereto.
-29-
<PAGE>
(h) Exhibits. The Exhibits attached hereto are hereby incorporated
--------
herein by this reference for all purposes.
(i) Amendment to this Agreement. The terms of this Agreement may not
---------------------------
be modified or amended except by an instrument in writing executed by each
of the parties hereto.
(j) Waiver. The waiver or failure to enforce any provision of this
------
Agreement shall not operate as a waiver of any future breach of any such
provision or any other provision hereof.
(k) Applicable Law. This Agreement shall be governed by and construed
--------------
and enforced in accordance with the laws of the State of California.
(l) Fees and Other Expenses. Except as otherwise provided herein,
-----------------------
each of the parties shall pay its own fees and expenses in connection with
this Agreement.
(m) Entire Agreement. This Agreement supersedes any prior agreements,
----------------
negotiations and communications, oral or written, and contains the entire
agreement between Buyer and Seller as to the subject matter hereof. No
subsequent agreement, representation, or promise made by either party
hereto, or by or to an employee, officer, agent or representative of either
party shall be of any effect unless it is in writing and executed by the
party to be bound thereby.
(n) Partial Invalidity. If any portion of this Agreement as applied
------------------
to either party or to any circumstances shall be adjudged by a court to be
void or unenforceable, such portion shall be deemed severed from this
Agreement and shall in no way effect the validity or enforceability of the
remaining portions of this Agreement.
(o) Successors and Assigns. Subject to the provisions of Paragraph 22
----------------------
hereof, this Agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of the parties hereto.
(p) Business Days. In the event any date described in this Agreement
-------------
relative to the performance of actions hereunder by Buyer, Seller and/or
Escrow Holder falls on a Saturday, Sunday or legal holiday, such date shall
be deemed postponed until the next business day thereafter.
(q) Waiver of Trial By Jury. The parties hereto irrevocably waive
-----------------------
their respective rights to a jury trial of any claim or cause of action
based upon or arising out of this Agreement. This waiver shall apply to any
subsequent amendments, renewals, supplements or modifications to this
Agreement. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
-30-
<PAGE>
THE SUBMISSION OF THIS AGREEMENT FOR EXAMINATION IS NOT INTENDED TO NOR
SHALL CONSTITUTE AN OFFER TO SELL, OR A RESERVATION OF, OR OPTION OR PROPOSAL OF
ANY KIND FOR THE PURCHASE OF THE PROPERTY. IN NO EVENT SHALL ANY DRAFT OF THIS
AGREEMENT CREATE ANY OBLIGATION OR LIABILITY, IT BEING UNDERSTOOD THAT THIS
AGREEMENT SHALL BE EFFECTIVE AND BINDING ONLY WHEN A COUNTERPART HEREOF HAS BEEN
EXECUTED AND DELIVERED BY EACH PARTY HERETO, THE OPTION CONSIDERATION HAS BEEN
PAID TO SELLER AND THE DEPOSIT IS DELIVERED TO ESCROW.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
-31-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
"Buyer" PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/ Thomas F. August
---------------------------------------
Print Name: Thomas F. August
----------------------------
Print Title: President
---------------------------
"Seller" LAPCO INDUSTRIAL PARKS,
a California joint venture
By: The Prentiss/Copley Investment Company, a Delaware
general partnership, Managing Venturer
By: Prentiss Property Investments, L.P., a
Delaware limited partnership,
Managing Partner
By: Prentiss Property Investments, Inc., a
Delaware corporation,
General Partner
By: /s/ Dennis J. DuBois
--------------------------------
Name: Dennis J. DuBois
----------------------------
Title: Principal
---------------------------
-32-
<PAGE>
Acceptance by Escrow Holder:
Commonwealth Land Title Company hereby acknowledges that it has received
originally executed counterparts or a fully executed original of the foregoing
Agreement of Purchase and Sale and Joint Escrow Instructions and agrees to act
as Escrow Holder thereunder and to be bound by and perform the terms thereof as
such terms apply to Escrow Holder.
Dated: August 13, 1996 COMMONWEALTH LAND TITLE COMPANY
By: /s/ Beverly Griesse
------------------------------
Print Name: Beverly Griesse
----------------------
Its Authorized Agent
-33-
<PAGE>
LEGAL DESCRIPTION OF PACIFIC GATEWAY CENTER
-------------------------------------------
1. PGC-201
19220 Normandie
Parcel 1, in the County of Los Angeles, State of California, as shown on Parcel
Map No. 4647, filed in Book 55, Page 61 of Parcel Maps, in the office of the
County Recorder of said County.
EXCEPT therefrom one-half of all oil, gas, minerals and other hydrocarbon
substances in and under said land, but without the right of surface or
subsurface entry to a depth of 500 feet from the present surface of said land,
is reserved in the deed from Felix H. Franco and Lupe Franco, husband and wife,
recorded May 26, 1967,in Book D3653, Page 951 Official Records.
2. PGC-202
19216/19218 Normandie
Parcel 2, in the County of Los Angeles, State of California, as shown on Parcel
Map No. 4647, filed in Book 55, Page 61 of Parcel Maps, in the office of the
County Recorder of said County.
EXCEPT therefrom one-half of all oil, gas, minerals and other hydrocarbon
substances in and under said land, but without the right of surface or
subsurface entry to a depth of 500 feet from the present surface of said land,
is reserved in the deed from Felix H. Franco and Lupe Franco, husband and wife,
recorded May 26, 1967,in Book D3653, Page 951 Official Records.
3. PGC-203
19306/308/326 Normandie
The West 255.3 feet of Lot 4 of Tract No. 4671, in the County of Los Angeles,
State of California, as per map recorded in Book 56, pages 30 and 31 of Maps, in
the office of the County Recorder of said County.
4. PGC-205
19603 Vermont
Parcel B of Parcel Map - L.A. No. 3036, in the City of Los Angeles, County of
Los Angeles, State of California, as per map filed in Book 61, Pages 79 and 800
of Parcel Maps, in the office of the County Recorder of said County.
EXHIBIT "A"
-----------
<PAGE>
5. PGC-208
19701 Vermont
Parcel C of Parcel Map No. L.A. 3036, in the City of Los Angeles, County of Los
Angeles, State of California, as per map recorded in Book 61, Pages 79 and 80 of
Parcel Maps, in the office of the County Recorder of said County.
6. PGC-209
991 Francisco
Parcel N, in the City of Los Angeles, County of Los Angeles, State of
California, as shown on that certain map entitled "PCL Map L.A. No. 3138"
recorded in Book 67 of Parcel Maps at Pages 94 and 95, records of Los Angeles
County.
7. PGC-212
19831 Magellan
Parcel L of Parcel Map No. L.A. No. 3138, in the City of Los Angeles, County of
Los Angeles, State of California, as per map filed in Book 67, Pages 94 and 95
of Parcel Maps, in the office of the County Recorder of said County.
8. PGC-213
19630 Pacific Gateway
Parcel E and the Southerly 53 feet of Parcel C of Parcel Map No. 3138, in the
City of Los Angeles, County of Los Angeles, State of California as per map filed
in Book 67, Pages 94 and 95 of Parcel Maps, in the office of the County Recorder
of said County, as described in the certificate to hold as one parcel recorded
June 29, 1978 as Instrument No. 78-707342, Official Records.
9. PGC-214
1010 Knox
Parcels A and C of Parcel Map No. 3138, in the City of Los Angeles, County of
Los Angeles, State of California, as per map filed in Book 67, Pages 94 and 95
of Parcel Map, in the office of the County Recorder of said County.
EXCEPT therefrom the Southerly 53 feet of said Parcel C, as described in the
Certificate to hold as one parcel, recorded November 17, 1978 as Instrument No.
78-1287389, Official Records.
EXHIBIT "A"
-----------
<PAGE>
10. PGC-215
20101/20051 Vermont
Parcels C & D of Parcel Map No. 3209, in the City of Los Angeles, County of Los
Angeles, State of California, as per map filed in Book 68, Pages 69 and 70 of
Parcel Maps, in the office of the County Recorder of said County.
11. PGC-216
970 Francisco
Parcel A, in the City of Los Angeles, County of Los Angeles, State of
California, as shown on Parcel Map No. 4760, filed in Book 129, Page 23 of
Parcel Maps, in the office of the County Recorder of said County.
12. PGC-217
950 Francisco
Parcel C in the City of Los Angeles, County of Los Angeles, State of California,
as shown on Parcel Map No. 4760, filed in Book 129, Page 23 of Parcel Maps, in
the office of the County Recorder of said County.
13. PGC-218
990 Francisco
Parcel B, in the City of Los Angeles, County of Los Angeles, State of
California, as shown on Parcel Map No. 4760, filed in Book 129, Page 23 of
Parcel Maps, in the office of the County Recorder of said County.
14. PGC-219
1011 Francisco
Parcel "M" of Parcel Map L.A. No. 3138,in the City of Los Angeles, County of Los
Angeles, State of California, as per map filed in Book 67, Pages 94 and 95 of
Parcel Maps, in the office of the County Recorder of Los Angeles, California.
15. PGC-223
19500/19600 Vermont
Lots 54 and 55 inclusive of Tract No. 4671, in the City of Los Angeles, County
of Los Angeles, State of California, as per map recorded in Book 56, Pages 30
and 31 of Maps, in the office of the County Recorder of said County.
EXHIBIT "A"
-----------
<PAGE>
16. PGC-224
1001 Knox
Parcel A, in the City of Los Angeles, County of Los Angeles, State of
California, as shown on Parcel Map L. A. No. 4759, filed in Book 139, Page 62 of
Parcel Maps, in the office of the County Recorder of said County.
17. PGC-225
19310 Pacific Gateway
PARCEL A:
Lot 27 and those portions of Lots 22, 26, and 23, of Tract No. 4671, in the City
of Los Angeles, County of Los Angeles, State of California, as per map recorded
in Book 56, Pages 30 and 31 of Maps, in the office of the County Recorder of
said County, together with those portions of Rosemead Street, now vacated, as
shown on said Tract 4671, bounded as follows:
Bounded on the East by the Easterly lines of said Lots 26 and 27; bounded
on the South by the Southerly lines of said Lots 27 and 22 and its
prolongations; bounded on the West by the Easterly line of Pacific Gateway
Drive (64 feet wide), as shown and dedicated on Tract No. 32036, as per Map
recorded in Book 851, Pages 12 to 14, inclusive, of Maps, in said
Recorder's Office; and bounded on the North by the Northerly line of the
Southerly 37 feet (measured at right angles) in said Lots 26 and 23, and
its prolongation.
PARCEL B:
An easement for the construction, installation, maintenance, repair, renewal,
replacement, operation and use of a storm drain pipeline or lines and
appurtenances thereto of any size or materials (the "facilities") and the right
of ingress and egress, together with the right and easement to discharge and
conduct storm and surface waters through said facilities and to use and occupy
said real property for said purposes, together with the right to remove any and
all trees within and over that portion of the Easterly 10 feet (measured at
right angles), of Lot 28, of Tract 4671, in the City of Los Angeles, County of
Los Angeles, State of California, as per map recorded in Book 56, Pages 30 and
31 of Maps, in the Office of the County Recorder of said County, lying Northerly
of the Northerly line of Knox Street (64 feet wide) as shown and dedicated on
Tract No. 32036, as per Map recorded in Book 851, Pages 12 to 14, inclusive of
Maps, in said Recorder's Office.
18. PGC-227
1111 Knox
Parcel C, in the City of Los Angeles, County of Los Angeles, State of
California, as shown on Parcel Map L. A. No. 3766, filed in Book 90, Page 64 of
Parcel Maps, in the office of the County Recorder of said County.
EXHIBIT "A"
-----------
<PAGE>
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL
THIS GRANT DEED AND ALL
TAX STATEMENTS TO:
- ---------------------
- ---------------------
- ---------------------
- ---------------------
- --------------------------------------------------------------------------------
(Above Space for Recorder's Use Only)
GRANT DEED
----------
The undersigned grantors declare:
Documentary transfer tax is $__________
(X) computed on full value of property conveyed, or
( ) computed on full value, less value of liens and encumbrances remaining at
time of sale.
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, LAPCO
INDUSTRIAL PARKS, a California joint venture ("Grantor"), hereby GRANTS to
___________________________________, a _________________________, the following
described real property (the "Property") located in the City of Los Angeles,
County of Los Angeles, State of California:
SEE EXHIBIT "1" ATTACHED HERETO AND INCORPORATED
HEREIN BY THIS REFERENCE
SUBJECT TO:
1. Taxes and assessments.
2. All other covenants, conditions, restrictions, reservations,
rights, rights of way, easements, encumbrances, liens and title matters whether
or not of record or visible from an inspection of the Property and all matters
which an accurate survey of the Property would disclose.
///
///
///
EXHIBIT "B"
-----------
<PAGE>
IN WITNESS WHEREOF Grantor has caused this Grant Deed to be executed as of
the ______ day of _______________, 199_.
LAPCO INDUSTRIAL PARKS a California joint venture
By: The Prentiss/Copley Investment Group, a Delaware
general partnership, Managing Venturer
By: Prentiss Property Investments, L.P., a
Delaware limited partnership,
Managing Partner
By: Prentiss Property Investments, Inc., a
Delaware corporation,
General Partner
By:____________________________________
Name:_______________________________
Title:______________________________
[Attach Legal Description and Jurat]
B-2
<PAGE>
TENANT'S ESTOPPEL CERTIFICATE
-----------------------------
The undersigned, as Tenant under the certain Lease (the "Lease") dated as
of _______, 19__, made by ____________________________, as Landlord with respect
to the premises located at ___________________________, hereby certifies as
follows:
1. The commencement date under the Lease was ______________, 19______.
2. The term of the Lease will expire on ________________, 19______.
3. Tenant has deposited with Landlord the sum of Dollars ($ )
---------------------
as a Security Deposit.
4. No rents or charges have been paid in advance, except for the
following rents or charges which have been paid to the date specified $
----------
paid to ___________, 19__.
5. The current monthly rental (including all Consumer Price Index
adjustments and as otherwise adjusted pursuant to the terms of the Lease) is
Dollars ($ ).
- --------------------------
6. The Lease (including all Exhibits) is in full force and effect and has
not been assigned, modified, supplemental or amended in any way, except as
follows:
7. The Lease, as affected by those changes set forth in Paragraph 6
above, represents the entire agreement between the parties to the Premises;
8. There are no uncured defaults by Landlord under the Lease, and Tenant
knows of no events or conditions which, with passage of time or notice, or both,
would constitute a default by Landlord under the Lease, except as follows:
9. At the date hereof, there are no existing defenses or offsets which
the undersigned has against the enforcement of the Lease by Landlord:
10. Tenant acknowledges that it has waived any right of first refusal to
purchase the Premises or any right to purchase the Premises or any option to
purchase the Premises that it may have; and
11. All conditions of the Lease to be performed by Landlord and necessary
to the enforceability of the Lease have been satisfied.
EXHIBIT "C"
-----------
<PAGE>
EXECUTED this ______ day of ______________, 199__.
"Tenant"___________________________________________________________________
By: __________________________
Print Name: __________________________
Print Title: __________________________
By: __________________________
Print Name: __________________________
Print Title: __________________________
EXHIBIT "C"
-----------
<PAGE>
FORM OF SELLER'S ESTOPPEL CERTIFICATE
-------------------------------------
This Seller's Estoppel Certificate ("Certificate") is made as of the ____
day of ______, 199__ by LAPCO INDUSTRIAL PARKS, a California joint venture
("Seller") in favor of _________________________, a ________________________
("Buyer"), with reference to the following facts:
R E C I T A L S
- - - - - - - -
A. Seller and Buyer entered into that certain Agreement of Purchase and
Sale of Joint Escrow Instructions ("Agreement") made and entered into as of
199__, pursuant to which Seller agreed to sell to Buyer the "Property" (as
defined in the Agreement).
B. Pursuant to Paragraph 7(a)(iv) of the Agreement, Seller may elect to
deliver its own estoppel certificate for the "Lease" (as defined in the
Agreement) if Seller is unable to obtain an "Estoppel Certificate" from the
"Tenant" (as such terms are defined in the Agreement) prior to the closing of
the transaction contemplated by the Agreement.
NOW, THEREFORE, Seller hereby certifies to Buyer as follows:
1. The commencement date under the Lease was __________, 19 ____.
2. The term of the Lease will expire on __________, 19 ____.
3. Tenant has deposited with Seller the sum of ________________ Dollars
($ ) as a Security Deposit.
-------------
4. No rents or charges have been paid in advance, except for the
following rents or charges which have been paid to date specified; $
------------
paid to _______________ 19_______.
5. The current monthly rental (including all Consumer Price Index
adjustments and as otherwise adjusted pursuant to the terms of the Lease is
Dollars ($ .
- -------------- ------------
6. The Lease (including all Exhibits) is in full force and effect and, to
Seller's actual knowledge without any investigation or inquiry of any kind or
nature whatsoever, the Lease has not been assigned, modified, supplemented or
amended in any way except as follows:
7. The Lease, as affected by those changes set forth in Paragraph 6
above, represents the entire agreement between the parties:
8. There are no uncured defaults by Seller under the Lease, and Seller is
not aware, without any investigation or inquiry or any kind or nature
whatsoever, of any events or conditions which, with the passage of time or the
giving of notice, or both, would constitute a default by Seller under the Lease,
except as follows:
EXHIBIT "E"
<PAGE>
9. At the date hereof, and to Seller's actual knowledge without any
investigation or inquiry of any kind or nature whatsoever, there are no existing
defenses or offsets which the Tenant has against the enforcement of the Lease by
Seller; and
10. All conditions of the Lease to be performed by Seller and necessary to
the enforceability of the Lease have been satisfied.
IN WITNESS WHEREOF, Seller has executed this Certificate as of the date
first set forth above.
LAPCO INDUSTRIAL PARKS, a California joint venture
By: The Prentiss/Copley Investment Group, a Delaware
general partnership, Managing Venturer
By: Prentiss Property Investments, L.P. a
Delaware limited partnership, Managing
Partner
By: Prentiss Property Investments, Inc. a
Delaware corporation, General Partner
By:
Print Name: ____________________________
Print Title: ____________________________
By: ____________________________
Print Name: ____________________________
Print Title: ____________________________
EXHIBIT "E"
<PAGE>
FORM OF HOLD HARMLESS AGREEMENT
-------------------------------
EXHIBIT "E"
<PAGE>
SELLER'S CERTIFICATE
--------------------
FEDERAL FIRPTA CERTIFICATE
- --------------------------
To inform ________________ (the "Transferee") that withholding of tax
----------
under Section 1445 of the Internal Revenue Code of 1986, as amended ("Code")
------
will not be required by LAPCO INDUSTRIAL PARKS, a California joint venture (the
"Transferor") upon the transfer of certain real property by the Transferor to
----------
the Transferee, the undersigned hereby certifies the following on behalf of the
Transferor:
1. The Transferor is not a foreign corporation, foreign partnership,
foreign trust, foreign estate or foreign person (as those terms are defined in
the Code and the Income Tax Regulations promulgated thereunder); and
2. The Transferor's U.S. employer or tax (social security)
identification number is _______________.
The Transferor understands that this Certification may be disclosed to
the Internal Revenue Service by the Transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both.
SELLER'S STATE TAX WITHHOLDING CERTIFICATE
- ------------------------------------------
Transferor hereby certifies that withholding of tax under Sections 18662
and 18668 of the California Revenue and Taxation Code (collectively, the "Act")
will not be required by Transferee for the following reasons:
CHECK ALL APPLICABLE ITEMS:
[______] 1. Transferor is a resident of California. Transferor's last known
address is _____________, City of ______________, County of
___________, California.
[______] 2. Transferor is a corporation qualified to do business in
California. Transferor's California Corporate I.D. No. is
____________.
[______] 3. Transferor is a partnership as determined in accordance with
Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue
Code.
[______] 4. Transferor has received a homeowner's property tax exemption for
the Property.
[______] 5. Transferor is a bank acting as a trustee other than a trustee of a
deed of trust.
EXHIBIT "F"
-----------
<PAGE>
Transferor understands that this Certificate may be disclosed to the
California Franchise Tax Board by Transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both.
Under penalty of perjury I declare that I have examined this
Certification and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of the Transferor.
LAPCO INDUSTRIAL PARKS, a California joint venture
By: The Prentiss/Copley Investment Group, a
Delaware general partnership, Managing Venturer
By: Prentiss Property Investments, L.P., a
Delaware limited partnership,
Managing Partner
By: Prentiss Property Investments, Inc., a
Delaware corporation, General Partner
By:_________________________________
Name:____________________________
Title:___________________________
F-2
<PAGE>
ASSIGNMENT OF LEASE AND ASSUMPTION AGREEMENT
--------------------------------------------
THIS ASSIGNMENT OF LEASE AND ASSUMPTION AGREEMENT ("Assignment"), made as
----------
of the _____ day of __________, 199__, by and between LAPCO INDUSTRIAL PARKS, a
California joint venture ("Assignor"), and _____________________ a __________
("Assignee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Assignor and Assignee have entered into that certain Agreement of
Purchase and Sale and Joint Escrow Instructions, dated _____________, 199_
("Agreement"), for the purchase and sale of certain real property ("Property")
--------- --------
more particularly described in Exhibit "A" to the Agreement.
-----------
WHEREAS, this Assignment is being made pursuant to the terms of the
Agreement for the purpose of assigning to Assignee all of Assignor's right,
title and interest in and to those certain leases ("Leases") described in
------
Schedule "1" attached hereto.
- ------------
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Assignment of Lease. Assignor hereby grants, assigns, transfers,
-------------------
conveys and delivers to Assignee the Leases and all of the right, title, estate,
interest, benefits and privileges of the lessor thereunder, and Assignee hereby
accepts such assignment, provided, however, that Assignor hereby retains all
contract rights under the Leases which accrued prior to the transfer of the
Property to Assignee, including, without limitation, any and all rights and
causes of action to recover past-due rent or other charges due under the Leases.
2. Assumption of Obligations. By acceptance of this Assignment, Assignee
-------------------------
hereby assumes and agrees to perform and to be bound by all of the terms,
covenants, conditions and obligations imposed upon or assumed by Assignor under
the Leases. Said assumption shall have application only to those obligations
under the Leases first accruing or arising on or after the delivery of this
Assignment and shall have no application to obligations accruing or arising
prior to said date.
3. Successors and Assigns. This Assignment shall be binding upon and
----------------------
inure to the benefit of the successors, assigns, personal representatives, heirs
and legatees of the respective parties hereto.
4. Attorneys' Fees. In the event of the bringing of any action or suit by
---------------
a party hereto against another party hereunder by reason of any breach of any of
the covenants, conditions, agreements or provisions on the part of the other
party arising out of this Assignment, then in that event the prevailing party
shall be entitled to have and recover of and from the other party all costs and
expenses of the action or suit, including reasonable attorneys' fees.
EXHIBIT "G"
-----------
<PAGE>
5. Governing Law. This Assignment shall be governed by, interpreted
-------------
under, and construed and enforceable with, the laws of the State of California.
IN WITNESS WHEREOF the parties hereto have executed this instrument as of
the date first hereinabove written.
"Assignor" LAPCO INDUSTRIAL PARKS, a California joint venture
By: The Prentiss/Copley Investment Group, a
Delaware general partnership, Managing Venturer
By: Prentiss Property Investments, L.P., a
Delaware limited partnership,
Managing Partner
By: Prentiss Property Investments, Inc., a
Delaware corporation, General Partner
By:__________________________________
Name:____________________________
Title:___________________________
"Assignee" ______________________________________________________
______________________________________________________
By:___________________________________________________
Print Name:______________________________________
Print Title:_____________________________________
By:___________________________________________________
Print Name:______________________________________
Print Title:_____________________________________
[Attach Description of Leases as Schedule "1"]
G-2
<PAGE>
ASSIGNMENT OF CONTRACTS AND ASSUMPTION AGREEMENT
------------------------------------------------
THIS ASSIGNMENT OF CONTRACTS AND ASSUMPTION AGREEMENT
("Assignment"), is made as of the day of _______________, 199__, by and between
----------
LAPCO INDUSTRIAL PARKS, a California joint venture ("Assignor"), and
--------
______________________, a ___________________ ("Assignee").
--------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Assignor and Assignee have entered into that certain Agreement of
Purchase and Sale and Joint Escrow Instructions, dated ___________, 199__
("Agreement"), for the purchase and sale of certain real property ("Property")
--------- --------
more particularly described in Exhibits "A" to the Agreement.
WHEREAS, this Assignment is being made pursuant to the terms of the
Agreement for the purpose of assigning to Assignee all of Assignor's rights,
title and interest in and to those certain service and maintenance contracts
described on Schedule "1" attached hereto (the "Contracts").
------------ ---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Assignment of Contracts. Assignor hereby grants, assigns, transfers,
-----------------------
conveys and delivers to Assignee the Contracts and all of Assignor's right,
title, interest, benefits and privileges thereunder, and Assignee hereby accepts
such Assignment.
2. Assumption of Obligations. By acceptance of this Assignment, Assignee
-------------------------
hereby assumes and agrees to perform and to be bound by all of the terms,
covenants, conditions and obligations imposed upon or assumed by Assignor under
the Contracts. Said assumption shall have application only to those obligations
under the Contracts first accruing or arising on or after the delivery of this
Assignment and shall have no application to obligations accruing or arising
prior to said date.
3. Successors and Assigns. This Assignment shall be binding upon and
----------------------
inure to the benefit of the successors, assigns, personal representatives, heirs
and legatees of the respective parties hereto.
4. Attorneys' Fees. In the event of the bringing of any action or suit by
---------------
a party hereto against another party hereunder by reason of any breach of any of
the covenants, conditions, agreements or provisions on the part of the other
party arising out of this Assignment, then in that event the prevailing party
shall be entitled to have and recover of and from the other party all costs and
expenses of the action or suit, including reasonable attorneys' fees.
EXHIBIT "H"
-----------
<PAGE>
BILL OF SALE
------------
5. Governing Law. This Assignment shall be governed by, interpreted
-------------
under, and construed and enforceable with, the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of
the date first hereinabove written.
"Assignor" LAPCO INDUSTRIAL PARKS, a California joint venture
By: The Prentiss/Copley Investment Group, a
Delaware general partnership, Managing Venturer
By: Prentiss Property Investments, L.P., a
Delaware limited partnership,
Managing Partner
By: Prentiss Property Investments, Inc., a
Delaware corporation, General Partner
By:_______________________________________
Name:______________________________
Title:_____________________________
"Assignee" _____________________________________________________
_____________________________________________________
By:_______________________________________
Name:______________________________
Title:_____________________________
By:_______________________________________
Name:______________________________
Title:_____________________________
[Attach Schedule of Contracts as Schedule "1"]
H-2
<PAGE>
BILL OF SALE
------------
FOR VALUABLE CONSIDERATION, the receipt of which is hereby acknowledged,
LAPCO INDUSTRIAL PARKS, a California joint venture ("Seller"), does hereby give,
------
grant, bargain, sell, transfer and deliver unto ________________, a ___________
("Buyer"), the following: (i) all of that certain personal property listed on
-----
the attached Exhibit "A" (the "Personal Property") which is owned by Seller and
----------- -----------------
is located on and used in connection with the real property more particularly
described on Exhibit "B" attached hereto (the "Real Property"), which is being
----------- -------------
conveyed to Buyer on or about of even date herewith and (ii) to the extent
assignable without the consent of third parties, all contracts, agreements,
permits, licenses and warranties held for use in connection with all or any
portion of the Real Property and the Personal Property and any rights Seller
may have in any trademarks or trade names which are utilized in connection with
the operation of the Real Property (the "Intangible Property"). The Personal
-------------------
Property and Intangible Property are hereby acquired by Buyer "as-is" without
any representation or warranty of any kind or nature of Seller, express, implied
or statutory, as to the nature of or title to the Personal Property or
Intangible Property or its fitness for Buyer's intended use of same.
EXECUTED this _____ of 199__.
"Seller" LAPCO INDUSTRIAL PARKS, a California joint venture
By: The Prentiss/Copley Investment Group, a
Delaware general partnership, Managing Venturer
By: Prentiss Property Investments, L.P., a
Delaware limited partnership,
Managing Partner
By: Prentiss Property Investments, Inc., a
Delaware corporation, General Partner
By:____________________________________
Name:______________________________
Title:_____________________________
[SIGNATURES CONTINUED]
EXHIBIT "I"
-----------
<PAGE>
"Buyer" ____________________________________________
____________________________________________
By:_________________________________________
Print Name:___________________________
Print Title:__________________________
By:_________________________________________
Print Name:___________________________
Print Title:__________________________
[Attach Personal Property Description and Real Property Description]
I-2
<PAGE>
SCHEDULE OF CONTRACTS
---------------------
EXHIBIT "J"
-----------
<PAGE>
EXHIBIT 10.18
FIRST AMENDMENT TO AGREEMENT OF
PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
THIS FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE AND JOINT
ESCROW INSTRUCTIONS (this "Agreement") is made and entered into, effective as of
August 27, 1996, by and among LAPCO INDUSTRIAL PARKS, a California joint venture
("Seller"), and PRENTISS PROPERTIES LIMITED, INC., a Delaware corporation
("Buyer"), with reference to the following facts:
R E C I T A L S:
A. Seller is the owner of certain real property located at the City
of Los Angeles, County of Los Angeles, California, and commonly known as the
Pacific Gateway Center (the "Property").
B. Pursuant to that certain Agreement of Purchase and Sale and Joint
Escrow Instructions (the "Original Agreement") dated August 12, 1995, Seller
agreed to sell the Property to Buyer.
C. Seller and Buyer desire to amend the Original Agreement in certain
respects. As used herein capitalized terms shall have the same meaning as
defined in the Original Agreement except as expressly modified herein.
NOW, THEREFORE, in light of the foregoing and in consideration of the
mutual covenants set forth in this Agreement, the parties hereby amend the
Original Agreement as follows:
1. OPTION CONSIDERATION AND TRANSFER FEES AND COSTS.
(a) Buyer and Seller hereby agree that the concepts and agreements
relating to Option Consideration, Third Party Consultant Fees and
Refundable Option Consideration are to be deleted from the Original
Agreement in their entirety, notwithstanding the fact that Buyer has
heretofore delivered the Option Consideration to the Title Company in
accordance with the provisions of the Original Agreement. Seller
hereby instructs the Title Company to return the Option Consideration
to Buyer. In such regard the Original Agreement is hereby amended in
the following respects:
(i) Paragraph 3 (a) of the Original Agreement is hereby
amended to be and read as follows:
"(a) Signing Fee. Upon mutual execution of this
-----------
Agreement Buyer shall pay to Seller in cash the sum of $100.00
(the "Signing Fee"). Upon payment to Seller, the Signing Fee
-----------
is fully earned by Seller as consideration for Seller entering
into this Agreement. The Signing Fee shall be applied to the
Purchase Price upon the "Close of Escrow" (as defined in
Paragraph 4(b) below)."
(ii) The Original Agreement is hereby further amended by
deleting therefrom all references to the terms "Option
Consideration," "Third Party Consultant Fees," and "Refundable
Option Consideration."
<PAGE>
(b) Paragraph 10 of the Original Agreement is hereby amended by
deleting the second sentence thereof and replacing same with the following:
"Seller and Buyer shall each pay one-half (1/2) of all transfer taxes and
recording fees payable in connection with the recordation of the Grant
Deed."
2. RESTRICTIONS ON CERTAIN SELLER DECISIONS. Buyer hereby agrees that in
respect to the decisions of Seller set forth in the second paragraph of
Paragraph 7(a)(ii) of the Original Agreement to be made during the Seller's
Election Period and Paragraph 7(a)(iv) in respect to the delivery of Seller's
Estoppel Certificate and extending the Closing Date, the decision as to whether
or not to make such election or delivery shall rest solely with NECOP Joint
Venture ("NECOP"), one of the joint venture partners in PCIG and any election
made or notice delivered by any other party in respect thereto shall not be
effective for any purpose.
3. SHELL HOLD HARMLESS. The third sentence of and the remainder of
Paragraph 7(a)(vii) of the Original Agreement are hereby deleted in its
entirety.
4. PRORATIONS.
(a) Paragraph 11(a) of the Original Agreement is hereby clarified to
the effect that any and all supplemental taxes assessed against the
Property from and after the Closing Date shall be the responsibility of and
shall be borne by Buyer.
5. SELLER'S REPRESENTATIONS AND WARRANTIES. Paragraph 13 of the Original
Agreement is hereby modified and clarified in the following respects:
(a) Subparagraph (m) is hereby modified by adding the following words
"other than liens and encumbrances to be released at Closing."
(b) The last paragraph of Paragraph 13 is hereby amended by adding the
following sentence:
"Notwithstanding anything contained herein to the contrary, in the
event of a breach of a warranty or representation set forth in this
Paragraph 13, other than those set forth in subparagraphs (a), (b),
(j), (k), or (l), Buyer shall look solely to Prentiss Property
Investments L.P. ("PPILP"), the managing partner of PCIG, the managing
partner of Seller, and not to any other party, including Seller or the
partners of LAPCO."
(c) By its execution hereof PPILP, for good and valuable consideration
hereby agrees to indemnify and hold PPL harmless from and against a breach
by LAPCO of the warranties and representations set forth in Section 13,
other than those set forth in subparagraphs (a), (b), (j), (k) and (l).
PPILP's execution hereof shall be for the sole and limited purpose of the
delivery of the foregoing indemnity.
2
<PAGE>
6. SELLER'S DEFAULTS; BUYER'S REMEDIES. Paragraph 17 of the Original
Agreement is hereby amended in the following respects:
(a) Subparagraph (b)(ii) is hereby amended by deleting "and/or" at the
end thereof and replacing same with "or."
(b) Subparagraph (b)(iii) is hereby deleted in its entirety and
replaced with a new subparagraph (iii) to be and read as follows:
"(iii) recover damages from Seller for any losses or costs
suffered by Buyer, other than as a result of a breach of warranty
or representation where Buyer has agreed to look solely to PPILP,
in connection with Seller's failure to perform its obligations
hereunder following the expiration of a five (5) day period
following the delivery of a written notice and demand to Seller
specifying the default in question.
(c) The words "NOTHING IN" at the end of subparagraph (c) are hereby
deleted in their entirety.
7. NOTICES. Paragraph 19 of the Original Agreement is hereby amended as
follows:
(a) Copies of all notices to Seller shall additionally be furnished to
NECOP at the following address:
NECOP Joint Venture
c/o Jones Lang Wootton Realty Advisors
1001 Fourth Avenue
Suite 3040
Seattle, WA 98154
Attention: Stephen P. Latimer, Managing Director
Telephone: (206) 622-5002
Telecopy: (206) 622-5950
(b) The name "Beverly Griesse" shall be inserted in the blank
appearing in the address for Commonwealth Land Title Company.
8. COUNTERPART EXECUTION. This Agreement may be executed in any number
of counterparts with the same effect as if all parties have signed the same
document. All counterparts shall be construed together and shall constitute one
agreement.
9. RELIANCE ON FACSIMILE. Each party is entitled to rely on copies of
this Agreement transmitted by facsimile as if the original signed documents had
been delivered to such party.
3
<PAGE>
10. LIMITATION OF AMENDMENT. Except as expressly modified herein the
Original Agreement shall be and remain unchanged.
IN WITNESS THEREOF, the parties have executed this Agreement as of the date
set forth below.
"Buyer" PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/ Thomas F. August
--------------------------------------------
Print Name: Thomas F. August
------------------------------------
Print Title: President
-----------------------------------
"Seller" LAPCO INDUSTRIAL PARKS,
a California joint venture
By: The Prentiss/Copley Investment Company, a Delaware
general partnership, Managing Venturer
By: Prentiss Property Investments, L.P., a
Delaware limited partnership,
Managing Partner
By: Prentiss Property Investments, Inc., a
Delaware corporation,
General Partner
By: /s/ J. Kevan Dilbeck
----------------------------
Print Name: J. Kevan Dilbeck
--------------------
Print Title: Vice President
-------------------
"PPILP" PRENTISS PROPERTY INVESTMENTS, L.P.,
a Delaware limited partnership
By: Prentiss Property Investments, Inc., a Delaware
corporation, General Partner
By: /s/ J. Kevan Dilbeck
---------------------------------------
Print Name: J. Kevan Dilbeck
-------------------------------
Print Title: Vice President
------------------------------
4
<PAGE>
EXHIBIT 10.19
AGREEMENT OF PURCHASE AND
SALE OF PARTNERSHIP INTERESTS
BY AND AMONG
LW-RTC, INC., LW-LP, INC.
AND
NP INVESTMENT VI CO.
AS SELLING PARTNERS
AND
PRENTISS PROPERTIES LIMITED, INC.
AS PURCHASER
Dated: AS OF AUGUST 5, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. DEFINITIONS; PURCHASE PRICE.................................................... 2
Section 1.1 Definitions.................................................................... 2
Section 1.2 Sale and Delivery of the Partnership Interests................................. 6
Section 1.3 Purchase Price for the Partnership Interests................................... 6
Section 1.4 Independent Consideration...................................................... 6
ARTICLE II. THE CLOSING DATE AND THE CLOSING;
OBLIGATIONS OF PURCHASER AND SELLING
PARTNERS WITH RESPECT THERETO.................................................. 7
Section 2.1 The Closing and the Closing Date............................................... 7
Section 2.2 Selling Partners' Obligations at the Closing................................... 7
Section 2.3 Purchaser's Obligations at the Closing......................................... 8
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS...................................... 9
Section 3.1 Representations and Warranties of Selling Partners............................. 9
Section 3.2 Knowledge Standard............................................................. 10
Section 3.3 Survival of Representations and Warranties..................................... 10
Section 3.4 Selling Partners' Obligation to Notify Purchaser of Change..................... 11
Section 3.5 Purchaser's Acknowledgement.................................................... 11
ARTICLE IV. CONDITIONS TO CLOSING.......................................................... 11
Section 4.1 Conditions Precedent to Purchaser's Obligations................................ 11
Section 4.2 Consequences of the Failure of Section 4.1 Conditions Precedent................ 12
Section 4.3 Conditions Precedent to Selling Partners' Obligation to Close.................. 13
Section 4.4 Operation of Project Prior to Closing.......................................... 13
ARTICLE V. DEFAULTS AND REMEDIES.......................................................... 14
Section 5.1 Selling Partners' Defaults; Purchaser's Remedies............................... 14
Section 5.2 Purchaser's Default; Selling Partners' Remedies................................ 14
Section 5.3 Attorneys' Fees................................................................ 15
ARTICLE VI. CLOSING COSTS; POST-CLOSING ADJUSTMENTS........................................ 15
Section 6.1 Closing Costs.................................................................. 15
Section 6.2 Post-Closing Adjustments with Respect to Available Cash........................ 15
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII. INDEMNIFICATION................................................................ 16
Section 7.1 Brokerage Commissions.......................................................... 16
Section 7.2 Selling Partners' Indemnity.................................................... 16
Section 7.3 Purchaser's Indemnity.......................................................... 16
ARTICLE VIII. MISCELLANEOUS.................................................................. 17
Section 8.1 Survival of Terms.............................................................. 17
Section 8.2 Binding Effect................................................................. 17
Section 8.3 Entire Agreement; Modifications................................................ 17
Section 8.4 Headings....................................................................... 17
Section 8.5 Interpretation and Construction................................................ 17
Section 8.6 Notice......................................................................... 18
Section 8.7 Additional Acts................................................................ 19
Section 8.8 Applicable Law................................................................. 19
Section 8.9 Assignment..................................................................... 19
Section 8.10 Time of the Essence............................................................ 19
Section 8.11 Conditions..................................................................... 19
Section 8.12 Severability................................................................... 20
Section 8.13 Counterparts................................................................... 20
Section 8.14 Acquisition of Other Projects.................................................. 20
</TABLE>
EXHIBITS:
"A" - Description of Land
"B" - Closing Certificate
"C" - Other Properties
SCHEDULES:
Schedule 1.1(v) - Partnership Interests
(ii)
<PAGE>
AGREEMENT OF PURCHASE AND SALE
OF PARTNERSHIP INTERESTS
------------------------
THIS AGREEMENT OF PURCHASE AND SALE is made and entered into by and among
PRENTISS PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"), and NP
INVESTMENT VI CO., a Delaware corporation ("NP Co."), LW-LP, INC., a Delaware
corporation ("LW-LP"), and LW-RTC, INC., a Delaware corporation ("LW-RTC") (NP
Co., LW-LP, and LW-RTC being collectively called "Selling Partners"), as of the
Effective Date.
W I T N E S S E T H:
===================
NP Co. and LW-LP on August 31, 1995, formed PL PROPERTIES ASSOCIATES, L.P.,
a Delaware limited partnership ("PL LP"), for the purpose of owning, operating
and selling the Project, as hereinafter defined.
PL LP was formed pursuant to the terms and conditions of that certain
Agreement of Limited Partnership (the "Original PL LP Partnership Agreement"),
dated August 31, 1995, by NP Co. and LW-LP, which was amended and restated in
that certain Amended and Restated Agreement of Limited Partnership dated as of
September 5, 1995, by and among LePren Partners, L.P., a Delaware limited
partnership ("LePren"), as the general partner, and LW-LP and Prentiss
Properties C-2 Investors, L.P., a Texas limited partnership ("C-2"), as limited
partners (the Original Partnership Agreement, as amended and restated, the "PL
LP Partnership Agreement").
NP Co. and C-2, as the general partners, and LW-RTC, as the limited
partner, formed LePren for the purpose of having LePren serve as general partner
of PL LP. LePren was formed pursuant to the terms and conditions of that
certain Agreement of Limited Partnership dated as of September 5, 1995, by and
among NP Co., C-2 and LW-RTC (the "LePren Partnership Agreement").
Selling Partners are the owners and holders of the partnership interests
(the "Partnership Interests") in the Partnerships (as hereinafter defined) as
set forth on the attached Schedule 1.1(v). Purchaser, on its behalf and on
---------------
behalf of certain Affiliates, desires to contract to purchase and acquire the
Partnership Interests. It is contemplated that Purchaser, or its permitted
assignee, shall acquire a portion of the Partnership Interests and the balance
of the Partnership Interests shall be acquired by one or more Affiliates of
Purchaser, or its permitted assignee.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Selling Partners
hereby agree as follows:
1
<PAGE>
ARTICLE I.
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by or
is under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other than
corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the controlled Person; and "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the controlled Person.
(b) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this Agreement of
Purchase and Sale as it may be amended from time to time with the required
consent of each party.
(c) "Available Cash" means all cash funds of the Partnerships
--------------
generated by the operation of the Project or otherwise through the Closing
Date (whether collected prior to or subsequent to the Closing Date) after
(i) payment of or provision for all operating expenses of the Project or
the Partnerships payable as of the Closing Date and (ii) provision for a
reasonable reserve to pay accrued and unpaid expenses from the operation of
the Partnerships and the Project on or prior to the Closing Date.
(d) "Business day" means a day that is not a Saturday, a Sunday, a
------------
legal holiday or a day on which banks are required or permitted by law or
other governmental action to close in New York, New York.
(e) "Books and Records" means all financial and other books and
-----------------
records maintained by or for the benefit of PL LP (or the Partnerships if
the context requires) in connection with the operation of the Project and
PL LP (or the Partnerships if the context requires) and all building plans,
specifications and drawings, engineering, soils and geological reports,
environmental reports and other documents prepared in connection with the
construction, maintenance, repair, management or operation of the Project
which are within the possession or control of Selling Partners, the
Partnerships, PL LP (or the Partnerships if the context requires), or PL
LP's (or the Partnerships' if the context requires) Affiliates, agents or
representatives.
(f) "C-2" means Prentiss Properties C-2 Investors, L.P., a Texas
---
limited partnership.
2
<PAGE>
(g) "Closing" means the consummation of the purchase of the
-------
Partnership Interests by Purchaser from Selling Partners in accordance with
the terms and provisions of Article III, which Closing shall be held at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., Suite 4100, 1700
Pacific Avenue, Dallas, Texas 75201-4618 on the Closing Date commencing at
10:00 a.m. Central Daylight Time.
(h) "Closing Date" means a Business day which shall be established
------------
by Purchaser by written notice delivered to Selling Partners, which date
shall be no earlier than thirty (30) days following the date of such
notice, except that from and after the date the IPO shall have occurred,
such date shall be no earlier than ten (10) days following the date of such
notice; provided, however, that in no event shall the Closing Date be a
date later than December 31, 1996.
(i) "Effective Date" shall mean the date on which this Agreement
--------------
shall be fully executed and unconditionally delivered by Purchaser and
Selling Partners.
(j) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(k) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the office buildings,
parking lots and all other amenities, together with PL LP's interest, if
any, in all machinery, fixtures and equipment used in the general operation
of such buildings and improvements, and/or affixed to or located upon the
Land, along with all accessions and additions thereto, excluding therefrom
any machinery, fixtures, equipment or personal property owned by Tenants at
the Project.
(l) "IPO" means the proposed initial public offering of securities
---
in the PPL REIT.
(m) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
-----------
hereof for all purposes, together with all and singular all right, title
and interest of PL LP, reversionary or otherwise, in and to all easements
in or upon the Land and all other rights and appurtenances belonging or in
anywise pertaining thereto, if any, including any right, title, and
interest of PL LP in and to any land lying in the bed of any street, road
or access way, right-of-way, alley, opened or proposed, in front of, at a
side of or adjoining the Land to the centerline thereof.
(n) "LePren" means LePren Partners, L.P., a Delaware limited
------
partnership.
3
<PAGE>
(o) "LePren Partnership Agreement" means that certain Agreement of
----------------------------
Limited Partnership, dated as of September 5, 1995, pursuant to which
LePren was formed.
(p) "Leases" means all leases, licenses, franchises, concessions
------
and other occupancy agreements for the use or occupancy of any portion of
the Project, together with all rents, issues, profits, and deposits
thereunder and all amendments thereto.
(q) "LW-LP" means LW-LP, Inc. a Delaware corporation.
-----
(r) "LW-RTC" means LW-RTC, Inc., a Delaware corporation.
------
(s) "Miscellaneous Assets" means all contract rights, leases,
--------------------
concessions, assignable warranties, and other items of intangible personal
property owned by PL LP (but only to the extent assignable) and relating to
the ownership or operation of the Land and Improvements, including, but not
limited to, (i) the Service Contracts, (ii) the Permits, (iii) the Leases,
(iv) assignable utility and similar deposits, (v) prepaid license and
permit fees, (vi) the Warranties and (vii) the Books and Records.
(t) "NP Co." means NP Investment VI Co., a Delaware corporation.
------
(u) "Parkwest C-2 Agreement" means that certain Agreement of
----------------------
Purchase and Sale of Partnership Interests, dated of even date herein by
and between Purchaser and C-2.
(v) "Partnerships" means PL LP and LePren.
------------
(w) "Partnership Agreements" means the PL LP Partnership Agreement
----------------------
and the LePren Partnership Agreement.
(x) "Partnership Interests" means the partnership interests in the
---------------------
Partnerships owned by Selling Partners, the type and percentage interest
held by each of Selling Partners being set forth on Schedule 1.1(v)
---------------
attached hereto and made a part hereof for all purposes.
(y) "Permits" means all licenses and permits issued to or for the
-------
benefit of PLP and used or relating to the ownership or operation of the
Project in accordance with its current use.
(z) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(aa) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by PL LP located on or in the Land and the Improvements and used or usable
in connection with any part of the Project. The term "Personal Property"
shall specifically exclude any and all bank accounts of the Partnerships
and the sums
4
<PAGE>
deposited therein, title to which shall be retained by the existing
partners of C-2 and Selling Partners.
(bb) "PL LP" means PL Properties Associates, L.P., a Delaware
-----
limited partnership.
(cc) "PL LP Partnership Agreement" means that certain Amended and
---------------------------
Restated Agreement of Limited Partnership dated as of September 5, 1995,
pursuant to which LePren was substituted as the general partner and C-2 was
added as a limited partner in PL LP and the Original PL LP Partnership
Agreement was restated in its entirety.
(dd) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct the
IPO, and to acquire directly or indirectly all or a portion of the
Partnership Interests and interests in other real properties, assets,
partnerships and related service businesses.
(ee) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(ff) "Purchase Price" means the sum of $7,281,667.00, as adjusted
--------------
pursuant to the provisions of Section 1.3 (b) hereof.
(gg) "Purchaser" means Prentiss Properties Limited, Inc., a
---------
Delaware corporation.
(hh) "Selling Partners" means LW-LP, LW-RTC, and NP Co.
----------------
(ii) "Selling Partners' Actual Knowledge" shall have the meaning
----------------------------------
set forth in Section 3.2 hereof.
(jj) "Service Contracts" means all service contract, landscaping
-----------------
contract, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of PL LP affecting the operation of
the Project.
(kk) "Simultaneous Closing Condition" shall have the meaning set
------------------------------
forth in Section 8.14 hereof.
(ll) "State" means the State of Texas.
-----
(mm) "Tenant" means any Person occupying any portion of the Project
------
under or pursuant to a Lease.
(nn) "Trigger Date" means March 1, 1996.
------------
(oo) "Warranties" means all warranties and guaranties relating to
----------
the Project, or any part thereof, or to the Personal Property or
Improvements, or construction thereof.
5
<PAGE>
Section 1.2 Sale and Delivery of the Partnership Interests. Selling
----------- ----------------------------------------------
Partners hereby agree to sell, transfer and assign the Partnership Interests to
Purchaser or its permitted assignees, and Purchaser hereby agrees to purchase
the Partnership Interests from Selling Partners, on the Closing Date, upon and
subject to the terms and provisions hereinafter set forth.
Section 1.3 Purchase Price for the Partnership Interests.
----------- --------------------------------------------
(a) Payment of the Purchase Price. The Purchase Price shall be
-----------------------------
payable to Selling Partners on the Closing Date by Federal Reserve wire
transfer of immediately available funds to an account or accounts to be
designated by Selling Partners, plus or minus prorations and adjustments as
hereinafter provided. The Purchase Price shall be allocated among Selling
Partners for federal income tax purposes in the manner required by the
Partnership Agreements.
(b) Adjustment to the Purchase Price. In the event that during the
--------------------------------
period between the Trigger Date and the Closing Date, PL LP expends any
sums of money in connection with
(i) a capital improvement, the betterment of or enhancement
of the Project excluding expenditures (which are to be
borne by the Partnerships or Selling Partners from
available cash of the Partnerships or other sources) (a)
which relate to routine repair and maintenance of the
Project necessary to maintain the Project in its current
condition, or (b) which are required to comply with
written commitments to Tenants pursuant to the Leases
entered into prior to the Trigger Date, or
(ii) a tenancy created from and after the Trigger Date, which
has been approved by Purchaser, including, without
limitation, any leasing commissions or tenant
improvement expenses;
then in such event the Purchase Price shall be increased by ninety percent
(90%) of the amounts expended by PL LP under this Section 1.3.
Section 1.4 Independent Consideration. Concurrently herewith, Purchaser
----------- -------------------------
has paid to Selling Partners the sum of $100.00 each, which shall be independent
consideration (the "Independent Consideration"), for the agreements of Selling
Partners set forth herein. The Independent Consideration shall be in addition to
the Purchase Price. If the Closing does not occur for any reason, the
Independent Consideration shall be deemed earned and shall be retained by each
of Selling Partners.
6
<PAGE>
ARTICLE II.
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLING PARTNERS WITH RESPECT THERETO
------------------------------------------------------
Section 2.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Partnership Interests contemplated by the terms and conditions of this Agreement
shall be consummated at the Closing to be held on the Closing Date.
Section 2.2 Selling Partners' Obligations at the Closing.
----------- --------------------------------------------
(a) At the Closing, each of Selling Partners shall do the following:
i) Execute and deliver to Purchaser a good and sufficient
assignment of partnership interests (the "Assignment") (with
warranty limited to Selling Partners' acts and subject to
the terms, conditions and limitations set forth in this
Agreement) in the form approved by Purchaser and Selling
Partners, conveying the title in and to the Partnership
Interests free and clear of all liens or encumbrances;
ii) Execute and deliver to Purchaser an amendment to the
Partnership Agreements (the "Amendment"), in the form
approved by Purchaser and Selling Partners, covering the
withdrawal of Selling Partners and the admittance of
Purchaser or its designees as partners in the Partnerships
and such other matters as Purchaser may reasonably require;
iii) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under penalty
of perjury, Selling Partners' U.S. taxpayer identification
numbers and that Selling Partners are not foreign persons
within the meaning of Section 1445 of the Internal Revenue
Code;
iv) Execute and deliver to Purchaser a Closing Certificate
(herein so called), in the form and containing the content
of the Closing Certificate attached hereto as "Exhibit "B"
-----------
and made a part hereof for all purposes;
v) Deliver or cause the Partnerships to deliver to Purchaser
satisfactory evidence that all necessary corporate,
partnership, or other actions on the part of Selling
Partners required by this Agreement have been taken with
respect to the consummation of the transaction contemplated
hereby; and
vi) Deliver to Purchaser such other assignments and documents as
may be required pursuant to the provisions hereof or
mutually agreed by
7
<PAGE>
counsel for Selling Partners and Purchaser to be necessary
to fully consummate the transaction contemplated hereby.
(b) If Selling Partners fail or are unable to deliver any of the items
set forth in this Section 2.2 at the Closing, Purchaser may (1) elect to
waive such failure and close the transaction, or (2) exercise any one or
more of its options under Section 5.1(b) hereof.
Section 2.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered to
Purchaser under Section 2.2 above, Purchaser shall do the following:
i) Deliver the Purchase Price in accordance with Section 1.3(a)
hereof;
ii) Execute and deliver to Selling Partners counterparts of the
Assignment to be executed and delivered by Selling Partners
pursuant to Section 2.2 above;
iii) Execute and deliver to Selling Partners counterparts of the
Amendment to be executed and delivered by Selling Partners
pursuant to Section 2.2 above;
iv) Deliver to Selling Partners satisfactory evidence that all
necessary corporate, partnership, or other actions by
Purchaser have been taken with respect to the consummation
of the transaction contemplated hereby; and
v) Deliver to Selling Partners such other instruments or
documents as may be required pursuant to the terms hereof or
mutually agreed by counsel for Selling Partners and
Purchaser to be necessary to fully consummate the
transaction contemplated hereby.
(b) If Purchaser fails or is unable to deliver any items set forth in
this Section 2.3 at the Closing, Selling Partners may (1) elect to waive
such failure and close the transaction, or (2) exercise their remedies
under Section 5.2(b) hereof.
8
<PAGE>
ARTICLE III.
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 3.1 Representations and Warranties of Selling Partners.
----------- --------------------------------------------------
Selling Partners hereby represent and warrant to Purchaser, as of the date
hereof and as of the Closing Date, the following:
(a) Each of Selling Partners is the legal and beneficial owner of the
respective Partnership Interest owned by Selling Partner in question. The
Partnership Interests are owned by Selling Partners free and clear of all
liens, security interests, pledges, assessments, charges, adverse claims,
restrictions and other encumbrances created by Selling Partners or their
predecessors in interest, except as set forth in the Partnership
Agreements. Other than the rights and obligations arising under this
Agreement and the Partnership Agreements, the Partnership Interests are not
subject to any rights of any other person to acquire the same, nor are the
Partnership Interests subject to any restrictions on transfer thereof,
except for restrictions imposed by the Partnership Agreements and
applicable federal and state securities laws.
(b) The Partnerships have been duly formed and are validly existing as
limited partnerships under the laws of the State of Delaware, and are duly
registered or qualified to do business in the State of Texas.
(c) Neither the execution and deliver of this Agreement nor the
consummation of the transaction contemplated hereby conflict with or will
result in a material breach of any of the provisions of, or constitute a
default under, any agreement or instrument to which the Partnerships are a
party or by which they are bound. There are no actions, voluntary or
involuntary, pending against Selling Partners or the Partnerships under any
bankruptcy, reorganization, arrangement, insolvency or similar federal or
state statute.
(d) Each of Selling Partners has been duly formed and is validly
existing as a corporation under the laws of the State of Delaware. NP Co.
is duly registered or qualified to do business in the State of Texas. The
execution, delivery and performance of this Agreement and all other
documents, instruments and agreements to be executed and delivered by
Selling Partners pursuant to this Agreement (collectively, "Selling
Partners' Documents") are within the corporate power of Selling Partners
and have been duly authorized by all necessary and appropriate corporate
action.
(e) Neither the execution and deliver of this Agreement and Selling
Partners' Documents nor the consummation of the transaction contemplated
hereby conflict with or will result in a material breach of any of the
provisions of, or constitute a default under, (i) the corporate documents
of Selling Partners or (ii) any agreement or instrument to which Selling
Partners are a party or by which they are bound. There are no actions,
voluntary or involuntary, pending against Selling Partners under any
bankruptcy, reorganization, arrangement, insolvency or similar federal or
state statute.
9
<PAGE>
(f) Selling Partners are not "foreign persons" as defined in Section
1445(f)(3) of the Internal Revenue Code of 1986, as amended.
(g) As of the date hereof, to Selling Partners' Actual Knowledge
there is not any pending, nor have the Partnerships or Selling Partners
received written notice of any threatened, proceeding, suit or action
against the Partnerships or Selling Partners which, if adversely decided,
would prevent or materially delay the consummation of the transaction
contemplated by this Agreement, or materially adversely affect the
Partnerships or the Partnership Interests.
(h) To Selling Partners' Actual Knowledge, (1) the Partnerships have
filed all income, franchise, sales, payroll and other tax returns and
reports of every nature required to be filed by them accurately reflecting
all taxes owing to the United States or any other government, government
subdivision or taxing authority, and they have paid in full or made
adequate provision for the payment of all taxes and duties (including
penalties and interest) for which they have or may have liability; (2)
there is no unassessed tax deficiency proposed or threatened against the
Partnerships as a result of the operation of its business; (3) there are no
liens on the assets of the Partnerships as a result of any tax liabilities
except for taxes not yet due and payable; and (4) there are, as of the date
of this Agreement, no, and after the date of this Agreement there will not
be any, tax deficiencies (including penalties and interest) of any kind
assessed against or relating to the Partnerships with respect to any
taxable periods ending on or before, or including, the Closing Date of a
character or nature that would result in liens or claims on any of the
Project, or on the Partnerships' title to or use of the Project, or that
would result in any claim against the Partnerships.
(i) The copies of the Partnership Agreements and the amendments
thereto, if any, to be delivered to Purchaser by Selling Partners are true
and correct copies of the documents governing the formation and existence
of the Partnerships and there are no other agreements, documents or other
instruments of any nature which govern the relationship of the partners in
the Partnerships or its assets.
Section 3.2 Knowledge Standard. For purposes hereof, wherever the term
----------- ------------------
"Selling Partners' Actual Knowledge" is used it shall be limited to the
knowledge of Edward J. Meylor, after due inquiry by such individual of
supervisory on-site property management personnel at the Project.
Notwithstanding anything herein contained to the contrary, in the event that
prior to Closing, Purchaser has actual knowledge of any fact or circumstance
that would make any of the representations or warranties of Selling Partners set
forth herein untrue or incorrect, Selling Partners shall not be deemed to be in
default hereunder by reason of the fact that such representation or warranty is
in fact untrue or incorrect.
Section 3.3 Survival of Representations and Warranties. The
----------- ------------------------------------------
representations and warranties set forth in Section 3.1 hereof shall be
continuing and shall be true and correct on and as of the Closing Date with the
same force and effect as if made at that time, and all of such representations
and warranties shall survive the Closing without limitation of time constraints.
10
<PAGE>
Section 3.4 Selling Partners' Obligation to Notify Purchaser of Change.
----------- ----------------------------------------------------------
If, prior to the Closing Date, either Selling Partners or the Partnerships
become aware that any representation or warranty set forth in Section 3.1 hereof
which was true and correct on the date hereof has become incorrect in any
material respect, either prior to or at Closing, due to changes in conditions or
the discovery of information by Selling Partners or the Partnerships of which
Selling Partners were unaware on the date hereof, Selling Partners shall
immediately notify Purchaser thereof. Upon receipt of such notification, if
such change is material and adverse with respect to the acquisition of the
Project, Purchaser shall have the option of terminating this Agreement whereupon
this Agreement shall become null and void and of no further force or effect and
neither party shall have any further obligation one to the other. If Purchaser
does not exercise its option to terminate this Agreement by reason of any such
change in conditions, appropriate modifications shall be made in the terms
hereof to reflect the change in the conditions to the mutual satisfaction of
Selling Partners and Purchaser.
Section 3.5 Purchaser's Acknowledgement. Purchaser acknowledges that,
----------- ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Partnership Interests shall be acquired on a basis that is
without representation or warranty, including any representations or warranties
relating to the Project, which as of the Closing Date shall be in its present
condition, subject to reasonable use, wear, tear and natural deterioration and
fire and damage from other casualty between the Effective Date and the Closing
Date. In such regard, there shall be no reduction in the Purchase Price for any
change in the condition of the Project by reason of any events, subsequent to
the Effective Date, except by reason of condemnation or casualty. Purchaser
further acknowledges that it has not been induced by, nor has it relied upon,
any representations, warranties or other statements, whether express or implied,
made by Selling Partners, or any of its agents, employees or other
representatives, which are not expressly set forth in this Agreement or in the
materials to be delivered to Purchaser in accordance with the terms and
provisions hereof.
ARTICLE IV.
CONDITIONS TO CLOSING
---------------------
Section 4.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Selling Partners set forth
herein shall be true in all material respects on and as of the Closing Date
with the same force and effect as if such representations and warranties
have been made on and as of the Closing Date;
(b) Selling Partners shall have performed, observed and complied with
all of the covenants, agreements and conditions required by this Agreement
to be performed, observed and complied with in all material respects by
Selling Partners prior to or as of the Closing Date;
11
<PAGE>
(c) The transaction contemplated by the Parkwest C-2 Agreement shall
have been consummated contemporaneously with the closing of the transaction
contemplated herewith;
(d) Selling Partners shall have delivered to Purchaser a certificate
or certificates as may be acceptable to Purchaser stating that a search has
been conducted by a party acceptable to Purchaser of both the state and
county records in which financing statements and security agreements are
filed under the Uniform Commercial Code of the State and that such searches
indicate that, except security interests or liens to be released at
Closing, no security interests or liens of any kind or nature, including,
but not limited to, any equipment financing or leasing arrangements, are
claimed by any Person against the Personal Property, the Partnership
Interests or the Improvements or any part thereof;
(e) The closing of the IPO shall have occurred;
(f) No material adverse change in the condition or operation of the
Project (including without limitation casualty loss or condemnation) not
covered by insurance or the Partnerships as they exist on the Effective
Date shall have occurred between the Effective Date and the Closing Date,
which change negatively and adversely affects the Project or the
Partnership in any material manner; and
(g) The Project shall not have suffered any unrepaired casualty loss
or condemnation since the Effective Date which materially and adversely
affects the Project or the Partnerships.
Section 4.2 Consequences of the Failure of Section 4.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 4.1 above are as follows:
(a) In the event that the Closing Date has been established, Purchaser
is ready, willing and able to consummate the acquisition of the Partnership
Interests and the conditions set forth in Subsections 4.1 (a) and/or (b)
have not been satisfied, Selling Partners shall be deemed in default
hereunder and Purchaser shall have the option to either (i) waive those
conditions and proceed with the Closing or (ii) exercise it rights and
remedies set forth in Article V.
(b) In the event on or before the Closing Date, the conditions set
forth in Subsections 4.1(c), (d), (e), (f) or (g) above have not been
satisfied, Purchaser shall have the option to either (i) waive those
conditions and proceed with the Closing or (ii) terminate this Agreement
whereupon this Agreement shall become null and void and of no further force
or effect and neither party shall have any further obligation one to the
other.
Section 4.3 Conditions Precedent to Selling Partners' Obligation to Close.
----------- -------------------------------------------------------------
(a) Payment of Debt. Notwithstanding anything to the contrary
---------------
contained herein, the obligations of the Selling Partners to consummate the
transaction contemplated hereby are expressly conditioned upon payment in
full contemporaneously with the Closing
12
<PAGE>
of the indebtedness of PL LP to ALI, Inc. in the original principal amount
of $35,517,327.00 plus all accrued and unpaid interest.
(b) Other Agreements. Notwithstanding anything to the contrary
----------------
contained herein, the obligations of Selling Partners to consummate the
transaction contemplated hereby are expressly subject to satisfaction of
the "Simultaneous Closing Condition", as defined in Section 8.14 hereof,
with respect to the "Other Agreements", as defined in Section 8.14.
Subject to any contrary terms in Section 8.14, in the event of the failure
of such Simultaneous Closing Condition, Selling Partners shall have the
option to either (i) waive the Simultaneous Closing Condition and proceed
with the Closing or (ii) terminate this Agreement, in which event this
Agreement shall become null and void and of no further force or effect, and
neither party shall have any further obligation one to the other, except to
the extent that any obligation survives the termination of this Agreement.
(c) Outside Closing Date. In the event (i) the condition precedent to
--------------------
Purchaser's obligations to consummate the transaction contemplated hereby
set forth in Section 4.1(e) has not been satisfied on or before December
31, 1996, in a manner to permit the transaction contemplated hereby and by
the Other Agreements to be consummated and funded by such date, or (ii)
Purchaser has not designated a Closing Date within a sufficient period of
time to permit the timely Closing of the transaction contemplated hereby on
or before December 31, 1996, or (iii) Purchaser has not designated a
Closing Date within ten (10) Business days following the date the IPO has
occurred, then in such event this Agreement shall terminate and become null
and void and of no further force or effect on the earlier of December 31,
1996, or on the tenth (10th) Business day following the date of the
occurrence of the IPO, and neither party shall have any further obligation
one to the other under this Agreement.
Section 4.4 Operation of Project Prior to Closing. From the date hereof
----------- -------------------------------------
through the Closing Date, Selling Partners shall (a) continue to cause PL LP's
property manager to diligently operate the Improvements and the Project in the
ordinary course of business between the date hereof and the Closing Date, (b)
cause PL LP to keep, observe, and perform or cause to be performed all of its
obligations as landlord under the Leases, (c) prevent PL LP from terminating or
causing the termination of any Lease except as the result of the default of the
Tenant thereunder or the replacement of a suitable substitute, and (d) cause PL
LP to maintain and operate the Project in substantially the same condition and
repair as exists on the Effective Date, reasonable wear and tear and normal
replacements and fire and damage from other casualty excepted, such operation to
include, subject to the provisions set forth in Section 1.3 hereof relating to
the adjustment to the Purchase Price, (i) the continuation of maintenance and
repair programs consistent with current operations, (ii) the expenditure of
money in respect to leasing activities consistent with current operations, and
(iii) the performance, in the ordinary course of business and at PL LP's
expense, of any repairs requested by Tenants prior to the Closing Date which are
the responsibility of the landlord under the Leases. From the date hereof
through the Closing Date, Selling Partners shall not permit the Partnership,
without the prior written consent of Purchaser, which consent shall not be
unreasonably withheld or delayed, to enter into any contracts, licenses, or
other agreements with respect to the Project unless the same may be terminated
on or before Closing. Selling Partners agree to use their good faith efforts to
cause PL LP to collect all rental and other income prior to the Closing Date.
13
<PAGE>
ARTICLE V.
DEFAULTS AND REMEDIES
---------------------
Section 5.1 Selling Partners' Defaults; Purchaser's Remedies.
----------- ------------------------------------------------
(a) Selling Partners' Defaults. Selling Partners shall be deemed to
--------------------------
be in default hereunder in the event that any of Selling Partners'
representations hereunder are determined to be false or misleading in any
material respect or in the event Selling Partners shall fail in any
material respect to meet, comply with, or perform any covenant, agreement,
or obligation on their part required to be met, complied with, or performed
within the time limits and in the manner required in this Agreement.
(b) Purchaser's Remedies. In the event Selling Partners shall be
--------------------
deemed to be in default hereunder for any other reason, by virtue of the
occurrence of any one or more of the events specified in Section 5.1(a)
above, Purchaser may at its election (i) bring suit against Selling
Partners to enforce specific performance of this Agreement, together with
such actions as may be available at law or in equity to recover Purchaser's
actual out-of-pocket costs in the performance of reasonable due diligence,
or (ii) terminate this Agreement. If the remedy of specific performance is
not available Purchaser shall have no remedy for damages other that the
aforementioned out-of-pocket costs.
Section 5.2 Purchaser's Default; Selling Partners' Remedies.
----------- -----------------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in default
--------------------
hereunder in the event Purchaser shall fail in any material respect to
meet, comply with, or perform any covenant, agreement, or obligation on its
part required to be met, complied with, or performed within the time limits
and in the manner required in this Agreement.
(b) Selling Partners' Remedy. IN THE EVENT PURCHASER SHALL BE DEEMED
------------------------
TO BE IN DEFAULT AS SET FORTH IN SECTION 5.2(a) ABOVE PRIOR TO CLOSING AND
SELLING PARTNERS DO NOT WAIVE SUCH DEFAULT, SELLING PARTNERS, AS SELLING
PARTNERS' SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, SHALL BE ENTITLED TO
RETAIN THE INDEPENDENT CONSIDERATION, IT BEING AGREED BETWEEN PURCHASER AND
SELLING PARTNERS THAT SUCH SUM SHALL BE LIQUIDATED DAMAGES FOR SUCH DEFAULT
OF PURCHASER BECAUSE OF THE DIFFICULTY, INCONVENIENCE AND UNCERTAINTY OF
ASCERTAINING ACTUAL DAMAGES FOR SUCH DEFAULT. IN PLACING THEIR INITIALS AT
THE PLACES PROVIDED, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE
STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY
COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION
AT THE TIME THIS AGREEMENT WAS MADE. NOTWITHSTANDING THE FOREGOING, THE
PROVISIONS OF THIS SECTION 5.2 (b) SHALL NOT LIMIT IN ANY MANNER
PURCHASER'S INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 7.1 OR 7.3 HEREOF.
14
<PAGE>
SELLING PARTNERS' INITIALS:
----------------------
--------------
PURCHASER'S INITIALS: /s/ TFA
----------------------
Section 5.3 Attorneys' Fees. Should either party employ an attorney or
----------- ---------------
attorneys to enforce any of the provisions hereof or to protect its interest in
any manner arising under this Agreement, the non-prevailing party in any action
pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
ARTICLE VI.
CLOSING COSTS; POST-CLOSING ADJUSTMENTS
---------------------------------------
Section 6.1 Closing Costs. Costs of closing the transaction contemplated
----------- -------------
hereby shall be allocated between Selling Partners and Purchaser as follows:
(a) Selling Partners shall pay the costs, if any, incurred by Selling
Partners in connection with the performance of its obligations hereunder.
(b) Purchaser shall pay the costs, if any, incurred by Purchaser in
connection with the performance of its obligations hereunder.
Section 6.2 Post-Closing Adjustments with Respect to Available Cash.
----------- -------------------------------------------------------
Purchaser and Selling Partners acknowledge that all Available Cash relating to
the operations of the Partnerships prior to the Closing Date shall be retained
by and remain the property of the existing partners (including Selling Partners)
owning interests in the Partnerships immediately prior to the consummation of
the transaction contemplated hereby. Purchaser and Selling Partners further
acknowledge that it may not be possible to determine or compute the exact amount
of undistributed Available Cash as of the Closing Date. Therefore, Purchaser
hereby agrees that it shall cause the Partnerships, as soon as reasonably
practicable following the Closing Date, to determine and compute the amount of
undistributed Available Cash through the Closing Date and to pay over and
distribute such sums to Selling Partners and the other partners of the
Partnerships in the manner contemplated by the Partnership Agreements, as if the
transaction contemplated hereby had not been consummated. To the extent
requested by Selling Partners, Purchaser and/or the Partnerships shall provide
adequate back up and substantiation as to the manner in which undistributed
Available Cash has been determined, including verification by the Partnerships'
independent accountants if requested by Selling Partners. All tax and accounting
work for the Partnerships relating to periods ending on or prior to the Closing
shall after the Closing continue to be performed in the manner stated in the
Partnership Agreements as in effect on the Closing Date.
15
<PAGE>
ARTICLE VII.
INDEMNIFICATION
---------------
Section 7.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker, agent or other third party with respect to the payment of any
commission regarding the consummation of the transaction contemplated hereby. It
is agreed that if any claims for commissions or fees, including, without
limitation, brokerage fees, finder's fees, or commissions, are ever made against
Selling Partners or Purchaser in connection with this transaction, all such
claims shall be handled and paid by the party whose actions or alleged
commitments form the basis of such claim and such party shall indemnify and hold
harmless the other from and against all such claims or demands with respect to
any brokerage fees, finder's fees, or agents' commissions or other compensation
asserted by any person, firm, or corporation in connection with this Agreement
or the transactions contemplated hereby. The provisions of this Section 7.1
shall expressly survive the early termination of this Agreement.
Section 7.2 Selling Partners' Indemnity. Selling Partners agree to
----------- ---------------------------
indemnify and hold Purchaser harmless of and from all liabilities, claims,
demands and expenses, of any kind or nature, known or unknown, fixed or
contingent, arising or accruing on or before the Closing Date related to the
ownership of the Partnership Interests excluding, however, any such liability,
claim, demand, or expense to the extent caused by, resulting from, or arising
out of the ownership, maintenance, or operation of the Project other than those
described in the following sentence, and all expenses related thereto,
including, without limitation, court costs and attorneys' fees. The foregoing
indemnity shall also apply to any such claims, demands, causes of action,
losses, damages, liabilities, costs or expenses asserted against or incurred by
Purchaser at any time or from time to time by reason of or arising out of the
breach of any representation or warranty of Selling Partners set forth herein.
Section 7.3 Purchaser's Indemnity. Purchaser agrees to indemnify and hold
----------- ---------------------
Selling Partners harmless of and from all liabilities, claims, demands and
expenses, of any kind or nature, known or unknown, fixed or contingent, arising
and accruing subsequent to the Closing Date related to (a) the ownership of the
Partnership Interests and (b) caused by, resulting from, or arising out of the
ownership, maintenance, or operation of the Project (whether arising or accruing
prior to, on, or subsequent to the Closing Date), and all expenses related
thereto, including, without limitation, court costs and attorneys' fees.
ARTICLE VIII.
MISCELLANEOUS
-------------
Section 8.1 Survival of Terms. Except to the extent otherwise
----------- -----------------
expressly provided for herein, the terms and provisions hereof shall survive the
Closing. The acceptance of the closing documents by Purchaser and payment of the
Purchase Price shall be deemed full compliance by Selling Partners and Purchaser
of all of their respective obligations arising under this Agreement and
Purchaser and Selling Partners each expressly waives any noncompliance by the
other party hereto with any prior obligations other than those obligations which
expressly survive the Closing.
16
<PAGE>
Section 8.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and permitted assigns.
Section 8.3 Entire Agreement; Modifications. This Agreement embodies and
----------- -------------------------------
constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements
(other than the Partnership Agreements), understandings, representations, and
statements, oral or written, are merged into this Agreement. Neither this
Agreement nor any provision hereof may be waived, modified, amended, discharged,
or terminated except by an instrument in writing signed by the party against
which the enforcement of such waiver, modification, amendment, discharge, or
termination is sought, and then only to the extent set forth in such instrument.
Section 8.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 8.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Selling Partners and Purchaser, each of
which has been represented by counsel of its own selection, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Consequently, the terms and provisions of this Agreement shall
be interpreted and construed in accordance with their usual and customary
meanings, and Selling Partners and Purchaser hereby expressly waive and
disclaim, in connection with the interpretation and construction of this
Agreement, any rule of law or procedure requiring otherwise, including
without limitation, any rule of law to the effect that ambiguous or
conflicting terms or provisions contained in this Agreement shall be
interpreted or construed against the party whose attorney prepared this
Agreement or any earlier draft of this Agreement.
Section 8.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail
return receipt, signed by the addressee or the addressee's agent or
representative, (b) if by telegram, by a telegram receipt signed by the
addressee or the addressee's agent or representative, (c) if hand delivered
(including delivery by any overnight or other delivery service), by a delivery
receipt signed by the addressee or the addressee's agent or representative, or
(d) if sent by facsimile transmission, with confirmation of receipt at the
facsimile number to which it was sent. Each party's initial address for
delivery of any Notice is designated below, but any party from time to time may
designate a different address for delivery of any Notice by delivering to the
other party Notice of such different address; provided, however, neither party
may designate an address for delivery of Notice not located within the United
States. Each party
17
<PAGE>
hereto covenants and agrees to mail copies of any Notice to the parties
designated to receive copies of any Notice below, but the failure of the
addressee for any copy actually to receive such copy shall not render the Notice
ineffective.
If to Selling Partners: LW-LP, Inc.
LW-RTC, Inc.
NP Investment VI Co.
1201 Elm Street
Suite 5400
Dallas, Texas 75270
Attention: Mr. Edward J. Meylor
Telephone No.: (214) 745-5400
Facsimile No.: (214) 745-5390
With copies to: James J. Thomas, Esq.
Windels, Marx, Davies & Ives
156 West 56th Street
New York, New York 10019
Telephone No.: (212) 237-1000
Facsimile No.: (212) 262-1215
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Facsimile No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Facsimile No.: (214) 969-4343
Section 8.7 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Selling
Partners or Purchaser, Selling Partners and Purchaser hereby agree to perform,
execute, and/or deliver or cause to be performed, executed, and/or delivered at
the Closing or thereafter, all such further acts, deeds, and assurances as
Purchaser or Selling Partners, as the case may be, may reasonably require to (i)
evidence and vest in the Purchaser the ownership of, and title to, the
Partnership Interests, and (ii) consummate the transactions contemplated
hereunder. The covenants set forth in this Section 8.7 shall survive the
Closing.
18
<PAGE>
Section 8.8 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
----------- --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
Section 8.9 Assignment. Purchaser shall have the right, without the
----------- ----------
consent of Selling Partners, to assign its rights under this Agreement and all
rights hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Such assignment may be in respect to all or any portion of
the Partnership Interests and Purchaser may assign the its rights hereunder to
more than one Person each of whom shall acquire an allocable portion of the
Partnership Interests. Upon such assignment Purchaser shall be relieved of its
obligations hereunder, so long as the PPL REIT or any entity in which the PPL
REIT has a controlling interest assumes all applicable obligations of Purchaser
hereunder and confirms the undertakings or representations of Purchaser
hereunder. No other assignment may be made without the prior written consent of
Selling Partners.
Section 8.10 Time of the Essence. Time is of the essence of this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
Section 8.11 Conditions. All covenants, warranties and obligations of
------------ ----------
Selling Partners or Purchaser contained in this Agreement are deemed to be
conditions to the other parties' obligations herein. All conditions to
Purchaser's or Selling Partners's obligations, whether specifically stated in
this Agreement or pursuant to the preceding sentence, and all rights of
Purchaser or Selling Partners herein are imposed solely and exclusively for the
benefit of the other party and not of any Person not a party to this Agreement
and their respective assigns and any or all of such conditions or rights may be
waived in whole or in part by the party in question at any time in such party's
sole discretion.
Section 8.12 Severability. If any provision in this Agreement is invalid,
------------ ------------
illegal, or unenforceable, such provision shall be construed as narrowly as
possible to allow Purchaser and Selling Partners to be afforded the benefits and
protection of this Agreement. Such provision shall be severable from the rest
of this Agreement and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and shall
continue in full force and effect.
Section 8.13 Counterparts. Two or more duplicate originals of this
------------ ------------
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same agreement.
Section 8.14 Acquisition of Other Projects.
------------ -----------------------------
(a) Selling Partners or Selling Partners' Affiliates have
entered into certain other agreements with Purchaser (the "Other
Agreements") for the purchase of the real estate or partnership
interests listed on Exhibit "C" attached hereto (said properties and
-----------
interests being designated on Exhibit "C" as "Large Properties" or
-----------
"Small Properties" and being herein collectively called "Other
Properties"). Subject to the exceptions set forth in subparagraph
(b) below, Selling Partners' obligation to consummate the
transaction contemplated by this Agreement is
19
<PAGE>
expressly conditioned upon the acquisition by Purchaser of all of
the Other Properties simultaneously with the Closing of the
Partnership Interests pursuant to this Agreement (the "Simultaneous
Closing Condition").
(b) Notwithstanding the existence of the Simultaneous
Closing Condition, in the event Purchaser refuses to close any of
the Other Properties and terminates the applicable Other Agreement
for a Permitted Reason (defined below), by delivering a notice of
intent to terminate such Other Agreement, the provisions of (c) or
(d) of this Section shall apply. The term "Permitted Reason" shall
mean either (i) Seller's default as contemplated by Section 6.1(a)
of the applicable Other Agreement; (ii) a Title Objection which is
not cured within the time periods provided by such Other Agreement;
(iii) an Environmental Contamination has been discovered in respect
to the Other Property covered by such Other Agreement; or (iv) the
failure of any material condition listed in Section 5.1 of such
Other Agreement and Purchaser's election to terminate the applicable
Other Agreement in accordance with Section 5.2 thereof. Seller has
the right to cure any Permitted Reason under the terms and within
the time periods provided in the applicable Other Agreement.
Seller's right to cure shall not delay Closing under this Agreement
or any Other Agreements not affected by a Permitted Reason.
(c) If the Other Agreement which Purchaser seeks to cancel
for a Permitted Reason pertains to a Large Property, Selling
Partners shall have the right to terminate this Agreement and all
Other Agreements (pertaining to both Large Properties and Small
Properties) by giving written notice to Purchaser of such election
within five (5) days following Purchaser's election to terminate the
applicable Other Agreement and each of the parties rights and
obligations arising under this Agreement shall be null and void
except for those rights or obligations which expressly survive the
termination of this Agreement.
(d) If the Other Agreement which Purchaser seeks to cancel
for a Permitted Reason pertains to a Small Property, Selling
Partners shall not have the right to terminate this Agreement or any
Other Agreement based on Purchaser's cancellation of the Other
Agreement and the transactions contemplated hereby and by the
remaining Other Agreements shall be consummated in accordance with
their respective terms and conditions.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BANK]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLING PARTNERS:
----------------
LW-LP, INC.,
a Delaware corporation
By:/s/ Yon Cho
----------------------------------------
Name: Yon Cho
--------------------------------------
Title: President
-------------------------------------
Date of Execution: as of August 5, 1996
LW-RTC, INC.,
a Delaware corporation
By:/s/ Edward J. Meylor
----------------------------------------
Name: Edward J. Meylor
--------------------------------------
Title: President
-------------------------------------
Date of Execution: as of August 5, 1996
NP INVESTMENT VI CO.,
a Delaware corporation
By:/s/ Edward J. Meylor
----------------------------------------
Name: Edward J. Meylor
--------------------------------------
Title: President
-------------------------------------
Date of Execution: as of August 5, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By:/s/ Thomas F. August
----------------------------------------
Name: Thomas F. August
--------------------------------------
Title: President
-------------------------------------
Date of Execution: as of August 5, 1996
21
<PAGE>
EXHIBIT "A"
-----------
DESCRIPTION OF THE LAND
-----------------------
<PAGE>
EXHIBIT "B"
-----------
CLOSING CERTIFICATE
-------------------
The undersigned, being all of Selling Partners of a 84.5% partnership
interest in PL Properties Associates, L.P., a Delaware limited partnership and
a 50% partnership interest in LePren Partners, L.P., a Delaware limited
partnership (together the "Partnerships"), hereby certify to
___________________, ___________________ and _______________, as follows:
1. Attached hereto as Annex "A" and made a part hereof for all purposes
---------
is a true and correct copy of the partnership agreements (the "Agreements") of
the Partnerships, together with any and all amendments thereto.
2. The Agreements are in full force and effect and have not been modified
or amended except as provided herein.
3. The Partnerships have not been dissolved or terminated and no
proceeding for dissolution or termination is contemplated.
4. Each and every of the representations and warranties of Selling
Partners contained in Article IV of the Agreement of Purchase and Sale of
Partnership Interests ("Purchase and Sale Agreement") and pursuant to which this
Certificate is being issued are and continue to be true and correct on the date
hereof, except as set forth on Annex "B" attached hereto and made a part hereof
---------
for all purposes and subject to the terms, limitations, and conditions set forth
in the Purchase and Sale Agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Certificate as of
the ____ day of ___, 1996.
LW-LP, INC.,
a Delaware corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
Date of Execution: ________, 1996
LW-RTC, INC.,
a Delaware corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
Date of Execution: ___________, 1996
NP INVESTMENT VI CO.,
a Delaware corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
Date of Execution: _________, 1996
<PAGE>
EXHIBIT "C"
-----------
OTHER PROPERTIES
----------------
LARGE PROPERTIES:
- ----------------
One Northwestern Plaza, Southfield, Michigan
SMALL PROPERTIES:
- ----------------
9050 Junction Drive, a/k/a Laredo, Annapolis, Maryland
West Loop Business Park, Houston, Texas
Cottonwood Office Center, Irving, Texas
<PAGE>
SCHEDULE 1.1(V)
---------------
PARTNERSHIP INTERESTS
---------------------
LW-RTC, Inc. - 49% limited partnership interest in LePren
Partners, L.P.
NP Investment IV Co. - 1% general partnership interest in LePren
Partners, L.P.
LW-LP, Inc. - 84.5% limited partnership interest in PL
Properties Associates, L.P.
<PAGE>
EXHIBIT 10.20
[9050 JUNCTION DRIVE A/K/A
LAREDO, ANNAPOLIS, MARYLAND]
AGREEMENT OF SALE
(Real Property)
BY AND BETWEEN
PROPERTY ASSET MANAGEMENT INC.
("Seller")
AND
PRENTISS PROPERTIES LIMITED, INC.
("Purchaser")
Dated: AUGUST __, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I DEFINITIONS; PURCHASE PRICE................................... 1
Section 1.1 Definitions.............................................. 1
Section 1.2 Purchase Price for the Project........................... 5
Section 1.3 Independent Consideration................................ 6
ARTICLE II TITLE AND SURVEY; APPROVAL OF DOCUMENTS;INSPECTIONS
............................................................. 6
Section 2.1 Title Binder............................................. 6
Section 2.2 Title Policy Covering the Project........................ 6
Section 2.3 Survey................................................... 7
Section 2.4 Review of Survey and Title Binder by Purchaser........... 7
Section 2.5 Seller's Right to Cure Purchaser's Objections............ 7
Section 2.6 Additional Items Furnished to Purchaser.................. 8
Section 2.7 Estoppel Certificates.................................... 8
Section 2.8 Environmental Inspection................................. 8
Section 2.9 Inspection............................................... 10
Section 2.10 Purchaser's Acknowledgement.............................. 11
ARTICLE III THE CLOSING DATE AND THE CLOSING; OBLIGATIONS OF
PURCHASER AND SELLER WITH RESPECT THERETO..................... 11
Section 3.1 The Closing and the Closing Date......................... 11
Section 3.2 Seller's Obligations at the Closing...................... 11
Section 3.3 Purchaser's Obligations at the Closing................... 13
Section 3.4 Notification to Tenants.................................. 14
Section 3.5 Escrow Closing........................................... 14
Section 3.6 Reporting Person......................................... 14
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS..................... 15
Section 4.1 Representations and Warranties of Seller................. 15
Section 4.2 Knowledge Standard....................................... 19
Section 4.3 Survival of Representations and Warranties................19
Section 4.4 Seller's Obligation to Notify Purchaser of Change........ 19
Section 4.5 Operation of Project Prior to Closing.................... 19
ARTICLE V CONDITIONS TO CLOSING......................................... 20
Section 5.1 Conditions Precedent to Purchaser's Obligations.......... 20
Section 5.2 Consequences of The Failure of Section 5.1
Conditions Precedent................................... 21
Section 5.3 Conditions Precedent to Seller's Obligation
to Close............................................... 21
ARTICLE VI DEFAULTS AND REMEDIES......................................... 22
Section 6.1 Seller's Defaults; Purchaser's Remedies.................. 22
Section 6.2 Purchaser's Default; Seller's Remedies................... 22
Section 6.3 Attorneys' Fees.......................................... 23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII CLOSING COSTS; PRORATIONS....................................... 23
Section 7.1 Closing Costs........................................... 23
Section 7.2 Proration of Income and Expenses........................ 24
Section 7.3 Post-Closing Adjustments................................ 25
Section 7.4 Delinquent Rents........................................ 26
ARTICLE VIII INDEMNIFICATION................................................ 26
Section 8.1 Brokerage Commissions................................... 26
Section 8.2 Seller's Indemnity...................................... 26
Section 8.3 Purchaser's Indemnity................................... 26
ARTICLE IX MISCELLANEOUS.................................................... 27
Section 9.1 Survival of Terms....................................... 27
Section 9.2 Binding Effect.......................................... 27
Section 9.3 Entire Agreement; Modifications......................... 27
Section 9.4 Headings................................................ 27
Section 9.5 Interpretation and Construction......................... 27
Section 9.6 Notice.................................................. 28
Section 9.7 Assignment of Trade Name................................ 29
Section 9.8 Right to Possession..................................... 29
Section 9.9 Additional Acts......................................... 29
Section 9.10 Applicable Law.......................................... 29
Section 9.11 Risk of Loss............................................ 29
Section 9.12 Assignment.............................................. 30
Section 9.13 Time of the Essence..................................... 31
Section 9.14 Conditions.............................................. 31
Section 9.15 Severability............................................ 31
Section 9.16 Counterparts............................................ 31
Section 9.17 Acquisition of Other Projects........................... 31
EXHIBITS:
"A" - Description of the Land
"B" - Additional Items Furnished to Purchaser
"C" - Tenant's Estoppel Certificate
"D" - List of Service Contracts
"E" - Other Properties
</TABLE>
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT OF SALE is made and entered by and between PRENTISS
PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"), and PROPERTY
ASSET MANAGEMENT INC., a Delaware corporation ("Seller"), as of this Effective
Date.
W I T N E S S E T H:
===================
Seller is the owner of the Project, as hereinafter defined. Seller hereby
agrees to sell and convey to Purchaser, and Purchaser hereby agrees to purchase
from Seller, the Project, as hereinafter defined, upon and subject to the terms,
provisions, and conditions hereinafter set forth.
ARTICLE I
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Affiliate" means a Person who, directly or indirectly through one
---------
or more intermediaries, owns or controls, is owned or controlled by or is
under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other than
corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the controlled Person; and "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the controlled Person.
(b) "Agreement" means, and the words "herein," "hereof," "hereunder,"
---------
and words of similar import, shall refer to, this Agreement of Sale.
(c) "Business day" means a day that is not a Saturday, a Sunday, a
------------
legal holiday or a day on which banks are required or permitted by law or
other governmental action to close in New York, New York.
(d) "Books and Records" shall mean all financial and other books and
-----------------
records maintained by or for the benefit of Seller solely in connection
with the operation of the Project and all building plans, specifications
and drawings, engineering, soils and geological reports, environmental
reports and other documents prepared in connection with the construction,
maintenance, repair, management or operation of the Project which are
within the possession or control of Seller, or Seller's Affiliates, agents
or representatives.
1
<PAGE>
(e) "Closing" means the consummation of the purchase of the Project by
-------
Purchaser from Seller in accordance with the terms and provisions of
Article III, which Closing shall be held at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., Suite 4100, 1700 Pacific Avenue, Dallas,
Texas 75201-4618 on the Closing Date commencing at 10:00 a.m. Central
Daylight Time.
(f) "Closing Date" means a Business Day which shall be established by
------------
Purchaser by written notice delivered to Seller, which date shall be no
earlier than thirty (30) days following the date of such notice, except
that from and after the date the IPO shall have occurred, such date shall
be no earlier than ten (10) days following the date of such notice;
provided, however, that in no event shall the Closing Date be a date later
than December 31, 1996, time being of the essence with respect to such
date.
(g) "Cut Off Date" means the latter of July 1, 1994 or the date Seller
------------
acquired fee simple title to the Project.
(h) "Effective Date" shall mean the date on which this Agreement shall
--------------
be fully executed and unconditionally delivered by Purchaser and Seller.
(i) "Environmental Laws" means all applicable existing federal, state
------------------
and local statutes, ordinances, orders, rules and regulations issued,
promulgated or adopted by any governmental authority having jurisdiction
over the Project relating to environmental pollution or protection,
including, without limitation, the Resource Conservation and Recovery Act
of 1976, 43 U.S.C. (S) 6901 et seq., the Comprehensive Environmental
-- ----
Response, Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et
--
seq., as amended by the Superfund Amendments and Reauthorization Act of
----
1986, the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et
--
seq., the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq.,
---- -- ----
the Clean Air Act, 42 U.S.C. (S) 7401 et set., the Toxic Substances Control
-- ----
Act, 15 U.S.C. (S) 2601-2629, the Safe Drinking Water Act, 42 U.S.C. (S)
300f et seq., together with all existing rules, regulations and orders
-- ----
promulgated thereunder, and all similar applicable existing local, state
and federal statutes and regulations promulgated pursuant thereto.
(j) "Estoppel Certificates" means the estoppel certificates to be
---------------------
delivered by each tenant in accordance with the provisions of Section
2.7 hereof.
(k) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(l) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes",
2
<PAGE>
"hazardous materials", "extremely hazardous waste", "restricted hazardous
waste", or "toxic substances" or words of similar import under any
Environmental Laws, (ii) any oil, petroleum or petroleum derived
substances, any flammable substances or explosives, any radioactive
materials, any asbestos or any substance containing more than 0.1 percent
asbestos, any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million, and any urea formaldehyde
insulation, and (iii) any other chemical, material or substance, exposure
to which is prohibited, limited or regulated by any Environmental Laws.
(m) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the office/warehouse
buildings, parking lots and all other amenities, together with Seller's
interest, if any, in all machinery, fixtures and equipment used in the
general operation of such buildings and improvements, and/or affixed to or
located upon the Land, along with all accessions and additions thereto,
excluding therefrom any machinery, fixtures, equipment or personal property
owned by Tenants at the Project.
(n) "IPO" means the proposed initial public offering of securities in
---
the PPL REIT.
(o) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
-----------
hereof for all purposes, together with all and singular all right, title
and interest of Seller, reversionary or otherwise, in and to all easements
in or upon the Land and all other rights and appurtenances belonging or in
anywise pertaining thereto, if any, including any right, title, and
interest of Seller in and to any land lying in the bed of any street, road
or access way, right-of-way, alley, opened or proposed, in front of, at a
side of or adjoining the Land to the centerline thereof.
(p) "Leases" means all leases, licenses, franchises, concessions and
------
other occupancy agreements for the use or occupancy of any portion of the
Project, together with all rents, issues, profits, and deposits thereunder
and all amendments thereto.
(q) "Major Leases" means any Lease covering in excess of the lesser of
------------
(i) ten per cent (10%) of net rentable area in the Project, or (ii) 5,000
square feet of net rentable area in the Project, as those area are
reflected in the Rent Roll, as hereinafter defined.
(r) "Miscellaneous Assets" shall mean all contract rights, leases,
--------------------
concessions, assignable warranties, and other items of intangible personal
property owned by Seller (but only to the extent assignable) and relating
to the ownership or operation of the Project, including, but not limited
to, (i) the Service Contracts, (ii) the Permits, (iii) the Trade Name, (iv)
assignable utility and similar deposits, (v) prepaid license and permit
fees, (vi) the Warranties and (vii) the Books and Records.
(s) "Permits" means all licenses and permits issued to or for the
-------
benefit of Seller and used or relating to the ownership or operation of the
Project in accordance with its current use.
3
<PAGE>
(t) "Permitted Exceptions" means those exceptions or conditions to
--------------------
title to the Project approved by Purchaser pursuant to Section 2.4 hereof.
(u) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(v) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by Seller and located on the Land and the Improvements and used or usable
in connection with any part of the Project.
(w) "PPL REIT" means the corporation or real estate investment trust
--------
to be formed by Purchaser to operate as a real estate investment trust
under the Internal Revenue Code of 1986, as amended, to conduct the IPO,
and to acquire the Project and interests in other real properties and
assets and related service businesses.
(x) "Project" means the Land, the Personal Property, the Miscellaneous
-------
Assets and the Improvements.
(y) "Purchase Price" means the sum of $3,250,000.00, as adjusted
--------------
pursuant to the provisions of Section 1.2 (b) hereof.
(z) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of Seller affecting the operation
of the Project.
(aa) "State" means the State in which the Project is situated.
-----
(ab) "Tenant" means any Person occupying any portion of the Project
------
under or pursuant to a Lease.
(ac) "Title Binder" means the Commitment for Owner's Title Insurance
------------
Policy issued by the Title Company which shall set forth the state of title
to the Land and Improvements, together with all exceptions or conditions to
such title, including, without limitation, all easements, restrictions,
rights-of-way, covenants, reservations, and all other liens or encumbrances
affecting the Land and Improvements which would appear in an owner's title
policy, if issued. The Title Binder shall include proper searches covering
bankruptcies, state and federal judgments and liens, tax or otherwise and
pending assessments and shall contain the express commitment of the Title
Company to issue the Title Policy to Purchaser in the amount of the
Purchase Price insuring such title to the Land and Improvements as is
specified in the Title Binder, in accordance with Section 2.2.
(ad) "Title Company" means Commonwealth Land Title located at 1700
-------------
Pacific Avenue, Suite 4700, Dallas, Texas 75201; Attn: David Payne.
4
<PAGE>
(ae) "Title Policy" means a Texas Form Owner's Policy of Title
------------
Insurance (Form T-1) issued by the Title Company in accordance with the
terms and provisions of Section 2.2 in the amount of the Purchase Price,
covering title to the Land and the Improvements (including easements,
rights, privileges and appurtenances).
(af) "Trade Name" means the West Loop Business Park.
----------
(ag) "Trigger Date" means March 1, 1996.
------------
(ah) "Warranties" means all warranties and guaranties relating to the
----------
Project, or any part thereof, or to the Personal Property or Improvements,
or construction thereof.
Section 1.2 Purchase Price for the Project.
----------- ------------------------------
(a) Payment of the Purchase Price. The Purchase Price shall be
-----------------------------
payable to Seller on the Closing Date by Federal Reserve wire transfer of
immediately available funds to an account or accounts which shall be
designated by Seller on or before the Closing Date, plus or minus
prorations and adjustments as hereinafter provided.
(b) Adjustment to the Purchase Price. In the event that during the
--------------------------------
period between the Trigger Date and the Closing Date, Seller expends any
sums of money in connection with
(i) a capital improvement, betterment of or enhancement of the
Project excluding expenditures (which are to be borne by Seller) (a)
which relate to routine repair and maintenance of the Project
necessary to maintain the Project in its current condition, or (b)
which are required to comply with written commitments to Tenants
pursuant to the Leases entered into prior to the Trigger Date or (c)
which are required to comply with any violation of Governmental
Regulations existing on the Trigger Date (not to exceed $25,000.00),
or
(ii) a tenancy either created, entered into, renewed or
extended from and after the Trigger Date, which has been approved by
Purchaser, including, without limitation, any leasing commissions or
tenant improvement expenses, then in such event the Purchase Price
shall be increased by the amounts expended by Seller under this
Section 1.2.
Section 1.3 Independent Consideration. Concurrently herewith Purchaser
----------- -------------------------
has paid to Seller the sum of One Hundred Dollars ($100) which shall be
independent consideration (the "Independent Consideration") for the agreements
of Seller set forth herein. The Independent Consideration shall be in addition
to the Purchase Price. If the Closing does not occur for any reason, the
Independent Consideration shall be deemed earned and shall be retained by
Seller.
5
<PAGE>
ARTICLE II
TITLE AND SURVEY; APPROVAL OF
DOCUMENTS; INSPECTIONS
----------------------
Section 2.1 Title Binder. Within five (5) Business days after the
----------- ------------
Effective Date, Seller shall cause to be furnished to Purchaser's counsel (to
the extent such policy in the possession of or control of Seller) a copy of the
title insurance policy issued to Seller at the time of its acquisition of the
Project. Purchaser shall be responsible for obtaining a current Title Binder
from the Title Company, not later than thirty (30) days after the Effective
Date, together with copies of all instruments referred to as exceptions to
title. Seller shall furnish to Purchaser and to the Title Company such
additional information in its possession as may be material to the Title Company
or Purchaser in connection with the review of title to the Land and Improvements
and the issuance of the Title Policy.
Section 2.2 Title Insurance Policy Covering the Project. At the Closing,
----------- -------------------------------------------
Seller, at its sole cost and expense, shall cause the Title Policy to be
furnished to Purchaser on the standard Texas Form Owner's Policy of Title
Insurance. The Title Policy shall be issued by the Title Company in the amount
of the Purchase Price, and shall insure a good and indefeasible title to the
Project in Purchaser and contain no exceptions to title other than the Permitted
Exceptions. The Title Policy may contain the Permitted Exceptions, but shall
contain no additional exceptions to title to the Project other than the standard
exceptions contained in Schedule B of Texas State Board of Insurance Form T-1,
with the standard exception as to taxes limited to standby fees, taxes for the
current and subsequent years "not yet due and payable and subsequent taxes and
assessments for prior years based on changes in usage or ownership," with the
standard exceptions as to restrictive covenants endorsed "none of record" except
as shown thereon and approved by Purchaser as a Permitted Exception, with the
standard exception for parties in possession deleted, with the standard
exception as to unrecorded easements, visible and apparent easements, public or
private roads, or other matters which would be disclosed by an inspection of the
Project deleted, with the standard exception as to mechanics', materialmen's, or
similar liens or other matters relating to the completion of construction and
payment of bills with respect thereto deleted, and with the standard exceptions
as to areas, boundaries, discrepancies, encroachments and other matters which
would be disclosed by a survey of the Project modified to read "shortages in
area." Seller shall deliver to the Title Company such affidavits, indemnities
or other instruments as may be required by the Title Company to obtain such
endorsements and deletions, provided that Seller shall not be required to
deliver any such affidavits or other instruments if, in Seller's sole judgement,
Seller cannot deliver such items without material cost or expense to Seller.
Section 2.3 Survey. Seller shall cause to be delivered to Purchaser's
----------- ------
counsel (to the extent within Seller's possession or control) within five (5)
days after the Effective Date two (2) copies of the of survey of the Land and
Improvements which Seller received at the time of its acquisition of the
Project, if any. Purchaser shall be responsible for securing an updated or
recertified survey or a replacement survey, at its sole cost and expense. Seller
acknowledges that Purchaser intends to secure a survey (the "Survey") prepared
in accordance with the Minimum Standard Detail Requirements for ALTA/ACSM Land
Title Surveys as adopted by the American Land Title Association and American
Congress on Surveying and Mapping in 1992, and meeting the accuracy requirements
of a Class A Survey as defined therein.
Section 2.4 Review of Survey and Title Binder by Purchaser. Purchaser
----------- ----------------------------------------------
shall have a period of twenty (20) days after receipt by Purchaser's counsel of
the last of (a) the Title Binder, (b) legible copies of all documents referred
to therein as exceptions to title, and (c) the Survey, to review the Title
Binder and the Survey and to deliver to Seller such objections ("Title
Objections" herein)
6
<PAGE>
as Purchaser may have to anything contained or set forth in the Survey or in the
Title Binder. Any objection to title made to Seller by Purchaser's counsel
within such time period shall be deemed an objection by Purchaser. Any
exceptions to title shown in the Title Binder or the Survey to which Purchaser
does not so object within such twenty (20) day period shall be deemed to be the
"Permitted Exceptions" for the purposes of this Agreement.
Section 2.5 Seller's Right to Cure Purchaser's Objections.
----------- ---------------------------------------------
(a) If Title Objections have been timely raised by Purchaser in
accordance with Section 2.4, then Seller may, at its option, use its good
faith efforts to satisfy such Title Objections in the manner set forth in
subparagraph (b) below, at no cost to Purchaser; provided that Seller shall
not (except as set forth in the immediately following sentence) be
obligated to expend any funds or bring any legal, equitable or
administrative proceeding to cure any Title Objections. On or before
Closing, Seller shall, (i) at Seller's sole cost and expense, eliminate all
liens securing financial obligations encumbering the Project voluntarily
given by Seller, and (ii) at Seller's sole cost and expense, eliminate all
liens securing financial obligations encumbering Seller's interest in the
Project not voluntarily given by Seller, so long as the amount thereof does
not exceed 2% of the Purchase Price. In the event Seller delivers written
notice to Purchaser at least twenty (20) days before the Closing Date that
Seller is unable or unwilling to satisfy or cure the Title Objections
(including involuntary liens the amount of which exceeds 2% of the Purchase
Price), Purchaser may either (i) waive such objections and proceed to close
the transaction contemplated hereby or (ii) terminate this Agreement by
written notice delivered to Seller on or before the Closing Date, whereupon
this Agreement shall terminate, and upon such termination, neither Seller
nor Purchaser shall have any further obligation or liability to the other
hereunder, except those obligations which are expressly stated to survive
the termination of this Agreement.
(b) In the event that Purchaser discovers any Title Objection, Seller
shall have the right, at Seller's option, to (i) cure or correct or remove
the Title Objection or (ii) provide an acceptable indemnity covering the
risks associated with the Title Objection on the following basis, and in
such event Purchaser shall not have the right to terminate this Agreement
and the parties shall proceed, subject to the satisfaction of the
conditions of this Agreement and an extension of the Closing Date to
complete removal or correction of the Title Objection, to consummate the
transaction contemplated hereby:
(i) Seller's right to keep this Agreement in effect in respect
to its commitment to remove or correct the Title Objection shall be
subject to Purchaser's satisfaction, in its sole judgment, that the
Title Objection can be removed or cured at no cost or expense to
Purchaser and with no ongoing risk or exposure from third parties or
otherwise. To the extent that the removal or correction option is
exercised, the Closing Date shall be extended for a reasonable period
of time within which Seller shall complete the removal or correction
of the Title Objection at its sole cost and expense. To the extent
that the delay in the Closing Date (if necessary) causes Purchaser
undo hardship, the removal or correction alternative shall not be
available to Seller.
7
<PAGE>
(ii) To the extent Seller elects to utilize the indemnity
alternative, the form and content of the indemnity and the financial
capability and stability of the indemnitor shall be subject to
Purchaser's prior approval, in its sole and absolute discretion. To
the extent that Purchaser and Seller are unable to agree upon the form
and content of an indemnity agreement or to the extent Purchaser is
unwilling to approve the financial capability of the indemnitor, the
indemnity alternative shall not be available to Seller.
(iii) In the event that the foregoing alternatives are not
available, Purchaser's election to terminate this Agreement shall
remain in effect.
Section 2.6 Additional Items Furnished to Purchaser. Within ten (10)
----------- ---------------------------------------
Business days after the Effective Date, Seller shall furnish to Purchaser, true,
correct, complete, and legible copies of the items listed on Exhibit "B"
-----------
attached hereto and made a part hereof for all purposes. In addition to the
foregoing, Seller shall make available to Purchaser for its review either at the
Project or at such other place as may be reasonably convenient to Purchaser and
Seller copies of all other records relating to the ownership and operation of
the Project, in Seller's possession or control.
Section 2.7 Estoppel Certificates. Within thirty (30) days after the
----------- ---------------------
Effective Date, Seller will deliver to each Tenant a form of Estoppel
Certificate, to be in the form and contain the content of the Estoppel
Certificate attached hereto as Exhibit "C" and made a part hereof for all
-----------
purposes, and will use its reasonable efforts to cause each Tenant to execute
and deliver to Purchaser an Estoppel Certificate on or before the Closing Date.
Section 2.8 Environmental Inspection.
----------- ------------------------
(a) Purchaser shall have the right during the period (the
"Environmental Inspection Period") ending on the expiration of the
thirtieth (30th) day following the Effective Date, to conduct, or cause to
be conducted, an Environmental Inspection (herein so called) of the Project
by an inspector or consultant selected by Purchaser. The cost and expense
of such Environmental Inspection shall be paid solely by Purchaser.
(b) Seller agrees to cooperate fully with Purchaser in the conduct
of the Environmental Inspection. In the event the results of the
Environmental Inspection disclose any deficiency in the compliance of the
Project with any applicable Environmental Law or disclose the presence of
any Hazardous Materials maintained in violation of any Environmental Laws,
Purchaser may either (i) waive such deficiency and consummate the
transactions contemplated by this Agreement, or (ii) terminate this
Agreement, in accordance with the provisions of subparagraph (c) below.
(c) If, during the Environmental Inspection Period, Purchaser
discovers the existence of Hazardous Materials held or maintained in
violation of any Environmental Laws, at or around the Project
("Environmental Contamination" herein), which in Purchaser's sole
discretion, judgment and opinion, make Purchaser's investment in the
Project an unacceptable risk, Purchaser shall be entitled, as its sole and
exclusive remedy, to terminate this Agreement by giving written notice to
Seller on or before the expiration of
8
<PAGE>
the Environmental Inspection Period, whereupon this Agreement shall
terminate, and upon such termination, neither Seller nor Purchaser shall
have any further obligation or liability to the other hereunder.
(d) In the event that Purchaser discovers any Environmental
Contamination and in the event Purchaser elects to terminate this Agreement
in accordance with subparagraph (c) above, Seller shall have the right to
(i) remediate the Environmental Contamination or (ii) provide an acceptable
indemnity covering the risks associated with the Environmental
Contamination on the following basis, and in such event Purchaser's
election to terminate this Agreement shall be rescinded and the parties
shall proceed, subject to the satisfaction of the conditions of this
Agreement and to the extent reasonably required by Seller, an extension of
the Closing Date to complete remediation work, to consummate the
transaction contemplated hereby:
(i) Seller's right to cause Purchaser's election to
terminate this Agreement to be rescinded shall be subject to Purchaser
concluding, in its sole judgment, that the Environmental Contamination
can be remediated at no cost or expense to Purchaser and with no
ongoing risk or exposure from third parties or otherwise of the
recurrence of the Hazardous Materials in question. To the extent that
the remediation option is exercised by Seller, the Closing Date shall
be extended for a reasonable period of time within which Seller shall
complete the remediation at its sole cost and expense. To the extent
that the delay in the Closing Date causes Purchaser undo hardship, the
remediation alternative shall not be available to Seller.
(ii) To the extent Seller elects to utilize the indemnity
alternative, the form and content of the indemnity and the financial
capability and stability of the indemnitor shall be subject to
Purchaser's prior approval, in its sole and absolute discretion. To
the extent that Purchaser and Seller are unable to agree upon the form
and content of an indemnity agreement or to the extent Purchaser is
unwilling to approve the financial capability or stability of the
indemnitor, the indemnity alternative shall not be available to
Seller.
(iii) In the event that the foregoing alternatives are not
available, Purchaser's election to terminate this Agreement shall
remain in effect.
Section 2.9 Inspection.
----------- ----------
(a) During the period commencing on the Effective Date and ending
on the Closing Date or the earlier termination of this Agreement,
Purchaser, upon reasonable notice to Seller, shall have reasonable access
to the Project, either personally or by authorized agent, to inspect the
Project, the items delivered pursuant to this Article II and any other
documents and records available which are normally maintained in the
operation of the Project.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Seller will cooperate fully with Purchaser,
at no cost or expense to Seller, in the conduct of Purchaser's inspection
of the Project. Such inspections (and any inspections
9
<PAGE>
performed in accordance with the sentence next following) may be conducted
at all reasonable times, so long as such activities do not unreasonably
interfere with the Tenants in occupancy. Seller will permit Purchaser and
current and prospective underwriters involved in the IPO, and the agents,
attorneys, accountants, and representatives of all of the foregoing, upon
reasonable notice (but without having to obtain further approval), to enter
upon and inspect the Project, at reasonable times during normal working
hours, all premises leased to Tenants, all mechanical equipment, systems,
and fixtures forming a part thereof, and all Books and Records. Seller will
permit Purchaser and the underwriters involved in the IPO, and the agents,
attorneys, accountants, and representatives of all of the foregoing, at no
cost or expense to Seller, to audit the Books and Records, and to conduct
such investigations, tests, or inspections as Purchaser deems appropriate
including, without limitation, sampling studies to ascertain whether or not
there is any Hazardous Substance on, in, or under the Project. In
conducting any such entry, investigation, test, or inspection, no party
permitted entry hereunder will unreasonably interfere with the operation of
the Project or the peaceable possession by individual Tenants of their
respective premises. To the extent that Persons other than Purchaser join
in such inspections, Purchaser shall secure from such Persons their
agreement to hold any such information in confidence pending the closing of
the transaction contemplated hereby, with the exception of the use of such
materials during the disclosure process in connection with the IPO.
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance in terms and amounts reasonably satisfactory to
Seller covering any accident arising in connection with the presence of
Purchaser, its agents and representatives on the Project and shall deliver
a certificate of insurance verifying such coverage to Seller prior to entry
upon the Project.
(d) Purchaser agrees to fully and completely repair and restore
the Project in the event of any damage whatsoever occurring by Purchaser,
Purchaser's Affiliates or consultants during the pendency of this
Agreement. Purchaser hereby indemnifies and holds Seller harmless from and
against any loss, damage, injury, claim or cause of action Seller may
suffer or incur as a result of Purchaser's inspections of the Project
undertaken pursuant to this Agreement. Notwithstanding anything in this
Agreement to the contrary, the indemnity set forth in this subparagraph (d)
shall survive the Closing or the termination of this Agreement.
Section 2.10 Purchaser's Acknowledgement. Purchaser acknowledges that,
------------ ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Project shall be acquired on an "as is" "where is" basis in its
present condition, subject to reasonable use, wear, tear and natural
deterioration between the Effective Date and the Closing Date. In such regard,
there shall be no reduction in the Purchase Price for any change in the
condition of the Project by reason of any such events, subsequent to the
Effective Date, except by reason of condemnation or casualty. Purchaser further
acknowledges that it has not been induced by nor has it relied upon any
representations, warranties or other statements, whether express or implied,
made by Seller, or any of its agents, employees or other representatives, which
are not expressly set forth in this Agreement or in the materials to be
delivered to Purchaser in accordance with the terms and provisions hereof.
10
<PAGE>
ARTICLE III
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLER WITH RESPECT THERETO
--------------------------------------------
Section 3.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Project contemplated by the terms and conditions of this Agreement shall be
consummated at the Closing to be held on the Closing Date.
Section 3.2 Seller's Obligations at the Closing.
----------- -----------------------------------
(a) At the Closing, Seller shall do the following:
(i) Execute, acknowledge, and deliver to Purchaser a good
and sufficient Special Warranty Deed (the "Deed") (with warranty
limited to Seller's acts) in the form approved by Purchaser and Seller
conveying the fee simple marketable title in the Land and Improvements
to Purchaser subject only to the Permitted Exceptions.
(ii) Execute, acknowledge, and deliver to Purchaser a
Blanket Conveyance, Bill of Sale and Assignment (the "Bill of Sale"),
in the form approved by Purchaser and Seller, covering the Personal
Property, the Miscellaneous Assets and other items to be assigned to
Purchaser by Seller pursuant to the terms hereof. The Bill of Sale (i)
with respect to the Personal Property, shall contain warranties as to
title (with warranty limited to Seller's acts) and shall contain
disclaimers of warranties as to fitness or merchantability or physical
condition; and (ii) with respect to the Miscellaneous Assets and other
items, shall contain warranties as to title (with warranty limited to
Seller's acts) and shall contain disclaimers of warranties as to
assignability or fitness or merchantability or physical condition.
(iii) Execute, acknowledge, and deliver to Purchaser an
Assignment of Tenant Leases and Assumption Agreement (the
"Assignment") in the form approved by Purchaser and Seller covering
any of the Leases and all tenant security, advance rental, and similar
refundable deposits held by Seller with regard to or covering the
Project and Purchaser shall assume all of the responsibilities of
landlord arising under the Leases from and after the Closing Date,
including, without limitation, the obligation to return all security
deposits and any interest required to be paid thereon to Tenants on
the Project to the extent Purchaser receives a credit from Seller for
such deposits on the Closing Date.
(iv) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under penalty of perjury,
Seller's U.S. taxpayer identification number and that Seller is not a
foreign person within the meaning of Section 1445 of the Internal
Revenue Code. If Seller does not deliver such an affidavit to
Purchaser at Closing, or if Purchaser has actual knowledge or receives
notice that the affidavit is false, then, in either such event,
Purchaser shall be entitled to withhold from Seller an amount equal to
ten percent (10%) of the Purchase Price,
11
<PAGE>
which amount Purchaser shall report and pay over to the Internal
Revenue Service within ten (10) days after Closing as required by the
Internal Revenue Code or regulations promulgated pursuant thereto.
(v) Execute, acknowledge and deliver to Purchaser a Closing
Certificate (herein so called) which shall certify, represent and
warrant to Purchaser, as of the date of Closing, that each of the
representations and warranties contained in Article IV of this
Agreement are and continue to be true and correct on the date of
Closing in all material respects, provided, should an event occurring
during the pendency of this Agreement make any of such representations
and warranties not correct on the Closing Date, such non-compliance
shall be indicated and described on the Closing Certificate.
(vi) Credit against the Purchase Price, sums required to be
so credited to Purchaser, or paid by Seller, pursuant to this
Agreement.
(vii) Deliver to Purchaser Estoppel Certificates from the
Major Tenants and the non-Major Tenants who have executed and
delivered Estoppel Certificates, and, to the extent true and correct,
a Seller's certificate, in respect to the non-Major Tenants who have
failed to deliver Estoppel Certificates, to the effect that the
information contained in the Estoppel Certificates presented to the
non-Major Tenants in question is true and correct and no known
defaults on the part of such Tenants exist or with the passage of time
will exist.
(viii) Deliver to Purchaser and the Title Company satisfactory
evidence that all necessary corporate, partnership, or other action on
the part of Seller have been taken with respect to the consummation of
the transaction contemplated hereby.
(ix) Unless previously provided to Purchaser in connection
with its inspection and approval of the Project, deliver to Purchaser
a complete set (to the extent in the possession or control of Seller)
of all architectural, mechanical, electrical, plumbing, drainage, and
similar plans and specifications used in the construction of the
Project; all keys to the Project or any part thereof; all Books and
Records; and all promotional brochures, forms, leases, posters, signs,
stationery, and similar items which relate to or are used by Seller in
the conduct of its business at the Project.
(x) Deliver to Purchaser at the Project the original
executed copies of all Leases in effect as of the Closing Date,
including amendments, together with a Rent Roll Certificate (in the
form of the certificate approved by Purchaser in its reasonable
judgment) certified by Seller to be correct as of a date which is not
more than three (3) days prior to the Closing Date.
(xi) Deliver to Purchaser reasonably satisfactory evidence
that no other contracts which affect the Project will survive the
Closing except those contracts expressly approved by Purchaser prior
to the Closing Date.
12
<PAGE>
(xii) Deliver to Purchaser reasonably satisfactory evidence
that any management agreement affecting the Project has been
terminated as of the Closing without cost to Purchaser.
(xiii) Deliver to Purchaser such other assignments and
documents as may be required pursuant to the provisions hereof or
mutually agreed by counsel for Seller and Purchaser to be necessary to
fully consummate the transaction contemplated hereby.
(b) If Seller fails or is unable to deliver any of the items set
forth in this Section 3.2 at the Closing, Purchaser may (i) elect to waive such
failure and close the transaction, or (ii) exercise any one or more of its
options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered
to Purchaser under Section 3.2 above, Purchaser shall do the following:
(i) Deliver the Purchase Price in accordance with Section
1.2 hereof.
(ii) Execute and deliver to Seller copies of the Assignment
and the Bill of Sale to be executed and delivered by Seller pursuant
to Section 3.2 above, and all other documents reasonably requested by
Seller to evidence the assumption by Purchaser of all obligations
relative to outstanding tenant security deposits, Service Contracts,
Leases and other assets or contracts assigned to Purchaser by Seller,
together with Purchaser's assumption of liabilities arising from and
after the Closing Date.
(iii) Deliver to Seller and the Title Company satisfactory
evidence that all necessary corporate, partnership, or other action by
Purchaser has been taken with respect to the consummation of the
transaction contemplated hereby.
(iv) Pay, in addition to the Purchase Price, sums required
to be credited to Seller, or paid by Purchaser, pursuant to the terms
of this Agreement.
(v) Deliver to Seller such other instruments or documents
as may be required pursuant to the terms hereof or mutually agreed by
counsel for Seller and Purchaser to be necessary to fully consummate
the transaction contemplated hereby.
(b) If Purchaser fails or is unable to deliver any items set forth
in this Section 3.3 at the Closing, Seller may (i) elect to waive such
failure and close the transaction, or (ii) Seller may exercise their
remedies under Section 6.2(b) hereof.
Section 3.4 Notification to Tenants. Seller and Purchaser covenant and
----------- -----------------------
agree to execute, at Closing, a written notice of the acquisition of the Project
by the Purchaser, in sufficient copies for
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transmittal to all Tenants and to other parties affected by the sale and
purchase and properly addressed to all such Tenants and other parties, in a form
satisfactory to Purchaser and Seller.
Section 3.5 Escrow Closing. Notwithstanding anything herein to the
----------- --------------
contrary, Purchaser and Seller agree that the Closing may be accomplished by
delivery into escrow with the Title Company all of the documents and instruments
required to be delivered at Closing, together with the Purchase Price, whereupon
Title Company shall disburse such documents and the Purchase Price in accordance
with the terms hereof and such additional escrow instructions as Purchaser and
Seller may agree upon consistent with the terms hereof. Purchaser and Seller
agree to execute on or before the Closing sufficient copies of all closing
documents for each party to have a set of originals.
Section 3.6 Reporting Person. Each of Seller and Purchaser hereby
----------- ----------------
designates the Title Company as the "Reporting Person" as such term is utilized
in Section 6045 of the Code and regulations thereunder. Seller agrees to
provide the Title Company with such information as may be required for the Title
Company to file a Form 1099 or other required form relative to the Closing with
the Internal Revenue Service. A copy of the filed Form 1099 or other filed form
shall be provided to Seller and Purchaser simultaneously with its being provided
to the Internal Revenue Service.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 4.1 Representations and Warranties of Seller. Seller hereby
----------- ----------------------------------------
represents and warrants to Purchaser, as of the date hereof and as of the
Closing Date, the following:
(a) Seller has been duly formed and is validly existing as a
corporation under the laws of the State of Delaware, and is duly registered
or qualified to do business in the State of Texas. The execution, delivery
and performance of this Agreement and all other documents, instruments and
agreements to be executed and delivered by the Seller pursuant to this
Agreement (collectively, "Seller's Documents") are within the partnership
power of the Seller and have been duly authorized by all necessary and
appropriate partnership action.
(b) Neither the execution and deliver of this Agreement and
Seller's Documents nor the consummation of the transaction contemplated
hereby conflict with or will result in a material breach of any of the
provisions of, or constitute a default under, (i) the partnership agreement
of Seller or (ii) any agreement or instrument to which Seller is a party or
by which it is bound. There are no actions, voluntary or involuntary,
pending against Seller under any bankruptcy, reorganization, arrangement,
insolvency or similar federal or state statute.
(c) Seller is not a "foreign person" as defined in Section
1445(f)(3) of the Internal Revenue Code of 1986, as amended.
14
<PAGE>
(d) With respect to the Leases:
(i) As of the date of the rent roll to be delivered pursuant to
Section 2.6 hereof (the "Rent Roll"), there are no tenant leases, tenancy
agreements, licenses, occupancy agreements or any amendments, renewals,
assignments, subletting and guaranties thereof, or surrender agreements and
termination agreements related thereto, affecting the Project, or any
portion thereof, other than the Leases set forth in the Rent Roll and any
----------
subleases, licenses or occupancy agreements which have (i) been entered
into by tenants of the Project with third parties and (ii) not been
disclosed in writing to Seller.
(ii) The Rent Roll shall contain a complete and accurate list of
the names of the Tenants, the date of each Lease (and any amendments
thereto), the space covered thereby and the current rental payable
thereunder. The information contained in the Rent Roll shall be true,
complete and correct in all material respects as of the date of the Rent
Roll.
(iii) The copies of the Leases heretofore delivered by Seller to
Purchaser are true, complete and correct copies of the Leases.
(iv) Each of the Leases is in full force and effect and has not
been amended, modified or extended, except as set forth in the Rent Roll.
To Seller's Actual Knowledge, except as set forth in the Rent Roll or
otherwise disclosed to Purchaser in writing, including, without limitation,
information which is set forth in any executed Estoppel Certificates,
Seller has performed and observed in all material respects, for all periods
following the Cut Off Date, all of (and is not in material default,
excluding any grace periods, in the performance or observance of) the
terms, covenants and condition on Seller's part to be performed or observed
under the Leases. Except as set forth in the Rent Roll or otherwise
disclosed to Purchaser in writing, Seller has not given, nor has Seller
received, any written notice of a default under any of the Leases which
remains uncured.
(v) To Seller's Actual Knowledge, except as set forth in the Rent
Roll or the Leases, no Tenant under any of the Leases (a) is currently
contesting (in writing) any item of rent charged under any of the Leases or
is currently claiming (in writing) an overcharge of operating expenses; (b)
is entitled to any concessions or abatements, rebates, set-offs or free
rent with respect to any item of rent for any period subsequent to the
Closing, and all items of an inducement nature to be performed by the
landlord under the Leases prior to the Closing Date have been performed, or
(c) has any option or right of first offer or first refusal to purchase the
Project or any part thereof.
(vi) As of the Closing Date, Seller will have paid in full, or
shall give Purchaser appropriate credit against the Purchase Price for, all
leasing, broker's or finder's commissions arising from Leases that were
entered into, renewed or extended prior to the Trigger Date (excluding any
commissions relating to renewal
15
<PAGE>
or expansion options that have been exercised by tenants under Leases after
the Trigger Date), and all tenant finish out obligations arising from
Leases that were entered into, renewed or extended prior to the Trigger
Date, that are unpaid as of the Closing Date.
(vii) Except as noted in the Rent Roll, Seller's historical billing
practices to tenants for additional rents and percentage rents is
consistent with the requirements of each Lease.
(e) With respect to the Service Contracts:
(i) As of the date hereof, there are no written equipment leases
or service, maintenance or other similar contracts or agreements affecting
the Project, or any portion thereof, other than (i) the Service Contracts
listed in Exhibit "D" and (ii) any equipment leases or other contracts or
-----------
agreements that may have been entered into by tenants (or subtenants of
tenants) of the Project with third parties; and
(ii) Each Service Contract is in full force and effect and has not
been amended except as set forth in Exhibit "D". Seller has not given, nor
-----------
has Seller received, any written notice of a default under any of the
Service Contract which remains uncured, except as set forth in Exhibit "D".
-----------
(f) As of the date hereof, to Seller's Actual Knowledge, there is not any
pending, nor has Seller received written notice of any threatened:
(i) proceeding, suit or action against Seller which, if adversely
decided, would prevent or materially delay the consummation of the
transaction contemplated by this Agreement or materially adversely affect
the Project, including, without limitation, pending or threatened suits,
actions or proceedings with respect to all or part of the Project (i) for
condemnation, (ii) alleging any violation of any Governmental Regulation,
(iii) which could result in the imposition of a lien against the Project or
(iv) which could increase real property taxes or assessments levied against
the Project (other than the normal and routine assessment and reassessment
process conducted by applicable governmental authorities), or
(ii) proceeding to change or redefine the zoning classification
applicable to any portion of the Project that would cause the Project to
become a "non-conforming" use, or
(iii) proceeding to change any road patterns or grades that would
materially adversely affect access to any roads providing a means of
ingress to or egress from the Project, or
(iv) proceeding seeking a reduction of real estate taxes imposed on
the Project or any portion thereof, or
16
<PAGE>
(v) pending imposition of any special or other assessments for
public betterments that may affect any portion of the Project or the
ownership thereof.
(g) To Seller's Actual Knowledge, the Project does not violate any
Governmental Regulation in any material respect.
(h) To Seller's Actual Knowledge all Permits required for the continued
use and occupancy of the Project (as the same is presently used under the
Leases) have been obtained from all appropriate governmental authorities, are
fully paid for, are in full force and effect, and will not be revoked,
invalidated or violated by the consummation of the transaction contemplated by
this Agreement. To Seller's Actual Knowledge, the Project remains in compliance
in all material respects with all applicable requirements and conditions with
respect to the issuance of the Permits, which were in effect at the time of the
issuance thereof.
(i) To Seller's Actual Knowledge, the current operation and use of the
Project complies in all material respects with all applicable Governmental
Regulations.
(j) Except as may be shown on or reflected in the Survey, to Seller's
Actual Knowledge, the Project has not been designated as a landmark or is not
located in a conservation or historic district or in an area that has been
identified as having special flood hazards.
(k) To Seller's Actual Knowledge, the Project is an independent unit
which, as of the date hereof, does not rely on any facilities (other than the
facilities of public utility companies) located on any property not included in
the Project to (i) fulfill the requirements of any Governmental Regulation, (ii)
provide structural support or furnish any essential building system or utility
or (iii) fulfill the requirements of any of the Leases. No building or other
improvement not included in the Project relies on any part of the Project to (1)
fulfill the requirements of any Governmental Regulation, or (2) provide
structural support or furnish any essential building system or utility.
(l) To Seller's Actual Knowledge, for any period following the Cut Off
Date, there has not been any material damage to any portion of the Project
caused by fire or other casualty that has not been repaired or restored.
(m) To Seller's Actual Knowledge, the real property and improvements that
constitute the Project are assessed as one tax lot that is separate and distinct
from the tax lot allocated to any other parcel of land or any other
improvements.
(n) To Seller's Actual Knowledge, no Hazardous Materials have been
stored, disposed of, released or transported at or from the Project, or any
portion thereof, in violation of, or in a manner requiring remediation under,
any Environmental Laws. To Seller's Actual Knowledge, except as otherwise
disclosed in any environmental report delivered by Seller to Purchaser with
respect to the Project ("Environmental Report"), no Hazardous Materials have
been stored, disposed of, released or transported at or from the Project, or any
portion
17
<PAGE>
thereof, in violation of, or requiring remediation under, any Environmental Laws
(the foregoing representation does not apply to the customary and ordinary
application, storage and use of chemicals for landscape maintenance, janitorial
services, and pest control). Without limiting the generality of the foregoing,
to Seller's Actual Knowledge and except as otherwise disclosed in any
Environmental Report, there have been no and are no (A) aboveground or
underground storage tanks; (B) polychlorinated biphenyls ("PCBs") or PCB-
containing equipment; (C) asbestos containing materials; (D) lead based paints;
or (E) dry-cleaning facilities in, on, under or at the Project; or (F) wetlands
located on or at the Project.
(o) There is now in full force and effect with reputable insurance
companies, casualty and liability insurance policies with respect to the Project
in commercially reasonable amounts.
(p) To Seller's Actual Knowledge, the Rent Roll and the operating
statements for the Project provided by Seller to Purchaser present fairly the
financial condition of the Project as of their respective dates and the results
of the Project's operations for the periods reflected therein.
(q) Seller has no employees and is not a party to any union, labor or
collective bargaining agreement affecting the Project.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the term
----------- ------------------
"Seller's Actual Knowledge" is used it shall be limited to the knowledge of Yon
K. Cho, after due inquiry by Mr. Cho of supervisory on-site property management
personnel at the Project. Additionally, with respect to any information
relating to periods of time prior to the period during which Seller has owned
the Project, any representation or warranty concerning such information is being
made solely based upon the knowledge of the foregoing individuals without any
obligation to undertake any independent investigation. Notwithstanding anything
herein contained to the contrary, in the event that Purchaser has knowledge of
any fact or circumstance that would make any of the representations or
warranties of Seller set forth herein untrue or incorrect and in the event
Purchaser fails to disclose to Seller such knowledge prior to Closing, Seller
shall not be deemed to be in default hereunder by reason of the fact that such
representation or warranty is in fact untrue or incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
----------- ------------------------------------------
otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall be continuing and shall be true and correct on and as
of the Closing Date with the same force and effect as if made at that time, and
all of such representations and warranties, other than those set forth is
subparagraphs (a), (b) and (c) above, shall survive the Closing for a period of
twelve (12) months, at which time they shall expire and terminate and be of no
further force and effect unless written notice of a claim for breach thereof has
been instituted within such twelve (12) month period. The representations and
warranties set forth is subparagraphs (a), (b) and (c) above, shall survive the
Closing without limitation of time constraints.
Section 4.4 Seller's Obligation to Notify Purchaser of Change. If, prior
----------- -------------------------------------------------
to the Closing Date, Seller becomes aware that any representation or warranty
set forth in Section 4.1 hereof which was true and correct on the date hereof
has become incorrect in any material respect, either prior to
18
<PAGE>
or at Closing, due to changes in conditions or the discovery of information by
Seller of which Seller was unaware on the date hereof, Seller shall promptly
notify Purchaser thereof and upon receipt of such notification, if such change
is material and adverse with respect to the acquisition of the Project,
Purchaser shall have the option of terminating this Agreement whereupon this
Agreement shall become null and void and of no further force or effect and
neither party shall have any further obligation one to the other. If Purchaser
does not exercise its option to terminate this Agreement by reason of any such
change in conditions, appropriate modifications shall be made in the terms
hereof to reflect the change in the conditions to the mutual satisfaction of
Seller and Purchaser.
Section 4.5 Operation of Project Prior to Closing. Seller shall (a)
----------- -------------------------------------
continue to cause its property manager to diligently operate the Improvements
and the Project in the ordinary course of business between the date hereof and
the Closing Date, (b) keep, observe, and perform or cause to be performed all of
its obligations as landlord under the Leases, (c) not terminate or cause the
termination of any Lease except as the result of the default of the Tenant
thereunder or the replacement of a suitable substitute, and (d) maintain and
operate the Project in substantially the same condition and repair as exists on
the Effective Date, reasonable wear and tear and normal replacements excepted,
such operation to include, subject to the provisions set
forth in Section 1.2 hereof relating to the adjustment to the Purchase Price,
(i) the continuation of maintenance and repair programs, (ii) the expenditure of
money in respect to leasing activities consistent with current operations, (iii)
the ordinary course of business and at Seller's expense of any repairs requested
by Tenants prior to the Closing Date which are the responsibility of the
landlord under the Leases. From the date hereof through the Closing Date, Seller
shall not, without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld or delayed, enter into any contracts, licenses,
leases or other agreements with respect to the Project unless the same may be
terminated on or before Closing. Seller agrees to use its good faith efforts to
collect all rental and other income prior to the Closing Date.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
Section 5.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Seller set forth herein
shall be true in all material respects on and as of the Closing Date with
the same force and effect as if such representations and warranties have
been made on and as of the Closing Date;
(b) Seller shall have performed, observed and complied with all of
the covenants, agreements and conditions required by this Agreement to be
performed, observed and complied in all material respects with by Seller
prior to or as of the Closing Date;
19
<PAGE>
(c) Purchaser shall have received and approved the Survey in
accordance with the terms of Article II of this Agreement;
(d) Purchaser, on or before the expiration of the Environmental
Inspection Period, shall have performed such inspections, investigations
and tests as Purchaser desires, in accordance with the terms of Article II
of this Agreement, and Purchaser shall have determined, in Purchaser's sole
discretion, that the Project is suitable for Purchaser's intended use;
(e) The Title Company shall have delivered to Purchaser the Title
Policy or if the Title Policy is not delivered at Closing, the Title
Company shall have unconditionally obligated itself to deliver the Title
Policy within a reasonable period of time following the Closing Date, in
accordance with the terms of Article II of this Agreement;
(f) The Title Company shall have delivered to Purchaser a
certificate or such other certificates as may be acceptable to Purchaser
stating that a search has been conducted by the Title Company or another
party acceptable to Purchaser of both the state and county records in which
financing statements and security agreements are filed under the Uniform
Commercial Code of the State and that such searches indicate that, except
security interests or liens to be released at Closing, no security
interests or liens of any kind or nature, including, but not limited to,
any equipment financing or leasing arrangements, are claimed by any person
against the Personal Property or the Improvements, or any part thereof;
(g) The closing of the IPO shall have occurred;
(h) Purchaser shall have received from each Major Tenant an
Estoppel Certificate duly executed by each Tenant, without material change
to the form of Estoppel Certificate submitted to the Tenant in question;
and
(i) No material adverse change in the condition or operation of
the Project as it exists on the Effective Date shall have occurred between
the Effective Date and the Closing Date, which change negatively and
adversely affects the Project in any material manner.
Section 5.2 Consequences of The Failure of Section 5.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of the
Project and the conditions set forth in subparagraphs (a) and/or (b) of
Section 5.1 have not been satisfied, Seller shall be deemed in default
hereunder and Purchaser shall have the option to either (i) waive those
conditions and proceed with the Closing or (ii) exercise it rights and
remedies set forth in Article VI.
(b) In the event (i) upon the expiration of the periods specified
in Section 2.4 hereof Purchaser has not approved the Title Report and
Survey, or (ii) on or prior to the
20
<PAGE>
expiration of the Environmental Inspection Period, Purchaser has discovered
Environmental Contamination, or (iii) on or before the Closing Date the
conditions set forth in subparagraphs (e), (f), (g), (h), or (i) of Section
5.1 above have not been satisfied, Purchaser shall have the option to
either (i) waive those conditions and proceed with the Closing or (ii)
terminate this Agreement whereupon this Agreement shall become null and
void and of no further force or effect and neither party shall have any
further obligation one to the other.
Section 5.3 Conditions Precedent to Seller's Obligation to Close.
----------- ----------------------------------------------------
(a) Other Agreements. Notwithstanding anything to the contrary
----------------
contained herein, the obligations of Seller to consummate the transaction
contemplated hereby are expressly conditioned upon the satisfaction of the
conditions set forth in Section 9.17 hereof in respect to the consummation
of the transactions contemplated by the Other Agreements, as hereinafter
defined. In the event of the failure of such conditions, Seller shall have
the option to either (i) waive those conditions precedent and proceed with
the Closing or (ii) terminate this Agreement in which event this Agreement
shall become null and void and of no further force or effect, and neither
party shall have any further obligation one to the other, except to the
extent that any obligation survives the earlier termination of this
Agreement.
(b) Outside Closing Date. In the event (i) the condition precedent
--------------------
to Purchaser's obligations to consummate the transaction contemplated
hereby set forth in Section 5.1(g) has not been satisfied on or before
December 31, 1996, in a manner to permit the transaction contemplated
hereby and by the Other Agreements to be consummated and funded by such
date, or (ii) Purchaser has not designated a Closing Date within a
sufficient period of time to permit the timely closing of the transaction
contemplated hereby on or before December 31, 1996, or (iii) Purchaser has
not designated a Closing Date within ten (10) Business days following the
date the IPO has occurred, then in such event this Agreement shall
terminate and become null and void and of no further force or effect on the
earlier of December 31, 1996, or on the tenth (10th) Business day following
the date of the occurrence of the IPO, and neither party shall have any
further obligation one to the other.
ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Seller's Defaults; Purchaser's Remedies.
----------- ---------------------------------------
(a) Seller's Defaults. Seller shall be deemed to be in default
-----------------
hereunder in the event that any of Seller's representations hereunder are
determined to be false or misleading in any material respect or in the
event Seller shall fail in any material respect to meet, comply with, or
perform any covenant, agreement, or obligation on its part required within
the time limits and in the manner required in this Agreement.
(b) Purchaser's Remedies. In the event Seller shall be deemed to
--------------------
be in default hereunder for any other reason, by virtue of the occurrence
of any one or more of the events
21
<PAGE>
specified in Section 6.1(a) above, Purchaser may at its election (i) bring
suit against Seller to enforce specific performance of this Agreement
together with such actions as may be available at law or in equity to
recover Purchaser's actual out-of-pocket costs in the performance of
reasonable due diligence on the Project, or (ii) terminate this Agreement.
If the remedy of specific performance is not available, for any reasons,
Purchaser shall have no remedy for damages other than obtaining a
reimbursement of the aforementioned out-of-pocket costs.
Section 6.2 Purchaser's Default; Seller's Remedies.
----------- --------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material respect
to meet, comply with, or perform any covenant, agreement, or obligation on
its part required within the time limits and in the manner required in this
Agreement.
(b) Seller's Remedy. IN THE EVENT PURCHASER SHALL BE DEEMED TO BE
---------------
IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR TO CLOSING AND SELLER
DOES NOT WAIVE SUCH DEFAULT, SELLER, AS SELLER'S SOLE AND EXCLUSIVE REMEDY
FOR SUCH DEFAULT, SHALL BE ENTITLED TO RETAIN THE INDEPENDENT
CONSIDERATION, IT BEING AGREED BETWEEN PURCHASER AND SELLER THAT SUCH SUM
SHALL BE LIQUIDATED DAMAGES FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE
DIFFICULTY, INCONVENIENCE AND UNCERTAINTY OF ASCERTAINING ACTUAL DAMAGES
FOR SUCH DEFAULT. IN PLACING THEIR INITIALS AT THE PLACES PROVIDED, EACH
PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND
THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED THE
CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME THIS
AGREEMENT WAS MADE. NOTWITHSTANDING THE FOREGOING, THE PROVISIONS OF THIS
SECTION 6.2(b) SHALL NOT LIMIT IN ANY MANNER PURCHASER'S INDEMNITY
OBLIGATIONS SET FORTH IN SECTIONS 8.1 OR 8.3 HEREOF.
SELLER'S INITIALS:______________
PURCHASER'S INITIALS: /s/ TFA
------------
Section 6.3 Attorneys' Fees. Should either party employ an attorney or
----------- ---------------
attorneys to enforce any of the provisions hereof or to protect its interest in
any manner arising under this Agreement, the non prevailing party in any action
pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
22
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ARTICLE VII
CLOSING COSTS; PRORATIONS
-------------------------
Section 7.1 Closing Costs. Costs of closing the transaction contemplated
----------- -------------
hereby shall be allocated between Seller and Purchaser as follows:
(a) Seller shall pay the costs, if any, by Seller in connection
with the performance of its obligations hereunder.
(b) Purchaser shall pay (i) the premium for the Title Policy
(including all charges for the coverages and/or deletions set forth in
Section 2.2 hereof), (ii) the cost of the Survey, (iii) the cost of
recording the Deed and any other conveyance documents that Purchaser may
choose to record, (iv) any escrow fee or similar charges of the Title
Company, (v) the costs incurred in respect to any transfer, deed, stamp or
other similar conveyance taxes, and (vi) the costs, if any, incurred by
Purchaser in connection with the performance of its obligations hereunder.
(c) All other expenses incurred by Seller or Purchaser with
respect to the Closing, including, but not limited to, attorneys' fees of
Purchaser and Seller, shall be borne and paid exclusively by the party
incurring same, without reimbursement, except to the extent otherwise
specifically provided herein.
Section 7.2 Proration of Income and Expenses. The following items shall
----------- --------------------------------
be adjusted or prorated between Seller and Purchaser at the Closing effective as
of the Closing Date:
(a) Ad valorem and similar taxes for the then current tax period
relating to the Project shall be prorated. If the Closing occurs before
the tax rate is fixed for the then current tax year, the apportionment of
taxes shall be made on the basis of the tax rate for the preceding tax year
applied to the latest assessed valuation of the Project, and when the tax
rate is fixed for the tax year in which the Closing occurs, Seller and
Purchaser hereby agree, one to the other, to adjust the proration of taxes
and, if necessary, to refund or pay such sums to the other party as shall
be necessary to effect such adjustment. Seller shall promptly reimburse
Purchaser for the portion of all supplemental taxes hereafter assessed
against the Project which are attributable to the period prior to the
Closing Date. All unpaid installments relating to special assessments shall
be paid by Seller at Closing. To the extent any installments of special
assessments are incurred or levied from and after the Trigger Date and are
due and payable subsequent to the Closing Date, such installments shall be
borne by Purchaser.
(b) Purchaser shall receive a credit against the cash portion, if
any, of the Purchase Price equal to the aggregate amount of rentals or
other income of the Project, utility charges, tenant reimbursements and
other similar amounts payable to the owner of the Project, howsoever
denominated, previously collected by Seller which, as of the Closing Date,
represent advance payments attributable to periods after the Closing Date.
23
<PAGE>
(c) Any rental or other income, including, but not limited to,
utility charges, tenant reimbursements, and other amounts payable to the
owner of the Project, howsoever denominated, which are payable for periods
prior to the Closing but which, as of the Closing Date have not been
received by Seller, whether because such amounts are delinquent or because
such amounts are not yet due, shall not be prorated at Closing but shall be
adjusted, as soon as reasonably possible, after the Closing but as of the
Closing Date, when and if such amounts are received by Purchaser.
(d) At the Closing, Purchaser shall receive a credit against the
cash portion, if any, of the Purchase Price equal to the amount of any and
all deposits paid to Seller by Tenants of the Project which have not been
applied by Seller to Tenant's obligations prior to the Closing Date,
including, but not limited to, all refundable rental deposits and security
deposits, as well as for the amount of any unpaid bills relating to periods
prior to the Closing Date for which Purchaser will be responsible after the
Closing.
(e) All other income and operating expenses for or pertaining to
the Project, including, but not limited to, maintenance, security,
management, service, and similar contractual charges, and all other
operating charges with respect to the Project shall be prorated between
Purchaser and Seller at the Closing effective for all purposes as of the
Closing Date. Utility charges shall not be prorated. Appropriate
arrangements shall be made with the providers of utility services for
Purchaser to engage such services in its own name effective on the Closing
Date. Any deposits held by such utility providers shall be returned to
Seller and/or replaced by Purchaser.
(f) Any commission or referral fees with respect to the Leases or
other rental agreements for the Project, which were due prior to the
Trigger Date, relating to the initial term of the Lease in question or any
renewal period for which the renewal option has been exercised prior to the
Trigger Date, will be paid or otherwise discharged or released by Seller on
or before the Closing Date. Purchaser shall be responsible for and
covenants to pay commissions or referral fees with respect to any Leases or
other rental agreements for the Project, including any present or future
renewals thereof, that are in effect on or after the Closing Date, with the
exception of Leases executed or renewals exercised during the period
beginning on the Trigger Date and ending on the Closing Date which have
been approved by Purchaser. Purchaser shall expressly assume and hold
Seller harmless from and against the obligations of the landlord under the
Leases in respect to the payment of any leasing commissions which may
become due and payable upon the exercise of any renewal or extension
options contained in the Leases which are exercised from and after the
Trigger Date.
(g) Any unpaid sums due with respect to tenant improvement for
Leases entered into prior to the Trigger Date shall be paid in full by
Seller at Closing. Tenant improvement costs for Leases entered into
subsequent to the Trigger Date, which have been approved by Purchaser,
shall be borne by and shall be the responsibility of Purchaser.
Section 7.3 Post-Closing Adjustments. Within ninety (90) days following
----------- ------------------------
the Closing Date, or as soon thereafter as may be reasonably practical, Seller
and Purchaser agree that, to the
24
<PAGE>
extent items are prorated or adjusted at Closing on the basis of estimates, or
are not prorated or adjusted at Closing pending actual receipt of funds or
compilation of information upon which such prorations or adjustments are to be
based, each of them will, upon a proper accounting, pay to the other amounts as
may be necessary such that Seller will receive the benefit of all income and
will pay all expenses of the Project prior to the Closing Date and Purchaser
will receive all income and will pay all expenses of the Project on or after the
Closing Date. If on or after the Closing Purchaser receives any bill or invoice
all or a portion of which relates to periods prior to the Closing Date,
Purchaser will refer such bill (or the portion thereof that relates to periods
prior to the Closing Date) to Seller and Seller agree to pay such bill or
invoice (or portion thereof) promptly upon receipt. If Seller do not pay such
bill (or portion thereof) in a timely manner, Purchaser may, at its option, pay
such bill or invoice and Seller shall become liable to Purchaser for the full
amount of such payment. If on or after the Closing Seller receives any bill or
invoice which relates to periods on or after the Closing Date, Seller will refer
such bill to Purchaser, accompanied by Seller's check representing payment for
the allocable portion of such bill, if any, representing charges relating to
periods prior to the Closing Date, and Purchaser agrees to pay such bill or
invoice promptly upon receipt. If Purchaser does not pay such bill in a timely
manner, Seller may, at its option, pay such bill or invoice and Purchaser shall
become liable to Seller for the full amount of such payment.
Section 7.4 Delinquent Rents. Any rents or other amounts which are
----------- ----------------
delinquent as of the Closing shall not be adjusted or prorated at Closing, but
Purchaser shall make a reasonable attempt to collect such amounts for the
benefit of Seller after the Closing; provided, however, that nothing contained
herein shall be construed to require Purchaser to institute any lawsuit or other
proceedings to collect such delinquent amounts. In this connection, the first
monies collected by Purchaser from Tenants or other persons owing delinquent
rents or other amounts shall be applied to the current rents or obligations of
such person. Purchaser need not attempt to collect any amount which is more
than ninety (90) days past due and may refer the same to Seller for disposition
or, at the request of Seller, Purchaser shall assign the same to Seller and
Purchaser will cooperate with Seller in the collection thereof so long as
Purchaser is not obligated to incur any cost or expense in regard thereto.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the payment of any commission regarding
the consummation of the transaction contemplated hereby. It is agreed that if
any claims for commissions or fees, including, without limitation, brokerage
fees, finder's fees, or commissions, are ever made against Seller or Purchaser
in connection with this transaction, all such claims shall be handled and paid
by the party whose actions or alleged commitments form the basis of such claim
and such party shall indemnify and hold harmless the other from and against all
such claims or demands with respect to any brokerage fees, finder's fees, or
agents' commissions or other compensation asserted by any person, firm, or
corporation in connection with this Agreement or the transactions contemplated
hereby. The provisions of this Section 8.1 shall expressly survive the early
termination of this Agreement.
25
<PAGE>
Section 8.2 Seller's Indemnity. Seller shall indemnify and hold Buyer
----------- ------------------
harmless from and against all loss, expense (including, without limitation,
court costs and reasonable attorneys' fees), damage and liability resulting from
(a) claims of mechanics and materialmen based on work performed on or contracted
for the Project by Seller prior to the Closing Date, (b) claims for personal
injury, wrongful death or property damage against Buyer or the Project based on
causes of action arising prior to the Closing Date, (c) claims by (i) tenants
under any of the Leases assumed by Purchaser pursuant to the Assignment
(including, without limitation, claims relating to security deposits, if any,
other than those paid over by Seller to Buyer at the Closing) or (ii)
contractors under any of the Service Contracts assumed by Purchaser, all with
respect to matters that occurred prior to the Closing Date and (d) the
inaccuracy of any representation or warranty made by Seller in this Agreement
which survives the Closing; provided notice of such inaccuracy is given to
Seller prior to the expiration of the applicable period of survival.
Section 8.3 Purchaser's Indemnity. Purchaser shall indemnify and hold
----------- ---------------------
Seller harmless from and against all loss, expense (including, without
limitation, court costs and reasonable attorneys' fees), damage and liability
resulting from (a) claims of mechanics and materialmen based on work performed
on or contracted for the Project by Purchaser on or after the Closing Date, (b)
claims for personal injury, wrongful death or property damage against Seller or
the Project based on causes of action arising on or after the Closing Date, (c)
claims by (i) tenants under any of the Leases assumed by Purchaser pursuant to
the Assignment or (ii) contractors under any of the Service Contracts assumed by
Purchaser, all with respect to matters that occurred on or after the Closing
Date and (d) the inaccuracy of any representation or warranty made by Purchaser
in this Agreement and which survives the Closing; provided notice of such
inaccuracy is given to Purchaser prior to the expiration of the applicable
period of survival.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise expressly
----------- -----------------
provided for herein, the terms and provisions hereof shall not survive the
Closing. The acceptance of the deed and other closing documents by Purchaser
and payment of the Purchase Price shall be deemed full compliance by Seller and
Purchaser of all of their respective obligations arising under this Agreement
and both Seller and Purchaser Agreement expressly waive any and all
noncompliance by the other party with respect to any prior obligations other
than those obligations which expressly survive the Closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
Section 9.3 Entire Agreement; Modifications. This Agreement embodies and
----------- -------------------------------
constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged, or terminated except by an instrument in
writing signed by the party against which the enforcement of such waiver,
26
<PAGE>
modification, amendment, discharge, or termination is sought, and then only to
the extent set forth in such instrument.
Section 9.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Seller and Purchaser, each of which has
been represented by counsel of its own selection, and neither of which has
acted under duress nor compulsion, whether legal, economic or otherwise.
Consequently, the terms and provisions of this Agreement shall be
interpreted and construed in accordance with their usual and customary
meanings, and Seller and Purchaser hereby expressly waive and disclaim, in
connection with the interpretation and construction of this Agreement, any
rule of law or procedure requiring otherwise, including without limitation,
any rule of law to the effect that ambiguous or conflicting terms or
provisions contained in this Agreement shall be interpreted or construed
against the party whose attorney prepared this Agreement or any earlier
draft of this Agreement.
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail
return receipt, signed by the addressee or the addressee's agent or
representative, (b) if by telegram, by a telegram receipt signed by the
addressee or the addressee's agent or representative, (c) if hand delivered
(including delivery by any overnight or other delivery service), by a delivery
receipt signed by the addressee or the addressee's agent or representative, or
(d) if sent by facsimile transmission, with confirmation of receipt at the
facsimile number to which it was sent. Each party's initial address for
delivery of any Notice is designated below, but any party from time to time may
designate a different address for delivery of any Notice by delivering to the
other party Notice of such different address; provided, however, neither party
may designate an address for delivery of Notice not located within the United
States. Each party hereto covenants and agrees to mail copies of any Notice to
the parties designated to receive copies of any Notice below, but the failure of
the addressee for any copy actually to receive such copy shall not render the
Notice ineffective.
27
<PAGE>
If to Seller: Edward J. Meylor
Lehman Brothers Inc.
3 World Financial Center, 12th Floor
New York, New York 10285
Telephone No.: (212) 526-2122
Fax No.: (212) 528-6680
With copies to: James J. Thomas, Esq.
Windels, Marx, Davies & Ives
156 West 56th Street
New York, New York 10019
Telephone No.: (212) 237-1000
Fax No.: (212) 262-1215
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Fax No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Fax No.: (214) 969-4343
Section 9.7 Assignment of Trade Name. At the Closing, Seller shall assign
----------- ------------------------
to Purchaser the right to use the Trade Name and all derivatives thereof in
connection with the conduct and operation of the Project, but such assignment
shall be made without representation or warranty or recourse and shall be
nonexclusive; provided, however, Seller agrees not to use or further assign the
Trade Name.
Section 9.8 Right to Possession. At the Closing and as a condition
----------- -------------------
thereto, Purchaser shall have full and unrestricted right to possession of the
Project subject to existing Leases and applicable laws and regulations of
government authorities having jurisdiction over the Project, and Seller will do
such reasonable acts, execute such instruments, and take such action as may be
appropriate or required to assure to Purchaser possession of the same.
Section 9.9 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Seller or
Purchaser, Seller and Purchaser hereby agree to perform, execute, and/or deliver
or cause to be performed, executed, and/or delivered at the Closing or
thereafter, all such further acts, deeds, and assurances as Purchaser
28
<PAGE>
or Seller, as the case may be, may reasonably require to (i) evidence and vest
in the Purchaser the ownership of, and title to, the Project, and (ii)
consummate the transactions contemplated hereunder.
Section 9.10 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
------------ --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 9.11 Risk of Loss.
------------ ------------
(a) Risk of loss or damage to the Project by condemnation,
eminent domain, or similar proceedings (or deed in lieu thereof), or by
fire or any other casualty, from the date hereof through the time of
delivery of the Deed will be on Seller and, thereafter, will be on
Purchaser.
(b) In the event of loss or damage to the Project by reason of
condemnation or eminent domain proceedings (or deed in lieu thereof), or by
fire or any other casualty, which occurs prior to the Closing Date, if the
cost to repair such loss or damage is less than $100,000.00, so long as no
portion of the Improvements or the parking areas have been taken and no
means of access to the Project has been blocked or substantially impaired,
the transaction contemplated hereby shall be consummated, and Seller shall
assign to Purchaser all insurance proceeds or condemnation awards,
excluding proceeds of rental insurance for any period prior to Closing,
which can then be used by Purchaser to repair such damage or casualty. If
such insurance proceeds or condemnation awards are insufficient to allow
Purchaser to repair such damage or destruction to the condition of the
Project prior to the damage, Seller shall pay over to Purchaser, either
directly or by credit on the Purchase Price, such additional sums of money
as may be necessary to complete such repair. In such event, Seller shall
have no additional obligation other than to pay the deductibles in
connection therewith.
(c) If the cost to repair such damage or destruction exceeds
$100,000.00, or, if any part of the Improvements or the parking area has
been taken by condemnation or eminent domain proceedings (or deed in lieu
thereof) or if any means of access to the Project has been blocked or
substantially impaired by any such taking, Purchaser may, at its option,
elect to terminate this Agreement, or Purchaser may consummate the
transaction and receive an assignment of all proceeds of insurance or
condemnation awards attributable to such damage. In such event, even if
such insurance or condemnation proceeds shall be assigned to Purchaser,
Seller shall have no additional obligation if such insurance proceeds or
condemnation awards are insufficient to repair such damage other than to
pay any deductibles in connection therewith and Purchaser shall not be
entitled to any credit or reduction in the Purchaser Price.
Notwithstanding the foregoing, in the event of such damage or destruction
in excess of $100,000.00 resulting from fire or other casualty, in the
event such damage or destruction can be repaired within ninety (90) days
following the scheduled Closing Date, Seller shall have the right (but not
the obligation) in the exercise of its sole and absolute discretion to
extend the Closing Date for a period not to exceed ninety (90) days, in
which event Purchaser shall not have the right to terminate this Agreement
and Seller shall repair such damage or destruction, at its sole cost and
expense, without regard to the availability of insurance proceeds.
29
<PAGE>
(d) Notwithstanding anything to the contrary herein, if any
eminent domain proceeding is instituted (or notice of which shall be given)
solely for the taking of any subsurface rights for utility easements or for
any right-of-way easement, and the surface may, after such taking, be used
in substantially the same manner as though such rights had not been taken,
Purchaser shall not be entitled to terminate this Agreement as to any part
of the Project, but any award to which Seller in entitled to receive and
which is actually received by Seller resulting therefrom (excluding any
proceeds relating to loss of rental income for periods prior to the Closing
Date) shall be assigned and delivered to Purchaser at Closing and shall be
the exclusive property of Purchaser upon Closing.
Section 9.12 Assignment. Purchaser shall have the right, without the
------------ ----------
consent of Seller, to assign its rights under this Agreement and all rights
hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Upon such assignment Purchaser shall be relieved of its
obligations hereunder, so long as the PPL REIT or any entity in which the PPL
REIT has a controlling interest assumes all obligations of Purchaser hereunder
and confirms all undertakings or representations of Purchaser hereunder. No
other assignment may be made without the prior written consent of Seller.
Section 9.13 Time of the Essence. Time is of the essence in this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
Section 9.14 Conditions. All covenants, warranties and obligations of
------------ ----------
Seller or Purchaser contained in this Agreement are deemed to be conditions to
the other party's obligations herein. All conditions to Purchaser's or Seller's
obligations, whether specifically stated in this Agreement or pursuant to the
preceding sentence, and all rights of Purchaser or Seller herein are imposed
solely and exclusively for the benefit of the other party and their respective
assigns and any or all of such conditions or rights may be waived in whole or in
part by the party in question at any time in such party's sole discretion.
Section 9.15 Severability. If any provision in this Agreement is invalid,
------------ ------------
illegal, or unenforceable, such provision shall be construed as narrowly as
possible to allow Purchaser and Seller to be afforded the benefits and
protection of this Agreement. Such provision shall be severable from the rest
of this Agreement and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and shall
continue in full force and effect.
Section 9.16 Counterparts. Two or more duplicate originals of the written
------------ ------------
instrument containing this Agreement may be signed by the parties, each of which
shall be an original but all of which together shall constitute one and the same
agreement.
Section 9.17 Acquisition of Other Projects.
------------ -----------------------------
(a) Seller or Seller's Affiliates have entered into certain other
agreements with Purchaser (the "Other Agreements") for the purchase of the
real estate or partnership
30
<PAGE>
interests listed on Exhibit "E" attached hereto (said properties and
----------
interests being designated on Exhibit "E" as "Large Properties" or "Small
----------
Properties" and being herein collectively called "Other Properties").
Subject to the exceptions set forth in subparagraph (b) below, Seller's
obligation to consummate the transaction contemplated by this Agreement is
expressly conditioned upon the acquisition by Purchaser of all of the Other
Properties simultaneously with the Closing of the Project (the
"Simultaneous Closing Condition").
(b) Notwithstanding the existence of the Simultaneous Closing
Condition, in the event Purchaser refuses to close any of the Other
Properties and terminates the applicable Other Agreement for a Permitted
Reason (defined below), by delivering a notice of intent to terminate such
Other Agreement, the provisions of (c) or (d) of this Section shall apply.
The term "Permitted Reason" shall mean either: (i) Seller's default as
contemplated by Section 6.1(a) of the applicable Other Agreement; (ii) a
Title Objection which is not cured within the time periods provided by such
Other Agreement; (iii) an Environmental Contamination has been discovered
in respect to the Other Property covered by such Other Agreement; or (iv)
the failure of any material condition listed in Section 5.1 of such Other
Agreement and Purchaser's election to terminate the applicable Other
Agreement in accordance with Section 5.2 thereof. Seller has the right to
cure any Permitted Reason under the terms and within the time periods
provided in the applicable Other Agreement. Seller's right to cure shall
not delay Closing under this Agreement or any Other Agreements not affected
by a Permitted Reason.
(c) If the Other Agreement which Purchaser seeks to cancel for a
Permitted Reason pertains to a Large Property, Seller shall have the right
to terminate this Agreement and all Other Agreements (pertaining to both
large Properties and Small Properties) by giving written notice to
Purchaser of such election within five (5) days following Purchaser's
election to terminate the applicable Other Agreement and each of the
parties rights and obligations arising under this Agreement shall be null
and void except for those rights or obligations which expressly survive the
termination of this Agreement.
(d) If the Other Agreement which Purchaser seeks to cancel for a
Permitted Reason pertains to a Small Property, Seller shall not have the
right to terminate this Agreement or any Other Agreement based on
Purchaser's cancellation of the Other Agreement and the transactions
contemplated hereby and by the remaining Other Agreements shall be
consummated in accordance with their respective terms and conditions.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLER:
------
PROPERTY ASSET MANAGEMENT INC.,
a Delaware corporation
By: /s/ Yon Cho
-------------------------------
Name: Yon Cho
-----------------------------
Title: Vice President
----------------------------
Date of Execution: August 30, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/ Thomas F. August
-------------------------------
Name: Thomas F. August
-----------------------------
Title: President
----------------------------
Date of Execution: August 30, 1996
<PAGE>
EXHIBIT "A"
-----------
DESCRIPTION OF THE LAND
-----------------------
<PAGE>
EXHIBIT "B"
-----------
ADDITIONAL ITEMS FURNISHED TO PURCHASER
---------------------------------------
1. The standard form tenant lease used for renting space in the Project.
2. A Rent Roll (herein so called) certificate (with current rent roll
attached) for the Project containing the following information with respect to
each tenant lease: (i) the space occupied thereby (square feet), (ii) tenant's
name, (iii) the commencement date thereof and the term thereof, (iv) the rents
and other charges payable thereunder and the actual collections thereunder, (v)
any rents or other charges in arrears or prepaid thereunder and the period for
which such rents and other charges are in arrears or have been prepaid, (vi) the
amount of the security deposit or any other deposit thereunder, (vii) any free
rent, concessions, rebates, refunds, or other inducements, (ix) any options
provided thereunder, and (x) any unpaid leasing commissions. The Rent Roll shall
be accompanied by Seller's signed certification that, to the best of Seller's
knowledge, the Rent Roll is true, complete, and correct as of the date shown on
the Rent Roll and that, to the best of Seller's knowledge, there has been no
material adverse change with respect to any item shown on the Rent Roll during
the period from the date thereof to the date of such certificate, except as
shown thereon;
3. All management, service supply, security, maintenance and other
contracts and agreements, oral or written, with respect to the Project which
will survive the Closing Date and affect the Project or Purchaser's ownership
thereof.
4. To the extent reasonably available to Seller, all Permits with respect
to the ownership and operation of the Project, including, but not limited to,
all certificates of occupancy and building permits for the Improvements, any
specific use permits, conditional use approvals, special exceptions, variances,
or other permits, licenses, or approvals (including drawings and enacting
ordinances, if any) of any kind required under any Governmental Regulations and
all notices received by or in the possession of Seller from governmental
instrumentalities with respect to any such Permits or compliance of the Project
with any Governmental Regulations, and any response thereto from or in the
possession of Seller; and all materials, including applications, ordinances and
legal opinions, in the possession of Seller relating to the zoning and platting
of the Project.
5. Evidence of the total amount of real estate and personal property
taxes on the Project or any portions thereof for the last two tax years and the
estimated taxes due for the current tax year;
6. To the extent reasonably available to Seller, evidence of all utility
charges paid by Seller with respect to the Project during the twelve (12) month
periods ending December 31, 1994 and 1995 and the four month period ending April
30, 1996.
7. An itemized list of all Personal Property.
1
<PAGE>
8. To the extent reasonably available to Seller, operating statements
showing all income and expenses, profits and losses of the Project for the
calendar years ending December 31, 1993, 1994 and 1995, which operating
statements shall reflect all income and expense from operations including (i) ad
--
valorem taxes for the City, County and State; (ii) accrual for annual insurance
- -------
premiums for such periods for fire, extended coverage, workman's compensation,
vandalism, and malicious mischief, general liability, rents, and other forms of
insurance shown thereon; (iii) expenses incurred for such period for water,
electricity, natural gas and other utility charges; (iv) other operating
expenses; (v) expenses incurred in respect to routine repair and maintenance and
expenses which are capital in nature, (vi) total rents collected from tenants
for such periods; and (vi) other revenue collected and the nature of such
revenue;
9. Copies of any and all correspondence, engineering reports, inspection
reports, inspections, environmental assessments (Phase I or Phase II), soil
tests, asbestos surveys, notices or other materials and other written
documentation in Seller's possession or which are readily available to Seller or
in the possession of Seller or their agents or consultants regarding or
evidencing the presence, or lack thereof, on the Project or released from
adjacent properties or released from the Project of any Hazardous Materials; and
copies of any and all written reports of any compliance or regulatory audit,
inspection, or investigation of the structural, soil, or environmental condition
of the Project ordered by or in the possession of Seller.
10. To the extent in Seller's possession, a copy of the final set of plans
and specifications for the Project.
11. All Leases with respect to the Project, including any and all
modifications, supplements, or amendments thereto, and evidence sufficient to
allow Purchaser to determine the "base amount" or "base year" of any common area
maintenance charges, ad valorem taxes, or any other charges which, under the
Leases, are to be paid by the tenants on the basis of increases in such charges
over such "base."
12. All warranties and guaranties relating to the Project, or any part
thereof, or to the tangible personal property and fixtures owned by Seller and
located on, attached to, or used in connection with the Project.
13. All of Seller's fire, hazard, liability, and other insurance policies
currently in force with respect to the Project.
14. All leasing or other commission agreements with respect to the
Project.
15. Any other documents or reports ordered by or in the possession of
Seller that are material to the physical, economic, or legal condition of the
Project.
2
<PAGE>
EXHIBIT "C"
-----------
TENANT'S ESTOPPEL CERTIFICATE
-----------------------------
TO: Prentiss Properties Limited, Inc. ("Prospective Purchaser")
THIS IS TO CERTIFY THAT:
1. The undersigned is the tenant under that certain lease dated ______________
("Lease") by the between ________________, as landlord ("Landlord") and
_________________, as tenant ("Tenant"), with respect to that certain
premises located at ________________________, (the "Premises") consisting
of __________________ square feet.
2. The Lease is valid and in full force and effect on the date hereof. The
Lease represents the entire agreement between the Landlord and the Tenant
with respect to the Premises, and is the only agreement between the
Landlord and the Tenant affecting or relating to the Premises. The Lease
has not been modified, changed, altered, assigned, supplemented or amended
in any way (except as indicated herein):
__________________________________________________________________________
__________________________________________________________________________
3. Tenant has the following options to extend the term of the Lease:
__________________________________________________________________________
_________________________________________________________ (if none, state
"none").
4. Tenant has the following options to lease additional space in the Building:
__________________________________________________________________________
________________________________________________________ (if none, state
"none").
5. Tenant has no right to purchase the Property.
6. Tenant has accepted and now occupies the Premises, and is and has been
conducting its business in the Premises since __________________, 19___.
The commencement date of the Lease term occurred on _______________, 19___,
and the expiration date of the Lease term (other than unexercised options
to extend the Lease) will occur on _______________________.
7. Landlord has complied with all of its construction and other obligations
under the Lease to this date, and Tenant is fully obligated to pay, and is
paying, the rent and other charges due thereunder, and is fully obligated
to perform, and is performing, all of the other obligations of Tenant under
the Lease without right of counterclaim, offset or defense, except as
specifically provided in the Lease.
1
<PAGE>
8. No one except the Tenant and its employees occupies the Premises. Tenant
has not sublet the Premises or any part thereof or assigned any of its
rights under the Lease except as indicated herein:_________________________
___________________________________________________________________________
_________________________________________________________ (if none, state
"none").
9. Tenant has paid rent for the Premises for the period up to and including
____________. The current rent payable by Tenant is $__________________
per month. The current common area maintenance and other charges payable
by Tenant (including the Tenant's share of real estate taxes, insurance and
operating expenses) is $_________________ per month. No such rent has been
paid more than one (1) month in advance of its due date except as indicated
herein: ___________________________________________________________________
___________________________________________________________________________
(if none, state "none").
10. The Tenant's security deposit is $_____________________ (if none, state
"none").
11. To Tenant's knowledge, no event has occurred and no condition exists which,
with the giving of notice or the lapse of time or both, will constitute a
default under the Lease. Tenant has no existing defense, offsets or
credits against the enforcement of this Lease by the Landlord or the
payment of rent for the Premises.
12. No actions, whether voluntary or otherwise, are pending against the Tenant
under the bankruptcy laws of the United States or any state thereof.
13. Tenant's current notice address is set forth in the Lease.
14. The undersigned is authorized by all necessary action of Tenant to execute
this Tenant Estoppel Certificate on behalf of Tenant.
15. Tenant acknowledges that Prospective Purchaser is relying upon this
estoppel in connection with its potential acquisition of certain property,
including the Premises.
Dated this ____ day of _________________, 1996.
TENANT:
______________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
2
<PAGE>
EXHIBIT "D"
-----------
LIST OF SERVICE CONTRACTS
-------------------------
None
1
<PAGE>
EXHIBIT "E"
-----------
OTHER PROPERTIES
----------------
LARGE PROPERTIES:
- ----------------
1. One Northwestern Plaza, Southfield, Michigan
2. Park West C-2 (Partnership Interest)
SMALL PROPERTIES:
- ----------------
1. 9050 Junction Drive, a/k/a Laredo, Annapolis, Maryland
2. Cottonwood Office Center, Irving, Texas
1
<PAGE>
EXHIBIT 10.21
[COTTONWOOD OFFICE CENTER, IRVING, TEXAS]
AGREEMENT OF SALE
(Real Property)
BY AND BETWEEN
PROPERTY ASSET MANAGEMENT INC.
("Seller")
AND
PRENTISS PROPERTIES LIMITED, INC.
("Purchaser")
Dated: AUGUST __, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS; PURCHASE PRICE..................................................... 1
Section 1.1 Definitions..................................................................... 1
Section 1.2 Purchase Price for the Project.................................................. 5
Section 1.3 Independent Consideration....................................................... 6
ARTICLE II TITLE AND SURVEY; APPROVAL OF DOCUMENTS; INSPECTIONS............................ 6
Section 2.1 Title Binder.................................................................... 6
Section 2.2 Title Insurance Policy Covering the Project..................................... 6
Section 2.3 Survey.......................................................................... 6
Section 2.4 Review of Survey and Title Binder by Purchaser.................................. 7
Section 2.5 Seller's Right to Cure Purchaser's Objections................................... 7
Section 2.6 Additional Items Furnished to Purchaser......................................... 8
Section 2.7 Estoppel Certificates........................................................... 8
Section 2.8 Environmental Inspection........................................................ 8
Section 2.9 Inspection...................................................................... 10
Section 2.10 Purchaser's Acknowledgement..................................................... 11
ARTICLE III THE CLOSING DATE AND THE CLOSING; OBLIGATIONS OF
PURCHASER AND SELLER WITH RESPECT THERETO....................................... 11
Section 3.1 The Closing and the Closing Date................................................ 11
Section 3.2 Seller's Obligations at the Closing............................................. 11
Section 3.3 Purchaser's Obligations at the Closing.......................................... 13
Section 3.4 Notification to Tenants......................................................... 14
Section 3.5 Escrow Closing.................................................................. 14
Section 3.6 Reporting Person................................................................ 14
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS....................................... 14
Section 4.1 Representations and Warranties of Seller........................................ 14
Section 4.2 Knowledge Standard.............................................................. 18
Section 4.3 Survival of Representations and Warranties...................................... 19
Section 4.4 Seller's Obligation to Notify Purchaser of Change............................... 19
Section 4.5 Operation of Project Prior to Closing........................................... 19
ARTICLE V CONDITIONS TO CLOSING........................................................... 20
Section 5.1 Conditions Precedent to Purchaser's Obligations................................. 20
Section 5.2 Consequences of The Failure of Section 5.1 Conditions Precedent................. 21
Section 5.3 Conditions Precedent to Seller's Obligation to Close............................ 22
ARTICLE VI DEFAULTS AND REMEDIES........................................................... 22
Section 6.1 Seller's Defaults; Purchaser's Remedies......................................... 22
Section 6.2 Purchaser's Default; Seller's Remedies.......................................... 23
Section 6.3 Attorneys' Fees................................................................. 23
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII CLOSING COSTS; PRORATIONS....................................................... 24
Section 7.1 Closing Costs................................................................... 24
Section 7.2 Proration of Income and Expenses................................................ 24
Section 7.3 Post-Closing Adjustments........................................................ 25
Section 7.4 Delinquent Rents................................................................ 26
ARTICLE VIII INDEMNIFICATION................................................................. 26
Section 8.1 Brokerage Commissions........................................................... 26
Section 8.2 Seller's Indemnity.............................................................. 27
Section 8.3 Purchaser's Indemnity........................................................... 27
ARTICLE IX MISCELLANEOUS................................................................... 27
Section 9.1 Survival of Terms............................................................... 27
Section 9.2 Binding Effect.................................................................. 27
Section 9.3 Entire Agreement; Modifications................................................. 27
Section 9.4 Headings........................................................................ 28
Section 9.5 Interpretation and Construction................................................. 28
Section 9.6 Notice.......................................................................... 28
Section 9.7 Assignment of Trade Name........................................................ 29
Section 9.8 Right to Possession............................................................. 29
Section 9.9 Additional Acts................................................................. 29
Section 9.10 Applicable Law.................................................................. 30
Section 9.11 Risk of Loss.................................................................... 30
Section 9.12 Assignment...................................................................... 31
Section 9.13 Time of the Essence............................................................. 31
Section 9.14 Conditions...................................................................... 31
Section 9.15 Severability.................................................................... 31
Section 9.16 Counterparts.................................................................... 31
Section 9.17 Acquisition of Other Projects................................................... 31
</TABLE>
EXHIBITS:
"A" - Description of the Land
"B" - Additional Items Furnished to Purchaser
"C" - Tenant's Estoppel Certificate
"D" - List of Service Contracts
"E" - Other Properties
(ii)
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT OF SALE is made and entered by and between PRENTISS
PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"), and PROPERTY
ASSET MANAGEMENT INC., a Delaware corporation ("Seller"), as of this Effective
Date.
W I T N E S S E T H:
===================
Seller is the owner of the Project, as hereinafter defined. Seller hereby
agrees to sell and convey to Purchaser, and Purchaser hereby agrees to purchase
from Seller, the Project, as hereinafter defined, upon and subject to the terms,
provisions, and conditions hereinafter set forth.
ARTICLE I
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by or
is under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other than
corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the controlled Person; and "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the controlled Person.
(b) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this Agreement of
Sale.
(c) "Business day" means a day that is not a Saturday, a Sunday, a
------------
legal holiday or a day on which banks are required or permitted by law or
other governmental action to close in New York, New York.
(d) "Books and Records" shall mean all financial and other books
-----------------
and records maintained by or for the benefit of Seller solely in connection
with the operation of the Project and all building plans, specifications
and drawings, engineering, soils and geological reports, environmental
reports and other documents prepared in connection with the construction,
maintenance, repair, management or operation of the Project which are
within the possession or control of Seller, or Seller's Affiliates, agents
or representatives.
1
<PAGE>
(e) "Closing" means the consummation of the purchase of the
-------
Project by Purchaser from Seller in accordance with the terms and
provisions of Article III, which Closing shall be held at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., Suite 4100, 1700 Pacific Avenue,
Dallas, Texas 75201-4618 on the Closing Date commencing at 10:00 a.m.
Central Daylight Time.
(f) "Closing Date" means a Business Day which shall be established
------------
by Purchaser by written notice delivered to Seller, which date shall be no
earlier than thirty (30) days following the date of such notice, except
that from and after the date the IPO shall have occurred, such date shall
be no earlier than ten (10) days following the date of such notice;
provided, however, that in no event shall the Closing Date be a date later
than December 31, 1996, time being of the essence with respect to such
date.
(g) "Cut Off Date" means the latter of July 1, 1994 or the date
------------
Seller acquired fee simple title to the Project.
(h) "Effective Date" shall mean the date on which this Agreement
--------------
shall be fully executed and unconditionally delivered by Purchaser and
Seller.
(i) "Environmental Laws" means all applicable existing federal,
------------------
state and local statutes, ordinances, orders, rules and regulations issued,
promulgated or adopted by any governmental authority having jurisdiction
over the Project relating to environmental pollution or protection,
including, without limitation, the Resource Conservation and Recovery Act
of 1976, 43 U.S.C. (S) 6901 et seq., the Comprehensive Environmental
-- ----
Response, Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et
--
seq., as amended by the Superfund Amendments and Reauthorization Act of
----
1986, the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et
--
seq., the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq.,
---- -- ----
the Clean Air Act, 42 U.S.C. (S) 7401 et set., the Toxic Substances Control
-- ----
Act, 15 U.S.C. (S) 2601-2629, the Safe Drinking Water Act, 42 U.S.C. (S)
300f et seq., together with all existing rules, regulations and orders
-- ----
promulgated thereunder, and all similar applicable existing local, state
and federal statutes and regulations promulgated pursuant thereto.
(j) "Estoppel Certificates" means the estoppel certificates to be
---------------------
delivered by each tenant in accordance with the provisions of Section 2.7
hereof.
(k) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(l) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes",
2
<PAGE>
"hazardous materials", "extremely hazardous waste", "restricted hazardous
waste", or "toxic substances" or words of similar import under any
Environmental Laws, (ii) any oil, petroleum or petroleum derived
substances, any flammable substances or explosives, any radioactive
materials, any asbestos or any substance containing more than 0.1 percent
asbestos, any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million, and any urea formaldehyde
insulation, and (iii) any other chemical, material or substance, exposure
to which is prohibited, limited or regulated by any Environmental Laws.
(m) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the office buildings,
parking lots and all other amenities, together with Seller's interest, if
any, in all machinery, fixtures and equipment used in the general operation
of such buildings and improvements, and/or affixed to or located upon the
Land, along with all accessions and additions thereto, excluding therefrom
any machinery, fixtures, equipment or personal property owned by Tenants at
the Project.
(n) "IPO" means the proposed initial public offering of securities
---
in the PPL REIT.
(o) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
-----------
hereof for all purposes, together with all and singular all right, title
and interest of Seller, reversionary or otherwise, in and to all easements
in or upon the Land and all other rights and appurtenances belonging or in
anywise pertaining thereto, if any, including any right, title, and
interest of Seller in and to any land lying in the bed of any street, road
or access way, right-of-way, alley, opened or proposed, in front of, at a
side of or adjoining the Land to the centerline thereof.
(p) "Leases" means all leases, licenses, franchises, concessions
------
and other occupancy agreements for the use or occupancy of any portion of
the Project, together with all rents, issues, profits, and deposits
thereunder and all amendments thereto.
(q) "Major Leases" means any Lease covering in excess of the
------------
lesser of (i) ten per cent (10%) of net rentable area in the Project, or
(ii) 5,000 square feet of net rentable area in the Project, as those area
are reflected in the Rent Roll, as hereinafter defined.
(r) "Miscellaneous Assets" shall mean all contract rights, leases,
--------------------
concessions, assignable warranties, and other items of intangible personal
property owned by Seller (but only to the extent assignable) and relating
to the ownership or operation of the Project, including, but not limited
to, (i) the Service Contracts, (ii) the Permits, (iii) the Trade Name, (iv)
assignable utility and similar deposits, (v) prepaid license and permit
fees, (vi) the Warranties and (vii) the Books and Records.
(s) "Permits" means all licenses and permits issued to or for the
-------
benefit of Seller and used or relating to the ownership or operation of the
Project in accordance with its current use.
3
<PAGE>
(t) "Permitted Exceptions" means those exceptions or conditions to
--------------------
title to the Project approved by Purchaser pursuant to Section 2.4 hereof.
(u) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(v) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by Seller and located on the Land and the Improvements and used or usable
in connection with any part of the Project.
(w) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct the
IPO, and to acquire the Project and interests in other real properties and
assets and related service businesses.
(x) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(y) "Purchase Price" means the sum of (a) $11,250,000.00, and (b)
--------------
$250,000.00 for each full month the Closing Date is delayed beyond
September 30, 1996, as adjusted pursuant to the provisions of Section
1.2(b) hereof (to the extent the Closing Date is delayed for a partial
month the Purchase Price shall be increased on a per diem basis to be
computed by dividing the sum of $250,000.00 by the number of days in the
month in question).
(z) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of Seller affecting the operation
of the Project.
(aa) "State" means the State in which the Project is situated.
-----
(bb) "Tenant" means any Person occupying any portion of the Project
------
under or pursuant to a Lease.
(cc) "Title Binder" means the Commitment for Owner's Title
------------
Insurance Policy issued by the Title Company which shall set forth the
state of title to the Land and Improvements, together with all exceptions
or conditions to such title, including, without limitation, all easements,
restrictions, rights-of-way, covenants, reservations, and all other liens
or encumbrances affecting the Land and Improvements which would appear in
an owner's title policy, if issued. The Title Binder shall include proper
searches covering bankruptcies, state and federal judgments and liens, tax
or otherwise and pending assessments and shall contain the express
commitment of the Title Company to issue the Title Policy to Purchaser in
the amount of the Purchase Price insuring such title to the Land and
Improvements as is specified in the Title Binder, in accordance with
Section 2.2.
4
<PAGE>
(dd) "Title Company" means Commonwealth Land Title, located at 1700
-------------
Pacific Avenue, Suite 4700, Dallas, Texas 75201; Attn: David Payne.
(ee) "Title Policy" means a Texas Form Owner's Policy of Title
------------
Insurance (Form T-1) issued by the Title Company in accordance with the
terms and provisions of Section 2.2, in the amount of the Purchase Price,
covering title to the Land and the Improvements (including easements,
rights, privileges and appurtenances).
(ff) "Trade Name" means the Cottonwood Office Center.
----------
(gg) "Trigger Date" means March 1, 1996.
------------
(hh) "Warranties" means all warranties and guaranties relating to
----------
the Project, or any part thereof, or to the Personal Property or
Improvements, or construction thereof.
Section 1.2 Purchase Price for the Project.
----------- ------------------------------
(a) Payment of the Purchase Price. The Purchase Price shall be
-----------------------------
payable to Seller on the Closing Date by Federal Reserve wire transfer of
immediately available funds to an account or accounts which shall be
designated by Seller on or before the Closing Date, plus or minus
prorations and adjustments as hereinafter provided.
(b) Adjustment to the Purchase Price. In the event that during the
--------------------------------
period between the Trigger Date and the Closing Date, Seller expends any
sums of money in connection with
(i) a capital improvement, betterment of or enhancement of the
Project excluding expenditures (which are to be borne by Seller) (a)
which relate to routine repair and maintenance of the Project
necessary to maintain the Project in its current condition, or (b)
which are required to comply with written commitments to Tenants
pursuant to the Leases entered into prior to the Trigger Date or (c)
which are required to comply with any violation of Governmental
Regulations existing on the Trigger Date (not to exceed $25,000.00),
or
(ii) a tenancy either created, entered into, renewed or
extended from and after the Trigger Date, which has been approved by
Purchaser, including, without limitation, any leasing commissions or
tenant improvement expenses,
and in the event the condition set forth in Section 5.1(j) has been
satisfied, then in such event the Purchase Price shall be increased by the
amounts expended by Seller under this Section 1.2.
Section 1.3 Independent Consideration. Concurrently herewith Purchaser
----------- -------------------------
has paid to Seller the sum of One Hundred Dollars ($100) which shall be
independent consideration (the "Independent Consideration") for the agreements
of Seller set forth herein. The Independent Consideration shall be in addition
to the Purchase Price. If the Closing does not occur for any reason, the
Independent Consideration shall be deemed earned and shall be retained by
Seller.
5
<PAGE>
ARTICLE II
TITLE AND SURVEY; APPROVAL OF
DOCUMENTS; INSPECTIONS
----------------------
Section 2.1 Title Binder. Within five (5) Business days after the
----------- ------------
Effective Date, Seller shall cause to be furnished to Purchaser's counsel (to
the extent such policy is in the possession or control of Seller) a copy of the
title insurance policy issued to Seller at the time of its acquisition of the
Project. Purchaser shall be responsible for obtaining a current Title Binder
from the Title Company, not later than thirty (30) days after the Effective
Date, together with copies of all instruments referred to as exceptions to
title. Seller shall furnish to Purchaser and to the Title Company such
additional information in its possession as may be material to the Title Company
or Purchaser in connection with the review of title to the Land and Improvements
and the issuance of the Title Policy.
Section 2.2 Title Insurance Policy Covering the Project. At the Closing,
----------- -------------------------------------------
Seller, at its sole cost and expense, shall cause the Title Policy to be
furnished to Purchaser on the standard Texas Form Owner's Policy of Title
Insurance. The Title Policy shall be issued by the Title Company in the amount
of the Purchase Price and shall insure a good and indefeasible title to the
Project in Purchaser and contain no exceptions to title other than the Permitted
Exceptions. The Title Policy may contain the Permitted Exceptions, but shall
contain no additional exceptions to title to the Land other than the standard
exceptions contained in Schedule B of Texas State Board of Insurance Form T-1,
with the standard exception as to taxes limited to standby fees, taxes for the
current and subsequent years "not yet due and payable and subsequent taxes and
assessments for prior years based on changes in usage or ownership," with the
standard exceptions as to restrictive covenants endorsed "none of record" except
as shown thereon and approved by Purchaser as a Permitted Exception, with the
standard exception for parties in possession deleted, with the standard
exception as to unrecorded easements, visible and apparent easements, public or
private roads, or other matters which would be disclosed by an inspection of the
Project deleted, with the standard exception as to mechanics', materialmen's, or
similar liens or other matters relating to the completion of construction and
payment of bills with respect thereto deleted, and with the standard exceptions
as to areas, boundaries, discrepancies, encroachments and other matters which
would be disclosed by a survey of the Project modified to read "shortages in
area." Seller shall deliver to the Title Company such affidavits, indemnities
or other instruments as may be required by the Title Company to obtain such
endorsements and deletions, provided that Seller shall not be required to
deliver any such affidavits or other instruments if, in Seller's sole judgment,
Seller cannot deliver such items without material cost or expense to Seller.
Section 2.3 Survey. Seller shall cause to be delivered to Purchaser's
----------- ------
counsel (to the extent within Seller's possession or control) within five (5)
days after the Effective Date two (2) copies of the of survey of the Land and
Improvements which Seller received at the time of its acquisition of the
Project, if any. Purchaser shall be responsible for securing an updated or
recertified survey or a replacement survey, at its sole cost and expense. Seller
acknowledges that Purchaser intends to secure a survey (the "Survey") prepared
in accordance with the Minimum Standard Detail Requirements for ALTA/ACSM Land
Title Surveys as adopted by the American Land Title
6
<PAGE>
Association and American Congress on Surveying and Mapping in 1992, and meeting
the accuracy requirements of a Class A Survey as defined therein.
Section 2.4 Review of Survey and Title Binder by Purchaser. Purchaser
----------- ----------------------------------------------
shall have a period of twenty (20) days after receipt by Purchaser's counsel of
the last of (a) the Title Binder, (b) legible copies of all documents referred
to therein as exceptions to title, and (c) the Survey, to review the Title
Binder and the Survey and to deliver to Seller such objections ("Title
Objections" herein) as Purchaser may have to anything contained or set forth in
the Survey or in the Title Binder. Any objection to title made to Seller by
Purchaser's counsel within such time period shall be deemed an objection by
Purchaser. Any exceptions to title shown in the Title Binder or the Survey to
which Purchaser does not so object within such twenty (20) day period shall be
deemed to be the "Permitted Exceptions" for the purposes of this Agreement.
Section 2.5 Seller's Right to Cure Purchaser's Objections.
----------- ---------------------------------------------
(a) If Title Objections have been timely raised by Purchaser in
accordance with Section 2.4, then Seller may, at its option, use its good
faith efforts to satisfy such Title Objections in the manner set forth in
subparagraph (b) below, at no cost to Purchaser; provided that Seller shall
not (except as set forth in the immediately following sentence) be
obligated to expend any funds or bring any legal, equitable or
administrative proceeding to cure any Title Objections. On or before
Closing, Seller shall, (i) at Seller's sole cost and expense, eliminate all
liens securing financial obligations encumbering the Project voluntarily
given by Seller, and (ii) at Seller's sole cost and expense, eliminate all
liens securing financial obligations encumbering Seller's interest in the
Project not voluntarily given by Seller, so long as the amount thereof does
not exceed 2% of the Purchase Price. In the event Seller delivers written
notice to Purchaser at least twenty (20) days before the Closing Date that
Seller is unable or unwilling to satisfy or cure the Title Objections
(including involuntary liens the amount of which exceeds 2% of the Purchase
Price), Purchaser may either (i) waive such objections and proceed to close
the transaction contemplated hereby or (ii) terminate this Agreement by
written notice delivered to Seller on or before the Closing Date, whereupon
this Agreement shall terminate, and upon such termination, neither Seller
nor Purchaser shall have any further obligation or liability to the other
hereunder, except those obligations which are expressly stated to survive
the termination of this Agreement.
(b) In the event that Purchaser discovers any Title Objection,
Seller shall have the right, at Seller's option, to (i) cure or correct or
remove the Title Objection or (ii) provide an acceptable indemnity covering
the risks associated with the Title Objection on the following basis, and
in such event Purchaser shall not have the right to terminate this
Agreement and the parties shall proceed, subject to the satisfaction of the
conditions of this Agreement and an extension of the Closing Date to
complete removal or correction of the Title Objection, to consummate the
transaction contemplated hereby:
(i) Seller's right to keep this Agreement in effect in
respect to its commitment to remove or correct the Title Objection
shall be subject to Purchaser's satisfaction, in its sole judgment,
that the Title Objection can be removed or cured
7
<PAGE>
at no cost or expense to Purchaser and with no ongoing risk or
exposure from third parties or otherwise. To the extent that the
removal or correction option is exercised, the Closing Date shall be
extended for a reasonable period of time within which Seller shall
complete the removal or correction of the Title Objection at its
sole cost and expense. To the extent that the delay in the Closing
Date (if necessary) causes Purchaser undo hardship, the removal or
correction alternative shall not be available to Seller.
(ii) To the extent Seller elects to utilize the indemnity
alternative, the form and content of the indemnity and the financial
capability and stability of the indemnitor shall be subject to
Purchaser's prior approval, in its sole and absolute discretion. To
the extent that Purchaser and Seller are unable to agree upon the
form and content of an indemnity agreement or to the extent
Purchaser is unwilling to approve the financial capability of the
indemnitor, the indemnity alternative shall not be available to
Seller.
(iii) In the event that the foregoing alternatives are not
available, Purchaser's election to terminate this Agreement shall
remain in effect.
Section 2.6 Additional Items Furnished to Purchaser. Within ten (10)
----------- ---------------------------------------
Business days after the Effective Date, Seller shall furnish to Purchaser, true,
correct, complete, and legible copies of the items listed on Exhibit "B"
-----------
attached hereto and made a part hereof for all purposes. In addition to the
foregoing, Seller shall make available to Purchaser for its review either at the
Project or at such other place as may be reasonably convenient to Purchaser and
Seller copies of all other records relating to the ownership and operation of
the Project, in Seller's possession or control.
Section 2.7 Estoppel Certificates. Within thirty (30) days after the
----------- ---------------------
Effective Date, Seller will deliver to each Tenant a form of Estoppel
Certificate, to be in the form and contain the content of the Estoppel
Certificate attached hereto as Exhibit "C" and made a part hereof for all
-----------
purposes, and will use its reasonable efforts to cause each Tenant to execute
and deliver to Purchaser an Estoppel Certificate on or before the Closing Date.
Section 2.8 Environmental Inspection.
----------- ------------------------
(a) Purchaser shall have the right during the period (the
"Environmental Inspection Period") ending on the expiration of the
thirtieth (30th) day following the Effective Date, to conduct, or cause to
be conducted, an Environmental Inspection (herein so called) of the Project
by an inspector or consultant selected by Purchaser. The cost and expense
of such Environmental Inspection shall be paid solely by Purchaser.
(b) Seller agrees to cooperate fully with Purchaser in the conduct
of the Environmental Inspection. In the event the results of the
Environmental Inspection disclose any deficiency in the compliance of the
Project with any applicable Environmental Law or disclose the presence of
any Hazardous Materials maintained in violation of any
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Environmental Laws, Purchaser may either (i) waive such deficiency and
consummate the transactions contemplated by this Agreement, or (ii)
terminate this Agreement, in accordance with the provisions of subparagraph
(c) below.
(c) If, during the Environmental Inspection Period, Purchaser
discovers the existence of Hazardous Materials held or maintained in
violation of any Environmental Laws, at or around the Project
("Environmental Contamination" herein), which in Purchaser's sole
discretion, judgment and opinion, make Purchaser's investment in the
Project an unacceptable risk, Purchaser shall be entitled, as its sole and
exclusive remedy, to terminate this Agreement by giving written notice to
Seller on or before the expiration of the Environmental Inspection Period,
whereupon this Agreement shall terminate, and upon such termination,
neither Seller nor Purchaser shall have any further obligation or liability
to the other hereunder.
(d) In the event that Purchaser discovers any Environmental
Contamination and in the event Purchaser elects to terminate this Agreement
in accordance with subparagraph (c) above, Seller shall have the right to
(i) remediate the Environmental Contamination or (ii) provide an acceptable
indemnity covering the risks associated with the Environmental
Contamination on the following basis, and in such event Purchaser's
election to terminate this Agreement shall be rescinded and the parties
shall proceed, subject to the satisfaction of the conditions of this
Agreement and to the extent reasonably required by Seller, an extension of
the Closing Date to complete remediation work, to consummate the
transaction contemplated hereby:
(i) Seller's right to cause Purchaser's election to
terminate this Agreement to be rescinded shall be subject to Purchaser
concluding, in its sole judgment, that the Environmental Contamination
can be remediated at no cost or expense to Purchaser and with no
ongoing risk or exposure from third parties or otherwise of the
recurrence of the Hazardous Materials in question. To the extent that
the remediation option is exercised by Seller, the Closing Date shall
be extended for a reasonable period of time within which Seller shall
complete the remediation at its sole cost and expense. To the extent
that the delay in the Closing Date causes Purchaser undo hardship, the
remediation alternative shall not be available to Seller.
(ii) To the extent Seller elects to utilize the indemnity
alternative, the form and content of the indemnity and the financial
capability and stability of the indemnitor shall be subject to
Purchaser's prior approval, in its sole and absolute discretion. To
the extent that Purchaser and Seller are unable to agree upon the form
and content of an indemnity agreement or to the extent Purchaser is
unwilling to approve the financial capability or stability of the
indemnitor, the indemnity alternative shall not be available to
Seller.
(iii) In the event that the foregoing alternatives are not
available, Purchaser's election to terminate this Agreement shall
remain in effect.
Section 2.9 Inspection.
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(a) During the period commencing on the Effective Date and ending
on the Closing Date or the earlier termination of this Agreement,
Purchaser, upon reasonable notice to Seller, shall have reasonable access
to the Project, either personally or by authorized agent, to inspect the
Project, the items delivered pursuant to this Article II and any other
documents and records available which are normally maintained in the
operation of the Project.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Seller will cooperate fully with Purchaser,
at no cost or expense to Seller, in the conduct of Purchaser's inspection
of the Project. Such inspections (and any inspections performed in
accordance with the sentence next following) may be conducted at all
reasonable times, so long as such activities do not unreasonably interfere
with the Tenants in occupancy. Seller will permit Purchaser and current and
prospective underwriters involved in the IPO, and the agents, attorneys,
accountants, and representatives of all of the foregoing, upon reasonable
notice (but without having to obtain further approval), to enter upon and
inspect the Project, at reasonable times during normal working hours, all
premises leased to Tenants, all mechanical equipment, systems, and fixtures
forming a part thereof, and all Books and Records. Seller will permit
Purchaser and the underwriters involved in the IPO, and the agents,
attorneys, accountants, and representatives of all of the foregoing, at no
cost or expense to Seller, to audit the Books and Records, and to conduct
such investigations, tests, or inspections as Purchaser deems appropriate
including, without limitation, sampling studies to ascertain whether or not
there is any Hazardous Substance on, in, or under the Project. In
conducting any such entry, investigation, test, or inspection, no party
permitted entry hereunder will unreasonably interfere with the operation of
the Project or the peaceable possession by individual Tenants of their
respective premises. To the extent that Persons other than Purchaser join
in such inspections, Purchaser shall secure from such Persons their
agreement to hold any such information in confidence pending the closing of
the transaction contemplated hereby, with the exception of the use of such
materials during the disclosure process in connection with the IPO.
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance in terms and amounts reasonably satisfactory to
Seller covering any accident arising in connection with the presence of
Purchaser, its agents and representatives on the Project and shall deliver
a certificate of insurance verifying such coverage to Seller prior to entry
upon the Project.
(d) Purchaser agrees to fully and completely repair and restore
the Project in the event of any damage whatsoever occurring by Purchaser,
Purchaser's Affiliates or consultants during the pendency of this
Agreement. Purchaser hereby indemnifies and holds Seller harmless from and
against any loss, damage, injury, claim or cause of action Seller may
suffer or incur as a result of Purchaser's inspections of the Project
undertaken pursuant to this Agreement. Notwithstanding anything in this
Agreement to the contrary, the indemnity set forth in this subparagraph (d)
shall survive the Closing or the termination of this Agreement.
Section 2.10 Purchaser's Acknowledgement. Purchaser acknowledges that,
------------ ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Project shall be acquired on an "as is" "where is" basis in its
present condition, subject to reasonable use, wear, tear
10
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and natural deterioration between the Effective Date and the Closing Date. In
such regard, there shall be no reduction in the Purchase Price for any change in
the condition of the Project by reason of any such events, subsequent to the
Effective Date, except by reason of condemnation or casualty. Purchaser further
acknowledges that it has not been induced by nor has it relied upon any
representations, warranties or other statements, whether express or implied,
made by Seller, or any of its agents, employees or other representatives, which
are not expressly set forth in this Agreement or in the materials to be
delivered to Purchaser in accordance with the terms and provisions hereof.
ARTICLE III
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLER WITH RESPECT THERETO
--------------------------------------------
Section 3.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Project contemplated by the terms and conditions of this Agreement shall be
consummated at the Closing to be held on the Closing Date.
Section 3.2 Seller's Obligations at the Closing.
----------- -----------------------------------
(a) At the Closing, Seller shall do the following:
(i) Execute, acknowledge, and deliver to Purchaser a good
and sufficient Special Warranty Deed (the "Deed") (with warranty
limited to Seller's acts) in the form approved by Purchaser and
Seller conveying the fee simple marketable title in the Land and
Improvements to Purchaser subject only to the Permitted Exceptions.
(ii) Execute, acknowledge, and deliver to Purchaser a
Blanket Conveyance, Bill of Sale and Assignment (the "Bill of
Sale"), in the form approved by Purchaser and Seller, covering the
Personal Property, the Miscellaneous Assets and other items to be
assigned to Purchaser by Seller pursuant to the terms hereof. The
Bill of Sale (i) with respect to the Personal Property, shall
contain warranties as to title (with warranty limited to Seller's
acts) and shall contain disclaimers of warranties as to fitness or
merchantability or physical condition; and (ii) with respect to the
Miscellaneous Assets and other items, shall contain warranties as to
title (with warranty limited to Seller's acts and shall contain
disclaimers of warranties as to assignability or fitness or
merchantability or physical condition.
(iii) Execute, acknowledge, and deliver to Purchaser an
Assignment of Tenant Leases and Assumption Agreement (the
"Assignment") in the form approved by Purchaser and Seller covering
any of the Leases and all tenant security, advance rental, and
similar refundable deposits held by Seller with regard to or
covering the Project and Purchaser shall assume all of the
responsibilities of landlord arising under the Leases from and after
the Closing Date, including, without limitation, the obligation to
return all security deposits and any interest required to be paid
thereon to Tenants on the Project to the extent Purchaser receives a
credit from Seller for such deposits on the Closing Date.
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<PAGE>
(iv) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under penalty of
perjury, Seller's U.S. taxpayer identification number and that
Seller is not a foreign person within the meaning of Section 1445 of
the Internal Revenue Code. If Seller does not deliver such an
affidavit to Purchaser at Closing, or if Purchaser has actual
knowledge or receives notice that the affidavit is false, then, in
either such event, Purchaser shall be entitled to withhold from
Seller an amount equal to ten percent (10%) of the Purchase Price,
which amount Purchaser shall report and pay over to the Internal
Revenue Service within ten (10) days after Closing as required by
the Internal Revenue Code or regulations promulgated pursuant
thereto.
(v) Execute, acknowledge and deliver to Purchaser a Closing
Certificate (herein so called) which shall certify, represent and
warrant to Purchaser, as of the date of Closing, that each of the
representations and warranties contained in Article IV of this
Agreement are and continue to be true and correct on the date of
Closing in all material respects, provided, should an event
occurring during the pendency of this Agreement make any of such
representations and warranties not correct on the Closing Date, such
non-compliance shall be indicated and described on the Closing
Certificate.
(vi) Credit against the Purchase Price, sums required to be
so credited to Purchaser, or paid by Seller, pursuant to this
Agreement.
(vii) Deliver to Purchaser Estoppel Certificates from the
Major Tenants and the non-Major Tenants who have executed and
delivered Estoppel Certificates, and, to the extent true and
correct, a Seller's certificate, in respect to the non-Major Tenants
who have failed to deliver Estoppel Certificates, to the effect that
the information contained in the Estoppel Certificates presented to
the non-Major Tenants in question is true and correct and no known
defaults on the part of such Tenants exist or with the passage of
time will exist.
(viii) Deliver to Purchaser and the Title Company satisfactory
evidence that all necessary corporate, partnership, or other action
on the part of Seller have been taken with respect to the
consummation of the transaction contemplated hereby.
(ix) Unless previously provided to Purchaser in connection
with its inspection and approval of the Project, deliver to
Purchaser a complete set (to the extent in the possession or control
of Seller) of all architectural, mechanical, electrical, plumbing,
drainage, and similar plans and specifications used in the
construction of the Project; all keys to the Project or any part
thereof; all Books and Records; and all promotional brochures,
forms, leases, posters, signs, stationery, and similar items which
relate to or are used by Seller in the conduct of its business at
the Project.
(x) Deliver to Purchaser at the Project the original
executed copies of all Leases in effect as of the Closing Date,
including amendments, together with a Rent
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Roll Certificate (in the form of the certificate approved by
Purchaser in its reasonable judgment) certified by Seller to be
correct as of a date which is not more than three (3) days prior to
the Closing Date.
(xi) Deliver to Purchaser reasonably satisfactory evidence
that no other contracts which affect the Project will survive the
Closing except those contracts expressly approved by Purchaser prior
to the Closing Date.
(xii) Deliver to Purchaser reasonably satisfactory evidence
that any management agreement affecting the Project has been
terminated as of the Closing without cost to Purchaser.
(xiii) Deliver to Purchaser such other assignments and
documents as may be required pursuant to the provisions hereof or
mutually agreed by counsel for Seller and Purchaser to be necessary
to fully consummate the transaction contemplated hereby.
(b) If Seller fails or is unable to deliver any of the items set
forth in this Section 3.2 at the Closing, Purchaser may (i) elect to waive
such failure and close the transaction, or (ii) exercise any one or more of
its options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered
to Purchaser under Section 3.2 above, Purchaser shall do the following:
(i) Deliver the Purchase Price in accordance with Section
1.2 hereof.
(ii) Execute and deliver to Seller copies of the Assignment
and the Bill of Sale to be executed and delivered by Seller pursuant
to Section 3.2 above, and all other documents reasonably requested
by Seller to evidence the assumption by Purchaser of all obligations
relative to outstanding tenant security deposits, Service Contracts,
Leases and other assets or contracts assigned to Purchaser by
Seller, together with Purchaser's assumption of liabilities arising
from and after the Closing Date.
(iii) Deliver to Seller and the Title Company satisfactory
evidence that all necessary corporate, partnership, or other action
by Purchaser has been taken with respect to the consummation of the
transaction contemplated hereby.
(iv) Pay, in addition to the Purchase Price, sums required
to be credited to Seller, or paid by Purchaser, pursuant to the
terms of this Agreement.
(v) Deliver to Seller such other instruments or documents
as may be required pursuant to the terms hereof or mutually agreed
by counsel for Seller and Purchaser to be necessary to fully
consummate the transaction contemplated hereby.
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<PAGE>
(b) If Purchaser fails or is unable to deliver any items set forth
in this Section 3.3 at the Closing, Seller may (i) elect to waive such
failure and close the transaction, or (ii) Seller may exercise their
remedies under Section 6.2(b) hereof.
Section 3.4 Notification to Tenants. Seller and Purchaser covenant and
----------- -----------------------
agree to execute, at Closing, a written notice of the acquisition of the Project
by the Purchaser, in sufficient copies for transmittal to all Tenants and to
other parties affected by the sale and purchase and properly addressed to all
such Tenants and other parties, in a form satisfactory to Purchaser and Seller.
Section 3.5 Escrow Closing. Notwithstanding anything herein to the
----------- --------------
contrary, Purchaser and Seller agree that the Closing may be accomplished by
delivery into escrow with the Title Company all of the documents and instruments
required to be delivered at Closing, together with the Purchase Price, whereupon
Title Company shall disburse such documents and the Purchase Price in accordance
with the terms hereof and such additional escrow instructions as Purchaser and
Seller may agree upon consistent with the terms hereof. Purchaser and Seller
agree to execute on or before the Closing sufficient copies of all closing
documents for each party to have a set of originals.
Section 3.6 Reporting Person. Each of Seller and Purchaser hereby
----------- ----------------
designates the Title Company as the "Reporting Person" as such term is utilized
in Section 6045 of the Code and regulations thereunder. Seller agrees to
provide the Title Company with such information as may be required for the Title
Company to file a Form 1099 or other required form relative to the Closing with
the Internal Revenue Service. A copy of the filed Form 1099 or other filed form
shall be provided to Seller and Purchaser simultaneously with its being provided
to the Internal Revenue Service.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 4.1 Representations and Warranties of Seller. Seller hereby
----------- ----------------------------------------
represents and warrants to Purchaser, as of the date hereof and as of the
Closing Date, the following:
(a) Seller has been duly formed and is validly existing as a
corporation under the laws of the State of Delaware, and is duly registered
or qualified to do business in the State of Texas. The execution, delivery
and performance of this Agreement and all other documents, instruments and
agreements to be executed and delivered by the Seller pursuant to this
Agreement (collectively, "Seller's Documents") are within the partnership
power of the Seller and have been duly authorized by all necessary and
appropriate partnership action.
(b) Neither the execution and deliver of this Agreement and
Seller's Documents nor the consummation of the transaction contemplated
hereby conflict with or will result in a material breach of any of the
provisions of, or constitute a default under, (i) the partnership agreement
of Seller or (ii) any agreement or instrument to which Seller is a party or
by which it is bound. There are no actions, voluntary or involuntary,
pending against Seller under any bankruptcy, reorganization, arrangement,
insolvency or similar federal or state statute.
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<PAGE>
(c) Seller is not a "foreign person" as defined in Section
1445(f)(3) of the Internal Revenue Code of 1986, as amended.
(d) With respect to the Leases:
(i) As of the date of the rent roll to be delivered
pursuant to Section 2.6 hereof (the "Rent Roll"), there are no
tenant leases, tenancy agreements, licenses, occupancy agreements or
any amendments, renewals, assignments, subletting and guaranties
thereof, or surrender agreements and termination agreements related
thereto, affecting the Project, or any portion thereof, other than
----------
the Leases set forth in the Rent Roll and any subleases, licenses or
occupancy agreements which have (i) been entered into by tenants of
the Project with third parties and (ii) not been disclosed in
writing to Seller.
(ii) The Rent Roll shall contain a complete and accurate
list of the names of the Tenants, the date of each Lease (and any
amendments thereto), the space covered thereby and the current
rental payable thereunder. The information contained in the Rent
Roll shall be true, complete and correct in all material respects as
of the date of the Rent Roll.
(iii) The copies of the Leases heretofore delivered by Seller
to Purchaser are true, complete and correct copies of the Leases.
(iv) Each of the Leases is in full force and effect and has
not been amended, modified or extended, except as set forth in the
Rent Roll. To Seller's Actual Knowledge, except as set forth in the
Rent Roll or otherwise disclosed to Purchaser in writing, including,
without limitation, information which is set forth in any executed
Estoppel Certificates, Seller has performed and observed in all
material respects, for all periods following the Cut Off Date, all
of (and is not in material default, excluding any grace periods, in
the performance or observance of) the terms, covenants and condition
on Seller's part to be performed or observed under the Leases.
Except as set forth in the Rent Roll or otherwise disclosed to
Purchaser in writing, Seller has not given, nor has Seller received,
any written notice of a default under any of the Leases which
remains uncured.
(v) To Seller's Actual Knowledge, except as set forth in
the Rent Roll or the Leases, no Tenant under any of the Leases (a)
is currently contesting (in writing) any item of rent charged under
any of the Leases or is currently claiming (in writing) an
overcharge of operating expenses; (b) is entitled to any concessions
or abatements, rebates, set-offs or free rent with respect to any
item of rent for any period subsequent to the Closing, and all items
of an inducement nature to be performed by the landlord under the
Leases prior to the Closing Date have been performed, or (c) has any
option or right of first offer or first refusal to purchase the
Project or any part thereof.
(vi) As of the Closing Date, Seller will have paid in full,
or shall give Purchaser appropriate credit against the Purchase
Price for, all leasing, broker's or
15
<PAGE>
finder's commissions arising from Leases that were entered into,
renewed or extended prior to the Trigger Date (excluding any
commissions relating to renewal or expansion options that have been
exercised by tenants under Leases after the Trigger Date), and all
tenant finish out obligations arising from Leases that were entered
into, renewed or extended prior to the Trigger Date, that are unpaid
as of the Closing Date.
(vii) Except as noted in the Rent Roll, Seller's historical
billing practices to tenants for additional rents and percentage
rents is consistent with the requirements of each Lease.
(e) With respect to the Service Contracts:
(i) As of the date hereof, there are no written equipment
leases or service, maintenance or other similar contracts or
agreements affecting the Project, or any portion thereof, other than
(i) the Service Contracts listed in Exhibit "D" and (ii) any
-----------
equipment leases or other contracts or agreements that may have been
entered into by tenants (or subtenants of tenants) of the Project
with third parties; and
(ii) Each Service Contract is in full force and effect and
has not been amended except as set forth in Exhibit "D". Seller has
-----------
not given, nor has Seller received, any written notice of a default
under any of the Service Contract which remains uncured, except as
set forth in Exhibit "D".
-----------
(f) As of the date hereof, to Seller's Actual Knowledge, there is
not any pending, nor has Seller received written notice of any threatened:
(i) proceeding, suit or action against Seller which, if
adversely decided, would prevent or materially delay the
consummation of the transaction contemplated by this Agreement or
materially adversely affect the Project, including, without
limitation, pending or threatened suits, actions or proceedings with
respect to all or part of the Project (i) for condemnation, (ii)
alleging any violation of any Governmental Regulation, (iii) which
could result in the imposition of a lien against the Project or (iv)
which could increase real property taxes or assessments levied
against the Project (other than the normal and routine assessment
and reassessment process conducted by applicable governmental
authorities), or
(ii) proceeding to change or redefine the zoning
classification applicable to any portion of the Project that would
cause the Project to become a "non-conforming" use, or
(iii) proceeding to change any road patterns or grades that
would materially adversely affect access to any roads providing a
means of ingress to or egress from the Project, or
(iv) proceeding seeking a reduction of real estate taxes
imposed on the Project or any portion thereof, or
16
<PAGE>
(v) pending imposition of any special or other assessments
for public betterments that may affect any portion of the Project or
the ownership thereof.
(g) To Seller's Actual Knowledge, the Project does not violate any
Governmental Regulation in any material respect.
(h) To Seller's Actual Knowledge all Permits required for the
continued use and occupancy of the Project (as the same is presently used
under the Leases) have been obtained from all appropriate governmental
authorities, are fully paid for, are in full force and effect, and will not
be revoked, invalidated or violated by the consummation of the transaction
contemplated by this Agreement. To Seller's Actual Knowledge, the Project
remains in compliance in all material respects with all applicable
requirements and conditions with respect to the issuance of the Permits,
which were in effect at the time of the issuance thereof.
(i) To Seller's Actual Knowledge, the current operation and use of
the Project complies in all material respects with all applicable
Governmental Regulations.
(j) Except as may be shown on or reflected in the Survey, to
Seller's Actual Knowledge, the Project has not been designated as a
landmark or is not located in a conservation or historic district or in an
area that has been identified as having special flood hazards.
(k) To Seller's Actual Knowledge, the Project is an independent
unit which, as of the date hereof, does not rely on any facilities (other
than the facilities of public utility companies) located on any property
not included in the Project to (i) fulfill the requirements of any
Governmental Regulation, (ii) provide structural support or furnish any
essential building system or utility or (iii) fulfill the requirements of
any of the Leases. No building or other improvement not included in the
Project relies on any part of the Project to (1) fulfill the requirements
of any Governmental Regulation, or (2) provide structural support or
furnish any essential building system or utility.
(l) To Seller's Actual Knowledge, for any period following the Cut
Off Date, there has not been any material damage to any portion of the
Project caused by fire or other casualty that has not been repaired or
restored.
(m) To Seller's Actual Knowledge, the real property and
improvements that constitute the Project are assessed as one tax lot that
is separate and distinct from the tax lot allocated to any other parcel of
land or any other improvements.
(n) To Seller's Actual Knowledge, no Hazardous Materials have been
stored, disposed of, released or transported at or from the Project, or any
portion thereof, in violation of, or in a manner requiring remediation
under, any Environmental Laws. To Seller's Actual Knowledge, except as
otherwise disclosed in any environmental report delivered by Seller to
Purchaser with respect to the Project ("Environmental Report"), no
Hazardous Materials have been stored, disposed of, released or transported
at or from the Project, or any portion
17
<PAGE>
thereof, in violation of, or requiring remediation under, any Environmental
Laws (the foregoing representation does not apply to the customary and
ordinary application, storage and use of chemicals for landscape
maintenance, janitorial services, and pest control). Without limiting the
generality of the foregoing, to Seller's Actual Knowledge and except as
otherwise disclosed in any Environmental Report, there have been no and are
no (A) aboveground or underground storage tanks; (B) polychlorinated
biphenyls ("PCBs") or PCB-containing equipment; (C) asbestos containing
materials; (D) lead based paints; or (E) dry-cleaning facilities in, on,
under or at the Project; or (F) wetlands located on or at the Project.
(o) There is now in full force and effect with reputable insurance
companies, casualty and liability insurance policies with respect to the
Project in commercially reasonable amounts.
(p) To Seller's Actual Knowledge, the Rent Roll and the operating
statements for the Project provided by Seller to Purchaser present fairly
the financial condition of the Project as of their respective dates and the
results of the Project's operations for the periods reflected therein.
(q) Seller has no employees and is not a party to any union, labor
or collective bargaining agreement affecting the Project.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the term
----------- ------------------
"Seller's Actual Knowledge" is used it shall be limited to the knowledge of Yon
K. Cho, after due inquiry by Mr. Cho of supervisory on-site property management
personnel at the Project. Additionally, with respect to any information
relating to periods of time prior to the period during which Seller has owned
the Project, any representation or warranty concerning such information is being
made solely based upon the knowledge of the foregoing individuals without any
obligation to undertake any independent investigation. Notwithstanding anything
herein contained to the contrary, in the event that Purchaser has knowledge of
any fact or circumstance that would make any of the representations or
warranties of Seller set forth herein untrue or incorrect and in the event
Purchaser fails to disclose to Seller such knowledge prior to Closing, Seller
shall not be deemed to be in default hereunder by reason of the fact that such
representation or warranty is in fact untrue or incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
----------- ------------------------------------------
otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall be continuing and shall be true and correct on and as
of the Closing Date with the same force and effect as if made at that time, and
all of such representations and warranties, other than those set forth is
subparagraphs (a), (b) and (c) above, shall survive the Closing for a period of
twelve (12) months, at which time they shall expire and terminate and be of no
further force and effect unless written notice of a claim for breach thereof has
been instituted within such twelve (12) month period. The representations and
warranties set forth is subparagraphs (a), (b) and (c) above, shall survive the
Closing without limitation of time constraints.
Section 4.4 Seller's Obligation to Notify Purchaser of Change. If, prior
----------- -------------------------------------------------
to the Closing Date, Seller becomes aware that any representation or warranty
set forth in Section 4.1 hereof which was true and correct on the date hereof
has become incorrect in any material respect, either prior to
18
<PAGE>
or at Closing, due to changes in conditions or the discovery of information by
Seller of which Seller was unaware on the date hereof, Seller shall promptly
notify Purchaser thereof and upon receipt of such notification, if such change
is material and adverse with respect to the acquisition of the Project,
Purchaser shall have the option of terminating this Agreement whereupon this
Agreement shall become null and void and of no further force or effect and
neither party shall have any further obligation one to the other. If Purchaser
does not exercise its option to terminate this Agreement by reason of any such
change in conditions, appropriate modifications shall be made in the terms
hereof to reflect the change in the conditions to the mutual satisfaction of
Seller and Purchaser.
Section 4.5 Operation of Project Prior to Closing. Seller shall (a)
----------- -------------------------------------
continue to cause its property manager to diligently operate the Improvements
and the Project in the ordinary course of business between the date hereof and
the Closing Date, (b) keep, observe, and perform or cause to be performed all of
its obligations as landlord under the Leases, (c) not terminate or cause the
termination of any Lease except as the result of the default of the Tenant
thereunder or the replacement of a suitable substitute, and (d) maintain and
operate the Project in substantially the same condition and repair as exists on
the Effective Date, reasonable wear and tear and normal replacements excepted,
such operation to include, subject to the provisions set forth in Section 1.2
hereof relating to the adjustment to the Purchase Price, (i) the continuation of
maintenance and repair programs, (ii) the expenditure of money in respect to
leasing activities consistent with current operations, (iii) the ordinary course
of business and at Seller's expense of any repairs requested by Tenants prior to
the Closing Date which are the responsibility of the landlord under the Leases.
From the date hereof through the Closing Date, Seller shall not, without the
prior written consent of Purchaser, which consent shall not be unreasonably
withheld or delayed, enter into any contracts, licenses, leases or other
agreements with respect to the Project unless the same may be terminated on or
before Closing. Seller agrees to use its good faith efforts to collect all
rental and other income prior to the Closing Date.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
Section 5.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Seller set forth herein
shall be true in all material respects on and as of the Closing Date with
the same force and effect as if such representations and warranties have
been made on and as of the Closing Date;
(b) Seller shall have performed, observed and complied with all of
the covenants, agreements and conditions required by this Agreement to be
performed, observed and complied in all material respects with by Seller
prior to or as of the Closing Date;
19
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(c) Purchaser shall have received and approved the Survey in
accordance with the terms of Article II of this Agreement;
(d) Purchaser, on or before the expiration of the Environmental
Inspection Period, shall have performed such inspections, investigations
and tests as Purchaser desires, in accordance with the terms of Article II
of this Agreement, and Purchaser shall have determined, in Purchaser's sole
discretion, that the Project is suitable for Purchaser's intended use;
(e) The Title Company shall have delivered to Purchaser the Title
Policy or if the Title Policy is not delivered at Closing, the Title
Company shall have unconditionally obligated itself to deliver the Title
Policy within a reasonable period of time following the Closing Date, in
accordance with the terms of Article II of this Agreement;
(f) The Title Company shall have delivered to Purchaser a
certificate or such other certificates as may be acceptable to Purchaser
stating that a search has been conducted by the Title Company or another
party acceptable to Purchaser of both the state and county records in which
financing statements and security agreements are filed under the Uniform
Commercial Code of the State and that such searches indicate that, except
security interests or liens to be released at Closing, no security
interests or liens of any kind or nature, including, but not limited to,
any equipment financing or leasing arrangements, are claimed by any person
against the Personal Property or the Improvements, or any part thereof;
(g) The closing of the IPO shall have occurred;
(h) Purchaser shall have received from each Major Tenant an
Estoppel Certificate duly executed by each Tenant, without material change
to the form of Estoppel Certificate submitted to the Tenant in question;
(i) No material adverse change in the condition or operation of
the Project as it exists on the Effective Date shall have occurred between
the Effective Date and the Closing Date, which change negatively and
adversely affects the Project in any material manner; and
(j) Seller shall have delivered an estoppel certificate from
Liberty Mutual Insurance ("Liberty") or from Seller at Closing that states:
(i) the Liberty Lease renewal and expansion agreement dated
July 1, 1996 (the "Lease"), has been fully executed and is in full
force and effect;
(ii) Seller, as landlord, has delivered the expansion space
as required by the Lease, or Liberty, as tenant, has no right to
terminate the Lease for failure to deliver the expansion space as
required by the Lease; and
(iii) Liberty has leased a minimum of 83,922 square feet of
net rentable area.
20
<PAGE>
Seller shall pay all costs incurred by the landlord in connection with the
Lease renewal and expansion, including, but not limited to, the Expansion
Space Plan Allowances, Expansion Space Moving and Construction Allowance,
and Expansion Space Work Allowance as defined in the Lease, and all tenant
improvement costs, leasing commissions, and other related or similar costs
as provided in the Lease.
Section 5.2 Consequences of The Failure of Section 5.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of the
Project and the conditions set forth in subparagraphs (a) and/or (b) of
Section 5.1 have not been satisfied, Seller shall be deemed in default
hereunder and Purchaser shall have the option to either (i) waive those
conditions and proceed with the Closing or (ii) exercise it rights and
remedies set forth in Article VI.
(b) In the event (i) upon the expiration of the periods specified
in Section 2.4 hereof Purchaser has not approved the Title Report and
Survey, or (ii) on or prior to the expiration of the Environmental
Inspection Period, Purchaser has discovered Environmental Contamination, or
(iii) on or before the Closing Date the conditions set forth in
subparagraphs (e), (f), (g), (h), (i) or (j) of Section 5.1 above have not
been satisfied, Purchaser shall have the option to either (i) waive those
conditions and proceed with the Closing or (ii) terminate this Agreement
whereupon this Agreement shall become null and void and of no further force
or effect and neither party shall have any further obligation one to the
other.
Section 5.3 Conditions Precedent to Seller's Obligation to Close.
----------- ----------------------------------------------------
(a) Other Agreements. Notwithstanding anything to the contrary
----------------
contained herein, the obligations of Seller to consummate the transaction
contemplated hereby are expressly conditioned upon the satisfaction of the
conditions set forth in Section 9.17 hereof in respect to the consummation
of the transactions contemplated by the Other Agreements, as hereinafter
defined. In the event of the failure of such conditions, Seller shall have
the option to either (i) waive those conditions precedent and proceed with
the Closing or (ii) terminate this Agreement in which event this Agreement
shall become null and void and of no further force or effect, and neither
party shall have any further obligation one to the other, except to the
extent that any obligation survives the earlier termination of this
Agreement.
(b) Outside Closing Date. In the event (i) the condition
--------------------
precedent to Purchaser's obligations to consummate the transaction
contemplated hereby set forth in Section 5.1(g) has not been satisfied on
or before December 31, 1996, in a manner to permit the transaction
contemplated hereby and by the Other Agreements to be consummated and
funded by such date, or (ii) Purchaser has not designated a Closing Date
within a sufficient period of time to permit the timely closing of the
transaction contemplated hereby on or before
21
<PAGE>
December 31, 1996, or (iii) Purchaser has not designated a Closing Date
within ten (10) Business days following the date the IPO has occurred, then
in such event this Agreement shall terminate and become null and void and
of no further force or effect on the earlier of December 31, 1996, or on
the tenth (10th) Business day following the date of the occurrence of the
IPO, and neither party shall have any further obligation one to the other.
ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Seller's Defaults; Purchaser's Remedies.
----------- ---------------------------------------
(a) Seller's Defaults. Seller shall be deemed to be in default
-----------------
hereunder in the event that any of Seller's representations hereunder are
determined to be false or misleading in any material respect or in the
event Seller shall fail in any material respect to meet, comply with, or
perform any covenant, agreement, or obligation on its part required within
the time limits and in the manner required in this Agreement.
(b) Purchaser's Remedies. In the event Seller shall be deemed to
--------------------
be in default hereunder for any other reason, by virtue of the occurrence
of any one or more of the events specified in Section 6.1(a) above,
Purchaser may at its election (i) bring suit against Seller to enforce
specific performance of this Agreement together with such actions as may be
available at law or in equity to recover Purchaser's actual out-of-pocket
costs in the performance of reasonable due diligence on the Project, or
(ii) terminate this Agreement. If the remedy of specific performance is not
available, for any reason, Purchaser shall have no remedy for damages other
than obtaining a reimbursement of the aforementioned out-of-pocket costs.
Section 6.2 Purchaser's Default; Seller's Remedies.
----------- --------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material respect
to meet, comply with, or perform any covenant, agreement, or obligation on
its part required within the time limits and in the manner required in this
Agreement.
(b) Seller's Remedy. IN THE EVENT PURCHASER SHALL BE DEEMED TO BE
---------------
IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR TO CLOSING AND SELLER
DOES NOT WAIVE SUCH DEFAULT, SELLER, AS SELLER'S SOLE AND EXCLUSIVE REMEDY
FOR SUCH DEFAULT, SHALL BE ENTITLED TO RETAIN THE INDEPENDENT
CONSIDERATION, IT BEING AGREED BETWEEN PURCHASER AND SELLER THAT SUCH SUM
SHALL BE LIQUIDATED DAMAGES FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE
DIFFICULTY, INCONVENIENCE AND UNCERTAINTY OF ASCERTAINING ACTUAL DAMAGES
FOR SUCH DEFAULT. IN PLACING THEIR INITIALS AT THE PLACES PROVIDED, EACH
PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND
THE FACT THAT EACH PARTY WAS REPRESENTED BY
22
<PAGE>
COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION
AT THE TIME THIS AGREEMENT WAS MADE. NOTWITHSTANDING THE FOREGOING, THE
PROVISIONS OF THIS SECTION 6.2(b) SHALL NOT LIMIT IN ANY MANNER PURCHASER'S
INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 8.1 OR 8.3 HEREOF.
SELLER'S INITIALS:
------------
PURCHASER'S INITIALS: /s/ TFA
-----------
Section 6.3 Attorneys' Fees. Should either party employ an attorney or
----------- ---------------
attorneys to enforce any of the provisions hereof or to protect its interest in
any manner arising under this Agreement, the non prevailing party in any action
pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
ARTICLE VII
CLOSING COSTS; PRORATIONS
-------------------------
Section 7.1 Closing Costs. Costs of closing the transaction
----------- -------------
contemplated hereby shall be allocated between Seller and Purchaser as follows:
(a) Seller shall pay the costs, if any, by Seller in connection
with the performance of its obligations hereunder.
(b) Purchaser shall pay (i) the premium for the Title Policy
(including all charges for the coverages and/or deletions set forth in
Section 2.2 hereof), (ii) the cost of the Survey, (iii) the cost of
recording the Deed and any other conveyance documents that Purchaser may
choose to record, (iv) any escrow fee or similar charges of the Title
Company, (v) the costs incurred in respect to any transfer, deed, stamp or
other similar conveyance taxes, and (vi) the costs, if any, incurred by
Purchaser in connection with the performance of its obligations hereunder.
(c) All other expenses incurred by Seller or Purchaser with
respect to the Closing, including, but not limited to, attorneys' fees of
Purchaser and Seller, shall be borne and paid exclusively by the party
incurring same, without reimbursement, except to the extent otherwise
specifically provided herein.
Section 7.2 Proration of Income and Expenses. The following items shall
----------- --------------------------------
be adjusted or prorated between Seller and Purchaser at the Closing effective as
of the Closing Date:
(a) Ad valorem and similar taxes for the then current tax period
relating to the Project shall be prorated. If the Closing occurs before
the tax rate is fixed for the then current tax year, the apportionment of
taxes shall be made on the basis of the tax rate for the preceding tax year
applied to the latest assessed valuation of the Project, and when the tax
23
<PAGE>
rate is fixed for the tax year in which the Closing occurs, Seller and
Purchaser hereby agree, one to the other, to adjust the proration of taxes
and, if necessary, to refund or pay such sums to the other party as shall
be necessary to effect such adjustment. Seller shall promptly reimburse
Purchaser for the portion of all supplemental taxes hereafter assessed
against the Project which are attributable to the period prior to the
Closing Date. All unpaid installments relating to special assessments shall
be paid by Seller at Closing. To the extent any installments of special
assessments are incurred or levied from and after the Trigger Date and are
due and payable subsequent to the Closing Date, such installments shall be
borne by Purchaser.
(b) Purchaser shall receive a credit against the cash portion, if
any, of the Purchase Price equal to the aggregate amount of rentals or
other income of the Project, utility charges, tenant reimbursements and
other similar amounts payable to the owner of the Project, howsoever
denominated, previously collected by Seller which, as of the Closing Date,
represent advance payments attributable to periods after the Closing Date.
(c) Any rental or other income, including, but not limited to,
utility charges, tenant reimbursements, and other amounts payable to the
owner of the Project, howsoever denominated, which are payable for periods
prior to the Closing but which, as of the Closing Date have not been
received by Seller, whether because such amounts are delinquent or because
such amounts are not yet due, shall not be prorated at Closing but shall be
adjusted, as soon as reasonably possible, after the Closing but as of the
Closing Date, when and if such amounts are received by Purchaser.
(d) At the Closing, Purchaser shall receive a credit against the
cash portion, if any, of the Purchase Price equal to the amount of any and
all deposits paid to Seller by Tenants of the Project which have not been
applied by Seller to Tenant's obligations prior to the Closing Date,
including, but not limited to, all refundable rental deposits and security
deposits, as well as for the amount of any unpaid bills relating to periods
prior to the Closing Date for which Purchaser will be responsible after the
Closing.
(e) All other income and operating expenses for or pertaining to
the Project, including, but not limited to, maintenance, security,
management, service, and similar contractual charges, and all other
operating charges with respect to the Project shall be prorated between
Purchaser and Seller at the Closing effective for all purposes as of the
Closing Date. Utility charges shall not be prorated. Appropriate
arrangements shall be made with the providers of utility services for
Purchaser to engage such services in its own name effective on the Closing
Date. Any deposits held by such utility providers shall be returned to
Seller and/or replaced by Purchaser.
(f) Any commission or referral fees with respect to the Leases or
other rental agreements for the Project, which were due prior to the
Trigger Date, relating to the initial term of the Lease in question or any
renewal period for which the renewal option has been exercised prior to the
Trigger Date, will be paid or otherwise discharged or released by Seller on
or before the Closing Date. Purchaser shall be responsible for and
covenants to pay commissions or referral fees with respect to any Leases or
other rental agreements for the
24
<PAGE>
Project, including any present or future renewals thereof, that are in
effect on or after the Closing Date, with the exception of Leases executed
or renewals exercised during the period beginning on the Trigger Date and
ending on the Closing Date which have been approved by Purchaser. Purchaser
shall expressly assume and hold Seller harmless from and against the
obligations of the landlord under the Leases in respect to the payment of
any leasing commissions which may become due and payable upon the exercise
of any renewal or extension options contained in the Leases which are
exercised from and after the Trigger Date.
(g) Any unpaid sums due with respect to tenant improvement for
Leases entered into prior to the Trigger Date shall be paid in full by
Seller at Closing. Tenant improvement costs for Leases entered into
subsequent to the Trigger Date, which have been approved by Purchaser,
shall be borne by and shall be the responsibility of Purchaser.
Section 7.3 Post-Closing Adjustments. Within ninety (90) days following
----------- ------------------------
the Closing Date, or as soon thereafter as may be reasonably practical, Seller
and Purchaser agree that, to the extent items are prorated or adjusted at
Closing on the basis of estimates, or are not prorated or adjusted at Closing
pending actual receipt of funds or compilation of information upon which such
prorations or adjustments are to be based, each of them will, upon a proper
accounting, pay to the other amounts as may be necessary such that Seller will
receive the benefit of all income and will pay all expenses of the Project prior
to the Closing Date and Purchaser will receive all income and will pay all
expenses of the Project on or after the Closing Date. If on or after the Closing
Purchaser receives any bill or invoice all or a portion of which relates to
periods prior to the Closing Date, Purchaser will refer such bill (or the
portion thereof that relates to periods prior to the Closing Date) to Seller and
Seller agree to pay such bill or invoice (or portion thereof) promptly upon
receipt. If Seller do not pay such bill (or portion thereof) in a timely manner,
Purchaser may, at its option, pay such bill or invoice and Seller shall become
liable to Purchaser for the full amount of such payment. If on or after the
Closing Seller receives any bill or invoice which relates to periods on or after
the Closing Date, Seller will refer such bill to Purchaser, accompanied by
Seller's check representing payment for the allocable portion of such bill, if
any, representing charges relating to periods prior to the Closing Date, and
Purchaser agrees to pay such bill or invoice promptly upon receipt. If Purchaser
does not pay such bill in a timely manner, Seller may, at its option, pay such
bill or invoice and Purchaser shall become liable to Seller for the full amount
of such payment.
Section 7.4 Delinquent Rents. Any rents or other amounts which are
----------- ----------------
delinquent as of the Closing shall not be adjusted or prorated at Closing, but
Purchaser shall make a reasonable attempt to collect such amounts for the
benefit of Seller after the Closing; provided, however, that nothing contained
herein shall be construed to require Purchaser to institute any lawsuit or other
proceedings to collect such delinquent amounts. In this connection, the first
monies collected by Purchaser from Tenants or other persons owing delinquent
rents or other amounts shall be applied to the current rents or obligations of
such person. Purchaser need not attempt to collect any amount which is more
than ninety (90) days past due and may refer the same to Seller for disposition
or, at the request of Seller, Purchaser shall assign the same to Seller and
Purchaser will cooperate with Seller in the collection thereof so long as
Purchaser is not obligated to incur any cost or expense in regard thereto.
25
<PAGE>
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the payment of any commission regarding
the consummation of the transaction contemplated hereby. It is agreed that if
any claims for commissions or fees, including, without limitation, brokerage
fees, finder's fees, or commissions, are ever made against Seller or Purchaser
in connection with this transaction, all such claims shall be handled and paid
by the party whose actions or alleged commitments form the basis of such claim
and such party shall indemnify and hold harmless the other from and against all
such claims or demands with respect to any brokerage fees, finder's fees, or
agents' commissions or other compensation asserted by any person, firm, or
corporation in connection with this Agreement or the transactions contemplated
hereby. The provisions of this Section 8.1 shall expressly survive the early
termination of this Agreement.
Section 8.2 Seller's Indemnity. Seller shall indemnify and hold Buyer
----------- ------------------
harmless from and against all loss, expense (including, without limitation,
court costs and reasonable attorneys' fees), damage and liability resulting from
(a) claims of mechanics and materialmen based on work performed on or contracted
for the Project by Seller prior to the Closing Date, (b) claims for personal
injury, wrongful death or property damage against Buyer or the Project based on
causes of action arising prior to the Closing Date, (c) claims by (i) tenants
under any of the Leases assumed by Purchaser pursuant to the Assignment
(including, without limitation, claims relating to security deposits, if any,
other than those paid over by Seller to Buyer at the Closing) or (ii)
contractors under any of the Service Contracts assumed by Purchaser, all with
respect to matters that occurred prior to the Closing Date and (d) the
inaccuracy of any representation or warranty made by Seller in this Agreement
which survives the Closing; provided notice of such inaccuracy is given to
Seller prior to the expiration of the applicable period of survival.
Section 8.3 Purchaser's Indemnity. Purchaser shall indemnify and hold
----------- ---------------------
Seller harmless from and against all loss, expense (including, without
limitation, court costs and reasonable attorneys' fees), damage and liability
resulting from (a) claims of mechanics and materialmen based on work performed
on or contracted for the Project by Purchaser on or after the Closing Date, (b)
claims for personal injury, wrongful death or property damage against Seller or
the Project based on causes of action arising on or after the Closing Date, (c)
claims by (i) tenants under any of the Leases assumed by Purchaser pursuant to
the Assignment or (ii) contractors under any of the Service Contracts assumed by
Purchaser, all with respect to matters that occurred on or after the Closing
Date and (d) the inaccuracy of any representation or warranty made by Purchaser
in this Agreement and which survives the Closing; provided notice of such
inaccuracy is given to Purchaser prior to the expiration of the applicable
period of survival.
26
<PAGE>
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise expressly
----------- -----------------
provided for herein, the terms and provisions hereof shall not survive the
Closing. The acceptance of the deed and other closing documents by Purchaser
and payment of the Purchase Price shall be deemed full compliance by Seller and
Purchaser of all of their respective obligations arising under this Agreement
and both Seller and Purchaser expressly waive any and all noncompliance by the
other party with respect to any prior obligations other than those obligations
which expressly survive the Closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
Section 9.3 Entire Agreement; Modifications. This Agreement embodies and
----------- -------------------------------
constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged, or terminated except by an instrument in
writing signed by the party against which the enforcement of such waiver,
modification, amendment, discharge, or termination is sought, and then only to
the extent set forth in such instrument.
Section 9.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Seller and Purchaser, each of which has
been represented by counsel of its own selection, and neither of which has
acted under duress nor compulsion, whether legal, economic or otherwise.
Consequently, the terms and provisions of this Agreement shall be
interpreted and construed in accordance with their usual and customary
meanings, and Seller and Purchaser hereby expressly waive and disclaim, in
connection with the interpretation and construction of this Agreement, any
rule of law or procedure requiring otherwise, including without limitation,
any rule of law to the effect that ambiguous or conflicting terms or
provisions contained in this Agreement shall be interpreted or construed
against the party whose attorney prepared this Agreement or any earlier
draft of this Agreement.
27
<PAGE>
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail
return receipt, signed by the addressee or the addressee's agent or
representative, (b) if by telegram, by a telegram receipt signed by the
addressee or the addressee's agent or representative, (c) if hand delivered
(including delivery by any overnight or other delivery service), by a delivery
receipt signed by the addressee or the addressee's agent or representative, or
(d) if sent by facsimile transmission, with confirmation of receipt at the
facsimile number to which it was sent. Each party's initial address for
delivery of any Notice is designated below, but any party from time to time may
designate a different address for delivery of any Notice by delivering to the
other party Notice of such different address; provided, however, neither party
may designate an address for delivery of Notice not located within the United
States. Each party hereto covenants and agrees to mail copies of any Notice to
the parties designated to receive copies of any Notice below, but the failure of
the addressee for any copy actually to receive such copy shall not render the
Notice ineffective.
If to Seller: Edward J. Meylor
Lehman Brothers Inc.
3 World Financial Center, 12th Floor
New York, New York 10285
Telephone No.: (212) 526-2122
Fax No.: (212) 528-6680
With copies to: James J. Thomas, Esq.
Windels, Marx, Davies & Ives
156 West 56th Street
New York, New York 10019
Telephone No.: (212) 237-1000
Fax No.: (212) 262-1215
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Fax No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Fax No.: (214) 969-4343
28
<PAGE>
Section 9.7 Assignment of Trade Name. At the Closing, Seller shall
----------- ------------------------
assign to Purchaser the right to use the Trade Name and all derivatives thereof
in connection with the conduct and operation of the Project, but such assignment
shall be made without representation or warranty or recourse and shall be
nonexclusive; provided, however, Seller agrees not to use or further assign the
Trade Name.
Section 9.8 Right to Possession. At the Closing and as a condition
----------- -------------------
thereto, Purchaser shall have full and unrestricted right to possession of the
Project subject to existing Leases and applicable laws and regulations of
government authorities having jurisdiction over the Project, and Seller will do
such reasonable acts, execute such instruments, and take such action as may be
appropriate or required to assure to Purchaser possession of the same.
Section 9.9 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Seller or
Purchaser, Seller and Purchaser hereby agree to perform, execute, and/or deliver
or cause to be performed, executed, and/or delivered at the Closing or
thereafter, all such further acts, deeds, and assurances as Purchaser or Seller,
as the case may be, may reasonably require to (i) evidence and vest in the
Purchaser the ownership of, and title to, the Project, and (ii) consummate the
transactions contemplated hereunder.
Section 9.10 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
------------ --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 9.11 Risk of Loss.
------------ ------------
(a) Risk of loss or damage to the Project by condemnation,
eminent domain, or similar proceedings (or deed in lieu thereof), or by
fire or any other casualty, from the date hereof through the time of
delivery of the Deed will be on Seller and, thereafter, will be on
Purchaser.
(b) In the event of loss or damage to the Project by reason of
condemnation or eminent domain proceedings (or deed in lieu thereof), or by
fire or any other casualty, which occurs prior to the Closing Date, if the
cost to repair such loss or damage is less than $100,000.00, so long as no
portion of the Improvements or the parking areas have been taken and no
means of access to the Project has been blocked or substantially impaired,
the transaction contemplated hereby shall be consummated, and Seller shall
assign to Purchaser all insurance proceeds or condemnation awards,
excluding proceeds of rental insurance for any period prior to Closing,
which can then be used by Purchaser to repair such damage or casualty. If
such insurance proceeds or condemnation awards are insufficient to allow
Purchaser to repair such damage or destruction to the condition of the
Project prior to the damage, Seller shall pay over to Purchaser, either
directly or by credit on the Purchase Price, such additional sums of money
as may be necessary to complete such repair. In such event, Seller shall
have no additional obligation other than to pay the deductibles in
connection therewith.
29
<PAGE>
(c) If the cost to repair such damage or destruction exceeds
$100,000.00, or, if any part of the Improvements or the parking area has been
taken by condemnation or eminent domain proceedings (or deed in lieu thereof)
or if any means of access to the Project has been blocked or substantially
impaired by any such taking, Purchaser may, at its option, elect to terminate
this Agreement, or Purchaser may consummate the transaction and receive an
assignment of all proceeds of insurance or condemnation awards attributable
to such damage. In such event, even if such insurance or condemnation
proceeds shall be assigned to Purchaser, Seller shall have no additional
obligation if such insurance proceeds or condemnation awards are insufficient
to repair such damage other than to pay any deductibles in connection
therewith and Purchaser shall not be entitled to any credit or reduction in
the Purchaser Price. Notwithstanding the foregoing, in the event of such
damage or destruction in excess of $100,000.00 resulting from fire or other
casualty, in the event such damage or destruction can be repaired within
ninety (90) days following the scheduled Closing Date, Seller shall have the
right (but not the obligation) in the exercise of its sole and absolute
discretion to extend the Closing Date for a period not to exceed ninety (90)
days, in which event Purchaser shall not have the right to terminate this
Agreement and Seller shall repair such damage or destruction, at its sole
cost and expense, without regard to the availability of insurance proceeds.
(d) Notwithstanding anything to the contrary herein, if any eminent
domain proceeding is instituted (or notice of which shall be given) solely
for the taking of any subsurface rights for utility easements or for any
right-of-way easement, and the surface may, after such taking, be used in
substantially the same manner as though such rights had not been taken,
Purchaser shall not be entitled to terminate this Agreement as to any part of
the Project, but any award to which Seller in entitled to receive and which
is actually received by Seller resulting therefrom (excluding any proceeds
relating to loss of rental income for periods prior to the Closing Date)
shall be assigned and delivered to Purchaser at Closing and shall be the
exclusive property of Purchaser upon Closing.
Section 9.12 Assignment. Purchaser shall have the right, without the
------------ ----------
consent of Seller, to assign its rights under this Agreement and all rights
hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Upon such assignment Purchaser shall be relieved of its
obligations hereunder, so long as the PPL REIT or any entity in which the PPL
REIT has a controlling interest assumes all obligations of Purchaser hereunder
and confirms all undertakings or representations of Purchaser hereunder. No
other assignment may be made without the prior written consent of Seller.
Section 9.13 Time of the Essence. Time is of the essence in this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
Section 9.14 Conditions. All covenants, warranties and obligations of
------------ ----------
Seller or Purchaser contained in this Agreement are deemed to be conditions to
the other party's obligations herein. All conditions to Purchaser's or Seller's
obligations, whether specifically stated in this Agreement or pursuant to the
preceding sentence, and all rights of Purchaser or Seller herein are imposed
solely
30
<PAGE>
and exclusively for the benefit of the other party and their respective assigns
and any or all of such conditions or rights may be waived in whole or in part by
the party in question at any time in such party's sole discretion.
Section 9.15 Severability. If any provision in this Agreement is invalid,
------------ ------------
illegal, or unenforceable, such provision shall be construed as narrowly as
possible to allow Purchaser and Seller to be afforded the benefits and
protection of this Agreement. Such provision shall be severable from the rest
of this Agreement and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and shall
continue in full force and effect.
Section 9.16 Counterparts. Two or more duplicate originals of the written
------------ ------------
instrument containing this Agreement may be signed by the parties, each of which
shall be an original but all of which together shall constitute one and the same
agreement.
Section 9.17 Acquisition of Other Projects.
------------ -----------------------------
(a) Seller or Seller's Affiliates have entered into certain other
agreements with Purchaser (the "Other Agreements") for the purchase of the
real estate or partnership interests listed on Exhibit "E" attached hereto
-----------
(said properties and interests being designated on Exhibit "E" as
-----------
"Large Properties" or "Small Properties" and being herein collectively
called "Other Properties"). Subject to the exceptions set forth in
subparagraph (b) below, Seller's obligation to consummate the transaction
contemplated by this Agreement is expressly conditioned upon the
acquisition by Purchaser of all of the Other Properties simultaneously with
the Closing of the Project (the "Simultaneous Closing Condition").
(b) Notwithstanding the existence of the Simultaneous Closing
Condition, in the event Purchaser refuses to close any of the Other
Properties and terminates the applicable Other Agreement for a Permitted
Reason (defined below), by delivering a notice of intent to terminate such
Other Agreement, the provisions of (c) or (d) of this Section shall apply.
The term "Permitted Reason" shall mean either: (i) Seller's default as
contemplated by Section 6.1(a) of the applicable Other Agreement; (ii) a
Title Objection which is not cured within the time periods provided by such
Other Agreement; (iii) an Environmental Contamination has been discovered
in respect to the Other Property covered by such Other Agreement; or (iv)
the failure of any material condition listed in Section 5.1 of such Other
Agreement and Purchaser's election to terminate the applicable Other
Agreement in accordance with Section 5.2 thereof. Seller has the right to
cure any Permitted Reason under the terms and within the time periods
provided in the applicable Other Agreement. Seller's right to cure shall
not delay Closing under this Agreement or any Other Agreements not affected
by a Permitted Reason.
(c) If the Other Agreement which Purchaser seeks to cancel for a
Permitted Reason pertains to a Large Property, Seller shall have the right
to terminate this Agreement and all Other Agreements (pertaining to both
large Properties and Small Properties) by giving written notice to
Purchaser of such election within five (5) days following Purchaser's
election to terminate the applicable Other Agreement and each of the
parties rights and
31
<PAGE>
obligations arising under this Agreement shall be null and void except for
those rights or obligations which expressly survive the termination of this
Agreement.
(d) If the Other Agreement which Purchaser seeks to cancel for a
Permitted Reason pertains to a Small Property, Seller shall not have the
right to terminate this Agreement or any Other Agreement based on
Purchaser's cancellation of the Other Agreement and the transactions
contemplated hereby and by the remaining Other Agreements shall be
consummated in accordance with their respective terms and conditions.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLER:
------
PROPERTY ASSET MANAGEMENT INC.,
a Delaware corporation
By: /s/ Yon Cho
------------------------------------
Name: Yon Cho
----------------------------------
Title: Vice President
---------------------------------
Date of Execution: August 30, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/ Thomas F. August
------------------------------------
Name: Thomas F. August
----------------------------------
Title: President
---------------------------------
Date of Execution: August 30, 1996
<PAGE>
EXHIBIT "A"
-----------
DESCRIPTION OF THE LAND
-----------------------
PARCEL A:
- --------
BEING 6.759 acre tract of land situated in the City of Irving, Dallas County and
being a portion of the Francis Jones Survey, Abstract No. 1526 also being out of
the fourth tract of Parcel No. 1 as conveyed by deed to Las Colinas Corporation,
recorded in Volume 69040, Page 1584, Deed Records of Dallas County, Texas, said
tract of land being more particularly described as follows:
Commencing from a 1/2 inch iron rod found at the point of intersection of the
South right-of-way line of Walnut Hill (a 110 foot R.O.W.), with the curving
Easterly right-of-way line of Story Road (a 100 foot R.O.W.), as shown on the
plat of Walnut Hill Business park, Sector VII, Area XVIII, Plat recorded in
Volume 84128, Page 4337, Map Records, Dallas County, Texas.
THENCE, South 89 (degrees) 46'10" East along the Southerly right-of-way line of
said Walnut Hill Lane, a distance of 69.00 feet to a 1/2 inch iron rod found as
the point of curvature of a curve to the left having an internal angle of 19
(degrees) 18'10", a radius of 1092.09 feet and a chord distance of 366.18 feet
bearing North 80 (degrees) 44'35" East;
THENCE, Northeasterly along said curve to the left, an arc distance of 367.92
feet to a 1/2 inch iron rod found as the Northeast corner of Lot No. 2 of said
Walnut Hill Business Park, Sector VII, Area XVIII;
THENCE, South 00 (degrees) 13'50" West along said East line of said Lot No. 2, a
distance 12.71 feet to a 1/2 inch iron rod set for the POINT OF BEGINNING. Said
POINT OF BEGINNING, beginning at the point of curvature of a curve to the left
having an internal angle of 04 (degrees) 49'05", a radius of 1104.09 feet and a
chord distance of 92.81 feet bearing North 68 (degrees) 44'12" East;
THENCE, Northeasterly along said curving right-of-way of said Walnut Hill Lane,
a curve to the left, an arc distance of 92.84 feet to a 1/2 inch iron rod set
for corner;
THENCE, North 66 (degrees) 19'40" East along right-of-way of Walnut Hill Lane, a
distance of 508.05 feet to a 1/2 inch iron rod set at the point of curvature of
a curve to the left having an internal angle of 01 (degrees) 55'43", a radius of
1188.37 feet and a chord distance of 40.00 feet bearing North 65 (degrees)
21'48" East;
THENCE, Northeasterly continuing along said right-of-way line of Walnut Hill
Lane curving to the left, an arc distance of 40.00 feet to a 1/2 inch rod set
for corner;
THENCE, North 49 (degrees) 20'22" East along said right-of-way line of Walnut
Hill Lane, a distance of 50.00 feet to a 1/2 inch iron rod set for the point of
curvature of a curve to the left having an internal angle of 13 (degrees)
00'03", a radius of 1176.37 feet and a chord distance of 266.36 feet bearing
North 55 (degrees) 32'47" East;
1
<PAGE>
THENCE, Northeasterly continuing along said right-of-way line of Walnut Hill
Lane curving to the left, an arc distance of 266.93 feet to 1/2 inch iron rod
found for the Northwest corner of North Lake Community College tract as recorded
by Plat in Volume 75142, Page 1129, Map Records of Dallas County, Texas, said
iron rod also being found in the East line of said Francis Jones Survey,
Abstract No. 1626;
THENCE, South 00 (degrees) 15'43" West departing said right-of-way line,
continuing along that common West line of the North Lake Community College tract
and the John W. Johnson Survey, Abstract No. 1640 and the East line of said
Francis Jones Survey, a distance of 651.90 feet to 1/2 inch iron rod found for
the Southwest corner of the said North Lake Community College and being the
Southwest corner of the John W. Johnson Survey;
THENCE, North 59 (degrees) 08'21" West, a distance of 260.38 feet to a 1/2 inch
iron rod found for corner;
THENCE, South 74 (degrees) 25'33" West, a distance of 489.00 feet to a 1/2 inch
iron rod found for corner;
THENCE, North 86 (degrees) 40'28" West, a distance of 149.25 feet to a 1/2 inch
iron rod found in the East line of the said Lot No. 2, of said Walnut Hill
Business Park;
THENCE, North 00 (degrees) 13'50" East with said East line of said Lot No. 2, a
distance of 203.38 feet to the POINT OF BEGINNING and containing 294,422 square
feet or 6.759 acres of land.
Said tract having been platted as Lot No. 3, Block A, Walnut Hill Business Park,
Sector VII, Third Installment, an addition to the City of Irving, Dallas County,
Texas, according to the Revised Map recorded in Volume 86040, Page 4852, Map
Records of Dallas County, Texas.
2
<PAGE>
PARCEL B - EASEMENT TRACT:
- -------------------------
Ingress Egress Easement as created pursuant to Access Easement, dated December
4, 1985, recorded in Volume 85236, Page 5935, Deed Records of Dallas County,
Texas, as superseded by Correction Access Easement recorded in Volume 86013,
Page 541, Deed Records, Dallas County, Texas, on, over and across the following
described property:
Being a 36 foot wide Ingress-Egress Easement located at the northeast corner of
Lot No. 2, Walnut Hill Business Park, Sector VII, Area XVIII, Plat recorded in
Volume 84128, Page 4337, Map Records of Dallas County, Texas, being more
particularly described as follows:
Commencing from a 1/2 inch iron rod found at the point of intersection of the
South right-of-way line of Walnut Hill Lane (a 110 feet R.O.W.), with the
curving Easterly right-of-way line of Story Road (100 foot R.O.W.) as shown on
the said Plat;
THENCE, South 89 (degrees) 46'10" East along the Southerly right-of-way of said
Walnut Hill Lane, a distance of 69.00 feet to a 1/2 inch iron rod found at the
point of curvature of a curve to the left having an internal angle of 19
(degrees) 18'10", a radius of 1092.09 feet and a chord distance of 366.18 feet
bearing North 80 (degrees) 44'35" East;
THENCE, Northeasterly along said curve to the left, an arc distance of 367.92
feet to a 1/2 inch iron rod found at the Northeast corner of said Lot No. 2,
said point also being the POINT OF BEGINNING of a 36 foot wide Ingress-Egress
Easement;
THENCE, South 00 (degrees) 13'50" West along the Easterly Boundary line of said
Lot 2, a distance 80.00 feet to a point;
THENCE, North 89 (degrees) 46'10" West, a distance of 36.00 feet to a point;
THENCE, North 00 (degrees) 13'50" East, a distance of 68.09 feet to a point in
the South right-of-way of Walnut Hill Lane, said point also being the point of
curvature of a curve to the left, having an internal angle of 01 (degrees)
59'22", a radius of 1092.09 feet and a chord distance of 37.92 feet bearing
North 71 (degrees) 55'21" East;
THENCE, Northeasterly along said curving Southerly right-of-way line Walnut Hill
Lane for an arc distance of 37.92 feet to the POINT OF BEGINNING.
3
<PAGE>
EXHIBIT "B"
-----------
ADDITIONAL ITEMS FURNISHED TO PURCHASER
---------------------------------------
1. The standard form tenant lease used for renting space in the Project.
2. A Rent Roll (herein so called) certificate (with current rent roll
attached) for the Project containing the following information with respect to
each tenant lease: (i) the space occupied thereby (square feet), (ii) tenant's
name, (iii) the commencement date thereof and the term thereof, (iv) the rents
and other charges payable thereunder and the actual collections thereunder, (v)
any rents or other charges in arrears or prepaid thereunder and the period for
which such rents and other charges are in arrears or have been prepaid, (vi) the
amount of the security deposit or any other deposit thereunder, (vii) any free
rent, concessions, rebates, refunds, or other inducements, (ix) any options
provided thereunder, and (x) any unpaid leasing commissions. The Rent Roll shall
be accompanied by Seller's signed certification that, to the best of Seller's
knowledge, the Rent Roll is true, complete, and correct as of the date shown on
the Rent Roll and that, to the best of Seller's knowledge, there has been no
material adverse change with respect to any item shown on the Rent Roll during
the period from the date thereof to the date of such certificate, except as
shown thereon;
3. All management, service supply, security, maintenance and other
contracts and agreements, oral or written, with respect to the Project which
will survive the Closing Date and affect the Project or Purchaser's ownership
thereof.
4. To the extent reasonably available to Seller, all Permits with respect
to the ownership and operation of the Project, including, but not limited to,
all certificates of occupancy and building permits for the Improvements, any
specific use permits, conditional use approvals, special exceptions, variances,
or other permits, licenses, or approvals (including drawings and enacting
ordinances, if any) of any kind required under any Governmental Regulations and
all notices received by or in the possession of Seller from governmental
instrumentalities with respect to any such Permits or compliance of the Project
with any Governmental Regulations, and any response thereto from or in the
possession of Seller; and all materials, including applications, ordinances and
legal opinions, in the possession of Seller relating to the zoning and platting
of the Project.
5. Evidence of the total amount of real estate and personal property
taxes on the Project or any portions thereof for the last two tax years and the
estimated taxes due for the current tax year;
6. To the extent reasonably available to Seller, evidence of all utility
charges paid by Seller with respect to the Project during the twelve (12) month
periods ending December 31, 1994 and 1995 and the four month period ending April
30, 1996.
7. An itemized list of all Personal Property.
1
<PAGE>
8. To the extent reasonably available to Seller, operating statements
showing all income and expenses, profits and losses of the Project for the
calendar years ending December 31, 1993, 1994 and 1995, which operating
statements shall reflect all income and expense from operations including (i) ad
--
valorem taxes for the City, County and State; (ii) accrual for annual insurance
- -------
premiums for such periods for fire, extended coverage, workman's compensation,
vandalism, and malicious mischief, general liability, rents, and other forms of
insurance shown thereon; (iii) expenses incurred for such period for water,
electricity, natural gas and other utility charges; (iv) other operating
expenses; (v) expenses incurred in respect to routine repair and maintenance and
expenses which are capital in nature, (vi) total rents collected from tenants
for such periods; and (vi) other revenue collected and the nature of such
revenue;
9. Copies of any and all correspondence, engineering reports, inspection
reports, inspections, environmental assessments (Phase I or Phase II), soil
tests, asbestos surveys, notices or other materials and other written
documentation in Seller's possession or which are readily available to Seller or
in the possession of Seller or their agents or consultants regarding or
evidencing the presence, or lack thereof, on the Project or released from
adjacent properties or released from the Project of any Hazardous Materials; and
copies of any and all written reports of any compliance or regulatory audit,
inspection, or investigation of the structural, soil, or environmental condition
of the Project ordered by or in the possession of Seller.
10. To the extent in Seller's possession, a copy of the final set of plans
and specifications for the Project.
11. All Leases with respect to the Project, including any and all
modifications, supplements, or amendments thereto, and evidence sufficient to
allow Purchaser to determine the "base amount" or "base year" of any common area
maintenance charges, ad valorem taxes, or any other charges which, under the
Leases, are to be paid by the tenants on the basis of increases in such charges
over such "base."
12. All warranties and guaranties relating to the Project, or any part
thereof, or to the tangible personal property and fixtures owned by Seller and
located on, attached to, or used in connection with the Project.
13. All of Seller's fire, hazard, liability, and other insurance policies
currently in force with respect to the Project.
14. All leasing or other commission agreements with respect to the
Project.
15. Any other documents or reports ordered by or in the possession of
Seller that are material to the physical, economic, or legal condition of the
Project.
2
<PAGE>
EXHIBIT "C"
-----------
TENANT'S ESTOPPEL CERTIFICATE
-----------------------------
TO: Prentiss Properties Limited, Inc. ("Prospective Purchaser")
THIS IS TO CERTIFY THAT:
1. The undersigned is the tenant under that certain lease dated ______________
("Lease") by the between ________________, as landlord ("Landlord") and
_________________, as tenant ("Tenant"), with respect to that certain
premises located at ________________________, (the "Premises") consisting
of __________________ square feet.
2. The Lease is valid and in full force and effect on the date hereof. The
Lease represents the entire agreement between the Landlord and the Tenant
with respect to the Premises, and is the only agreement between the
Landlord and the Tenant affecting or relating to the Premises. The Lease
has not been modified, changed, altered, assigned, supplemented or amended
in any way (except as indicated herein):
-----------------------------------
---------------------------------------------------------------------------
3. Tenant has the following options to extend the term of the Lease:
---------------------------------------------------------------------------
(if none, state
-----------------------------------------------------------
"none").
4. Tenant has the following options to lease additional space in the Building:
--------------------------------------------------------------------------
(if none, state
---------------------------------------------------------
"none").
5. Tenant has no right to purchase the Property.
6. Tenant has accepted and now occupies the Premises, and is and has been
conducting its business in the Premises since __________________, 19___.
The commencement date of the Lease term occurred on _______________, 19___,
and the expiration date of the Lease term (other than unexercised options
to extend the Lease) will occur on _______________________.
7. Landlord has complied with all of its construction and other obligations
under the Lease to this date, and Tenant is fully obligated to pay, and is
paying, the rent and other charges due thereunder, and is fully obligated
to perform, and is performing, all of the other obligations of Tenant under
the Lease without right of counterclaim, offset or defense, except as
specifically provided in the Lease.
1
<PAGE>
8. No one except the Tenant and its employees occupies the Premises. Tenant
has not sublet the Premises or any part thereof or assigned any of its
rights under the Lease except as indicated herein:
------------------------
(if none, state
----------------------------------------------------------
"none").
9. Tenant has paid rent for the Premises for the period up to and including
____________. The current rent payable by Tenant is $__________________
per month. The current common area maintenance and other charges payable
by Tenant (including the Tenant's share of real estate taxes, insurance and
operating expenses) is $_________________ per month. No such rent has been
paid more than one (1) month in advance of its due date except as indicated
herein:
-------------------------------------------------------------------
(if none, state
--------------------------------------------------------
"none").
10. The Tenant's security deposit is $_____________________ (if none, state
"none").
11. To Tenant's knowledge, no event has occurred and no condition exists which,
with the giving of notice or the lapse of time or both, will constitute a
default under the Lease. Tenant has no existing defense, offsets or
credits against the enforcement of this Lease by the Landlord or the
payment of rent for the Premises.
12. No actions, whether voluntary or otherwise, are pending against the Tenant
under the bankruptcy laws of the United States or any state thereof.
13. Tenant's current notice address is set forth in the Lease.
14. The undersigned is authorized by all necessary action of Tenant to execute
this Tenant Estoppel Certificate on behalf of Tenant.
15. Tenant acknowledges that Prospective Purchaser is relying upon this
estoppel in connection with its potential acquisition of certain property,
including the Premises.
Dated this ____ day of _________________, 1996.
TENANT:
------------------------------
By:
---------------------------
Name:
-------------------------
Title:
------------------------
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT "D"
-----------
LIST OF SERVICE CONTRACTS
-------------------------
<S> <C>
1. AnsweTel Corporation Answering Service
Continuing with 30 day cancellation clause
$35/mo. + $0.80/minute for operator
2. C & D Commercial Services Sweeping
5/1/96 - 4/30/97 30 day cancellation clause
$225/mo.
3. Dallas Pest & Termite Service Co. Pest Control
5/1/96 - 4/30/97 30 day cancellation clause
$120/mo.
4. Damon Fire Protection Fire Inspection
4/1/96 - 4/30/97 30 day cancellation clause
$440/yr.
5. Dennis, A.L. Window Washing
6/1/96 - 5/31/97 30 day cancellation clause
$6,148/yr.
6. Dover Elevator Company Elevator Maintenance
5/1/96 - 4/30/97 30 day cancellation clause
$700/mo.
7. Interior Maintenance Specialist Marble Maintenance
5/1/96 - 12/31/96 30 day cancellation clause
$480/qtr.
8. Metro Landscape Maintenance, Inc. Exterior Landscape Maintenance
5/1/96 - 4/30/97 30 day cancellation clause
$1,517/mo.
9. Quigley Co., The Lee Metal Maintenance
6/1/96 - 5/31/98 30 day cancellation clause
$447/mo.
10. Stafflebach Designs & Assoc. Space Planning
5/13/96 - 5/12/97 14 day cancellation clause
Hourly rates and reimbursable cost
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
11. Texas Utilities Co. Electric Services
3/1/96 - Continuing 30 day cancellation clause
Current Rate Schedule
12. Tidy Aire, Inc. Air Fresheners
5/1/96 - 4/30/97 30 day cancellation clause
$77/mo.
13. Dallas County Reclamation District Storage Lease
mo.-to-mo. 30 day cancellation clause
$325/mo.
14. McKesson Water Products Bottled Water
3/29/96 - Continuing 15 day cancellation
Amount used
15. PageNet Pager Lease
2/27/96 - Continuing 30 day cancellation
$10/Pager - 2 pagers
16. SnackAttack Vending Machine
4/1/96 - Continuing 30 day cancellation
We receive a % of sales
17. Telephony Telephone Lease
2/28/96 - Continuing 30 day cancellation
$68/mo.
</TABLE>
NOTE:
The following services are a continuation of the previous management company's
contracts on a month to month basis:
Janitorial
Interior Landscape Maintenance
Security
2
<PAGE>
EXHIBIT "E"
-----------
OTHER PROPERTIES
----------------
LARGE PROPERTIES:
- ----------------
1. One Northwestern Plaza, Southfield, Michigan
2. Park West C-2 (Partnership Interest)
SMALL PROPERTIES:
- ----------------
1. 9050 Junction Drive, a/k/a Laredo, Annapolis, Maryland
2. West Loop Business Park, Houston, Texas
<PAGE>
EXHIBIT 10.22
AGREEMENT OF SALE
(Real Property)
BY AND BETWEEN
PROPERTY ASSET MANAGEMENT INC.
("Seller")
AND
PRENTISS PROPERTIES LIMITED, INC.
("Purchaser")
Dated: AUGUST 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS; PURCHASE PRICE.................................. 1
Section 1.1 Definitions.............................................. 1
Section 1.2 Purchase Price for the Project........................... 5
Section 1.3 Independent Consideration................................ 5
ARTICLE II TITLE AND SURVEY; APPROVAL OF DOCUMENTS; INSPECTIONS
............................................................. 6
Section 2.1 Title Binder............................................. 6
Section 2.2 Title Policy Covering the Project........................ 6
Section 2.3 Survey................................................... 6
Section 2.4 Review of Survey and Title Binder by Purchaser........... 7
Section 2.5 Seller's Right to Cure Purchaser's Objections............ 7
Section 2.6 Additional Items Furnished to Purchaser.................. 8
Section 2.7 Estoppel Certificates.................................... 8
Section 2.8 Environmental Inspection................................. 8
Section 2.9 Inspection............................................... 9
Section 2.10 Purchaser's Acknowledgement.............................. 10
ARTICLE III THE CLOSING DATE AND THE CLOSING; OBLIGATIONS OF
PURCHASER AND SELLER WITH RESPECT THERETO.................... 11
Section 3.1 The Closing and the Closing Date......................... 11
Section 3.2 Seller's Obligations at the Closing...................... 11
Section 3.3 Purchaser's Obligations at the Closing................... 13
Section 3.4 Notification to Tenants.................................. 14
Section 3.5 Escrow Closing........................................... 14
Section 3.6 Reporting Person......................................... 14
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS.................... 14
Section 4.1 Representations and Warranties of Seller................. 14
Section 4.2 Knowledge Standard....................................... 18
Section 4.3 Survival of Representations and Warranties............... 19
Section 4.4 Seller's Obligation to Notify Purchaser of Change........ 19
Section 4.5 Operation of Project Prior to Closing.................... 19
ARTICLE V CONDITIONS TO CLOSING........................................ 20
Section 5.1 Conditions Precedent to Purchaser's Obligations.......... 20
Section 5.2 Consequences of The Failure of Section 5.1 Conditions
Precedent................................................ 21
Section 5.3 Conditions Precedent to Seller's Obligation to Close..... 21
ARTICLE VI DEFAULTS AND REMEDIES........................................ 22
Section 6.1 Seller's Defaults; Purchaser's Remedies.................. 22
Section 6.2 Purchaser's Default; Seller's Remedies................... 22
Section 6.3 Attorneys' Fees.......................................... 23
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VII CLOSING COSTS; PRORATIONS..................................... 23
Section 7.1 Closing Costs............................................. 23
Section 7.2 Proration of Income and Expenses.......................... 23
Section 7.3 Post-Closing Adjustments.................................. 25
Section 7.4 Delinquent Rents.......................................... 25
ARTICLE VIII INDEMNIFICATION........... ...................... 26
Section 8.1 Brokerage Commissions..................................... 26
Section 8.2 Seller's Indemnity........................................ 26
Section 8.3 Purchaser's Indemnity..................................... 26
ARTICLE IX MISCELLANEOUS................................................. 27
Section 9.1 Survival of Terms......................................... 27
Section 9.2 Binding Effect............................................ 27
Section 9.3 Entire Agreement; Modifications........................... 27
Section 9.4 Headings.................................................. 27
Section 9.5 Interpretation and Construction........................... 27
Section 9.6 Notice.................................................... 28
Section 9.7 Assignment of Trade Name.................................. 29
Section 9.8 Right to Possession....................................... 29
Section 9.9 Additional Acts........................................... 29
Section 9.10 Applicable Law............................................ 29
Section 9.11 Risk of Loss.............................................. 29
Section 9.12 Assignment................................................ 30
Section 9.13 Time of the Essence....................................... 30
Section 9.14 Conditions................................................ 30
Section 9.15 Severability.............................................. 31
Section 9.16 Counterparts.............................................. 31
Section 9.17 Acquisition of Other Projects............................. 31
</TABLE>
EXHIBITS:
"A" - Description of the Land
"B" - Additional Items Furnished to Purchaser
"C" - Tenant's Estoppel Certificate
"D" - List of Service Contracts
"E" - Other Properties
(ii)
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT OF SALE is made and entered by and between PRENTISS
PROPERTIES LIMITED, INC., a Delaware corporation ("Purchaser"), and PROPERTY
ASSET MANAGEMENT INC., a Delaware corporation ("Seller"), as of this Effective
Date.
W I T N E S S E T H:
= = = = = = = = = =
Seller is the owner of the Project, as hereinafter defined. Seller hereby
agrees to sell and convey to Purchaser, and Purchaser hereby agrees to purchase
from Seller, the Project, as hereinafter defined, upon and subject to the terms,
provisions, and conditions hereinafter set forth.
ARTICLE I
DEFINITIONS; PURCHASE PRICE
---------------------------
Section 1.1 Definitions. As used in this Agreement, the terms listed
----------- -----------
below, when they appear with their initial letters capitalized, shall have the
following meanings unless the context in which they occur requires otherwise:
(a) "Affiliate" means a Person who, directly or indirectly through
---------
one or more intermediaries, owns or controls, is owned or controlled by or
is under common control or ownership with the Person in question. For
purposes of this definition "own" or "ownership" means ownership by one
Person of ten percent (10%) or more of the voting stock of the controlled
Person, in the case of a corporation, or, in the case of Persons other than
corporations, entitlement of the controlling Person, directly or
indirectly, to receive ten percent (10%) or more of the dividends, profits
or similar economic benefit from the controlled Person; and "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the controlled Person.
(b) "Agreement" means, and the words "herein," "hereof,"
---------
"hereunder," and words of similar import, shall refer to, this Agreement of
Sale.
(c) "Business day" means a day that is not a Saturday, a Sunday, a
------------
legal holiday or a day on which banks are required or permitted by law or
other governmental action to close in New York, New York.
(d) "Books and Records" shall mean all financial and other books
-----------------
and records maintained by or for the benefit of Seller solely in connection
with the operation of the Project and all building plans, specifications
and drawings, engineering, soils and geological reports, environmental
reports and other documents prepared in connection with the construction,
maintenance, repair, management or operation of the Project which
are within the possession or control of Seller, or Seller's Affiliates,
agents or representatives.
1
<PAGE>
(e) "Closing" means the consummation of the purchase of the
-------
Project by Purchaser from Seller in accordance with the terms and
provisions of Article III, which Closing shall be held at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., Suite 4100, 1700 Pacific Avenue,
Dallas, Texas 75201-4618 on the Closing Date commencing at 10:00 a.m.
Central Daylight Time.
(f) "Closing Date" means a Business Day which shall be established
------------
by Purchaser by written notice delivered to Seller, which date shall be no
earlier than thirty (30) days following the date of such notice, except
that from and after the date the IPO shall have occurred, such date shall
be no earlier than ten (10) days following the date of such notice;
provided, however, that in no event shall the Closing Date be a date later
than December 31, 1996, time being of the essence with respect to such
date.
(g) "Cut Off Date" means the latter of July 1, 1994 or the date
------------
Seller acquired fee simple title to the Project.
(h) "Effective Date" shall mean the date on which this Agreement
--------------
shall be fully executed and unconditionally delivered by Purchaser and
Seller.
(i) "Environmental Laws" means all applicable existing federal,
------------------
state and local statutes, ordinances, orders, rules and regulations issued,
promulgated or adopted by any governmental authority having jurisdiction
over the Project relating to environmental pollution or protection,
including, without limitation, the Resource Conservation and Recovery Act
of 1976, 43 U.S.C. (S) 6901 et seq., the Comprehensive Environmental
-- ----
Response, Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et
--
seq., as amended by the Superfund Amendments and Reauthorization Act of
----
1986, the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et
--
seq., the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq.,
---- -- ----
the Clean Air Act, 42 U.S.C. (S) 7401 et set., the Toxic Substances Control
-- ----
Act, 15 U.S.C. (S) 2601-2629, the Safe Drinking Water Act, 42 U.S.C. (S)
300f et seq., together with all existing rules, regulations and orders
-- ----
promulgated thereunder, and all similar applicable existing local, state
and federal statutes and regulations promulgated pursuant thereto.
(j) "Estoppel Certificates" means the estoppel certificates to be
---------------------
delivered by each tenant in accordance with the provisions of
Section 2.7 hereof.
(k) "Governmental Regulations" means all laws, ordinances, rules,
------------------------
regulations, statutes, building and fire codes, zoning ordinances,
restrictions, restrictive covenants, judgments, orders or decrees, health
and environmental laws and regulations and any and all other laws,
requirements, standards and regulations or appropriate supervising boards
of fire underwriters and other matters of all governmental authorities or
courts of competent jurisdiction having jurisdiction over the Project,
including, but not limited to the Americans with Disabilities Act.
(l) "Hazardous Materials" means (i) any chemical, material or
-------------------
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes",
2
<PAGE>
"hazardous materials", "extremely hazardous waste", "restricted hazardous
waste", or "toxic substances" or words of similar import under any
Environmental Laws, (ii) any oil, petroleum or petroleum derived
substances, any flammable substances or explosives, any radioactive
materials, any asbestos or any substance containing more than 0.1 percent
asbestos, any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million, and any urea formaldehyde
insulation, and (iii) any other chemical, material or substance, exposure
to which is prohibited, limited or regulated by any Environmental Laws.
(m) "Improvements" means all buildings, structures, and other
------------
improvements, including such fixtures as shall constitute real property,
located on the Land including, but not limited to, the office/warehouse
buildings, parking lots and all other amenities, together with Seller's
interest, if any, in all machinery, fixtures and equipment used in the
general operation of such buildings and improvements, and/or affixed to or
located upon the Land, along with all accessions and additions thereto,
excluding therefrom any machinery, fixtures, equipment or personal property
owned by Tenants at the Project.
(n) "IPO" means the proposed initial public offering of securities
---
in the PPL REIT.
(o) "Land" means the tracts or parcels of real property more
----
particularly described on Exhibit "A" attached hereto and made a part
-----------
hereof for all purposes, together with all and singular all right, title
and interest of Seller, reversionary or otherwise, in and to all easements
in or upon the Land and all other rights and appurtenances belonging or in
anywise pertaining thereto, if any, including any right, title, and
interest of Seller in and to any land lying in the bed of any street, road
or access way, right-of-way, alley, opened or proposed, in front of, at a
side of or adjoining the Land to the centerline thereof.
(p) "Leases" means all leases, licenses, franchises, concessions
------
and other occupancy agreements for the use or occupancy of any portion of
the Project, together with all rents, issues, profits, and deposits
thereunder and all amendments thereto.
(q) "Major Leases" means any Lease covering in excess of the
------------
lesser of (i) ten per cent (10%) of net rentable area in the Project, or
(ii) 5,000 square feet of net rentable area in the Project, as those area
are reflected in the Rent Roll, as hereinafter defined.
(r) "Miscellaneous Assets" shall mean all contract rights, leases,
---------------------
concessions, assignable warranties, and other items of intangible personal
property owned by Seller (but only to the extent assignable) and relating
to the ownership or operation of the Project, including, but not limited
to, (i) the Service Contracts, (ii) the Permits, (iii) the Trade Name,
(iv) assignable utility and similar deposits, (v) prepaid license and
permit fees, (vi) the Warranties and (vii) the Books and Records.
(s) "Permits" means all licenses and permits issued to or for the
-------
benefit of Seller and used or relating to the ownership or operation of the
Project in accordance with its current use.
3
<PAGE>
(t) "Permitted Exceptions" means those exceptions or conditions
--------------------
to title to the Project approved by Purchaser pursuant to Section 2.4
hereof.
(u) "Person" means an individual, partnership, joint venture,
------
corporation, limited liability company, joint stock company, trust
(including a business trust), unincorporated association or other entity,
or a government or any political subdivision or agency thereof.
(v) "Personal Property" means all tangible personal property,
-----------------
fixtures, furniture, furnishings, equipment, machinery, apparatus,
appliances, and other articles of depreciable personal property now owned
by Seller and located on the Land and the Improvements and used or usable
in connection with any part of the Project.
(w) "PPL REIT" means the corporation or real estate investment
--------
trust to be formed by Purchaser to operate as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, to conduct the
IPO, and to acquire the Project and interests in other real properties and
assets and related service businesses.
(x) "Project" means the Land, the Personal Property, the
-------
Miscellaneous Assets and the Improvements.
(y) "Purchase Price" means the sum of $4,500,000.00, as adjusted
--------------
pursuant to the provisions of Section 1.2(b) hereof.
(z) "Service Contracts" means all service contracts, landscaping
-----------------
contracts, management contracts, maintenance arrangements, or other
agreements entered into by or on behalf of Seller affecting the operation
of the Project.
(aa) "State" means the State in which the Project is situated.
-----
(ab) "Tenant" means any Person occupying any portion of the
------
Project under or pursuant to a Lease.
(ac) "Title Binder" means the Commitment for Owner's Title
------------
Insurance Policy issued by the Title Company which shall set forth the
state of title to the Land and Improvements, together with all exceptions
or conditions to such title, including, without limitation, all easements,
restrictions, rights-of-way, covenants, reservations, and all other liens
or encumbrances affecting the Land and Improvements which would appear in
an owner's title policy, if issued. The Title Binder shall include proper
searches covering bankruptcies, state and federal judgments and liens, tax
or otherwise and pending assessments and shall contain the express
commitment of the Title Company to issue the Title Policy to Purchaser in
the amount of the Purchase Price insuring such title to the Land and
Improvements as is specified in the Title Binder, in accordance with
Section 2.2.
(ad) "Title Company" means Chicago Title, located at 7616 LBJ
-------------
Freeway, Suite 300, Dallas, Texas 75251, Attn: Konrad Kaltenbach.
4
<PAGE>
(ae) "Title Policy" means an ALTA Owner's Title Insurance Policy
(with extended coverage) issued by the Title Company in accordance with the
terms and provisions of Section 2.2 on the ALTA Owners Title Insurance
Policy Form B-1970, in the amount of the Purchase Price, covering title to
the Land and the Improvements (including easements, rights, privileges and
appurtenances).
(af) "Trade Name" means the Laredo or 9050 Junction Drive.
----------
(ag) "Trigger Date" means March 1, 1996.
------------
(ah) "Warranties" means all warranties and guaranties relating to the
----------
Project, or any part thereof, or to the Personal Property or Improvements,
or construction thereof.
Section 1.2 Purchase Price for the Project.
----------- ------------------------------
(a) Payment of the Purchase Price. The Purchase Price shall be
-----------------------------
payable to Seller on the Closing Date by Federal Reserve wire transfer of
immediately available funds to an account or accounts which shall be
designated by Seller on or before the Closing Date, plus or minus
prorations and adjustments as hereinafter provided.
(b) Adjustment to the Purchase Price. In the event that during the
--------------------------------
period between the Trigger Date and the Closing Date, Seller expends any
sums of money in connection with
(i) a capital improvement, betterment of or enhancement of
the Project excluding expenditures (which are to be borne by Seller)
(a) which relate to routine repair and maintenance of the Project
necessary to maintain the Project in its current condition, or (b)
which are required to comply with written commitments to Tenants
pursuant to the Leases entered into prior to the Trigger Date or (c)
which are required to comply with any violation of Governmental
Regulations existing on the Trigger Date (not to exceed $25,000.00),
or
(ii) a tenancy either created, entered into, renewed or
extended from and after the Trigger Date, which has been approved by
Purchaser, including, without limitation, any leasing commissions or
tenant improvement expenses, then in such event the Purchase Price
shall be increased by the amounts expended by Seller under this
Section 1.2.
Section 1.3 Independent Consideration. Concurrently herewith Purchaser
----------- -------------------------
has paid to Seller the sum of One Hundred Dollars ($100) which shall be
independent consideration (the
5
<PAGE>
"Independent Consideration") for the agreements of Seller set forth herein. The
Independent Consideration shall be in addition to the Purchase Price. If the
Closing does not occur for any reason, the Independent Consideration shall be
deemed earned and shall be retained by Seller.
ARTICLE II
TITLE AND SURVEY; APPROVAL OF
DOCUMENTS; INSPECTIONS
----------------------
Section 2.1 Title Binder. Within five (5) Business days after the
----------- ------------
Effective Date, Seller shall cause to be furnished to Purchaser's counsel (to
the extent such policy is in the possession or control of Seller) a copy of the
title insurance policy issued to Seller at the time of its acquisition of the
Project. Purchaser shall be responsible for obtaining a current Title Binder
from the Title Company, not later than thirty (30) days after the Effective
Date, together with copies of all instruments referred to as exceptions to
title. Seller shall furnish to Purchaser and to the Title Company such
additional information in its possession as may be material to the Title Company
or Purchaser in connection with the review of title to the Land and Improvements
and the issuance of the Title Policy.
Section 2.2 Title Policy Covering the Project. At the Closing, as a
----------- ---------------------------------
condition to the obligation of Purchaser to consummate the transaction
contemplated hereby, the Title Company shall issue (or the Title Company shall
have issued its irrevocable commitment to issue) the Title Policy, at
Purchaser's expense, subject only to the "Permitted Exceptions". The Title
Policy shall be issued by the Title Company in the amount of the Purchase Price.
The Title Policy shall include, if required by Purchaser, and provided that such
items are obtainable, an extended coverage endorsement over general exceptions
1-5, a zoning endorsement (covering, in addition to the usual matters therein,
parking), a location and contiguity endorsement showing location and that the
real estate insured are the same as shown on the Survey and showing contiguity
of all parcels and sub-parcels, an encroachment endorsement as to any
encroachments, an endorsement as to roads abutting the Land and the points of
such abutment, and an endorsement that the Improvements and use thereof do not
violate any recorded matters. Seller shall deliver to the Title Company such
affidavits or other instruments as may be reasonably required by the Title
Company to obtain such endorsements and deletions, provided that Seller shall
not be required to deliver any such affidavits or other instruments if, in
Seller's sole judgment, Seller cannot deliver such items without material cost
or expense to Seller.
Section 2.3 Survey. Seller shall cause to be delivered to Purchaser's
----------- ------
counsel (to the extent within Seller's possession or control) within five (5)
days after the Effective Date two (2) copies of the of survey of the Land and
Improvements which Seller received at the time of its acquisition of the
Project, if any. Purchaser shall be responsible for securing an updated or
recertified survey or a replacement survey, at its sole cost and expense. Seller
acknowledges that Purchaser intends to secure a survey (the "Survey") prepared
in accordance with the Minimum Standard Detail Requirements for ALTA/ACSM Land
Title Surveys as adopted by the American Land Title Association and American
Congress on Surveying and Mapping in 1992, and meeting the accuracy requirements
of a Class A Survey as defined therein.
6
<PAGE>
Section 2.4 Review of Survey and Title Binder by Purchaser. Purchaser
----------- ----------------------------------------------
shall have a period of twenty (20) days after receipt by Purchaser's counsel of
the last of (a) the Title Binder, (b) legible copies of all documents referred
to therein as exceptions to title, and (c) the Survey, to review the Title
Binder and the Survey and to deliver to Seller such objections ("Title
Objections" herein) as Purchaser may have to anything contained or set forth in
the Survey or in the Title Binder. Any objection to title made to Seller by
Purchaser's counsel within such time period shall be deemed an objection by
Purchaser. Any exceptions to title shown in the Title Binder or the Survey to
which Purchaser does not so object within such twenty (20) day period shall be
deemed to be the "Permitted Exceptions" for the purposes of this Agreement.
Section 2.5 Seller's Right to Cure Purchaser's Objections.
----------- ---------------------------------------------
(a) If Title Objections have been timely raised by Purchaser in
accordance with Section 2.4, then Seller may, at its option, use its good
faith efforts to satisfy such Title Objections in the manner set forth in
subparagraph (b) below, at no cost to Purchaser; provided that Seller shall
not (except as set forth in the immediately following sentence) be
obligated to expend any funds or bring any legal, equitable or
administrative proceeding to cure any Title Objections. On or before
Closing, Seller shall, (i) at Seller's sole cost and expense, eliminate all
liens securing financial obligations encumbering the Project voluntarily
given by Seller, and (ii) at Seller's sole cost and expense, eliminate all
liens securing financial obligations encumbering Seller's interest in the
Project not voluntarily given by Seller, so long as the amount thereof does
not exceed 2% of the Purchase Price. In the event Seller delivers written
notice to Purchaser at least twenty (20) days before the Closing Date that
Seller is unable or unwilling to satisfy or cure the Title Objections
(including involuntary liens the amount of which exceeds 2% of the Purchase
Price), Purchaser may either (i) waive such objections and proceed to close
the transaction contemplated hereby or (ii) terminate this Agreement by
written notice delivered to Seller on or before the Closing Date, whereupon
this Agreement shall terminate, and upon such termination, neither Seller
nor Purchaser shall have any further obligation or liability to the other
hereunder, except those obligations which are expressly stated to survive
the termination of this Agreement.
(b) In the event that Purchaser discovers any Title Objection, Seller
shall have the right, at Seller's option, to (i) cure or correct or remove
the Title Objection or (ii) provide an acceptable indemnity covering the
risks associated with the Title Objection on the following basis, and in
such event Purchaser shall not have the right to terminate this Agreement
and the parties shall proceed, subject to the satisfaction of the
conditions of this Agreement and an extension of the Closing Date to
complete removal or correction of the Title Objection, to consummate the
transaction contemplated hereby:
(i) Seller's right to keep this Agreement in effect in respect
to its commitment to remove or correct the Title Objection shall be
subject to Purchaser's satisfaction, in its sole judgment, that the
Title Objection can be removed or cured at no cost or expense to
Purchaser and with no ongoing risk or exposure from third parties or
otherwise. To the extent that the removal or correction option is
exercised, the Closing Date shall be extended for a reasonable period
of time within which Seller shall complete the removal or correction
of the
7
<PAGE>
Title Objection at its sole cost and expense. To the extent that the
delay in the Closing Date (if necessary) causes Purchaser undo
hardship, the removal or correction alternative shall not be available
to Seller.
(ii) To the extent Seller elects to utilize the indemnity
alternative, the form and content of the indemnity and the financial
capability and stability of the indemnitor shall be subject to
Purchaser's prior approval, in its sole and absolute discretion. To
the extent that Purchaser and Seller are unable to agree upon the form
and content of an indemnity agreement or to the extent Purchaser is
unwilling to approve the financial capability of the indemnitor, the
indemnity alternative shall not be available to Seller.
(iii) In the event that the foregoing alternatives are not
available, Purchaser's election to terminate this Agreement shall
remain in effect.
Section 2.6 Additional Items Furnished to Purchaser. Within ten (10)
----------- ---------------------------------------
Business days after the Effective Date, Seller shall furnish to Purchaser, true,
correct, complete, and legible copies of the items listed on Exhibit "B"
-----------
attached hereto and made a part hereof for all purposes. In addition to the
foregoing, Seller shall make available to Purchaser for its review either at the
Project or at such other place as may be reasonably convenient to Purchaser and
Seller copies of all other records relating to the ownership and operation of
the Project, in Seller's possession or control.
Section 2.7 Estoppel Certificates. Within thirty (30) days after the
----------- ---------------------
Effective Date, Seller will deliver to each Tenant a form of Estoppel
Certificate, to be in the form and contain the content of the Estoppel
Certificate attached hereto as Exhibit "C" and made a part hereof for all
-----------
purposes, and will use its reasonable efforts to cause each Tenant to execute
and deliver to Purchaser an Estoppel Certificate on or before the Closing Date.
Section 2.8 Environmental Inspection.
----------- ------------------------
(a) Purchaser shall have the right during the period (the
"Environmental Inspection Period") ending on the expiration of the
thirtieth (30th) day following the Effective Date, to conduct, or cause to
be conducted, an Environmental Inspection (herein so called) of the Project
by an inspector or consultant selected by Purchaser. The cost and expense
of such Environmental Inspection shall be paid solely by Purchaser.
(b) Seller agrees to cooperate fully with Purchaser in the conduct of
the Environmental Inspection. In the event the results of the
Environmental Inspection disclose any deficiency in the compliance of the
Project with any applicable Environmental Law or disclose the presence of
any Hazardous Materials maintained in violation of any
8
<PAGE>
Environmental Laws, Purchaser may either (i) waive such deficiency and
consummate the transactions contemplated by this Agreement, or (ii)
terminate this Agreement, in accordance with the provisions of subparagraph
(c) below.
(c) If, during the Environmental Inspection Period, Purchaser
discovers the existence of Hazardous Materials held or maintained in
violation of any Environmental Laws, at or around the Project
("Environmental Contamination" herein), which in Purchaser's sole
discretion, judgment and opinion, make Purchaser's investment in the
Project an unacceptable risk, Purchaser shall be entitled, as its sole and
exclusive remedy, to terminate this Agreement by giving written notice to
Seller on or before the expiration of the Environmental Inspection Period,
whereupon this Agreement shall terminate, and upon such termination,
neither Seller nor Purchaser shall have any further obligation or liability
to the other hereunder.
(d) In the event that Purchaser discovers any Environmental
Contamination and in the event Purchaser elects to terminate this Agreement
in accordance with subparagraph (c) above, Seller shall have the right to
(i) remediate the Environmental Contamination or (ii) provide an acceptable
indemnity covering the risks associated with the Environmental
Contamination on the following basis, and in such event Purchaser's
election to terminate this Agreement shall be rescinded and the parties
shall proceed, subject to the satisfaction of the conditions of this
Agreement and to the extent reasonably required by Seller, an extension of
the Closing Date to complete remediation work, to consummate the
transaction contemplated hereby:
(i) Seller's right to cause Purchaser's election to terminate
this Agreement to be rescinded shall be subject to Purchaser
concluding, in its sole judgment, that the Environmental Contamination
can be remediated at no cost or expense to Purchaser and with no
ongoing risk or exposure from third parties or otherwise of the
recurrence of the Hazardous Materials in question. To the extent that
the remediation option is exercised by Seller, the Closing Date shall
be extended for a reasonable period of time within which Seller shall
complete the remediation at its sole cost and expense. To the extent
that the delay in the Closing Date causes Purchaser undo hardship, the
remediation alternative shall not be available to Seller.
(ii) To the extent Seller elects to utilize the indemnity
alternative, the form and content of the indemnity and the financial
capability and stability of the indemnitor shall be subject to
Purchaser's prior approval, in its sole and absolute discretion. To
the extent that Purchaser and Seller are unable to agree upon the form
and content of an indemnity agreement or to the extent Purchaser is
unwilling to approve the financial capability or stability of the
indemnitor, the indemnity alternative shall not be available to
Seller.
(iii) In the event that the foregoing alternatives are not
available, Purchaser's election to terminate this Agreement shall
remain in effect.
Section 2.9 Inspection.
- ----------- ----------
9
<PAGE>
(a) During the period commencing on the Effective Date and ending on
the Closing Date or the earlier termination of this Agreement, Purchaser,
upon reasonable notice to Seller, shall have reasonable access to the
Project, either personally or by authorized agent, to inspect the Project,
the items delivered pursuant to this Article II and any other documents and
records available which are normally maintained in the operation of the
Project.
(b) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Seller will cooperate fully with Purchaser,
at no cost or expense to Seller, in the conduct of Purchaser's inspection
of the Project. Such inspections (and any inspections performed in
accordance with the sentence next following) may be conducted at all
reasonable times, so long as such activities do not unreasonably interfere
with the Tenants in occupancy. Seller will permit Purchaser and current and
prospective underwriters involved in the IPO, and the agents, attorneys,
accountants, and representatives of all of the foregoing, upon reasonable
notice (but without having to obtain further approval), to enter upon and
inspect the Project, at reasonable times during normal working hours, all
premises leased to Tenants, all mechanical equipment, systems, and fixtures
forming a part thereof, and all Books and Records. Seller will permit
Purchaser and the underwriters involved in the IPO, and the agents,
attorneys, accountants, and representatives of all of the foregoing, at no
cost or expense to Seller, to audit the Books and Records, and to conduct
such investigations, tests, or inspections as Purchaser deems appropriate
including, without limitation, sampling studies to ascertain whether or not
there is any Hazardous Substance on, in, or under the Project. In
conducting any such entry, investigation, test, or inspection, no party
permitted entry hereunder will unreasonably interfere with the operation of
the Project or the peaceable possession by individual Tenants of their
respective premises. To the extent that Persons other than Purchaser join
in such inspections, Purchaser shall secure from such Persons their
agreement to hold any such information in confidence pending the closing of
the transaction contemplated hereby, with the exception of the use of such
materials during the disclosure process in connection with the IPO.
(c) Purchaser shall maintain comprehensive general liability
(occurrence) insurance in terms and amounts reasonably satisfactory to
Seller covering any accident arising in connection with the presence of
Purchaser, its agents and representatives on the Project and shall deliver
a certificate of insurance verifying such coverage to Seller prior to entry
upon the Project.
(d) Purchaser agrees to fully and completely repair and restore the
Project in the event of any damage whatsoever occurring by Purchaser,
Purchaser's Affiliates or consultants during the pendency of this
Agreement. Purchaser hereby indemnifies and holds Seller harmless from and
against any loss, damage, injury, claim or cause of action Seller may
suffer or incur as a result of Purchaser's inspections of the Project
undertaken pursuant to this Agreement. Notwithstanding anything in this
Agreement to the contrary, the indemnity set forth in this subparagraph (d)
shall survive the Closing or the termination of this Agreement.
Section 2.10 Purchaser's Acknowledgement. Purchaser acknowledges that,
------------ ---------------------------
with the exception of the representations and warranties set forth in this
Agreement, the Project shall be acquired on an "as is" "where is" basis in its
present condition, subject to reasonable use, wear, tear
10
<PAGE>
and natural deterioration between the Effective Date and the Closing Date. In
such regard, there shall be no reduction in the Purchase Price for any change in
the condition of the Project by reason of any such events, subsequent to the
Effective Date, except by reason of condemnation or casualty. Purchaser further
acknowledges that it has not been induced by nor has it relied upon any
representations, warranties or other statements, whether express or implied,
made by Seller, or any of its agents, employees or other representatives, which
are not expressly set forth in this Agreement or in the materials to be
delivered to Purchaser in accordance with the terms and provisions hereof.
ARTICLE III
THE CLOSING DATE AND THE CLOSING; OBLIGATIONS
OF PURCHASER AND SELLER WITH RESPECT THERETO
--------------------------------------------
Section 3.1 The Closing and the Closing Date. The purchase of the
----------- --------------------------------
Project contemplated by the terms and conditions of this Agreement shall be
consummated at the Closing to be held on the Closing Date.
Section 3.2 Seller's Obligations at the Closing.
----------- -----------------------------------
(a) At the Closing, Seller shall do the following:
(i) Execute, acknowledge, and deliver to Purchaser a good
and sufficient Special Warranty Deed (the "Deed") (with warranty
limited to Seller's acts) in the form approved by Purchaser and
Seller conveying the fee simple marketable title in the Land and
Improvements to Purchaser subject only to the Permitted
Exceptions.
(ii) Execute, acknowledge, and deliver to Purchaser a Blanket
Conveyance, Bill of Sale and Assignment (the "Bill of Sale"), in
the form approved by Purchaser and Seller, covering the Personal
Property, the Miscellaneous Assets and other items to be assigned
to Purchaser by Seller pursuant to the terms hereof. The Bill of
Sale (i) with respect to the Personal Property, shall contain
warranties as to title (with warranty limited to Seller's acts)
and shall contain disclaimers of warranties as to fitness or
merchantability or physical condition; and (ii) with respect to
the Miscellaneous Assets and other items, shall contain warranties
as to title (with warranty limited to Seller's acts) and shall
contain disclaimers of warranties as to assignability or fitness
or merchantability or physical condition.
(iii) Execute, acknowledge, and deliver to Purchaser an
Assignment of Tenant Leases and Assumption Agreement (the
"Assignment") in the form approved by Purchaser and Seller
covering any of the Leases and all tenant security, advance
rental, and similar refundable deposits held by Seller with regard
to or covering the Project and Purchaser shall assume all of the
responsibilities of landlord arising under the Leases from and
after the Closing Date, including, without limitation, the
obligation to return all security deposits and any interest
required to be paid thereon to Tenants on the Project to the
extent Purchaser receives a credit from Seller for such deposits
on the Closing Date.
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(iv) Execute, acknowledge and deliver an affidavit in form
reasonably acceptable to Purchaser, stating, under penalty of perjury,
Seller's U.S. taxpayer identification number and that Seller is not a
foreign person within the meaning of Section 1445 of the Internal
Revenue Code. If Seller does not deliver such an affidavit to
Purchaser at Closing, or if Purchaser has actual knowledge or receives
notice that the affidavit is false, then, in either such event,
Purchaser shall be entitled to withhold from Seller an amount equal to
ten percent (10%) of the Purchase Price, which amount Purchaser shall
report and pay over to the Internal Revenue Service within ten (10)
days after Closing as required by the Internal Revenue Code or
regulations promulgated pursuant thereto.
(v) Execute, acknowledge and deliver to Purchaser a Closing
Certificate (herein so called) which shall certify, represent and
warrant to Purchaser, as of the date of Closing, that each of the
representations and warranties contained in Article IV of this
Agreement are and continue to be true and correct on the date of
Closing in all material respects, provided, should an event occurring
during the pendency of this Agreement make any of such representations
and warranties not correct on the Closing Date, such non-compliance
shall be indicated and described on the Closing Certificate.
(vi) Credit against the Purchase Price, sums required to be so
credited to Purchaser, or paid by Seller, pursuant to this Agreement.
(vii) Deliver to Purchaser Estoppel Certificates from the
Major Tenants and the non-Major Tenants who have executed and
delivered Estoppel Certificates, and, to the extent true and correct,
a Seller's certificate, in respect to the non-Major Tenants who have
failed to deliver Estoppel Certificates, to the effect that the
information contained in the Estoppel Certificates presented to the
non-Major Tenants in question is true and correct and no known
defaults on the part of such Tenants exist or with the passage of time
will exist.
(viii) Deliver to Purchaser and the Title Company
satisfactory evidence that all necessary corporate, partnership, or
other action on the part of Seller have been taken with respect to the
consummation of the transaction contemplated hereby.
(ix) Unless previously provided to Purchaser in connection
with its inspection and approval of the Project, deliver to Purchaser
a complete set (to the extent in the possession or control of Seller)
of all architectural, mechanical, electrical, plumbing, drainage, and
similar plans and specifications used in the construction of the
Project; all keys to the Project or any part thereof; all Books and
Records; and all promotional brochures, forms, leases, posters, signs,
stationery, and similar items which relate to or are used by Seller in
the conduct of its business at the Project.
(x) Deliver to Purchaser at the Project the original executed
copies of all Leases in effect as of the Closing Date, including
amendments, together with a Rent
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Roll Certificate (in the form of the certificate approved by Purchaser
in its reasonable judgment) certified by Seller to be correct as of a
date which is not more than three (3) days prior to the Closing Date.
(xi) Deliver to Purchaser reasonably satisfactory evidence
that no other contracts which affect the Project will survive the
Closing except those contracts expressly approved by Purchaser prior
to the Closing Date.
(xii) Deliver to Purchaser reasonably satisfactory evidence
that any management agreement affecting the Project has been
terminated as of the Closing without cost to Purchaser.
(xiii) Deliver to Purchaser such other assignments and
documents as may be required pursuant to the provisions hereof or
mutually agreed by counsel for Seller and Purchaser to be necessary to
fully consummate the transaction contemplated hereby.
(b) If Seller fails or is unable to deliver any of the items set forth
in this Section 3.2 at the Closing, Purchaser may (i) elect to waive such
failure and close the transaction, or (ii) exercise any one or more of its
options under Section 6.1(b) hereof.
Section 3.3 Purchaser's Obligations at the Closing.
----------- --------------------------------------
(a) At the Closing, and upon receipt of all items to be delivered to
Purchaser under Section 3.2 above, Purchaser shall do the following:
(i) Deliver the Purchase Price in accordance with Section 1.2
hereof.
(ii) Execute and deliver to Seller copies of the Assignment
and the Bill of Sale to be executed and delivered by Seller pursuant
to Section 3.2 above, and all other documents reasonably requested by
Seller to evidence the assumption by Purchaser of all obligations
relative to outstanding tenant security deposits, Service Contracts,
Leases and other assets or contracts assigned to Purchaser by Seller,
together with Purchaser's assumption of liabilities arising from and
after the Closing Date.
(iii) Deliver to Seller and the Title Company satisfactory
evidence that all necessary corporate, partnership, or other action by
Purchaser has been taken with respect to the consummation of the
transaction contemplated hereby.
(iv) Pay, in addition to the Purchase Price, sums required to
be credited to Seller, or paid by Purchaser, pursuant to the terms of
this Agreement.
(v) Deliver to Seller such other instruments or documents as
may be required pursuant to the terms hereof or mutually agreed by
counsel for Seller and Purchaser to be necessary to fully consummate
the transaction contemplated hereby.
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<PAGE>
(b) If Purchaser fails or is unable to deliver any items set forth in
this Section 3.3 at the Closing, Seller may (i) elect to waive such failure
and close the transaction, or (ii) Seller may exercise their remedies under
Section 6.2(b) hereof.
Section 3.4 Notification to Tenants. Seller and Purchaser covenant and
----------- -----------------------
agree to execute, at Closing, a written notice of the acquisition of the Project
by the Purchaser, in sufficient copies for transmittal to all Tenants and to
other parties affected by the sale and purchase and properly addressed to all
such Tenants and other parties, in a form satisfactory to Purchaser and Seller.
Section 3.5 Escrow Closing. Notwithstanding anything herein to the
----------- --------------
contrary, Purchaser and Seller agree that the Closing may be accomplished by
delivery into escrow with the Title Company all of the documents and instruments
required to be delivered at Closing, together with the Purchase Price, whereupon
Title Company shall disburse such documents and the Purchase Price in accordance
with the terms hereof and such additional escrow instructions as Purchaser and
Seller may agree upon consistent with the terms hereof. Purchaser and Seller
agree to execute on or before the Closing sufficient copies of all closing
documents for each party to have a set of originals.
Section 3.6 Reporting Person. Each of Seller and Purchaser hereby
----------- ----------------
designates the Title Company as the "Reporting Person" as such term is utilized
in Section 6045 of the Code and regulations thereunder. Seller agrees to
provide the Title Company with such information as may be required for the Title
Company to file a Form 1099 or other required form relative to the Closing with
the Internal Revenue Service. A copy of the filed Form 1099 or other filed form
shall be provided to Seller and Purchaser simultaneously with its being provided
to the Internal Revenue Service.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 4.1 Representations and Warranties of Seller. Seller hereby
----------- ----------------------------------------
represents and warrants to Purchaser, as of the date hereof and as of the
Closing Date, the following:
(a) Seller has been duly formed and is validly existing as a
corporation under the laws of the State of Delaware, and is duly registered
or qualified to do business in the State of Maryland. The execution,
delivery and performance of this Agreement and all other documents,
instruments and agreements to be executed and delivered by the Seller
pursuant to this Agreement (collectively, "Seller's Documents") are within
the partnership power of the Seller and have been duly authorized by all
necessary and appropriate partnership action.
(b) Neither the execution and deliver of this Agreement and Seller's
Documents nor the consummation of the transaction contemplated hereby
conflict with or will result in a material breach of any of the provisions
of, or constitute a default under, (i) the partnership agreement of Seller
or (ii) any agreement or instrument to which Seller is a party or by which
it is bound. There are no actions, voluntary or involuntary, pending
against Seller under any bankruptcy, reorganization, arrangement,
insolvency or similar federal or state statute.
14
<PAGE>
(c) Seller is not a "foreign person" as defined in Section 1445(f)(3)
of the Internal Revenue Code of 1986, as amended.
(d) With respect to the Leases:
(i) As of the date of the rent roll to be delivered pursuant
to Section 2.6 hereof (the "Rent Roll"), there are no tenant leases,
tenancy agreements, licenses, occupancy agreements or any amendments,
renewals, assignments, subletting and guaranties thereof, or surrender
agreements and termination agreements related thereto, affecting the
Project, or any portion thereof, other than the Leases set forth in
----------
the Rent Roll and any subleases, licenses or occupancy agreements
which have (i) been entered into by tenants of the Project with third
parties and (ii) not been disclosed in writing to Seller.
(ii) The Rent Roll shall contain a complete and accurate list
of the names of the Tenants, the date of each Lease (and any
amendments thereto), the space covered thereby and the current rental
payable thereunder. The information contained in the Rent Roll shall
be true, complete and correct in all material respects as of the date
of the Rent Roll.
(iii) The copies of the Leases heretofore delivered by Seller
to Purchaser are true, complete and correct copies of the Leases.
(iv) Each of the Leases is in full force and effect and has
not been amended, modified or extended, except as set forth in the
Rent Roll. To Seller's Actual Knowledge, except as set forth in the
Rent Roll or otherwise disclosed to Purchaser in writing, including,
without limitation, information which is set forth in any executed
Estoppel Certificates, Seller has performed and observed in all
material respects, for all periods following the Cut Off Date, all of
(and is not in material default, excluding any grace periods, in the
performance or observance of) the terms, covenants and condition on
Seller's part to be performed or observed under the Leases. Except as
set forth in the Rent Roll or otherwise disclosed to Purchaser in
writing, Seller has not given, nor has Seller received, any written
notice of a default under any of the Leases which remains uncured.
(v) To Seller's Actual Knowledge, except as set forth in the
Rent Roll or the Leases, no Tenant under any of the Leases (a) is
currently contesting (in writing) any item of rent charged under any
of the Leases or is currently claiming (in writing) an overcharge of
operating expenses; (b) is entitled to any concessions or abatements,
rebates, set-offs or free rent with respect to any item of rent for
any period subsequent to the Closing, and all items of an inducement
nature to be performed by the landlord under the Leases prior to the
Closing Date have been performed, or (c) has any option or right of
first offer or first refusal to purchase the Project or any part
thereof.
(vi) As of the Closing Date, Seller will have paid in full, or
shall give Purchaser appropriate credit against the Purchase Price
for, all leasing, broker's or
15
<PAGE>
finder's commissions arising from Leases that were entered into,
renewed or extended prior to the Trigger Date (excluding any
commissions relating to renewal or expansion options that have been
exercised by tenants under Leases after the Trigger Date), and all
tenant finish out obligations arising from Leases that were entered
into, renewed or extended prior to the Trigger Date, that are unpaid
as of the Closing Date.
(vii) Except as noted in the Rent Roll, Seller's historical
billing practices to tenants for additional rents and percentage rents
is consistent with the requirements of each Lease.
(e) With respect to the Service Contracts:
(i) As of the date hereof, there are no written equipment
leases or service, maintenance or other similar contracts or
agreements affecting the Project, or any portion thereof, other than
(i) the Service Contracts listed in Exhibit "D" and (ii) any equipment
-----------
leases or other contracts or agreements that may have been entered
into by tenants (or subtenants of tenants) of the Project with third
parties; and
(ii) Each Service Contract is in full force and effect and has
not been amended except as set forth in Exhibit "D". Seller has not
-----------
given, nor has Seller received, any written notice of a default under
any of the Service Contract which remains uncured, except as set forth
in Exhibit "D".
-----------
(f) As of the date hereof, to Seller's Actual Knowledge, there is not
any pending, nor has Seller received written notice of any threatened:
(i) proceeding, suit or action against Seller which, if
adversely decided, would prevent or materially delay the consummation
of the transaction contemplated by this Agreement or materially
adversely affect the Project, including, without limitation, pending
or threatened suits, actions or proceedings with respect to all or
part of the Project (i) for condemnation, (ii) alleging any violation
of any Governmental Regulation, (iii) which could result in the
imposition of a lien against the Project or (iv) which could increase
real property taxes or assessments levied against the Project (other
than the normal and routine assessment and reassessment process
conducted by applicable governmental authorities), or
(ii) proceeding to change or redefine the zoning
classification applicable to any portion of the Project that would
cause the Project to become a "non-conforming" use, or
(iii) proceeding to change any road patterns or grades that
would materially adversely affect access to any roads providing a
means of ingress to or egress from the Project, or
(iv) proceeding seeking a reduction of real estate taxes
imposed on the Project or any portion thereof, or
16
<PAGE>
(v) pending imposition of any special or other assessments for
public betterments that may affect any portion of the Project or the
ownership thereof.
(g) To Seller's Actual Knowledge, the Project does not violate any
Governmental Regulation in any material respect.
(h) To Seller's Actual Knowledge all Permits required for the
continued use and occupancy of the Project (as the same is presently used
under the Leases) have been obtained from all appropriate governmental
authorities, are fully paid for, are in full force and effect, and will not
be revoked, invalidated or violated by the consummation of the transaction
contemplated by this Agreement. To Seller's Actual Knowledge, the Project
remains in compliance in all material respects with all applicable
requirements and conditions with respect to the issuance of the Permits,
which were in effect at the time of the issuance thereof.
(i) To Seller's Actual Knowledge, the current operation and use of the
Project complies in all material respects with all applicable Governmental
Regulations.
(j) Except as may be shown on or reflected in the Survey, to Seller's
Actual Knowledge, the Project has not been designated as a landmark or is
not located in a conservation or historic district or in an area that has
been identified as having special flood hazards.
(k) To Seller's Actual Knowledge, the Project is an independent unit
which, as of the date hereof, does not rely on any facilities (other than
the facilities of public utility companies) located on any property not
included in the Project to (i) fulfill the requirements of any Governmental
Regulation, (ii) provide structural support or furnish any essential
building system or utility or (iii) fulfill the requirements of any of the
Leases. No building or other improvement not included in the Project
relies on any part of the Project to (1) fulfill the requirements of any
Governmental Regulation, or (2) provide structural support or furnish any
essential building system or utility.
(l) To Seller's Actual Knowledge, for any period following the Cut Off
Date, there has not been any material damage to any portion of the Project
caused by fire or other casualty that has not been repaired or restored.
(m) To Seller's Actual Knowledge, the real property and improvements
that constitute the Project are assessed as one tax lot that is separate
and distinct from the tax lot allocated to any other parcel of land or any
other improvements.
(n) To Seller's Actual Knowledge, no Hazardous Materials have been
stored, disposed of, released or transported at or from the Project, or any
portion thereof, in violation of, or in a manner requiring remediation
under, any Environmental Laws. To Seller's Actual Knowledge, except as
otherwise disclosed in any environmental report delivered by Seller to
Purchaser with respect to the Project ("Environmental Report"), no
Hazardous Materials have been stored, disposed of, released or transported
at or from the Project, or any portion
17
<PAGE>
thereof, in violation of, or requiring remediation under, any Environmental
Laws (the foregoing representation does not apply to the customary and
ordinary application, storage and use of chemicals for landscape
maintenance, janitorial services, and pest control). Without limiting the
generality of the foregoing, to Seller's Actual Knowledge and except as
otherwise disclosed in any Environmental Report, there have been no and are
no (A) aboveground or underground storage tanks; (B) polychlorinated
biphenyls ("PCBs") or PCB-containing equipment; (C) asbestos containing
materials; (D) lead based paints; or (E) dry-cleaning facilities in, on,
under or at the Project; or (F) wetlands located on or at the Project.
(o) There is now in full force and effect with reputable insurance
companies, casualty and liability insurance policies with respect to the
Project in commercially reasonable amounts.
(p) To Seller's Actual Knowledge, the Rent Roll and the operating
statements for the Project provided by Seller to Purchaser present fairly
the financial condition of the Project as of their respective dates and the
results of the Project's operations for the periods reflected therein.
(q) Seller has no employees and is not a party to any union, labor or
collective bargaining agreement affecting the Project.
Section 4.2 Knowledge Standard. For purposes hereof, wherever the term
----------- ------------------
"Seller's Actual Knowledge" is used it shall be limited to the knowledge of
Edward J. Meylor, after due inquiry by Mr. Meylor of supervisory on-site
property management personnel at the Project. Additionally, with respect to any
information relating to periods of time prior to the period during which Seller
has owned the Project, any representation or warranty concerning such
information is being made solely based upon the knowledge of the foregoing
individuals without any obligation to undertake any independent investigation.
Notwithstanding anything herein contained to the contrary, in the event that
Purchaser has knowledge of any fact or circumstance that would make any of the
representations or warranties of Seller set forth herein untrue or incorrect and
in the event Purchaser fails to disclose to Seller such knowledge prior to
Closing, Seller shall not be deemed to be in default hereunder by reason of the
fact that such representation or warranty is in fact untrue or incorrect.
Section 4.3 Survival of Representations and Warranties. Except as
----------- ------------------------------------------
otherwise set forth herein, the representations and warranties set forth in
Section 4.1 hereof shall be continuing and shall be true and correct on and as
of the Closing Date with the same force and effect as if made at that time, and
all of such representations and warranties, other than those set forth is
subparagraphs (a), (b) and (c) above, shall survive the Closing for a period of
twelve (12) months, at which time they shall expire and terminate and be of no
further force and effect unless written notice of a claim for breach thereof has
been instituted within such twelve (12) month period. The representations and
warranties set forth is subparagraphs (a), (b) and (c) above, shall survive the
Closing without limitation of time constraints.
Section 4.4 Seller's Obligation to Notify Purchaser of Change. If, prior
----------- -------------------------------------------------
to the Closing Date, Seller becomes aware that any representation or warranty
set forth in Section 4.1 hereof which was true and correct on the date hereof
has become incorrect in any material respect, either prior to
18
<PAGE>
or at Closing, due to changes in conditions or the discovery of information by
Seller of which Seller was unaware on the date hereof, Seller shall promptly
notify Purchaser thereof and upon receipt of such notification, if such change
is material and adverse with respect to the acquisition of the Project,
Purchaser shall have the option of terminating this Agreement whereupon this
Agreement shall become null and void and of no further force or effect and
neither party shall have any further obligation one to the other. If Purchaser
does not exercise its option to terminate this Agreement by reason of any such
change in conditions, appropriate modifications shall be made in the terms
hereof to reflect the change in the conditions to the mutual satisfaction of
Seller and Purchaser.
Section 4.5 Operation of Project Prior to Closing. Seller shall (a)
----------- -------------------------------------
continue to cause its property manager to diligently operate the Improvements
and the Project in the ordinary course of business between the date hereof and
the Closing Date, (b) keep, observe, and perform or cause to be performed all of
its obligations as landlord under the Leases, (c) not terminate or cause the
termination of any Lease except as the result of the default of the Tenant
thereunder or the replacement of a suitable substitute, and (d) maintain and
operate the Project in substantially the same condition and repair as exists on
the Effective Date, reasonable wear and tear and normal replacements excepted,
such operation to include, subject to the provisions set forth in Section 1.2
hereof relating to the adjustment to the Purchase Price, (i) the continuation of
maintenance and repair programs, (ii) the expenditure of money in respect to
leasing activities consistent with current operations, (iii) the ordinary course
of business and at Seller's expense of any repairs requested by Tenants prior to
the Closing Date which are the responsibility of the landlord under the Leases.
From the date hereof through the Closing Date, Seller shall not, without the
prior written consent of Purchaser, which consent shall not be unreasonably
withheld or delayed, enter into any contracts, licenses, leases or other
agreements with respect to the Project unless the same may be terminated on or
before Closing. Seller agrees to use its good faith efforts to collect all
rental and other income prior to the Closing Date.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
Section 5.1 Conditions Precedent to Purchaser's Obligations. The
----------- -----------------------------------------------
obligations of Purchaser hereunder to consummate the transactions contemplated
hereby are subject to the satisfaction, as of the Closing Date, or within the
time periods specified herein below, of each of the following conditions (any of
which may be waived in whole or in part in writing by Purchaser at or prior to
the Closing):
(a) The representations and warranties of Seller set forth herein
shall be true in all material respects on and as of the Closing Date with
the same force and effect as if such representations and warranties have
been made on and as of the Closing Date;
(b) Seller shall have performed, observed and complied with all of the
covenants, agreements and conditions required by this Agreement to be
performed, observed and complied in all material respects with by Seller
prior to or as of the Closing Date;
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<PAGE>
(c) Purchaser shall have received and approved the Survey in
accordance with the terms Article II of this Agreement;
(d) Purchaser, on or before the expiration of the Environmental
Inspection Period, shall have performed such inspections, investigations
and tests as Purchaser desires, in accordance with the terms of Article II
of this Agreement, and Purchaser shall have determined, in Purchaser's sole
discretion, that the Project is suitable for Purchaser's intended use;
(e) The Title Company shall have delivered to Purchaser the Title
Policy or if the Title Policy is not delivered at Closing, the Title
Company shall have unconditionally obligated itself to deliver the Title
Policy within a reasonable period of time following the Closing Date, in
accordance with the terms of Article II of this Agreement;
(f) The Title Company shall have delivered to Purchaser a
certificate or such other certificates as may be acceptable to Purchaser
stating that a search has been conducted by the Title Company or another
party acceptable to Purchaser of both the state and county records in which
financing statements and security agreements are filed under the Uniform
Commercial Code of the State and that such searches indicate that, except
security interests or liens to be released at Closing, no security
interests or liens of any kind or nature, including, but not limited to,
any equipment financing or leasing arrangements, are claimed by any person
against the Personal Property or the Improvements, or any part thereof;
(g) The closing of the IPO shall have occurred;
(h) Purchaser shall have received from each Major Tenant an Estoppel
Certificate duly executed by each Tenant, without material change to the
form of Estoppel Certificate submitted to the Tenant in question; and
(i) No material adverse change in the condition or operation of the
Project as it exists on the Effective Date shall have occurred between the
Effective Date and the Closing Date, which change negatively and adversely
affects the Project in any material manner.
Section 5.2 Consequences of The Failure of Section 5.1 Conditions
----------- -----------------------------------------------------
Precedent. The consequences of the failure of the conditions precedent to
- ---------
Purchaser's obligations to consummate the transaction contemplated hereby as set
forth in Section 5.1 above are as follows:
(a) In the event that the Closing Date has been established,
Purchaser is ready, willing and able to consummate the acquisition of the
Project and the conditions set forth in subparagraphs (a) and/or (b) of
Section 5.1 have not been satisfied, Seller shall be deemed in default
hereunder and Purchaser shall have the option to either (i) waive those
conditions and proceed with the Closing or (ii) exercise it rights and
remedies set forth in Article VI.
(b) In the event (i) upon the expiration of the periods specified in
Section 2.4 hereof Purchaser has not approved the Title Report and Survey,
or (ii) on or prior to the expiration of the Environmental Inspection
Period, Purchaser has discovered Environmental
20
<PAGE>
Contamination, or (iii) on or before the Closing Date the conditions set
forth in subparagraphs (e), (f), (g), (h), or (i) of Section 5.1 above have
not been satisfied, Purchaser shall have the option to either (i) waive
those conditions and proceed with the Closing or (ii) terminate this
Agreement whereupon this Agreement shall become null and void and of no
further force or effect and neither party shall have any further obligation
one to the other.
Section 5.3 Conditions Precedent to Seller's Obligation to Close.
----------- ----------------------------------------------------
(a) Other Agreements. Notwithstanding anything to the contrary
----------------
contained herein, the obligations of Seller to consummate the transaction
contemplated hereby are expressly conditioned upon the satisfaction of the
conditions set forth in Section 9.17 hereof in respect to the consummation
of the transactions contemplated by the Other Agreements, as hereinafter
defined. In the event of the failure of such conditions, Seller shall have
the option to either (i) waive those conditions precedent and proceed with
the Closing or (ii) terminate this Agreement in which event this Agreement
shall become null and void and of no further force or effect, and neither
party shall have any further obligation one to the other, except to the
extent that any obligation survives the earlier termination of this
Agreement.
(b) Outside Closing Date. In the event (i) the condition
--------------------
precedent to Purchaser's obligations to consummate the transaction
contemplated hereby set forth in Section 5.1(g) has not been satisfied on
or before December 31, 1996, in a manner to permit the transaction
contemplated hereby and by the Other Agreements to be consummated and
funded by such date, or (ii) Purchaser has not designated a Closing Date
within a sufficient period of time to permit the timely closing of the
transaction contemplated hereby on or before December 31, 1996, or
(iii) Purchaser has not designated a Closing Date within ten (10) Business
days following the date the IPO has occurred, then in such event this
Agreement shall terminate and become null and void and of no further force
or effect on the earlier of December 31, 1996, or on the tenth (10th)
Business day following the date of the occurrence of the IPO, and neither
party shall have any further obligation one to the other.
ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
Section 6.1 Seller's Defaults; Purchaser's Remedies.
----------- ---------------------------------------
(a) Seller's Defaults. Seller shall be deemed to be in default
-----------------
hereunder in the event that any of Seller's representations hereunder are
determined to be false or misleading in any material respect or in the
event Seller shall fail in any material respect to meet, comply with, or
perform any covenant, agreement, or obligation on its part required within
the time limits and in the manner required in this Agreement.
(b) Purchaser's Remedies. In the event Seller shall be deemed to
--------------------
be in default hereunder for any other reason, by virtue of the occurrence
of any one or more of the events specified in Section 6.1(a) above,
Purchaser may at its election (i) bring suit against Seller
21
<PAGE>
to enforce specific performance of this Agreement together with such
actions as may be available at law or in equity to recover Purchaser's
actual out-of-pocket costs in the performance of reasonable due diligence
on the Project, or (ii) terminate this Agreement. If the remedy of specific
performance is not available, for any reason, Purchaser shall have no
remedy for damages other than obtaining a reimbursement of the
aforementioned out-of-pocket costs.
Section 6.2 Purchaser's Default; Seller's Remedies.
----------- --------------------------------------
(a) Purchaser's Defaults. Purchaser shall be deemed to be in
--------------------
default hereunder in the event Purchaser shall fail in any material respect
to meet, comply with, or perform any covenant, agreement, or obligation on
its part required within the time limits and in the manner required in this
Agreement.
(b) Seller's Remedy. IN THE EVENT PURCHASER SHALL BE DEEMED TO BE
---------------
IN DEFAULT AS SET FORTH IN SECTION 6.2(a) ABOVE PRIOR TO CLOSING AND SELLER
DOES NOT WAIVE SUCH DEFAULT, SELLER, AS SELLER'S SOLE AND EXCLUSIVE REMEDY
FOR SUCH DEFAULT, SHALL BE ENTITLED TO RETAIN THE INDEPENDENT
CONSIDERATION, IT BEING AGREED BETWEEN PURCHASER AND SELLER THAT SUCH SUM
SHALL BE LIQUIDATED DAMAGES FOR SUCH DEFAULT OF PURCHASER BECAUSE OF THE
DIFFICULTY, INCONVENIENCE AND UNCERTAINTY OF ASCERTAINING ACTUAL DAMAGES
FOR SUCH DEFAULT. IN PLACING THEIR INITIALS AT THE PLACES PROVIDED, EACH
PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND
THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED THE
CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME THIS
AGREEMENT WAS MADE. NOTWITHSTANDING THE FOREGOING, THE PROVISIONS OF THIS
SECTION 6.2(b) SHALL NOT LIMIT IN ANY MANNER PURCHASER'S INDEMNITY
OBLIGATIONS SET FORTH IN SECTIONS 8.1 OR 8.3 HEREOF.
SELLER'S INITIALS:
-----------
PURCHASER'S INITIALS:/s/ TFA
----------
Section 6.3 Attorneys' Fees. Should either party employ an attorney or
----------- ---------------
attorneys to enforce any of the provisions hereof or to protect its interest in
any manner arising under this Agreement, the non prevailing party in any action
pursued in courts of competent jurisdiction (the finality of which is not
legally contested) agrees to pay to the prevailing party all reasonable costs,
damages, and expenses, including attorneys' fees, expended or incurred in
connection therewith.
22
<PAGE>
ARTICLE VII
CLOSING COSTS; PRORATIONS
-------------------------
Section 7.1 Closing Costs. Costs of closing the transaction contemplated
----------- -------------
hereby shall be allocated between Seller and Purchaser as follows:
(a) Seller shall pay the costs, if any, by Seller in connection
with the performance of its obligations hereunder.
(b) Purchaser shall pay (i) the premium for the Title Policy
(including all charges for the coverages and/or deletions set forth in
Section 2.2 hereof), (ii) the cost of the Survey, (iii) the cost of
recording the Deed and any other conveyance documents that Purchaser may
choose to record, (iv) any escrow fee or similar charges of the Title
Company, (v) the costs incurred in respect to any transfer, deed, stamp or
other similar conveyance taxes, and (vi) the costs, if any, incurred by
Purchaser in connection with the performance of its obligations hereunder.
(c) All other expenses incurred by Seller or Purchaser with
respect to the Closing, including, but not limited to, attorneys' fees of
Purchaser and Seller, shall be borne and paid exclusively by the party
incurring same, without reimbursement, except to the extent otherwise
specifically provided herein.
Section 7.2 Proration of Income and Expenses. The following items shall
----------- --------------------------------
be adjusted or prorated between Seller and Purchaser at the Closing effective as
of the Closing Date:
(a) Ad valorem and similar taxes for the then current tax period
relating to the Project shall be prorated. If the Closing occurs before
the tax rate is fixed for the then current tax year, the apportionment of
taxes shall be made on the basis of the tax rate for the preceding tax year
applied to the latest assessed valuation of the Project, and when the tax
rate is fixed for the tax year in which the Closing occurs, Seller and
Purchaser hereby agree, one to the other, to adjust the proration of taxes
and, if necessary, to refund or pay such sums to the other party as shall
be necessary to effect such adjustment. Seller shall promptly reimburse
Purchaser for the portion of all supplemental taxes hereafter assessed
against the Project which are attributable to the period prior to the
Closing Date. All unpaid installments relating to special assessments shall
be paid by Seller at Closing. To the extent any installments of special
assessments are incurred or levied from and after the Trigger Date and are
due and payable subsequent to the Closing Date, such installments shall be
borne by Purchaser.
(b) Purchaser shall receive a credit against the cash portion, if
any, of the Purchase Price equal to the aggregate amount of rentals or
other income of the Project, utility charges, tenant reimbursements and
other similar amounts payable to the owner of the Project, howsoever
denominated, previously collected by Seller which, as of the Closing Date,
represent advance payments attributable to periods after the Closing Date.
23
<PAGE>
(c) Any rental or other income, including, but not limited to,
utility charges, tenant reimbursements, and other amounts payable to the
owner of the Project, howsoever denominated, which are payable for periods
prior to the Closing but which, as of the Closing Date have not been
received by Seller, whether because such amounts are delinquent or because
such amounts are not yet due, shall not be prorated at Closing but shall be
adjusted, as soon as reasonably possible, after the Closing but as of the
Closing Date, when and if such amounts are received by Purchaser.
(d) At the Closing, Purchaser shall receive a credit against the
cash portion, if any, of the Purchase Price equal to the amount of any and
all deposits paid to Seller by Tenants of the Project which have not been
applied by Seller to Tenant's obligations prior to the Closing Date,
including, but not limited to, all refundable rental deposits and security
deposits, as well as for the amount of any unpaid bills relating to periods
prior to the Closing Date for which Purchaser will be responsible after the
Closing.
(e) All other income and operating expenses for or pertaining to
the Project, including, but not limited to, maintenance, security,
management, service, and similar contractual charges, and all other
operating charges with respect to the Project shall be prorated between
Purchaser and Seller at the Closing effective for all purposes as of the
Closing Date. Utility charges shall not be prorated. Appropriate
arrangements shall be made with the providers of utility services for
Purchaser to engage such services in its own name effective on the Closing
Date. Any deposits held by such utility providers shall be returned to
Seller and/or replaced by Purchaser.
(f) Any commission or referral fees with respect to the Leases or
other rental agreements for the Project, which were due prior to the
Trigger Date, relating to the initial term of the Lease in question or any
renewal period for which the renewal option has been exercised prior to the
Trigger Date, will be paid or otherwise discharged or released by Seller on
or before the Closing Date. Purchaser shall be responsible for and
covenants to pay commissions or referral fees with respect to any Leases or
other rental agreements for the Project, including any present or future
renewals thereof, that are in effect on or after the Closing Date, with the
exception of Leases executed or renewals exercised during the period
beginning on the Trigger Date and ending on the Closing Date which have
been approved by Purchaser. Purchaser shall expressly assume and hold
Seller harmless from and against the obligations of the landlord under the
Leases in respect to the payment of any leasing commissions which may
become due and payable upon the exercise of any renewal or extension
options contained in the Leases which are exercised from and after the
Trigger Date.
(g) Any unpaid sums due with respect to tenant improvement for
Leases entered into prior to the Trigger Date shall be paid in full by
Seller at Closing. Tenant improvement costs for Leases entered into
subsequent to the Trigger Date, which have been approved by Purchaser,
shall be borne by and shall be the responsibility of Purchaser.
Section 7.3 Post-Closing Adjustments. Within ninety (90) days following
----------- ------------------------
the Closing Date, or as soon thereafter as may be reasonably practical, Seller
and Purchaser agree that, to the
24
<PAGE>
extent items are prorated or adjusted at Closing on the basis of estimates, or
are not prorated or adjusted at Closing pending actual receipt of funds or
compilation of information upon which such prorations or adjustments are to be
based, each of them will, upon a proper accounting, pay to the other amounts as
may be necessary such that Seller will receive the benefit of all income and
will pay all expenses of the Project prior to the Closing Date and Purchaser
will receive all income and will pay all expenses of the Project on or after the
Closing Date. If on or after the Closing Purchaser receives any bill or invoice
all or a portion of which relates to periods prior to the Closing Date,
Purchaser will refer such bill (or the portion thereof that relates to periods
prior to the Closing Date) to Seller and Seller agree to pay such bill or
invoice (or portion thereof) promptly upon receipt. If Seller do not pay such
bill (or portion thereof) in a timely manner, Purchaser may, at its option, pay
such bill or invoice and Seller shall become liable to Purchaser for the full
amount of such payment. If on or after the Closing Seller receives any bill or
invoice which relates to periods on or after the Closing Date, Seller will refer
such bill to Purchaser, accompanied by Seller's check representing payment for
the allocable portion of such bill, if any, representing charges relating to
periods prior to the Closing Date, and Purchaser agrees to pay such bill or
invoice promptly upon receipt. If Purchaser does not pay such bill in a timely
manner, Seller may, at its option, pay such bill or invoice and Purchaser shall
become liable to Seller for the full amount of such payment.
Section 7.4 Delinquent Rents. Any rents or other amounts which are
----------- ----------------
delinquent as of the Closing shall not be adjusted or prorated at Closing, but
Purchaser shall make a reasonable attempt to collect such amounts for the
benefit of Seller after the Closing; provided, however, that nothing contained
herein shall be construed to require Purchaser to institute any lawsuit or other
proceedings to collect such delinquent amounts. In this connection, the first
monies collected by Purchaser from Tenants or other persons owing delinquent
rents or other amounts shall be applied to the current rents or obligations of
such person. Purchaser need not attempt to collect any amount which is more than
ninety (90) days past due and may refer the same to Seller for disposition or,
at the request of Seller, Purchaser shall assign the same to Seller and
Purchaser will cooperate with Seller in the collection thereof so long as
Purchaser is not obligated to incur any cost or expense in regard thereto.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Brokerage Commissions. Each party hereto represents and
----------- ---------------------
warrants to the other that such party has incurred no liability to any real
estate broker or agent with respect to the payment of any commission regarding
the consummation of the transaction contemplated hereby. It is agreed that if
any claims for commissions or fees, including, without limitation, brokerage
fees, finder's fees, or commissions, are ever made against Seller or Purchaser
in connection with this transaction, all such claims shall be handled and paid
by the party whose actions or alleged commitments form the basis of such claim
and such party shall indemnify and hold harmless the other from and against all
such claims or demands with respect to any brokerage fees, finder's fees, or
agents' commissions or other compensation asserted by any person, firm, or
corporation in connection with this Agreement or the transactions contemplated
hereby. The provisions of this Section 8.1 shall expressly survive the early
termination of this Agreement.
25
<PAGE>
Section 8.2 Seller's Indemnity. Seller shall indemnify and hold Buyer
----------- ------------------
harmless from and against all loss, expense (including, without limitation,
court costs and reasonable attorneys' fees), damage and liability resulting from
(a) claims of mechanics and materialmen based on work performed on or contracted
for the Project by Seller prior to the Closing Date, (b) claims for personal
injury, wrongful death or property damage against Buyer or the Project based on
causes of action arising prior to the Closing Date, (c) claims by (i) tenants
under any of the Leases assumed by Purchaser pursuant to the Assignment
(including, without limitation, claims relating to security deposits, if any,
other than those paid over by Seller to Buyer at the Closing) or (ii)
contractors under any of the Service Contracts assumed by Purchaser, all with
respect to matters that occurred prior to the Closing Date and (d) the
inaccuracy of any representation or warranty made by Seller in this Agreement
which survives the Closing; provided notice of such inaccuracy is given to
Seller prior to the expiration of the applicable period of survival.
Section 8.3 Purchaser's Indemnity. Purchaser shall indemnify and hold
----------- ---------------------
Seller harmless from and against all loss, expense (including, without
limitation, court costs and reasonable attorneys' fees), damage and liability
resulting from (a) claims of mechanics and materialmen based on work performed
on or contracted for the Project by Purchaser on or after the Closing Date,
(b) claims for personal injury, wrongful death or property damage against Seller
or the Project based on causes of action arising on or after the Closing Date,
(c) claims by (i) tenants under any of the Leases assumed by Purchaser pursuant
to the Assignment or (ii) contractors under any of the Service Contracts assumed
by Purchaser, all with respect to matters that occurred on or after the Closing
Date and (d) the inaccuracy of any representation or warranty made by Purchaser
in this Agreement and which survives the Closing; provided notice of such
inaccuracy is given to Purchaser prior to the expiration of the applicable
period of survival.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Survival of Terms. Except to the extent otherwise expressly
----------- -----------------
provided for herein, the terms and provisions hereof shall not survive the
Closing. The acceptance of the deed and other closing documents by Purchaser and
payment of the Purchase Price shall be deemed full compliance by Seller and
Purchaser of all of their respective obligations arising under this Agreement
and both Seller and Purchaser expressly waive any and all noncompliance by the
other party with respect to any prior obligations other than those obligations
which expressly survive the Closing.
Section 9.2 Binding Effect. This Agreement shall be binding upon and
----------- --------------
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
Section 9.3 Entire Agreement; Modifications. This Agreement embodies and
----------- -------------------------------
constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged, or terminated except by an instrument in
writing signed by the party against which the enforcement of such waiver,
26
<PAGE>
modification, amendment, discharge, or termination is sought, and then only to
the extent set forth in such instrument.
Section 9.4 Headings. The headings contained in this Agreement are for
----------- --------
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
Section 9.5 Interpretation and Construction.
----------- -------------------------------
(a) Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female gender
and the neuter, and vice versa.
(b) The terms and provisions of this Agreement represent the
results of negotiations between Seller and Purchaser, each of which has
been represented by counsel of its own selection, and neither of which has
acted under duress nor compulsion, whether legal, economic or otherwise.
Consequently, the terms and provisions of this Agreement shall be
interpreted and construed in accordance with their usual and customary
meanings, and Seller and Purchaser hereby expressly waive and disclaim, in
connection with the interpretation and construction of this Agreement, any
rule of law or procedure requiring otherwise, including without limitation,
any rule of law to the effect that ambiguous or conflicting terms or
provisions contained in this Agreement shall be interpreted or construed
against the party whose attorney prepared this Agreement or any earlier
draft of this Agreement.
Section 9.6 Notice. Whenever this Agreement requires or permits any
----------- ------
consent, approval, notice, request or demand from one party to the other
(collectively, "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee. The following shall be prima facia evidence of actual receipt of
Notice by the addressee: (a) if mailed, by a United States certified mail
return receipt, signed by the addressee or the addressee's agent or
representative, (b) if by telegram, by a telegram receipt signed by the
addressee or the addressee's agent or representative, (c) if hand delivered
(including delivery by any overnight or other delivery service), by a delivery
receipt signed by the addressee or the addressee's agent or representative, or
(d) if sent by facsimile transmission, with confirmation of receipt at the
facsimile number to which it was sent. Each party's initial address for
delivery of any Notice is designated below, but any party from time to time may
designate a different address for delivery of any Notice by delivering to the
other party Notice of such different address; provided, however, neither party
may designate an address for delivery of Notice not located within the United
States. Each party hereto covenants and agrees to mail copies of any Notice to
the parties designated to receive copies of any Notice below, but the failure of
the addressee for any copy actually to receive such copy shall not render the
Notice ineffective.
27
<PAGE>
If to Seller: Edward J. Meylor
Lehman Brothers Inc.
3 World Financial Center, 12th Floor
New York, New York 10285
Telephone No.: (212) 526-2122
Fax No.: (212) 528-6680
With copies to: James J. Thomas, Esq.
Windels, Marx, Davies & Ives
156 West 56th Street
New York, New York 10019
Telephone No.: (212) 237-1000
Fax No.: (212) 262-1215
If to Purchaser: Mr. Thomas F. August, President
Prentiss Properties Limited, Inc.
Suite 5000
1717 Main Street
Dallas, Texas 75201
Telephone No.: (214) 761-5009
Fax No.: (214) 748-1742
With copies to: Lawrence J. Brannian, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Telephone No.: (214) 969-2808
Fax No.: (214) 969-4343
Section 9.7 Assignment of Trade Name. At the Closing, Seller shall assign
----------- ------------------------
to Purchaser the right to use the Trade Name and all derivatives thereof in
connection with the conduct and operation of the Project, but such assignment
shall be made without representation or warranty or recourse and shall be
nonexclusive; provided, however, Seller agrees not to use or further assign the
Trade Name.
Section 9.8 Right to Possession. At the Closing and as a condition
----------- -------------------
thereto, Purchaser shall have full and unrestricted right to possession of the
Project subject to existing Leases and applicable laws and regulations of
government authorities having jurisdiction over the Project, and Seller will do
such reasonable acts, execute such instruments, and take such action as may be
appropriate or required to assure to Purchaser possession of the same.
Section 9.9 Additional Acts. In addition to the acts and deeds recited
----------- ---------------
herein and contemplated to be performed, executed, and/or delivered by Seller or
Purchaser, Seller and Purchaser hereby agree to perform, execute, and/or deliver
or cause to be performed, executed, and/or delivered at the Closing or
thereafter, all such further acts, deeds, and assurances as Purchaser
28
<PAGE>
or Seller, as the case may be, may reasonably require to (i) evidence and vest
in the Purchaser the ownership of, and title to, the Project, and
(ii) consummate the transactions contemplated hereunder.
Section 9.10 Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND
------------ --------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND.
Section 9.11 Risk of Loss.
------------ ------------
(a) Risk of loss or damage to the Project by condemnation,
eminent domain, or similar proceedings (or deed in lieu thereof), or by
fire or any other casualty, from the date hereof through the time of
delivery of the Deed will be on Seller and, thereafter, will be on
Purchaser.
(b) In the event of loss or damage to the Project by reason of
condemnation or eminent domain proceedings (or deed in lieu thereof), or by
fire or any other casualty, which occurs prior to the Closing Date, if the
cost to repair such loss or damage is less than $100,000.00, so long as no
portion of the Improvements or the parking areas have been taken and no
means of access to the Project has been blocked or substantially impaired,
the transaction contemplated hereby shall be consummated, and Seller shall
assign to Purchaser all insurance proceeds or condemnation awards,
excluding proceeds of rental insurance for any period prior to Closing,
which can then be used by Purchaser to repair such damage or casualty. If
such insurance proceeds or condemnation awards are insufficient to allow
Purchaser to repair such damage or destruction to the condition of the
Project prior to the damage, Seller shall pay over to Purchaser, either
directly or by credit on the Purchase Price, such additional sums of money
as may be necessary to complete such repair. In such event, Seller shall
have no additional obligation other than to pay the deductibles in
connection therewith.
(c) If the cost to repair such damage or destruction exceeds
$100,000.00, or, if any part of the Improvements or the parking area has
been taken by condemnation or eminent domain proceedings (or deed in lieu
thereof) or if any means of access to the Project has been blocked or
substantially impaired by any such taking, Purchaser may, at its option,
elect to terminate this Agreement, or Purchaser may consummate the
transaction and receive an assignment of all proceeds of insurance or
condemnation awards attributable to such damage. In such event, even if
such insurance or condemnation proceeds shall be assigned to Purchaser,
Seller shall have no additional obligation if such insurance proceeds or
condemnation awards are insufficient to repair such damage other than to
pay any deductibles in connection therewith and Purchaser shall not be
entitled to any credit or reduction in the Purchaser Price.
Notwithstanding the foregoing, in the event of such damage or destruction
in excess of $100,000.00 resulting from fire or other casualty, in the
event such damage or destruction can be repaired within ninety (90) days
following the scheduled Closing Date, Seller shall have the right (but not
the obligation) in the exercise of its sole and absolute discretion to
extend the Closing Date for a period not to exceed ninety (90) days, in
which event Purchaser shall not have the right to terminate this Agreement
and Seller shall repair such damage or destruction, at its sole cost and
expense, without regard to the availability of insurance proceeds.
29
<PAGE>
(d) Notwithstanding anything to the contrary herein, if any eminent
domain proceeding is instituted (or notice of which shall be given) solely
for the taking of any subsurface rights for utility easements or for any
right-of-way easement, and the surface may, after such taking, be used in
substantially the same manner as though such rights had not been taken,
Purchaser shall not be entitled to terminate this Agreement as to any part
of the Project, but any award to which Seller in entitled to receive and
which is actually received by Seller resulting therefrom (excluding any
proceeds relating to loss of rental income for periods prior to the Closing
Date) shall be assigned and delivered to Purchaser at Closing and shall be
the exclusive property of Purchaser upon Closing.
Section 9.12 Assignment. Purchaser shall have the right, without the
------------ ----------
consent of Seller, to assign its rights under this Agreement and all rights
hereunder to the PPL REIT or to any entity in which the PPL REIT has a
controlling interest. Upon such assignment Purchaser shall be relieved of its
obligations hereunder, so long as the PPL REIT or any entity in which the PPL
REIT has a controlling interest assumes all obligations of Purchaser hereunder
and confirms all undertakings or representations of Purchaser hereunder. No
other assignment may be made without the prior written consent of Seller.
Section 9.13 Time of the Essence. Time is of the essence in this
------------ -------------------
Agreement. In the event that the date for performance of any obligation
hereunder, or the giving of any notice hereunder, falls on a day other than a
Business day, the period for such performance, or the giving of any notice
hereunder shall be extended to the end of the next Business day.
Section 9.14 Conditions. All covenants, warranties and obligations of
------------ ----------
Seller or Purchaser contained in this Agreement are deemed to be conditions to
the other party's obligations herein. All conditions to Purchaser's or Seller's
obligations, whether specifically stated in this Agreement or pursuant to the
preceding sentence, and all rights of Purchaser or Seller herein are imposed
solely and exclusively for the benefit of the other party and their respective
assigns and any or all of such conditions or rights may be waived in whole or in
part by the party in question at any time in such party's sole discretion.
Section 9.15 Severability. If any provision in this Agreement is invalid,
------------ ------------
illegal, or unenforceable, such provision shall be construed as narrowly as
possible to allow Purchaser and Seller to be afforded the benefits and
protection of this Agreement. Such provision shall be severable from the rest
of this Agreement and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and shall
continue in full force and effect.
Section 9.16 Counterparts. Two or more duplicate originals of the written
------------ ------------
instrument containing this Agreement may be signed by the parties, each of which
shall be an original but all of which together shall constitute one and the same
agreement.
Section 9.17 Acquisition of Other Projects.
------------ -----------------------------
(a) Seller or Seller's Affiliates have entered into certain other
agreements with Purchaser (the "Other Agreements") for the purchase of the
real estate or partnership
30
<PAGE>
interests listed on Exhibit "E" attached hereto (said properties and
-----------
interests being designated on Exhibit "E" as "Large Properties" or "Small
-----------
Properties" and being herein collectively called "Other Properties").
Subject to the exceptions set forth in subparagraph (b) below, Seller's
obligation to consummate the transaction contemplated by this Agreement is
expressly conditioned upon the acquisition by Purchaser of all of the Other
Properties simultaneously with the Closing of the Project (the
"Simultaneous Closing Condition").
(b) Notwithstanding the existence of the Simultaneous Closing
Condition, in the event Purchaser refuses to close any of the Other
Properties and terminates the applicable Other Agreement for a Permitted
Reason (defined below), by delivering a notice of intent to terminate such
Other Agreement, the provisions of (c) or (d) of this Section shall apply.
The term "Permitted Reason" shall mean either: (i) Seller's default as
contemplated by Section 6.1(a) of the applicable Other Agreement; (ii) a
Title Objection which is not cured within the time periods provided by such
Other Agreement; (iii) an Environmental Contamination has been discovered
in respect to the Other Property covered by such Other Agreement; or (iv)
the failure of any material condition listed in Section 5.1 of such Other
Agreement and Purchaser's election to terminate the applicable Other
Agreement in accordance with Section 5.2 thereof. Seller has the right to
cure any Permitted Reason under the terms and within the time periods
provided in the applicable Other Agreement. Seller's right to cure shall
not delay Closing under this Agreement or any Other Agreements not affected
by a Permitted Reason.
(c) If the Other Agreement which Purchaser seeks to cancel for a
Permitted Reason pertains to a Large Property, Seller shall have the right
to terminate this Agreement and all Other Agreements (pertaining to both
large Properties and Small Properties) by giving written notice to
Purchaser of such election within five (5) days following Purchaser's
election to terminate the applicable Other Agreement and each of the
parties rights and obligations arising under this Agreement shall be null
and void except for those rights or obligations which expressly survive the
termination of this Agreement.
(d) If the Other Agreement which Purchaser seeks to cancel for a
Permitted Reason pertains to a Small Property, Seller shall not have the
right to terminate this Agreement or any Other Agreement based on
Purchaser's cancellation of the Other Agreement and the transactions
contemplated hereby and by the remaining Other Agreements shall be
consummated in accordance with their respective terms and conditions.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLER:
------
PROPERTY ASSET MANAGEMENT INC.,
a Delaware corporation
By:/s/ Yon Cho
---------------------------------
Name: Yon Cho
-------------------------------
Title: Vice President
------------------------------
Date of Execution: August 30, 1996
PURCHASER:
---------
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By:/s/ Thomas F. August
---------------------------------
Name: Thomas F. August
-------------------------------
Title: President
------------------------------
Date of Execution: August 30, 1996
<PAGE>
EXHIBIT "A"
-----------
DESCRIPTION OF THE LAND
-----------------------
All that certain 6.6497 acres of land out of the John Reinerman Survey, A-642,
Houston, Harris County, Texas and being more particularly described by metes and
bounds as follows:
Commencing at a found 3/4" iron rod marking the northwest corner of that certain
13.3292 acres of land described in deed dated December 19, 1978 from William
Marsh Rice University and Brandes Properties, Ltd. to Crow-west Loop Business
park No. 2, filed in the Official Public Records of Real property of harris
County, Texas, at Clerk's File Nos. F899521 and F899522, Film Code Nos.
###-##-#### and ###-##-####;
THENCE S 00-degrees 14 minutes 00 seconds E - 560.57 feet to a set "X" in
concrete marking the POINT of BEGINNING of the herein described parcel;
THENCE S 89 degrees 26 minutes, 00 seconds E - 384.42 feet to a set 5/8" iron
rod marking the Point of Curvature of a curve to the right having a central
angle of 20 degrees 00 minutes 00 seconds, a radius of 135.00 feet;
THENCE along said curve for an arc distance of 47.12 feet to a set 5/8" iron rod
marking the Point of Tangency;
THENCE 69 degrees 26 minutes 00 seconds E - 27.00 feet to a set 5/8" iron rod
for an angle point;
THENCE 89 degrees 26 minutes 00 seconds E - 230.14 feet to a set "X" in concrete
for corner;
THENCE N 00 degrees 34 minutes 00 seconds E - 113.87 feet, along the west line
of that certain 2.1775 acres of land described in the deed dated May 27, 1983
form Crow-Simmons-Strong Ltd. #3 to Crow-Strong-Decker Ltd. filed in the
Official Public Records of Real Property of Harris County, Texas At Clerk's File
No. J006560, Film Code No. 050-860-1341 to a found 5/8" iron rod for corner;
THENCE 89 degrees 26 minutes 00 seconds E - 303.41 feet, along the north line of
said 2.1775 acre parcel, to a found 5/8" iron rod for corner;
THENCE South 311.23 feet, along the east line of said 2.1775 acre parcel, to a
set 5/8" iron rod for corner;
THENCE S 89 degrees 28 minutes 09 seconds E - 391.35 feet to a set 5/8" iron rod
for corner;
THENCE S 00 degrees 01 minutes 11 seconds W - 41.00 feet, along the west right
- -of-way line of Interstate 610 (West Loop North) (350 feet wide), to a set 5/8"
iron rod for corner;
1
<PAGE>
THENCE N 89 degrees 26 minutes 00 seconds W - 804.49 feet, along the most
southerly line of said 13.3292 acre tract, to a found "PK" nail for angle point;
THENCE N 75 degrees 50 minutes 58 seconds W - 25.74 feet to a found "X" in
concrete for angle point;
THENCE N 88 degrees 53 minutes 27 seconds W - 393.75 feet to a set 5/8" iron rod
for angle corner;
THENCE S 87 degrees 44 minutes 57 seconds W - 157.75 feet to a set "X" in
concrete for corner;
THENCE N 00 degrees 14 minutes 00 seconds W - 253.48 feet, along the east right
- -of-way line of North Post Oak Road(80 foot wide), to the Point of Beginning and
containing 6.6497 acres (289,662 square feet) of land.
Together with all right, title and interest in and to that certain non-exclusive
perpetual Easement Agreement recorded in the Official Public Records of Real
Property of Harris County, Texas, as follows:
Joint Use Access Easement Agreement dated April 10, 1980, recorded under Harris
County Clerk's File No. G496772, being amended and restated in that instrument
dated August 21, 1984, filed for record under Harris County Clerk's File No.
J757374.
2
<PAGE>
EXHIBIT "B"
-----------
ADDITIONAL ITEMS FURNISHED TO PURCHASER
---------------------------------------
1. The standard form tenant lease used for renting space in the Project.
2. A Rent Roll (herein so called) certificate (with current rent roll
attached) for the Project containing the following information with respect to
each tenant lease: (i) the space occupied thereby (square feet), (ii) tenant's
name, (iii) the commencement date thereof and the term thereof, (iv) the rents
and other charges payable thereunder and the actual collections thereunder, (v)
any rents or other charges in arrears or prepaid thereunder and the period for
which such rents and other charges are in arrears or have been prepaid, (vi) the
amount of the security deposit or any other deposit thereunder, (vii) any free
rent, concessions, rebates, refunds, or other inducements, (ix) any options
provided thereunder, and (x) any unpaid leasing commissions. The Rent Roll shall
be accompanied by Seller's signed certification that, to the best of Seller's
knowledge, the Rent Roll is true, complete, and correct as of the date shown on
the Rent Roll and that, to the best of Seller's knowledge, there has been no
material adverse change with respect to any item shown on the Rent Roll during
the period from the date thereof to the date of such certificate, except as
shown thereon;
3. All management, service supply, security, maintenance and other
contracts and agreements, oral or written, with respect to the Project which
will survive the Closing Date and affect the Project or Purchaser's ownership
thereof.
4. To the extent reasonably available to Seller, all Permits with respect
to the ownership and operation of the Project, including, but not limited to,
all certificates of occupancy and building permits for the Improvements, any
specific use permits, conditional use approvals, special exceptions, variances,
or other permits, licenses, or approvals (including drawings and enacting
ordinances, if any) of any kind required under any Governmental Regulations and
all notices received by or in the possession of Seller from governmental
instrumentalities with respect to any such Permits or compliance of the Project
with any Governmental Regulations, and any response thereto from or in the
possession of Seller; and all materials, including applications, ordinances and
legal opinions, in the possession of Seller relating to the zoning and platting
of the Project.
5. Evidence of the total amount of real estate and personal property
taxes on the Project or any portions thereof for the last two tax years and the
estimated taxes due for the current tax year;
6. To the extent reasonably available to Seller, evidence of all utility
charges paid by Seller with respect to the Project during the twelve (12) month
periods ending December 31, 1994 and 1995 and the four month period ending April
30, 1996.
7. An itemized list of all Personal Property.
1
<PAGE>
8. To the extent reasonably available to Seller, operating statements
showing all income and expenses, profits and losses of the Project for the
calendar years ending December 31, 1993, 1994 and 1995, which operating
statements shall reflect all income and expense from operations including (i) ad
--
valorem taxes for the City, County and State; (ii) accrual for annual insurance
- -------
premiums for such periods for fire, extended coverage, workman's compensation,
vandalism, and malicious mischief, general liability, rents, and other forms of
insurance shown thereon; (iii) expenses incurred for such period for water,
electricity, natural gas and other utility charges; (iv) other operating
expenses; (v) expenses incurred in respect to routine repair and maintenance and
expenses which are capital in nature, (vi) total rents collected from tenants
for such periods; and (vi) other revenue collected and the nature of such
revenue;
9. Copies of any and all correspondence, engineering reports, inspection
reports, inspections, environmental assessments (Phase I or Phase II), soil
tests, asbestos surveys, notices or other materials and other written
documentation in Seller's possession or which are readily available to Seller or
in the possession of Seller or their agents or consultants regarding or
evidencing the presence, or lack thereof, on the Project or released from
adjacent properties or released from the Project of any Hazardous Materials; and
copies of any and all written reports of any compliance or regulatory audit,
inspection, or investigation of the structural, soil, or environmental condition
of the Project ordered by or in the possession of Seller.
10. To the extent in Seller's possession, a copy of the final set of plans
and specifications for the Project.
11. All Leases with respect to the Project, including any and all
modifications, supplements, or amendments thereto, and evidence sufficient to
allow Purchaser to determine the "base amount" or "base year" of any common area
maintenance charges, ad valorem taxes, or any other charges which, under the
Leases, are to be paid by the tenants on the basis of increases in such charges
over such "base."
12. All warranties and guaranties relating to the Project, or any part
thereof, or to the tangible personal property and fixtures owned by Seller and
located on, attached to, or used in connection with the Project.
13. All of Seller's fire, hazard, liability, and other insurance policies
currently in force with respect to the Project.
14. All leasing or other commission agreements with respect to the
Project.
15. Any other documents or reports ordered by or in the possession of
Seller that are material to the physical, economic, or legal condition of the
Project.
2
<PAGE>
EXHIBIT "C"
-----------
TENANT'S ESTOPPEL CERTIFICATE
-----------------------------
TO: Prentiss Properties Limited, Inc. ("Prospective Purchaser")
THIS IS TO CERTIFY THAT:
1. The undersigned is the tenant under that certain lease dated ______________
("Lease") by the between ________________, as landlord ("Landlord") and
_________________, as tenant ("Tenant"), with respect to that certain
premises located at ________________________, (the "Premises") consisting
of __________________ square feet.
2. The Lease is valid and in full force and effect on the date hereof. The
Lease represents the entire agreement between the Landlord and the Tenant
with respect to the Premises, and is the only agreement between the
Landlord and the Tenant affecting or relating to the Premises. The Lease
has not been modified, changed, altered, assigned, supplemented or amended
in any way (except as indicated herein):
__________________________________________________________________________
__________________________________________________________________________
3. Tenant has the following options to extend the term of the Lease:
__________________________________________________________________________
___________________________________________________(if none, state "none").
4. Tenant has the following options to lease additional space in the Building:
__________________________________________________________________________
___________________________________________________(if none, state "none").
5. Tenant has no right to purchase the Property.
6. Tenant has accepted and now occupies the Premises, and is and has been
conducting its business in the Premises since __________________, 19___.
The commencement date of the Lease term occurred on _______________, 19___,
and the expiration date of the Lease term (other than unexercised options
to extend the Lease) will occur on _______________________.
7. Landlord has complied with all of its construction and other obligations
under the Lease to this date, and Tenant is fully obligated to pay, and is
paying, the rent and other charges due thereunder, and is fully obligated
to perform, and is performing, all of the other obligations of Tenant under
the Lease without right of counterclaim, offset or defense, except as
specifically provided in the Lease.
1
<PAGE>
8. No one except the Tenant and its employees occupies the Premises. Tenant
has not sublet the Premises or any part thereof or assigned any of its
rights under the Lease except as indicated herein:________________________
__________________________________________________________________________
___________________________________________________(if none, state "none").
9. Tenant has paid rent for the Premises for the period up to and including
____________. The current rent payable by Tenant is $__________________
per month. The current common area maintenance and other charges payable
by Tenant (including the Tenant's share of real estate taxes, insurance and
operating expenses) is $_________________ per month. No such rent has been
paid more than one (1) month in advance of its due date except as indicated
herein:____________________________________________________________________
___________________________________________________________________________
(if none, state "none").
10. The Tenant's security deposit is $_____________________ (if none, state
"none").
11. To Tenant's knowledge, no event has occurred and no condition exists which,
with the giving of notice or the lapse of time or both, will constitute a
default under the Lease. Tenant has no existing defense, offsets or
credits against the enforcement of this Lease by the Landlord or the
payment of rent for the Premises.
12. No actions, whether voluntary or otherwise, are pending against the Tenant
under the bankruptcy laws of the United States or any state thereof.
13. Tenant's current notice address is set forth in the Lease.
14. The undersigned is authorized by all necessary action of Tenant to execute
this Tenant Estoppel Certificate on behalf of Tenant.
15. Tenant acknowledges that Prospective Purchaser is relying upon this
estoppel in connection with its potential acquisition of certain property,
including the Premises.
Dated this ____ day of _________________, 1996.
TENANT:
_________________________________________________
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
2
<PAGE>
EXHIBIT "D"
-----------
LIST OF SERVICE CONTRACTS
-------------------------
1. Lawn Management Company
Commencement: January 1, 1996
Amount: $18,575.76 per annum
2. Stripe-N-Sweep (Parking Lot Sweeping)
Commencement: April 15, 1996
Amount: $974.28 per annum
1
<PAGE>
EXHIBIT "E"
-----------
OTHER PROPERTIES
----------------
LARGE PROPERTIES:
- ----------------
1. One Northwestern Plaza, Southfield, Michigan
2. Park West C-2 (Partnership Interest)
SMALL PROPERTIES:
- ----------------
1. West Loop Business Park, Houston, Texas
2. Cottonwood Office Center, Irving, Texas
1
<PAGE>
EXHIBIT 10.23
PRENTISS PROPERTIES LIMITED, INC.
1717 Main Street, Suite 5000
Dallas, Texas 75201
As of August 5, 1996
LW-LP, Inc.
LW-RTC, Inc.
NP Investment VI Co.
1201 Elm Street, Suite 5400
Dallas, Texas 75270
RE: Payment of Indebtedness
Gentlemen:
Reference is made to that certain Agreement of Purchase and Sale (the
"Agreement") made and entered into by and among Prentiss Properties Limited,
Inc., ("Purchaser") and NP Investment VI Co., ("NP Co."), LW-LP, Inc. ("LW-LP"),
and LW-RTC, Inc. ("LW-RTC") (NP Co., LW-LP, and LW-RTC being collectively called
"Selling Partners"). All terms used herein in a defined manner shall have the
meanings for such terms set forth in the Agreement.
In consideration of the execution and delivery of the Agreement by Selling
Partners, Purchaser, on behalf of itself and its permitted assigns, hereby
agrees contemporaneous with Closing that Purchaser will arrange for payment of
the indebtedness referenced in Section 4.3(a) of the Agreement.
Purchaser acknowledges that payment of the indebtedness of PL LP to ALI
Inc., in the original principal amount of $35,517,327.00 plus all accrued and
unpaid interest, is a condition precedent to the Selling Partners' obligation to
consummate the Closing.
PRENTISS PROPERTIES LIMITED, INC.,
a Delaware corporation
By: /s/ Thomas F. August
------------------------------
Name: THOMAS F. AUGUST
----------------------------
Title: PRESIDENT
---------------------------
<PAGE>
EXHIBIT 10.24
REAL ESTATE PURCHASE AND SALE AGREEMENT
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, SELLER
and
PRENTISS PROPERTIES INVESTORS, INC.,
BUYER
<PAGE>
INDEX TO
REAL ESTATE PURCHASE AND SALE AGREEMENT
1. Property Included in Sale.................................... 1
2. Purchase Price............................................... 2
3. Title to the Property........................................ 2
4. Buyer's Conditions to Closing................................ 2
5. Seller's Conditions to Closing............................... 5
6. Escrow; Closing.............................................. 5
7. Representations and Warranties............................... 7
8. Leases....................................................... 9
9. Indemnification..............................................10
10.Condition of Property........................................10
11 Possession...................................................12
12.Environmental Matters........................................12
13.Miscellaneous................................................12
14.Tax-Deferred Exchange........................................15
15.Limitation of Buyer's Liability..............................15
16.Seller's Default.............................................15
17.Limitation of Seller's Liability.............................16
<PAGE>
REAL ESTATE PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, by and between PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an
Iowa corporation, herein referred to as "Seller" and PRENTISS PROPERTIES
INVESTORS, INC., or its successors or assigns, herein referred to as "Buyer" is
dated as of June 27, 1996 (the "Agreement Date").
--
WHEREAS, Seller is the owner of certain real property described on Exhibit
A-1 through A-4 attached hereto, including those certain buildings and
improvements referred to therein, and Seller desires to sell and Buyer desires
to purchase said real property on the terms and conditions set forth herein;
IN CONSIDERATION OF THE MUTUAL UNDERTAKINGS of the parties hereto it is
agreed as follows:
1. Property Included in Sale. Seller hereby agrees to sell and convey to
-------------------------
Buyer, and Buyer hereby agrees to purchase from Seller, the following:
(a) that certain real property locally known as 2611 Westgrove Drive,
Carrollton, TX, 9304 Forest Lane (North and South Buildings), Dallas, TX, 1601
LBJ Freeway, Farmers Branch, TX and 1603 LBJ Freeway, Farmers Branch, TX and
more particularly described in Exhibit A-1 through A-4 attached hereto (the
"Real Property");
(b) Seller's interest in all rights, privileges and easements appurtenant
to the Real Property, including, without limitation, all minerals, oil, gas and
other hydrocarbon substances as well as all development rights, air rights,
water, water rights (and water stock, if any) relating to the Real Property and
any easements, rights-of-way or other appurtenances used in connection with the
beneficial use and enjoyment of the Real Property;
(c) Seller's interest in all improvements and fixtures located on the
Real Property, including, as all other buildings and structures presently
located on the Real Property, all apparatus, equipment and appliances used in
connection with the operation or occupancy of the Real Property, such as heating
and air conditioning systems and facilities used to provide any utility
services, refrigeration, ventilation, garbage disposal, recreation or other
services on the Real Property (all of which are collectively referred to as the
"Improvements");
(d) All of the interest of Seller in any tangible and intangible personal
property now or hereafter owned by Seller and used in the ownership, use and
operation of the Real Property, Improvements and Personal Property, including,
without limitation, the right to use any trade name now used in connection with
the Real
<PAGE>
Property and any contract or lease rights, agreements, utility contracts or
other rights relating to the ownership, use and operation of the Real Property.
All of the items referred to in subparagraphs (a), (b), (c) and (d)
above are hereinafter collectively referred to as the "Property."
2. Purchase Price. The total purchase price (the "Purchase Price") for the
--------------
Property is Thirty-Six Million Five Hundred Fifty Thousand Dollars
($36,550,000.00). The Purchase Price is payable by wire transfer of immediately
available funds at Closing.
Within three (3) days of the Agreement Date, Buyer shall deposit into
escrow with Chicago Title Insurance Company, Dallas, Texas ("Title Company") the
sum of $365,500.00 (the "Deposit"). The Deposit shall be held by the Title
Company in a federally insured interest bearing account and applied against the
cash portion of the Purchase Price at Closing. Interest shall be considered part
of and shall follow the Deposit. In the event that this Agreement is terminated
prior to Closing due to no fault of Buyer, the Deposit shall be returned to
Buyer.
In the event the purchase and sale provided for under this Agreement does
not close due to acts of Buyer, and Seller has fully performed Seller's
obligations hereunder, Buyer and Seller hereby agree that Seller will be damaged
thereby and that the amount by which Seller is damaged is difficult to
ascertain. Therefore, Seller and Buyer hereby agree that the sum equal to the
Deposit shall represent and be liquidated damages payable to Seller in such
event. These liquidated damages shall be payable by delivery to Seller of the
Deposit.
3. Title to the Property. At the Closing, Seller shall convey to Buyer
---------------------
marketable and insurable fee simple title to the Real Property, all rights,
privileges and easements appurtenant thereto, and to the Improvements, by duly
executed and acknowledged special or limited warranty deed. Evidence of delivery
of marketable and insurable fee simple title shall be the issuance of a Texas
Owner's Policy of Title Insurance, in the full amount of the Purchase Price by
Title Company (as hereafter defined), insuring fee simple title to the Real
Property, Improvements, and appurtenant rights, privileges and easements, in the
Buyer.
4. Buyer's Conditions to Closing. The following conditions are conditions
-----------------------------
precedent to Buyer's obligation to purchase the Property:
(a) Buyer's review and approval of the following: (i) title to the
Property as shown on a preliminary report (the "Title Report") from the Title
Company and any exceptions thereto and UCC searches on Seller in Dallas County,
Texas; (ii) any leasing agreements currently affecting the Property and in the
possession of the Seller;
2
<PAGE>
(iii) any tenant leases currently in the possession of the Seller; (iv) any as-
built plans and specifications in the possession of the Seller; (v) any
operating statements currently in the possession of the Seller; (vi) any
management, maintenance and service agreements currently in force and in the
possession of the Seller; (vii) an as-built survey showing the location of all
improvements and easements, with the Surveyor's certificate attached hereto as
Exhibit G; (viii) certificates of occupancy in possession of Seller; (ix) site
plans in possession of Seller; (x) tax statements for 1995 and 1996 proposed
valuations; (xi) any third party property inspection or environmental reports;
and (xii) rent rolls for the Property certified to be true and correct by Seller
as of the date of this Agreement and as of the Closing.
Seller agrees to provide the items set forth in paragraph 4(a) within
five (5) calendar days of the Agreement Date except for the Title Report and the
survey provided for in subparagraph 4(a)(vii) which shall be provided within
thirty (30) calendar days of the Agreement Date.
If on or before the date which is forty-five (45) days after the
Agreement Date (the "Approval Date"), Buyer disapproves in writing any condition
in paragraph 4(a), or declines to purchase the Property for any, or no, reason
whatsoever, this Agreement shall terminate without any liability on the part of
either party. In the event of such termination, the Deposit shall be returned to
Buyer. If by the Approval Date Buyer approves in writing the condition in this
paragraph 4(a), then this Agreement shall remain in full force and effect and
the Deposit shall be held by the Title Company and credited to Seller as
provided herein. If by the Approval Date Buyer does not waive or deem satisfied
in writing the condition in this paragraph 4(a), there shall be a conclusive
presumption that Buyer has not approved the matters set in this paragraph 4(a),
this Agreement shall terminate, and the Deposit shall be returned by the Title
Company to the Buyer as provided herein. Notwithstanding the Approval Date,
Buyer shall be allowed not less than fifteen (15) days after receipt of the
later to be received of the survey and the Title Report to review and approve or
disapprove said survey and Title Report. The Approval Date shall be extended if
the survey or the Title Report are not received within thirty (30) days of the
Agreement Date, on a day to day basis.
(b) Seller maintaining the Property in its present condition until
Closing, reasonable wear and tear excepted. In the event that the entire
Property or any material part thereof is destroyed or suffers damage before
Closing, then Buyer shall, at its sole option, (1) request that Seller undertake
at its expense all repairs or restorations necessary to restore prior to Closing
the Property to its present condition, (2) terminate this Agreement, or (3)
close escrow and receive an assignment of the insurance proceeds, if any, plus
any deductible, from policies of insurance maintained and paid for by Seller
covering the Property up to the amount necessary to make the necessary repairs
or restorations. Should Buyer elect option (1) and Seller elect to not repair
the Property, Buyer shall then have the right to elect option (2) or (3). In the
event of
3
<PAGE>
termination of this Agreement, the Deposit shall be returned to Buyer. If,
subsequent to the date hereof and prior to the Closing, any proceeding,
judicial, administrative or otherwise, which shall relate to the proposed taking
of all or any substantial portion of the Real Property by condemnation or
eminent domain or any action in the nature of eminent domain, or the taking or
closing of any right of access to the Real Property, is instituted or commenced,
Buyer shall have the right and option to terminate this Agreement by giving
Seller written notice to such effect within ten (10) days after actual receipt
of written notification of any such occurrence or occurrences. Failure to give
such notice within such time shall be conclusive evidence that Buyer has waived
the option to terminate by reason of the occurrence or occurrences of which it
has received notice, and Buyer shall be credited with or be assigned all
Seller's right to any proceeds therefrom. Seller hereby agrees to furnish
written notification in respect to any such proceedings within forty-eight (48)
hours of Seller's receipt of any such notification or learning of the
institution of such proceedings. Should Buyer elect to so terminate this
Agreement, the Deposit shall be returned forthwith to Buyer, and thereupon the
parties hereto shall be released from any and all further obligations hereunder.
If the Closing is less than ten (10) days following the last day on which Buyer
is entitled to elect to terminate this Agreement, then the Closing shall be
delayed until Buyer makes such election. Notwithstanding the foregoing, if such
proceeding by way of condemnation or eminent domain shall be "insubstantial"
Buyer shall not have the right to terminate this Agreement but shall be credited
with or be assigned all Seller's right to any proceeds therefrom. An
"insubstantial" proceeding shall be one which (i) does not relate to the taking
or closing of any right of access to the Real Property, (ii) affects only the
perimeter of the Real Property and does not involve more than the equivalent of
$50,000.00 in value collectively with respect to the Westgrove and Forest Lane
buildings which comprise a portion of the Real Property, or $100,000.00 in value
collectively with respect to the balance of the Real Property, and (iii) does
not involve any relocation of utility facilities serving the Real Property
(providing this latter condition shall be deemed deleted if Seller shall agree
to pay any cost of relocation of any of the same and may use such part of the
process of the award allocable thereto for such purpose).
(c) Delivery by Seller at Closing of the deed and the Assignment and
Assumption of Leases in the form attached hereto as Exhibit B.
(d) Performance by Seller as and when required by this Agreement of each
and every term, covenant, condition and agreement required to be performed by
Seller pursuant to this Agreement.
In the event that the conditions set forth above in paragraphs 4(b),
(c) and (d) are not satisfied, Buyer may elect to terminate this Agreement or
waive satisfaction of the condition and close escrow. In the event of such
termination, the Deposit shall be returned to Buyer.
4
<PAGE>
5. Seller's Conditions to Closing. The following conditions are conditions
------------------------------
precedent to Seller's obligation to sell the Property:
(a) The approval of Seller's Investment Committee, which approval Buyer
acknowledges Seller will not seek until the Approval Date has passed and Buyer
has failed to exercise its right of termination under paragraph 4(a). Seller
makes no representation with regard to the likelihood of approval of this
Agreement or the transaction contemplated herein by its Investment Committee.
Seller shall have a period of ten (10) calendar days after the Approval Date to
obtain such approval by its Investment Committee. If for any reason Seller's
Investment Committee does not approve this Agreement or the transaction
contemplated herein, this Agreement shall terminate, the Title Company shall
return the Deposit to Buyer and neither party shall have any further obligations
or rights hereunder. In the event this Agreement is terminated solely due to the
failure of Seller's Investment Committee to approve the transaction contemplated
herein, Seller shall reimburse Buyer for all reasonable, verifiable out-of-
pocket expenses incurred by Buyer to third parties in connection with its
proposed acquisition of the Property, up to a maximum of $50,000.00.
(b) Delivery by Buyer at Closing of the Purchase Price and the executed
Assignment and Assumption of Leases.
(c) Performance by Buyer as and when required by this Agreement of each
and every term, covenant, condition and agreement required to be performed by
Buyer pursuant to this Agreement, such that Buyer does not close for reasons
other than the reasons set forth herein whereby Buyer may terminate this
Agreement.
In the event that these conditions 5 (b) and (c) are not satisfied
and the sale does not close, Seller may elect to terminate this Agreement or
waive satisfaction of the condition and close escrow. In the event of such
termination due to nonsatisfaction of conditions 5(b) and (c) by Buyer, the
Deposit shall be retained by Seller and shall be non-refundable to the Buyer.
6. Escrow; Closing.
---------------
(a) Within 5 days following the date on which the conditions precedent
set forth in paragraph 4 have been satisfied or waived, the parties, through
their respective attorneys, shall establish an escrow with the Title Company
through which the transaction contemplated hereby shall be closed. Upon opening
of said escrow Buyer shall cause the Deposit to be deposited in said escrow. The
escrow instructions shall be in the form customarily used by the Title Company
with such special provisions added thereto as may be required to conform to the
provisions of this Agreement. Said escrow shall be auxiliary to this Agreement,
and this Agreement shall not be merged
5
<PAGE>
into nor in any manner superseded by said escrow. The Title Company shall file,
unless otherwise directed by Buyer, with the Internal Revenue Service the
information return (Form 1099B) required by Section 6045(e) of the Internal
Revenue Code and any regulations issued pursuant thereto. Seller shall be
responsible to give to the Title Company such information of the Seller that the
Title Company needs in order to complete such form.
(b) The Closing hereunder shall be held and delivery of all items to be
made at the Closing under the terms of this Agreement shall be made at the
offices of Title Company on the date which is fifteen (15) calendar days
following the approval of Seller's Investment Committee of this Agreement or
such other date prior thereto as Buyer and Seller may mutually agree in writing
(the "Closing Date"). Such date may not be extended without the prior written
approval of both Seller and Buyer. In the event the Closing does not occur on or
before the Closing Date, the Title Company shall, subject to the provisions of
paragraph 2, unless it is notified by both parties to the contrary within five
(5) days after the Closing Date, return to the depositor thereof items which may
have been deposited hereunder. Any such return shall not, however, relieve
either party hereto of any liability it may have for its wrongful failure to
close.
(c) At or before the Closing, Seller shall deliver to escrow the
following:
(i) special or limited warranty deed conveying to the Buyer the Real
Property, Improvements and all rights, privileges and easements appurtenant
thereto as required by paragraph 3 above;
(ii) originals of all leases (and amendments thereto, if any) in
Seller's possession covering any portion of the Property, any security deposits
relating thereto in Seller's possession, and an executed Assignment and
Assumption of Leases in the form attached hereto as Exhibit B;
(iii) Assignment regarding Service Contracts, Warranties and Contract
Rights;
(iv) notices to the tenants at the Property in the form attached as
Exhibit C, executed by Seller;
(v) all documents reasonably required by the Title Company;
(vi) a FIRPTA Affidavit in the form attached hereto as Exhibit D; and
(vii) a Bill of Sale for the personal property being conveyed.
6
<PAGE>
Buyer may waive compliance on Seller's part under any of the
foregoing items by an instrument in writing.
(d) At or before the Closing, Buyer shall deliver to escrow the Purchase
Price and an executed Assignment and Assumption of Leases in the form attached
hereto as Exhibit B.
(e) Seller and Buyer shall each deposit such other instruments as are
reasonably required by the escrow holder or otherwise required to close the
escrow and consummate the purchase of the Property in accordance with the terms
hereof.
(f) Rents actually collected (whether such collection occurs prior to, on
or after the Closing), real property taxes and assessments, water, sewer and
utility charges, annual permits and/or inspection fees (calculated on the basis
of the period covered), and other expenses normal to the operation and
maintenance of the Property shall be prorated as of 12:01 a.m. on the date the
deed is recorded on the basis of a 365-day year. Any costs of tenant finish and
lease commissions with regard to New Leases (as defined below) of the Property
shall be paid by Buyer. Real estate taxes and assessments shall be prorated
based upon the most recent ascertainable bills and 1996 property valuations,
with the parties agreeing to reprorate such amounts based upon the actual tax
bills no later than November 30, 1996. Seller and Buyer hereby agree that if any
of the aforesaid prorations other than real estate taxes and assessments cannot
be calculated accurately on the Closing Date, then the same shall be calculated
within thirty (30) days after the Closing Date and either party owing the other
party a sum of money based on such subsequent proration(s) shall promptly pay
said sum to the other party.
(g) Seller shall pay recording fees and its own legal expenses in
connection with this sale. All other costs and charges in connection with the
sale, including without limitation, title insurance, surveys and escrow charges
shall be paid by Buyer.
7. Representations and Warranties.
------------------------------
(a) Seller hereby represents and warrants to Buyer that:
(i) Seller is a corporation duly organized and validly existing
under the laws of the State of lowa and is in good standing under the laws of
the State of Iowa; all documents executed by Seller which are to be delivered to
Buyer at the Closing are or at the Closing will be duly authorized, executed,
and delivered by Seller, are or at the Closing will be legal, valid, and binding
obligations of Seller, are sufficient to convey title, and do not violate any
provisions of any agreement to which Seller is a party or to which it is
subject.
7
<PAGE>
(ii) Seller will have at closing, to the best of its knowledge,
good and indefeasible fee simple title to the Property free and clear of all
mortgages, liens, encumbrances, covenants, restrictions, rights-of-way,
easements, and any other matters affecting title, except for the Permitted
Exceptions;
(iii) To the best of Seller's knowledge, there are no actions,
suits, or proceedings pending or threatened against Seller or otherwise
affecting any portion of the Property, at law or in equity, or before or by any
federal, state, municipal, or other governmental court, department, commission,
board, bureau, agency, or instrumentality, domestic or foreign;
(iv) From the date of execution of this Contract through the date
of closing, Seller shall continue to maintain the Property in its present
condition, subject to ordinary wear and tear, and shall continue to manage the
Property in the same manner as it is currently being managed;
(v) At all times from the date hereof through the date of Closing,
Seller shall cause to be maintained in force fire and extended coverage
insurance upon the Property, and public liability insurance with respect to
damage or injury to persons or property occurring on the Property in at least
such amounts as are maintained by Seller on the date hereof;
(vi) To the best of Seller's knowledge, Seller has not received any
notice of any violation of any ordinance, regulation, law, statute, building
code, zoning ordinance, or environmental laws pertaining to the Property to any
portion thereof or of any pending zoning change or special assessment pertaining
to the Property;
(vii) Seller has not received any notice of condemnation of the
Property;
(viii) To the best of Seller's knowledge, all governmental approvals
necessary for the operation of the property have been obtained and are in full
force and effect, including all code requirements regarding building occupancy
and use, parking, and zoning; and
(ix) To the best of Seller's knowledge, all leases for tenants at the property
are in full force and effect and have not been amended, except pursuant to
amendments delivered to Buyer.
All of the representations and warranties contained in this paragraph 7 are made
by Seller both as of the date hereof and as of the date of closing hereunder.
Notwithstanding anything to the contrary contained herein, it is understood and
agreed that the representations and warranties set forth hereinabove shall
survive the closing
8
<PAGE>
of this Agreement for a period of one hundred eighty (180) days following the
Closing Date, and Seller shall have no liability of any kind whatsoever for any
breach thereof except to the extent a claim is assessed against Seller within
such one hundred eighty (180) day period. If any of the representations and
warranties set forth hereinabove are determined at any time on or before the
date of Closing to be untrue or unfulfilled, the Buyer, as Its sole and
exclusive remedy, may terminate this Agreement by providing written notice of
such termination to Seller, in which event the Deposit shall be returned to
Buyer and thereafter neither Seller nor Buyer shall have any further liabilities
or obligations one unto the other.
(b) Buyer hereby represents and warrants to Seller as follows: Buyer is a
corporation, duly organized and validly existing under the laws of the State of
Delaware and is in good standing under the laws of the State of Texas; all
documents executed by Buyer which are to be delivered to Seller at Closing are
or at the Closing will be duly authorized, executed, and delivered by Buyer, and
are or at the Closing will be legal, valid, and binding obligations of Buyer,
and do not and at the Closing will not violate any provisions of any agreement
to which Buyer is a party or to which it is subject.
8. Leases.
------
(a) Seller hereby represents and warrants to Buyer that to the best of
its knowledge, there are no leases, occupancy agreements or rights of third
parties to possession of the Property other than the parties (the "Tenants")
listed on the Tenant List attached hereto as Exhibit E.
(b) Seller covenants to use reasonable efforts to obtain from each of the
Tenants and deliver to Buyer at least 2 days prior to the Closing estoppel
certificates in the form attached hereto as Exhibit F or otherwise in a form
acceptable to Buyer. In the event the Buyer does not receive such estoppel
certificates from each Tenant (other than US Sprint, Hoechst Celanese and
Toshiba), Seller may, at its sole option, provide Buyer with Seller's
certificate with respect to those matters which were contained in the estoppel
certificate, in which event the obligations of Seller with respect to this
paragraph 8(b) shall be deemed satisfied. In the event Seller has not obtained
estoppel certificates from US Sprint or Hoechst Celanese, or from any other
Tenant, and Seller has elected not to provide the certificate referred to above,
Buyer may elect to either close without such certificate with no reduction in
the Purchase Price, or to terminate this Agreement, in which event the Deposit
shall be returned to Buyer and the parties shall have no further obligation to
one another. Any representations made by Seller with respect to any Tenant's
lease shall automatically terminate and be of no further force or effect upon
delivery to Buyer within 90 days following the Closing of an estoppel
certificate from the relevant Tenant.
(c) Seller agrees not to enter into any new lease agreement or other
encumbrance of the Property following the Agreement Date without the prior
written
9
<PAGE>
approval of Buyer, which approval shall not be unreasonably withheld or delayed.
Buyer's failure to respond to Seller's request for approval within four (4)
business days following written receipt thereof by Buyer shall be deemed
conclusively to be the approval thereof by Buyer. Any such new or renewal lease
or other agreement approved, or deemed approved, by Buyer is referred to herein
as a "New Lease".
9. Indemnification. Each party hereby agrees to indemnify the other party
---------------
and hold it harmless from and against any and all claims, demands, liabilities,
costs, expenses, penalties, damages and losses, including, without limitation,
reasonable attorneys' fees, resulting from any misrepresentations or breach of
warranty or breach of covenant made by such party in this Agreement or in any
document, certificate, or exhibit given or delivered to the other pursuant to or
in connection with this Agreement except as provided herein. Buyer shall
indemnify Seller and Seller shall be fully released from any and all liability
arising as a result of any future leasing commissions due under any leasing
commission agreements affecting the Property to the extent such commissions are
disclosed to Buyer. Buyer acknowledges that the US Sprint lease provides for a
deferred leasing commission for which the Buyer shall be responsible for any
portion of the commission which is payable following the Closing.
10. Condition of Property
---------------------
(a) Buyer acknowledges that prior to Closing it or its agents will have
inspected the Property and observed the physical characteristics and condition
of the Property and the Improvements. Buyer acknowledges that by closing, it
waives any and all defects in the physical characteristics and condition of the
Property and the Improvements which would be disclosed by such inspection. Buyer
further acknowledges that, except as expressly set forth in paragraph 7 above,
neither Seller nor any of Seller's officers or directors, nor Seller's
employees, agents, representatives, or any other person or entity acting on
behalf of Seller (hereafter, for the purpose of paragraph 10(a) and paragraph
10(b), such persons and entities are individually and collectively referred to
as the "Seller") have made any representations, warranties or agreements by or
on behalf of Seller as to any matters concerning the Property or the present use
thereof or the suitability for Buyer's intended use of the Property, including,
without limitation, the following: suitability of the topography; the
availability of water rights or utilities; the present and future zoning,
subdivision and any and all other land use matters; the condition of the soil,
subsoil, or groundwater; the purpose(s) to which the Property is suited;
drainage; flooding; access to public roads; or proposed routes of roads or
extensions thereof. Buyer acknowledges and agrees that the Property is to be
purchased, conveyed and accepted by Buyer in its present condition, "as is" and
that no patent or latent defect in the condition of the Property whether or not
known or discovered, shall affect the rights of either party hereto. Any
documents furnished to Buyer by Seller relating to the Property including,
without limitation, maps, surveys, studies, pro formas, reports and other
information shall be deemed furnished as a
10
<PAGE>
courtesy to Buyer but without warranty from Seller except as expressly set forth
in paragraph 7 above. All work done in connection with preparing the Property
for the uses intended by Buyer including any and all fees, studies reports,
approvals, plans, surveys, permits, and any expenses whatsoever necessary or
desirable in connection with Buyer's acquiring, developing, using and/or
operating the Property shall be obtained and paid for by, and shall be the so1e
responsibility of Buyer. Buyer has investigated and has knowledge of operative
or proposed governmental laws and regulations including land use laws and
regulations to which Property may be and shall acquire the Property upon the
basis of its review and determination of the applicability and effect of such
laws and regulations. Buyer has neither received nor relied upon any
representations concerning such laws and regulations from Seller, except as
expressly set forth in paragraph 7 above.
Buyer, on behalf of itself and its employees, agents, successors and
assigns attorneys and other representatives, and each of them, hereby releases
Seller from and against any and all claims, demands. causes of action,
obligations, damages and liabilities of any nature whatsoever, directly or
indirectly, arising out of or related to the condition of the Property.
By signing in the space provided below in this paragraph 10(a), Buyer
acknowledges that it has read and understood the provisions of this paragraph
10(a).
Buyer; Prentiss Properties Investors, Inc.
a Delaware corporation
By: /s/ Mark Doren
---------------------------
its: Vice President
--------------------------
(b) At any time following the Agreement Date, Buyer may have access to
the Property for the purpose of making, at Buyer's sole cost and expense,
studies, physical inspections, investigations and tests on the Property (the
"Tests") provided that no such tests shall be conducted without at least one
business day prior written notice Seller and Seller's prior approval of such
Tests, which approval shall not be unreasonably withheld. Prior to entering onto
the Property, Buyer shall provide Seller with a certificate of insurance
evidencing liability Insurance coverage acceptable to Seller with respect to all
activities to be undertaken by Buyer or its agents on the Property. Buyer shall
be required to conduct such tests in a manner as to not unreasonably disturb or
interfere with the current use of the property and upon completion of such
Tests, Buyer agrees at its sole cost to restore the Property to the condition it
was in immediately prior to such Tests, including, but not limited to the
immediate removal of anything placed on the Property in connection with such
Tests. Copies of any reports, letters or other written information generated as
a result of such
11
<PAGE>
Tests shall be provided to Seller if the sale contemplated by this Agreement
does not close for any reason. Buyer shall indemnify, defend (with counsel
reasonably satisfactory to Seller), protect, and hold Seller harmless from and
against any and all liability, loss, cost, damage, or expense (including,
without limitation, attorney's fees and costs), but excluding consequential or
punitive damages which Seller may sustain or incur by reason of or in connection
with any Tests made by Buyer or Buyer's representatives relating to or in
connection with the Property, or entries by Buyer or its representatives onto
the Property. Notwithstanding any provision to the contrary in this Agreement,
the indemnity obligations of Buyer under this Agreement shall survive any
termination of this Agreement or the delivery of the deed and the transfer of
title.
11. Possession. Subject to the rights of the Tenants, possession of the
----------
Property shall be delivered to Buyer on the Closing Date, provided, however,
that Seller shall afford authorized representatives of Buyer reasonable access
to the Property for the purposes of satisfying Buyer with respect to
satisfaction of any conditions precedent to the Closing contained herein.
12. Environmental Matters. Buyer acknowledges that Seller is making no
---------------------
representation whatsoever with respect to the environmental condition of the
Real Property. Buyer may order an environmental report to be conducted by an
environmental engineering firm selected by Buyer (the "Environmental Study") at
any time from the date of seller's acceptance hereof to the Closing. Buyer
shall pay all costs of the Environmental Study, if any, and Seller shall
cooperate with Buyer, or its agents, in arranging for and conducting the
Environmental Study.
13. Miscellaneous.
-------------
(a) Notices. Any notice required or permitted to be given under this
-------
Agreement shall be in writing and shall be deemed to have been given one (1)
business day following delivery to a nationally recognized overnight courier
service, delivery prepaid, and addressed as follows:
If to Seller:
------
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0301
Attn: Terrence M. Tobin, Esq.
12
<PAGE>
With a copy to:
Larry H. Pachter
Pachter, Gregory & Finocchiaro, P.C.
300 West Washington Street
16th Floor
Chicago, IL 60606
If to Buyer:
-----
Prentiss Properties Investors, Inc.
1717 Main Street, Suite 5000
Dallas, TX 75201
Attn: Mark R. Doran
or such other address as either party may from time to time specify in writing
to the other.
(b) Brokers and Finders. Neither party has had any contact or dealings
-------------------
regarding the Property, or any communication in connection with the subject
matter of this transaction, through any licensed real estate broker or other
person who will claim a right to a commission or finder's fee as a procuring
cause of the sale contemplated herein. In the event that any broker or finder
perfects a claim for a commission or finder's fee based upon any such contract,
dealings or communication, the party through whom the broker or finder makes his
claim shall be responsible for said commission or fee and all costs and expenses
(including reasonable attorneys' fees) incurred by the other party in defending
against the same.
(c) Successors and Assigns. This Agreement shall be binding upon, and
----------------------
inure to the benefit of, the parties hereto and their respective successors,
heirs, administrators and assigns. Buyer may assign its rights or delegate its
obligations hereunder without the prior written consent of Seller, provided that
Seller receives written notice thereof not less than four (4) business days
prior to Closing.
(d) Amendments and Terminations. Except as otherwise provided herein, this
---------------------------
Agreement may be amended or modified by, and only by, a written instrument
executed by Seller and Buyer.
(e) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Texas.
13
<PAGE>
(f) Merger of Prior Agreements. This Agreement supersedes all prior
--------------------------
agreements and understandings between the parties hereto relating to the subject
matter hereof.
(g) Enforcement. In the event either party hereto fails to perform any of
-----------
its obligations under this Agreement or in the event a dispute arises concerning
the meaning or interpretation of any provision of this Agreement, the defaulting
party or the party not prevailing in such dispute, as the case may be, shall pay
any and all costs and expenses incurred by the other party in enforcing or
establishing its rights hereunder, including, without limitation, court costs
and reasonable attorneys' fees.
(h) Time of the Essence. Time is of the essence of this Agreement.
-------------------
(i) Counterparts. This agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original, but such counterparts when taken
together shall constitute but one agreement
(j) Survival. Except as otherwise provided herein, the covenants
--------
contained in this Agreement shall survive the closing of the purchase and sale
and shall not be deemed merged in the deed, but shall remain in full force and
effect.
(k) Further Assurances. The parties each agree to do, execute,
------------------
acknowledge and deliver all such further acts, instruments and assurances and to
take all such further action before or after the closing as shall be necessary
or desirable to fully carry out this Agreement and to fully consummate and
effect the transactions contemplated hereby.
(I) Knowledge. For the purposes of this Agreement, Buyer acknowledges
---------
that the "knowledge" of the Seller is expressly limited to the actual knowledge
of Michael S. Duffy and the Asset Manager(s) of Seller responsible for each
property for the twelve months prior to the Closing. Buyer acknowledges that it
is familiar with the buildings located at 1601 and 1603 LBJ Freeway, Dallas,
Texas comprising a portion of the Property, with an affiliate of Buyer having
current management responsibilities therefor. Notwithstanding anything contained
in this Agreement to the contrary, Buyer agrees that Seller shall not be in
breach of any representation or warranty contained herein to the extent Buyer or
its management affiliate knew or had reason to know such representation or
warranty was untrue when made.
14. Tax-Deferred Exchange. Buyer and Seller agree that, at Seller's sole
---------------------
election, this transaction shall be structured as an exchange of like-kind
properties under Section 1031 of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations and proposed regulations thereunder. The
parties agree that if Seller wishes to make such election, it must do so prior
to the Closing Date. If Seller so
14
<PAGE>
elects, Buyer shall reasonably cooperate with Seller, provided any such exchange
is consummated pursuant to an agreement that is mutually acceptable to Buyer and
Seller and which shall be executed and delivered on or before the Closing Date.
Seller shall in all events be responsible for all costs and expenses related to
the Section 1031 exchange and shall fully indemnify, defend and hold Buyer
harmless from and against any and all liability, claims, damages, expenses
(including reasonable attorneys' and paralegal fees and reasonable attorneys'
and paralegal fees on appeal), proceedings and causes of action of any kind or
nature whatsoever arising out of, connected with or in any manner related to
such 1031 exchange that would not have been incurred by Buyer if the transaction
were a purchase for cash. The provisions of the immediately preceding sentence
shall survive closing and the transfer of title to subject Property to Buyer.
Notwithstanding anything to the contrary contained in this paragraph, Buyer
shall not be required to expend funds or otherwise be involved in any such
Section 1031 exchange and any such Section 1031 exchange shall be consummated
through the use of a facilitator or intermediary so that Buyer shall in no event
be requested or required to acquire title to any property other than the
Property.
15. Limitation of Buyer's Liability. Notwithstanding anything herein to the
-------------------------------
contrary, any and all liabilities of Buyer shall be satisfied solely out of the
properties and other assets of Buyer which may exist from time to time. Any
other properties and assets of the partners in Buyer or of the ventures,
partners, employees, directors, officers, principals and shareholders of such
partners, shall not be subject to the satisfaction of any such liabilities and
obligations of Buyer under this Agreement. The closing documents to be executed
by Buyer at closing shall, at Buyer's option, contain the foregoing limitation
in Buyer's liability.
16. Seller's Default. In the event the Closing does not occur as a result of
----------------
Seller's failure to perform any of its obligations hereunder, and such failure
is not cured within ten (10) days following receipt by Seller of written notice
of such default, Buyer shall have the right, as its sole remedy for such
default, to either (i) terminate this Agreement, receive a refund of the Deposit
and sue for reimbursement of its due diligence expenses as set forth in
paragraph 5 above (and neither party shall have any further rights, duties or
obligations hereunder), or (ii) institute an action for specific performance of
this Agreement. If Buyer does not file an action for specific performance within
six (6) months following the Closing Date, Buyer shall be deemed to have elected
to proceed under clause (i) above. In the event, at any time, Buyer seeks
recovery against Seller for breach of a representation or warranty, or either
party seeks indemnification from the other party under the indemnity provisions
of this Agreement, the party seeking recovery shall be limited to recovering
only its actual damages, and to the extent permitted by law each party agrees
that it shall not seek or recover punitive or consequential damages.
15
<PAGE>
17. Limitation of Seller's Liability. Notwithstanding anything herein to the
--------------------------------
contrary, any and all liabilities of Seller shall be satisfied solely out of the
Property and not out of any other assets of Seller which may exist from time to
time. Any properties and assets of Seller other than the Property shall not be
subject to the satisfaction of any such liabilities and obligations of Buyer
under this Agreement. The closing documents to be executed by Seller at closing
shall, at Seller's option, contain the foregoing limitation in Seller's
liability.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Seller:
------
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY, an Iowa
corporation
BY: /s/ Michael S. Duffy
-----------------------
Michael S. Duffy
Assistant Director
Commercial Real Estate/Equities
its: /s/ Terrence M. Tobin
--------------------------
Terrence M. Tobin
Counsel
Buyer:
-----
PRENTISS PROPERTIES INVESTORS,
INC.
By: /s/ Mark Doren
---------------------------
its: Vice President
--------------------------
16
<PAGE>
EXHIBIT "A"
Legal Description
<PAGE>
EXHIBIT "A"
TRACT I
Being a tract of land situated in the JAMES M. HOUX, ABSTRACT NO. 579, said
tract being a part of Dallas City Block 8152 and being more particularly
described as follows:
BEGINNING at a point in the South ROW line of Forest Lane (60' from the center
line) and being South 89 (degrees) 41' 11" West, a distance of 190.00 feet from
the West ROW line of Meadowknoll Road (a 60' ROW);
THENCE: South 0 (degrees) 01'04" East, 265.00 feet to a point for corner;
THENCE: South 89 (degrees) 41'11" West, 5.00 feet to a point for corner;
THENCE: South 0 (degrees) 01'04" East, 21.00 feet to a point for corner;
THENCE: South 89 (degrees) 51'14" West, 116.74 feet to a point for corner;
THENCE: South 0 (degrees) 05'06" West, 201.83 feet to a point for corner in the
North line of FOREST MEADOWS NO. 5 REVISED;
THENCE: South 89 (degrees) 51' 14" West, 63.00 feet along the North line of
FOREST MEADOWS NO. 5 REVISED, to a point for corner;
THENCE: North 0 (degrees) 05'06" East, 487.31 feet along the Easterly line of
WOODSIDE LANE CONDOMINIUMS to a point for corner in the South ROW line of Forest
Lane (60' from the center line);
THENCE: North 89 (degrees) 41' 11" East, 184.23 feet along the South ROW line
of Forest Lane to the PLACE OF BEGINNING and containing 65,325.79 square feet or
1.4997 acres of land.
SAID TRACT ALSO BEING KNOWN AS LOT 4 BLOCK G/8152 OF FOREST ABRAMS PLACE
ADDITION, an addition in the City of Dallas, Dallas County, Texas, according to
the Map thereof as recorded in Volume 83147, page 0285, Map Records, Dallas
County, Texas.
Exhibit A-2, Page 1 of 2
<PAGE>
-2-
TRACT II
Being a tract of land situated in the JAMES M. HOUX SURVEY, ABSTRACT NO. 579,
said tract being a part of Dallas City Block 8152 and being more particularly
described as follows:
BEGINNING at a point in the West ROW line of Meadowknoll Road (a 60' ROW) and
being South 0 (degrees) 01'04" East, 265.00 feet from the South ROW line of
Forest Lane;
THENCE: South 0 (degrees) 01'04" East, 223.40 feet along the West ROW line of
Meadowknoll Road to a point for corner;
THENCE: South 89 (degrees) 51'14" West, 311.94 feet along the North line of
FOREST MEADOWS NO. 5 REVISED, to a point for corner;
THENCE: North 0 (degrees) 05'06" East, 201.83 feet to a point for corner;
THENCE: North 89 (degrees) 51'14" East, 116.74 feet to a point for corner;
THENCE: North 0 (degrees) 01'04" West, 21.00 feet to a point for corner;
THENCE: North 89 (degrees) 41'11" East, 194.84 feet to a PLACE OF BEGINNING and
containing 67,068.88 square feet or 1.5397 acres of land.
SAID TRACT ALSO BEING KNOWN AS LOT 5 BLOCK G/8152 OF FOREST ABRAMS PLACE
ADDITION, an addition to the City of Dallas, Dallas County, Texas, according to
the Map thereof as recorded in Volume 83147, page 0285, Map Records, Dallas
County, Texas.
- --------------------------------------------------------------------------------
Not part of Legal
DO2/REO460
9304 Forest Lane
North and South Building
Dallas, Texas
Dallas County
Exhibit A-2, Page 2 of 2
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
BEING A TRACT OF LAND SITUATED IN THE WILLIAM P. SHAHAN SURVEY, ABSTRACT NO.
1337, DALLAS COUNTY, TEXAS, WITHIN THE CITY OF FARMERS BRANCH, TEXAS, AND ALSO
BEING LOT 2, BLOCK 1 (SITE E-1) OF PARK WESTPHASE I (A PLAT REVISION) AS FILED
FOR RECORD IN VOLUME 83193, PAGE 2251 OF THE DEED RECORDS OF DALLAS COUNTY,
TEXAS, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT AN INTERSECTION OF THE EAST RIGHT-OF-WAY OF LUNA ROAD (VARIABLE
WIDTH) WITH THE NORTH RIGHT-OF-WAY OF INTERSTATE HIGHWAY 635 (VARIABLE WIDTH);
THENCE NORTH 86 DEGREES 46 MINUTES 33 SECONDS EAST, ALONG SAID NORTH RIGHT-OF-
WAY LINE, A DISTANCE OF 69.95 FEET TO A SET 5/8 INCH ROD FOR THE POINT OF
BEGINNING, SAID POINT BEING THE SOUTHWEST CORNER OF SAID 6.2960 ACRE TRACT:
THENCE NORTH 02 DEGREES 15 MINUTES 00 SECONDS WEST, A DISTANCE OF 444.72 FEET TO
AN IRON ROD SET FOR REFERENCE, IN ALL, A TOTAL OF 514.72 FEET TO A CORNER ON THE
NORTH LINE OF THE FARMERS BRANCH-CARROLLTON FLOOD CONTROL DISTRICT EASEMENT;
THENCE NORTH 87 DEGREES 45 MINUTES 00 SECONDS EAST, ALONG SAID NORTH LINE, A
DISTANCE OF 463.50 FEET TO A POINT FOR CORNER;
THENCE SOUTH 02 DEGREES 15 MINUTES 00 SECONDS EAST, DEPARTING SAID NORTH LINE, A
DISTANCE OF 70.00 FEET TO A 5/8 INCH IRON ROD SET FOR REFERENCE, IN ALL A TOTAL
OF 212.26 FEET TO A FOUND 1/2 INCH IRON ROD FOUND FOR CORNER:
THENCE SOUTH 47 DEGREES 15 MINUTES 00 SECONDS EAST, A DISTANCE OF 267.21 FEET TO
AN "X" FOUND FOR CORNER;
THENCE SOUTH 02 DEGREES 15 MINUTES 00 SECONDS EAST, A DISTANCE OF 102.42 FEET TO
A NAIL FOUND FOR A CORNER IN THE NORTH RIGHT-OF-WAY OF INTERSTATE HIGHWAY 635;
Exhibit A-3, Page 1 of 2
<PAGE>
-2-
THENCE SOUTH 86 DEGREES 46 MINUTES 33 SECONDS WEST, ALONG SAID NORTH RIGHT-OF-
WAY, A DISTANCE OF 652.55 FEET TO THE POINT OF BEGINNING AND CONTAINING 274,255
SQUARE FEET OR 6.2960 ACRES OF LAND, MORE OR LESS.
- --------------------------------------------------------------------------------
NOT PART OF LEGAL
D03
REO 585
1601 LBJ FREEWAY
NE CORNER LUNA AND LBJ FREEWAYS
FARMERS BRANCH, TX
DALLAS COUNTY
<PAGE>
EXHIBIT A
Property Description
BEING a tract of land situated in the William P. Shahan Survey, Abstract No.
1337, Dallas County, Texas, within the City of Farmers Branch, Texas, and also
being Lot 3, Block 1 (Site E-2) of Park West-Phase I (a plat revision) as filed
for record in Volume 83193, Page 2251, of the Deed Records of Dallas County,
Texas and being more particularly described as follows:
COMMENCING at a found iron rod located at the intersection of the west right-of-
way of Commerce Boulevard (70 feet wide), with the north right-of-way of
Interstate Highway 635 (variable right-of-way);
THENCE South 86 (degrees) 46'33" West, along said north right-of-way line, a
distance of 676.49 feet to a found iron rod for the POINT OF BEGINNING, said
point being the southeast corner of Site E-2;
THENCE South 86 (degrees) 46'33" West, a distance of 157.12 feet, to a found
iron rod for a corner;
THENCE North 2( degrees) 15'00" West, a distance of 102.42 feet, to a point for
a corner;
THENCE North 47 (degrees) 15'00" West, a distance of 267.21 feet, to an iron rod
set for a comer;
THENCE North 2 (degrees) 15'00" West, a distance of 212.26 feet, to a point for
a corner in the centerline of the Farmers Branch-Carrolton Flood Control
District easement, from which a set iron rod bears South 2 (degrees) 15'00"
East, a distance of 52.50 feet;
THENCE North 87 (degrees) 45'00" East, along said centerline, a distance of
486.00 feet, to a point for a corner;
THENCE South 2 (degrees) 15'00" East, departing said centerline and passing a
set iron rod at 52.50 feet, a total distance of 261.26 feet, to an iron rod set
for a corner;
THENCE South 42 (degrees) 45'00" West, a distance of 197.91 feet, to a point for
a corner;
Exhibit A-4, Page 1 of 2
<PAGE>
-2-
THENCE South 2(degrees) 15'00" East, a distance of 99.75 feet, to the POINI OF
BEGINNING and CONTAINING 183,223 square feet or 4.2062 acres of land, more or
less.
- ---------------------------------------
Not Part of Legal
D04
REO 933
Park West E-2
1603 LBJ Freeway
Farmers Branch, Texas
Dallas County
Exhibit A-4, Page 2 of 2
<PAGE>
EXHIBIT "B"
ASSIGNMENT AND ASSUMPTION OF LESSOR'S INTEREST IN LEASES
STATE OF_____________ )
) KNOW ALL BY THESE PRESENTS:
COUNTY OF____________ )
This Agreement by and between PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an
lowa corporation (hereinafter called "Assignor") and _______________
(hereinafter called "Assignee")
WITNESSETH:
WHEREAS, Assignor as lessor entered into those certain lease agreements as
more particularly set out in Exhibit "B" attached hereto (herein called the
"Leases"); and
WHEREAS, Assignor now desires to transfer and assign to Assignee all of
Assignor's interest in and to the lessor's rights, obligations and interest
under the Leases.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration in hand paid to Assignor, the receipt and sufficiency of which is
hereby acknowledged, Assignor does hereby grant, convey, transfer and assign to
Assignee, its successors and assigns, all of Assignor's interest in the Leases,
covering all or portions of the real property described in Exhibit "A" attached
hereto and made a part hereof. Assignor is also hereby assigning and
transferring to Assignee any security deposits held by Assignor under the
Leases. Assignee hereby assumes any and all obligations of Assignor under such
leases and agrees to perform all of the terms, covenants, and conditions of the
Leases on part of Assignor required therein to be performed.
Seller agrees to indemnify and hold Buyer harmless of and from any and all
liabilities, claims, demands and expenses, of any kind or nature, arising prior
to the date of Closing and which are in any way related to the Leases (except
those items which under the terms of this Agreement specifically become the
obligation of Buyer) and all expenses related thereto, including, but not
limited to, court costs and attorney's fees. Buyer agrees to indemnify and hold
Seller harmless of and from any and all liabilities, claims, demands and
expenses, of any kind or nature, arising on or subsequent to the date of Closing
and which are in any way related to the Leases (except those items, if any,
which under the terms of this Agreement specifically become the obligation of
Seller) and all expenses related thereto, including, but not limited to, court
costs and attorney's fees.
<PAGE>
EXECUTED this______day of_________________, 19__
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
----------------------------------
<PAGE>
EXHIBIT "C"
Tenant Notice
RE:
Dear________:
Please be advised that effective________, the undersigned has sold the
above-referenced project to_________. Effective_______________, all
future rental payments should be sent to the following
--------------------------
--------------------------
--------------------------
Any questions regarding maintenance and management of the property should be
addressed to:
--------------------------
--------------------------
--------------------------
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:
--------------------------
Title:
-----------------------
<PAGE>
EXHIBIT "D"
NON-FOREIGN CERTIFICATION
To inform________________("Buyer) that withholding of tax under Section 1445
of the Internal Revenue Code of 1954, as amended ("Code") will not be required
upon the transfer of certain real property to the Buyer by PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY, an lowa corporation ("Seller"), the undersigned hereby
certifies the following on behalf of the Seller
1. The Seller is not a foreign corporation, foreign partnership, foreign
trust or foreign estate (as those terms are defined in the Code and the Income
Tax Regulations promulgated thereunder);
2. The Seller's U.S. employer identification number is___________; and
3. The Seller's office address is:
711 High Street
Des Moines, lowa 50392
The Seller understands that this Certification may be disclosed to the
Internal Revenue Service by the Buyer and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalty of perjury I declare that I have examined this Certification
and to the best of my knowledge believe it is true, correct and complete, and I
further declare that I have authority to sign this document on behalf of the
Seller
Dated:
---------------
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY, an lowa
corporation
By:
------------------------
Its:
-----------------------
By:
------------------------
Its:
-----------------------
<PAGE>
EXHIBIT "E"
Tenant List
<PAGE>
EXHIBIT E
---------
DO1
REO 445
Westgrove
2611 Westgrove Drive
Carrolton, Texas
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Tenant Name Lease Date Amend Dates
- --------------------------------------------------------------------------------------
<S> <C> <C>
Huggins Construction August 1, 1987 Supplemental Ag - 7-25-95
Company Extension Ag - 9-30-90
2 O1d Lease Ag Attached Extension Ag - 8-12-92
Extension Ag - 8-11-93
- --------------------------------------------------------------------------------------
M -USA Business Systems, April 18, 1996 N/A
Inc.
- --------------------------------------------------------------------------------------
Erase Enterprises September 19, 1995 N/A
- --------------------------------------------------------------------------------------
Toshiba America Medical 10-27-95 Addendum - Dated 10-27-
Systems, Inc. 95
- --------------------------------------------------------------------------------------
Benchmarq September 5, 1991 N/A
Microelectronics Commence Ag 10-6-93
- --------------------------------------------------------------------------------------
</TABLE>
DO2
REO 460
Forest Abrams
9304 Forest Lane (North Building)
9304 Forest Lane (South Building)
Dallas, Texas
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Tenant Name Lease Date Amend Dates
Supporting Documents
- --------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------
NORTH BUILDING
- --------------------------------------------------------------------------------------------
Daniel D. Nale, M.D. October 31, 1990 Modification and
Ratification of Lease:
3-29-96
Addendum 3: 3-18-91
*We do not have
Addendum 1 and 2
- --------------------------------------------------------------------------------------------
Robison and Company June 28, 1995 N/A
Old Lease Ag Attached:
May 4, 1990
- --------------------------------------------------------------------------------------------
Allstate Insurance June 6, 1994 Letter Dated 3-21-91
Company O1d Lease Ag Attached:
April 5, 1991
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit E/Page 2
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
T.K. Penell DBA College September 15, 1993 Acknowledgment of
Funding Systems Commencement Date: No
date
Extension Ag: 10-4-95
- --------------------------------------------------------------------------------
Jefferson Life Insurance October 14, 1994 Addendum 1: 11-2-94
Company O1d Lease Ags Attached:
March 26, 1991
July I2, 1990
- --------------------------------------------------------------------------------
Maridell Templeton, August 3, 1993 Standard Brk. Commission
Attorney at Law (2 copies attached) Ag: 8-2-93
Amend 1: 2-7-95
Extension Ag: 2-7-95
- --------------------------------------------------------------------------------
United States of September 29, 1994 N/A
America/Navy Recruiting
- --------------------------------------------------------------------------------
Drs. Dunnewold, Curry, June 20, 1994 Addendum 1: 9-13-94
Pask and Mandle Old Lease Ags Attached:
March 7, 1994
February 11, 1991
January 24, 1990
- --------------------------------------------------------------------------------
Allen McClure, Attorney April 14, 1992 Extension Ag: 3-18-96
- --------------------------------------------------------------------------------
Rooker Asphalt Company, February 9, 1996 N/A
Inc.
- --------------------------------------------------------------------------------
Dr. Robert Levine July 7, 1989 Extension Ag: 11-7-95
- --------------------------------------------------------------------------------
Double "T" Enterprises, December 12, 1994
Inc. Old Lease Ags Attached:
September, 1993
November 20, 1992
- --------------------------------------------------------------------------------
Jimmy Chin, C.P.A. August 24, 1993 Acknowledgment of
Commencement Date:
No date
Extension Ag: 10-12-95
- --------------------------------------------------------------------------------
Alfred Freitas, Attorney at May 16, 1995 N/A
Law
- --------------------------------------------------------------------------------
Renee Ryan DBA Renee's July 23, 1993 N/A
Electrolysis Clinic
- --------------------------------------------------------------------------------
Jim Clare & Associates, March 23, 19g3 Extension Ag: 3-27-95
Inc. Old Lease Ags Attached:
February 25, 1991
January 24, 1990
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit E/Page 3
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
John Gillis, Attorney March 7, 1994 N/A
Old Lease Ags:
February 18, 1991
January 24, 1990
December 5, 1988
Partial 3-7-9
Partial 12-5-88
- --------------------------------------------------------------------------------
SOUTH BUILDING
- --------------------------------------------------------------------------------
Jerry Utay, Inc. February 26, 1992 Extension Ag: 1-17-95
Old Lease Ags Attached:
(1) February 18, 1991
(2) January 5, 1989
- --------------------------------------------------------------------------------
Marathon Associates January 4, 1996 N/A
O1d Lease Ag Attached:
November 2, 1993
- --------------------------------------------------------------------------------
Wiss & Freemyer, P.C. August 12, 1993 N/A
Old Lease Ag Attached:
July 11, 1990
- --------------------------------------------------------------------------------
KMD Services, Inc. November 2, 1994 N/A
Old Lease Ags Attached:
August 12, 1993
September 29, 1992
March 15, 1991
- --------------------------------------------------------------------------------
Automated Motion November 2, 1994 N/A
Control, Inc. Old Lease Ags Attached:
September 1, 1993
March 22, 1993
September 25, 1991
Attached Rules and
Regulations
- --------------------------------------------------------------------------------
Kamran Ayrom June 28, 1995 Acknowledgment of
Commencement Date:
No date
- --------------------------------------------------------------------------------
Computer E's June 9, 1995 Addendum: 6-20-95
Back of Lease
- --------------------------------------------------------------------------------
Thorobred, Inc. March 22, 1993 Extension Ag: 4-10-95
Old Lease Ags Attached:
(1) February 11, 1990
(2) January 24, 1990
- --------------------------------------------------------------------------------
Weldon Brown, CPA December 14, 1994 N/A
Old Lease Ag Attached.
June 17, 1988
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit E/Page 4
- --------------------------------------------------------------------------------
<S> <C> <C>
A Professional Resume November 2, 1994 Extension Ag: 11-14-95
Place Old Lease Ags Attached:
(1) April 15, I993
(2) December 17, 1991
(3) November 30, 1990
(4) October 2, 1989
- --------------------------------------------------------------------------------
ABB Power Plant Services April 4, 1995 N/A
- --------------------------------------------------------------------------------
National Really Group October 2, 1995 Hold Harmless Ag:
9-29-95
- --------------------------------------------------------------------------------
Marlin M. Blake & November 22, 1993 Landlord's Waiver and
Associates, Inc. Agreement: 12-20-94
- --------------------------------------------------------------------------------
Hersey & Associates September 17, 1992 N/A
- --------------------------------------------------------------------------------
Pioneer Painting & September 1, 1993 Acknowledgment of
Construction, Inc. Old Lease Ags Attached: Commencement Date: No
(1) January 15, 1993 date
Amend 1 to Old Lease: Guaranty Ag: 5-9-95
3-22-93 Amend 2. 4-13-95
(2) March 26, 1990 Amend 1: 10-19-93
(3) January 24, 1990 Waiver and Ag: No date
(4) November 7, 1988
- --------------------------------------------------------------------------------
Romacorp, Incorporated April 22, 1994 Modification and
Ratification of Lease:
4-2-96
Standard Broker
Commission Agreement:
5-23-94
- --------------------------------------------------------------------------------
Corporate Cost Control, October 14, 1993 Standard Broker
Inc. Commission Agreement:
12-9-93
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit E/Page 5
DO3
REO 585
Park West E-1
1601 LBJ Freeway
NE Corner Lane & LBJ Freeway
Farmers Branch, Texas
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Tenant Name Lease Date Amend Dates
- --------------------------------------------------------------------------------
<S> <C> <C>
Southwest Bank Motor Bank Lease Ag: Agreement dated 12-10-91
*an exception lease for the 12-10-91
motor bank--office lease
is In REO 933
- --------------------------------------------------------------------------------
Hoechst Celanese--rent N/A N/A
on antenna--no agreement
- --------------------------------------------------------------------------------
Hoechst Celanese October 3, 1991 Sublease Ag: 4-1-96
Corporation--Subleased 4th Amend: 9-21-95
to Hoechst Pet Film, PFS 3rd Amend: 1-25-94
Finco, and NCT Finco 2nd Amend: 11-30-92
1st Amend: 7-92
- --------------------------------------------------------------------------------
</TABLE>
DO4
REO 933
Park West E-2
1603 LBJ Freeway
Farmers Branch, Texas
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Tenant Name Lease Date Amend Dates
- --------------------------------------------------------------------------------
<S> <C> <C>
Southwest Bank December 16, 1991 Lessee's Certificate:
6-19-95
Commencement Notice:
No date
- --------------------------------------------------------------------------------
Dewey, Feedum & Howe, January 1, 1996 Commencement
Inc. dba Dewey's 2-96
Invoice
- --------------------------------------------------------------------------------
Attachmate Corporation September 28, 1995 Broker Commission
Computation Attached
- --------------------------------------------------------------------------------
Hoechst Celanese June 22, 1992 1st Amend: 12-7-95
Corporation SNDAA: 3-17-93
*Listed Twice on the Rent
Roll--l9,000 sq. ft.
added in per last
amendment
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit E/Page 6
- --------------------------------------------------------------------------------
<S> <C> <C>
Sprint Communications February 10, 1994 Consent to Lease: 5-13-94
Company, L.P. Commencement Notice:
8-11-94
SNDAA: 4-12-94
Lessee's Certificate:
4-12-94
- --------------------------------------------------------------------------------
i 2 Technologies, Inc. June 29, 1990 4th Amend: 8-18-94
3rd Amend: 11-16-93
2nd Amend: 9-4-92
1st Amend: 6-18-91
Commencement Notice:
9-15-92
Commencement Notice:
7-10-90
Commencement Notice:
12-93
SNDAA: 3-4-93
- --------------------------------------------------------------------------------
Golf Enterprises, Inc. August 18, 1993 1st Amend: 6-5-94
SNDAA: 6-1-95
Lessee's Cert: 11-10-94
Commencement Notice:
8-19-94
- --------------------------------------------------------------------------------
Kemet Corporation March 15, 1993 Commencement Notice: 4-
19-93
Lessee's Certificate: 5-30
95
- --------------------------------------------------------------------------------
Nycomed December 8, 1994 N/A
- --------------------------------------------------------------------------------
NMB Corporation April 17, 1989 Commencement Notice of
Second Additional Office
Space: 3-96
Commencement Notice: 6-
14-91
Amendments to Lease
-------------------
2nd Amendment: 5-1-96
1st Amendment: 4-15-91
Letter Agreement: 4-17-89
(attach to lease)
- --------------------------------------------------------------------------------
Maxtor Corporation October 1, 1995 Commencement Notice:
10-2-95
- -------------------------------------------------------------------------------
Al Lee & Associates, Inc. January 29, 1994 Landlord's Waiver and
dba Magec Software Agreement: No date
- --------------------------------------------------------------------------------
Metlife Capital February 26, 1986 Commencement Notice:
Corporation 11-7-95
2nd Amend: 4-15-92
1st Amend: 4-15-89
Certificate: 9-29-86
Broker Ltr: 10-23-85
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT "F"
TENANT'S ESTOPPEL CERTIFICATE
TO: Prentiss Properties Investors, Inc.
THIS IS TO CERTIFY THAT:
1. The undersigned is the tenant under that certain lease dated_______________
("Lease") by and between_________________________,as landlord ("Landlord")
and _______________________, as tenant ("Tenant"), with respect to that
certain premises located at______________, (the "Premises") consisting
of_____________ square feet.
2. The Lease is valid and in full force and effect on the date hereof. The Lease
represents the entire agreement between the Landlord and the Tenant with
respect to the Premises, and is the only agreement between the Landlord and
the Tenant affecting or relating to the Premises. The lease has not been
modified, changed, altered, assigned, supplemented or amended in any way
(except as indicated
herein):____________________________________________________________________
3. Tenant has the following options to extend the term of the Lease:
__________________________________________________________________
___________________________(if none, state "none").
4. Tenant has the following options to lease additional space in the Building:
____________________________________________________________________________
______________(if none, state "none").
5. Tenant has no right to purchase the Property.
6. Tenant has accepted and now occupies the premises, and is and has been
conducting its business in the premises since________________. The
commencement date of the Lease term occurred on_______________,and the
expiration date of the Lease term (other than unexercised options to extend
the lease) will occur on ___________________.
7. Landlord has complied with all of its construction and other obligations
under the lease to this date, and Tenant is fully obligated to pay, and is
paying, the rent and other charges due thereunder, and is fully obligated to
perform, and is performing, all of the other obligations of Tenant under the
Lease without right of counterclaim, offset or defense, except as
specifically provided in the Lease.
<PAGE>
8. No one except the Tenant and its employees occupies the Premises. Tenant has
not sublet the premises or any part thereof or assigned any of its rights
under the Lease except as indicated
herein:_________________________________________________________________(if
none, state "none").
9. Tenant has paid rent for the premises for the period up to and including
_________________. The current rent payable by Tenant is $ __________ per
month. The current common area maintenance and other charges payable by
Tenant (including the Tenant's share of real estate taxes, insurance, and
operating expenses) is $______________per month. No such rent has been paid
more than one (1) month in advance of its due date except as indicated
herein:___________________________________________ (if none, state "none")
10.The Tenant's security deposit is $__________________(if none, state "none").
11.To Tenant's knowledge, no event has occurred and no condition exists which,
with the giving of notice or the lapse of time or both, will constitute a
default under the lease. Tenant has no existing defenses, offsets or credits
against the enforcement of this lease by the Landlord or the payment of rent
for the Premises.
12.No actions, whether voluntary or otherwise, are pending against the Tenant
under the bankruptcy laws of the United States or any state thereof.
13.Tenant's current notice address is set forth in the Lease.
14.The undersigned is authorized by all necessary action of Tenant to execute
this Tenant Estoppel Certificate on behalf of Tenant.
15.Tenant acknowledges that Prospective Purchaser is relying upon this estoppel
in connection with its potential acquisition of certain property, including
the Premises.
Dated this______day of_______, 1996.
Tenant:
-----------------------------------
By:
--------------------------------
Name:
---------------------------
Its:
---------------------------
<PAGE>
EXHIBIT "G"
SURVEYOR'S CERTIFICATE
The Survey shall (1) be prepared in accordance with the standards for the
highest survey in the state where the property is located for comparable
properties; (2) reflect the actual dimensions of and the total number of gross
square feet of land within the Property, (3) identify any rights-Of-way,
improvements, easements, or any encumbrances by applicable recording reference,
and 94) include the Surveyor's registered number and seal, the date of the
Survey and the following narrative certificate:
"The undersigned does hereby certify that (x) this Survey was made upon
the ground of the property reflected hereon on [date of survey], (xx) the
description contained hereon and the location of all rights-of-way,
easements, set-back lines, improvements and encroachments which are
either visible or are of record in Dallas Count, State of Texas, are
accurately reflected hereon, (xxx) the property reflected herein has
access to and from a publicly dedicated roadway as shown hereon, (xxxx)
no part of the land lies within a 100 year flood plain as defined by the
U.S. Department of Housing and Urban Development pursuant to the Flood
Disaster Act of 1973, as amended, and (xxxxx) except as shown hereon
there are no easements, set-back lines, encroachments or improvements."
<PAGE>
EXHIBIT 10.25
PRENTISS PROPERTIES TRUST
1996 SHARE INCENTIVE PLAN
<PAGE>
PRENTISS PROPERTIES TRUST
1996 SHARE INCENTIVE PLAN
-------------------------
ARTICLE I
DEFINITIONS
-----------
1.01. Administrator means the Committee and any delegate of the Committee
-------------
that is appointed in accordance with Article III.
1.02. Affiliate means the Manager and any other entity under the common
---------
control of the Company, within the meaning of Code section 414(b) or (c) and any
"subsidiary" or "parent" corporation (within the meaning of Section 424 of the
Code) of the Company, including an entity that becomes an Affiliate after the
adoption of this Plan.
1.03. Agreement means a written agreement (including any amendment or
---------
supplement thereto) between the Company and a Participant specifying the terms
and conditions of an award of Performance Shares or Restricted Shares or of an
Option, SAR or Incentive Award granted to such Participant.
1.04. Board means the Board of Trustees of the Company.
-----
1.05. Code means the Internal Revenue Code of 1986, as amended and as in
----
effect from time to time.
1.06. Committee means the Compensation Committee of the Board which shall
---------
be comprised solely of two or more Non-Employee Trustees. The Committee shall
be appointed by the Board.
1.07. Company means Prentiss Properties Trust.
-------
<PAGE>
1.08. Corresponding SAR means an SAR that is granted in relation to a
-----------------
particular Option and that can be exercised only upon the surrender to the
Company, unexercised, of that portion of the Option to which the SAR relates.
1.09. Exchange Act means the Securities Exchange Act of 1934, as amended and
------------
as in effect from time to time.
1.10. Fair Market Value means, on any given date, the current fair market
-----------------
value of a Share as determined pursuant to subsection (a) or (b) below.
(a) While the Company is a Non-Public Company, Fair Market Value
shall be determined by the Board using any reasonable method in good faith.
(b) While the Company is a Public Company, Fair Market Value shall
be determined as follows: if the Shares are not listed on an established stock
exchange, the Fair Market Value shall be the reported "closing" price of a Share
in the New York over-the-counter market as reported by the National Association
of Securities Dealers, Inc. If the Shares are listed on an established stock
exchange or exchanges, Fair Market Value shall be deemed to be the highest
closing price of a Share reported on that stock exchange or exchanges or, if no
sale of Shares shall be made on any stock exchange on that day, then the next
preceding day on which there was a sale. For purposes of this definition, the
term "Public Company" means an entity that has sold securities pursuant to an
effective registration statement on Form S-11 filed pursuant to the Securities
Act of 1933, as amended and the term "Non- Public Company" means an entity that
has never sold securities pursuant to an
-2-
<PAGE>
effective registration statement on Form S-11 filed pursuant to the Securities
Act of 1933, as amended.
1.11. Incentive Award means an award which, subject to such terms and
---------------
conditions as may be prescribed by the Administrator, entitle the Participant to
receive a cash payment from the Company or an Affiliate.
1.12. Initial Value means, with respect to a Corresponding SAR, the option
-------------
price per share of the related Option and, with respect to an SAR granted
independently of an Option, the Fair Market Value of one Share on the date of
grant.
1.13. Manager means Prentiss Properties Run Deep, Inc. or any successor to
-------
Prentiss Properties Run Deep, Inc.
1.14. Non-Employee Trustee means a Trustee who satisfies the requirements
--------------------
for a "Non-Employee Director" within the meaning of Securities and Exchange
Commission Rule 16b-3(b)(3).
1.15. Option means a share option that entitles the holder to purchase from
------
the Company a stated number of Shares at the price set forth in an Agreement.
1.16. Participant means an employee of the Company or an Affiliate,
-----------
including an employee who is a Trustee, who satisfies the requirements of
Article IV and is selected by the Administrator to receive an award of
Performance Shares or Restricted Shares, an Option, an SAR, or a combination
thereof.
1.17. Performance Shares means an award which, in accordance with, and
------------------
subject to, an Agreement, will entitle the Participant, or his estate or
beneficiary in
-3-
<PAGE>
the event of the Participant's death, to receive cash or a Share Award or a
combination thereof.
1.18. Plan means the Prentiss Properties Trust 1996 Share Incentive Plan.
----
1.19. Restricted Shares means Shares awarded to a Participant under Article
-----------------
IX that are nontransferable and subject to a substantial risk of forfeiture.
Shares shall cease to be Restricted Shares when, in accordance with the terms of
Article IX and the applicable Agreement, they become transferable and free of
substantial risks of forfeiture.
1.20. SAR means a share appreciation right that entitles the holder to
---
receive, with respect to each Share encompassed by the exercise of such SAR, the
amount determined by the Administrator and specified in an Agreement. In the
absence of such specification, the holder shall be entitled to receive, with
respect to each Share encompassed by the exercise of such SAR, the excess of the
Fair Market Value on the date of exercise over the Initial Value. References to
"SARs" include both Corresponding SARs and SARs granted independently of
Options, unless the context requires otherwise.
1.21. Shares means the common shares of the Company.
------
1.22. Share Award means Shares issued to a Participant under Article X.
-----------
1.23. Trustee means a member of the Board.
-------
-4-
<PAGE>
ARTICLE II
PURPOSES
--------
The Plan is intended to assist the Company and its Affiliates in
recruiting and retaining key employees by enabling such persons to participate
in the future success of the Company and its Affiliates and to associate their
interests with those of the Company and its shareholders. The Plan is intended
to permit the grant of Restricted Share Awards, Options not qualifying under
Section 422 of the Code, SARs, Incentive Awards and the award of Performance
Shares. The proceeds received by the Company from the sale of Shares pursuant to
this Plan shall be used for general corporate purposes.
ARTICLE III
ADMINISTRATION
--------------
The Plan shall be administered by the Administrator. The
Administrator shall have authority to award Performance Shares and to grant
Restricted Share Awards, Incentive Awards, Options and SARs upon such terms (not
inconsistent with the provisions of this Plan), as the Administrator may
consider appropriate. Such terms may include conditions (in addition to those
contained in this Plan), on the exercisability of all or any part of an Option
or SAR or on the transferability or forfeitability of Restricted Shares,
Performance Shares or Incentive Awards. Notwithstanding any such conditions, the
Administrator may, in its discretion, accelerate the time at which any Option or
SAR may be exercised. In addition, the
-5-
<PAGE>
Administrator shall have complete authority to interpret all provisions of this
Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules
and regulations pertaining to the administration of the Plan; and to make all
other determinations necessary or advisable for the administration of this Plan.
The express grant in the Plan of any specific power to the Administrator shall
not be construed as limiting any power or authority of the Administrator. Any
decision made, or action taken, by the Administrator or in connection with the
administration of this Plan shall be final and conclusive. Neither the
Administrator nor any member of the Committee shall be liable for any act done
in good faith with respect to this Plan or any Agreement, Option, SAR, Incentive
Award, Restricted Share Award, or any award of Performance Shares. All expenses
of administering this Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or more
officers of the Company all or part of the Committee's authority and duties with
respect to grants and awards to individuals who are not subject to the reporting
and other provisions of Section 16 of the Exchange Act. The Committee may revoke
or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Committee's delegate or delegates that were
consistent with the terms of the Plan.
-6-
<PAGE>
ARTICLE IV
ELIGIBILITY
-----------
4.01. General. Any employee of the Company or an Affiliate is eligible to
-------
participate in this Plan if the Administrator, in its sole discretion,
determines that such person has contributed significantly or can be expected to
contribute significantly to the profits or growth of the Company or an
Affiliate. A Trustee of the Company who is an employee of the Company or an
Affiliate may be selected to participate in this Plan.
4.02. Grants. The Administrator will designate individuals to whom awards of
------
Restricted Shares and Performance Shares are to be made and to whom Incentive
Awards, Options and SARs are to be granted and will specify the number of Shares
subject to each award or grant. An Option may be granted with or without a
related SAR. An SAR may be granted with or without a related Option. All awards
of Restricted Shares and Performance Shares and all Options and SARs granted
under this Plan shall be evidenced by Agreements which shall be subject to the
applicable provisions of this Plan and to such other provisions as the
Administrator may adopt. No Participant may be granted, in any calendar year,
Options for more than 390,000 Shares or SARs for more than 390,000 Shares. For
purposes of the preceding sentence, an Option and Corresponding SAR shall be
treated as a single award. No Participant may be awarded, in any calendar year,
awards of Restricted Shares, for more than 50,000 Shares. The preceding sentence
shall not limit the issuance of Share Awards in settlement of awards of
Performance Shares. No
-7-
<PAGE>
Participant may be awarded, in any calendar year, Performance Shares with
respect to more than 50,000 Shares. No Participant may receive an Incentive
Award Payment in any calendar year that exceeds the lesser of (i) ___% of the
Participant's base salary (prior to any salary reduction or deferral elections)
as of the date of the Incentive Award or (ii) $________.
ARTICLE V
SHARES SUBJECT TO PLAN
----------------------
5.01. Maximum Number of Shares. Upon the award of Shares in accordance with an
------------------------
award of Restricted Shares and the settlement of Performance Shares, the Company
may issue Shares from its authorized but unissued Shares. Upon the exercise of
any Option or SAR, the Company may deliver to the Participant (or the
Participant's broker if the Participant so directs), Shares from its authorized
but unissued Shares. The maximum aggregate number of Shares that may be issued
under this Plan is 1,614,300 Shares, subject to increase and adjustment as
provided in this Article V and Article XII. The maximum aggregate number of
Shares issued under this Plan pursuant to awards of Restricted Shares, or in
full or partial settlement of awards of Performance Shares, shall not exceed ten
percent of the maximum aggregate number of shares that may be issued during the
term of the Plan under this Article V. If an Option is terminated, in whole or
in part, for any reason other than its exercise or the exercise of a
Corresponding SAR, the number of Shares allocated to the Option or portion
thereof may be reallocated to other
-8-
<PAGE>
Options, SARs, awards of Restricted Shares, and Performance Shares to be granted
under this Plan. If an SAR is terminated, in whole or in part, for any reason
other than its exercise or the exercise of a related Option, the number of
Shares allocated to the SAR or portion thereof may be reallocated to other
Options, SARs, awards of Restricted Shares or Performance Shares to be granted
under this Plan. To the extent that an award of Performance Shares is forfeited,
in whole or in part, without the issuance of a Share Award, or to the extent
that an award of Restricted Shares is forfeited, the number of Shares allocated
to the portion of the forfeited Performance Share award or forfeited Restricted
Share award may be reallocated to other Options, SARs and awards of Restricted
Shares, and Performance Shares to be granted under this Plan.
5.02. Replenishment. The maximum number of shares authorized for issuance under
-------------
Section 5.01 shall be increased each year by 8% (the Replenishment Percentage)
of the amount, if any, by which the total number of Common Shares outstanding as
of the last day of the Company's fiscal year exceeds the total number of Common
Shares outstanding as of the first day of such fiscal year. No adjustment under
this Section 5.02 will occur on account of the issuance of Common Shares under
this Plan or an increase in the maximum number of shares authorized for issuance
under the plan pursuant to Article XII. This Section 5.02 shall first apply with
respect to the fiscal year of the Company beginning on
- --------------.
-9-
<PAGE>
ARTICLE VI
OPTION PRICE
------------
The price per share for Shares purchased on the exercise of an
Option shall be determined by the Administrator on the date of grant; provided,
however, that the price per share for Shares purchased on the exercise of any
Option shall not be less than the Fair Market Value on the date the Option is
granted.
ARTICLE VII
EXERCISE OF OPTIONS AND SARS
----------------------------
7.01. Maximum Option or SAR Period. The maximum period in which an Option or SAR
----------------------------
may be exercised shall be determined by the Administrator on the date of grant.
7.02. Nontransferability. Any Option or SAR granted under this Plan shall be
------------------
nontransferable except by will or by the laws of descent and distribution. In
the event of any such transfer, the Option and any Corresponding SAR that
relates to such Option must be transferred to the same person or persons. During
the lifetime of the Participant to whom the Option or SAR is granted, the Option
or SAR may be exercised only by the Participant. No right or interest of a
Participant in any Option or SAR shall be liable for, or subject to, any lien,
obligation, or liability of such Participant.
-10-
<PAGE>
ARTICLE VIII
METHOD OF EXERCISE
------------------
8.01. Exercise. Subject to the provisions of Articles VII and XIII, an Option or
--------
SAR may be exercised in whole at any time or in part from time to time at such
times and in compliance with such requirements as the Administrator shall
determine. An Option or SAR granted under this Plan may be exercised with
respect to any number of whole Shares less than the full number of whole Shares
for which the Option or SAR could be exercised. A partial exercise of an Option
or SAR shall not affect the right to exercise the Option or SAR from time to
time in accordance with this Plan and the applicable Agreement with respect to
the remaining Shares subject to the Option or related to the SAR. The exercise
of either an Option or Corresponding SAR shall result in the termination of the
other to the extent of the number of Shares with respect to which the Option or
Corresponding SAR is exercised.
8.02. Payment. Unless otherwise provided by the Agreement, payment of the Option
-------
price shall be made in a single sum, in cash or a cash equivalent acceptable to
the Administrator. If the Agreement provides, payment of all or part of the
Option price may be made by surrendering Shares to the Company. If Shares are
used to pay all or part of the Option price, any Shares surrendered must have an
aggregate Fair Market Value (determined as of the day preceding the date of
exercise) that, together with any cash or cash equivalent paid, is not less than
the Option price for the number of Shares for which the Option is being
exercised.
-11-
<PAGE>
8.03. Determination of Payment of Cash and/or Shares Upon Exercise of SAR. At
-------------------------------------------------------------------
the Administrator's discretion, the amount payable as a result of the exercise
of an SAR may be settled in cash, cash equivalents acceptable to the
Administrator, by the surrender of Shares, or a combination thereof. A
fractional share shall not be deliverable upon the exercise of an SAR but a cash
payment will be made in lieu thereof.
8.04. Forfeiture. If a Participant's employment with the Company or an Affiliate
----------
is terminated, his or her Options and SARs shall be forfeited to the extent that
the Options and SARs were not exercisable on the date of the Participant's
termination of employment and to the extent that the Administrator does not
exercise its discretion to accelerate the time at which the Participant's
Options and SARs may be exercised. If a Participant's employment with the
Company or an Affiliate terminates due to the Participant's dishonesty, or other
similar reasons as determined by the Administrator, all of the Participant's
unexercised Options and SARs shall be forfeited, regardless of whether such
Options and SARs were exercisable on the date the Participant's employment
terminated. The Administrator has complete discretion to determine whether the
reason for a participant's termination of employment warrants the forfeiture of
all the Participant's unexercised Options and SARs.
8.05. Shareholder Rights. No Participant shall have any rights as a shareholder
------------------
with respect to Shares subject to his Option or SAR until the date of exercise
of such Option or SAR and the issuance of Shares thereunder.
-12-
<PAGE>
ARTICLE IX
RESTRICTED SHARE AWARDS
-----------------------
9.01. Awards. In accordance with the provisions of Section 4.01, the
------
Administrator will designate each individual to whom an award of Restricted
Shares is to be made and, subject to the provisions of Section 4.02, will
specify the number of Shares covered by each such award.
9.02. Vesting. Subject to the provisions of Section 9.03, the Shares covered by
-------
an award of Restricted Shares shall remain nontransferable and forfeitable until
such conditions as the Administrator, in its discretion, may prescribe in the
Agreement have been satisfied. By way of example and not of limitation, such
conditions may include a Participant's continued employment for a specified
period or that the Company or the Participant achieve stated, performance-
related objectives such as return on capital, earnings per Share, earnings
growth, total earnings, Fair Market Value, funds from operations per share, or
return on assets. Such conditions also may include by way of example and not of
limitation, requirements that the Participant complete a specified period of
employment with the Company or an Affiliate. The determination as to whether
such conditions have been satisfied shall be made by the Administrator, and such
determination shall be conclusive.
9.03. Minimum Vesting Period. In cases where the Administrator has prescribed,
----------------------
in the Agreement, that certain performance-related objectives must be satisfied
in order for Restricted Shares to become transferable and nonforfeitable, the
performance period shall be at least one year. In all other cases, Shares
covered by
-13-
<PAGE>
an award of Restricted Shares shall become transferable and nonforfeitable no
sooner than three years after the award date. The Administrator, in its
discretion, may accelerate the vesting of awards of Restricted Shares for
Participants whose employment with the Company or an Affiliate terminates.
9.04. Forfeiture. If a Participant's employment with the Company or an Affiliate
----------
terminates, for any reason other than death or disability, the Participant shall
forfeit all Shares that have not become transferable and nonforfeitable on the
date of the Participant's termination of employment and to the extent that the
Administrator does not exercise its discretion to accelerate the vesting of the
Participant's awards of Restricted Shares. If a Participant's employment with
the Company or an Affiliate terminates due to the Participant's dishonesty, or
other similar reasons as determined by the Administrator, all of the
Participant's Shares shall be forfeited, regardless of whether such Shares were
vested on the date the Participant's employment terminated. The Administrator
has complete discretion to determine whether the reason for a participant's
termination of employment warrants the forfeiture of all the Participant's
Restricted Shares.
9.05. Shareholder Rights. In accordance with the terms of the Agreement, a
------------------
Participant will have all rights of a shareholder with respect to the Common
Stock covered by an award of Restricted Shares, including the right to receive
dividends and vote the shares; provided, however, that (i) a Participant may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of
Restricted Shares, (ii) the Company shall retain custody of the certificates
evidencing shares of Restricted Shares, and (iii) the participant will deliver
to the Company a stock power, endorsed in blank, with respect to each award of
Restricted Shares. The limitations set forth in the preceding sentence shall not
apply after the Restricted Shares are, in accordance with the terms of the
applicable Agreement, transferable and no longer forfeitable.
-14-
<PAGE>
ARTICLE X
PERFORMANCE SHARE AWARDS
------------------------
10.01. Award. In accordance with the provisions of Section 4.01, the
-----
Administrator will designate individuals to whom an award of Performance Shares
is to be granted and, subject to the provisions of Section 4.02, will specify
the number of Shares covered by the award.
10.02. Earning the Award. An award of Performance Shares, or portion thereof,
-----------------
will be earned, and the Participant will be entitled to receive Shares pursuant
to a Share Award, a cash payment or a combination thereof, only upon the
achievement by the Participant, the Company, or an Affiliate of such
performance-related objectives as the Administrator, in its discretion, shall
prescribe on the date of grant. By way of example and not of limitation, such
performance-related objectives may be stated with respect to return on capital,
earnings per Share, earnings growth, total earnings, Fair Market Value funds
from operations per share, or return on assets. The determination as to whether
such objectives have been achieved shall be made by the Administrator, and such
determination shall be conclusive; provided, however, that the period in which
such performance is measured shall be at least one year. In addition, the
Administrator may, by way of example and not of limitation, require the
Participant to complete a specified period of employment with the Company or an
Affiliate.
10.03. Payment. In the discretion of the Administrator, the amount payable when
-------
an award of Performance Shares is earned may be settled in cash, by the grant of
-15-
<PAGE>
a Share Award or a combination of cash and a Share Award. A fractional share
shall not be deliverable when an award of Performance Shares is earned, but a
cash payment will be made in lieu thereof.
10.04. Shareholder Rights. No Participant shall, as a result of receiving an
------------------
award of Performance Shares, have any rights as a shareholder until and to the
extent that the award of Performance Shares is earned and a Share Award is made.
If the Agreement so provides, a Participant may receive a cash payment equal to
the dividends that would have been payable with respect to the number of Shares
covered by the award between the date the Performance Shares are awarded and the
date a Share Award is made pursuant to the Performance Share award. A
Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of a Performance Share award or the right to receive Shares thereunder
other than by will or the laws of descent and distribution. After an award of
Performance Shares is earned and a Share Award is made, a Participant will have
all the rights of a shareholder with respect to the Shares so awarded.
ARTICLE XI
INCENTIVE AWARDS
----------------
11.01. Award. In accordance with the provisions of Article IV, the Administrator
-----
shall designate Participants to whom Incentive Awards are made. All Incentive
Awards shall be finally determined exclusively by the Administrator under the
procedures established by the Administrator.
-16-
<PAGE>
11.02. Terms and Conditions. The Administrator, at the time an Incentive Award
--------------------
is made, shall specify the terms and conditions which govern the award. Such
terms and conditions may prescribe, by way of example and not of limitation,
that the Incentive Award shall be earned only to the extent that the Company or
an Affiliate, during a performance period achieves performance-related
objectives stated with respect to the Company's, an Affiliate's or an operating
unit's return on equity, earnings per share, total earnings, earnings growth,
return on capital, return on assets or Fair Market Value or funds from
operations per share. Such terms and conditions also may include other
limitations on the payment of Incentive Awards including, by way of example and
not of limitation, requirements that the Participant complete a specified period
of employment with the Company or an Affiliate. The Administrator, at the time
an Incentive Award is made, shall also specify when amounts shall be payable
under the Incentive Award and whether amounts shall be payable in the event of
the Participant's death, disability, or retirement. No payment shall be made
under an Incentive Award except to the extent that the Administrator certifies
that the objectives governing such award have been achieved.
11.03. Nontransferability. Incentive Awards shall be nontransferable except by
------------------
will or by the laws of descent and distribution. No right or interest of a
Participant in an Incentive Award shall be liable for, or subject to, any lien,
obligation, or liability of such Participant.
-17-
<PAGE>
11.04. Shareholder Rights. No Participant shall, as a result of receiving an
------------------
Incentive Award, have any rights as a shareholder of the Company or any
Affiliate on account of such award.
ARTICLE XII
ADJUSTMENT UPON CHANGE IN SHARES
--------------------------------
The maximum number of Shares which may be issued pursuant to
Options, SARs, awards of Restricted Shares and the settlement of Performance
Shares, the Replenishment Percentage under Section 5.02 under this Plan and the
individual limits on the award of Options, SARs, awards of Restricted Shares and
Share Awards in a calendar year shall be proportionately adjusted, and the terms
of outstanding Options, SARs, awards of Restricted Shares and Performance Shares
and Incentive Awards shall be adjusted, as the Committee shall determine to be
equitably required in the event that (a) the Company (i) effects one or more
Share dividends, Share split-ups, subdivisions or consolidations of Shares or
(ii) engages in a transaction to which Section 424 of the Code applies or (b)
there occurs any other event which, in the judgment of the Committee,
necessitates such action. Any determination made under this Article XII by the
Committee shall be final and conclusive.
The issuance by the Company of shares of any class, or securities
convertible into shares of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible
-18-
<PAGE>
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the maximum number of shares as to
which Options, SARs, Restricted Shares and Performance Shares may be granted,
the individual limits on awards of Options, SARs, Restricted Shares, and
Performance Shares, the Replenishment Percentage of Section 5.02 in a calendar
year or the terms of outstanding awards of Options, SARs, Restricted Shares or
Performance Shares or Incentive Awards.
The Committee may award Performance Shares or Restricted Shares,
Options and SARs in substitution for performance shares, share awards (including
awards of restricted shares), stock options, stock appreciation rights, or
similar awards held by an individual who becomes an employee of the Company or
an Affiliate in connection with a transaction described in the first paragraph
of this Article XII. Notwithstanding any provision of the Plan (other than the
limitations of Article V), the terms of such substituted Options, SARs, awards
of Restricted Shares, or awards of Performance Shares shall be as the Committee,
in its discretion, determines is appropriate.
-19-
<PAGE>
ARTICLE XIII
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
-----------------------------
No Option or SAR shall be exercisable, no Shares shall be issued,
no certificates for Shares shall be delivered, and no payment shall be made
under this Plan except in compliance with all applicable federal and state laws
and regulations (including, without limitation, withholding tax requirements),
any listing agreement to which the Company is a party, and the rules of all
domestic stock exchanges on which the Company's Shares may be listed. The
Company shall have the right to rely on an opinion of its counsel as to such
compliance. Any certificate issued to evidence Shares when an award of
Performance Shares is settled in Shares, an award of Restricted Shares is made,
or for which an Option or SAR is exercised may bear such legends and statements
as the Administrator may deem advisable to assure compliance with federal and
state laws and regulations. No Option or SAR shall be exercisable, no award of
Performance Shares or Restricted Shares shall be granted, no Shares shall be
issued, no certificate for Shares shall be delivered, and no payment shall be
made under this Plan until the Company has obtained such consent or approval as
the Administrator may deem advisable from regulatory bodies having jurisdiction
over such matters.
-20-
<PAGE>
ARTICLE XIV
GENERAL PROVISIONS
------------------
14.01. Effect on Employment. Neither the adoption of this Plan, its operation,
--------------------
nor any documents describing or referring to this Plan (or any part thereof)
shall confer upon any individual any right to continue in the employ of the
Company or an Affiliate or in any way affect any right or power of the Company
or an Affiliate to terminate the employment of any individual at any time with
or without assigning a reason therefor.
14.02. Unfunded Plan. The Plan, insofar as it provides for grants, shall be
-------------
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
14.03. Rules of Construction. Headings are given to the articles and sections of
---------------------
this Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation, or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
14.04. Employee Status. For purposes of determining the applicability of Section
---------------
422 of the Code (relating to incentive stock options), or in the event that the
terms of any award of Performance Shares or Restricted Shares or the grant of
any
-21-
<PAGE>
Incentive Award, Option or SAR provide that Shares may be issued or become
transferable and nonforfeitable thereunder only after completion of a specified
period of employment or during employment, the Administrator may decide in each
case to what extent leaves of absence for governmental or military service,
illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment.
14.05. Tax Withholding. Each Participant shall be responsible for satisfying any
---------------
income and employment tax withholding obligation attributable to participation
in this Plan. Unless otherwise provided by the applicable Agreement, any such
withholding tax obligation may be satisfied in cash (including from any cash
payable in settlement of an award of Performance Shares, an SAR or an Incentive
Award) or a cash equivalent acceptable to the Administrator. If provided in an
Agreement and in accordance with procedures established by the Administrator, a
Participant may surrender Shares in satisfaction of all or part of that tax
withholding obligation.
14.06. Notice. Unless specifically required by the terms of this Plan, notice to
------
the Company's shareholders, the Participants, or any other person or entity of
an action by the Board, the Committee, or the Administrator with respect to the
Plan is not required before or after such action occurs.
-22-
<PAGE>
ARTICLE XV
AMENDMENT
---------
The Board may amend from time to time or terminate the Plan;
provided, however, that no amendment may become effective until shareholder
approval is obtained if the amendment materially (a) increases the aggregate
number of Shares that may be issued under the Plan (other than an adjustment
authorized under Article XII or Section 5.02); (b) changes the class of
individuals eligible to become Participants; or (c) increases the benefits that
may be provided under the Plan. No amendment shall, without a Participant's
consent, adversely affect any rights of such Participant under any outstanding
award of Performance Shares or Restricted Shares or under any Incentive Award,
Option or SAR outstanding at the time such amendment is made.
ARTICLE XVI
DURATION OF PLAN
----------------
No Performance Shares or Restricted Shares may be awarded and no
Incentive Award, Option or SAR may be granted under this Plan more than ten
years after the earlier of the date that the Plan is adopted by the Board or the
date that the Plan is approved by the Company's shareholders as provided in
Article XVI. Performance Shares and Restricted Shares awarded and Options and
SARs granted before that date shall remain valid in accordance with their terms.
-23-
<PAGE>
ARTICLE XVII
EFFECTIVE DATE OF PLAN
----------------------
Options, SARs and Incentive Awards may be granted under this Plan
upon its adoption by the Board, provided that no Option or SAR will be effective
or exercisable unless this Plan is approved (i) by a majority of the votes cast
by the Company's shareholders, either in person or by proxy, at a duly held
shareholders' meeting at which a quorum representing a majority of all
outstanding Shares is present either in person or by proxy, or (ii) by unanimous
consent of the Company's shareholders. Awards of Restricted Shares and
Performance Shares may be made under this Plan after it is approved by the
shareholders in accordance with the preceding sentence.
-24-
<PAGE>
EXHIBIT 10.26
PRENTISS PROPERTIES TRUST
TRUSTEES' SHARE INCENTIVE PLAN
Effective ___________, 1996
<PAGE>
ARTICLE I
DEFINITIONS
-----------
1.01. Affiliate means any "subsidiary" or "parent" corporation (within the
---------
meaning of Section 424 of the Code) of the Company, including an entity that
becomes an Affiliate after the adoption of this Plan.
1.02. Award Date means the date of the first Board meeting after each annual
----------
meeting of the Company's shareholders during the term of the Plan.
1.03. Board means the Board of Trustees of the Company.
-----
1.04. Committee means the committee consisting of two or more Trustees
---------
appointed by the Board to administer the Plan.
1.05. Company means Prentiss Properties Trust.
-------
1.06. Fair Market Value means, on any given date, the current fair market
-----------------
value of a Share as determined pursuant to subsection (a) or (b) below.
(a) While the Company is a Non-Public Company, Fair Market Value shall
be determined by the Board using any reasonable method in good faith.
(b) While the Company is a Public Company, Fair Market Value shall be
determined as follows: if the Shares are not listed on an established stock
exchange, the Fair Market Value shall be the reported "closing" price of a Share
in the New York over-the-counter market as reported by the National Association
of Securities Dealers, Inc. If the Shares are listed on an established stock
exchange or exchanges, Fair Market Value shall be deemed to be the highest
closing price of a Share reported on that stock exchange or exchanges or, if no
sale of Shares shall be made on any stock exchange on that day, then the next
preceding day on which there was a sale. For purposes of this definition, the
term "Public Company" means an entity that has
<PAGE>
sold securities pursuant to an effective registration statement on Form S-11
filed pursuant to the Securities Act of 1933, as amended and the term "Non-
Public Company" means an entity that has never sold securities pursuant to an
effective registration statement on Form S-11 filed pursuant to the Securities
Act of 1933, as amended.
1.07. First Award Date means the date that the registration statement
----------------
relating to the Company's initial public offering of Shares is declared
effective by the Securities and Exchange Commission .
1.08. Founding Trustee means a Participant who is a member of the Board on
----------------
the First Award Date .
1.09. Non-Founding Trustee means a Participant who is not a Founding
--------------------
Trustee.
1.10. Option means an option that entitles the holder to purchase Shares
------
from the Company on the terms set forth in Article IV of this Plan.
1.11. Participant means a member of the Board who, on the First Award Date
-----------
or the applicable Award Date or Quarterly Award Date, is not an employee or
officer of the Company or an Affiliate and who is not a member of the Committee.
Participant also means an individual who is not an employee of the Company or an
Affiliate and who is elected or appointed a member of the Board other than at an
annual meeting of the Company's shareholders.
1.12. Plan means the Prentiss Properties Trust Trustees' Share Incentive
----
Plan.
1.13. Quarterly Award Date means each January 1, April 1, July 1 and October
--------------------
1 which occurs during the term of the Plan.
1.14. Shares means the common shares of the Company.
------
1.15. Trustee means a member of the Board of Trustees of the Company.
-------
2
<PAGE>
ARTICLE II
PURPOSES
--------
The Plan is intended to (i) assist the Company in recruiting and
retaining trustees and (ii) promote a greater identity of interest between
Participants and shareholders by enabling Participants to participate in the
Company's future success.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have authority to grant Options and award Shares upon such terms (not
inconsistent with the provisions of the Plan) as the Committee may consider
appropriate. In addition, the Committee shall have complete authority to
interpret all provisions of the Plan; to adopt, amend, and rescind rules and
regulations pertaining to the administration of the Plan; and to make all other
determinations necessary or advisable for the administration of the Plan. The
express grant in the Plan of any specific power to the Committee shall not be
construed as limiting any power or authority of the Committee. Any decision
made, or action taken, by the Committee or in connection with the administration
of the Plan shall be final and conclusive. No member of the Committee shall be
liable for any act done in good faith with respect to the Plan. All expenses of
administering the Plan shall be borne by the Company.
3
<PAGE>
ARTICLE IV
OPTIONS
-------
4.01. Grant of Options to Founding Trustees and Participants Elected at
-----------------------------------------------------------------
Annual Meeting. This Section 4.01 does not apply to Participants described in
- --------------
the first sentence of Section 4.02. Each Founding Trustee shall be granted an
Option for 10,000 Shares on the First Award Date. Each Non-Founding Trustee
shall be granted, on the first Award Date on which he is a member of the Board,
an Option for 10,000 Shares. Subject to the provisions of Article VII, an Option
granted under this Section 4.01 shall be exercisable with respect to 2,500
Shares on the first Award Date after the date on which such Option was granted,
provided that the Participant is then a member of the Board, and with respect to
an additional 2,500 Shares subject to such Option on each successive Award Date,
provided that the Participant is then a member of the Board.
4.02. Grant of Options to Other Participants. This Section 4.02 applies to
--------------------------------------
Participants (other than Founding Trustees) who are first elected or appointed
to the Board other than at an annual meeting of the Company's shareholders. Each
Participant to whom this Section 4.02 applies shall be granted, on the date of
such appointment or election to the Board, an Option for 10,000 Shares. Subject
to the provisions of Article VII, an Option granted under this Section 4.02
shall be exercisable with respect to 2,500 Shares on the first Award Date
following the Option's grant date, provided that the Participant is then a
member of the Board, and with respect to an additional 2,500 Shares subject to
such Option on each successive Award Date, provided that the Participant is then
a member of the Board.
4
<PAGE>
4.03. Option Price and Payment. The price per share for shares purchased or
------------------------
the exercise of an Option shall be the Fair Market Value on the date that the
option is granted. Payment of the Option price shall be made in cash, cash
equivalent acceptable to the Committee, by the surrender of Shares or a
combination thereof. If Shares are surrendered in payment of the Option price,
the Shares surrendered must have an aggregate Fair Market Value (determined as
of the day preceding the exercise date) that, together with any cash or cash
equivalent paid, is not less than the Option price for the number of Shares for
which the Option is being exercised.
4.04. Exercise. To the extent that an Option has become exercisable in
--------
accordance with Section 4.01 or 4.02, as applicable, it may be exercised whether
or not the Participant is a member of the Board on the date or dates of
exercise. An Option may be exercised with respect to any number of whole Shares
less than the full number for which the Option could be exercised. A partial
exercise of an Option shall not affect the right to exercise the Option from
time to time in accordance with this Plan with respect to the remaining Shares
subject to the Option. All Options shall be evidenced by agreements that shall
be subject to the applicable provisions of this Plan and to such other
provisions as the Committee may adopt.
4.05. Maximum Option Period. The period during which an Option may be
---------------------
exercised shall be ten years from the date of grant. In the event of the
Participant's death, the Option may be exercised by the Participant's estate or
by such person or persons who succeed to the Participant's rights by will or the
laws of descent and distribution following the Participant's death until the
expiration of the Option period. Participant's estate or such person or persons
5
<PAGE>
may exercise the Option with respect to all or part of the number of Shares
for which participant could have exercised the Option on the date of his
death.
4.06. Nontransferability. An Option granted under this Plan shall be
------------------
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of the Participant to whom an Option is granted, the
Option may be exercised only by the Participant. No right or interest of a
Participant in any Option shall be liable for, or subject to, any lien,
obligation, or liability of such Participant.
4.07. Shareholder Rights. No Participant shall have any rights as a
------------------
shareholder with respect to Shares subject to his or her Option until the date
of exercise of such Option.
4.08. Shares Subject to Options. Upon the exercise of any Option, the
-------------------------
Company may deliver to the Participant (or the Participant's broker if the
Participant so directs), Shares from its previously authorized but unissued
Shares.
ARTICLE V
SHARE AWARDS
------------
5.01. Grants. On each Quarterly Award Date each Participant will be
------
awarded a whole number of Shares having an aggregate Fair Market Value on that
date that as nearly as possible equals, but does not exceed, $2,500.
5.02. Vesting. All Shares issued to a Participant under this Article V
-------
shall be immediately and fully vested when granted.
6
<PAGE>
5.03. Transferability. All Shares issued to a Participant under this
----------------
Article V shall be immediately transferable, subject only to restrictions
imposed by federal and state securities and other laws.
5.04. Shareholder Rights. A Participant shall have all rights as a
-------------------
shareholder with respect to Shares awarded pursuant to this Article V.
5.05. Shares Subject to Awards. Upon the award of Shares in accordance
------------------------
with this Article V, the Company may issue Shares from its authorized but
unissued Shares.
ARTICLE VI
ADJUSTMENT IN AGGREGATE OUTSTANDING OPTIONS AND SHARE AWARDS
UPON CHANGE IN COMMON SHARES AND
ADJUSTMENT IN OPTIONS AND SHARE AWARDS MADE THEREAFTER
------------------------------------------------------
The provisions of this Plan shall be revised as the Committee shall
determine to be equitably required in the event that (a) the Company (i) effects
one or more Share dividends, Share split-ups, subdivisions or consolidation of
Shares or (ii) engages in a transaction to which Section 424 of the Code applies
or (b) there occurs any other event which, in the judgment of the Committee,
necessitates such action. Any determination made under this Article VI by the
Committee shall be final and conclusive.
The issuance by the Company of shares of any class, or securities
convertible into shares of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares of obligations of the Company
convertible into such shares or other securities, shall not affect, and
7
<PAGE>
no adjustment by reason thereof shall be made with respect to, the number of
shares that will be issued as of any applicable Award Date.
ARTICLE VII
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
-----------------------------------------------------
No Shares shall be issued and no certificates for Shares shall be delivered
under the Plan except in compliance with all applicable federal and state laws
and regulations (including, without limitation, withholding tax requirements),
any listing agreement to which the Company is a party, and the rules of all
domestic stock exchanges on which the Company's Shares may be listed. The
Company shall have the right to rely on an opinion of its counsel as to such
compliance. Any certificate issued to evidence Shares issued under the Plan may
bear such legends and statements as the Committee may deem advisable to assure
compliance with federal and state laws and regulations. No Shares shall be
issued and no certificate for Shares shall be delivered under the Plan until the
Company has obtained such consent or approval as the Committee may deem
advisable from regulatory bodies having jurisdiction over such matters.
ARTICLE VIII
GENERAL PROVISIONS
------------------
8.01. Unfunded Plan. The Plan, insofar as it provides for awards,
--------------
shall be unfunded, and the Company shall not be required to segregate any
assets that may at any time be represented by awards under the Plan. Any
liability of the Company to any person with respect to any award to be made
under the Plan shall be based solely upon any contractual obligations
8
<PAGE>
that may be created pursuant to the Plan. No such obligation of the Company
shall be deemed to be secured by any pledge of, or other encumbrance on, any
property of the Company.
8.02. Rules of Construction. Headings are given to the articles and
----------------------
sections of the Plan solely as a convenience to facilitate reference. The
reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
8.0. Notice. Unless specifically required by the terms of this Plan,
-------
notice to the Company's shareholders, the Participants, or any other person or
entity of an action by the Board or the Committee with respect to the Plan is
not required before or after such action occurs.
ARTICLE IX
AMENDMENT
---------
The Board may amend from time to time or terminate the Plan at any time;
provided, however, that no amendment may become effective until shareholder
approval is obtained if the amendment materially (a) increases the aggregate
number of Shares that may be issued under this Plan (other than an adjustment
authorized under Article VI); (b) changes the class of individuals eligible to
become Participants; or (c) increases the benefits that may be provided under
the Plan.
9
<PAGE>
ARTICLE X
DURATION OF PLAN
----------------
No Shares may be awarded and no Options may be granted under the Plan after
_____________, 200_. An award of Shares during the term of the Plan shall
remain in effect in accordance with its terms notwithstanding the expiration of
the Plan.
ARTICLE XI
EFFECTIVE DATE OF PLAN
----------------------
Shares may be issued under the Plan on the Quarterly Award Date, provided
that the Plan has been approved (i) by a majority of the votes cast by the
Company's shareholders, voting either in person or by proxy, at a duly held
shareholders' meeting at which a quorum representing a majority of all
outstanding shares is present, either in person or by proxy, or (ii) by
unanimous consent of the Company's shareholders. Options may be granted under
this Plan upon its adoption by the Board, but no Option will be effective or
exercisable unless this Plan is approved by shareholders in accordance with the
preceding sentence.
10
<PAGE>
EXHIBIT 10.27
FIRST AMENDMENT TO REAL ESTATE
PURCHASE AND SALE AGREEMENT
AND TO EARNEST MONEY ESCROW AGREEMENT
This First Amendment to Real Estate Purchase and Sale Agreement (the "First
Amendment") is made as of this 12th day of August, 1996, by and between
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY ("Seller") and PRENTISS
PROPERTIES INVESTORS, INC. ("Buyer").
RECITALS:
--------
A. Buyer and Seller have previously entered into that certain Real Estate
Purchase and Sale Agreement (the "Contract") dated as of June 27, 1996 regarding
certain real property located in Dallas County, Texas and more particularly
described therein (the "Real Property").
B. The parties hereto desire to make certain modifications to the
Contract.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Amendment, and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1 . All capitalized terms used in this Amendment and not defined herein
shall have the meaning ascribed to them in the Contract.
2. Notwithstanding the provisions of Section 6 of the Contract to the
contrary, the Closing Date shall be the earlier of:
a. Thirty (30) days following the date upon which the first sale is
made pursuant to the initial public offering of interests in
Prentiss Properties Trust; or
b. October 3l, 1996.
3. The Purchase Price is hereby increased to Thirty-Six Million Eight
Hundred Fifty Thousand Dollars ($36,850,000.00).
4. Earnest Money.
a. Contemporaneously with the execution and delivery of this
Amendment, the parties hereto will direct the Title Company to
return to Buyer all of the funds comprising the Deposit except for
$75,000.00. Buyer agrees to deposit the following additional
amounts with the Title Company on the dates set forth below, all of
which shall be added to the Deposit:
<PAGE>
On or before August 3l, 1996: 100,000.00
On or before September 30, 1996: 125,000.00
On or before October 30, 1996: 150,000.00.
b. In the event that Buyer, for whatever reason, fails to fund any
portion of the Deposit as set forth in paragraph 4.a. of this First
Amendment by, on or before the dates set forth in such paragraph,
then: (i) Buyer shall automatically be deemed to have elected to
terminate the Contract and the then-current Deposit immediately
shall be forfeited to Seller; (ii) Buyer shall have no
responsibility for any additional deposits which are required to be
made pursuant to paragraph 4.a. of this First Amendment; and (iii)
the Contract shall terminate in accordance with terms of the
Contract, except for those matters which expressly survive the
termination of the Contract.
c. In the event that the Closing occurs under the Contract, all the
Deposit monies set forth in paragraph 4.a. of this First Amendment
shall be applied to the Purchase Price.
5. Notwithstanding anything contained in the Contract to the contrary,
provided that the transaction contemplated in the Contract does not close due to
acts of Buyer, and Seller is not in default hereunder, the Deposit shall not be
refundable to Buyer.
6. Notwithstanding anything contained in the Contract to the contrary,
upon full execution of this First Amendment, Buyer shall be deemed to have
approved the conditions set forth in Section 4(a) of the Contract, the Contract
shall remain in full force and effect, and the Deposit, as it may be increased
from time to time, shall be held by the Title Company in accordance with the
terms of the Contract; provided, however, that if this First Amendment is not
executed and returned to Seller by or before August 12, 1996 at 5:00 p.m. no
provision hereof shall operate to extend the period of time provided in Section
4(a) of the Agreement beyond August 12, 1996.
7. Notwithstanding anything to the contrary contained in paragraph 5 of
the Contract, Seller agrees to seek approval of the Contract, and the
transaction contemplated in the Contract, from Seller's Investment Committee, by
no later than August 16, 1996.
8. Buyer acknowledges that a suite of approximately 15,690 square feet of
space located in the 2611 Westgrove Drive (Crestview I) portion of the Real
Property is currently vacant and may be vacant as of the Closing. In the event a
New Lease for such suite is obtained by Seller prior to the Closing, Buyer
agrees to pay all costs related to occupancy thereof pursuant to the terms of
Section 6(f) of the Contract.
2
<PAGE>
9. Except as expressly modified by this First Amendment, the Contract
shall remain in full force and effect.
10. Earnest Money Escrow Agreement. The parties hereto mutually agree that
the Escrow Agent (as that term is defined in the Earnest Money Escrow Agreement
dated June 27, 1996, among the parties and Chicago Title Insurance Company
("CTT"), the "Escrow Agreement") shall be entitled to rely upon the terms and
conditions hereof as an amendment to the Escrow Agreement and as authorization
to disburse a portion of the Deposit in accordance with this Agreement. By
signing below, the Escrow Agent acknowledges that the Escrow Agreement is so
amended in accordance with the terms and conditions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first written above.
PRINCIPAL MUTUAL LiFE
INSURANCE COMPANY
By: /s/ Michael S. Duffy
--------------------------------------
Name: Michael S. Duffy
------------------------------------
Assistant Director
Title: Commercial Real Estate/Equities
-----------------------------------
By: /s/ Kurt D. Schaefter
--------------------------------------
Name: Kurt D. Schaefter
------------------------------------
Assistant Director
Title: Commercial Real Estate
-----------------------------------
PRENTISS PROPERTIES
INVESTORS, INC.
By: /s/ Mark R. Doran
--------------------------------------
Name: Mark R. Doran
------------------------------------
Title: Vice-President
-----------------------------------
ESCROW AGENT:
CHICAGO TITLE INSURANCE
COMPANY,
A Missouri corporation
By: /s/ Gloria Ripoll
--------------------------------------
Name: Gloria Ripoll
------------------------------------
Title: Escrow Officer
-----------------------------------
3
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 (File
No. 333-9863) of our reports dated July 15, 1996, on our audits of the balance
sheet of Prentiss Property Trust, the combined financial statements and
financial statement schedule of the Predecessor Company, the combined statements
of revenues and certain operating expenses of the Prentiss Group Acquisition
Properties, and the combined statements of revenues and certain operating
expenses of the Other Acquisition Properties, and our report dated August 30,
1996 on our audit of the combined statement of revenues and certain operating
expenses of the Bachman Creek and Park West E1 and E2 Properties. We also
consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Dallas, Texas
September 18, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PREDECESSOR COMPANY FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 1,936 1,033
<SECURITIES> 0 0
<RECEIVABLES> 2,824 3,119
<ALLOWANCES> 219 364
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 173,439 153,148
<DEPRECIATION> 14,092 11,780
<TOTAL-ASSETS> 175,108 154,490
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 101,620 103,721
<TOTAL-LIABILITY-AND-EQUITY> 175,108 154,490
<SALES> 0 0
<TOTAL-REVENUES> 26,697 55,164
<CGS> 0 0
<TOTAL-COSTS> 23,378 45,350
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,306 3,882
<INCOME-PRETAX> 3,338 9,825
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,338 9,825
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
