<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-14516
PRENTISS PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 75-2661588
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
75220
3890 West Northwest Highway, Suite 400, Dallas, Texas (Zip Code)
(Address of Registrant's Principal Executive Offices)
(214) 654-0886
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------------- ---------------------------
COMMON SHARES OF BENEFICIAL INTEREST THE NEW YORK STOCK EXCHANGE
$0.01 PAR VALUE PER SHARE
Securities registered pursuant to Section 12(g) of the Act:
N/A
(Title of class)
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting shares held by non-affiliates of
the registrant, as of March 14, 1997, was approximately $564.4 million.
The number of common shares, $.01 par value, outstanding was 20,280,397 as
of March 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PRENTISS PROPERTIES TRUST
INDEX
FORM 10-K
REPORT
ITEM NO. PAGE
- ------- ---------
PART I
1. Business........................................................ 3
2. Properties...................................................... 4
3. Legal Proceedings............................................... 6
4. Submission of Matters to a Vote of Security Holders............. 6
PART II
5. Market for Registrant's Common Equity and Related Shareholder
Matters...................................................... 6
6. Selected Financial and Operating Data.......................... 7
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10
8. Financial Statements and Supplementary Data.................... 15
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 15
PART III
10. Trustees and Executive Officers of the Company................. 15
11. Executive Compensation......................................... 19
12. Security Ownership of Certain Beneficial Owners and Management. 23
13. Certain Relationships and Related Transactions................. 27
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on
Form 8-K..................................................... 27
2
<PAGE>
ITEM 1. BUSINESS
Formation Transactions
Prentiss Properties Trust (the "Company") was formed under the laws of the
state of Maryland on July 12, 1996, to be a self-administered and self-managed
real estate investment trust ("REIT"). The Company acquired 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 owns an approximate 86.0% limited
partnership interest in the Operating Partnership.
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 "Prentiss Group"). The acquisition,
property management, leasing, development and construction businesses will be
carried out by the Operating Partnership and the Company's majority-owned
affiliates, Prentiss Properties Limited, Inc. and Prentiss Properties Limited
II, Inc. (collectively, the "Manager").
On October 22, 1996, the Company commenced operations after completing an
initial public offering of 16,000,000 common shares of beneficial interest,
$0.01 par value per share("Common Shares"). The Company issued an additional
2,400,000 Common Shares on November 1, 1996, pursuant to the exercise of the
underwriters' over-allotment option. The combined 18,400,000 Common Shares were
issued at a price per share of $20.00 (the "Offering"). The Company used
approximately $87.4 million of the net proceeds of the Offering and issued
1,879,897 Common Shares of the Company for a total consideration of
approximately $125.0 million to purchase certain limited partners' interests in
the Operating Partnership. The Company contributed the remaining net proceeds
of the Offering to the Operating Partnership. Subsequent to these transactions,
the Company held an approximate 86.0% interest in the Operating Partnership.
The Prentiss Group members, who, prior to the Offering, collectively served
as the general partner of the Operating Partnership, contributed to the
Operating Partnership all of their interests in the Operating Partnership, the
Initial Properties (as defined below) that were not owned by the Operating
Partnership, and certain management contracts of PPL (the "Contracts") in
exchange for 3,295,995 limited partnership units in the Operating Partnership
("Units").
Upon completion of the Offering and certain related transactions
(collectively, the "Formation Transactions"), the Company owned 87 properties
(the "Initial Properties"), which consisted of 28 office (the "Initial Office
Properties") and 59 industrial (the "Initial Industrial Properties") containing
an aggregate of 8.9 million net rentable square feet. Between the closing of
the Offering and December 31, 1996, the Company acquired eight additional
properties, (the "1996 Acquired Properties"). As of December 31, 1996, the
Company owned 95 properties, 33 office and 62 industrial (the "Properties")
containing 9.9 million square feet and located in 12 major markets throughout
the U.S.
The 1996 Acquired Properties consist of five Class "A" suburban office
properties (the "1996 Acquired Office Properties") totaling approximately
850,000 square feet and three suburban industrial properties (the "1996 Acquired
Industrial Properties") totaling approximately 226,000 square feet. The 1996
Acquired Office Properties are located in the Chicago, Illinois; Denver,
Colorado; and Northern Virginia markets. The 1996 Acquired Industrial
Properties are located in the Chicago, Illinois market. The purchase price of
the 1996 Acquired Properties totaled approximately $116.6 million (excluding
closing costs), which was funded principally with borrowings under the Line of
Credit totaling $72.8 million, other indebtedness incurred or assumed directly
by the Company totaling $35.0 million and approximately $8.8 million of cash
reserves.
The location, acquisition date, number of buildings, net rentable square
feet and contract purchase price of the 1996 Acquired Properties is set forth in
the following table. See "Item 2. Properties" for additional information
relating to the Company's Properties.
3
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<TABLE>
<CAPTION>
NUMBER OF NET RENTABLE PURCHASE
1996 ACQUIRED PROPERTIES LOCATION ACQUISITION DATE BUILDINGS SQUARE FEET PRICE
- ------------------------ -------- ---------------- --------- ------------ -------------
(in millions)
<S> <C> <C> <C> <C> <C>
1717 Deerfield Road Chicago, IL December 11, 1996 1 137,904 $ 21.6
O'Hare Plaza II Chicago, IL December 13, 1996 1 233,650 25.5
FHP Denver Denver, CO December 20, 1996 1 198,370 20.2
2411 Dulles Corner Park Northern VA December 31, 1996 1 176,522 26.5
2455 Horsepen Road Northern VA December 31, 1996 1 104,150 14.0
- --------- ------
Total 1996 Acquired Office Properties 5 850,596 $107.8
- --------- ------
155 Alexandra Way Chicago, IL November 25, 1996 1 110,000 $ 3.9
Wood Dale 1 & 2 Chicago, IL November 25, 1996 2 116,076 4.9
- --------- ------
Total 1996 Acquired Industrial 3 226,076 $ 8.8
Properties - --------- ------
Total 1996 Acquired Properties 8 1,076,672 $116.6
= ========= ======
</TABLE>
In addition to the 1996 Acquired Properties, as described above, the Company has
acquired one office and one industrial property subsequent to December 31, 1996
(the "1997 Acquired Properties"). The following table sets forth the
information related to the 1997 Acquired Properties.
<TABLE>
<CAPTION>
NUMBER OF NET RENTABLE PURCHASE
1997 ACQUIRED PROPERTIES LOCATION ACQUISITION DATE BUILDINGS SQUARE FEET PRICE
- ------------------------ ------------- ----------------- --------- ------------ -------------
(in millions)
<S> <C> <C> <C> <C> <C>
4401 Fair Lakes Court Northern VA January 14, 1997 1 58,621 $ 6.1
5211 South 3rd Street Milwaukee, WI February 20, 1997 1 360,000 9.8
- ------- -----
Total 1997 Acquired Properties 2 418,621 $15.9
= ======= =====
</TABLE>
Upon the closing of the Offering, the Operating Partnership closed a three-
year revolving credit facility (the "Line of Credit") with Bank One, Texas, N.A.
and NationsBank of Texas, N.A., initially in the amount of $100 million, which
was subsequently increased to $150 million on January 24, 1997. The Operating
Partnership may borrow under the Line of Credit to finance the acquisition of
additional properties and for other corporate purposes, including to obtain
additional working capital. Borrowings under the Line of Credit will bear
interest at the 30-day, 60-day or 90-day London Interbank Offered Rate ("LIBOR")
at the option of the Company, plus 2.00% initially per annum (which was reduced
to 1.75% on January 24, 1997), and is collaterialized by first mortgage liens on
certain of the Initial Properties (and may be collaterialized by other
properties acquired by the Company) and will be guaranteed by the Company. At
December 31, 1996, the Company had aggregate borrowings from sources other than
its Line of Credit of $56.0 million and $72.8 million of borrowings under its
Line of Credit. Reference is made to "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for additional information regarding the Company's Line of
Credit and other outstanding indebtedness.
ITEM 2. PROPERTIES
The Properties consist of the 33 office properties (the "Office
Properties") comprising approximately 4.7 million net rentable square feet and
the 62 industrial properties (the "Industrial Properties") comprising
approximately 5.3 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.
4
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<TABLE>
<CAPTION>
PROPERTY DATA
NET PERCENT TOTAL BASE
YEAR(S) RENTABLE LEASED RENT FOR
BUILT/ NUMBER OF SQUARE AS OF YEAR ENDED
PROPERTY NAME MARKET RENOVATED BUILDINGS FEET 12/31/96 12/31/96(1)
- ------------- ------ --------- --------- ------ -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
FHP Denver................. Denver, CO 1983 1 198,370 95% $ 2,816
Cumberland Office Park..... Atlanta, GA 1972-1980 9 530,228 97 6,282
1717 Deerfield Road........ Chicago, IL 1985 1 137,904 100 2,299
O'Hare Plaza II............ Chicago, IL 1986 1 233,650 87 4,482
One Northwestern Plaza..... Sub. Detroit, MI 1989 1 241,751 96 4,648
Broadmoor Austin........... Austin, TX 1991 7 1,112,236 100 8,824
Park West C2............... Dallas, TX 1989 1 344,216 94 5,447
Park West E1............... Dallas, TX 1982 1 182,739 100 2,956
Park West E2............... Dallas, TX 1985 1 200,590 99 1,956
5307 East Mockingbird...... Dallas, TX 1979/1993 1 118,316 88 938
Walnut Glen Tower.......... Dallas, TX 1985 1 464,289 93 7,263
Cottonwood Office Center... Dallas, TX 1986 3 164,111 100 1,981
Plaza on Bachman Creek..... Dallas, TX 1986 1 125,903 98 1,242
3141 Fairview Park Drive... Northern VA 1988 1 192,108 88 2,597
8521 Leesburg Pike......... Northern VA 1984/1993 1 145,257 100 2,177
2411 Dulles Corner Park.... Northern VA 1990 1 176,522 100 3,859
2455 Horsepen Road......... Northern VA 1989 1 104,150 100 2,193
-- --------- --- ---------
Subtotal/weighted average for Office Properties 33 4,672,340 97% $ 61,960
== ========= === =========
INDUSTRIAL PROPERTIES:
Pacific Gateway Center..... Los Angeles, CA 1972-1984 18 1,252,708 100% $ 5,053
155 Alexandra Way.......... Chicago, IL 1988 1 110,000 100 385
Wood Dale 1 & 2............ Chicago, IL 1988 2 116,076 100 541
8869 Greenwood............. Baltimore, MD 1986-1987 1 89,582 100 274
1329 Western Ave........... Baltimore, MD 1988 1 185,600 95 734
Deep Run 1&2............... Baltimore, MD 1988 2 169,112 100 619
4611 Mercedes Drive........ Baltimore, MD 1990 1 178,133 100 689
9050 Junction Drive........ Baltimore, MD 1989 1 108,350 100 428
Northland Park............. Kansas City, MO 1975-1980 4 925,007 100 2,244
North Topping Street....... Kansas City, MO 1975-1980 1 119,118 100 283
Airworld Drive............. Kansas City, MO 1975-1980 1 200,000 100 113
107th Terrace.............. Kansas City, MO 1975-1980 1 97,755 100 257
Nicholson III.............. Dallas, TX 1981 3 155,712 94 483
13425 Branchview........... Dallas, TX 1970 1 121,250 100 285
1002 Avenue T.............. Dallas, TX 1981 1 100,000 100 245
1625 Vantage Drive......... Dallas, TX 1984 1 50,000 100 193
West Loop Business Park.... Houston, TX 1986 5 75,231 88 468
Airport Properties......... Milwaukee, WI 1970-1980 12 572,953 85 1,994
Oak Creek Properties....... Milwaukee, WI 1970-1979 2 232,000 100 674
North West Properties...... Milwaukee, WI 1973-1987 3 413,371 83 1,055
-- --------- --- ---------
Subtotal/weighted average for Industrial Properties......... 62 5,271,958 97% $ 17,017
== ========= === =========
Consolidated total/ weighted average for all Properties..... 95 9,944,298 97% $ 78,977
== ========= === =========
</TABLE>
(1) "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. The Base Rent presented represents Base
Rent for each Property for the period January 1, 1996 through December 31,
1996.
5
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company nor its affiliates (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 it or its affiliates other than
routine actions and administrative proceedings substantially all of which are
expected to be covered by liability insurance and in the aggregate are not
expected to have a material adverse effect on the business or financial
condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company during
the fourth quarter of 1996, through the solicitation of proxies or otherwise.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information
The Company's Common Shares commenced trading on The New York Stock
Exchange (the "NYSE") on October 17, 1996 under the symbol "PP." The following
table sets forth the high and low sale prices for the Common Shares as traded
from October 17, 1996 through December 31, 1996.
HIGH LOW
---- ---
October 17, 1996 through December 31, 1996 ......... 25-1/8 20-1/2
Shareholder Information
At March 14, 1997, the Company had approximately 81 holders of record and
approximately
1,800 beneficial owners, of its Common Shares. In addition, the Units of
limited partner interest in the Operating Partnership (which are redeemable for
Common Shares subject to certain limitations) were held by 9 entities and
or persons.
Distribution Information
The Company has adopted a policy of paying regular quarterly distributions
on its Common Shares and cash distributions have been paid on the Company's
Common Shares with respect to the period since its inception. The following
table sets forth information regarding the declaration and payment of
distributions by the Company since its commencement of operations on October 22,
1996.
<TABLE>
<CAPTION>
PERIOD WHICH DISTRIBUTION DISTRIBUTION PER SHARE
DISTRIBUTION RECORD PAYMENT DISTRIBUTION
RELATES DATE DATE AMOUNT
------------ ------------ ------------ ---------------
<S> <C> <C> <C>
October 22, 1996 - December 31, 1996.. 12/31/96 1/17/97 $0.31(1)
</TABLE>
(1) Represents the pro rata portion (for the period from October 22, 1996
(inception of operations) through December 31, 1996) of a quarterly
distribution of $0.40 per share.
The foregoing distribution represents an approximate 57% return of capital
in 1996. In order to maintain its qualification as a REIT, the Company must
make annual distributions to its shareholders of at least 95% of its taxable
income (which does not include net capital gains). During the period from
October 22, 1996 to December 31, 1996 the Company declared distributions
totaling $0.31 per share, of which approximately $0.13 per share was required to
satisfy the 95% distribution test for maintaining its qualification as a REIT.
Under certain circumstances the Company may be required to make distributions in
excess of cash available for distribution in
6
<PAGE>
order to meet such REIT distribution requirements. In such event, the Company
presently would expect to borrow funds, or to sell assets for cash, to the
extent necessary to obtain cash sufficient to make the distributions required to
retain its qualification as a REIT for federal income tax purposes.
The Company has declared a cash distribution for the first quarter of 1997
in the amount of $.40 per share, payable on April 17, 1997 to holders of record
on March 31, 1997. The Company currently anticipates that it will maintain at
least the current distribution rate for the immediate future, unless actual
results of operations, economic conditions or other factors differ from its
current expectations. Future distributions, if any, paid by the Company will be
at the discretion of the Board of Trustees of the Company and will depend on the
actual cash flow of the Company, its financial condition, capital requirements,
the annual distribution requirements under the REIT provisions of the internal
revenue code and such other factors as the Board of Trustees of the Company deem
relevant.
Recent Sales of Unregistered Securities
On July 24, 1996, the Company was capitalized with the issuance to Michael
V. Prentiss of 50 Common Shares at $20 per share for an aggregate purchase price
of $1,000. The Common Shares were purchased as an 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.
On October 22, 1996, the Company privately placed an aggregate of 1,879,897
Common Shares with three institutional investors, in exchange for a portion of
such investors' interests in the Operating Partnership. The Common Shares were
acquired for investment and the transaction occurred in connection with the
Offering and related Formation Transactions. The Company issued these Common
Shares in reliance upon an exemption from registration under Section 4(2) of the
Securities Act.
Effective January 1, 1997, the Company issued an aggregate of 500 Common
Shares of the Company to the Independent Trustees (defined in Item 10. "Trustees
and Executive Officers of the Company") in accordance with the Trustees Plan as
described in "Item 11. Executive Compensation--Trustees Plan."
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following sets forth selected financial and operating data for the
Company on a pro forma and historical consolidated basis and the Predecessor
Company (as defined in Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations") on a historical combined basis.
The following data should be read in conjunction with the financial statements
and notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in this Form 10-K. The
pro forma statement of operations and other data for the year ended December 31,
1996 include the historical results of the Company's operations from its
commencement of operations on October 22, 1996 to December 31, 1996, and the
historical results of the Predecessor Company's operations for the period of
January 1, 1996 to October 21, 1996, adjusted to assume that the Offering and
related Formation Transactions and the application of the net proceeds therefrom
and the acquisition of properties had occurred at the beginning of the pro forma
period presented. The pro forma financial information is not necessarily
indicative of what the financial position and result 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.
Historical operating results of the Company and Predecessor Company,
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.
7
<PAGE>
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY HISTORICAL
--------------------------- --------------------------------------------------------------
HISTORICAL YEAR ENDED DEC. 31,
PRO FORMA OCT. 22, 1996 JAN. 1, 1996 --------------------------------------------
1996 - DEC. 31, 1996 - OCT. 21, 1996 1995 1994 1993 1992
---------- ---------------- ---------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Rental income..................... $81,937 $ 13,485 $ 27,086 $ 29,423 $ 25,256 $ 14,412 $ 8,169
Fee and other income(1)........... 2,476 302 17,510 25,741 26,702 23,609 24,278
------- --------- -------- -------- -------- -------- --------
Total revenues.................. 84,413 13,787 44,596 55,164 51,958 38,021 32,447
Operating expenses(1)............. 25,968 4,670 24,845 31,127 33,178 28,667 31,925
Real estate taxes................. 7,986 1,162 3,085 3,030 2,691 1,631 712
Interest expense.................. 9,796 846 5,951 3,882 3,191 1,444 491
Real estate depreciation and
amortization..................... 16,392 2,696 5,993 7,060 5,451 3,312 1,900
Other depreciation and amortization - - - 106 106 106 106
Equity in joint venture and
unconsolidated subsidiaries(1)... 4,736 1,427 18 11 13 (4) 2
------- --------- -------- -------- -------- -------- --------
Income (loss) before gain on sale of
property and minority interest.... 29,007 5,840 4,740 9,970 7,354 2,857 (2,685)
Gain on sale of property.......... 378 - 1,718 - -
Minority interest(2).............. (4,055) (844) - - - - -
------- --------- -------- -------- -------- -------- --------
Net income (loss)............... $24,952 $ 4,996 $ 5,118 $ 9,970 $ 9,072 $ 2,857 $ (2,685)
======= ========= ======== ======== ======== ======== ========
Net income per share.............. 1.23 .25
Weighted average number shares
outstanding...................... 20,280 20,002
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation(3)................. 501,035 $153,148 $151,673 $ 89,116 $ 42,561
Real estate, after accumulated
depreciation (3).............. 482,528 141,368 144,366 85,549 41,182
Cash............................. 7,226 1,033 9,133 1,605 8,004
Total assets..................... 531,026 154,635 164,307 117,819 53,327
Debt on real estate(3)........... 128,800 46,442 46,732 20,473 10,186
Total liabilities................ 151,977 50,769 51,713 23,773 11,480
Shareholders' equity............. 325,221 103,866 112,594 94,046 41,847
OTHER DATA (END OF PERIOD):
EBITDA (Company's 86.0% share)(4). $55,549 $ 9,843 $ 17,594 $ 22,106 $ 17,879 $ 10,681 $ 3,879
======= ========= ======== ======== ======== ======== ========
Funds from Operations (Company's
86.0% share)(5).................. $40,907 $ 7,684 $ 9,983 $ 15,578 $ 11,945 $ 6,238 $ 257
======= ========= ======== ======== ======== ======== ========
Cash flow from operating activities. $ 10,275 $ 12,268 $ 16,238 $ 13,059 $ 6,115 $ (755)
Cash flow from investing activities. $(353,809) $(32,985) $ (4,301) $(40,909) $(71,977) $(20,133)
Cash flow from financing activities. $ 350,759 $ 21,283 $(20,037) $ 35,378 $ 59,463 $ 25,690
PROPERTY DATA (END OF PERIOD):(6)
Number of Properties.............. 95 95 57 55 54 47 23
Total GLA in sq. ft............... 9,944 9,944 6,642 6,323 5,976 4,793 2,733
Occupancy %....................... 97% 97% 95% 97% 96% 95% 97%
</TABLE>
(1) The Manager's operations are combined with the property operations in the
historical statements of the Predecessor Company and are accounted for under
the equity method in the Company's historical and pro forma statements;
therefore, the historical statements of the Predecessor Company include the
Manager's revenues and expenses on a gross basis in the respective income
and expense line items and the Company's historical and pro forma statements
present the Manager's net operations in the line item titled "Equity in
joint venture and unconsolidated subsidiaries."
Equity in joint venture and unconsolidated subsidiaries includes the
Company's 49.9% interest in the partnership owning the Broadmoor Austin
Properties (the "Broadmoor Austin Partnership") on a historical and pro
forma basis, and the Predecessor Company's 25%, in the Broadmoor Austin
Properties, 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 (6) in the footnotes to the
consolidated financial statements and combined financial statements of the
Company and Predecessor Company, respectively.
Equity in joint venture and unconsolidated subsidiaries on a historical
basis also includes the Predecessor Company's 15% general partnership
interest in the Park West C2 Property. The operations and accounts are
consolidated on a historical and pro forma basis for the Company.
(2) Represents an approximate 14.0% interest in the Operating Partnership which
is owned by the minority interest holders on a historical and pro forma
basis.
(3) In accordance with generally accepted accounting principles (GAAP), the
balance sheet as of December 31, 1996 reflects the Company's investment in
the Broadmoor Austin Properties 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 December 31, 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:
8
<PAGE>
<TABLE>
<CAPTION>
12/31/96 ADJUSTMENTS PRO FORMA 12/31/96
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 $ 501,035 $69,781 $570,816
depreciaation........................
Real estate, after accumulated $ 482,528 $57,812 $540,340
depreciation.........................
Debt on real estate................... $ 128,800 $69,860 $198,660
</TABLE>
(4) 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. The Company's EBITDA for the
respective periods is calculated as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY HISTORICAL
--------------------------------- ----------------------------------------------------------
HISTORICAL
------------- YEAR ENDED DEC. 31,
PRO FORMA OCT. 22, 1996 JAN. 1, 1996 ------------------------------------------
1996 DEC. 31, 1996 -OCT. 21, 1996 1995 1994 1993 1992
--------- ------------- ------------- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA
Net Income (loss).......... $24,952 $ 4,996 $ 5,118 $ 9,970 $ 9,072 $ 2,857 $(2,685)
Add:
Interest expense.......... 9,796 846 5,951 3,882 3,191 1,444 491
Real estate depreciation
and amortization......... 16,392 2,696 5,993 7,060 5,451 3,312 1,900
Other depreciation and
amortization............. - - - 106 106 106 106
EBITDA of unconsolidated
subsidiaries............. 4,634 1,700 - - - - -
EBITDA of unconsolidated
joint venture............ 9,394 1,810 3,792 4,698 4,700 4,697 4,700
Minority interest.......... 4,055(1) 824(1) - - - - -
Less:
Gain on sale of property.. - - (378) - (1,718) - -
Equity in joint venture
and unconsolidated
subsidiaries............ (4,736) (1,427) (18) (11) (13) 4 (2)
------- ------- ------- ------- ------- ------- -------
EBITDA..................... $64,487 $11,445 $20,458 $25,705 $20,789 $12,420 $ 4,510
------- ------- ------- ------- ------- ------- -------
EBITDA (Company's 86.0%
share).................... $55,459 $ 9,843 $17,594 $22,106 $17,879 $10,681 $ 3,879
- --------------------------- ======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) Represents the minority interest applicable to the holders of limited
partnership Units.
(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 consolidated
and combined financial statements and notes thereto of the Company and
Predecessor Company included elsewhere in this Form 10-K. 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 Company's and
Predecessor Company's Funds from Operations for the respective periods is
calculated as follows:
<PAGE>
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY HISTORICAL
--------------------------- ---------------------------------------------------
HISTORICAL
------------- YEAR ENDED DEC. 31,
PRO FORMA OCT. 22, 1996 JAN. 1, 1996 ------------------------------------
1996 DEC. 31, 1996 -OCT. 21, 1996 1995 1994 1993 1992
--------- ------------- ------------- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
FUNDS FROM OPERATIONS
Net Income (loss).................... $24,952 $4,996 $ 5,118 $ 9,970 $ 9,072 $2,857 $(2,685)
Add:
Real estate depreciation and
amortization....................... 16,392 2,696 5,993 7,060 5,451 3,312 1,900
Real estate depreciation and
amortization of unconsolidated joint
venture............................ 2,167 419 875 1,084 1,084 1,084 1,084
Minority interest................... 4,055(1) 824(1) - - - - -
Less:
Gain on sale of property............ - - (378) - (1,718) - -
------- ------ ------- ------- ------- ------ -------
Funds from Operations................ $47,566 $8,935 $11,608 $18,114 $13,889 $7,253 $ 299
------- ------ ------- ------- ------- ------ -------
Funds from Operations (Company's 86.0
share)............................... $40,907 $7,684 $ 9,983 $15,578 $11,945 $6,238 $ 257
======= ====== ======= ======= ======= ====== =======
</TABLE>
(1) Represents the minority interest applicable to the holders of limited
partnership Units.
9
<PAGE>
(6) With respect to the Property Data of the Predecessor Company, the
information includes the Broadmoor Austin Properties, Park West C2, 3141
Fairview Park Drive and Plaza on Bachman Creek Properties only for the end
of the periods subsequent to the Prentiss Group's acquisition of an
ownership interest in the respective Properties.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial and Operating Data" and the historical consolidated and combined
financial statements and related notes thereto for the Company and the
Predecessor Company, respectively, appearing elsewhere in this Form 10-K. The
following discussion is based primarily on the consolidated financial statements
of the Company for the period subsequent to the Offering and on the combined
financial statements of the Predecessor Company for the periods prior to the
Offering. 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) the results of operations of the Plaza on Bachman Creek for the portion of
the periods after a Prentiss Group member acquired the property, (iv) a 25%
equity interest in the Broadmoor Austin properties, (v) 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, and (vi) results of operations of the
Prentiss Properties Service Business conducted primarily by Prentiss Properties
Limited, Inc. ("PPL") in the periods 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 and Operating
Data," the combined financial statements of the Predecessor Company, and the
consolidated financial statements of the Company should not be taken as an
indication of future operations of the Company.
OVERVIEW
The Company was formed under the laws of the state of Maryland on July 12,
1996, to be a self-administered and self-managed real estate investment trust
("REIT"). The Company acquired 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 owns an approximate 86.0% limited partnership interest in the
Operating Partnership.
The Company has been formed to succeed to substantially all of the
interests of 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 "Prentiss
Group"). The acquisition, property management, leasing, development and
construction businesses will be carried out by the Operating Partnership and the
Company's majority-owned affiliates, Prentiss Properties Limited, Inc. and
Prentiss Properties Limited II, Inc. (collectively, the "Manager").
On October 22, 1996, the Company commenced operations after completing an
initial public offering of 16,000,000 Common Shares. The Company issued an
additional 2,400,000 Common Shares on November 1, 1996 pursuant to the exercise
of the underwriters' over-allotment option. The combined 18,400,000 Common
Shares were issued at a price per share of $20.00 (the "Offering"). The Company
used approximately $87.4 million of the net proceeds of the Offering and issued
1,879,897 Common Shares of the Company for a total consideration of
approximately $125.0 million to purchase certain limited partners' interests in
the Operating Partnership. The Company contributed the remaining net proceeds
of the Offering to the Operating Partnership. Subsequent to these transactions,
the Company held an approximate 86.0% interest in the Operating Partnership.
10
<PAGE>
The Prentiss Group members, who, prior to the Offering, collectively served
as the general partner of the Operating Partnership, contributed to the
Operating Partnership all of their interests in the properties and certain
management contracts of PPL (the "Contracts") in exchange for 3,295,995 limited
partnership units in the Operating Partnership ("Units").
At December 31, 1996, the Company owned 95 properties containing
approximately 9.9 million square feet, compared to the 55 properties containing
approximately 6.3 million square feet owned by the Predecessor Company at
December 31, 1995. The property acquisitions containing approximately 300,000
square feet were made by the Predecessor Company between December 31, 1995 and
October 21, 1996. Concurrent with the Offering, the Company acquired 30
properties with approximately 2.2 million square feet and an additional 25%
interest in a joint venture owning seven properties in which the Predecessor
Company had an existing 25% ownership interest. Subsequent to the Offering,
through December 31, 1996, the Company acquired eight properties containing
approximately 1.1 million square feet.
RESULTS OF OPERATIONS
The results of operations for the years ended December 31, 1995 and 1994
includes the operations of the Predecessor Company. The results of operations
for the year ended December 31, 1996 includes the operations of the Predecessor
Company for the period January 1, 1996 through October 21, 1996 and the
operations of the Company from October 22, 1996 through December 31, 1996.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Rental revenues increased by $11.1 million, or 37.9%, due primarily to the
Properties acquired after December 31, 1995. Revenues for the Properties
acquired prior to December 31, 1995 increased by $0.6 million, or 2%, due
primarily to increases in rental income at the Cumberland Office Park of $0.4
million, 5307 E. Mockingbird of $0.3 million, Walnut Glen of $0.2 million and
8521 Leesburg Pike of $0.5 million, offset by decreases of $0.4 million, $0.3
million and $0.1 million at the Kansas City and Milwaukee Industrial Properties
and other Properties, respectively. The decreases at the Kansas City Industrial
Properties resulted primarily from the expiration of a 200,000 square foot lease
during the first half of 1996. In February 1997, 100% of this Property was
leased and the recognition of rental income commenced. The decrease in the
Milwaukee Industrial Properties resulted primarily from the March 1996
bankruptcy of a tenant previously occupying approximately 70,000 square feet.
The Company is currently marketing the space for lease.
With respect to Properties acquired prior to December 31, 1995, property
operating and maintenance expenses increased by $0.6 million for the year ended
December 31, 1996 from the year ended December 31, 1995, $0.3 million of which
relates to bad debt expense recognized on the above-mentioned bankrupt tenant.
The additional costs relates primarily to the Properties with increased rental
income during 1996.
Real estate taxes, on these Properties, increased by $0.3 million,
resulting primarily from increased property tax appraisals received on the
Cumberland Office Park and Walnut Glen Properties. The Company continues to
contest these increases.
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
Total Revenues increased by $3.2 million, or 6.2%, to $55.2 million for the
year ended December 31, 1995 from $52.0 million for the same period in 1994.
Rental revenues increased $4.2 million, or 16.5%, to $29.4 million from $25.3
million, primarily as a result of the Company's acquisition of certain
Industrial Properties in Baltimore, Maryland, and 8521 Leesburg Pike in late
1994 and two additional Industrial Properties in Kansas City, Missouri, in May
1994. These Property additions accounted for approximately $2.9 million of the
increase in rental income; the remaining increase in rental income of
approximately $1.2 million was the result of increased rental rates and
occupancy rates in the existing portfolio which are estimated at $0.9 million
and $0.3 million, respectively. Fee and other income decreased $1.0 million, or
3.6%, to $25.7 million from $26.7 million, primarily due to a decrease in
development fees of $5.1 million and a decrease in leasing and tenant services
fees of $1.9 million, offset by an increase in sale fees, other fees and other
income of $6.1 million. The decrease in development fees was primarily due to
the recognition of a significant fee in 1994 coupled with low development
11
<PAGE>
activity during 1995. The leasing and tenant services fee decreases were due to
higher space rollover and leasing activity in 1994. Sale fees and other fees
increased due to property sales and fees received as a result of contract
termination payments.
Total Expenses increased by $0.6 million, or 1.3%, to $45.2 million for the
year ended December 31, 1995, from $44.6 million for the same period in 1994.
Operating expenses decreased by $.1 million, or 0.2%, to $41.3 million from
$41.4 million. Operating expenses includes a decrease of $1.1 million 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 $1.8
million which primarily was related to personnel cost reductions. Operating
expenses of the properties increased by $2.8 million. This increase was
comprised of an increase in property operating and maintenance expenses of $0.9
million, an increase of $0.3 million in real estate taxes and an increase of
$1.6 million in depreciation and amortization. Approximately $2.0 of the
increase in property operating expense was attributable to the property
additions discussed previously and the remainder of the increase, $0.9 million
was attributable to increased occupancy and an increase in amortization expense.
Mortgage interest expense increased $0.7 million, or 21.7%, to $3.9 million for
the year ended December 31, 1995 from $3.2 million 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, 1994, was $1.7
million. 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 $0.9 million,
or 9.9%, to $10.0 million from $9.1 million for 1994. As discussed above, the
increase in net income was the result of an increase in total revenues of $3.2
million, offset by an increase in total expenses of $0.6 million, and a decrease
in gains on sale of property of $1.7 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7.2 million and $1.0 million at December
31, 1996 and December 31, 1995, respectively. The increase in cash and cash
equivalents is primarily a result of cash flows provided by operating and
financing activities exceeding cash flow used in investing activities. Net cash
provided by operating activities was $22.5 million for the year ended December
31, 1996 compared to the $16.2 million for the year ended December 31, 1995. The
increase is due primarily to the transactions related to the property
acquisitions and the operations of the Company subsequent to the Offering.
Net cash used in investing activities increased from $4.3 million for the
year ended December 31, 1995 to $386.8 million for the year ended December 31,
1996. This increase is due primarily to the transactions related to the
Offering and acquisition of real estate assets subsequent to the Offering.
Net cash provided by financing activities of $372.0 million for the year
ended December 31, 1996 increased from a cash use of $20.0 million for the year
ended December 31, 1995. This increase is primarily attributable to
transactions related to the Offering and mortgage loans and other indebtedness
incurred in the acquisition of real estate assets acquired subsequent to the
Offering.
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
12
<PAGE>
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.
At December 31, 1996, the Company had total outstanding indebtedness of
approximately $198.7 million (the ''Mortgage Debt''), including the Company's
pro rata share of the Broadmoor Austin Properties debt (Joint Venture Debt).
The Mortgage debt was collateralized by 66 of the Properties. The Mortgage Debt
represents approximately 25.2% of the Company's approximate $788 million Total
Market Capitalization (based on the $25 closing price of individual shares at
December 31, 1996). Approximately $40.0 million of the Mortgage Debt consists of
a mortgage loan that the Company obtained from an affiliate of Lehman Brothers
Inc. and approximately $72.8 million represents borrowings the Company has made
under the Line of Credit. The following table sets forth certain information
regarding the Mortgage Debt at December 31, 1996:
REMAINING MORTGAGE DEBT
<TABLE>
<CAPTION>
PRINCIPAL INTEREST ANNUAL
DESCRIPTION AMOUNT RATE AMORTIZATION MATURITY PAYMENT
- --------------------------- ------------ ------------- ------------ ---------------- --------
<S> <C> <C> <C> <C> <C>
Walnut Glen................ 10,000 7.50% None January 31, 2001 750
FHP Denver................. 6,000 7.30% None November 1, 2000 438
Broadmoor Austin........... 69,860 9.75% None April 1, 2001 6,811
Line of Credit............. 72,800(1) LIBOR + 1.75% None October 14, 1999 5,278
Other Mortgage Debt........ 40,000(2) LIBOR + 1.65% None November 1, 1999 2,860
-------- -------
Total/Weighted Average..... $198,660 8.12% $16,137
======== =======
</TABLE>
(1) The Line of Credit is collateralized by 33 Properties, including 16 Office
Properties. The 30-day LIBOR of 5.50% as of December 31, 1996, was used for
the calculation of the weighted average rate in the table above.
(2) The Other Mortgage Debt is collateralized by 24 Industrial Properties. The
30-day LIBOR of 5.50% as of December 31, 1996 was used for the calculation
of the weighted average rate in the table above.
On January 24, 1997, the Company increased the amount available under the
Line of Credit from $100 million to $150 million and reduced the interest rate
on borrowings under the Line of Credit from LIBOR plus 200 basis points to LIBOR
plus 175 basis points. The Company currently has no amounts outstanding under
the Line of Credit.
On February 27, 1997, the Company closed on a ten-year fixed rate mortgage
loan with an initial total available balance of $180.1 million, and $96.1
million outstanding (the "Mortgage Loan"). The Mortgage Loan is secured by
liens on 54 Properties. The Mortgage Loan was obtained from an affiliate of
Lehman Brothers Inc. ("Lehman"), the Managing Underwriter of the IPO. The
Mortgage Loan bears interest at a rate of approximately 7.57% and matures on
February 27, 2007. A portion of the proceeds of the Mortgage Loan were used to
repay approximately $88.2 million of outstanding indebtedness under the Line of
Credit. The balance of the proceeds from the Mortgage Loan will be used to fund
a portion of the purchase prices of future acquisitions. Lehman has advised the
Company that it intends to place the Mortgage Loan with investors sometime in
the future.
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 had total outstanding indebtedness of
30.9% and 29.3% as of December 31, 1995 and December 31, 1994, respectively. As
of December 31, 1996, the Company had the approximate capacity to borrow up to
an additional $390.6 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.
The Company has considered its short-term liquidity needs and the adequacy
of adjusted estimated 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, from the
Line of Credit.
13
<PAGE>
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 and operations of the Manager. The Manager's sole source of income
is fees generated by its office and industrial real estate management, leasing,
development and construction businesses.
FUNDS FROM OPERATIONS
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 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 believes that in
order to facilitate a clear understanding of its operating results, Funds from
Operations should be examined in conjunction with net income (loss) as presented
in the audited consolidated and combined financial statements of the Company and
Predecessor Company, respectively. 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.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY HISTORICAL
COMPANY ------------------------------------------------------------------
HISTORICAL YEAR ENDED DEC. 31,
OCT. 22, 1996 JAN. 1, 1996 - ----------------------------------------------
DEC. 31, 1996 OCT. 21, 1996 1995 1994 1993 1992
------------- -------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FUNDS FROM OPERATIONS
Net Income (loss).......... $4,996 $ 5,118 $ 9,970 $ 9,072 $2,857 $(2,685)
Add:
Real estate depreciation
and amortization......... 2,696 5,993 7,060 5,451 3,312 1,900
Real estate depreciation
and amortization of
unconsolidated joint
venture.................. 419 875 1,084 1,084 1,084 1,084
Minority interest......... 824(1) - - - -
Less:
Gain on sale of property.. (378) - (1,718) - -
------ ------- ------- ------- ------ -------
Funds from Operations...... $8,935 $11,608 $18,114 $13,889 $7,253 $ 299
====== ======= ======= ======= ====== =======
Funds from Operations
(Company's 86.0% share)... $7,684 $ 9,983 $15,578 $11,945 $6,238 $ 257
====== ======= ======= ======= ====== =======
</TABLE>
(1) Represents the minority interest applicable to the holders of limited
partnership Units.
The Company's share of Funds from Operations increased by $2.1 million for
the year ended December 31, 1996 from the year ended December 31, 1995, and
increased by $3.6 million for the year ended December 31, 1995 from the year
ended December 31, 1994 as a result of the factors discussed in the analysis of
operating results.
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 terms from one month to 15 years, further reducing the impact on
the Company of the adverse effects of inflation.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedule on page
F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE COMPANY
The Board of Trustees currently consists of seven members (the "Trustees"),
five of whom are independent of the Company (the "Independent Trustees"). The
Independent Trustees are those Trustees of the Company who are not officers or
employees of the Company, nor do they have any affiliation to an officer or
employee or any affiliate of (i) any subsidiary of the Company, or (ii) any
partnership which is an affiliate of the Company. The Board of Trustees is
divided into three classes who serve staggered three-year terms with the term of
each Trustee expiring at the annual meeting of shareholders held three years
after his election.
TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Trustees and executive officers of the Company.
NAME AGE POSITION
- --------------------------- --- --------------------------------------------
Michael V. Prentiss 53 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, Jr. 57 Independent Trustee (Term will expire in
1999)
Barry J. C. Parker 49 Independent Trustee (Term will expire in
1999)
Dr. Leonard M. Riggs, Jr. 54 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 51 Executive Vice President and Managing
Director, Southwest Region
Richard J. Bartel 46 Executive Vice President--Financial
Operations and Administration, and
Chief Administrative Officer
Mark R. Doran 42 Executive Vice President, Chief Financial
Officer and Treasurer
Lawrence J. Krueger 41 Executive Vice President and Managing
Director, Midwest Region
James B. Meyer 37 Senior Vice President and Managing
Director, Southeast Region
David C. Robertson 40 Senior Vice President and Managing
Director, Western Region
Robert K. Wiberg 41 Senior Vice President and Managing
Director, Mid-Atlantic Region
*Mr. Wilson was nominated for re-election which will be voted on at the Annual
meeting on May 6, 1997.
The following are biographical summaries of the Trustees and executive
officers of the Company:
Michael V. Prentiss serves as Chairman of the Board and Chief Executive
Officer of the Company and has served in such capacity since its formation in
October 1996. Mr. Prentiss, the founder 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 Fairview Urban
Development, Inc. ("Cadillac Urban"), Executive Vice President and member of the
Board of Trustees of Cadillac Fairview Corporation Limited ("Cadillac
Fairview"), and a member of Cadillac Fairview's Executive Committee. Cadillac
Urban was the largest
15
<PAGE>
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 and Chief Operating Officer and Trustee
of the Company and has served in such capacity since its formation in October
1996. 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.
Thomas J. Hynes, Jr. serves as an Independent Trustee of the Company and has
served in such capacity since its formation in October 1996. Mr. Hynes, Jr. 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, Jr. has been employed by Meredith & Grew Incorporated since 1965 in
which time he has held various offices. Mr. Hynes, Jr. holds a B.A. degree from
Boston College.
Barry J.C. Parker serves as an Independent Trustee of the Company and has
served in such capacity since its formation in October 1996. Mr. Parker is the
immediate past Chairman of the Board, President and Chief Executive Officer of
County Seat, Inc., a nationwide chain of 750 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 and
has served in such capacity since its formation in October 1996. 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 and has
served in such capacity since its formation in October 1996. Mr. Steinhart is
Chairman and Chief Executive Officer, Commercial Banking Group, Banc One
Corporation 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 and has
served in such capacity since its formation in October 1996. 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
also 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.
16
<PAGE>
Dennis J. DuBois serves as Executive Vice President and the 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. 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 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, Chief Financial Officer and
Treasurer of the Company. Mr. Doran is responsible for acquisition, development
and investment activities of the Company, as well as 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 the 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.
James B. Meyer serves as Senior Vice President and the 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 C. Robertson serves as Senior Vice President and the 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 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
17
<PAGE>
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 the 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.
TERMS OF OFFICE; RELATIONSHIPS
The officers of the Company are elected annually by the Board of Trustees
at a meeting held preceding each annual meeting of shareholders, or as soon
thereafter as necessary and convenient in order to fill vacancies or newly
created offices. Each officer holds office until his successor is duly elected
and qualified or until death, resignation or removal, if earlier. Any officer
or agent elected or appointed by the Board of Trustees may be removed by the
Board of Trustees whenever in its judgment the best interests of the Company
will be served thereby, but such removal shall be without prejudice to the
contractual rights, if any, of the person so removed.
There are no family relationships among any of the Trustees or executive
officers of the Company. Except as described above, none of the Company's
Trustees hold trusteeships in any company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934 (the "Exchange
Act") or pursuant to Section 15(d) of the Exchange Act or any company registered
as an investment company under the Investment Company Act of 1940. There are no
arrangements or understandings between any Trustee or officer and any other
person pursuant to which that Trustee was nominated or officer was selected.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 (a) of the Exchange Act requires officers and Trustees, and
persons who beneficially own more than ten percent (10%) of the Company's
shares, to file initial reports of ownership and reports of changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, Trustees and
greater than ten percent (10%) beneficial owners are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies furnished to the Company and
representations from the officers and Trustees, the Company believes that all
Section 16(a) filing requirements for the year ended December 31, 1996
applicable to its officers, Trustees and greater than ten percent (10%)
beneficial owners were satisfied, with the exception of the following:
On October 22, 1996, Mr. Mark R. Doran acquired beneficial ownership of 400
of the Company's Common Shares. Mr. Doran reported his acquisition of the 400
Common Shares of the Company on his Form 5 which was filed on February 3, 1997.
Based on written representations from the officers and Trustees, the
Company believes that no other Forms 5 for Trustees, officers and greater than
ten percent (10%) beneficial owners were required to be filed with the SEC for
the period ended December 31, 1996.
18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the base compensation in effect during the fiscal
year ending December 31, 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- -------------------------------------------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPENSATION STOCK OPTIONS, COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS ($) AWARDS ($) SARS(#) ($)(2)
- --------------------------- ---- ----------- ----- ------------ ---------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael V. Prentiss,
Chairman of the Board,
Trustee, and CEO 1996 35,014 N/A 5,283 None 386,762 None
Thomas F. August,
President and COO 1996 34,041 N/A None None 173,944 None
Richard J. Bartel,
Executive Vice President 1996 31,123 N/A None None 85,000 None
Mark R. Doran, Executive
Vice President and CFO 1996 29,178 N/A None None 75,000 None
Dennis J. DuBois,
Executive Vice President 1996 29,178 N/A None None 64,366 None
Lawrence J. Krueger,
Executive Vice President 1996 31,123 N/A None None 125,000 None
</TABLE>
(1) Salaries presented represent the amounts paid to the respective executive
officers for the period October 22, 1996 (inception of operations) through
December 31, 1996.
(2) The executive officers, receive health and disability insurance benefits
which do not exceed 10% of their respective salaries. These benefits are
also provided to all other employees of the Company.
Option Grants
The following table sets forth information regarding grants of share
options to the Company's executive officers during the 1996 fiscal year. The
options were granted pursuant to the Company's 1996 Plan. No stock appreciation
rights ("SARs") were granted during the 1996 fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT
ASSUMED ANNUAL RATE OF SHARE
PRICE APPRECIATION FOR
OPTION
INDIVIDUAL GRANTS TERM
-----------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES OPTIONS
UNDERLYING % OF GRANTED TO EXERCISE OR MARKET PRICE
OPTIONS OPTIONS EMPLOYEE IN BASE PRICE ON DATE OF EXPIRATION
NAME GRANTED (#) GRANTED(1) FISCAL YEAR ($/SHARE) GRANT ($/SHARE) DATE 0%($) 5%($) 10%($)
- ---- ----------- ---------- ----------- ----------- --------------- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Michael V. Prentiss 386,762 23.4% 386,762 $ 20.00 $ 20.00 10/16/06 0 4,864,615 12,327,961
Thomas F. August 173,944 10.5% 173,944 $ 20.00 $ 20.00 10/16/06 0 2,187,833 5,544,430
Richard J. Bartel 75,000 4.5% 75,000 $ 20.00 $ 20.00 10/16/06 0 943,335 2,390,610
Richard J. Bartel 10,000 .6% 10,000 $23.375 $23.375 12/17/06 0 147,003 372,537
Mark R. Doran 50,000 3.0% 50,000 $ 20.00 $ 20.00 10/16/06 0 628,890 1,593,740
Mark R. Doran 25,000 1.5% 25,000 $23.375 $23.375 12/17/06 0 367,508 931,342
Dennis J. DuBois 39,366 2.4% 39,366 $ 20.00 $ 20.00 10/16/06 0 495,138 1,254,783
Dennis J. DuBois 25,000 1.5% 25,000 $23.375 $23.375 12/17/06 0 367,508 931,342
Lawrence J. Krueger 75,000 4.5% 75,000 $ 20.00 $ 20.00 10/16/06 0 943,335 2,390,610
Lawrence J. Krueger 50,000 3.0% 50,000 $23.375 $23.375 12/17/06 0 735,015 1,862,684
</TABLE>
(1) Represents the percentage of options granted to all employees during the
year.
19
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED OPTIONS AT
UNEXERCISED OPTIONS AT YEAR END YEAR END
SHARES -------------------------------- -------------------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael V. Prentiss - - - 386,762 - 1,933,810
Thomas F. August - - - 173,944 - 869,720
Richard J. Bartel - - - 75,000 - 375,000
Richard J. Bartel - - - 10,000 - 16,250
Mark R. Doran - - - 50,000 - 250,000
Mark R. Doran - - - 25,000 - 40,625
Dennis J. DuBois - - - 39,366 - 196,830
Dennis J. DuBois - - - 25,000 - 40,625
Lawrence J. Krueger - - - 75,000 - 375,000
Lawrence J. Krueger - - - 50,000 - 81,250
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Prentiss and August entered into employment agreements with the
Company on October 22, 1996. Each agreement is for an initial term of three
years, which will be automatically renewed for successive one-year periods
unless otherwise terminated. The agreements 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" 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 is employed pursuant to an employment
agreement.
The terms of Messrs. Prentiss' 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.
Mr. DuBois entered into a noncompetition agreement with the Company that,
subject to certain limited exceptions, prohibits him from engaging, directly or
indirectly, in Competitive Activities in the Southeastern U.S. and the
Southwestern U.S., respectively, during the Noncompetition Period. In the event
of an involuntary termination of Mr. DuBois' employment, the agreement does not
prohibit him from engaging in Competitive Activities, but, during the
Noncompetition Period, does prohibit him from (1) soliciting any employee of the
Company to leave his or her job and (ii) soliciting any client or identified
potential client of the Company during the Noncompetition Period.
1996 SHARE INCENTIVE PLAN
Prior to the Offering, the Board of Trustees adopted, and the sole shareholder
of the Company approved, the 1996 Plan for the purpose of attracting and
retaining executive officers, Trustees and employees. The 1996 Plan is
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.
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 (the ''Participants''). No Participant may be
granted, in any calendar year, options that cover more than 390,000 Common
Shares or 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
20
<PAGE>
Common Shares pursuant to 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 2,030,000 Common Shares. The
Plan provides for the grant of (i) share options not intended to qualify as
incentive share 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 to vest or for Performance Shares to vest and 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. 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 Participant. 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.
On the effective date of the Offering, options for 1,219,438 Common Shares
were granted to employees and officers, including the officers named in
"Executive Compensation" above, at an exercise price equal to $20.00. On
November 4, 1996, the Board of Trustees authorized the grant of 1,500 options to
employees with ten or more years of service with the Company. Through December
31, 1996, 37,500 options were granted at an exercise price equal to $20.625 per
share. On December 17, 1996, the Board of Trustees authorized the grant of
395,000 options in total to various officers and employees at an exercise price
equal to $23.375 per share.
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 also adopted, and the Company's
sole shareholder approved, the Trustees' Plan to provide incentives to attract
and retain Independent Trustees.
21
<PAGE>
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;
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
Common 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.
On the effective date of the Offering, options for 50,000 Common Shares were
granted to the Independent Trustees at an exercise price equal to $20.00 per
share.
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 continue, and the Operating Partnership and designated
subsidiaries, including the Manager (each, a "Participating Employer"), have
adopted, 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.
22
<PAGE>
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 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
The Company adopted a "Share Purchase Plan." Under the Share Purchase 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 on the last business day each 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
$25,000. The maximum number of Common Shares that may be purchased under the
Share Purchase Plan is 500,000. Employees who participate in the plan described
in the preceding sentence will recognize income, and the Company will be allowed
a business expense deduction, equal to the discount at the time of a purchase.
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION ON
COMPENSATION DECISIONS
During 1996, the Company's Compensation Committee of the Board of Trustees
consisted of Thomas J. Hynes, Jr., Leonard M. Riggs, Jr., and Lawrence A.
Wilson, constituting all of the Independent Trustees, none of whom was, prior
to or during 1996, an officer or employee of the Company. None of such persons
had any relationships requiring disclosure under applicable rules and
regulations. The Company did not have a policy during 1996 prohibiting its
executive officers from participating in deliberation of the Board of Trustees
regarding executive compensation. Consequently, Messrs. Prentiss and August,
who are also Trustees of the Company, were present during deliberations of the
Board of Trustees regarding executive compensation during 1996. Messrs.
Prentiss and August, in their capacities as Trustees, participated in such
deliberations.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of March 14, 1997, regarding
each person known to the Company to be the beneficial owner of more than five
percent (5%) of its Common Shares. Unless otherwise indicated, such Common
Shares are owned directly and the indicated person has sole voting and
investment power with respect thereto.
23
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS/1/
------------------- ---------- ----------
<S> <C> <C>
Cohen & Steers Capital Management, Inc. 2,551,900 12.58%
757 Third Avenue
New York, New York 10017
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
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, Trustee
nominee 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.
___________________________________________________
/1/ Based upon 20,280,397 shares of outstanding as of March 14, 1997.
24
<PAGE>
<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)/ ........................ 2,583,698 10.96% 11.3%
Thomas F. August/(2)(4)/ ........................... 342,423 1.45% 1.66%
Thomas J. Hynes, Jr./(5)/ .......................... 1,100 * *
Barry J.C. Parker/(5)/ ............................. 5,100 * *
Dr. Leonard M. Riggs, Jr./(5)/ ..................... 7,600 * *
Ronald G. Steinhart/(5)/ ........................... 5,100 * *
Lawrence A. Wilson/(5)/ ............................ 100 * *
Dennis J. DuBois/(2)(6)/ ........................... 210,582 .89% 1.03%
Richard J. Bartel/(7)/ ............................. 1,100 * *
Richard B. Bradshaw/(2)(10)/ ....................... 159,292 .68% .78%
Mark R. Doran/(8)/ ................................. 400 * *
Lawrence J. Krueger/(11)/ .......................... 1,000 * *
James B. Meyer/(9)/ ................................ 700 * *
David C. Robertson/(9)/ ............................ 10,000 * *
Robert K. Wiberg/(9)/ .............................. 1,000 * *
--------- ----- -----
All Trustees and executive officer (11 persons)..... 3,329,195 14.12% 14.12%
========= ===== =====
</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 Sharesand 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 Shares 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 whichare 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 that have been
issued in 1997. Excludes 10,000 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 39,366 and 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.
25
<PAGE>
/(7)/
Excludes 75,000 and 10,000 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.
/(8)/
Excludes 50,000 and 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.
/(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 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. Mr. Bradshaw's
status as an executive officer ceased on March 1, 1997. He will continue
as an employee beyond March 1, 1997 in a non-decision making capacity.
/(11)/
Excludes 75,000 and 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BENEFITS TO RELATED PARTIES
The Prentiss Group, including the Prentiss Principals, realized 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
received a total of 3,295,995 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 14% of the equity interests in the Company on a
consolidated basis) have a total value of approximately $82.4 million based
on the $25.00 December 31, 1996 closing price per share, 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 realized an immediate increase of $45.7 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
3,295,995 Units received as consideration.
Messrs. Prentiss and August Employment Agreements. Prior to the IPO, Messrs.
Prentiss and August entered into employment agreements with the Company. Each
agreement is for an initial term of three years, which will be automatically
renewed for successive one-year periods unless otherwise terminated. The
agreements 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"
above). 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 is currently employed pursuant to an employment
agreement.
The terms of Messrs. Prentiss' 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
26
<PAGE>
certain exceptions, prohibit them from engaging, directly or indirectly, during
the term of their employment or the Noncompetition Period, in any activity
anywhere in the U.S. that competes with the Company. These provisions of each
employment agreement survive the termination of such agreement until the
expiration of the Noncompetition Period.
Mr. DuBois entered 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., during the Noncompetition Period. In the event of an
involuntary termination of Mr. DuBois' employment, the agreement does not
prohibit him from engaging in Competitive Activities, but, during the
Noncompetition Period, does prohibit him from (1) soliciting any employee of the
Company to leave his or her job and (ii) soliciting any client or identified
potential client of the Company during the Noncompetition Period.
Options Granted. The Company has granted to the Prentiss Principals, 70
employees of the Company and the Independent Trustees, options to purchase an
aggregate of 1,651,938 Common Shares under the Company's 1996 Share Incentive
Plan at the Offering Price, subject to certain vesting requirements.
Maintenance of Debt for Benefit of Prentiss Principals. In connection with the
Formation Transactions, the Company 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.
Restriction on Certain Transfers of The Plaza on Bachman Creek. The Company
agreed that it shall not dispose of The Plaza on Bachman Creek prior to
December 31, 1999, unless such disposition is structured as a tax-deferred like-
kind exchange under Section 1031 of the Code, in order to defer certain tax
consequences associated with the transfer of the Property to the Company by the
Prentiss Group.
REPAYMENT OF TERMINATION FEE NOTE
PPL held a note from PCIG which was paid with the proceeds of sales of
properties owned by PCIG. The Company acquired the PGC, 155 Alexandra Way and
Wood Dale 1 & 2 Properties from PCIG and subsequent to the Offering, PPL
received a payment from the seller of approximately $500,000 of the sale
proceeds from those Properties under the note.
SHARING OF OFFICES AND EMPLOYEES
The Company shares the executive offices and certain employees with the
Manager. Each company bears its share of costs including allocable portions of
rent, salaries, office expenses, employee benefits and various fixtures and
equipment. To the extent that services are provided between the companies, such
services are charged at cost plus a mark up of 15%. The total of these charges
paid by the Company from October 22, 1996 throughout December 31, 1996 totaled
approximately $198 thousand.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedule and Exhibits
(1 & 2) See Index to Financial Statements and Financial Statement
Schedule on page F-1 of this Form 10-K.
(3) Exhibits:
The exhibits listed below are filed as part of this report or
incorporated by reference("*") to the Company's Registration
Statement on Form S-11, File
27
<PAGE>
No. 333-9863 (the "Registration Statement"), Current Event Report
of December 31, 1996 on Form 8-K and/or Form 8-K/A, or the
registration of the Share Purchase Plan on Form S-8, File No.
333-20329.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
---------- -----------
<S> <C>
3.1* -- Form of Amended and Restated Declaration of
Trust of the Registrant
3.2* -- Bylaws of the Registrant
3.3* -- Amended and Restated Declaration of Trust of
Prentiss Properties Trust
4.1* -- Form of Common Share Certificate
5.1* -- Opinion of Hunton & Williams
10.1* -- Form of Second Amendment to First Amended and
Restated Agreement of Limited Partnership of
Prentiss Properties Acquisition Partnership,
L.P.
10.2 -- Second Amended and Restated Agreement of Limited
Partnership
10.3 -- Credit Agreement among Prentiss Properties
Acquisition Partners, L.P. and Bank One, Texas,
N.A., and NationsBank of Texas, N.A.
10.4 -- Modification, Amendment, and Increase of Credit
Agreement and Other Loan Documents
10.5* -- Form of Employment Agreement for Michael V.
Prentiss
10.6* -- Form of Employment Agreement for Thomas F.
August
10.7* -- Form of Agreement Not to Compete for Richard B.
Bradshaw
10.8* -- Form of Agreement Not to Compete for Dennis J.
DuBois
10.9* -- Contribution Agreement by and between the
Operating Partnership and PPL
10.10* -- Agreement of Purchase and Sale of Partnership
Interest by and Among Prentiss Properties
Austin, L.P. and PPL
10.11* -- Agreement of Purchase and Sale of Partnership
Interests by and Among Prentiss Properties
Burnett, Inc., Prentiss Properties Burnett II,
Inc. and PPL
10.12* -- Agreement of Purchase and Sale of Partnership
Interest and Option Agreement by and Between
11,000 Burnet Road Corporation and PPL
10.13* -- Agreement of Purchase and Sale of Partnership
Interests by and Among Fairview Eleven, Inc.,
the Prentiss Principals and PPL
10.14* -- Agreement of Purchase and Sale of Partnership
Interest by and Between Prentiss Properties
Itasca, L.P. and PPL
10.15* -- Agreement of Purchase and Sale of Partnership
Interests by and Between Prentiss O'Hare
Illinois, Inc., Prentiss O'Hare Illinois II,
Inc. and PPL
10.16* -- Agreement of Purchase and Sale of Partnership
Interests by and Between Prentiss Properties C-
2 Investors, L.P. and PPL
10.17* -- Agreement of Sale of Partnership Interest by and
Among New York Life Insurance Company, Prentiss
Properties Austin, L.P. and PPL
10.18* -- Purchase Agreement By and Between the Operating
Partnership and PPL
10.19* -- Agreement of Purchase and Sale and Joint Escrow
Instructions By and Between LAPCO Industrial
Parks and PPL
10.20* -- First Amendment to Agreement of Purchase and
Sale and Joint Escrow Instructions By and
Between LAPCO Industrial Parks and PPL
10.21* -- Agreement of Purchase and Sale of Partnership
Interests By and Among LW-RTC, Inc., LW-LP,
Inc., NP Investment VI Co. and PPL
10.22* -- Agreement of Sale (Real Property) By and Between
Property Asset Management Inc. and PPL
(Annapolis, Maryland)
10.23* -- Agreement of Sale (Real Property) By and Between
Property Asset Management Inc. and PPL (Irving,
Texas)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.24* -- Agreement of Sale (Real Property) By and Between
Property Asset Management Inc. and PPL
(Houston, Texas)
10.25* -- Letter Agreement dated as of August 5, 1996 from
PPL to LW-LP, Inc., LW-RTC, Inc. and NP
Investment VI Co.
10.26* -- Real Estate Purchase and Sale Agreement By and
Between Principal Mutual Life Insurance Company
and Prentiss Properties Investors, Inc.
10.27* -- 1996 Share Incentive Plan
10.28* -- Agreement of Purchase and Sale By and Between
Dulles Corner Properties II Limited Partnership
("Seller") and Prentiss Properties Acquisition
Partners, L.P. ("Purchaser") dated December 27,
1996
10.29 -- Loan Agreement Between Prentiss Properties Real
Estate Fund I, L.P. as Borrower and Lehman
Brother Realty Corporation as Lender
23.1 -- Consent of Independent Accountants
27 -- Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K and/or Form 8-K/A
A current report on Form 8-K and Form 8-K/A, dated December 31, 1996, was
filed by the Company with respect to the acquisition by the Operating
Partnership, of which the Company is the sole general partner through a
wholly-owned subsidiary, of two Class "A" suburban office buildings in
Herndon, VA (the "Dulles Properties"). The buildings total approximately
281,000 square feet and are part of the three million square foot Dulles
Corner Office Park, located at the intersection of Route 28 and the
Dulles Toll Road, adjacent to Dulles International Airport.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRENTISS PROPERTIES TRUST
By: /s/ Thomas P. Simon
---------------------------------------
Date Thomas P. Simon
---- Vice President
March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date Signature
---- ---------
March 21, 1997 /s/ Michael V. Prentiss
----------------------------------------
Michael V. Prentiss
Chief Executive Officer
Chairman of the Board of Trustees
March 21, 1997 /s/ Thomas F. August
----------------------------------------
Thomas F. August
President and Chief Operating Officer
Trustee
March 21, 1997 /s/ Mark R. Doran
----------------------------------------
Mark R. Doran
Executive Vice President,
Chief Financial Officer
and Treasurer
March 21, 1997 /s/ Thomas P. Simon
----------------------------------------
Thomas P. Simon
Vice President
March 21, 1997 /s/ Thomas J. Hynes, Jr.
----------------------------------------
Thomas J. Hynes, Jr.
Trustee
March 21, 1997 /s/ Barry J.C. Parker
----------------------------------------
Barry J.C. Parker
Trustee
March 21, 1997 /s/ Dr. Leonard M. Riggs, Jr.
----------------------------------------
Dr. Leonard M. Riggs, Jr.
Trustee
March 21, 1997 /s/ Ronald G. Steinhart
----------------------------------------
Ronald G. Steinhart
Trustee
March 21, 1997 /s/ Lawrence A. Wilson
----------------------------------------
Lawrence A. Wilson
Trustee
30
<PAGE>
PRENTISS PROPERTIES TRUST
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS PAGE
- -------------------- ----
Report of Independent Accountants...................................... F-2
Consolidated Balance Sheet of Prentiss Properties Trust (the
"Company") as of December 31, 1996 and Combined Balance Sheet
of the Predecessor Company as of December 31, 1995.................... F-3
Consolidated Statement of Income of the Company for the Period
October 22, 1996 (inception of operations) to December 31, 1996
and Combined Statements of Income for the Predecessor Company
for the Period January 1, 1996 to October 21, 1996, and the
Years Ended December 31, 1995 and 1994................................ F-4
Consolidated Statement of Changes in Shareholders' Equity of the
Company for the Period October 22, 1996 (inception to operations)
to December 31, 1996 and Combined Statements of Changes in Equity
of the Predecessor Company for the Period January 1, 1996 to
October 21, 1996 and the Years Ended December 31, 1995 and 1994....... F-5
Consolidated Statement of Cash Flows of the Company for the Period
October 22, 1996 (inception of operations) to December 31, 1996
and Combined Statements of Cash Flows of the Predecessor Company
for the Period January 1, 1996 to October 21, 1996, and the Years
Ended December 31, 1995 and 1994...................................... F-6
Notes to Consolidated and Combined Financial Statements................ F-7
FINANCIAL STATEMENT SCHEDULE
Schedule III: Real Estate and Accumulated Depreciation................ F-20
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of Prentiss Properties Trust
We have audited the accompanying consolidated and combined financial
statements and the financial statement schedule of Prentiss Properties Trust
(the "Company") and the Predecessor Company as listed on page F-1 of this Form
10-K. These consolidated and combined financial statements and the financial
statement schedule are the responsibility of the Company's management. 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 consolidated and combined financial statements referred to
above present fairly, in all material respects, the consolidated and combined
financial position of Prentiss Properties Trust as of December 31, 1996 and the
Predecessor Company as of December 31, 1995, and the consolidated and combined
results of operations and cash flows for the periods October 22, 1996 through
December 31, 1996 and January 1, 1996 through October 21, 1996, and the years
ended December 31, 1995 and 1994, respectively, 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.
Dallas, Texas
February 12, 1997, except as to Note 18
for which the date is February 20, 1997.
F-2
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
CONSOLIDATED AND COMBINED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
PREDECESSOR
THE COMPANY COMPANY
------------------ ------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
ASSETS
Assets:
Real estate............................. $501,035 $153,148
Less: accumulated depreciation........ (18,507) (11,780)
-------- --------
482,528 141,368
Deferred charges and other assets, net.. 11,747 7,135
Receivables, net........................ 5,356 2,755
Cash and cash equivalents............... 7,226 1,033
Escrowed cash........................... 867 1,294
Other receivables (affiliates).......... 1,346
Investments in joint venture and
unconsolidated subsidiaries............ 21,956 1,050
Total assets........................... -------- --------
$531,026 $154,635
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debt on real estate.................... $128,800 $ 46,442
Accounts payable and other liabilities. 15,868 3,622
Distributions payable.................. 7,309
Other liabilities (affiliates)......... 705
-------- --------
Total liabilities.................... 151,977 50,769
-------- --------
Minority interest in Operating 52,857
Partnership............................ -------- --------
Minority interest in partnerships....... 971
-------- --------
Commitments and contingencies
Shareholders' equity:
Common shares $.01 par value,
100,000,000 shares
authorized, 20,279,897 shares
issued and outstanding................ 203
Additional paid-in capital............. 326,309
Predecessor company equity............. 103,866
Distributions in excess of accumulated
earnings.............................. (1,291)
-------- --------
Total shareholders equity............. 325,221 103,866
-------- --------
Total liabilities and shareholders'
equity............................... $531,026 $154,635
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR COMPANY
-------------- -----------------------------------
OCT. 22, 1996 JAN. 1, 1996 YEARS ENDED DEC. 31,
THROUGH THROUGH --------------------
DEC. 31, 1996 OCT. 21, 1996 1995 1994
-------------- ------------- --------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income......................... $13,485 $27,086 $29,423 $25,256
Management fees....................... 192 7,903 9,979 9,810
Development, leasing, sale and other
fees................................. 110 9,607 15,762 16,892
------- ------- ------- -------
Total revenues....................... 13,787 44,596 55,164 51,958
------- ------- ------- -------
Expenses:
Property operating and maintenance..... 3,618 7,550 7,696 7,040
Real estate taxes...................... 1,162 3,085 3,030 2,691
General and administrative............. 547 5,304 6,293 5,323
Personnel costs, net................... 505 11,991 17,138 20,815
Interest expense....................... 759 4,549 3,783 3,120
Amortization of deferred financing
costs................................. 87 1,402 99 71
Depreciation and amortization.......... 2,696 5,993 7,166 5,557
------- ------- ------- -------
Total expenses....................... 9,374 39,874 45,205 44,617
------- ------- ------- -------
Equity in joint venture and
unconsolidated subsidiaries.......... 1,427 18 11 13
------- ------- ------- -------
Income before minority interest and
gain on sale of property............... 5,840 4,740 9,970 7,354
Minority interest....................... (844)
------- ------- ------- -------
Income before gain on sale of property.. 4,996 4,740 9,970 7,354
Gain on sale of property................ 378 1,718
------- ------- ------- -------
Net income.............................. $ 4,996 $ 5,118 $ 9,970 $ 9,072
======= ======= ======= =======
Net income per common share............. $ .25
=======
Weighted average number of common
shares outstanding..................... 20,002
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY THE COMPANY - SHAREHOLDERS' EQUITY
------------ ----------------------------------------
NET COMMON ADD'L. PAID-IN DIST. IN EXCESS
TOTAL EQUITY SHARES CAPITAL ACCUM. EARNINGS
--------- ------------ ------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993............ $ 94,046 $ 94,046
Net income............................ 9,072 9,072
Contributions......................... 12,139 12,139
Distributions of PPL income........... (2,663) (2,663)
-------- -------- ---- -------- -------
Balance at December 31, 1994............ 112,594 112,594
Net income............................ 9,970 9,970
Distributions......................... (15,250) (15,250)
Distributions of PPL income........... (4,498) (4,498)
Equity on purchase of Park West C2.... 1,050 1,050
-------- -------- ---- -------- -------
Balance at December 31, 1995............ 103,866 103,866
Net income............................. 5,118 5,118
Distributions.......................... (6,375) (6,375)
Distributions of PPL income............ (2,395) (2,395)
Equity on purchase of Plaza on Bachman
Creek................................. 3,314 3,314
-------- -------- ---- -------- -------
Balance at October 21, 1996............. 103,528 103,528
Acquisition of Predecessor Company's
interest.............................. (98,316) (98,316)
Contribution of Predecessor Company's
interest.............................. (5,212) $ 5,212
Net proceeds from issuance of common
shares (20,279,897 common shares)..... 321,300 $203 321,097
Distributions declared ($.31 per share) (6,287) $(6,287)
Net income............................. 4,996 4,996
-------- -------- ---- -------- -------
Balance at December 31, 1996............ $325,221 $ $203 $326,309 $(1,291)
======== ======== ==== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
PREDECESSOR
THE COMPANY COMPANY
-------------- --------------
OCT. 22, 1996 JAN. 1, 1996 YEARS ENDED DEC. 31,
THROUGH THROUGH ----------------------
DEC. 31, 1996 OCT. 21, 1996 1995 1994
-------------- -------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income............................. $ 4,996 $ 5,118 $ 9,970 $ 9,072
Adjustments to reconcile net income to
net cash provided by operating
activities:
Minority interest..................... 844
Gain on sale of property.............. (378) (1,718)
Depreciation and amortization......... 2,696 5,993 7,166 5,557
Amortization of deferred financing.... 87 1,402 99 71
Equity income in joint venture and
unconsolidated subsidiaries.......... (1,427) (18) (11) (13)
Changes in assets and liabilities:
Provision for doubtful accounts....... 201 (120) (150) 310
Receivables........................... (2,377) (497) (265) (654)
Other assets.......................... (712) (199) 176 (549)
Escrowed cash......................... 1,325 (898) (93) (698)
Accounts payable and other
liabilities......................... 6,166 2,392 (756) 1,557
Amounts due to/from affiliates........ (1,524) (527) 102 124
--------- -------- -------- --------
Net cash provided by operating
activities............................ 10,275 12,268 16,238 13,059
--------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of and additions to
investment in real estate............ (335,689) (33,544) (4,669) (71,856)
Proceeds from sale of real estate..... 559 7,894
Investment in joint venture and
unconsolidated subsidiaries........... (20,902)
Distribution received from joint
venture............................... 373
Cash from contributed assets........... 2,409 368 23,053
-------- -------- --------
Decrease in escrowed cash.............. ---------
Net cash used in investing activities.. (353,809) (32,985) (4,301) (40,909)
--------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common shares 337,604
Partner's Contributions................ 3,314 12,139
Contributions from minority interest
holders............................... 950
Distributions.......................... (6,375) (15,250)
Proceeds from debt on real estate...... 112,800 29,000 27,100
Repayments of debt on real estate...... (99,462) (261) (289) (841)
Deferred financing costs............... (1,133) (2,000) (357)
Distribution of PPL income............. (2,395) (4,498) (2,663)
--------- -------- -------- --------
Net cash provided by financing
activities............................ 350,759 21,283 (20,037) 35,378
--------- -------- -------- --------
Net increase in cash and cash
equivalents........................... 7,225 566 (8,100) 7,528
Cash and cash equivalents, beginning
of periods............................ 1 1,033 9,133 1,605
Cash and cash equivalents, end of --------- -------- -------- --------
periods............................... $ 7,226 $ 1,599 $ 1,033 $ 9,133
========= ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................
$ 983 $ 4,720 $ 3,786 $ 2,946
========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
Prentiss Properties Trust (the "Company") was formed under the laws of the
state of Maryland on July 12, 1996, to be a self-administered and self-managed
real estate investment trust ("REIT"). The Company acquired 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 owns an approximate 86.0% limited
partnership interest in the Operating Partnership.
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 "Prentiss Group"). The acquisition,
property management, leasing, development and construction businesses will be
carried out by the Operating Partnership and the Company's majority-owned
affiliates, Prentiss Properties Limited, Inc. and Prentiss Properties Limited
II, Inc. (collectively, the "Manager").
On October 22, 1996, the Company commenced operations after completing an
initial public offering of 16,000,000 common shares. The Company issued an
additional 2,400,000 common shares on November 1, 1996 pursuant to the exercise
of the underwriters' over-allotment option. The combined 18,400,000 common
shares were issued at a price per share of $20.00 (the "Offering"). The Company
used approximately $87.4 million of the net proceeds of the Offering and issued
1,879,897 common shares of the Company for a total consideration of
approximately $125.0 million to purchase certain limited partners' interests in
the Operating Partnership. The Company contributed the remaining net proceeds
of the Offering to the Operating Partnership. Subsequent to these transactions,
the Company held an approximate 86.0% interest in the Operating Partnership.
The Prentiss Group members, who, prior to the Offering, collectively served
as the general partner of the Operating Partnership, contributed 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
3,295,995 limited partnership units in the Operating Partnership ("Units").
Upon completion of the Offering and certain related transactions
(collectively, the "Formation Transactions"), the Company owned 87 properties,
28 office and 59 industrial containing 8.9 million net rentable square feet
including 57 properties totaling approximately 6.6 million square feet acquired
from the Predecessor Company (defined below). Subsequent to the Offering,
through December 31, 1996, the Company acquired eight additional properties,
(collectively, the "Acquired Properties"). The Acquired Properties consist of
five Class "A" suburban office properties totaling approximately 850,000 square
feet and three suburban industrial properties totaling approximately 226,000
square feet. The office properties are located in the Chicago, Illinois;
Denver, Colorado; and Northern Virginia markets. The industrial properties are
located in the Chicago, Illinois market. The purchase price of the Acquired
Properties totaled approximately $116.6 million, which was funded principally
with borrowings under the Line of Credit totaling $72.8 million, other
indebtedness incurred or assumed directly by the Company totaling $35.0 million
and approximately $8.8 million of cash reserves. As of December 31, 1996, the
Company owned 95 properties, 33 office and 62 industrial (the "Properties")
representing 9.9 million square feet in 12 major markets throughout the U.S.
The accompanying combined financial statements of the Predecessor Company
include the accounts of Prentiss Properties Acquisition Partners, L.P.; the
operations of Prentiss Properties Limited, Inc.; 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 October 21,
1996, the accounts of the Plaza on Bachman Creek from August 19, 1996 through
October 21, 1996; and a 15% equity investment in Park West C2 Associates (''Park
West C2'') from September 5, 1995 through October 21, 1996. The accounts are
presented on a combined basis, as the above properties were under the control of
the Prentiss Group, have common management and were part of the formation of the
Company. The Predecessor Company's 50% investment in Austex, which held a 50%
investment
F-7
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
in Broadmoor Austin, and its investment in Park West C2 were
accounted for using the equity method of accounting.
All significant intercompany transactions have been eliminated in the
combined financial statements.
The following summarizes the Company's interests in the Properties at
December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF COMPANY COMPANY
OFFICE PROPERTIES PROPERTIES OWNERSHIP % LOCATION NOTES
- ----------------- ---------- ----------- --------------- --------
<S> <C> <C> <C> <C>
FHP Denver..................... 1 100% Denver, CO (C)
Cumberland Office Park......... 9 100% Atlanta, GA (A)
1717 Deerfield Road............ 1 100% Chicago, IL (C)
O'Hare Plaza II................ 1 100% Chicago, IL (C)
One Northwestern Plaza......... 1 100% Southfield, MI (B)
Broadmoor Austin............... 7 50% Austin, TX (A), (D)
Park West C2................... 1 100% Dallas, TX (A)
Park West E1................... 1 100% Dallas, TX (B)
Park West E2................... 1 100% Dallas, TX (B)
5307 East Mockingbird.......... 1 100% Dallas, TX (A)
Walnut Glen Tower.............. 1 100% Dallas, TX (A)
Cottonwood Office Center....... 3 100% Dallas, TX (B)
Plaza on Bachman Creek......... 1 100% Dallas, TX (A)
3141 Fairview Park Drive....... 1 100% Northern VA (A)
8521 Leesburg Pike............. 1 100% Northern VA (A)
2411 Dulles Corner Park........ 1 100% Northern VA (C)
2455 Horsepen Road............. 1 100% Northern VA (C)
--
Total Office Properties...... 33
--
INDUSTRIAL PROPERTIES
- ---------------------
Pacific Gateway Center......... 18 100% Los Angeles, CA (B)
155 Alexandra Way.............. 1 100% Chicago, IL (C)
Wood Dale 1 & 2................ 2 100% Chicago, IL (C)
8869 Greenwood................. 1 100% Baltimore, MD (A)
1329 Western Avenue............ 1 99% Baltimore, MD (A), (E)
Deep Run 1 & 2................. 2 99% Baltimore, MD (A), (E)
4611 Mercedes Drive............ 1 98% Baltimore, MD (A), (E)
9050 Junction Drive............ 1 100% Baltimore, MD (B)
Northland Park................. 4 100% Kansas City, MO (A)
North Topping Street........... 1 100% Kansas City, MO (A)
Airworld Drive................. 1 100% Kansas City, MO (A)
107th Terrace.................. 1 100% Kansas City, MO (A)
Nicholson III.................. 3 100% Dallas, TX (A)
13425 Branchview............... 1 100% Dallas, TX (A)
1002 Avenue T.................. 1 100% Dallas, TX (A)
1625 Vantage Drive............. 1 100% Dallas, TX (A)
West Loop Business Park........ 5 100% Houston, TX (B)
Airport Properties............. 12 100% Milwaukee, WI (A)
Oak Creek Properties........... 2 100% Milwaukee, WI (A)
North West Properties.......... 3 100% Milwaukee, WI (A)
--
Total Industrial Properties.. 62
--
Total Properties............... 95
==
</TABLE>
F-8
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
(A) As discussed above, the Predecessor Company had an interest in 57 of the
Company's properties prior to the formation of the Company.
(B) In connection with the Formation Transactions, the Company purchased 30
properties.
(C) Subsequent to the formation of the Company, through December 31, 1996,
the Company purchased eight properties.
(D) The Company holds a non-controlling 49.9% 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 Company accounts for its interest using the
equity method of accounting.
(E) Four of the Baltimore industrial properties are owned by three
partnerships. The Company holds the majority general partnership
interest of each of the Partnerships and consolidates the accounts and
operations of the partnerships.
With the exception of the Broadmoor Austin properties, all Properties are
majority-owned by the Company and the accounts and operations are consolidated.
The Company owns a 49.9% interest in Broadmoor Austin and accounts for its
interest using the equity method of accounting. The Company also owns a 95%
non-voting economic interest in the Manager. The Manager conducts the majority
of the Company's third-party management operations and, due to the non-voting
nature of the Company's ownership interest in the Manager, the Company accounts
for its interest using the equity method of accounting.
(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 Operating
Partnership will record impairment losses on long-lived assets used in
operations 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. The Company
periodically reviews its properties to determine if its carrying costs will be
recovered from future operating cash flows. In cases where the Company does not
expect to recover its carrying costs, the Company recognizes an impairment loss.
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 30 to 50 years for office buildings
and 25 to 30 years for industrial buildings.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. 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 (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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and investments with
maturities of three months or less when purchased.
Escrowed Cash
Escrowed funds as of December 31, 1996 and 1995 are comprised of funds held
for the payment of real estate taxes.
F-9
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
Income Taxes
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 ended 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. 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. The Manager consists of legal entities subject to federal
income tax on their taxable income at regular corporate rates.
Leases
The Company and Predecessor Company, each as lessor, has retained
substantially all of the risks and benefits of ownership and accounts for its
leases as operating leases.
Revenue Recognition
Rental income is recognized over the terms of the leases as it is earned.
Management company income, principally management fees and recoveries of the
Manager, is recognized as earned. Other income consists of (i) development fees,
which are recognized ratably over each project's development period, as defined;
(ii) leasing fees, which 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; (iii)
sale fees, which are recognized upon completion of the asset sale; and (iv)
termination fees, which are recognized when earned.
Net Income Per Common Share
Net income per common share has been computed by dividing net income
applicable to common shareholders by the weighted average number of common
shares outstanding. For the period from October 22, 1996 through December 31,
1996, the outstanding common share options had an immaterial dilutive effect.
Distributions
The Company pays regular quarterly distributions which are dependent on
receipt of distributions from the Operating Partnership.
Earnings and profits, which will determine the taxability of distributions to
shareholders, will differ from income reported for financial reporting purposes
due to the differences for federal tax purposes primarily in the estimated
useful lives used to compute depreciation. Distributions declared in 1996
represent an approximate 57% return of capital for federal income tax purposes.
Minority Interest
Minority interest in the Operating Partnership represents the limited
partners' proportionate share of the equity in the Operating Partnership.
Income is allocated to minority interest based on the weighted average
percentage ownership through the year. Minority interest in partnerships
represents the limited partners' proportionate share of the equity in
partnerships, of which the Operating Partnership has a majority ownership
interest and the accounts of which are consolidated into the Operating
Partnership.
F-10
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
Concentration of Credit Risk
The Company places cash deposits at major banks. Management believes that
through its cash investment policy the credit risk related to these deposits is
minimal.
Distributions of PPL Income
PPL has retained certain assets and liabilities which were not transferred to
the Operating Partnership pursuant to the formation of the Company. 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 that were contributed to the Operating Partnership upon formation are
reflected in the accompanying financial statements. The Combined Statements of
Changes in Shareholders' Equity and the Combined Statements of Cash Flows for
the Predecessor Company 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.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," effective for years ending after December
15, 1992, requires disclosures about the fair value of financial instruments
whether or not such instruments are recognizable in the balance sheet. The
Company's financial instruments include short-term investments, tenant accounts
receivable, accounts payable, other accrued expenses and mortgage loans payable.
The fair values of these financial instruments were not materially different
from their carrying or contract values.
(3) REAL ESTATE
Real estate consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land............................... $ 86,711 $ 32,061
Buildings and improvements......... 409,060 121,087
Construction in progress........... 5,264
-------- --------
Total............................ 501,035 153,148
Less: Accumulated depreciation..... (18,507) (11,780)
-------- --------
$482,528 $141,368
======== ========
</TABLE>
F-11
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
(4) DEFERRED CHARGES AND OTHER ASSETS, NET
Deferred charges and other assets consisted of the following at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred leasing and tenant charges.. $ 18,919 $12,183
Deferred financing costs............. 1,219 693
Organization costs................... 525
Prepaid and other assets............. 1,704 854
Less: Accumulated amortization.... (10,095) (7,120)
-------- -------
$ 11,747 $ 7,135
======== =======
</TABLE>
(5) RECEIVABLES, NET
Receivables consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Rents and services...................... $2,858 $1,697
Accruable rental income................. 1,749 1,327
Other................................... 1,195 95
------ ------
Total................................. 5,802 3,119
Less: Allowance for doubtful accounts... (446) (364)
------ ------
$5,356 $2,755
====== ======
</TABLE>
Accruable rental income represents rental income earned in excess of rent
payments received pursuant to the terms of the individual lease agreements.
(6) INVESTMENT IN JOINT VENTURE AND UNCONSOLIDATED SUBSIDIARIES
Included in Investments in joint venture and unconsolidated subsidiaries are
the Company's investment in the Broadmoor Austin Associates Joint Venture
("Broadmoor Austin") and the Company's investment in the Manager. The Company
accounts for its 49.9% investment in Broadmoor Austin and its 95% investment in
the Manager using the equity method of accounting, and thus reports its share of
income and losses based on its ownership interest in the respective entities.
At December 31, 1996, the carrying value of the Company's interest in Broadmoor
Austin and the Manager is $16.6 million and $5.3 million, respectively. The
difference between the carrying value of the Company's interest in Broadmoor
Austin and the book value of the underlying equity is being amortized over 40
years.
The following is summarized financial information for 100% of Broadmoor
Austin at December 31, 1996 and 1995 and for the years then ended:
<TABLE>
<CAPTION>
BALANCE SHEET: 1996 1995
-------------- ---------- ----------
<S> <C> <C>
Real estate and deferred charges, net... $115,856 $120,189
Total assets............................ $129,513 $132,471
Mortgage note payable/(A)/.............. $140,000 $140,000
Venturers' deficit...................... $(14,097) $(11,059)
</TABLE>
/(A)/ The Company, along with the other venture partner in Broadmoor
Austin, has guaranteed the borrowings under the mortgage note payable.
F-12
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INCOME STATEMENT: 1996 1995
----------------- ------- -------
<S> <C> <C>
Rental income.................. $19,776 $19,776
Interest expense............... $13,527 $13,529
Depreciation and amortization.. $ 4,333 $ 4,333
Net income..................... $ 927 $ 928
</TABLE>
The following is summarized financial information for 100% of the Manager at
December 31, 1996 and for the period from October 22, 1996 through December
31, 1996:
<TABLE>
<CAPTION>
BALANCE SHEET: 1996
-------------- -------
<S> <C>
Total assets....................... $10,826
Total liabilities.................. $ 5,270
Owners' equity..................... $ 5,556
INCOME STATEMENT: 1996
----------------- -------
Fee income......................... $ 5,418
Personnel costs, net............... $ 2,579
General office and administrative.. $ 1,059
Net income......................... $ 1,401
</TABLE>
(7) DEBT ON REAL ESTATE
Debt on real estate consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Office properties' debt................. $ 16,000 $19,719
Industrial properties' debt............. 26,723
Line of Credit.......................... 72,800
Mortgage debt payable to an affiliate
of Lehman Brothers Inc................. 40,000
-------- --------
$128,800 $46,442
======== =======
</TABLE>
Upon the closing of the Offering, the Operating Partnership closed a three-
year revolving credit facility (the "Line of Credit") with two financial
institutions, initially in the amount of $100 million and subsequently increased
to $150 million. Borrowings under the Line of Credit bear interest at 30-day,
60-day or 90-day LIBOR, at the option of the Company, plus 2.00% initially per
annum, which has subsequently been reduced to 1.75% (7.25% at December 31,
1996). Borrowings outstanding at December 31, 1996 under the Line of Credit
totaled $72.8 million. The Line of Credit is secured by 33 of the Company's
properties, including 16 office properties. Interest is payable monthly through
October 1999, at which time all unpaid principal and interest are due. The Line
of Credit agreement requires the Company to maintain certain debt and interest
coverage ratios (1.75 to 1.00) and (2.25 to 1.00), respectively, with which the
Company was in compliance at December 31, 1996.
Mortgage debt which is payable to an affiliate of Lehman Brothers Inc. and is
collateralized by 24 of the industrial properties owned by the Company and bears
interest at 30-day, 60-day or 90-day LIBOR, at the option of the Company, plus
1.65% (7.15% at December 31, 1996). Interest is payable monthly through
November 1999, at which time all unpaid principal and interest are due.
F-13
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
The remaining debt at December 31, 1996 is collateralized by two office
buildings, bears interest ranging from 7.3% to 7.5% per annum, and matures in
November 2000 and January 2001.
Debt on real estate outstanding at December 31, 1995, aggregated approximately
$46.4 million and was collateralized by two office buildings and various
industrial properties. The debt had interest ranging from 8.125% to 8.5%. All
but $10.0 million of the debt was repaid with the proceeds from the Offering.
Principal repayments of debt on real estate at December 31, 1996, are due
approximately as follows:
<TABLE>
<CAPTION>
Years ending December 31:
<S> <C>
1999...................... $112,800
2000...................... 6,000
Thereafter................ 10,000
--------
$128,800
========
</TABLE>
(8) ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities consisted of the following at December
31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Accounts payable and other liabilities. $ 7,517 $ 824
Advance rent and deposits.............. 2,528 1,141
Accrued real estate taxes.............. 5,823 1,657
------- ------
$15,868 $3,622
======= ======
</TABLE>
(9) DISTRIBUTIONS PAYABLE
On December 17, 1996, the Company declared a distribution equal to $.31 per
common share and limited partnership unit outstanding at December 31, 1996. The
common shares and limited partnership unit outstanding at December 31, 1996,
totaled 20,279,897 and 3,295,995, respectively.
(10) LEASING ACTIVITIES
The future minimum lease payments to be received by the Company as of December
31, 1996, under non-cancelable operating leases, which expire on various dates
through 2013, are as follows:
<TABLE>
<CAPTION>
Years ending December 31:
<S> <C>
1997..................... $ 71,396
1998..................... 66,831
1999..................... 57,195
2000..................... 40,159
2001..................... 30,101
Thereafter............... 83,557
--------
$349,239
========
</TABLE>
F-14
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
The geographic concentration of the future minimum lease payments to be
received is detailed as follows:
<TABLE>
<CAPTION>
LOCATION AMOUNT
-------- --------
<S> <C>
Milwaukee, WI....... $ 15,675
Dallas, TX.......... 112,845
Kansas City, MO..... 11,178
Atlanta, GA......... 42,286
Northern VA......... 40,803
Baltimore, MD....... 11,770
Los Angeles, CA..... 20,835
Southfield, MI...... 22,745
Chicago, IL......... 47,481
Houston, TX......... 2,264
Denver, CO.......... 21,357
--------
$349,239
========
</TABLE>
One major tenant represented 10.0% of the Company's total rental income for
the period from October 22, 1996 through December 31, 1996.
(11) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with the Formation Transactions, Units valued at $65.9 million
were issued in exchange for the Prentiss Group's interest in the Predecessor
Company's properties and Contracts of PPL. The net assets assumed in the
exchange totaled approximately $5.2 million. In addition, 1,879,897 common
shares valued at $20.00 per share were issued in exchange for certain limited
partners' interests in the Operating Partnership. Additional paid-in capital
was reduced by $.9 million of unamortized financing costs related to debt repaid
with proceeds from the Offering. In 1996, $52 million of the net proceeds of
the Company's Offering was allocated to minority interest. The remainder of the
net proceeds increased common shares and additional paid-in capital.
In addition to the above transactions, the Company also acquired the remaining
85% interest in the Park West C2 property. The fair value of the assets
acquired totaled $43 million and liabilities assumed totaled approximately $35
million and the resulting cash paid totaled, approximately $8 million. On
December 17, 1996, the Company declared a distribution totaling $7.3 million
which was paid on January 17, 1997.
During the period from October 22, 1996 through December 31, 1996, the Company
acquired eight properties (described in Note 1) and assumed certain assets and
liabilities in the transactions. The acquisitions were recorded under the
purchase method of accounting. The fair values of the acquired assets and
liabilities recorded at the date of acquisition are as follows:
<TABLE>
<CAPTION>
Amount
---------
<S> <C>
Assets acquired $121,834
Mortgage debt assumed (6,000)
Other liabilities assumed (2,599)
Other acquisition credits (511)
--------
Net cash paid $112,724
========
</TABLE>
F-15
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
(12) RELATED PARTY TRANSACTIONS
The Company owns a 95% economic interest in the Manager which is not
consolidated in these financial statements. The Manager incurs certain
personnel and other overhead-related expenses on behalf of the Company which is
subsequently reimbursed to the Manager. Such expenses totaled $1,418 for the
period October 22, 1996 through December 31, 1996. In addition, the Company
funded certain costs of the Manager totaling approximately $2,566 during the
period. The net unreimbursed cost has been included in Other receivables
(affiliates) on the balance sheet and is detailed below:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Capital funding to affiliates........... $2,566
Acquisition fees due to affiliates...... (761)
Payroll and staff benefits due to
affiliates............................. (257)
Other amounts due to affiliates......... (202)
------
$1,346
======
</TABLE>
(13) EMPLOYEE BENEFIT 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. Upon formation, the Company
adopted the Plan and the terms of the Plan.
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 Company. The Company matches 25% of the first $500
contributed by its employees. There was no cost to the Company for this
matching for the period October 22, 1996 through December 31, 1996. The cost to
the Predecessor Company totaled $35,000 for the period January 1, 1996 through
October 21, 1996 and $36,000 and $41,000 for the years ended December 31, 1995
and 1994, respectively. In addition, the Predecessor Company elected to match
employee contributions with a discretionary match for the year ended December
31, 1994, which totaled $76,000.
Participants are immediately vested in their pre-tax and after-tax
contributions, the Predecessor Company's matching contributions and earnings
thereon.
On January 24, 1997, the Company filed a Form S-8 registering 500,000 common
shares in connection with the Company's Share Purchase Plan. The share purchase
plan enables eligible employees to purchase shares, subject certain
restrictions, of the Company at a 15% discount to fair market value. No shares
were issued pursuant to the plan during the period October 22, 1996 through
December 31, 1996.
(14) SHARE INCENTIVE PLAN
Under the Company's 1996 Share Incentive Plan, the Company granted options in
October 1996 to purchase 1,219,438 common shares at an exercise price of $20.00
per share (the IPO price), in November 1996 to purchase an additional 37,500
shares at an exercise price of $20.625 per share (the then current market price)
and in December 1996 to purchase an additional 395,000 shares at an exercise
price of $23.375 per share (the then current market price). The options vest
and are exercisable ratably over three and four years.
F-16
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
Share-Based Compensation Plans
The Company sponsors the Prentiss Properties Trust Trustees' Share
Incentive Plan and the Prentiss Properties Trust 1996 Share Incentive Plan (the
"Plans"), which are share-based incentive compensation plans as described below.
The Company applies APB Opinion 25 and related Interpretations in accounting for
the Plans. In 1995, the FASB issued Statement of Financial Accounting Standards
Statement No. 123 "Accounting for Stock-Based Compensation ("SFAS 123") which,
if fully adopted by the Company, would change the methods the Company applies in
recognizing the cost of its Plans. Adoption of the cost recognition provisions
of SFAS 123 is optional and the Company has decided not to elect these
provisions of SFAS 123. However, pro forma disclosures as if the Company
adopted the cost recognition provisions of SFAS 123 in 1996 are required by SFAS
123 and are presented below.
Under the Plans, the Company is authorized to issue common shares pursuant
to "Awards" granted in the form of incentive share options (intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended) and non-
qualified share options. Awards may be granted to selected employees and
trustees of the Company or any subsidiary. In 1996, the Company granted both
incentive share options and non-qualified stock options under the Plans.
Share Options
Under the 1996 Share Incentive Plan, the Company is authorized to issue up
to 2,030,000 common shares pursuant to "Awards" granted to officers, key
employees and directors in the form of incentive share options qualified under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
non-qualified share options not qualified under Section 422 of the Code. These
share options vest ratably over a three or four year period on a graded basis.
A summary of the status of the Company's share options as of December 31,
1996, and the changes during the period ended on December 31, 1996 is presented
below:
<TABLE>
<CAPTION>
1996
# SHARES OF WEIGHTED
UNDERLYING AVERAGE
OPTIONS EXERCISE PRICES
----------- ---------------
<S> <C> <C>
Outstanding at beginning of the year..
Granted............................... 1,651,938 $20.82
Exercised.............................
Forfeited.............................
Expired...............................
----------
Outstanding at end of year............ 1,651,938 $20.82
==========
Exercisable at end of year............
==========
Weighted-average fair value $1.62
=====
</TABLE>
The fair value of each share option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions for grants in 1996: dividend yield of 8.00%; different
risk-free interest rates for each grant ranging from 6.05% to 6.26%; options
with expected lives of five years; and volatility of 20% for all grants.
As of December 31, 1996, there were 1,651,938 options outstanding with a
weighted-average remaining contractual life of 9.83 years and a weighted-average
exercise price of $20.82. None of these options were exercisable at that time.
F-17
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
Had the compensation cost for the Company's share-based compensation plans
been determined consistent with SFAS 123, the Company's net income and net
income per common share for 1996 would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
12/31/96 12/31/96
<S> <C> <C>
SFAS 123 charge............... $ 145
APB25 charge..................
Net income.................... $ 4,996 $ 4,851
========= =========
Net income per common share... $ .25 $ .24
========= =========
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its share-based
compensation plans.
(15) CAPITAL SHARES
The Board of Trustees is authorized to provide for the issuance of 20,000,000
preferred shares in one or more series, to establish the number of shares in
each series and to fix the designation, powers, preferences, and rights of each
such series and the qualifications, limitations or restrictions thereof. As of
December 31, 1996 no preferred shares were issued.
The outstanding Units are redeemable at the option of the holder for a like
number of common shares, or at the option of the Company, the cash equivalent
thereof. Total Units outstanding at December 31, 1996, were 3,295,995. The
total market value of these Units at December 31, 1996, based on the last
reported sale price of the common shares on the New York Stock Exchange of
$25.00, was approximately $82.4 million.
(16) COMMITMENTS AND CONTINGENCIES
Legal Matters
The 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 Company.
Environmental Matters
The Company 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 located between the
two buildings and the development parcel. The dumping occurred prior to the
acquisition of the Milwaukee industrials by the Predecessor Company. Upon
discovery of the unauthorized dumping, the Predecessor Company 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. During 1996, a settlement
to the lawsuit was finalized and was approved by the court. In accordance with
the Settlement, (i) the Operating Partnership 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
F-18
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
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. It
is management's opinion that any future outcome of this environmental matter
will not have a material impact on the financial statements.
(17) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Due to the impact of the Offering, related formation transactions, and the
eight properties acquired subsequent to the Offering, the historical results of
operations are not indicative of future results of operations. The following
Pro Forma Condensed Statements of Income for the years ended December 31, 1996
and 1995 are presented as if the Offering and related formation transactions and
property acquisitions had occurred at January 1, 1995, and therefore include pro
forma information. The pro forma information is based upon historical
information and does not purport to present what actual results would have been
had such transactions, in fact, occurred at January 1, 1995, or to project
results for any future period.
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995
--------------------- --------------------
<S> <C> <C>
(in thousands, except for per share data)
Total revenues............................. $84,413 $80,569
Property operating and maintenance......... 21,438 20,809
Real estate taxes.......................... 7,986 7,984
General and administrative................. 2,461 2,012
Personnel costs, net....................... 2,069 1,782
Interest expense........................... 9,326 9,326
Amortization of deferred financing costs... 470 470
Depreciation and amortization.............. 16,392 15,806
Equity in joint venture and
unconsolidated subsidiaries............... 4,736 7,307
------ -------
Income before minority interest............ 29,007 29,687
Minority interest.......................... (4,055) (4,150)
------- -------
Net income................................. $24,952 $25,537
======= =======
Net income per share....................... $ 1.23 $ 1.26
======= =======
</TABLE>
(18) SUBSEQUENT EVENTS
On January 14, 1997, the Company purchased a four-story, Class "A" suburban
office building located in Fairfax County, Virginia, totaling approximately
59,000 square feet. The purchase price of this property totaled approximately
$6.1 million.
On February 20, 1997, the Company purchased an industrial building in
Milwaukee, Wisconsin, totaling approximately 360,000 square feet. The purchase
price of this property totaled approximately $9.8 million.
F-19
<PAGE>
Schedule III
PRENTISS PROPERTIES TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Initial cost Costs
-------------------------- capitalized
Buildings and subsequent
Property Name Location Encumbrances Land Improvements to acquisition
- ------------- -------- ------------ ------ ------------- ---------------
<S> <S> <C> <C> <C> <C>
Office Properties:
Cumberland Office Park Atlanta, GA $ - $10,987 $ 13,226 $4,019
5307 East Mockingbird Dallas, TX - 870 1,976 1,069
Walnut Glen Tower Dallas, TX 10,000 5,400 32,669 3,471
Park West C-2 Dallas, TX - 8,360 29,640 6,238
Plaza on Bachman Creek Dallas, TX - 1,305 8,773 -
Cottonwood Office Center Dallas, TX - 1,735 9,865 -
Park West E-1 Dallas, TX - 2,857 16,499 -
Park West E-2 Dallas, TX - 2,079 11,863 -
FHP Denver Denver, CO 6,000 3,043 17,448 -
8521 Leesburg Pike Northern VA - 2,130 5,955 4,425
3141 Fairview Park Drive Northern VA - 4,000 15,980 373
2411 Dulles Corner Park Northern VA - 3,971 22,501 -
2455 Horsepen Road Northern VA - 2,098 11,888 -
One Northwestern Plaza Southfield, MI - 4,113 23,335 1
1717 Deerfield Road Chicago, IL - 3,237 18,556 -
O'Hare Plaza II Chicago, IL - 3,861 22,131 -
Industrial Properties:
Federal Express Atlanta, GA - 5,015 - 249
8869 Greenwood Baltimore, MD - 425 1,701 433
1329 Western Avenue Baltimore, MD - 800 4,854 216
Deep Run 1&2 Baltimore, MD - 1,400 3,947 727
4611 Mercedes Drive Baltimore, MD - 865 4,600 652
9050 Junction Drive Baltimore, MD - 690 3,908 -
Northland Park Kansas City, MO - 2,710 12,677 2,514
North Topping Street Kansas City, MO - 425 1,505 429
Airworld Drive Kansas City, MO - 722 2,736 172
107th Terrace Kansas City, MO - 276 1,728 392
Nicholson III Dallas, TX - 700 1,758 1,124
1002 Avenue T Dallas, TX - 300 1,831 482
13425 Branchview Dallas, TX - 310 1,795 411
1625 Vantage Dallas, TX - 145 1,067 362
Westloop Business Park Houston, TX - 496 2,813 -
Airport Properties Milwaukee, WI - 1,649 11,783 5,676
Oakcreek Properties Milwaukee, WI - 494 3,795 2,175
Northwest Properties Milwaukee, WI - 1,030 8,357 2,135
155 Alexandra Chicago, IL - 585 3,357 -
Wood Dale 1&2 Chicago, IL - 716 4,109 -
Pacific Gateway Center Los Angeles, CA - 6,429 36,431 5
-------- ------- -------- --------
$ 16,000 $86,228 $377,057 $ 37,750
======== ======= ======== ========
<CAPTION>
Gross amount
carried at close of period
--------------------------------------- Depreciable
Land and Building and Accumulated Date of Date lives
Property Name Improvements Improvements Total depreciation construction acquired (years)
- ------------- ------------ ------------ --------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Office Properties:
Cumberland Office Park $11,020 $ 17,212 $ 28,232 $2,795 1972-1980 1/16/91 (1)
5307 East Mockingbird 875 3,040 3,915 299 1979 1/28/93 (1)
Walnut Glen Tower 6,710 34,830 41,540 3,336 1985 1/1/94 (1)
Park West C-2 9,696 34,542 44,238 975 1989 9/5/95 (1)
Plaza on Bachman Creek 1,305 8,773 10,078 62 1986 8/20/96 (1)
Cottonwood Office Center 1,735 9,865 11,600 62 1986 10/24/96 (1)
Park West E-1 2,857 16,499 19,356 76 1982 10/23/96 (1)
Park West E-2 2,079 11,863 13,942 56 1985 10/23/96 (1)
FHP Denver 3,043 17,448 20,491 13 1983 12/20/96 (1)
8521 Leesburg Pike 2,259 10,251 12,510 510 1984 8/17/94 (1)
3141 Fairview Park Drive 4,000 16,353 20,353 318 1988 2/22/96 (1)
2411 Dulles Corner Park 3,971 22,501 26,472 - 1990 12/31/96 (1)
2455 Horsepen Road 2,098 11,888 13,986 - 1989 12/31/96 (1)
One Northwestern Plaza 4,113 23,336 27,449 110 1989 10/23/96 (1)
1717 Deerfield Road 3,237 18,556 21,793 - 1985 12/11/96 (1)
O'Hare Plaza II 3,861 22,131 25,992 - 1986 12/13/96 (1)
Industrial Properties:
Federal Express 5,015 249 5,264 - 1997 10/31/96 (1)
8869 Greenwood 425 2,134 2,559 237 1986-1987 12/27/93 (1)
1329 Western Avenue 836 5,034 5,870 452 1988 9/19/94 (1)
Deep Run 1&2 1,400 4,674 6,074 389 1988 9/1/94 (1)
4611 Mercedes Drive 898 5,219 6,117 379 1990 12/27/94 (1)
9050 Junction Drive 690 3,908 4,598 25 1989 10/22/96 (1)
Northland Park 2,979 14,922 17,901 2,552 1975-1980 1/23/92 (1)
North Topping Street 425 1,934 2,359 238 1975-1980 2/1/93 (1)
Airworld Drive 830 2,800 3,630 288 1975-1980 5/16/94 (1)
107th Terrace 336 2,060 2,396 184 1975-1980 5/16/94 (1)
Nicholson III 700 2,882 3,582 324 1981 9/16/92 (1)
1002 Avenue T 349 2,264 2,613 292 1981 5/5/93 (1)
13425 Branchview 353 2,163 2,516 252 1970 7/23/93 (1)
1625 Vantage 208 1,366 1,574 150 1984 7/26/93 (1)
Westloop Business Park 496 2,813 3,309 18 1986 10/22/96 (1)
Airport Properties 2,918 16,190 19,108 1,910 1970-1980 2/11/93 (1)
Oakcreek Properties 835 5,629 6,464 614 1970-1979 2/11/93 (1)
Northwest Properties 1,444 10,078 11,522 1,336 1973-1987 2/11/93 (1)
155 Alexandra Way 585 3,357 3,942 9 1988 11/25/96 (1)
Wood Dale 1&2 716 4,109 4,825 11 1988 11/25/96 (1)
Pacific Gateway Center 6,429 36,436 42,865 235 1972-1984 10/22/96 (1)
------- -------- -------- --------
$91,726 $409,309 $501,035 $ 18,507
======= ======== ======== ========
</TABLE>
__________
(1) Buildings & improvements - 25 to 40 years
(2) The aggregate cost for federal income tax purposes was approximately
$458,010.
F-20
<PAGE>
PRENTISS PROPERTIES TRUST
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Real estate:
Balance at beginning of year........... $153,148 $151,673 $ 89,116
Additions to and Improvement of Real 347,887 1,475 68,650
estate..............................
Disposition of Real estate........... (6,093)
-------- -------- --------
Balance at end of year............... $501,035 $153,148 $151,673
======== ======== ========
Accumulated depreciation:
Balance at beginning of year......... 11,780 7,307 3,567
Depreciation expense................. 6,727 4,473 4,008
Accumulated depreciation on Real (268)
estate sold......................... -------- -------- --------
Balance at end of year............. $ 18,507 $ 11,780 $ 7,307
======== ======== ========
</TABLE>
F - 21
<PAGE>
EXHIBIT 10.2
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................................... 19
------------------------------
5.04 No Right to Distributions in Kind................................ 19
---------------------------------
5.05 Limitations on Return of Capital Contributions................... 19
----------------------------------------------
5.06 Distributions Upon Liquidation................................... 19
------------------------------
5.07 Substantial Economic Effect...................................... 19
---------------------------
-i-
<PAGE>
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER................................................ 20
- -----------------------------
6.01 Management of the Partnership.................................... 20
-----------------------------
6.02 Delegation of Authority.......................................... 22
-----------------------
6.03 Indemnification and Exculpation of Indemnitees................... 23
----------------------------------------------
6.04 Liability of the General Partner................................. 24
--------------------------------
6.05 Reimbursement.................................................... 25
-------------
6.06 Outside Activities............................................... 25
------------------
6.07 Employment or Retention of Affiliates............................ 26
-------------------------------------
6.08 General Partner Participation.................................... 26
-----------------------------
6.09 Title to Partnership Assets...................................... 26
---------------------------
6.10 Miscellaneous.................................................... 27
-------------
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..................................... 30
----------------------------
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS...................................................... 31
- -----------------------
8.01 Management of the Partnership.................................... 31
-----------------------------
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................................................... 32
--------------
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS................................... 35
- ------------------------------------------
9.01 Purchase for Investment.......................................... 35
-----------------------
9.02 Restrictions on Transfer of Limited Partnership Interests........ 35
---------------------------------------------------------
9.03 Admission of Substitute Limited Partner.......................... 37
---------------------------------------
9.04 Rights of Assignees of Partnership Interests..................... 38
--------------------------------------------
9.05 Effect of Bankruptcy, Death, Incompetence or Termination
--------------------------------------------------------
of a Limited Partner............................................. 38
--------------------
-ii-
<PAGE>
9.06 Joint Ownership of Interests..................................... 38
----------------------------
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS................................... 39
- ------------------------------------------
10.01 Books and Records................................................ 39
-----------------
10.02 Custody of Partnership Funds; Bank Accounts...................... 39
-------------------------------------------
10.03 Fiscal and Taxable Year.......................................... 39
-----------------------
10.04 Annual Tax Information and Report................................ 40
---------------------------------
10.05 Tax Matters Partner; Tax Elections; Special
-------------------------------------------
Basis Adjustments................................................ 40
-----------------
10.06 Reports to Limited Partners...................................... 40
---------------------------
ARTICLE XI
AMENDMENT OF AGREEMENT....................................................... 41
- ----------------------
ARTICLE XII
GENERAL PROVISIONS........................................................... 41
- ------------------
12.01 Notices.......................................................... 41
-------
12.02 Survival of Rights............................................... 42
------------------
12.03 Additional Documents............................................. 42
--------------------
12.04 Severability..................................................... 42
------------
12.05 Entire Agreement................................................. 42
----------------
12.06 Pronouns and Plurals............................................. 42
--------------------
12.07 Headings......................................................... 42
--------
12.08 Counterparts..................................................... 42
------------
12.09 Governing Law.................................................... 42
-------------
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 Second 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 the State of Delaware, 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.
-3-
<PAGE>
"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 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
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.
-4-
<PAGE>
"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 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 I, Inc. a Delaware 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.
---------
-5-
<PAGE>
"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 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
-6-
<PAGE>
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.
"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.
-7-
<PAGE>
"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 I, 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 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
Incentive Plan, the Prentiss Properties Trust Share Incentive Plan, and The
Prentiss Properties Trust Employees Share Purchase Plan as such plans 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.
-8-
<PAGE>
"SUBSIDIARY PARTNERSHIP" means any partnership of which the partnership
interests therein are owned by the Company or a wholly-owned subsidiary of the
Company.
"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.
"TRANSFER RESTRICTION DATE" means October 22, 1999.
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 until October 28, 1996, after which such time, it shall be 3890
West Northwest Highway, Suite 400, Dallas, Texas 75220. 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
I, Inc., a Delaware corporation. Its principal place of business shall be the
same as that of the Partnership.
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<PAGE>
(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 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
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<PAGE>
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 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
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<PAGE>
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.
- ---------
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
-------- -------
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<PAGE>
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.
(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
-13-
<PAGE>
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 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
-14-
<PAGE>
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 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
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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.
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
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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 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 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).
(d) Capital Account Deficits. Loss shall not be allocated to a
------------------------
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
other Partners in accordance with their respective Percentage Interests. After
the occurrence of an allocation of Loss to a 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
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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 to (i) the number of
days that such additional Partnership Interest is held by such Partner bears to
(ii) 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
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Partner or assignee (including by reason of Section 1446 of the Code), either
(i) if the actual amount to be distributed to the Partner equals or exceeds the
amount required to be withheld by the Partnership, the amount withheld shall be
treated as a distribution of cash in the amount of such withholding to such
Partner, or (ii) if the actual amount to be distributed to the Partner is less
than the amount required to be withheld by the Partnership, the amount required
to be withheld shall be treated as a loan (a "Partnership Loan") from the
Partnership to the Partner on the day the Partnership pays over such amount to a
taxing authority. A Partnership Loan shall be repaid through withholding by the
Partnership with respect to subsequent distributions to the applicable Partner
or assignee. In the event that a Limited Partner (a "Defaulting Limited
Partner") fails to pay any amount owed to the Partnership with respect to the
Partnership Loan within 15 days after demand for payment thereof is made by the
Partnership on the Limited Partner, the General Partner, in its sole discretion,
may elect to make the payment to the Partnership on behalf of such Defaulting
Limited Partner. In such event, on the date of payment, the General Partner
shall be deemed to have extended a loan (a "General Partner Loan") to the
Defaulting Limited Partner in the amount of the payment made by the General
Partner and shall succeed to all rights and remedies of the Partnership against
the Defaulting Limited Partner as to that amount. Without limitation, the
General Partner shall have the right to receive any distributions that otherwise
would be made by the Partnership to the Defaulting Limited Partner until such
time as the General Partner Loan has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
received by the Defaulting Limited Partner and immediately paid to the General
Partner.
Any amounts treated as a Partnership Loan or a General Partner
Loan pursuant to this Section 5.02(b) shall bear interest at the lesser of (i)
the base rate on corporate loans at large United States money center commercial
banks, as published from time to time in The Wall Street Journal, or (ii) the
-----------------------
maximum lawful rate of interest on such obligation, such interest to accrue from
the date the Partnership or the General Partner, as applicable, is deemed to
extend the loan until such loan is repaid in full.
(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 of the Code and (ii) avoid any federal income or excise tax
liability imposed by the Code.
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<PAGE>
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. 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.
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.
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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 including, but not
limited to notes and mortgages, 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 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;
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(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 that is in excess of $20,000 or is not covered by
insurance;
(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;
(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
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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 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
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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
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
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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 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.
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<PAGE>
(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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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.
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(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 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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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 agree that the Percentage Interest for it and
the Company will at all times be in the aggregate, at least a 20%.
(c) Except as otherwise provided in Section 6.04(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), in
each case which results in a change of control of the Company (a "Transaction"),
unless as a result of such Transaction 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.
(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 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
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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.
In respect of any Transaction described in the preceding Paragraph, the
Company is required to use its commercially reasonable efforts to structure such
Transaction to avoid causing the Limited Partners to recognize a gain for
federal income tax purposes by virtue of the occurrence of or their
participation in such Transaction, provided such efforts are consistent with the
exercise of the Board of Trustees' fiduciary duty under applicable law.
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
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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 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
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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. 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).
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(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.
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.
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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 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
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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 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
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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.
(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
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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), no 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, whether voluntarily or by
operation of law or at judicial sale or otherwise (collectively, a "Transfer")
without the consent of the General Partner, which consent may be granted or
withheld in its sole and absolute discretion. Any such purported transfer
undertaken without such consent shall be considered to be null and void ab
initio and shall not be given effect. Each Limited Partner acknowledges that
the General Partner has agreed not to grant any such consent prior to the
Transfer Restriction Date. The General Partner may require, as a condition of
any Transfer to which it consents, that the transferor assume all costs incurred
by the Partnership in connection therewith.
(b) No Limited Partner may withdraw from the Partnership other than
as a result of a permitted Transfer (i.e., a Transfer consented to as
----
contemplated by clause (a) above or clause (c) below or a Transfer pursuant to
9.05 below) of all of his Partnership Units pursuant to this Article IX or
pursuant to an exchange of all of his Partnership Units pursuant to 8.05. Upon
the permitted Transfer or redemption of all of
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a Limited Partner's Partnership Units, such Limited Partner shall cease to be a
Limited Partner.
(c) Subject to 9.02(d), (e) and (f) below, a Limited Partner may
Transfer, with the consent of the General Partner, all or a portion of his
Partnership Units to (i) a parent or parent's spouse, natural or adopted
descendant or descendants, spouse of such descendant, or brother or sister, or a
trust created by such Limited Partner for the benefit of such Limited Partner
and/or any such person(s), of which trust such Limited Partner or any such
person(s) is a trustee, (ii) a corporation controlled by a Person or Persons
named in (i) above, or (ii) if the Limited Partner is an entity, its beneficial
owners.
(d) 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).
(e) 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.
(f) 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.
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<PAGE>
(g) 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.
(h) Prior to the consummation of any Transfer under this Article IX,
the transferor and/or the transferee shall deliver to the General Partner such
opinions, certificates and other documents as the General Partner shall request
in connection with such Transfer.
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 with the consent of the General
Partner and upon the satisfactory completion of the following:
(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.
-39-
<PAGE>
(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.
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
-40-
<PAGE>
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.
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.
-41-
<PAGE>
(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 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,
-42-
<PAGE>
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
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;
-43-
<PAGE>
(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.
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
-44-
<PAGE>
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.
-45-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Second Amended and Restated Agreement of Limited Partnership,
all as of the 22nd day of October, 1996.
CONVERTING GENERAL PARTNER
PRENTISS PROPERTY ACQUISITION, L.P.
By: Prentiss Property Acquisition, Inc., general
partner
By: /s/Thomas F. August
----------------------------------
Name:
Title:
NEW GENERAL PARTNER
PRENTISS PROPERTIES I, INC.
By: /s/Thomas F. August
----------------------------------
Name: Thomas F. August
Title: President
LIMITED PARTNERS
Thomas F. August
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Thomas F. August
----------------------------------
Richard B. Bradshaw, Jr.
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Richard B Bradshaw, Jr.
----------------------------------
-46-
<PAGE>
Dennis J. DuBois, Jr.
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Dennis J. DuBois
----------------------------------
PDO Three, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Thomas F. August
----------------------------------
Name: Thomas F. August
Title: President
Michael V. Prentiss
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Michael V. Prentiss
----------------------------------
Prentiss Credit Shelter Trust
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Michael V. Prentiss
----------------------------------
Trustee
Prentiss O'Hare Illinois Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Thomas F. August
----------------------------------
Name: Thomas F. August
Title: President
-47-
<PAGE>
Prentiss Property Acquisition, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Thomas F. August
----------------------------------
Name: Thomas F. August
Title: President
Prentiss Properties Limited, Inc.
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Thomas F. August
----------------------------------
Name: Thomas F. August
Title: President
Prentiss Properties Trust
1717 Main Street, Suite 5000
Dallas, Texas 75201
By: /s/Thomas F. August
----------------------------------
Name: Thomas F. August
Title: President
-48-
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Partner Cash Agreed Value Partnership Percentage
--------- Contribution of Capital Units Interest
------------ Contribution ----------- ----------
------------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
PRENTISS PROPERTIES I, $ 943,040 47,152 .20%
INC.
3890 W. Northwest Highway
Suite 400
Dallas, Texas 75220
LIMITED PARTNERS:
PRENTISS PROPERTIES $404,654,900 17,837,601 84.35%
TRUST
1717 Main Street
Suite 5000
Dallas, Texas 75201
PRENTISS PROPERTIES $47,454,320 2,372,716 11.22%
LIMITED, INC.
1717 Main Street
Suite 5000
Dallas, Texas 75201
MICHAEL V. PRENTISS $ 5,103,840 255,192 1.21%
1717 Main Street
Suite 5000
Dallas, Texas 75201
THOMAS F. AUGUST $ 1,704,480 85,224 .40%
1717 Main Street
Suite 5000
Dallas, Texas 75201
DENNIS J. DUBOIS $ 1,120,800 56,040 .26%
1717 Main Street
Suite 5000
Dallas, Texas 75201
RICHARD J. BRADSHAW, JR. $ 139,680 6,984 .03%
2580 Cumberland Parkway
Suite 460
Atlanta, Georgia 30339
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Partner Cash Agreed Value Partnership Percentage
--------- Contribution of Capital Units Interest
------------ Contribution ----------- ----------
------------
<S> <C> <C> <C> <C>
PRENTISS PROPERTY $ 122,640 6,132 .03%
ACQUISITION, INC.
1717 Main Street
Suite 5000
Dallas, Texas 75201
CREDIT SHELTER TRUST $ 6,377,280 318,864 1.51%
1717 Main Street
Suite 5000
Dallas, Texas 75201
PDO THREE, INC. $ 23,280 1,164 .01%
1717 Main Street
Suite 5000
Dallas, Texas 75201
PRENTISS O'HARE ILLINOIS, $ 3,315,000 165,750 .78%
INC.
1717 Main Street
Suite 5000
Dallas, Texas 75201
</TABLE>
<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)
----------------------------------
(Mailing Address)
----------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
----------------------------------
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
<PAGE>
EXHIBIT 10.3
CREDIT AGREEMENT
among
PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
as Borrower
BANK ONE, TEXAS, N.A.,
as Administrative Agent
NATIONSBANK OF TEXAS, N.A.,
as Documentation Agent
and
THE LENDERS NAMED HEREIN,
as Lenders
$100,000,000
AS OF
OCTOBER 17, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS AND TERMS.......................................... 1
1.1 Definitions.................................................... 1
1.2 Time References................................................ 12
1.3 Other References............................................... 12
1.4 Accounting Principles.......................................... 12
SECTION 2 COMMITMENT..................................................... 12
2.1 Revolving Facility............................................. 12
2.2 Borrowing Procedure............................................ 13
2.3 Termination.................................................... 13
2.4 Borrowing Base................................................. 13
(a) Admission of Projects into the Borrowing Base............. 13
(b) Borrowing Base............................................ 15
(c) Other Requirements Respecting the Borrowing Base.......... 15
(d) Computation of Adjusted Net Operating Income.............. 15
SECTION 3 TERMS OF PAYMENT............................................... 15
3.1 Notes and Payments............................................. 15
3.2 Interest and Principal Payments................................ 16
(a) Interest Payments......................................... 16
(b) Principal Payments........................................ 16
(c) Voluntary Prepayment...................................... 16
3.3 Interest Options............................................... 16
3.4 Quotation of Rates............................................. 16
3.5 Default Rate................................................... 17
3.6 Interest Recapture............................................. 17
3.7 Interest Calculations.......................................... 17
3.8 Maximum Rate................................................... 17
3.9 Interest Periods............................................... 18
3.10 Conversions.................................................... 18
3.11 Order of Application........................................... 18
3.12 Sharing of Payments, Etc....................................... 19
3.13 Booking Borrowings............................................. 19
3.14 Basis Unavailable or Inadequate for the Eurodollar Rate........ 19
3.15 Additional Costs............................................... 19
3.16 Change in Governmental Requirement............................. 20
3.17 Funding Loss................................................... 20
3.18 Foreign Lenders................................................ 21
3.19 Fees........................................................... 21
(a) Treatment of Fees......................................... 21
(b) Agent Fees................................................ 21
(c) Commitment Fees........................................... 21
SECTION 4 SECURITY....................................................... 22
4.1 Liens on Projects.............................................. 22
4.2 Collateral Documents........................................... 22
4.3 Leases......................................................... 22
(i)
<PAGE>
4.4 Releases of Collateral......................................... 23
4.5 Appraisals..................................................... 23
SECTION 5 CONDITIONS PRECEDENT........................................... 24
SECTION 6 REPRESENTATIONS AND WARRANTIES................................. 24
6.1 Purpose of Credit Facility..................................... 24
6.2 Existence, Good Standing, Authority and Compliance............. 24
6.3 Affiliates..................................................... 25
6.4 Authorization and Contravention................................ 25
6.5 Binding Effect................................................. 25
6.6 Financial Statements; Fiscal Year.............................. 25
6.7 Litigation..................................................... 25
6.8 Taxes.......................................................... 25
6.9 Environmental Matters.......................................... 26
6.10 Employee Plans................................................. 26
6.11 Properties; Liens.............................................. 26
6.12 Locations...................................................... 26
6.13 Government Regulations......................................... 26
6.14 Transactions with Affiliates................................... 26
6.15 Insurance...................................................... 27
6.16 Labor Matters.................................................. 27
6.17 Solvency....................................................... 27
6.18 Full Disclosure................................................ 27
6.19 Exemption from ERISA; Plan Assets.............................. 27
6.20 Ownership...................................................... 27
SECTION 7 AFFIRMATIVE COVENANTS.......................................... 27
7.1 Items to be Furnished.......................................... 27
7.2 Use of Proceeds................................................ 29
7.3 Books and Records.............................................. 29
7.4 Inspections.................................................... 29
7.5 Taxes.......................................................... 29
7.6 Payment of Obligations......................................... 29
7.7 Expenses....................................................... 29
7.8 Maintenance of Existence, Assets, and Business................. 30
7.9 Insurance...................................................... 30
7.10 Preservation and Protection of Rights.......................... 30
7.11 Environmental Laws............................................. 30
7.12 Indemnification................................................ 30
7.13 REIT Status.................................................... 31
7.14 ERISA Exemptions............................................... 31
7.15 Listed Company................................................. 31
SECTION 8 NEGATIVE COVENANTS............................................. 31
8.1 Payment of Obligations......................................... 31
8.2 Employee Plans................................................. 31
8.3 Liens.......................................................... 32
8.4 Transactions with Affiliates................................... 32
8.5 Compliance with Governmental Requirements and Documents........ 32
8.6 Loans, Advances and Investments................................ 33
(ii)
<PAGE>
8.7 Dividends and Distributions.................................... 33
8.8 Sale of Assets................................................. 33
8.9 Mergers and Dissolutions....................................... 33
8.10 Assignment..................................................... 34
8.11 Fiscal Year and Accounting Methods............................. 34
8.12 New Businesses................................................. 34
8.13 Government Regulations......................................... 34
8.14 Occupancy...................................................... 34
8.15 Obligors....................................................... 34
8.16 Amendment of Constituent Documents............................. 34
SECTION 9 FINANCIAL COVENANTS............................................ 34
9.1 Minimum Tangible Net Worth..................................... 34
9.2 Total Indebtedness to Tangible Net Worth....................... 34
9.3 Interest Coverage.............................................. 34
9.4 Debt Service Coverage.......................................... 34
SECTION 10 DEFAULT........................................................ 35
10.1 Payment of Obligation.......................................... 35
10.2 Covenants...................................................... 35
10.3 Debtor Relief.................................................. 35
10.4 Judgments and Attachments...................................... 35
10.5 Government Action.............................................. 35
10.6 Misrepresentation.............................................. 35
10.7 Default Under Other Agreements................................. 36
10.8 Validity and Enforceability of Loan Documents.................. 36
10.9 Management Changes............................................. 36
10.10 Change in Control.............................................. 36
10.11 Plan Assets.................................................... 36
SECTION 11 RIGHTS AND REMEDIES............................................ 36
11.1 Remedies Upon Default.......................................... 36
11.2 Waivers........................................................ 37
11.3 Performance by the Administrative Agent........................ 37
11.4 Not in Control................................................. 37
11.5 Course of Dealing.............................................. 37
11.6 Cumulative Rights.............................................. 37
11.7 Application of Proceeds........................................ 37
11.8 Diminution in Value of Collateral.............................. 37
11.9 Certain Proceedings............................................ 38
SECTION 12 AGENTS AND THE LENDERS......................................... 38
12.1 The Agents..................................................... 38
12.2 Expenses....................................................... 39
12.3 Proportionate Absorption of Losses............................. 40
12.4 Delegation of Duties; Reliance................................. 40
12.5 Limitation of Agents' Liability................................ 40
12.6 Default........................................................ 41
12.7 Collateral Matters............................................. 42
12.8 Limitation of Liability........................................ 43
12.9 Relationship of Lenders........................................ 43
(iii)
<PAGE>
12.10 Benefits of Agreement.......................................... 43
12.11 Approval of Lenders............................................ 43
SECTION 13 MISCELLANEOUS.................................................. 44
13.1 Headings....................................................... 44
13.2 Nonbusiness Days; Time......................................... 44
13.3 Communications................................................. 44
13.4 Form and Number of Documents................................... 44
13.5 Survival....................................................... 44
13.6 Governing Law.................................................. 44
13.7 Invalid Provisions............................................. 44
13.8 Venue; Service of Process; Jury Trial.......................... 45
13.9 Amendments, Consents, Conflicts and Waivers.................... 45
13.10 Multiple Counterparts.......................................... 46
13.11 Successors and Assigns; Participations......................... 46
13.12 Discharge Only Upon Payment in Full; Reinstatement in
Certain Circumstances......................................... 48
13.13 Entirety....................................................... 49
13.14 Effectiveness.................................................. 49
(iv)
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1 Parties, Addresses, Commitments and Wiring Information
Schedule 2 Projects Admitted into the Borrowing Base
Schedule 5 Conditions Precedent
Schedule 6.2 Jurisdictions of Incorporation, Business and Jurisdictions
Schedule 6.7 Litigation
Schedule 6.9 Environmental Matters
Schedule 6.12 Chief Executive Office
Schedule 6.14 Affiliates Transactions
Exhibit A Borrowing or Conversion Request
Exhibit B Compliance Certificate
Exhibit C Form of Guaranty
Exhibit D Form of Revolving Credit Note
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Deed of Trust
Exhibit G Form of Assignment of Leases and Rents
Exhibit H Form of Local Counsel Opinion
(v)
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of October 17, 1996, among PRENTISS
PROPERTIES ACQUISITION PARTNERS, L.P., a Delaware limited partnership
("BORROWER"), each of the lenders that are a signatory hereto or that becomes a
signatory hereto as provided in SECTION 13.11(c) (individually, together with
its successors and assigns, a "LENDER" and collectively, the "LENDERS"), BANK
ONE, TEXAS, N.A., a national banking association, as the Administrative Agent
for the Lenders (in such capacity, together with its successors and assigns, the
"ADMINISTRATIVE AGENT"), and NATIONSBANK OF TEXAS, N.A., for itself and as the
Documentation Agent for the Lenders (in such capacity, together with its
successors and assigns, the "DOCUMENTATION AGENT").
R E C I T A L S:
- - - - - - - -
1. Borrower has requested that the Lenders extend to Borrower a revolving
credit facility not to exceed the principal amount of $100,000,000.00.
2. The Lenders are willing to extend the requested credit on the terms
and subject to the conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1 DEFINITIONS AND TERMS.
1.1 DEFINITIONS. Unless otherwise indicated, as used in the Loan
Documents:
"ACCUMULATED DEPRECIATION" means, for any Person as of any date, the amount
of accumulated depreciation deducted from the amount of assets of such Person,
as reflected in the relevant financial statements of such Person and determined
in accordance with GAAP.
"ADJUSTED NET OPERATING INCOME" means, for any Project as of any
determination date and for the twelve- (12-) month period ending on the last day
of the month immediately preceding the month in which such determination date
occurs, (a) any cash rentals, proceeds, expense reimbursements or income
received from such Project (but excluding security or other deposits, late fees,
early lease termination or other penalties, and other charges of a non-recurring
nature), based upon existing leases where tenants are paying rent in accordance
with the terms of such leases, and which are not in material default, less (b)
all cash costs and expenses that Borrower incurred as a result of, or in
connection with, the development, operation or leasing of such Project (but
excluding tenant improvement costs, commission expenses, and principal and
interest payments during such period), less (c) to the extent exceeding the
amounts for the applicable cash costs and expenses incurred by Borrower pursuant
to (b) above, appropriate accruals for items such as taxes, insurance, or other
expenses reasonably determined by the Administrative Agent, a management fee of
at least two percent (2%) of rents and a reserve of at least $0.65 per square
foot per year for office Projects and $0.25 per square foot for industrial
Projects, all as determined in accordance with accounting principles reasonably
acceptable to the Administrative Agent, consistently applied. For Projects not
owned by Borrower for the preceding twelve (12) month period on the last day of
the month immediately preceding the month in which a determination date occurs,
Borrower shall provide to the Administrative Agent, to the extent available, the
previous owner's operating statements for the applicable portion of such twelve
(12) month period as well as Borrower's operating statements for the remaining
portion of such twelve (12) month period for purposes of determining Adjusted
Net Operating Income, which shall be determined in a manner reasonably
acceptable to the Administrative Agent.
<PAGE>
"ADMINISTRATIVE AGENT" is defined in the preamble.
"AFFILIATE" of a Person means any other individual or entity who directly
or indirectly controls, or is controlled by, or is under common control with,
that Person. For purposes of this definition "control," "controlled by," and
"under common control with" mean possession, directly or indirectly, of power to
direct (or cause the direction of) management or policies (whether through
ownership of voting securities or other ownership interests, by contract, or
otherwise).
"AGENTS" means the Administrative Agent and the Documentation Agent and
"AGENT" means either one of the Agents.
"AGGREGATE BORROWING BASE" is defined in SECTION 2.4.
"AGREEMENT" means this Credit Agreement, as amended, supplemented or
restated from time-to-time.
"APPLICABLE MARGIN" means, at the time of determination thereof, the
interest margin over the Base Rate or the Eurodollar Rate, as the case may be,
based upon the Rating Requirement as follows:
<TABLE>
<CAPTION>
============================================================
RATING REQUIREMENT APPLICABLE MARGIN
============================================================
MOODY'S S & P BASE RATE EURODOLLAR
RATING RATING BORROWINGS BORROWINGS
============================================================
<S> <C> <C> <C>
Less than Less than 0% 2.0%
Baa3 or not BBB- or not
rated rated
- ------------------------------------------------------------
Baa3 BBB- 0% 1.625%
- ------------------------------------------------------------
Baa2 or BBB or 0% 1.50%
better better
============================================================
</TABLE>
"APPRAISED VALUE" means, with respect to any Project, as of any date, the
appraised value of such Project pursuant to an appraisal commissioned by and
addressed to the Administrative Agent (acceptable to the Administrative Agent as
to form, substance and appraisal date), prepared by a professional appraiser
acceptable to the Administrative Agent and having the minimum qualifications
required under all applicable regulations governing the Administrative Agent and
the Lenders.
"APPROVED COSTS" means, for any Project, the sum of the acquisition costs
of such Project and, to the extent approved by the Administrative Agent,
development costs with respect to such Project.
"APPROVED LEASE FORM" means any form of lease approved by the
Administrative Agent from time-to-time. References herein to specific sections
in the Approved Lease Form shall mean those Sections in the current approved
lease form and corresponding provisions in substitute lease forms.
"APPROVED PERCENTAGE" means, unless otherwise agreed prior to admission of
a Project into the Borrowing Base, (a) with respect to the Approved Costs for a
Project, fifty percent (50%), and (b) with respect to the Appraised Value of a
Project, fifty percent (50%).
"BASE RATE" means, for any day, the greater of (a) the sum of the Federal
Funds Rate plus one-half of one percent (0.5%), and (b) the annual interest rate
most recently announced by the Administrative Agent
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<PAGE>
as its prime rate (or, if the Person then acting as the Administrative Agent
under this Agreement is not a bank organized under the Governmental Requirements
of the United States or any State, then the rate announced by Bank One, Texas,
National Association, or any successor thereof, as its prime rate) in effect at
its principal office, automatically fluctuating upward and downward with and as
specified in each announcement without special notice to Borrower or any other
Person (which prime rate may not necessarily represent the lowest or best rate
actually charged to a customer).
"BASE RATE BORROWING" means a Borrowing bearing interest at the sum of the
Base Rate plus the Applicable Margin.
"BORROWING" means (without duplication) any amount disbursed by (a) the
Lenders to or on behalf of Borrower under the Loan Documents, or (b) any Lender
in accordance with, and to satisfy the obligations of Borrower under, any Loan
Document.
"BORROWING BASE" is defined in SECTION 2.4.
"BORROWING BASE REPORT" is defined in SECTION 7.1(d).
"BORROWING DATE" means for any Borrowing (a) the date for which funds are
requested by Borrower, or (b) the date any Borrowing is converted hereunder to
another Type of Borrowing.
"BORROWING REQUEST" means a request substantially in the form of EXHIBIT A.
"BUSINESS DAY" means (a) for all purposes, any day other than Saturday,
Sunday, and any other day that commercial banks are authorized by any
Governmental Requirement to be closed in Texas or New York, and (b) for purposes
of any Eurodollar Borrowing, a day that satisfies the requirements of clause (a)
and is a day when commercial banks are open for domestic or international
business in London.
"CAPITAL EXPENDITURES" means any expenditures by a Person for an asset that
will be used in years subsequent to the year in which the expenditure is made or
which is properly classified in the relevant financial statements of such Person
in accordance with GAAP as a capital asset.
"CAPITAL LEASE" means any capital lease or sublease that has been (or under
GAAP should be) capitalized on a balance sheet.
"CHANGE IN CONTROL" means, with respect to Borrower, the transfer of
beneficial ownership of the outstanding partnership interests of Borrower such
that Guarantor owns, directly or indirectly, less than fifty-one percent (51%)
of the outstanding partnership interests of Borrower.
"CLOSING DATE" means the date this Agreement is fully executed and
delivered.
"CODE" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"COLLATERAL" means the real and personal property comprising each Project
securing payment of the Obligation pursuant to the Collateral Documents.
"COLLATERAL DOCUMENTS" means the deeds of trust, mortgages, assignments of
rents and leases, security agreements, financing statements, and other loan and
collateral documents creating, evidencing and perfecting Liens in the Collateral
in favor of the Administrative Agent, for the benefit of the Lenders. The
Collateral Documents for each Project shall include, without limitation, (a) a
Deed of Trust, Assignment, Security
3
<PAGE>
Agreement and Financing Statement substantially in the form of EXHIBIT F, (b) an
Assignment of Leases and Rents substantially in the form of EXHIBIT G, and (c)
Uniform Commercial Code Financing Statements in forms acceptable for filing in
the appropriate filing offices, in each case modified to the extent necessary to
meet the substantive requirements of the laws of the state where the Project is
located.
"COMMITMENT" means, for a Lender, the amount (which is subject to reduction
and cancellation as provided in this Agreement) stated beside such Lender's name
on SCHEDULE 1 as most recently amended under this Agreement, as the same may be
reduced pursuant to SECTION 2.3 or terminated pursuant to SECTION 11.1, and as
the same may be increased or decreased from time-to-time by further assignment
pursuant to SECTION 13.11.
"COMMITMENT PERCENTAGE" means, for any Lender, the proportion (stated as a
percentage) that its Commitment bears to the Total Commitment.
"COMPANIES" means, without duplication, (a) Guarantor, (b) Borrower, and
(c) each of their respective Consolidated Affiliates, and "COMPANY" means any
one of the Companies.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form of
EXHIBIT B and signed by a Responsible Officer of Borrower and Guarantor.
"CONSOLIDATED AFFILIATE" means, in respect of any Person, any other Person
in whom such Person holds an equity or ownership interest and whose financial
results would be consolidated under GAAP with the financial results of such
Person on the consolidated financial statements of such Person.
"CONSTANT ANNUAL PERCENT" means the percent of a principal amount of a loan
required to be paid each year in order to amortize such loan at maturity as well
as to pay the amount of interest due at each installment, which installments
shall be equal monthly installments of principal and interest.
"CONVERSION REQUEST" means a request substantially in the form of EXHIBIT
A.
"CURRENT FINANCIALS" means, at any time, the consolidated Financial
Statements of the Companies most recently delivered to the Administrative Agent
under SECTION 7.1(a) or 7.1(b), as the case may be.
"DEBT SERVICE" means, for any Person for any period, the sum of all
principal payments and all Interest Expense that are paid or payable during such
period in respect of all Liabilities of such Person.
"DEBTOR RELIEF LAWS" means Title 11 of the United States Code and all other
applicable state or federal liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension
of payments or similar Governmental Requirements affecting creditors' Rights in
effect from time-to-time.
"DEFAULT" is defined in SECTION 10.
"DEFAULT RATE" means an annual rate of interest equal from day-to-day to
the lesser of (a) the then-existing Base Rate plus four (4%), and (b) the
Maximum Rate.
"DISTRIBUTION" means, with respect to any shares of any capital stock or
other equity securities or other ownership interests issued by a Person, (a) the
retirement, redemption, purchase or other acquisition for value of such
securities or interests by such Person, (b) the declaration or payment of any
dividend on or with respect to such securities or interests by such Person, (c)
any loan or advance by that Person to, or other investment
4
<PAGE>
by that Person in, the holder of any of such securities or interests, and (d)
any other payment by that Person with respect to such securities or interests.
"DOCUMENTATION AGENT" is defined in the preamble.
"EBITDA" means, for any Person for any period, the sum of (a) Net Income,
plus (b) depreciation and amortization expense, plus (c) Interest Expense, plus
(d) income taxes deducted from Net Income in accordance with GAAP, plus (e)
extraordinary losses (and any unusual losses arising in or outside the ordinary
course of business of such Person not included in extraordinary losses)
determined in accordance with GAAP that have been reflected in the determination
of Net Income, minus (f) extraordinary gains (and any unusual gains arising in
or outside the ordinary course of business of such Person not included in
extraordinary gains) determined in accordance with GAAP that have been reflected
in the determination of Net Income, minus (g) such Person's Share of recognized
net income of Unconsolidated Affiliates, plus (h) such Person's Share of EBITDA
of Unconsolidated Affiliates, to the extent such Person is entitled to such
amounts under the governing documents of the applicable Unconsolidated
Affiliate, minus (i) earnings of Consolidated Affiliates for such period
distributed to third parties, all of the foregoing without duplication.
"ELIGIBLE ASSIGNEE" means any of the following entities: (a) a commercial
bank organized under the laws of the United States, or any state thereof; (b) a
commercial bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development, or a political
subdivision of any such country, provided that such bank is acting through a
branch or agency located in the United States, in the country in which it is
organized, or in another country which is also a member of the Organization for
Economic Cooperation and Development; (c) the central bank of any country which
is a member of the Organization for Economic Cooperation and Development; and
(d) any other Person approved by the Agents and, so long as no Default or
Potential Default exists, Borrower.
"ELIGIBLE PROJECT" is defined in SECTION 2.4.
"EMPLOYEE PLAN" means an employee pension benefit plan covered by Title IV
of ERISA and established or maintained by Borrower or any of its Consolidated
Affiliates.
"ENVIRONMENTAL LAW" means any and all Governmental Requirements pertaining
to health or the environment in effect in any and all jurisdictions in which
Borrower or any of its Consolidated Affiliates is conducting or at any time has
conducted business, or where any Property of Borrower or any of its Consolidated
Affiliates is located, including, without limitation, the Oil Pollution Act of
1990, as amended, ("OPA"), the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980, as amended,
("CERCLA"), the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, ("RCRA"), the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, and other environmental conservation
or protection Governmental Requirements. The term "oil" has the meaning
specified in OPA, the terms "hazardous substance" and "release" (or "threatened
release") have the meanings specified in CERCLA, and the terms "solid waste" and
"disposal" (or "disposed") have the meanings specified in RCRA; provided,
however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment, and (ii) to the extent
the Governmental Requirements of the state in which any Property of Borrower or
its any of its Consolidated Subsidiaries is located establish a meaning for
"oil," "hazardous substance," "release," "solid waste" or "disposal" which is
broader than that specified in either OPA, CERCLA or RCRA, such broader meaning
shall apply.
5
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"EURODOLLAR RATE" means, for any Eurodollar Borrowing for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of one percent) equal to the quotient obtained by dividing (a) the
rate appearing on the Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two (2) Business Days prior to the first (1st) day of such
Interest Period for a term comparable to such Interest Period, by (b) one minus
the Reserve Requirement (expressed as a decimal) applicable to the relevant
Interest Period. If for any reason the rate described in (a) is not available,
then such rate shall be the rate appearing on the Reuters Screen LIBO Page as
the London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two (2) Business Days prior to the first (1st) day of the
such Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on the Reuters Screen LIBO Page,
then the applicable rate shall be the arithmetic mean of all such rates. If
neither of such rates are available, then such rate shall be determined on the
basis of the rates at which deposits in United States dollars are offered by the
Administrative Agent at approximately 11:00 a.m. (London time) on the day that
is two (2) Business Days preceding the first (1st) day of the relevant Interest
Period to prime banks in the London interbank market and for a period equal to
such Interest Period commencing on the first (1st) day of such Interest Period.
"EURODOLLAR BORROWING" means a Borrowing bearing interest at the sum of the
Eurodollar Rate plus the Applicable Margin.
"FEDERAL FUNDS RATE" means, on any day, the annual rate (rounded upwards,
if necessary, to the nearest 0.01%) determined by the Administrative Agent
(which determination is conclusive and binding, absent manifest error) to be
equal to the weighted average of the rates on overnight federal funds
transactions with member banks of the Federal Reserve System arranged by federal
funds brokers as published by the Federal Reserve Bank of New York on the next
successive Business Day; provided, however, that (a) if such determination date
is not a Business Day, the Federal Funds Rate for such day shall be the rate for
such transactions on the next preceding Business Day as published on the next
successive Business Day, or (b) if those rates are not published for any
Business Day, the Federal Fund Rate shall be the average of the quotations at
approximately 10:00 a.m. on such Business Day received by the Administrative
Agent from three (3) federal funds brokers of recognized standing selected by
the Administrative Agent in its sole discretion.
"FINANCIAL STATEMENTS" of a Person means balance sheets, and statements of
earnings, shareholders' equity and cash flow prepared (a) according to GAAP, (b)
except as stated in SECTION 1.4, in comparative form to prior year-end figures
or corresponding periods of the preceding fiscal year, as applicable, and (c) on
a consolidated basis if that Person had any Consolidated Affiliates during the
applicable period.
"FIXED CONSTANT" means, as of any date, a fixed Constant Annual Percent
utilizing (a) a rate of interest equal to nine percent (9%), and (b) a twenty-
five (25) year amortization.
"FUNDING LOSS" means, without duplication, any loss, expense or costs
incurred by any Lender (including any loss, expense or cost incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by such
Lender to make or maintain any portion of any Borrowing as a Eurodollar
Borrowing) when (a) Borrower fails or refuses (for any reason other than any
Lender's failure to comply with this Agreement) to take any Borrowing that it
has requested under this Agreement, or (b) Borrower prepays or pays any
Borrowing or converts any Borrowing to a Borrowing of another Type, in each
case, before the last day of the applicable Interest Period.
"FUNDS FROM OPERATIONS" means, for Borrower or Guarantor for any period,
Net Income before such Person's Share of the Net Income or loss of any
Unconsolidated Affiliate, plus any and all cash distributions
6
<PAGE>
received by such Person representing such Person's Share of the Net Income of
any Unconsolidated Affiliate, plus depreciation and amortization (exclusive of
amortization of financing costs), all as determined in accordance with GAAP;
provided that there shall not be included in such calculation (a) any proceeds
of any insurance policy other than rental or business interruption insurance
received by such Person, (b) any gain or loss which is classified as
"extraordinary" in accordance with GAAP, or (c) any capital gains and taxes on
capital gains.
"GAAP" means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable on the date of this
Agreement, subject to changes permitted by SECTION 1.4.
"GOVERNMENTAL AUTHORITY" means any (a) local, state, or federal judicial,
executive, or legislative instrumentality, (b) private arbitration board or
panel acting through binding arbitration or mediation, or (c) central bank.
"GOVERNMENTAL REQUIREMENT" means all applicable statutes, laws, treaties,
ordinances, rules, regulations, orders, writs, injunctions, decrees, judgments,
opinions and interpretations of any Governmental Authority.
"GUARANTOR" means Prentiss Properties Trust, a Maryland real estate
investment trust.
"GUARANTY" means the Unconditional Guaranty of Payment dated of even date
herewith, executed by Guarantor in favor of the Agents and the Lenders, and
substantially in the form of EXHIBIT C.
"HAZARDOUS SUBSTANCE" means any substance (a) the presence of which
requires removal, remediation, or investigation under any Environmental Law, or
(b) that is defined or classified as a hazardous waste, hazardous material,
pollutant, contaminant or toxic or hazardous substance under any Environmental
Law.
"INTEREST EXPENSE" means, for any Person for any period, all of such
Person's paid, accrued or capitalized interest expense on such Person's Total
Indebtedness (whether direct, indirect, or contingent, and including interest on
all convertible Liabilities).
"INTEREST PERIOD" has the meaning set forth in SECTION 3.9.
"IPO" means the initial public offering of Guarantor's Common Shares of
Beneficial Interest, $0.01 par value per share, resulting in net proceeds to
Guarantor of not less than $225,000,000.00.
"LENDERS" is defined in the preamble.
"LIABILITIES" means (without duplication), for any Person, (a) any
indebtedness, liabilities, or obligations required by GAAP to be classified upon
such Person's balance sheet as liabilities, (b) any liabilities secured (or for
which the holder of the Liability has an existing Right, contingent or
otherwise, to be so secured) by any Lien existing on property owned or acquired
by that Person, (c) any obligations that have been (or under GAAP should be)
capitalized for financial reporting purposes, including all Capital Leases, (d)
any guaranties, endorsements and other contingent obligations with respect to
Liabilities or obligations of others, (e) all indebtedness, obligations, or
other liabilities in respect of interest rate contracts and foreign currency
exchange agreements on a mark-to-market basis, (f) such Person's Share of any
Liabilities of Unconsolidated Affiliates (other than of Broadmoor Austin
Associates), and (g) any minority interests in Consolidated Affiliates (other
than minority interests reflected in the Financial Statements of Guarantor
relating to units of partnership interests in Borrower), and "LIABILITY" means
any of the Liabilities.
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<PAGE>
"LIEN" means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement or encumbrance of any kind and any other
substantially similar arrangement for a creditor's claim to be satisfied from
assets or proceeds prior to the claims of other creditors or the owners.
"LITIGATION" means any action by or before any Governmental Authority.
"LOAN DOCUMENTS" means (a) this Agreement, certificates, and reports
delivered under this Agreement, and exhibits and schedules to this Agreement,
(b) the Notes, (c) the Guaranty, (d) the Collateral Documents, (e) all other
agreements, documents, and instruments executed by Borrower, Guarantor, or any
Obligor in favor of the Administrative Agent, the Documentation Agent, or the
Lenders (or any Agent on behalf of the Lenders) ever delivered in connection
with or under this Agreement or otherwise delivered in connection with all or
any part of the Obligation, and (f) all renewals, extensions and restatements
of, and amendments and supplements to, any of the foregoing.
"MATERIAL ADVERSE EVENT" means any circumstance or event that, individually
or collectively with other circumstances or events, reasonably is expected to
result in any (a) material impairment of the ability of Borrower or Guarantor to
perform any of its payment or other obligations under any Loan Document, (b)
material impairment of the ability of any Agent or any Lender to enforce (i) any
of the obligations of Borrower, Guarantor or any Obligor under this Agreement or
the other Loan Documents, or (ii) any of their respective Rights under the Loan
Documents, or (c) material and adverse effect on the financial condition of
Borrower, Guarantor, or the Companies, taken as a whole.
"MAXIMUM AMOUNT" and "MAXIMUM RATE" respectively mean, for an Agent or a
Lender, the maximum non-usurious amount and the maximum non-usurious rate of
interest that, under applicable Governmental Requirement, such Agent or Lender
is permitted to contract for, charge, take, reserve or receive on the
Obligation.
"MOODY'S" means Moody's Investors Service, Inc., or, if Moody's no longer
publishes ratings, such other ratings agency acceptable to the Required Lenders.
"MOODY'S RATING" means the most recently-announced rating from time-to-time
of Moody's assigned to any class of long-term senior, unsecured Liability
securities issued by Guarantor, as to which no letter of credit, guaranty, or
third party credit support is in place, regardless of whether all or any part of
such Liability has been issued at the time such rating was issued.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code to which Borrower or
any of its Consolidated Affiliates (or any Person that, for purposes of Title IV
of ERISA, is a member of Borrower's controlled group or is under common control
with Borrower within the meaning of Section 414 of the Code) is making, or has
made, or is accruing, or has accrued, an obligation to make contributions.
"NET INCOME" means, for any Person for any period, the net earnings (or
loss) after taxes of such Person, determined in accordance with GAAP.
"NOTES" means one of the promissory notes substantially in the form of the
attached EXHIBIT D, and "NOTE" means any one of the Notes.
"OBLIGATION" means all present and future indebtedness and obligations, and
all renewals, increases and extensions thereof, or any part thereof, now or
hereafter owed to any Agent or any Lender by Borrower under any Loan Document,
together with all interest accruing thereon, fees, costs and expenses (including
all
8
<PAGE>
reasonable attorneys' fees and expenses incurred in the enforcement or
collection thereof) payable under the Loan Documents or in connection with the
protection of Rights under the Loan Documents.
"OBLIGOR" means any Company (other than Borrower or Guarantor) granting to
the Administrative Agent Liens in Collateral, for the benefit of the Lenders.
"PARTICIPANT" is defined in SECTION 13.11(b).
"PAY RATE CONSTANT" means, as of any date, a variable Constant Annual
Percent utilizing (a) a rate of interest equal to the greater of (i) the Base
Rate, or (ii) the Eurodollar Rate, as of such date, and (b) a twenty-five (25)
year amortization.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereof, established under ERISA.
"PERMITTED DISTRIBUTIONS" means, for (a) Borrower for any fiscal year of
Borrower, an amount not to exceed ninety-five percent (95%) of Borrower's Funds
from Operations for such fiscal year, and (b) Guarantor for any fiscal year of
Guarantor, an amount not to exceed ninety-five percent (95%) of Guarantor's
Funds from Operations for such fiscal year.
"PERMITTED LIENS" is defined in SECTION 8.3.
"PERSON means any individual, entity or Governmental Authority.
"POTENTIAL DEFAULT" means the occurrence of any event or the existence of
any circumstance that could, upon notice or lapse of time or both, become a
Default.
"PRINCIPAL DEBT" means, for a Lender and at any time, the unpaid principal
balance of all outstanding Borrowings from such Lender hereunder.
"PROJECTS" means the real estate Properties owned by Borrower and approved
by the Required Lenders for inclusion in the Borrowing Base in accordance with
SECTION 2.4, and "PROJECT" means any one of the Projects.
"PROPERTIES" means real estate properties owned by Borrower or a
Consolidated Affiliate of Borrower, and "PROPERTY" means any one of the
Properties.
"PRO RATA" and "PRO RATA PART" means, when determined for any Lender, the
proportion (stated as a percentage) that such Lender's Commitment bears to the
Total Commitment, or, if the Total Commitments shall have been terminated, then
the proportion (stated as a percentage) that the sum of the Principal Debt owed
to such Lender bears to the Total Principal Debt owed to all of the Lenders.
"PROTECTIVE ADVANCE" means all sums expensed as reasonably determined by
the Administrative Agent to be necessary: (a) to protect the priority, validity
and enforceability of the Liens in the Collateral and the instruments evidencing
or securing the Collateral and the Obligation; and/or (b) to (i) prevent the
value of the Collateral from being materially diminished (assuming the lack of
such a payment within the necessary time frame could potentially cause the
Collateral to lose value), or (ii) protect the security of any of the Collateral
from being materially impaired, including, without limitation, any amounts
expended in accordance with SECTIONS 12.2 and 12.7 of this Agreement and any
Post-Foreclosure Plan (as defined in SECTION 12.7(f)). The Administrative Agent
agrees to exercise its reasonable best efforts to notify Borrower at least five
(5) days prior to incurring any such expenditures, except in the case of exigent
circumstances.
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"PURCHASER" is defined in SECTION 13.11(c).
"RATING REQUIREMENT" means, as of any date of determination, the lower of
the Moody's Rating or the S & P Rating. For purposes hereof, the correlation of
the levels or grades of the Moody's Rating and the S & P Rating shall be as set
forth in the table included herein in the definition of "Applicable Margin" in
the columns labeled "Rating Requirement." Each change in the Rating Requirement
shall be effective commencing on the fifth (5th) Business Day following the
earlier to occur of (a) the Administrative Agent's receipt of notice from
Borrower, as required in SECTION 7.1(g), of a change in the Moody's Rating or
the S & P Rating, and (b) the Administrative Agent's actual knowledge of a
change in the Moody's Rating or the S & P Rating.
"REIT" means a "real estate investment trust" for purposes of the Code.
"REPRESENTATIVES" means representatives, officers, directors, employees,
attorneys and agents.
"REQUIRED LENDERS" means, as of any date, any combination of Lenders who
collectively hold sixty-six and two-thirds percent (66-2/3%) of the Total
Commitments, or if the Total Commitments shall have been terminated, then of the
Total Principal Debt.
"RESERVE REQUIREMENT" means, with respect to any Eurodollar Borrowing for
the relevant Interest Period, the actual aggregate reserve requirements
(including all basic, supplemental, emergency, special, marginal and other
reserves required by applicable Governmental Requirement) applicable to a member
bank of the Federal Reserve System for eurocurrency fundings or liabilities.
"RESPONSIBLE OFFICER" means, for any Person, any chairman, president, chief
executive officer, chief financial officer, controller, secretary, executive
vice president, or senior vice president of such Person.
"RIGHTS" means rights, remedies, powers, privileges, and benefits.
"SHARE" means, for any Person, such Person's share of the assets,
liabilities, revenues, income, losses, or expenses of an Unconsolidated
Affiliate based upon such Person's percentage ownership of such Unconsolidated
Affiliate.
"SOLVENT" means, as to a Person, that (a) the aggregate fair market value
of its assets exceeds its Liabilities, (b) it has sufficient cash flow to enable
it to pay its Liabilities as they mature, and (c) it does not have unreasonably
small capital to conduct its businesses.
"S & P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., a New York corporation, or if S & P no longer publishes ratings, then such
other ratings agency acceptable to the Required Lenders.
"S & P RATING" means the most recently-announced rating from time-to-time
of S & P assigned to any class of long-term senior, unsecured Liability
securities issued by Guarantor, as to which no letter of credit, guaranty, or
third party credit support is in place, regardless of whether all or any part of
such Liability has been issued at the time such rating was issued.
"TANGIBLE NET WORTH" means, for any Person as of any date, (a) Total Assets
less the book value of all assets that would be treated as intangible assets
under GAAP (including goodwill, trademarks, trade names, copyrights, patents,
and unamortized debt discount and expense), minus (b) all Liabilities, in each
case for such Person.
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"TAXES" means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises or assets.
"TERMINATION DATE" means the earlier of (a) October 14, 1999, and (b) the
effective date that the Lenders' commitments to lend hereunder are otherwise
canceled or terminated in accordance with this Agreement.
"TOTAL ASSETS" means, for any Person, such Person's (a) consolidated total
assets determined in accordance with GAAP plus (b) Accumulated Depreciation.
"TOTAL COMMITMENT" means, at any time, the sum of the Commitments of all of
the Lenders.
"TOTAL INDEBTEDNESS" means, for any Person, all Liabilities of such Person,
excluding accounts payable and accrued expenses up to a maximum aggregate amount
of $10,000,000.00.
"TOTAL PRINCIPAL DEBT" means, at any time, the sum of the Principal Debt of
all of the Lenders.
"TYPE" means any type of Borrowing determined with respect to the
applicable interest option.
"UNCONSOLIDATED AFFILIATE" means any Person in whom Borrower or Guarantor
holds a voting equity or ownership interest and whose financial results would
not be consolidated under GAAP with the financial results of Borrower or
Guarantor on the consolidated financial statements of Borrower or Guarantor.
"UNUSED COMMITMENT" means, at any time, (a) the Total Commitment minus (b)
the Total Principal Debt.
"VARIABLE CONSTANT" means, as of any date, a variable Constant Annual
Percent utilizing (i) a rate of interest equal to two and one-quarter percent
(2.25%) in excess of the most recent rate published on such date in the United
States Federal Reserve Statistical Release (H.15) for 7-year Treasury Constant
Maturities, and (ii) a twenty-five (25) year amortization.
1.2 TIME REFERENCES. Unless otherwise specified in the Loan Documents (a)
time references are to time in Dallas, Texas, and (b) in calculating a period
from one date to another, the word "from" means "from and including" and the
word "to" or "until" means "to but excluding."
1.3 OTHER REFERENCES. Unless otherwise specified in the Loan Documents
(a) where appropriate, the singular includes the plural and vice versa, and
words of any gender include each other gender, (b) headings and caption
references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used, (e) references to
"telecopy," "facsimile," "fax," or similar terms are to facsimile or telecopy
transmissions, (f) references to "including" mean including without limiting the
generality of any description preceding that word, (g) the rule of construction
that references to general items that follow references to specific items are
limited to the same type or character of those specific items is not applicable
in the Loan Documents, (h) references to any Person include that Person's heirs,
personal representatives, successors, trustees, receivers, and permitted
assigns, (i) references to any Governmental Requirement include every amendment
or supplement to it, rule and regulation adopted under it, and successor or
replacement for it, and (j) references to any Loan Document or other document
include every renewal and extension of it, amendment and supplement to it, and
replacement or substitution for it.
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1.4 ACCOUNTING PRINCIPLES. Under the Loan Documents, unless otherwise
stated, (a) GAAP determines all accounting and financial terms and compliance
with financial covenants, (b) GAAP in effect on the date of this Agreement
determines compliance with financial covenants, (c) otherwise, all accounting
principles applied in a current period must be comparable in all material
respects to those applied during the preceding comparable period, and (d) all
accounting and financial terms and compliance with financial covenants must be
for the Companies, on a consolidated basis, as applicable. If there is a change
in GAAP after the date hereof, the Compliance Certificate shall include
calculations setting forth the adjustments from the relevant financial items as
shown in the Current Financials, based on the then-current GAAP, to the
corresponding financial items based on GAAP as used in the Current Financials
delivered to the Administrative Agent and the Lenders on or prior to the date
hereof, so as to demonstrate how such financial covenant compliance was derived
from the Current Financials.
SECTION 2 COMMITMENT.
2.1 REVOLVING FACILITY. Subject to the provisions in the Loan Documents,
each Lender severally and not jointly agrees to lend to Borrower one or more
Borrowings hereunder which Borrower may borrow, repay and reborrow under this
Agreement, subject to the following conditions:
(a) each Borrowing requested by Borrower hereunder must occur on a Business
Day and no later than the Business Day immediately preceding the Termination
Date;
(b) each Borrowing requested by Borrower must be in an amount not less than
$1,000,000.00 or a greater integral multiple of $100,000.00 or, if less, the
Unused Commitment;
(c) the Total Principal Debt may not exceed the lesser of (i) the Total
Commitment, and (ii) the Borrowing Base; and
(d) no Lender's Principal Debt may exceed such Lender's Commitment.
2.2 BORROWING PROCEDURE. The following procedures apply to Borrowings:
(a) Borrower may request a Borrowing by submitting to the Administrative
Agent a Borrowing Request. The Borrowing Request must be received by the
Administrative Agent no later than 11:00 a.m. on (i) the third (3rd) Business
Day preceding the Borrowing Date for any Eurodollar Borrowing, or (ii) the
Business Day preceding the Borrowing Date for any Base Rate Borrowing. The
Administrative Agent shall promptly notify each Lender of its receipt of any
Borrowing Request and its contents. A Borrowing Request is irrevocable and
binding on Borrower.
(b) By 11:00 a.m. on the applicable Borrowing Date, each Lender shall remit
its Pro Rata Part of each requested Borrowing by wire transfer to the
Administrative Agent pursuant to the Administrative Agent's wire transfer
instructions on SCHEDULE 1 (or as otherwise directed by the Administrative
Agent) in funds that are available for immediate use by the Administrative
Agent. Subject to receipt of such funds, the Administrative Agent shall make
such funds available to Borrower in Dallas, Texas at 12:00 noon on such
Borrowing Date (unless it has actual knowledge that any applicable condition
precedent has not been satisfied by Borrower).
(c) Absent contrary written notice from a Lender, the Administrative Agent
may assume that each Lender has made its Pro Rata Part of the requested
Borrowing available to the Administrative Agent on the applicable Borrowing
Date, and the Administrative Agent may, in reliance upon such assumption (but is
not required to), make available to Borrower a corresponding amount. If a
Lender fails to make its Pro Rata Part of any requested Borrowing available to
the Administrative Agent on the applicable Borrowing Date, the
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Administrative Agent may recover the applicable amount on demand (i) from such
Lender, together with interest at the Federal Funds Rate for the period
commencing on the date the amount was made available to Borrower by the
Administrative Agent and ending on (but excluding) the date the Administrative
Agent recovers the amount from such Lender, or (ii) if such Lender fails to pay
its amount upon the Administrative Agent's demand, then from Borrower, together
with interest at an annual interest rate equal to the rate applicable to the
requested Borrowing for the period commencing on the Borrowing Date and ending
on (but excluding) the date the Administrative Agent recovers the amount from
Borrower. No Lender is responsible for the failure of any other Lender to make
its Pro Rata Part of any Borrowing.
2.3 TERMINATION. Without premium or penalty, and upon giving at least
three (3) Business Days prior written and irrevocable notice to the
Administrative Agent, Borrower may terminate all or part of the unused portion
of the Total Commitment. Each partial termination must be in an amount of not
less than $1,000,000.00 or a greater integral multiple thereof, and shall be Pro
Rata among all of the Lenders. Once terminated, the Total Commitment may not be
increased or reinstated.
2.4 BORROWING BASE.
(a) ADMISSION OF PROJECTS INTO THE BORROWING BASE.
(i) Borrower shall provide the Administrative Agent (with copies for
each of the Lenders) with a written request for a Property to be admitted
into the Borrowing Base. Such request shall be accompanied by information
regarding the Property (including, without limitation, a property
description, purchase information (including any contracts of sale and
closing statements), one (1) original and two (2) copies of a recent survey
with appropriate certifications to the Administrative Agent, for the
benefit of the Lenders, and one (1) copy for each of the other Lenders,
recent appraisals (commissioned by and addressed to the Administrative
Agent, for the benefit of the Lenders), rent rolls, operating statements,
environmental assessments, condition reports, roof reports, and other such
information requested by the Administrative Agent as shall be necessary in
order for the Administrative Agent and the Required Lenders to determine
whether such Property is an Eligible Project.
(ii) In order for a Property to be eligible for inclusion in the
Borrowing Base (an "ELIGIBLE PROJECT"), such Property shall have
characteristics consistent with the following general guidelines:
(A) such Property shall be an "institutional grade" warehouse
project or office project;
(B) Borrower shall have good and indefeasible title to such
Property, free and clear of all Liens (except for Permitted Liens); and
(C) all leases covering such Property shall be acceptable to the
Administrative Agent.
Notwithstanding the foregoing guidelines, the Required Lenders shall have
the right to exclude a Property that is otherwise an Eligible Project from
the Borrowing Base, if the Required Lenders, in their sole discretion,
determine that such Property is not eligible for inclusion in the Borrowing
Base.
(iii) Each Property shall be subject to the Required Lenders' approval
for admission to the Borrowing Base after evaluation of such Property's
market area, location, access, and design.
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(iv) The Administrative Agent shall provide Borrower with written
notice of whether the Required Lenders have approved a Property for
admission into the Borrowing Base on or before the later of (A) thirty (30)
days after Borrower has provided to the Administrative Agent the
information with respect to such Property required by SECTION 2.4(a)(i)
(other than appraisals and environmental assessments), and (B) ten (10)
Business Days after Borrower has provided to the Administrative Agent
appraisals and environmental assessments with respect to such Property
required by SECTION 2.4(a)(i).
(v) An Eligible Project shall not be admitted into the Borrowing Base
until (1) Borrower or an Obligor shall have executed and delivered to the
Administrative Agent, for the ratable benefit of the Lenders, Collateral
Documents covering such Project, (2) Borrower or such Obligor shall have
delivered to the Administrative Agent appropriate and customary opinions of
counsel, including an opinion of local counsel in substantially the form of
EXHIBIT H, and (3) the Administrative Agent shall have a perfected first
priority Lien in such Project, for the ratable benefit of the Lenders.
(vi) The Administrative Agent may, on behalf of the Required Lenders in
their sole discretion, notify Borrower that a Property that is not
otherwise an Eligible Project may be included in the Borrowing Base,
provided that the Required Lenders may require additional terms and
conditions to be evidenced in writing as a supplement to this Agreement in
order for such Property to be admitted into the Borrowing Base.
(viii) Pursuant to SECTION 7.7, Borrower shall pay to the
Administrative Agent all reasonable out-of-pocket expenses of the
Administrative Agent incurred in connection with the Administrative Agent's
review of requests for a Property to be admitted into the Borrowing Base.
(b) BORROWING BASE.
(i) The "INDIVIDUAL BORROWING BASE" for any Project admitted into the
Borrowing Base shall be, as of any date: (A) for any Project acquired by
Borrower or one of its Consolidated Affiliates prior to the IPO, the
Approved Percentage of the Appraised Value of such Project (determined
using the most recent appraisal delivered to or required by Agent); and (B)
for any Project acquired by Borrower or one of its Consolidated Affiliates
on or after the IPO, the lesser of: (1) the Approved Percentage of the
Approved Costs of such Project; and (2) the Approved Percentage of the
Appraised Value of such Project (determined using the most recent appraisal
delivered to or required by Agent).
(ii) The "AGGREGATE BORROWING BASE" for the Projects admitted into the
Borrowing Base shall be, as of any date, the lesser of: (A) the product of
Adjusted Net Operating Income for all of the Projects times five (5); and
(B) the least of: (1) Adjusted Net Operating Income for all of the Projects
divided by the product of (x) the Pay Rate Constant, and (y) 1.75; and (2)
Adjusted Net Operating Income for all of the Projects divided by the
product of (x) the Fixed Constant, and (y) 1.75; and (3) Adjusted Net
Operating Income for all of the Projects divided by the product of (x) the
Variable Constant and (y) 1.75.
(iii) The "BORROWING BASE" shall be, as of any date, the lesser of (A)
the sum of the Individual Borrowing Bases for each of the Projects admitted
into the Borrowing Base; and (B) the Aggregate Borrowing Base.
(c) OTHER REQUIREMENTS RESPECTING THE BORROWING BASE. During the term
hereof, (i) once five (5) Projects have been admitted into the Borrowing Base,
there shall always be at least five (5) Projects admitted into the Borrowing
Base, and (ii) the principal balance of the Obligation shall not be less than
$1.00, in each case unless otherwise consented to by the Administrative Agent in
writing.
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(d) COMPUTATION OF ADJUSTED NET OPERATING INCOME. Borrower shall deliver
to the Administrative Agent quarterly computations of Adjusted Net Operating
Income with the Borrowing Base information required pursuant to SECTION 7.1(d).
The Administrative Agent shall notify Borrower in writing of any additional
adjustments to Adjusted Net Operating Income required by the Administrative
Agent and corresponding adjustments to the Borrowing Base (if any). If a
Project is admitted into the Borrowing Base prior to the last day of any fiscal
quarter during the term of this Agreement, then the Administrative Agent shall
notify Borrower and the Lenders in writing of any changes to the Borrowing Base
as a result of the admission of such Project into the Borrowing Base.
(e) PROJECTS ADMITTED INTO BORROWING BASE. The Projects admitted into the
Borrowing Base are listed on SCHEDULE 2 (as supplemented from time-to-time to
reflect additional Projects admitted into the Borrowing Base, as herein
provided).
SECTION 3 TERMS OF PAYMENT.
3.1 NOTES AND PAYMENTS.
(a) The Principal Debt shall be evidenced by the Notes, one payable to
each Lender in the stated principal amount of its Commitment.
(b) Borrower must make each payment and prepayment on the Obligation,
without offset, counterclaim, or deduction, to the Administrative Agent's
principal office in Dallas, Texas, in funds that will be available for immediate
use by the Administrative Agent by 12:00 noon on the day due. Payments received
after such time shall be deemed received on the next Business Day. The
Administrative Agent shall pay to each Lender any payment to which such Lender
is entitled on the same day the Administrative Agent receives the funds from
Borrower if the Administrative Agent receives the payment or prepayment before
12:00 noon, and otherwise before 12:00 noon on the following Business Day. If
and to the extent that the Administrative Agent does not make payments to the
Lenders when due, then the Administrative Agent shall be obligated to pay to the
Lenders such unpaid amounts together with interest at the Federal Funds Rate
from the due date until (but not including) the payment date.
3.2 INTEREST AND PRINCIPAL PAYMENTS.
(a) INTEREST PAYMENTS. Accrued interest on each Borrowing is due and
payable on the first (1st) day of each calendar month during the term of this
Agreement, commencing on November 1, 1996, and on the Termination Date.
(b) PRINCIPAL PAYMENTS. The Total Principal Debt is due and payable on
the Termination Date.
(c) VOLUNTARY PREPAYMENT. Borrower may voluntarily repay or prepay all or
any part of the Total Principal Debt at any time without premium or penalty,
subject to the following conditions:
(i) the Administrative Agent must receive Borrower's written payment
notice by 11:00 a.m. on (A) the Business Day preceding the date of payment
of a Eurodollar Borrowing, and (B) the Business Day preceding the date of
payment of a Base Rate Borrowing, which shall specify the payment date and
the Type and amount of the Borrowing(s) to be paid, and which shall
constitute an irrevocable and binding obligation of Borrower to make a
repayment or prepayment on the designated date;
(ii) each partial repayment or prepayment must be in a minimum amount
of at least $1,000,000.00 or a greater integral multiple of $100,000.00,
or, if less, the Total Principal Debt; and
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(iii) Borrower shall pay any related Funding Loss upon demand.
(d) MANDATORY PREPAYMENT. Notwithstanding anything contained herein or in
the Notes to the contrary, if at any time the outstanding Total Principal Debt
exceeds the Borrowing Base, then Borrower shall immediately prepay in
immediately available funds such excess balance, together with any related
Funding Loss.
3.3 INTEREST OPTIONS. Except as specifically otherwise provided,
Borrowings shall bear interest at an annual rate equal to the lesser of (a) the
Base Rate plus the Applicable Margin, or the Eurodollar Rate plus the Applicable
Margin (in each case as designated or deemed designated by Borrower and, in the
case of Eurodollar Borrowings, for the Interest Period designated by Borrower),
and (b) the Maximum Rate. Each change in the Base Rate and Maximum Rate is
effective, without notice to Borrower or any other Person, upon the effective
date of change.
3.4 QUOTATION OF RATES. A Representative of Borrower may call the
Administrative Agent before delivering a Borrowing Request to receive an
indication of the interest rates then in effect, but the indicated rates do not
bind the Administrative Agent or the Lenders or affect the interest rate that is
actually in effect when Borrower delivers its Borrowing Request or on the
Borrowing Date.
3.5 DEFAULT RATE. If permitted by applicable law, all past-due Principal
Debt and past-due interest accruing on any of the foregoing, bears interest from
the date due (stated or by acceleration) at the Default Rate until paid,
regardless of whether payment is made before or after entry of a judgment.
3.6 INTEREST RECAPTURE. If the designated interest rate applicable to any
Borrowing exceeds the Maximum Rate, then the interest rate on that Borrowing is
limited to the Maximum Rate, provided that any subsequent reductions in the
designated rate shall not reduce the interest rate thereon below the Maximum
Rate until the total amount of accrued interest equals the amount of interest
that would have accrued if that designated rate had always been in effect. If
at maturity (stated or by acceleration), or at final payment of the Notes, the
total interest paid or accrued is less than the interest that would have accrued
if the designated rates had always been in effect, then, at that time and to the
extent permitted by applicable law, Borrower shall pay an amount equal to the
difference between (a) the lesser of the amount of interest that would have
accrued if the designated rates had always been in effect and the amount of
interest that would have accrued if the Maximum Rate had always been in effect,
and (b) the amount of interest actually paid or accrued on the Notes.
3.7 INTEREST CALCULATIONS.
(a) Interest shall be calculated on the basis of actual number of days
elapsed (including the first day but excluding the last day) but computed as if
each calendar year consisted of 360 days for all Borrowings (unless the
calculation would result in an interest rate greater than the Maximum Rate, in
which event interest shall be calculated on the basis of a year of 365 or 366
days, as the case may be). All interest rate determinations and calculations by
the Administrative Agent are conclusive and binding absent manifest error.
(b) The provisions of this Agreement relating to calculation of the Base
Rate and the Eurodollar Rate are included only for the purpose of determining
the rate of interest or other amounts to be paid under this Agreement that are
based upon those rates. Each Lender may fund and maintain its funding of all or
any part of each Borrowing as it selects.
3.8 MAXIMUM RATE. Regardless of any provision contained in any Loan
Document or any document related thereto, it is the intent of the parties to
this Agreement that no Agent nor any Lender contract for, charge, take, reserve,
receive or apply, as interest on all or any part of the Obligation any amount in
excess of the Maximum Rate or the Maximum Amount or receive any unearned
interest in violation of any applicable
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law, and, if any Agent or any Lender ever does so, then any excess shall be
treated as a partial repayment or prepayment of principal and any remaining
excess shall be refunded to Borrower. In determining if the interest paid or
payable exceeds the Maximum Rate, Borrower, Agents and the Lenders shall, to the
maximum extent permitted under applicable law, (a) treat all Borrowings as but a
single extension of credit (and the Lenders and Borrower agree that is the case
and that provision in this Agreement for multiple Borrowings is for convenience
only), (b) characterize any nonprincipal payment as an expense, fee or premium
rather than as interest, (c) exclude voluntary repayments or prepayments and
their effects, and (d) amortize, prorate, allocate and spread the total amount
of interest throughout the entire contemplated term of the Obligation. If,
however, the Obligation is paid in full before the end of its full contemplated
term, and if the interest received for its actual period of existence exceeds
the Maximum Amount, then the Lenders shall refund any excess (and the Lenders
may not, to the extent permitted by applicable law, be subject to any penalties
provided by any Governmental Requirements for contracting for, charging, taking,
reserving or receiving interest in excess of the Maximum Amount). If the
Governmental Requirements of the State of Texas are applicable for purposes of
determining the "Maximum Rate" or the "Maximum Amount," then those terms mean
the "indicated rate ceiling" from time-to-time in effect under Article 5069-
1.04, Title 79, Revised Civil Statutes of Texas, as amended. Borrower agrees
that Chapter 15, Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended
(which regulates certain revolving credit loan accounts and revolving tri-party
accounts), does not apply to the Obligation, other than Article 15.10(b).
3.9 INTEREST PERIODS. When Borrower requests any Eurodollar Borrowing,
Borrower may elect the applicable interest period (each an "INTEREST PERIOD"),
which may be, at Borrower's option, one (1), two (2), three (3) or six (6)
months, subject to the following conditions: (a) the initial Interest Period
for a Eurodollar Borrowing commences on the applicable Borrowing Date or
conversion date, and each subsequent Interest Period applicable to any Borrowing
commences on the day when the next preceding applicable Interest Period expires;
(b) if any Interest Period for a Eurodollar Borrowing begins on a day for which
there exists no numerically corresponding Business Day in the calendar month at
the end of the Interest Period ("ENDING CALENDAR MONTH"), then the Interest
Period ends on the next succeeding Business Day of the Ending Calendar Month,
unless there is no succeeding Business Day in the Ending Calendar Month in which
case the Interest Period ends on the next preceding Business Day of the Ending
Calendar Month; (c) no Interest Period for any portion of Principal Debt may
extend beyond the scheduled repayment date for that portion of Principal Debt;
and (d) there may not be in effect at any one time more than five (5) Interest
Periods.
3.10 CONVERSIONS. Borrower may (a) on the last day of the applicable
Interest Period (or at any other time, subject to payment of any Funding Loss)
convert all or part of a Eurodollar Borrowing to a Base Rate Borrowing, (b) at
any time convert all or part of a Base Rate Borrowing to a Eurodollar Borrowing,
and (c) on the last day of an Interest Period, elect a new Interest Period for a
Eurodollar Borrowing. Any such conversion is subject to the dollar limits and
denominations of SECTION 2.1 and may be accomplished by delivering a Conversion
Request to the Administrative Agent no later than 11:00 a.m. (i) on the third
(3rd) Business Day before (A) the conversion date for conversion to a Eurodollar
Borrowing, and (B) the last day of the Interest Period, for the election of a
new Interest Period, and (ii) one (1) Business Day before the last day of the
Interest Period for conversion to a Base Rate Borrowing. Absent Borrower's
notice of conversion or election of a new Interest Period, a Eurodollar
Borrowing shall be converted to a Base Rate Borrowing when the applicable
Interest Period expires.
3.11 ORDER OF APPLICATION.
(a) NO DEFAULT. If no Default exists, then except as otherwise
specifically provided in the Loan Documents, any payment shall be applied to
the Obligation in the order and manner as Borrower directs.
(b) DEFAULT. If a Default exists, any payment (including proceeds from
the exercise of any Rights) shall be applied in the following order: (i) to all
fees and expenses and Protective Advances for which
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any Agent or the Lenders have not been paid or reimbursed in accordance with the
Loan Documents (and if such payment is less than all unpaid or unreimbursed fees
and expenses, then the payment shall be paid against unpaid and unreimbursed
fees and expenses in the order of incurrence or due date); (ii) to accrued
interest on the Principal Debt; and (iii) to the remaining Obligation in the
order and manner as the Required Lenders deem appropriate.
(c) PRO RATA. Each payment or prepayment shall be distributed to each
Lender in accordance with its Pro Rata Part of such payment or prepayment.
3.12 SHARING OF PAYMENTS, ETC. If any Lender obtains any amount (whether
voluntary, involuntary or otherwise, including as a result of exercising its
Rights under SECTION 3.13) that exceeds the part of that payment that such
Lender is then entitled to receive under the Loan Documents, then such Lender
shall purchase from the other Lenders participations that will cause the
purchasing Lender to share the excess amount ratably with each other Lender. If
all or any portion of any excess amount is subsequently recovered from the
purchasing Lender, then the purchase shall be rescinded and the purchase price
restored to the extent of the recovery. Borrower agrees that any Lender
purchasing a participation from another Lender under this section may, to the
fullest extent permitted by applicable law, exercise all of its Rights of
payment with respect to that participation as fully as if such Lender were the
direct creditor of Borrower in the amount of that participation.
3.13 BOOKING BORROWINGS. To the extent permitted by applicable law, any
Lender may make, carry or transfer its Borrowings at, to, or for the account of
any of its branch offices or the office of any of its Affiliates. However, no
Affiliate is entitled to receive any greater payment under SECTION 3.15 than the
transferor Lender would have been entitled to receive with respect to those
Borrowings, and a transfer may not be made if, as a direct result of it, SECTION
3.15 or 3.16 would apply to any of the Obligation. If any of the conditions of
SECTIONS 3.15 or 3.16 ever apply to a Lender, then such Lender shall, to the
extent possible, carry or transfer its Borrowings at, to, or for the account of
any of its branch offices or the office or branch of any of its Affiliates so
long as the transfer is consistent with the other provisions of this section,
does not create any burden or adverse circumstance for such Lender that would
not otherwise exist, and eliminates or ameliorates the conditions of SECTIONS
3.15 or 3.16 as applicable.
3.14 BASIS UNAVAILABLE OR INADEQUATE FOR THE EURODOLLAR RATE. If (a)
the Administrative Agent determines that the basis for determining the
applicable rate is not available, or (b) any Lender determines that the
resulting rate does not accurately reflect the cost to such Lender of making or
converting Borrowings at that rate for the applicable Interest Period, then:
(i) in the case of (a), the Administrative Agent shall promptly
notify Borrower and the Lenders of that determination (which is conclusive
and binding on Borrower absent manifest error), and all Borrowings shall
bear interest at the sum of the Base Rate plus the Applicable Margin. Until
the Administrative Agent notifies Borrower that such circumstances no
longer exist, the Lenders' commitments under this Agreement to make, or to
convert to, Eurodollar Borrowings shall be suspended; and
(ii) in the case of (b), such Lender shall promptly notify the
Administrative Agent and Borrower, and all Borrowings of such Lender shall
bear interest at the sum of the Base Rate plus the Applicable Margin. Until
the Administrative Agent notifies Borrower that such circumstances no
longer exist, such Lender's commitment under this Agreement to make, or to
convert to, Eurodollar Borrowings shall be suspended.
3.15 ADDITIONAL COSTS.
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(a) RESERVES. With respect to any Eurodollar Borrowing, if (i) any change
in present Governmental Requirement, any change in the interpretation or
application of any present Governmental Requirement, or any future Governmental
Requirement imposes, modifies, or deems applicable (or if compliance by any
Lender with any such requirement of any Governmental Authority results in) any
such requirement that any reserves (including any marginal, emergency,
supplemental or special reserves) be maintained, and (ii) those reserves reduce
any sums receivable by such Lender under this Agreement or increase the costs
incurred by such Lender in advancing or maintaining any portion of any
Eurodollar Borrowing, then (unless the effect is already reflected in the rate
of interest then applicable under this Agreement) such Lender (through the
Administrative Agent) shall deliver to Borrower a certificate setting forth in
reasonable detail the calculation of the amount necessary to compensate it for
its reduction or increase (which certificate is conclusive and binding absent
manifest error), and Borrower shall promptly pay that amount to such Lender upon
demand.
(b) CAPITAL ADEQUACY. With respect to any Borrowing, if any change in
present Governmental Requirement or any future Governmental Requirement
regarding capital adequacy or compliance by the Administrative Agent or any
Lender with any request, directive or requirement now existing or hereafter
imposed by any Governmental Authority regarding capital adequacy, or any change
in its written policies or in the risk category of this transaction, reduces the
rate of return on its capital as a consequence of its obligations under this
Agreement to a level below that which it otherwise could have achieved (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by it to be material (and it may, in determining the amount, use
reasonable assumptions and allocations of costs and expenses and use any
reasonable averaging or attribution method), then (unless the effect is already
reflected in the rate of interest then applicable under this Agreement) the
Administrative Agent or such Lender (through the Administrative Agent) shall
notify Borrower and deliver to Borrower a certificate setting forth in
reasonable detail the calculation of the amount necessary to compensate it
(which certificate is conclusive and binding absent manifest error), and
Borrower shall promptly pay that amount to the Administrative Agent or such
Lender upon demand.
(c) TAXES. Any Taxes payable by the Administrative Agent or any Lender or
ruled (by a Governmental Authority) payable by the Administrative Agent or any
Lender in respect of this Agreement or any other Loan Document shall, if
permitted by Governmental Requirement, be paid by Borrower, together with
interest and penalties, if any (except for Taxes imposed on or measured by the
overall net income of the Administrative Agent or such Lender). The
Administrative Agent or such Lender (through the Administrative Agent) shall
notify Borrower and deliver to Borrower a certificate setting forth in
reasonable detail the calculation of the amount of payable Taxes, which
certificate is conclusive and binding (absent manifest error), and Borrower
shall promptly pay that amount to the Administrative Agent for its account or
the account of such Lender, as the case may be. If the Administrative Agent or
such Lender subsequently receives a refund of the Taxes paid to it by Borrower,
then the recipient shall promptly pay the refund to Borrower.
(d) SURVIVAL. The provisions of this SECTION 3.15 shall survive the
satisfaction and payment of the Obligation and termination of this Agreement.
3.16 CHANGE IN GOVERNMENTAL REQUIREMENT. If any Governmental Requirement
makes it unlawful for any Lender to make or maintain Eurodollar Borrowings, then
such Lender shall promptly notify Borrower and the Administrative Agent, and (a)
as to undisbursed funds, that requested Borrowing shall be made as a Base Rate
Borrowing, and (b), as to any outstanding Borrowing, (i) if maintaining the
Borrowing until the last day of the applicable Interest Period is unlawful, the
Borrowing shall be converted to a Base Rate Borrowing as of the date of notice,
and Borrower shall pay any related Funding Loss, or (ii) if not prohibited by
all Governmental Requirements, the Borrowing shall be converted to a Base Rate
Borrowing as of the last day of the applicable Interest Period, or (iii) if any
conversion will not resolve the unlawfulness, Borrower shall promptly prepay the
Borrowing, without penalty, together with any related Funding Loss.
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3.17 FUNDING LOSS. BORROWER AGREES TO INDEMNIFY EACH LENDER AGAINST, AND
PAY TO IT UPON DEMAND, ANY FUNDING LOSS OF SUCH LENDER. When any Lender demands
that Borrower pay any Funding Loss, such Lender shall deliver to Borrower and
the Administrative Agent a certificate setting forth in reasonable detail the
basis for imposing Funding Loss and the calculation of the amount, which
calculation is conclusive and binding absent manifest error. The provisions of
this SECTION 3.17 shall survive the satisfaction and payment of the Obligation
and termination of this Agreement.
3.18 FOREIGN LENDERS. Each Lender that is organized under the
Governmental Requirements of any jurisdiction other than the United States of
America or any State thereof (a) represents to the Administrative Agent and
Borrower that (i) no Taxes are required to be withheld by the Administrative
Agent or Borrower with respect to any payments to be made to it in respect of
the Obligation, and (ii) it has furnished to the Administrative Agent and
Borrower two (2) duly completed copies of U.S. Internal Revenue Service Form
4224, Form 1001, Form W-8, or any other tax form acceptable to the
Administrative Agent (wherein it claims entitlement to complete exemption from
U.S. federal withholding tax on all interest payments under the Loan Documents),
and (b) covenants to (i) provide the Administrative Agent and Borrower a new tax
form upon the expiration or obsolescence of any previously delivered form
according to Governmental Requirement, duly executed and completed by it, and
(ii) comply from time-to-time with all Governmental Requirements with regard to
the withholding tax exemption. If any of the foregoing is not true or the
applicable forms are not provided, then Borrower or the Administrative Agent
(without duplication) may deduct and withhold from interest payments under the
Loan Documents United States federal income tax at the full rate applicable
under the Code.
3.19 FEES.
(a) TREATMENT OF FEES. The fees described in this SECTION 3.19 (i) are
not compensation for the use, detention, or forbearance of money, (ii) are in
addition to, and not in lieu of, interest and expenses otherwise described in
this Agreement, (iii) are payable in accordance with SECTION 3.1(b), (iv) are
non-refundable, (v) to the fullest extent permitted by applicable law, bear
interest, if not paid when due, at the Default Rate, and (vi) are calculated on
the basis of actual number of days (including the first day but excluding the
last day) elapsed, but computed as if each calendar year consisted of 360 days,
unless computation would result in an interest rate in excess of the Maximum
Rate in which event the computation is made on the basis of a year of 365 or 366
days, as the case may be. The fees described in this SECTION 3.19 are in all
events subject to the provisions of SECTION 3.8.
(b) AGENT FEES. Borrower shall pay to each Agent, solely for their own
accounts, the fees described in the letter agreement(s) between Borrower and the
Agents dated the same date as this Agreement, as such letter agreement(s) may be
modified or amended from time-to-time.
(c) COMMITMENT FEES.
(i) Borrower shall pay to the Administrative Agent, for the account of
the Lenders, the commitment fees described in the letter agreement between
Borrower, the Administrative Agent and the Lenders dated the same date as
this Agreement.
(ii) Borrower agrees to pay to the Administrative Agent, for the
ratable account of the Lenders, a commitment fee equal to the sum of the
amounts obtained by multiplying the average daily Unused Commitment set
forth below times the applicable percentage set forth opposite such portion
below:
==========================================================================
UNUSED COMMITMENTS APPLICABLE PERCENTAGE PER ANNUM
==========================================================================
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<TABLE>
==========================================================================
<S> <C>
$0.00 through $49,999,999.00 0.125%
- --------------------------------------------------------------------------
Equal to or greater than $50,000,000.00 0.25 %
==========================================================================
</TABLE>
Such commitment fee shall be due and payable in arrears on the first (1st) day
of each April, July, October, and January during the term hereof, commencing on
January 1, 1997, and on the Termination Date, based upon the Unused Commitment
for each day during the quarter ending on such date. Solely for purposes of
this SECTION 3.19(c), "ratable" means, for any calculation period, with respect
to any Lender, the proportion that (A) the average daily unused Commitment of
such Lender during the period bears to (B) the aggregate amount of the average
daily unused Total Commitment during the period.
SECTION 4 SECURITY.
4.1 LIENS ON PROJECTS. As more fully described in the Collateral
Documents, Borrower shall, and shall cause each Obligor to, grant to the
Administrative Agent, for the benefit of the Lenders, as security for the
payment and performance of the Obligation, a valid, enforceable, perfected,
first priority and (except for Permitted Liens) only Lien in and to each
Project, or, if a Project is leased, then Borrower's or each Obligor's rights
and leasehold interests in and to such Project.
4.2 COLLATERAL DOCUMENTS. The Liens described in SECTION 4.1 shall be
granted pursuant to, and more fully described in, the Collateral Documents.
4.3 LEASES.
(a) Unless the Administrative Agent shall give Borrower written notice
pursuant to (b) below, Borrower may (without the prior consent of the
Administrative Agent) execute leases covering all or any portion of a Project
after the date of this Agreement so long as such leases (i) are on forms that
are customary and consistent with institutional grade warehouse or office
properties or are in substantially the form of an Approved Lease Form, and (ii)
have provisions that provide for the same basic terms as Sections G-5, G-6, O,
Q-3, and Q-16 in the form of the Approved Lease Form for industrial properties
and Sections 10.02, 12.01, 18, and 25.05 in the form of Approved Lease Form for
office properties. Borrower may (without the prior consent of the Administrative
Agent) enter into renewal, extension, or expansion agreements (which agreements
shall be customary and consistent with institutional grade warehouse or office
properties or Borrower's past leasing practices) with tenants under leases
existing as of the date of admission of such Project into the Borrowing Base
covering all or any portion of a Project; provided, however, that if the
Administrative Agent shall determine, after a semi-annual review of leasing
activities by Borrower, that Borrower has engaged in significant leasing
activities with respect to any Project wherein the same basic terms as Sections
G-5, G-6, O, Q-3, and Q-16 in the Approved Lease Form for industrial properties
and Sections 10.02, 12.01, 18, and 25.05 in the form of Approved Lease Form for
office properties have not been included, which in the sole discretion of the
Administrative Agent results in a material adverse affect on the value of the
Project as Collateral hereunder, then the Administrative Agent may, in its sole
discretion, notify Borrower on or before October 1 or April 1 of each year
during the term of the Loan that its has elected to remove such Project from the
Borrowing Base (a "REMOVAL NOTICE"). If the Administrative Agent shall have
delivered a Removal Notice to Borrower, then Borrower may, on or before the
immediately following January 1 or July 1, either (a) submit additional
Properties to the Administrative Agent for admission into the Borrowing Base by
the Required Lenders in accordance with SECTION 2.4, or (b) if necessary, prepay
the excess of the Total Principal Debt over the Borrowing Base. Notwithstanding
the foregoing, Borrower may (without the prior consent of the Administrative
Agent) execute agreements covering a Project pursuant to renewal, extension, or
expansion options set forth in leases existing as of the date of admission into
the Borrowing Base, provided that the non-economic terms and conditions of such
renewal agreements do not materially differ from the terms and
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conditions of the leases renewed or extended thereby.
(b) If the Administrative Agent shall have given Borrower written notice
(which notice may be delivered by the Administrative Agent only if a Default
exists), then unless otherwise consented to by the Administrative Agent in
writing, all leases covering all or any portion of a Project entered into after
the date of such notice and while a Default exists (i) shall be in substantially
the form of an Approved Lease Form, (ii) shall have no material changes to
Sections G-5, G-6, O, Q-3, and Q-16 in the Approved Lease Form for industrial
properties and Sections 10.02, 12.01, 18, and 25.05 in the form of Approved
Lease Form for office properties, and (iii) may include other provisions
specifically approved in writing by the Administrative Agent or in other lease
guidelines agreed to by the Administrative Agent in writing from time-to-time.
(c) Unless otherwise consented to by the Administrative Agent in writing,
all leases covering all or any portion of a Project entered into after the date
of this Agreement shall (i) be to third parties under market terms (ii) provide
for uses of the premises that are consistent with institutional grade warehouse
or office properties (which shall include, without limitation, other current
uses in the applicable Project), (iii) not provide for uses of the premises that
would materially and adversely affect the fair market value of the Project or
the Project's ability to qualify for permanent financing, and (iv) not provide
for the Administrative Agent's or any subsequent mortgagee's non-disturbance of
any tenant's occupancy, unless agreed to by the Administrative Agent pursuant to
a subordination, attornment, and non-disturbance agreement in form and substance
reasonably acceptable to the Administrative Agent or otherwise in writing.
(d) Borrower shall send to the Administrative Agent copies of all leases
(and all renewals, extension, or modifications thereof) covering all or any
portion of a Project entered into after the date of this Agreement within thirty
(30) days after the last day of each fiscal quarter immediately following the
execution thereof.
(e) The Administrative Agent shall not be obligated to execute a
subordination, attornment, and non-disturbance agreement with any tenant in a
Project, but agrees to exercise its reasonable best efforts to respond within
ten (10) days to any request from Borrower for the Administrative Agent to
execute a subordination, attornment, and non-disturbance agreement with a tenant
in a Project; provided that the failure to so respond shall be deemed to be a
denial of such request.
4.4 RELEASES OF COLLATERAL. The Administrative Agent shall have no
obligation to release any Collateral without a written request from Borrower,
together with a Borrowing Base Report certified by a Responsible Officer of
Borrower, setting forth in reasonable detail the calculations required to
establish the amount of the Borrowing Base without such Project, and a
Compliance Certificate as of the date of such request. The Administrative Agent
shall not release any Collateral unless, after giving effect to any such release
(a) no Default or Potential Default exists, (b) the Borrowing Base exceeds the
Obligation as of the date of such release, and (c) unless waived by the Required
Lenders, at least five (5) Projects remain in the Borrowing Base. The
Administrative Agent shall not be required to partially release a portion of a
Project pursuant to this SECTION.
4.5 APPRAISALS. The Administrative Agent may at its option obtain, at
Borrower's expense, but not more often than once each calendar year during the
term of this Agreement, an appraisal of each Project or any part thereof
prepared in accordance with written instructions from the Administrative Agent
by a third-party appraiser engaged directly by the Administrative Agent. Each
such appraiser and appraisal shall be satisfactory to the Administrative Agent;
provided that if the Administrative Agent has previously engaged an appraiser
with respect to a Project, then the Administrative Agent shall, to the extent
reasonably practicable under the circumstances, use the same appraiser for
subsequent appraisals of the same Project.
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4.6 GUARANTY. Pursuant to the Guaranty, Guarantor shall unconditionally
guarantee in favor of the Agents and the Lenders the full payment and
performance of the Obligation.
SECTION 5 CONDITIONS PRECEDENT.
(a) The Lenders will not be obligated to fund the initial Borrowing
hereunder unless the Administrative Agent has timely received: (i) a Borrowing
Request; (ii) all of the items described on the attached SCHEDULE 5; and (iii)
evidence that the IPO shall have occurred.
(b) In addition, the Lenders will not be obligated to make any Borrowing,
unless on the applicable Borrowing Date (and after giving effect to the
requested Borrowing): (i) the Administrative Agent shall have timely received a
Borrowing Request; (ii) the Administrative Agent shall have received all
applicable fees; (iii) all of the representations and warranties in the Loan
Documents are true and correct in all material respects (unless they speak to a
specific date or are based on facts which have changed by transactions expressly
contemplated or permitted by this Agreement); (iv) no Default, Potential
Default, or Material Adverse Event exists; and (v) the funding of the Borrowing
is permitted by all Governmental Requirements. Upon the Administrative Agent's
request, Borrower shall deliver to the Administrative Agent evidence
substantiating any of the matters in the Loan Documents that are necessary to
enable Borrower to qualify for the Borrowing. Each condition precedent in this
Agreement (including those on the attached SCHEDULE 5) is material to the
transactions contemplated by this Agreement, and time is of the essence with
respect to each condition precedent. The Lenders may fund any Borrowing without
all conditions being satisfied, but, to the extent permitted by Governmental
Requirement, that funding and issuance shall not be deemed to be a waiver of the
requirement that each condition precedent be satisfied as a prerequisite for any
subsequent funding or issuance, unless the Required Lenders specifically waive
each item in writing.
SECTION 6 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to the Agents and the Lenders as follows:
6.1 PURPOSE OF CREDIT FACILITY. Borrower shall use proceeds of the
Borrowings hereunder to acquire, subject to SECTION 8.6, office and industrial
Properties, raw land, properties under construction, partnership interests,
interests in other Persons, investments in mortgages and loans, and other
acquisitions or investments permitted hereunder, and for working capital
purposes of Borrower and its Consolidated Affiliates. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended. No part of the proceeds of any Borrowing shall be used, directly or
indirectly, for a purpose that violates any Governmental Requirement, including
the provisions of Regulation U.
6.2 EXISTENCE, GOOD STANDING, AUTHORITY AND COMPLIANCE. Each Company is
duly formed, validly existing and in good standing under the Governmental
Requirements of the jurisdiction in which it is incorporated or formed as
identified on the attached SCHEDULE 6.2 (as supplemented from time-to-time).
Each Company (a) is duly qualified to transact business and is in good standing
as a foreign trust, corporation, partnership, or other entity in each
jurisdiction where the nature and extent of its business and properties require
due qualification and good standing, which jurisdictions are identified on the
attached SCHEDULE 6.2 (as supplemented from time-to-time to reflect changes as a
result of transactions permitted by the Loan Documents), except where the
failure to so qualify could not result in a Material Adverse Event, (b)
possesses all requisite authority, permits and power to conduct its business as
is now being, or is contemplated by this Agreement to be, conducted, and (c) is
in compliance with all applicable Governmental Requirements.
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<PAGE>
6.3 AFFILIATES. As of the date of this Agreement, Borrower has no
Consolidated Affiliates or Unconsolidated Affiliates except as disclosed on the
attached SCHEDULE 6.2 (as supplemented from time-to-time to reflect changes as a
result of transactions permitted by the Loan Documents).
6.4 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by each
Company of each Loan Document or related document to which it is a party, and
the performance by it of its obligations thereunder, (a) are within its trust,
corporate, or partnership power, (b) have been duly authorized by all necessary
trust, corporate, or partnership action of such Person, (c) require no action by
or filing with any Governmental Authority, other than recordation of certain of
the Collateral Documents, (d) do not violate any provision of its declaration of
trust, articles of incorporation, partnership agreement, bylaws, or other
formation or governing documents, (e) do not violate any provision of any
Governmental Requirement or order of any Governmental Authority applicable to
it, (f) do not violate any material agreements to which it is a party, or (g) do
not result in the creation or imposition of any Lien on any asset of any
Company, other than pursuant to the Loan Documents.
6.5 BINDING EFFECT. Upon execution and delivery by all parties thereto,
each Loan Document to which it is a party shall constitute a legal and binding
obligation of each Company, enforceable against such Company in accordance with
its terms, subject to applicable Debtor Relief Laws and general principles of
equity.
6.6 FINANCIAL STATEMENTS; FISCAL YEAR. The Current Financials were
prepared in accordance with GAAP and present fairly, in all material respects,
the consolidated financial condition, results of operations, and cash flows of
the Companies as of, and for the portion of the fiscal year ending on the date
or dates thereof (subject only to normal audit adjustments). All material
liabilities of the Companies as of the date or dates of the Current Financials
are reflected therein or in the notes thereto. Except for transactions directly
related to, or specifically contemplated by, the Loan Documents or disclosed in
the Current Financials, no subsequent material adverse changes have occurred in
the consolidated financial condition of the Companies from that shown in the
Current Financials. The fiscal year of each Company ends on December 31.
6.7 LITIGATION. Except as disclosed on the attached SCHEDULE 6.7, no
Company is subject to, or aware of the threat of, any Litigation that is
reasonably likely to be determined adversely to such Company or the Companies,
taken as a whole or, if so adversely determined, is a Material Adverse Event. No
outstanding and unpaid final and non-appealable judgments against any Company
exist which could result in a Material Adverse Event.
6.8 TAXES.
(a) All Tax returns of each Company required to be filed have been filed
(or extensions have been granted) before delinquency, and all Taxes imposed upon
each Company that are due and payable have been paid before delinquency or are
being contested in good faith by appropriate proceedings diligently conducted
and for which reserves in accordance with GAAP or otherwise reasonably
acceptable to the Administrative Agent have been provided.
(b) As of the date hereof, no United States federal income tax returns of
the "affiliated group" (as defined in the Code) of which any Company is a member
have been examined and closed. The members of such affiliated group have filed
all United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by or any of them (except
for taxes being contested in good faith by appropriate proceedings diligently
conducted and for which reserves in accordance with GAAP or otherwise acceptable
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<PAGE>
to the Administrative Agent have been provided). The charges, accruals and
reserves on the books of the Companies in respect of taxes or other governmental
charges are, in the opinion of the Companies, adequate.
(c) Guarantor qualifies as a REIT.
6.9 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 6.9 and as
specifically disclosed to the Administrative Agent in a written environmental
report or other writing delivered by Borrower to the Administrative Agent prior
to the date of execution hereof, (a) no environmental condition or circumstance
exists that materially and adversely affects any Company's properties or
operations, (b) no Company has received any report of any Company's violation of
any Environmental Law that has not been remedied, (c) no Company knows that any
Company is under any obligation to remedy any violation of any Environmental
Law, or (d) no facility of any Company is used for, or to the knowledge of
Borrower has been used for, storage, treatment or disposal of any Hazardous
Substance, except for (i) the storage and use of cleaning and maintenance
materials, used and stored in commercially reasonable quantities and in
compliance with applicable Environmental Laws, and (ii) light manufacturing and
distribution activities of tenants, in compliance with applicable Environmental
Laws, provided that such tenants are not primarily engaged in the treatment,
processing, recycling or disposal of any Hazardous Substance, or for any other
use that would give rise to the release of any Hazardous Substance on such
facility. Each Company has taken prudent steps to determine that its properties
and operations do not violate any Environmental Law.
6.10 EMPLOYEE PLANS. Except where occurrence or existence could not
reasonably be expected to result in a Material Adverse Event, (a) no Employee
Plan has incurred an "accumulated funding deficiency" (as defined in Section 302
of ERISA or Section 412 of the Code), (b) no Company has incurred liability
under ERISA to the PBGC in connection with any Employee Plan (other than
required insurance premiums, all of which have been paid), (c) no Company has
withdrawn in whole or in part from participation in a Multiemployer Plan, (d) no
Company has engaged in any "prohibited transaction" (as defined in Section 406
of ERISA or Section 4975 of the Code), and (e) no "reportable event" (as defined
in Section 4043 of ERISA) has occurred, excluding events for which the notice
requirement is waived under applicable PBGC regulations.
6.11 PROPERTIES; LIENS. Each Company has good title to all of its
property reflected on the Current Financials (except for property that is
obsolete or that has been disposed in the ordinary course of business or, after
the date of this Agreement, as otherwise permitted by SECTION 8.8 or SECTION
8.9). Except for Permitted Liens, no Lien exists on any Collateral, and the
execution, delivery, performance or observance of the Loan Documents shall not
require or result in the creation of any Lien on any Collateral, except in favor
of the Administrative Agent, for the benefit of the Lenders.
6.12 LOCATIONS. Each Company's chief executive office is located at the
address on the attached SCHEDULE 6.12 (as supplemented from time-to-time). Each
such Company's books and records are located at its chief executive office.
6.13 GOVERNMENT REGULATIONS. No Company is subject to regulation under
the Investment Company Act of 1940, as amended, or the Public Utility Holding
Company Act of 1935, as amended.
6.14 TRANSACTIONS WITH AFFILIATES. Except as disclosed on the attached
SCHEDULE 6.14 (as supplemented from time-to-time if the disclosures are approved
by the Administrative Agent), no Company is a party to a material transaction
with any of its Affiliates, other than transactions in the ordinary course of
business and upon fair and reasonable terms not materially less favorable than
it could obtain or could become entitled to in an arm's-length transaction with
a Person that was not its Affiliate.
6.15 INSURANCE. Each Company maintains with financially sound,
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance
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fund or by self-insurance authorized by the jurisdictions in which it operates)
insurance concerning its properties and businesses against casualties and
contingencies and of types and in amounts (and with co-insurance and
deductibles) as is customary in the case of similar businesses.
6.16 LABOR MATTERS. No actual or, to Borrower's knowledge, threatened
strikes, labor disputes, slow downs, walkouts, or other concerted interruptions
of operations by the employees of any Company that could reasonably be expected
to result in a Material Adverse Event exist. All payments due from any Company
for employee health and welfare insurance have been paid or accrued as a
liability on its books, other than any nonpayments that are not, individually or
collectively, a Material Adverse Event.
6.17 SOLVENCY. On each Borrowing Date, each Company is, and after giving
effect to the requested Borrowing will be, Solvent.
6.18 FULL DISCLOSURE. Each material fact or condition relating to the
financial condition or business of the Companies which could reasonably be
expected to result in a Material Adverse Event has been disclosed to the
Administrative Agent. All information previously furnished, furnished on the
date of this Agreement, and furnished in the future, by any Company to the
Administrative Agent in connection with the Loan Documents (a) was, is, and will
be, true and accurate in all material respects or based on good faith estimates
on the date the information is stated or certified, and (b) did not, does not,
and will not, fail to state any material fact the existence of which or the
omission of which could be or result in a Material Adverse Event
6.19 EXEMPTION FROM ERISA; PLAN ASSETS. Guarantor is a "real estate
operating company" within the meaning of 29 C.F.R. (S) 2510.3-101(e) (or any
successor regulation) and the assets of the Companies would not be deemed "plan
assets" as defined in 29 C.F.R. (S) 2510.3-101(a)(1) (or any successor
regulation) of any Employee Plan or Multiemployer.
6.20 OWNERSHIP. Guarantor does not own any Property or have any interest
in any Person, other than as set forth on SCHEDULE 6.2 (as supplemented from
time-to-time).
SECTION 7 AFFIRMATIVE COVENANTS. So long as the Lenders are committed to fund
any Borrowings under this Agreement and until the Obligation is paid in full,
Borrower covenants and agrees as follows:
7.1 ITEMS TO BE FURNISHED. Borrower shall cause the following to be
furnished to the Administrative Agent (with sufficient copies for each Lender):
(a) ANNUAL FINANCIAL STATEMENTS.
(i) Promptly after preparation, and no later than ninety (90) days
after the last day of each fiscal year of Guarantor, Financial Statements
of Guarantor showing the consolidated financial condition and results of
operations of Guarantor as of, and for the year ended on, that last day,
accompanied by: (A) the unqualified opinion of the firm of an accounting
firm of nationally-recognized independent certified public accountants,
based on an audit using generally accepted auditing standards, that the
Financial Statements of Guarantor were prepared in accordance with GAAP and
present fairly, in all material respects, the consolidated financial
condition and results of operations of Guarantor; (B) a certificate from
the accounting firm to the Administrative Agent indicating that during its
audit it obtained no knowledge of any Default or Potential Default or, if
it obtained knowledge, the nature and period of existence thereof; and (C)
a Compliance Certificate with respect to such Financial Statements.
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(ii) Promptly after preparation, and no later than ninety (90) days
after the last day of each fiscal year of Borrower, Financial Statements of
Borrower showing the consolidated financial condition and results of
operations of Borrower as of, and for the year ended on, that last day,
accompanied by: (A) a certificate of a Responsible Officer of Borrower
stating that the Financial Statements of Borrower were prepared in
accordance with GAAP and present fairly, in all material respects, the
consolidated financial condition and results of operations of Borrower; and
(B) a Compliance Certificate with respect to such Financial Statements.
(b) PERIODIC FINANCIAL STATEMENTS. Promptly after preparation, and no
later than forty-five (45) days after the last day of each fiscal quarter
(except the last) of Borrower and Guarantor: (i) Financial Statements of
Borrower and Guarantor showing the consolidated financial condition and results
of operations of Borrower and Guarantor for the fiscal quarter and for the
period from the beginning of the current fiscal year to the last day of the
fiscal quarter; and (ii) a Compliance Certificate with respect to the Financial
Statements.
(c) OTHER REPORTS.
(i) Promptly after receipt, a copy of each interim or special audit
report and management letter issued by independent accountants with respect
to Borrower and Guarantor or their financial records.
(ii) Promptly upon its becoming available, each press release and each
regular or periodic report and any registration statement or prospectus in
respect thereof filed by Borrower or Guarantor with, or received by
Borrower or Guarantor in connection therewith from, any securities exchange
or the Securities and Exchange Commission, or any successor agency thereof,
including, without limitation, each Form 10-K, 10-Q, and S-8 filed with the
Securities and Exchange Commission.
(iii) Promptly after the mailing or delivery thereof, copies of all
material reports or other information from Borrower or Guarantor to its
shareholders or partners (other than reports or other information delivered
only to Responsible Officers or other employees of Borrower or Guarantor).
(d) BORROWING BASE REPORT. Promptly after preparation, and no later than
thirty (30) days after the end of each fiscal quarter of Borrower and Guarantor,
a Borrowing Base Report certified by a Responsible Officer of Borrower, setting
forth in reasonable detail the calculations required to establish the Individual
Borrowing Base for each Project, the Aggregate Borrowing Base for the Projects,
and the Borrowing Base (the "BORROWING BASE REPORT") as of the last day of such
quarter, all in reasonable detail and reasonably satisfactory to the
Administrative Agent; provided, however, that any change in the Borrowing Base
reflected in such Borrowing Base Report shall not become effective until the
Administrative Agent notifies Borrower and the Lenders in writing.
(e) NOTICES. Notice, promptly after a Responsible Officer of Borrower
knows of (i) the existence and status of any Litigation that, if determined
adversely to any Company, could reasonably be expected to result in a Material
Adverse Event, (ii) any change in any material fact or circumstance represented
or warranted by any Company in any Loan Document which could be or result in a
Material Adverse Event, (iii) the receipt by any Company of notice of any
violation or alleged violation of ERISA or any Environmental Law (which
individually or collectively with other violations or allegations could
reasonably be expected to result in a Material Adverse Event), or (iv) a Default
or Potential Default, specifying the nature thereof and what action Borrower has
taken, is taking, or proposes to take.
(f) CHANGE IN CONTROL. Promptly upon any Change in Control, notice of
such event together with a description of the transaction giving rise thereto.
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(g) RATINGS. Promptly upon the receipt of notice thereof, and in any
event within five (5) Business Days after any change in the Moody's Rating or
the S & P Rating, notice of such change.
(h) OTHER INFORMATION. Promptly upon reasonable request by the
Administrative Agent, information (not otherwise required to be furnished under
the Loan Documents) respecting the business affairs, assets and liabilities of
the Companies and opinions, certifications, and documents in addition to those
mentioned in this Agreement.
7.2 USE OF PROCEEDS. Borrower shall use the proceeds of Borrowings only
for the purposes represented in this Agreement.
7.3 BOOKS AND RECORDS. Borrower shall, and shall cause each Company to,
maintain books, records and accounts necessary to prepare financial statements
in accordance with GAAP.
7.4 INSPECTIONS. Upon reasonable notice and during normal business hours,
Borrower shall, and shall cause each Company to, allow the Administrative Agent
(or its Representatives) to inspect any of their respective properties (subject
to the inspection rights in any tenant leases), to review reports, files, and
other records and to make and take away copies, and to discuss in the presence
of Borrower or such other Company any of its affairs, conditions and finances
with its other creditors, directors, officers, employees, or representatives
from time-to-time, during reasonable business hours.
7.5 TAXES. Borrower shall, and shall cause each Company to, promptly pay
prior to delinquency any and all Taxes, other than Taxes that are being
contested in good faith by lawful proceedings diligently conducted, against
which reserves or other provisions required by GAAP have been made, and in
respect of which levy and execution of any Lien have been and continue to be
stayed.
7.6 PAYMENT OF OBLIGATIONS. Borrower shall, and shall cause each Company
to, promptly pay (or renew and extend) all of their respective material
obligations as they become due (unless any such obligations are being contested
in good faith by appropriate proceedings).
7.7 EXPENSES. Borrower shall promptly pay following demand (a) all costs,
fees, and expenses paid or incurred by the Agents in connection with the
arrangement, syndication, and negotiation of the loan evidenced by this
Agreement and the other Loan Documents and the negotiation, preparation,
delivery, and execution of the Loan Documents and any related amendment, waiver,
or consent (including in each case the reasonable fees and expenses of the
Agents' counsel), and (b) all costs, fees, and expenses of the Agents and, after
a Default, the Lenders incurred by any Agent or, after a Default, any Lender in
connection with the enforcement of the obligations of Borrower, Guarantor, or
any Obligor arising under the Loan Documents or the exercise of any Rights
arising under the Loan Documents (including reasonable attorneys' fees,
expenses, and costs paid or incurred in connection with any workout or
restructure and any action taken in connection with any Debtor Relief Laws), all
of which shall be a part of the Obligation and shall bear interest, if not paid
upon demand, at the Default Rate until repaid.
7.8 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Each Company shall
(a) maintain its trust, partnership, or corporate existence in good standing in
its state of organization, and (b) except where not a Material Adverse Event (i)
maintain its authority to transact business in good standing in all other
states, (ii) maintain all licenses, permits, franchises, and Governmental
Requirements necessary for its business, and (iii) keep all of its material
assets that are useful in and necessary to its business in good working order
and condition (ordinary wear and tear excepted) and make all necessary repairs
and replacements.
7.9 INSURANCE. Borrower shall, and shall cause each Company to, maintain
with financially sound, responsible, and reputable insurance companies or
associations (or, as to workers' compensation or
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similar insurance, with an insurance fund or by self-insurance authorized by the
jurisdictions in which it operates) insurance reasonably acceptable to the
Administrative Agent concerning its properties and businesses against casualties
and contingencies and of types and in amounts (and with co-insurance and
deductibles) as is customary in the case of similar businesses. At the
Administrative Agent's request, Borrower shall, and shall cause each Company to,
deliver to the Administrative Agent evidence of insurance for each policy of
insurance and evidence of payment of all premiums.
7.10 PRESERVATION AND PROTECTION OF RIGHTS. Borrower shall, and shall
cause each Company to, perform the acts and duly authorize, execute,
acknowledge, deliver, file, and record any additional writings as any Agent may
reasonably deem necessary or appropriate to preserve and protect the Rights of
the Agents and the Lenders under any Loan Document.
7.11 ENVIRONMENTAL LAWS. Borrower shall, and shall cause each Company
to, (a) operate and manage its businesses and otherwise conduct its affairs in
compliance with all Environmental Laws, except to the extent noncompliance could
not reasonably be expected to result in a Material-Adverse Event, (b) promptly
deliver to the Administrative Agent a copy of any notice received from any
Governmental Authority alleging that any Company is not in compliance with any
Environmental Law, and (c) promptly deliver to the Administrative Agent a copy
of any notice received from any Governmental Authority alleging that any Company
has any potential environmental Liability.
7.12 INDEMNIFICATION.
(a) AS USED IN THIS SECTION: (i) "INDEMNITOR" MEANS THE COMPANIES; (ii)
"INDEMNITEE" MEANS EACH AGENT, EACH LENDER, EACH PRESENT AND FUTURE AFFILIATE OF
- -----------
EACH AGENT OR ANY LENDER, EACH PRESENT AND FUTURE REPRESENTATIVE OF EACH AGENT,
ANY LENDER, OR ANY OF THOSE AFFILIATES, AND EACH PRESENT AND FUTURE SUCCESSOR
AND ASSIGN OF EACH AGENT, ANY LENDER, OR ANY OF THOSE AFFILIATES OR
REPRESENTATIVES; AND (iii) "INDEMNIFIED LIABILITIES" MEANS ALL PRESENT AND
-----------------------
FUTURE, KNOWN AND UNKNOWN, FIXED AND CONTINGENT, ADMINISTRATIVE, INVESTIGATIVE,
JUDICIAL, AND OTHER CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, INVESTIGATIONS,
SUITS, PROCEEDINGS, AMOUNTS PAID IN SETTLEMENT, DAMAGES, JUDGMENTS, PENALTIES,
COURT COSTS, LIABILITIES, AND OBLIGATIONS -- AND ALL PRESENT AND FUTURE COSTS,
EXPENSES, AND DISBURSEMENTS (INCLUDING, WITHOUT LIMITATION, ALL REASONABLE
ATTORNEYS' FEES AND EXPENSES WHETHER OR NOT SUIT OR OTHER PROCEEDING EXISTS OR
ANY INDEMNITEE IS PARTY TO ANY SUIT OR OTHER PROCEEDING) IN ANY WAY RELATED TO
ANY OF THE FOREGOING -- THAT MAY AT ANY TIME BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST ANY INDEMNITEE AND IN ANY WAY RELATING TO OR ARISING OUT OF ANY
(A) LOAN DOCUMENT, TRANSACTION CONTEMPLATED BY ANY LOAN DOCUMENT, OR COLLATERAL,
(B) ENVIRONMENTAL LIABILITY IN ANY WAY RELATED TO ANY COMPANY, THE COLLATERAL,
OR ANY ACT, OMISSION, STATUS, OWNERSHIP, OR OTHER RELATIONSHIP, CONDITION, OR
CIRCUMSTANCE CONTEMPLATED BY, CREATED UNDER, OR ARISING PURSUANT TO OR IN
CONNECTION WITH ANY LOAN DOCUMENT, OR (C) INDEMNITEE'S SOLE OR CONCURRENT
-------------------------------
ORDINARY NEGLIGENCE.
- -------------------
(b) EACH INDEMNITOR SHALL JOINTLY AND SEVERALLY INDEMNIFY EACH INDEMNITEE
FROM AND AGAINST, PROTECT AND DEFEND EACH INDEMNITEE FROM AND AGAINST, HOLD EACH
INDEMNITEE HARMLESS FROM AND AGAINST, AND ON DEMAND PAY OR REIMBURSE EACH
INDEMNITEE FOR, ALL INDEMNIFIED LIABILITIES.
(c) THE FOREGOING PROVISIONS (i) ARE NOT LIMITED IN AMOUNT EVEN IF THAT
AMOUNT EXCEEDS THE OBLIGATION, (ii) INCLUDE, WITHOUT LIMITATION, REASONABLE FEES
AND EXPENSES OF ATTORNEYS AND OTHER COSTS AND EXPENSES OF LITIGATION OR
PREPARING FOR LITIGATION AND DAMAGES OR INJURY TO PERSONS, PROPERTY, OR NATURAL
RESOURCES ARISING UNDER ANY STATUTORY
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OR COMMON LAW, PUNITIVE DAMAGES, FINES, AND OTHER PENALTIES, AND (iii) ARE NOT
AFFECTED BY THE SOURCE OR ORIGIN OF ANY HAZARDOUS SUBSTANCE, AND (iv) ARE NOT
AFFECTED BY ANY INDEMNITEE'S INVESTIGATION, ACTUAL OR CONSTRUCTIVE KNOWLEDGE,
COURSE OF DEALING, OR WAIVER.
(d) No Indemnitee is entitled to be indemnified under the Loan Documents
for its or its agents', contractors', or employees' own fraud, gross negligence,
or willful misconduct.
(e) THE PROVISIONS OF AND INDEMNIFICATION AND OTHER UNDERTAKINGS UNDER
THIS SECTION SURVIVE THE FORECLOSURE OF ANY LIEN OR ANY TRANSFER IN LIEU OF THAT
FORECLOSURE, THE SALE OR OTHER TRANSFER OF ANY COLLATERAL TO ANY PERSON, THE
SATISFACTION OF THE OBLIGATION, THE TERMINATION OF THE LOAN DOCUMENTS, AND THE
RELEASE OF ANY OR ALL LIENS.
7.13 REIT STATUS. At all times, Guarantor (including its organization
and method of operations and those of its Consolidated Affiliates) shall qualify
as a REIT.
7.14 ERISA EXEMPTIONS. Guarantor shall qualify as a "real estate
operating company" under the 29 C.F.R. (S) 2510.3-101(e) (or any successor
regulation) or other appropriate exemption such that its assets shall not be
deemed "plan assets" as defined in 29 C.F.R. (S) 2510.3-101(a)(1) (or any
successor regulation) of any Employee Plan or Multiemployer Plan.
7.15 LISTED COMPANY. The common shares of beneficial interest of
Guarantor shall at all times be listed for trading and be traded on either the
New York Stock Exchange or American Stock Exchange.
SECTION 8 NEGATIVE COVENANTS. So long as the Lenders are committed to fund any
Borrowings under this Agreement and until the Obligation is paid in full,
Borrower covenants and agrees as follows:
8.1 PAYMENT OF OBLIGATIONS. Borrower shall not, and shall not permit any
Company to, voluntarily prepay principal of, or interest on, any Liabilities
other than the Obligation, if a Default exists.
8.2 EMPLOYEE PLANS. Except where a Material Adverse Event would not
result, Borrower shall not, and shall not permit any Company to, permit any of
the events or circumstances described in SECTION 6.10 to exist or occur.
8.3 LIENS. Borrower shall not, and shall not permit any Company to, (a)
create, incur, or suffer or permit to be created or incurred or to exist any
Lien upon any Collateral, except Permitted Liens, or (b) enter into or permit to
exist any arrangement or agreement that directly or indirectly prohibits any
Company from creating or incurring any Lien on the Collateral except the Loan
Documents. The following are "PERMITTED LIENS":
(i) Liens granted to the Administrative Agent, for the ratable benefit
of the Lenders, to secure the Obligation;
(ii) pledges or deposits made to secure payment of worker's
compensation (or to participate in any fund in connection with worker's
compensation insurance), unemployment insurance, pensions or social
security programs;
(iii) encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, provided that such items do
not materially impair the use of such property for the purposes intended
and none of which is violated in any material respect by existing or
proposed structures or land use;
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(iv) Liens imposed by mandatory provisions of any Governmental
Requirement such as for materialmen's, mechanic's, warehousemen's, and
other like Liens arising in the ordinary course of business, securing
payment of any Liability whose payment is not yet due or that is being
contested in good faith by appropriate proceedings diligently conducted,
and for which reserves in accordance with GAAP or other security (and
otherwise reasonably acceptable to the Administrative Agent) have been
provided;
(v) Liens for taxes, assessments and governmental charges or
assessments that are not yet due and payable or that are being contested in
good faith by appropriate proceedings diligently conducted, and for which
reserves in accordance with GAAP or other security (and otherwise
reasonably acceptable to the Administrative Agent) have been provided;
(vi) Liens securing assessments or charges payable to a property owner
association or similar entity, which assessments are not yet due and
payable or that are being contested in good faith by appropriate
proceedings diligently conducted, and for which reserves in accordance with
GAAP or other security (and otherwise reasonably acceptable to the
Administrative Agent) have been provided; and
(vii) Liens or other title exceptions described in Mortgagee Policies
of Title Insurance with respect to any Project, which Liens have been
approved by the Administrative Agent prior to admission of such Project
into the Borrowing Base.
8.4 TRANSACTIONS WITH AFFILIATES. Except as disclosed on SCHEDULE 6.14
(as supplemented from time-to-time to reflect changes as a result of
transactions permitted by this Agreement or approved by the Required Lenders),
Borrower shall not, and shall not permit any Company to, enter into any material
transaction with any of its Affiliates, other than transactions in the ordinary
course of business and upon fair and reasonable terms not materially less
favorable than it could obtain or could become entitled to in an arm's-length
transaction with a Person that was not its Affiliate.
8.5 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS AND DOCUMENTS. Borrower
shall not, and shall not permit any Company to, (a) violate the provisions of
any Governmental Requirements applicable to it or of any material agreement to
which it is a party if that violation alone, or when aggregated with all other
violations, could reasonably be expected to result in Material Adverse Event,
(b) violate the provisions of its trust agreement, partnership agreement,
charter, or bylaws, or (c) repeal, replace or amend any provision of its trust
agreement, partnership agreement, charter, or bylaws if that action could
reasonably be expected to result in a Material Adverse Event.
8.6 LOANS, ADVANCES AND INVESTMENTS. Neither Borrower nor Guarantor shall
have or make any investments in:
(a) Properties consisting of raw land exceeding in the aggregate three
percent (3%) of the Companies' Total Assets;
(b) Properties under construction having actual and budgeted costs
exceeding in the aggregate twenty percent (20%) of the Companies' Total Assets;
(c) Except for Borrower's investment in Broadmoor Austin Associates,
partnerships, joint ventures and similar entities accounted for on an equity
basis (determined in accordance with GAAP) exceeding in the aggregate twelve and
one-half percent (12.5%) of the Companies' Total Assets;
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(d) Loans, mortgages, advances, and extensions of credit to Persons
exceeding in the aggregate ten percent (10%) of the Companies' Total Assets;
(e) The stock of any Person exceeding in the aggregate five percent (5%)
of the Companies' Total Assets; or
(f) The investments described in (a) through (e) above exceeding in the
aggregate thirty-five percent (35%) of the Companies' Total Assets.
8.7 DIVIDENDS AND DISTRIBUTIONS. Borrower shall not, and shall not permit
any Company to, declare, make or pay any Distribution other than (a) Permitted
Distributions, and (b) Distributions declared, made or paid by (i) Borrower or
Guarantor wholly in the form of its capital stock or partnership interests, (ii)
any Company (other than Borrower) to Borrower or to Guarantor. Borrower shall
not, and shall not permit any Company to, enter into or permit to exist any
arrangement or agreement (other than this Agreement) that prohibits it from
paying distributions to its shareholders or partners.
8.8 SALE OF ASSETS. Except as otherwise permitted by the Loan Documents,
Borrower shall not, and shall not permit any Company to, sell, assign, lease,
transfer or otherwise dispose of any of its assets, other than (a) to Borrower
or Guarantor, (b) occasional sales, leases or other dispositions of immaterial
assets for consideration not less than fair market value, (c) sales, leases or
other dispositions of assets that are obsolete or have negligible fair market
value, (d) sales of equipment for a fair and adequate consideration (but if
replacement equipment is necessary for the proper operation of the business of
the seller, the seller must promptly replace the sold equipment), and (e) sales
or other transfers of assets, so long as both prior to and after giving effect
to any such sale or other transfer, no Material Adverse Event, Potential
Default, or Default exists.
8.9 MERGERS AND DISSOLUTIONS. Borrower shall not, and shall not permit
any Company to, merge or consolidate with any other Person or liquidate, wind up
or dissolve (or suffer any liquidation or dissolution); provided, however, that
the foregoing shall not operate to prevent mergers or consolidations of any
Company into Borrower or another Company (if such transaction does not reduce
the net worth of the Companies determined in accordance with GAAP).
8.10 ASSIGNMENT. Borrower shall not, and shall not permit any Company
to, assign or transfer any of its Rights, duties, or obligations under any of
the Loan Documents.
8.11 FISCAL YEAR AND ACCOUNTING METHODS. Without the prior written
consent of the Administrative Agent, Borrower shall not, and shall not permit
any Company to, change its fiscal year or its method of accounting (other than
immaterial changes in methods or as required by GAAP).
8.12 NEW BUSINESSES. Borrower shall not, and shall not permit any
Company to, engage in any type of business except the types of businesses in
which they are presently engaged and any other reasonably related business.
8.13 GOVERNMENT REGULATIONS. Borrower shall not, and shall not permit
any Company to, conduct its business in a way that it becomes regulated under
the Investment Company Act of 1940, as amended, or the Public Utility Holding
Company Act of 1935, as amended.
8.14 OCCUPANCY. Borrower shall not permit, as of any date, the aggregate
occupancy level for all Projects admitted into the Borrowing Base to be less
than eighty percent (80%), based upon bona fide leases requiring current rent
payments and based upon the average occupancy level of the Projects for the
immediately preceding three (3) months.
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8.15 OBLIGORS. No Obligor shall: (a) create, incur, assume, guarantee,
or suffer to exist any Liabilities, other than (i) the Obligation, (ii) trade
payables created in the ordinary course of business, (iii) endorsements of
negotiable instruments in the ordinary course of business, (iv) contingent
Liabilities covered by reserves or insurance, and (v) equipment leases incurred
in the ordinary course of business; or (b) create, incur, or suffer or permit to
be created or incur or exist any Lien upon any of its Assets, except Permitted
Liens.
8.16 AMENDMENT OF CONSTITUENT DOCUMENTS. Borrower shall not permit any
amendment of any Company's declaration of trust, articles of incorporation,
partnership agreement, bylaws, or other formation or governing documents, if
any, which would materially and adversely affect the Agents or Lenders or their
respective Rights under the Loan Documents.
SECTION 9 FINANCIAL COVENANTS. So long as the Lenders are committed to
fund Borrowings under this Agreement and until the Obligation is paid and
performed in full, Borrower covenants and agrees with the Administrative Agent
and the Lenders that Borrower shall not directly or indirectly permit, in each
case for Borrower, on a consolidated basis, and for Guarantor, on a consolidated
basis:
9.1 MINIMUM TANGIBLE NET WORTH. As of any date, Tangible Net Worth to be
less than the sum of (i) $250,000,000.00, and (ii) eighty percent (80%) of the
amount of net cash proceeds of any equity issuances of Borrower or Guarantor, as
the case may be, subsequent to the IPO.
9.2 TOTAL INDEBTEDNESS TO TANGIBLE NET WORTH. As of any date, the ratio
of Total Indebtedness to Tangible Net Worth, as of any date, to exceed 1.0 to
1.0.
9.3 INTEREST COVERAGE. As of any date, the ratio of EBITDA to Interest
Expense, in each case for the twelve (12) month period ending on the date of
determination (except for the first twelve (12) months following the date of the
IPO, which shall be determined for the period of time from the date of the IPO
to the date of determination), to be less than 2.25 to 1.0. For purposes of the
foregoing, EBITDA and Interest Expense shall include Borrower's or Guarantor's
(as the case may be, but without duplication) Share of EBITDA and Interest
Expense of their respective Unconsolidated Affiliates.
9.4 DEBT SERVICE COVERAGE. As of any date, the ratio of (a) the
difference between (i) EBITDA, minus (ii) Capital Expenditures, to (b) Debt
Service, in each case for the twelve (12) month period ending on the date of
determination (except for the first twelve (12) months following the date of the
IPO, which shall be determined for the period of time from the date of the IPO
to the date of determination), to be less than 1.75 to 1.0. For purposes of the
foregoing, EBITDA, Capital Expenditures, and Debt Service shall include
Borrower's or Guarantor's (as the case may be, but without duplication) Share of
EBITDA, Capital Expenditures, and Debt Service of their respective
Unconsolidated Affiliates.
SECTION 10 DEFAULT. The term "DEFAULT" means the occurrence of any one or
more of the following events:
10.1 PAYMENT OF OBLIGATION. The failure of Borrower or Guarantor to pay
any principal of or any interest on the Obligation when it becomes due and
payable under the Loan Documents, and such failure shall continue for five (5)
days after such payment became due and payable.
10.2 COVENANTS. The failure of Borrower (and, if applicable, any
Company) to punctually and properly perform, observe, and comply with:
(a) any covenant or agreement contained in SECTIONS 7.1; or
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(b) any other covenant or agreement contained in any Loan Document (other
than the covenants to pay the principal of and interest on the Obligation and
the covenants in (a) preceding), and such failure shall continue for thirty (30)
days after the earlier to occur of the date (i) Borrower knows of, or (ii)
Borrower receives notice from the Administrative Agent of, such failure.
10.3 DEBTOR RELIEF. Any Company (a) is not Solvent, (b) fails to pay its
Liabilities generally as they become due, (c) voluntarily seeks, consents to, or
acquiesces in the benefit of any Debtor Relief Law, or (d) becomes a party to or
is made the subject of any proceeding provided for by any Debtor Relief Law,
other than as a creditor or claimant, that could suspend or otherwise adversely
affect the Rights of any Agent or any Lender granted in the Loan Documents
(unless, if the proceeding is involuntary, the applicable petition is dismissed
within sixty (60) days after its filing).
10.4 JUDGMENTS AND ATTACHMENTS. Any Company fails, within sixty (60)
days after entry, to pay, bond, or otherwise discharge any judgment or order for
the payment of money in excess of $1,000,000.00 (individually or collectively)
or any warrant of attachment, sequestration, or similar proceeding against such
Company's assets having a value (individually or collectively) of $1,000,000.00
unless such judgment, order for payment, warrant of attachment, sequestration,
or similar proceeding is (a) stayed on appeal, (b) diligently contested in good
faith by appropriate proceedings and adequate reserves have been set aside on
its books in accordance with GAAP, or (c) covered by insurance acceptable to the
Administrative Agent.
10.5 GOVERNMENT ACTION. (a) A final non-appealable order is issued by
any Governmental Authority (including the United States Justice Department)
requiring any Company to divest all or a substantial portion of its assets under
any antitrust, restraint of trade, unfair competition, industry regulation, or
similar Governmental Requirements, or (b) any Governmental Authority seizes or
otherwise appropriates, or takes custody or control of, all or any substantial
portion of the assets of any Company, other than through condemnation
proceeding.
10.6 MISREPRESENTATION. Any material representation or warranty made by
any Company contained in any Loan Document at any time proves to have been
incorrect in any material respect when made and such misrepresentation shall
continue for thirty (30) days after the earlier to occur of the date (a)
Borrower knows of, or (b) Borrower receives notice from the Administrative Agent
of, such misrepresentation.
10.7 DEFAULT UNDER OTHER AGREEMENTS.
(a) Any Company shall fail to make any payment in respect of (i) any
recourse Liability in excess of $1,000,000.00 when due or within any applicable
grace period, or (ii) non-recourse Liability in excess of $25,000,000.00 when
due or within any applicable grace period; or
(b) The acceleration of the maturity of (i) any recourse Liability in
excess of $1,000,000.00 of any Company, or (ii) any non-recourse Liability in
excess of $25,000,000.00 of any Company, or default shall occur in the payment
of any such Liabilities of any Company, or in respect of any note or credit
agreement relating to any such Liabilities and such default shall continue for
more than the period of grace, if any, specified therein or otherwise granted by
the lender thereof.
10.8 VALIDITY AND ENFORCEABILITY OF LOAN DOCUMENTS. Except in accordance
with its terms or as otherwise expressly permitted by this Agreement, any Loan
Document at any time after its execution and delivery ceases to be in full force
and effect in any material respect or is declared by a Governmental Authority to
be null and void or its validity or enforceability is contested by any Company,
or any Company denies that it has any further liability or obligations under any
Loan Document to which it is a party.
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10.9 MANAGEMENT CHANGES. During any period of twelve (12) consecutive
calendar months, individuals who were directors or trustees of Guarantor on the
first day of such period shall cease to constitute a majority of the board of
directors of Guarantor; provided, however, that the directors or trustees of
Guarantor may include new or replacement directors or trustees that (i) are an
officer or employee of an Affiliate, (ii) are required in order (as a practical
matter) for the majority of the board of directors or trustees of Guarantor to
be independent directors or trustees, or (iii) are independent directors or
trustees that are replacing another independent director or trustee whose term
has expired or who has voluntarily resigned.
10.10 CHANGE IN CONTROL. A Change in Control shall occur.
10.11 PLAN ASSETS. The assets of the Companies at any time constitute
assets, within the meaning of ERISA, the Code and the respective regulations
promulgated thereunder, of any Employee Plan or Multiemployer Plan.
SECTION 11 RIGHTS AND REMEDIES.
11.1 REMEDIES UPON DEFAULT.
(a) DEBTOR RELIEF. If a Default (i) occurs under SECTION 10.3(c) or (ii)
occurs and is continuing under SECTION 10.3(a), (b) OR (d), the commitment to
extend credit under this Agreement automatically terminates, the entire unpaid
balance of the Obligation automatically becomes due and payable without any
action of any kind whatsoever.
(b) OTHER DEFAULTS. If a Default occurs and is continuing, subject to
the terms of SECTION 13.9(b), then the Administrative Agent, upon the request of
the Required Lenders, may do any one or more of the following: (i) if the
maturity of the Obligation has not already been accelerated under SECTION
11.1(a), declare the entire unpaid balance of all or any part of the Obligation
immediately due and payable, whereupon it is due and payable; (ii) terminate the
commitments of the Lenders to extend credit under this Agreement; (iii) reduce
any claim to judgment; and (iv) exercise any and all other legal or equitable
Rights afforded by the Loan Documents, the Governmental Requirements of the
State of Texas, or any other applicable jurisdiction.
11.2 WAIVERS. To the extent permitted by applicable law, each Company
waives presentment and demand for payment, protest, notice of intention to
accelerate, notice of acceleration, and notice of protest and nonpayment, and
agrees that its liability with respect to all or any part of the Obligation is
not affected by any renewal or extension in the time of payment of all or any
part of the Obligation, by any indulgence, or by any release or change in any
security for the payment of all or any part of the Obligation.
11.3 PERFORMANCE BY THE ADMINISTRATIVE AGENT. If any covenant, duty, or
agreement of Borrower is not performed in accordance with the terms of the Loan
Documents, the Administrative Agent may, while a Default exists, at its option,
perform, or attempt to perform that covenant, duty, or agreement on behalf of
Borrower (and any amount expended by the Administrative Agent in its performance
or attempted performance is payable by Borrower to the Administrative Agent on
demand, becomes part of the Obligation, and bears interest at the Default Rate
from the date of the Administrative Agent's expenditure until paid). However,
neither the Administrative Agent nor any Lender assumes or shall have, except by
its express written consent, any liability or responsibility for the performance
of any covenant, duty, or agreement of Borrower.
11.4 NOT IN CONTROL. None of the covenants or other provisions contained
in any Loan Document shall, or shall be deemed to, give the Agents or the
Lenders the Right to exercise control over the assets (including real property),
affairs, or management of any Company.
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11.5 COURSE OF DEALING. The acceptance by the Agents or any Lender of
any partial payment on the Obligation shall not be deemed to be a waiver of any
Default then existing. No waiver by any Agent or any Lender of any Default
shall be deemed to be a waiver of any other then-existing or subsequent Default.
No delay or omission by any Agent or any Lender in exercising any Right under
the Loan Documents will impair that Right or be construed as a waiver thereof or
any acquiescence therein, nor will any single or partial exercise of any Right
preclude other or further exercise thereof or the exercise of any other Right
under the Loan Documents or otherwise.
11.6 CUMULATIVE RIGHTS. All Rights available to the Agents and the
Lenders under the Loan Documents are cumulative of and in addition to all other
Rights granted to the Agents and the Lenders at law or in equity, whether or not
the Obligation is due and payable and whether or not the Agents or the Lenders
have instituted any suit for collection, foreclosure, or other action in
connection with the Loan Documents.
11.7 APPLICATION OF PROCEEDS. Any and all proceeds ever received by any
Agent or any Lender from the exercise of any Rights pertaining to the Obligation
shall be applied to the Obligation according to SECTION 3.11.
11.8 DIMINUTION IN VALUE OF COLLATERAL. No Agent nor any Lender has any
liability or responsibility whatsoever for any diminution in or loss of value of
any Collateral now or hereafter securing payment or performance of all or any
part of the Obligation (other than diminution in or loss of value caused by its
gross negligence or willful misconduct).
11.9 CERTAIN PROCEEDINGS. Borrower shall promptly execute and deliver,
or cause the execution and delivery of, all applications, certificates,
instruments, and all other documents and papers any Agent reasonably requests in
connection with the obtaining of any consent, approval, registration,
qualification, permit, license, or authorization of any Governmental Authority
or other Person necessary or appropriate for the effective exercise of any
Rights under the Loan Documents. Because Borrower agrees that the Agents' and
the Lenders' remedies at law for failure of Borrower to comply with the
provisions of this paragraph would be inadequate and that failure would not be
adequately compensable in damages, Borrower agrees that the covenants of this
paragraph may be specifically enforced.
SECTION 12 AGENTS AND THE LENDERS.
12.1 THE AGENTS.
(a) APPOINTMENT. Each Lender appoints the Administrative Agent (including,
without limitation, each successor Agent in accordance with this SECTION 12) as
its nominee and agent to act in its name and on its behalf (and the
Administrative Agent and each such successor accepts that appointment): (i) to
act as its nominee and on its behalf in and under all Loan Documents; (ii) to
arrange the means whereby its funds are to be made available to Borrower under
the Loan Documents; (iii) to take any action that it properly requests under the
Loan Documents (subject to the concurrence of other Lenders as may be required
under the Loan Documents); (iv) to receive all documents and items to be
furnished to it under the Loan Documents; (v) to be the secured party,
mortgagee, beneficiary, recipient, and similar party in respect of any
Collateral, for the benefit of Lenders; (vi) to promptly distribute to it all
Financial Statements, Borrowing Base Reports, notices received hereunder, and
other items specifically required to be delivered to it hereunder, and, upon
request, such other material information, requests, documents, and items
received under the Loan Documents; (vii) to promptly distribute to it its
ratable part of each payment or prepayment (whether voluntary, as proceeds of
collateral upon or after foreclosure, as proceeds of insurance thereon, or
otherwise) in accordance with the terms of the Loan Documents; and (viii) to
deliver to the appropriate Persons requests, demands, approvals, and consents
received from it. However, the Administrative Agent may not be required to take
any action that
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exposes it to personal liability or that is contrary to any Loan Document or
applicable Governmental Requirement.
(b) SUCCESSOR. The Administrative Agent may assign all of its Rights and
obligations as Administrative Agent under the Loan Documents to any of its
Affiliates, which Affiliate shall then be the successor Administrative Agent
under the Loan Documents. The Administrative Agent may also voluntarily resign
by notice to Borrower and Lenders, and shall resign upon the request of the
Required Lenders for cause (i.e., the Administrative Agent is continuing to fail
to perform its responsibilities as the Administrative Agent under the Loan
Documents). If the initial or any successor Administrative Agent ever ceases to
be a party to this Agreement or if the initial or any successor Administrative
Agent ever resigns (whether voluntarily or at the request of the Required
Lenders), then the Required Lenders shall (which, if no Default or Potential
Default exists, is subject to Borrower's approval that may not be unreasonably
withheld) appoint the successor Administrative Agent from among the Lenders
(other than the resigning Administrative Agent). If the Required Lenders fail to
appoint a successor Administrative Agent within thirty (30) days after the
resigning Administrative Agent has given notice of resignation or the Required
Lenders have removed the resigning Administrative Agent, then the resigning
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent (which, if no Default or Potential Default exists, is
subject to Borrower's approval that may not be unreasonably withheld), which
must be a commercial bank having a combined capital and surplus of at least
$1,000,000,000.00 (as shown on its most recently published statement of
condition) and whose debt obligations (or whose parent's debt obligations) are
rated not less than Baa1 by Moody's or BBB+ by S & P. Upon its acceptance of
appointment as successor Administrative Agent, the successor Administrative
Agent succeeds to and becomes vested with all of the Rights of the prior
Administrative Agent, and the prior Administrative Agent is discharged from its
duties and obligations of the Administrative Agent under the Loan Documents, and
each Lender shall execute the documents that any Lender, the resigning or
removed Administrative Agent, or the successor Administrative Agent reasonably
request to reflect the change. After any Administrative Agent's resignation or
removal as Administrative Agent under the Loan Documents, the provisions of this
SECTION inure to its benefit as to any actions taken or not taken by it while it
was the Administrative Agent under the Loan Documents.
(c) RIGHTS AS LENDER. Each Agent, in its capacity as a Lender, has the
same Rights under the Loan Documents as any other Lender and may exercise those
Rights as if it were not acting as an Agent. The term "Lender," unless the
context otherwise indicates, includes the Agents. The Administrative Agent's
resignation or removal does not impair or otherwise affect any Rights that it
has or may have in its capacity as an individual Lender. Each Lender and
Borrower agree that the Agents are not a fiduciary for Lenders or for Borrower
but are simply acting in the capacities described in this Agreement to alleviate
administrative burdens for Borrower and Lenders, that the Agents have no duties
or responsibilities to Lenders or Borrower except those expressly set forth in
the Loan Documents, and that each Agent in its capacity as a Lender has the same
Rights as any other Lender.
(d) OTHER ACTIVITIES. Any Agent or any Lender may now or in the future
be engaged in one or more loan, letter of credit, leasing, or other financing
transactions with Borrower or another Company, act as trustee or depositary for
Borrower or another Company, or otherwise be engaged in other transactions with
Borrower (collectively, the "OTHER ACTIVITIES") not the subject of the Loan
Documents. Without limiting the Rights of Lenders specifically set forth in the
Loan Documents, no Agent nor any Lender is responsible to account to the other
Lenders for those other activities, and no Lender shall have any interest in any
other Lender's activities, any present or future guaranties by or for the
account of Borrower that are not contemplated by or included in the Loan
Documents, any present or future offset exercised by any Agent or any Lender in
respect of those other activities, any present or future property taken as
security for any of those other activities, or any property now or hereafter in
any Agent's or any other Lender's possession or control that may be or become
security for the obligations of Borrower arising under the Loan Documents by
reason of the general description of indebtedness secured or of property
contained in any other agreements,
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documents, or instruments related to any of those other activities (but, if any
payments in respect of those guaranties or that property or the proceeds thereof
is applied by any Agent or any Lender to reduce the Obligation, then each Lender
is entitled to share ratably in the application as provided in the Loan
Documents).
(e) THE DOCUMENTATION AGENT. The Documentation Agent shall have no
rights, duties, or obligations hereunder, except as specifically provided in
this Agreement. The Documentation Agent (a) may voluntarily resign by notice to
the Administrative Agent, the Lenders, and Borrower, and (b) shall resign upon
the request of the Required Lenders for cause. Upon the resignation of the
Documentation Agent, the Required Lenders may elect to designate a successor
Documentation Agent (which, if no Default or Potential Default exists, is
subject to Borrower's approval that may not be unreasonably withheld), which
must be a Lender who is a commercial bank having a combined capital and surplus
of at least $1,000,000,000.00 (as shown on its most recently published statement
of condition) and whose debt obligations (or whose parent's debt obligations)
are rated not less than Baa1 by Moody's or BBB+ by S & P.
12.2 EXPENSES. Should the Administrative Agent commence any proceeding
or in any way seek to enforce its Rights under the Loan Documents, irrespective
of whether as a result thereof the Administrative Agent shall acquire title to
any Collateral, either through foreclosure, deed in lieu of foreclosure, or
otherwise, each Lender, upon demand therefor from time-to-time, shall contribute
its share (based on its Pro Rata Part) of the reasonable costs and/or expenses
of any such enforcement or acquisition, including, but not limited to, fees of
receivers or trustees, court costs, title company charges, filing and recording
fees, appraisers' fees and fees and expenses of attorneys to the extent not
otherwise reimbursed by Borrower. Without limiting the generality of the
foregoing, each Lender shall contribute its share (based on its Pro Rata Part)
of all reasonable costs and expenses incurred by the Administrative Agent
(including reasonable attorneys' fees and expenses) if the Administrative Agent
employs counsel for advice or other representation (whether or not any suit has
been or shall be filed) with respect to any Collateral or any part thereof, or
any of the Loan Documents, or the attempt to enforce any Lien in any of the
Collateral, or to enforce any rights of the Administrative Agent or any of
Borrower's or any other Company's obligations under any of the Loan Documents,
but not with respect to any dispute between the Administrative Agent and any
other Lender(s). Any loss of principal and interest resulting from any Default
shall be shared by Lenders in accordance with their respective Pro Rata Parts.
It is understood and agreed that the Administrative Agent determines that it is
necessary to engage counsel for the Lenders from and after the occurrence of a
Potential Default or Default , said counsel shall be selected by the
Administrative Agent and written notice of the same shall be delivered to the
Lenders.
12.3 PROPORTIONATE ABSORPTION OF LOSSES. Except as otherwise provided in
the Loan Documents, nothing in the Loan Documents gives any Lender any advantage
over any other Lender insofar as the Obligation is concerned or relieves any
Lender from ratably absorbing any losses sustained with respect to the
Obligation (except to the extent unilateral actions or inactions by any Lender
result in Borrower or any other obligor on the Obligation having any credit,
allowance, setoff, defense, or counterclaim solely with respect to all or any
part of that Lender's Pro Rata Part of the Obligation).
12.4 DELEGATION OF DUTIES; RELIANCE. Lenders may perform any of their
duties or exercise any of their Rights under the Loan Documents by or through
the Administrative Agent, and Lenders and the Administrative Agent may perform
any of their duties or exercise any of their Rights under the Loan Documents by
or through their respective Representatives. The Administrative Agent, Lenders,
and their respective Representatives (a) are entitled to rely upon (and shall be
protected in relying upon) any written or oral statement believed by it or them
to be genuine and correct and to have been signed or made by the proper Person
and, with respect to legal matters, upon opinion of counsel selected by the
Administrative Agent or that Lender (but nothing in this CLAUSE (a) permits the
Administrative Agent to rely on (i) oral statements if a writing is required by
this Agreement or (ii) any other writing if a specific writing is required by
this Agreement), (b) are entitled to deem and treat each Lender as the owner and
holder of its portion of the
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Obligation for all purposes until, written notice of the assignment or transfer
is given to and received by the Administrative Agent (and any request,
authorization, consent, or approval of any Lender is conclusive and binding on
each subsequent holder, assignee, or transferee of or Participant in that
Lender's portion of the Obligation until that notice is given and received), (c)
are not deemed to have notice of the occurrence of a Default unless a
Responsible Officer of the Administrative Agent, who handles matters associated
with the Loan Documents and transactions thereunder, has actual knowledge or the
Administrative Agent has been notified by a Lender or Borrower, and (d) are
entitled to consult with legal counsel (including counsel for Borrower),
independent accountants, and other experts selected by the Administrative Agent
and are not liable for any action taken or not taken in good faith by it in
accordance with the advice of counsel, accountants, or experts.
12.5 LIMITATION OF AGENTS' LIABILITY.
(a) EXCULPATION. No Agent nor any of their Affiliates or Representatives
will be liable for any action taken or omitted to be taken by it or them under
the Loan Documents in good faith and believed by it or them to be within the
discretion or power conferred upon it or them by the Loan Documents or be
responsible for the consequences of any error of judgment (except for fraud,
gross negligence, or willful misconduct), and no Agent nor any of its Affiliates
or Representatives has a fiduciary relationship with any Lender by virtue of the
Loan Documents (but nothing in this Agreement negates the obligation of the
Administrative Agent to account for funds received by it for the account of any
Lender).
(b) INDEMNITY. Unless indemnified to its satisfaction against loss, cost,
liability, and expense, no Agent may be compelled to do any act under the Loan
Documents or to take any action toward the execution or enforcement of the
powers thereby created or to prosecute or defend any suit in respect of the Loan
Documents. If an Agent requests instructions from the Lenders, or the Required
Lenders, as the case may be, with respect to any act or action in connection
with any Loan Document, such Agent is entitled to refrain (without incurring any
liability to any Person by so refraining) from that act or action unless and
until it has received instructions. In no event, however, may any Agent or any
of its Representatives be required to take any action that it or they determine
could incur for it or them criminal or onerous civil liability. Without
limiting the generality of the foregoing, no Lender has any right of action
against any Agent as a result of such Agent's acting or refraining from acting
under this Agreement in accordance with instructions of the Required Lenders.
(c) RELIANCE. No Agent is not responsible to any Lender or any
Participant for, and each Lender represents and warrants that it has not relied
upon any Agent in respect of, (i) the creditworthiness of Borrower or Guarantor
and the risks involved to that Lender, (ii) the effectiveness, enforceability,
genuineness, validity, or the due execution of any Loan Document (except by such
Agent), (iii) any representation, warranty, document, certificate, report, or
statement made therein (except by such Agent) or furnished thereunder or in
connection therewith, (iv) the adequacy of any Collateral now or hereafter
securing the Obligation or the existence, priority, or perfection of any Lien
now or hereafter granted or purported to be granted on the Collateral under any
Loan Document, or (v) observation of or compliance with any of the terms,
covenants, or conditions of any Loan Document on the part of any Company. EACH
LENDER AGREES TO INDEMNIFY EACH AGENT AND ITS REPRESENTATIVES AND HOLD THEM
HARMLESS FROM AND AGAINST (BUT LIMITED TO SUCH LENDER'S COMMITMENT PRO RATA PART
OF) ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, REASONABLE EXPENSES, AND REASONABLE DISBURSEMENTS OF
ANY KIND OR NATURE WHATSOEVER THAT MAY BE IMPOSED ON, ASSERTED AGAINST, OR
INCURRED BY THEM IN ANY WAY RELATING TO OR ARISING OUT OF THE LOAN DOCUMENTS OR
ANY ACTION TAKEN OR OMITTED BY THEM UNDER THE LOAN DOCUMENTS IF SUCH AGENT AND
ITS REPRESENTATIVES ARE NOT REIMBURSED FOR SUCH AMOUNTS BY ANY COMPANY. ALTHOUGH
EACH AGENT AND ITS REPRESENTATIVES HAVE THE RIGHT TO BE INDEMNIFIED UNDER THIS
AGREEMENT FOR ITS OR THEIR OWN ORDINARY NEGLIGENCE, EACH AGENT AND ITS
REPRESENTATIVES DO NOT HAVE THE RIGHT
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TO BE INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR THEIR OWN FRAUD, GROSS
NEGLIGENCE, OR WILLFUL MISCONDUCT.
12.6 DEFAULT. While a Default exists, the Lenders agree to promptly
confer in order that the Required Lenders or the Lenders, as the case may be,
may agree upon a course of action for the enforcement of the Rights of the
Lenders. The Administrative Agent is entitled to act or refrain from taking any
action (without incurring any liability to any Person for so acting or
refraining) unless and until it has received instructions from Required Lenders.
In actions with respect to any Company's property, the Administrative Agent is
acting for the ratable benefit of each Lender.
12.7 COLLATERAL MATTERS.
(a) Each Lender authorizes and directs the Administrative Agent to enter
into the Loan Documents and agrees that any action taken by the Administrative
Agent concerning any Collateral (with the consent or at the request of the
Required Lenders) in accordance with any Loan Document, that the Administrative
Agent's exercise (with the consent or at the request of the Required Lenders) of
powers concerning the Collateral in any Loan Document, and that all other
reasonably incidental powers are authorized and binding upon all Lenders.
(b) The Administrative Agent is authorized on behalf of all Lenders,
without the necessity of any notice to or further consent from any Lender, from
time-to-time before a Default or Potential Default, to take any action with
respect to any Collateral or Loan Documents related to Collateral that may be
necessary to perfect and maintain the Administrative Agent's Liens in the
Collateral including, without limitation, making Protective Advances; provided,
however, the Administrative Agent shall not, without the consent of the Required
Lenders, make any Protective Advances during any one (1) calendar year in excess
of the sum of (i) amounts expended to pay real estate taxes, assessments, and
governmental charges or levies imposed upon the Collateral, (ii) amounts
expended to pay insurance premiums for policies of insurance related to the
Collateral, and (iii) $250,000.00.
(c) Except to use the same standard of care that it ordinarily uses for
collateral for its sole benefit, the Administrative Agent has no obligation
whatsoever to any Lender or to any other Person to assure that the Collateral
exists or is owned by any Company or is cared for, protected, or insured or has
been encumbered or that the Administrative Agent's Liens have been properly or
sufficiently or lawfully created, perfected, protected, or enforced or are
entitled to any particular priority.
(d) The Administrative Agent shall exercise the same care and prudent
judgment with respect to the Collateral and the Loan Documents as it normally
and customarily exercises in respect of similar collateral and security
documents.
(e) Lenders irrevocably authorize the Administrative Agent, at its option
and in its discretion, to release any Liens upon any Collateral (i) in
accordance with SECTION 4.4, (ii) constituting property being disposed of as
permitted under any Loan Document, or (iii) if approved, authorized, or ratified
in writing by the Required Lenders. Upon request by the Administrative Agent at
any time, Lenders shall confirm in writing the Administrative Agent's authority
to release particular types or items of Collateral under this CLAUSE (e).
(f) In the event that all or any portion of the Collateral is acquired by
the Administrative Agent as the result of a foreclosure or the acceptance of a
deed or assignment in lieu of foreclosure, or is retained in satisfaction of all
or any part of the Obligation, title to any such Collateral or any portion
thereof shall be held in the name of the Administrative Agent or a nominee or
subsidiary of the Administrative Agent (which in any case is authorized to do
business in the state in which such Collateral is located), as agent, for the
ratable
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benefit of the Administrative Agent and the Lenders. The Administrative
Agent shall prepare a recommended course of action for such Collateral (the
"POST-FORECLOSURE PLAN"), which shall be subject to the approval of the Required
Lenders, or shall take such action as directed by the Required Lenders. The
Administrative Agent shall manage, operate, repair, administer, complete,
construct, restore or otherwise deal with the Collateral acquired and administer
all transactions relating thereto, including, without limitation, employing a
management agent and other agents, contractors and employees, including agents
of the sale of such Collateral, and the collecting of rents and other sums from
such Collateral and paying the expenses of such Collateral. Upon demand therefor
from time to time, each Lender will contribute its share (based on its Pro Rata
Part) of all reasonable costs and expenses incurred by the Administrative Agent
pursuant to the Post-Foreclosure Plan in connection with the construction,
operation, management, maintenance, leasing and sale of such Collateral. In
addition, the Administrative Agent shall render or cause to be rendered by the
managing agent, to each of the Lenders, monthly, an income and expense statement
for such Collateral, and each of the Lenders shall promptly contribute its Pro
Rata Part of any operating loss for such Collateral, and such other expenses and
operating reserves as the Administrative Agent shall deem reasonably necessary
pursuant to and in accordance with the Post-Foreclosure Plan. To the extent
there is net operating income from such Collateral, the Administrative Agent
shall, in accordance with the Post-Foreclosure Plan, determine the amount and
timing of distributions to the Lenders. All such distributions shall be made to
the Lenders in accordance with their respective Pro Rata Parts. The Lenders
acknowledge that if title to any Collateral is obtained by the Administrative
Agent or its nominee, such Collateral will not be held as a permanent investment
but will be liquidated as soon as practicable. The Administrative Agent shall
undertake to sell such Collateral, at such price and upon such terms and
conditions as the Required Lenders shall reasonably determine to be most
advantageous. Any purchase money mortgage or deed of trust taken in connection
with the disposition of such Collateral in accordance with the immediately
preceding sentence shall name the Administrative Agent, as agent for the
Lenders, as the beneficiary or mortgagee. In such case, the Administrative Agent
and the Lenders shall enter into an agreement with respect to such purchase
money mortgage defining the rights of the Lenders in the same Pro Rata Parts as
provided hereunder, which agreement shall be in all material respects similar to
this Agreement insofar as this Agreement is appropriate or applicable.
12.8 LIMITATION OF LIABILITY. No Lender or any Participant will incur
any liability to any other Lender or Participant except for acts or omissions in
bad faith, and neither the Administrative Agent nor any Lender or Participant
will incur any liability to any other Person for any act or omission of any
other Lender or any Participant.
12.9 RELATIONSHIP OF LENDERS. The Loan Documents do not create a
partnership or joint venture among Agents and the Lenders or among the Lenders.
12.10 BENEFITS OF AGREEMENT. None of the provisions of this SECTION
inure to the benefit of any Company or any other Person except the Agents and
the Lenders. Therefore, no Company nor any other Person is responsible or
liable for, entitled to rely upon, or entitled to raise as a defense -- in any
manner whatsoever -- the failure of any Agent or any Lender to comply with these
provisions.
12.11 APPROVAL OF LENDERS.
(a) All communications from the Administrative Agent to the Lenders
requesting the Lenders' determination, consent, approval, or disapproval (i)
shall be given in the form of a written notice to each Lender, (ii) shall be
accompanied by a description of the matter or thing as to which such
determination, approval, consent, or disapproval is requested, or shall advise
each Lender where such matter or thing may be inspected, or shall otherwise
describe the matter or issue to be resolved, (iii) shall include, if reasonably
requested by a Lender and to the extent not previously provided to such Lender,
written materials and a summary of all oral information provided to the
Administrative Agent by Borrower in respect of the matter
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or issue to be resolved, and (iv) shall include the Administrative Agent's
recommended course of action or determination in respect thereof. Each Lender
shall reply promptly, but in any event (x) within thirty (30) days (or such
lesser period as may be required under the Loan Documents for the Administrative
Agent to respond) for those matters requiring the consent by all Lenders, and
(y) within fifteen (15) Business Days (or such lesser period as may be required
under the Loan Documents for the Administrative Agent to respond) for those
matters requiring the consent by the Required Lenders, in each instance, after
receipt of the request therefore by the Administrative Agent (in either event,
the "LENDER REPLY PERIOD").
(b) Unless a Lender shall give written notice to the Administrative Agent
that it objects to the recommendation or determination of the Administrative
Agent (together with a written explanation of the reasons behind such objection)
within the Lender Reply Period, such Lender shall be deemed to have approved of
or consented to such recommendation or determination.
SECTION 13 MISCELLANEOUS.
13.1 HEADINGS. The headings, captions and arrangements used in any of
the Loan Documents are, unless specified otherwise, for convenience only and
shall not be deemed to limit, amplify or modify the terms of the Loan Documents,
nor affect the meaning thereof.
13.2 NONBUSINESS DAYS; TIME. Any payment or action that is due under any
Loan Document on a non-Business Day may be delayed until the next-succeeding
Business Day (but interest shall continue to accrue on any applicable payment
until payment is in fact made) unless the payment concerns a Eurodollar
Borrowing, in which case if the next-succeeding Business Day is in the next
calendar month, then such payment shall be made on the next-preceding Business
Day.
13.3 COMMUNICATIONS. Unless otherwise specifically provided, whenever
any Loan Document requires or permits any consent, approval, notice, request,
demand or other communication from one party to another, communication must be
in writing (which may be by telex or telecopy) to be effective and shall be
deemed to have been given (a) if by telex, when transmitted to the appropriate
telex number and the appropriate answerback is received, (b) if by telecopy,
when transmitted to the appropriate telecopy number (and all communications sent
by telecopy must be confirmed promptly thereafter by telephone; but any
requirement in this parenthetical shall not affect the date when the telecopy
shall be deemed to have been delivered), (c) if by mail, on the fifth (5th)
Business Day after it is enclosed in an envelope and properly addressed,
stamped, sealed, certified mail, return receipt requested, and deposited in the
appropriate official postal service, or (d) if by any other means, when actually
delivered. Until changed by notice pursuant to this Agreement, the address (and
telecopy number) for each party to a Loan Document is set forth on the attached
SCHEDULE 1.
13.4 FORM AND NUMBER OF DOCUMENTS. The form, substance, and number of
counterparts of each writing to be furnished under this Agreement must be
satisfactory to the Agents and their counsel.
13.5 SURVIVAL. All covenants, agreements, undertakings, representations
and warranties made in any of the Loan Documents survive all closings under the
Loan Documents and, except as otherwise indicated, are not affected by any
investigation made by any party.
13.6 GOVERNING LAW. Except as expressly provided in a Loan Document, the
Governmental Requirements (other than conflict-of-laws provisions) of the State
of Texas and of the United States of America govern the Rights and duties of the
parties to the Loan Documents and the validity, construction, enforcement and
interpretation of the Loan Documents.
42
<PAGE>
13.7 INVALID PROVISIONS. Any provision in any Loan Document held to be
illegal, invalid or unenforceable is fully severable; the appropriate Loan
Document shall be construed and enforced as if that provision had never been
included; and the remaining provisions shall remain in full force and effect and
shall not be affected by the severed provision. The Agents, the Lenders, and
Borrower agree to negotiate, in good faith, the terms of a replacement provision
as similar to the severed provision as may be possible and be legal, valid and
enforceable. However, if the provision held to be illegal, invalid or
unenforceable is a material part of this Agreement, such invalid, illegal or
unenforceable provision shall be, to the extent permitted by applicable law,
replaced by a clause or provision judicially construed and interpreted to be as
similar in substance and content to the original terms of such illegal, invalid
or unenforceable clause or provision as the context thereof would reasonably
allow, so that such clause or provision would thereafter be legal, valid and
enforceable.
13.8 VENUE; SERVICE OF PROCESS; JURY TRIAL. EACH PARTY TO ANY LOAN
DOCUMENT, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS (AND IN THE CASE
OF BORROWER, FOR EACH OF ITS CONSOLIDATED AFFILIATES), (a) IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF
TEXAS, (b) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
LITIGATION ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE
OBLIGATION BROUGHT IN DISTRICT COURTS OF DALLAS COUNTY, TEXAS, OR IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, (c)
IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY OF THE
AFOREMENTIONED COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (d) IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THOSE COURTS IN ANY LITIGATION
BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
POSTAGE PREPAID, BY HAND-DELIVERY, OR BY DELIVERY BY A NATIONALLY RECOGNIZED
COURIER SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL
PROCESS AT ITS ADDRESS SET FORTH IN THIS AGREEMENT, (e) IRREVOCABLY AGREES THAT
ANY LEGAL PROCEEDING AGAINST ANY PARTY TO ANY LOAN DOCUMENT ARISING OUT OF OR IN
CONNECTION WITH THE LOAN DOCUMENTS OR THE OBLIGATION MAY BE BROUGHT IN ONE OF
THE AFOREMENTIONED COURTS, AND (f) IRREVOCABLY WAIVES TO THE FULLEST EXTENT
PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT. The scope of each of the
foregoing waivers is intended to be all-encompassing of any and all disputes
that may be filed in any court and that relate to the subject matter of this
transaction, including contract claims, tort claims, breach of duty claims, and
all other common law and statutory claims. Borrower (for itself and on behalf
of each of its Consolidated Affiliates) acknowledges that these waivers are a
material inducement to the Administrative Agent's and each Lender's agreement to
enter into a business relationship, that the Administrative Agent and each
Lender has already relied on these waivers in entering into this Agreement, and
that the Administrative Agent and each Lender will continue to rely on each of
these waivers in related future dealings. Borrower (for itself and on behalf of
each of its Consolidated Affiliates) further warrants and represents that it has
reviewed these waivers with its legal counsel, and that it knowingly and
voluntarily agrees to each waiver following consultation with legal counsel.
THE WAIVERS IN THIS SECTION 13.8 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THESE WAIVERS SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, SUPPLEMENTS, OR REPLACEMENTS TO OR OF THIS OR ANY OTHER
LOAN DOCUMENT. In the event of Litigation, this Agreement may be filed as a
written consent to a trial by the court.
43
<PAGE>
13.9 AMENDMENTS, CONSENTS, CONFLICTS AND WAIVERS.
(a) REQUIRED LENDERS. Unless otherwise specifically provided (i) the
provisions of this Agreement may be amended, modified, or waived, only by an
instrument in writing executed by Borrower and the Required Lenders and
supplemented only by documents delivered or to be delivered in accordance with
the express terms of this Agreement, and (ii) the Collateral Documents may only
be the subject of an amendment, modification, or waiver that has been approved
by the Administrative Agent and Borrower.
(b) ALL LENDERS. Except as specifically otherwise provided in this
SECTION 13.9, any amendment to or consent or waiver under this Agreement or any
Loan Document that purports to accomplish any of the following must be by an
instrument in writing executed by Borrower and executed (or approved, as the
case may be) by each Lender: (i) extends the due date or decreases the amount of
any scheduled payment or amortization of the Obligation beyond the date
specified in the Loan Documents; (ii) decreases any rate or amount of interest,
fees, or other sums payable to Agents or Lenders under this Agreement (except
such reductions as are contemplated by this Agreement); (iii) changes the
definition of "COMMITMENT," "REQUIRED LENDERS," "PRO RATA PART," or the
percentages in the definition of "BORROWING BASE" and the defined terms used in
determining the Borrowing Base; (iv) increases any one or more Lenders'
Commitment; (v) waives compliance with, amends, or fully or partially releases
any Guaranty; or (vi) changes this CLAUSE (b) or any other matter specifically
requiring the consent of all Lenders under this Agreement.
(c) AGENTS. No amendment, modification, consent or waiver which modifies
the rights, duties, or obligations of any Agent shall be effective without the
consent of such Agent.
(d) CONFLICTS. Any conflict or ambiguity between the terms and
provisions of this Agreement and terms and provisions in any other Loan Document
is controlled by the terms and provisions of this Agreement.
(e) COURSE OF DEALING. No course of dealing or any failure or delay by
any Agent, any Lender, or any of their respective Representatives with respect
to exercising any Right of any Agent or any Lender under this Agreement operates
as a waiver thereof. A waiver must be in writing and signed by the Required
Lenders or the Lenders, as appropriate, to be effective, and a waiver will be
effective only in the specific instance and for the specific purpose for which
it is given.
13.10 MULTIPLE COUNTERPARTS. Any Loan Document may be executed in a
number of identical counterparts, each of which shall be deemed an original for
all purposes and all of which constitute, collectively, one agreement; but, in
making proof of thereof, it shall not be necessary to produce or account for
more than one counterpart. Each Lender need not execute the same counterpart of
this Agreement so long as identical counterparts are executed by Borrower, each
Lender, and each Agent. This Agreement shall become effective when counterparts
of this Agreement have been executed and delivered to the Administrative Agent
by each Lender, each Agent, and Borrower, or, in the case only of the Lenders,
when the Administrative Agent has received telecopied, telexed or other evidence
satisfactory to it that each Lender has executed and is delivering to the
Administrative Agent a counterpart of this Agreement.
13.11 SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) Each Loan Document binds and inures to the benefit of the parties
thereto, any intended beneficiary thereof, and each of their respective
successors and permitted assigns. No Lender may transfer, pledge, assign, sell
any participation in, or otherwise encumber its portion of the Obligation,
except as permitted by this SECTION 13.11.
44
<PAGE>
(b) Subject to the provisions of this section and in accordance with
applicable law, any Lender may, in the ordinary course of its commercial banking
business, at any time sell to one or more Eligible Assignees (each a
"PARTICIPANT") participating interests in its portion of the Obligation;
provided that each such participation is not less than $10,000,000.00. The
selling Lender shall remain a "Lender" under this Agreement (and the Participant
shall not constitute a "Lender" under this Agreement) and its obligations under
this Agreement shall remain unchanged. The selling Lender shall remain solely
responsible for the performance of its obligations under the Loan Documents and
shall remain the holder of its share of the Principal Debt for all purposes
under this Agreement. Borrower and the Administrative Agent shall continue to
deal solely and directly with the selling Lender in connection with such
Lender's Rights and obligations under the Loan Documents. Participants have no
Rights under the Loan Documents, other than certain voting Rights as provided
below. Subject to the following, each Lender may obtain (on behalf of its
Participants) the benefits of SECTION 3 with respect to all participations in
its part of the Obligation outstanding from time-to-time so long as Borrower is
not obligated to pay any amount in excess of the amount that would be due to
such Lender under SECTION 3 calculated as though no participations have been
made. No Lender may sell any participating interest under which the Participant
has any Rights to approve any amendment, modification or waiver of any Loan
Document, except to the extent the amendment, modification or waiver extends the
due date for payment of any principal, interest or fees due under the Loan
Documents, reduces the interest rate or the amount of principal or fees
applicable to the Obligation (except reductions contemplated by this Agreement),
or releases any guaranty or collateral, if any, for the Obligation. However, if
a Participant is entitled to the benefits of SECTION 3 or a Lender grants Rights
to its Participants to approve amendments to or waivers of the Loan Documents
respecting the matters described in the previous sentence, then such Lender must
include a voting mechanism in the relevant participation agreement whereby a
majority of its portion of the Obligation (whether held by it or participated)
shall control the vote for all of such Lender's portion of the Obligation.
Except in the case of the sale of a participating interest to another Lender,
the relevant participation agreement shall prohibit the Participant from
transferring, pledging, assigning, selling participations in, or otherwise
encumbering its portion of the Obligation.
(c) Subject to the provisions of this section, any Lender having a
Commitment equal to or greater than $15,000,000.00, or if the Total Commitments
have been terminated, then Notes having outstanding Principal Debt equal to or
greater than $15,000,000.00, may at any time, in the ordinary course of its
commercial banking business, (i) without the consent of Borrower or the Agents,
assign all or any part of its Rights and obligations under the Loan Documents to
any of its Affiliates (each a "PURCHASER"), and (ii) upon the prior written
consent of the Agents, and so long as no Default or Potential Default exists,
Borrower, such consents not to be unreasonably withheld, assign to any Eligible
Assignee (each of which is also a "PURCHASER") a proportionate part (not less
than $15,000,000.00 and an integral multiple of $1,000,000.00) of all or any
part of its Rights and obligations under the Loan Documents; provided that
unless the Lender granting such assignment is assigning all of its Commitments
and Notes hereunder, after giving effect to such assignment, the Lender granting
such assignment shall retain a Commitment of at least $15,000,000.00, or if the
Total Commitments have been terminated, then Notes having outstanding Principal
Debt of at least $15,000,000.00. Notwithstanding the foregoing, each Agent
shall, at all times prior to its resignation or replacement as an Agent
hereunder, retain a minimum Commitment of $25,000,000.00, or if the Total
Commitments have been terminated, then Notes having outstanding Principal Debt
of at least $25,000,000.00. In each case, the Purchaser shall assume those
Rights and obligations under an assignment agreement substantially in the form
of the attached EXHIBIT E. Upon (i) delivery of an executed copy of the
assignment agreement to Borrower and the Administrative Agent and (ii) payment
of a fee of $3,000.00 from the transferor to the Administrative Agent, from and
after the assignment's effective date (which shall be after the date of
delivery), the Purchaser shall for all purposes be a Lender party to this
Agreement and shall have all the Rights and obligations of a Lender under this
Agreement to the same extent as if it were an original party to this Agreement
with commitments as set forth in the assignment agreement, and the transferor
Lender shall be released from its obligations under this Agreement to a
corresponding extent, and, except as provided in the following sentence, no
further consent or action by Borrower, the Lenders or the Administrative Agent
45
<PAGE>
shall be required. Upon the consummation of any transfer to a Purchaser under
this CLAUSE (c), the then-existing SCHEDULE 1 shall automatically be deemed to
reflect the name, address, and Commitment of such Purchaser, the Administrative
Agent shall deliver to Borrower and the Lenders an amended SCHEDULE 1 reflecting
those changes, Borrower shall execute and deliver to each of the transferor
Lender and the Purchaser a Note in the face amount of its respective Commitment
following transfer, and, upon receipt of its new Note, the transferor Lender
shall return to Borrower the Note previously delivered to it under this
Agreement. A Purchaser is subject to all the provisions in this SECTION as if it
were a Lender signatory to this Agreement as of the date of this Agreement.
(d) Any Lender may at any time, without the consent of Borrower or the
Administrative Agent, assign all or any part of its Rights under the Loan
Documents to a Federal Reserve Bank without releasing the transferor Lender from
its obligations thereunder.
(e) Until the date which is three (3) months following the Closing Date
each Agent shall identify and solicit prospective Purchasers or Participants to
be assignees of or participants in the Rights and obligations of each Agent
under this Agreement (in such capacity, "SYNDICATING LENDERS") in an amount of
up to $50,000,000.00. During such three (3) month period, the Syndicating
Lenders shall (i) not solicit or enter into any such assignment or participation
except as provided in this SECTION 13.11(e), and (ii) refer each prospective
Purchaser or Participant that expresses an interest in purchasing or acquiring
any such assignment or participation to the other Syndicating Lender. Each
Syndicating Lender, upon identifying any prospective Purchaser or Participant
desiring to be an assignee of or participant in any portion of the Rights and
obligations of the Syndicating Lenders under this Agreement, shall deliver
written notice to the other Syndicating Lender of the terms of such transaction
("PROPOSED SYNDICATION TRANSACTION"). Each Syndicating Lender shall have the
right to participate in such Proposed Syndication Transaction on the terms set
forth in such notice by so notifying the other Syndicating Lender within five
(5) days of receiving such notice. The assignment or participation effected by
such Proposed Syndication Transaction shall be allotted equally to each
participating Syndicating Lender. Notwithstanding anything contained to the
contrary in SECTION 13.11(c), the aggregate assignments to a Purchaser by the
Syndicating Lenders shall be in an aggregate amount of not less $15,000,000.00
or a greater integral multiple of $1,000,000.00.
(f) No Lender may assign or participate all or any portion of its Rights
or obligations under this Agreement to any Company or any Affiliate of any
Company.
(g) Borrower acknowledges that the Syndicating Lenders may use their
Affiliates (other than a real estate development or management company) (and in
the case of the Documentation Agent, may use NationsBanc Capital Markets, Inc.)
to assist in the syndication of their Rights and obligations under this
Agreement. Borrower acknowledges and consents that the Syndicating Lenders may
share information relating to Borrower, Guarantor, and the other Companies or
the transactions contemplated hereby with their respective Affiliates (other
than a real estate development or management company), and that such Affiliates
may likewise share information relating to Borrower, Guarantor, and the other
Companies or such transactions with the Syndicating Lenders.
13.12 DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. Borrower's obligations under the Loan Documents remain in full
force and effect until the Total Commitment is terminated and the Obligation is
paid in full (except for provisions under the Loan Documents which by their
terms expressly survive payment of the Obligation and termination of the Loan
Documents). If at any time any payment of the principal of or interest on any
Note or any other amount payable by Borrower or any other obligor on the
Obligation under any Loan Document is rescinded or must be restored or returned
upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, the
obligations of Borrower under the Loan Documents with respect to that payment
shall be reinstated as though the payment had been due but not made at that
time.
46
<PAGE>
13.13 ENTIRETY. THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
(EACH AS AMENDED IN WRITING FROM TIME-TO-TIME) EXECUTED BY BORROWER, ANY LENDER
OR ANY AGENT REPRESENT THE FINAL AGREEMENT AMONG BORROWER, THE LENDERS AND
AGENTS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
13.14 EFFECTIVENESS. This Agreement is executed on October 17, 1996,
but shall not be effective until executed by all parties hereto and delivered to
and accepted by the Administrative Agent, and the other conditions set forth in
SECTION 5 have been satisfied or waived by the Lenders in writing.
[Remainder of Page Intentionally Left Blank;
Signature Page Follows.]
47
<PAGE>
SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF OCTOBER 17, 1996
BETWEEN PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
BANK ONE, TEXAS, N.A., AS ADMINISTRATIVE AGENT,
NATIONSBANK OF TEXAS, N.A., AS DOCUMENTATION AGENT,
AND THE LENDERS DEFINED THEREIN
EXECUTED as of the day and year first mentioned.
PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.
a Delaware limited partnership,
as Borrower
By: PRENTISS PROPERTIES I, INC.,
General Partner
By:
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
48
<PAGE>
SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF OCTOBER 17, 1996
BETWEEN PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
BANK ONE, TEXAS, N.A., AS ADMINISTRATIVE AGENT,
NATIONSBANK OF TEXAS, N.A., AS DOCUMENTATION AGENT,
AND THE LENDERS DEFINED THEREIN
BANK ONE, TEXAS, N.A.,
as the Administrative Agent and a Lender
By:
-----------------------------------------------
Roderick Washington
Vice President
49
<PAGE>
SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF OCTOBER 17, 1996
BETWEEN PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
BANK ONE, TEXAS, N.A., AS ADMINISTRATIVE AGENT,
NATIONSBANK OF TEXAS, N.A., AS DOCUMENTATION AGENT,
AND THE LENDERS DEFINED THEREIN
NATIONSBANK OF TEXAS, N.A.,
as the Documentation Agent and a Lender
By:
----------------------------------------------
John B. Lamb
Senior Vice President
50
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SCHEDULE 1
PARTIES, ADDRESSES, COMMITMENTS AND WIRING INFORMATION
<TABLE>
<S> <C> <C>
================================================================================
BORROWER
================================================================================
Prentiss Properties Acquisition
Partners, L.P.
Until October 28, 1996:
1717 Main Street, Suite 5000
Dallas, Texas 75201
Attention: Mr. Michael V. Prentiss /
Mr. Mark Doran
From and after October 28, 1996:
3890 W. Northwest Highway, Suite 400
Dallas, Texas 75220
Attention: Mr. Michael V. Prentiss /
Mr. Mark Doran
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, Esq.
================================================================================
ADMINISTRATIVE AGENT
================================================================================
Bank One, Texas, N.A.
1717 Main Street
Dallas, Texas 75201
Attention: Mr. Roderick Washington
Vice President
Fax: (214) 290-2275
Wiring Instructions:
Bank One, Texas, N.A.
ABA No. 111000614
Reference: Prentiss Properties
Acquisition Partners, L.P.
Attention: Ms. Elaine Smith (214)
290-2675
================================================================================
DOCUMENTATION AGENT
================================================================================
NationsBank of Texas, N.A.
901 Main Street, 51st Floor
Dallas, Texas 75283-1000
</TABLE>
Page 1
<PAGE>
================================================================================
<TABLE>
<S> <C> <C>
Attn: Mr. Robert H. Shore
Assistant Vice President
Fax: (214) 508-1571
Wiring Instructions:
NationsBank of Texas, N.A.
ABA # 111000025
Corporate Loans FTA 129-2000-883
Reference: Prentiss Properties
Acquisition Partners, L.P.
Attention: Betty Bowers (214) 508-1552
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Pro Rata Part of the
LENDERS Commitment Commitment
================================================================================
<S> <C> <C>
Bank One, Texas, N.A. $50,000,000.00 50%
1717 Main Street
Dallas, Texas 75201
Attention: Mr. Roderick Washington
Vice President
Fax: (214) 290-2275
Wiring Instructions:
Bank One, Texas, N.A.
ABA No. 111000614
Reference: Prentiss Properties
Acquisition Partners, L.P.
Attention: Ms. Elaine Smith (214)
290-2675
================================================================================
NationsBank of Texas, N.A. $50,000,000.00 50%
901 Main Street, 51st Floor
P.O. Box 831000
Dallas, Texas 75283-1000
Attn: Mr. Robert H. Shore
Assistant Vice President
Fax: (214) 508-1571
Wiring Instructions:
NationsBank of Texas, N.A.
ABA # 111000025
Corporate Loans FTA 129-2000-883
Reference: Prentiss Properties
Acquisition Partners, L.P.
Attention: Betty Bowers (214) 508-1552
================================================================================
Total Commitments 100,000,000 100%
================================================================================
</TABLE>
Page 2
<PAGE>
SCHEDULE 2
PROJECTS ADMITTED INTO BORROWING BASE
- --------------------------------------------------------------------------------
PROJECT APPROVED APPRAISED SQUARE OCCUPANCY ADJUSTED NET
COST VALUE FOOTAGE RATE OPERATING
INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 3
<PAGE>
SCHEDULE 5
CLOSING DOCUMENTS
1. Credit Agreement.
2. Promissory Notes.
3. Guaranty.
4. Agents' fee letter.
5. Opinion of Borrower's and Guarantor's counsel acceptable to the Agents.
6. Officer's Certificate of Borrower certifying (i) the truth and accuracy of
all of the representations and warranties contained in the Loan Documents
in all material respects (except to the extent that they speak to a
specific date or are based on facts which have changed by transactions
expressly contemplated or permitted by the Credit Agreement), and (ii) that
no event has occurred and is continuing which constitutes a Potential
Default or a Default.
7. Resolutions of Borrower, Guarantor, and each Obligor approving the
execution, delivery, and performance of the Loan Documents and the
transactions contemplated therein, duly adopted by Borrower's and each
Obligor's Partners and Guarantor's Trustees and accompanied by a
certificate of the Secretaries of Borrower, Guarantor, and each Obligor
stating that such resolutions are true and correct, have not been altered
or repealed and are in full force and effect.
8. Incumbency Certificate of Borrower, Guarantor, and each Obligor certifying
the names and signatures of the officers of (a) Borrower and Guarantor
authorized to sign each of the Loan Documents, and (b) each Obligor
authorized to sign each of the Collateral Documents to which it is a party.
9. Certificates of organization, formation, existence, and good standing for
Borrower, Guarantor, and each Obligor issued by the state of organization
or formation, and certificates of qualification and good standing for
Borrower, Guarantor, and each Obligor issued by each of the states wherein
Borrower, Guarantor, and each Obligor are qualified to do business as a
foreign trust, corporation, partnership, or entity.
10. A copy of the certificate of organization, declaration of trust,
partnership agreement, or other similar organizational documents of
Borrower, Guarantor, and each Obligor and all amendments thereto, certified
by the state of formation and a copy of the partnership agreement, bylaws,
and other similar governing documents of Borrower, Guarantor, and each
Obligor and all amendments thereto, certified by an authorized officer of
each of Borrower, Guarantor, and the Obligors as being true, correct and
complete as the date of certification.
11. Such other information as the Agents shall reasonably request.
Page 4
<PAGE>
SCHEDULE 6.2
JURISDICTIONS OF FORMATION, BUSINESS AND JURISDICTIONS
======================================================
COMPANY INCORPORATED/ QUALIFIED TO
FORMED DO BUSINESS
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Page 5
<PAGE>
SCHEDULE 6.7
LITIGATION
None
Page 6
<PAGE>
SCHEDULE 6.9
ENVIRONMENTAL MATTERS
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, and 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 the
EPA will promulgate the proposed listing of the Plant Site Affected Area. In
addition, PGC is located about one block east of an existing 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 or on behalf of 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 in 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 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 PGC 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
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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 into 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.
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SCHEDULE 6.12
CHIEF EXECUTIVE OFFICE
Prentiss Properties Acquisition Partners, L.P.
1717 Main Street
Suite 5000
Dallas, Texas 75201
From and after October 28, 1996:
3890 W. Northwest Highway
Suite 400
Dallas, Texas 75220
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SCHEDULE 6.14
AFFILIATE TRANSACTIONS
None
Page 10
<PAGE>
EXHIBIT A
BORROWING OR CONVERSION REQUEST
1. Submission Pursuant To Credit Agreement. This Borrowing Request is
---------------------------------------
executed and delivered by Prentiss Properties Acquisition Partners, L.P., a
Delaware limited partnership ("BORROWER"), to Bank One, Texas, N.A., as
Administrative Agent (the "ADMINISTRATIVE AGENT"), pursuant to SECTION 2.2 of
the Credit Agreement dated as of October 17, 1996, between Borrower, the
Administrative Agent, NationsBank of Texas, N.A., as Documentation Agent, and
the Lenders defined therein (the "AGREEMENT"). Any capitalized terms used and
not defined herein shall have the meanings assigned to them in the Agreement.
2. Request For Borrowing. Borrower hereby requests that Lenders make a
---------------------
Borrowing to Borrower pursuant to the Agreement as follows:
A. BASE RATE BORROWING.
(i) Amount of Base Rate Borrowing: ______________________________
(Minimum of $1,000,000, or to the nearest $100,000.00
increment in excess thereof).
/_/ Borrowing
/_/ Rollover/Conversion
(ii) Date of Borrowing or Rollover/Conversion of Existing
Borrowing: .
B. EURODOLLAR BORROWING.
(i) Amount of Eurodollar Borrowing: __________________________
(Minimum of $1,000,000.00, or to the nearest $100,000.00
increments in excess thereof).
/_/ Borrowing
/_/ Rollover/Conversion
(ii) Date of Borrowing or Rollover/Conversion of Existing
Borrowing: .
(iii) Interest Period: _________ day/months (one, two, three, or
six months).
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3. Representations, Warranties and Certifications. Borrower hereby
----------------------------------------------
represents, warrants, and certifies to the Administrative Agent and the Lenders
that, as of the date of the Borrowing requested herein:
(a) There exists no Default or Potential Default.
(b) Borrower has performed and complied with all agreements and
conditions contained in the Agreement that are required to be
performed or complied with by Borrower.
(c) The representations and warranties of a continuing nature
contained in the Agreement and each of the other Loan Documents
are true and correct in all material respects (except to the
extent that they speak to a specific date or are based on facts
which have changed by transactions expressly contemplated or
permitted by the Credit Agreement), with the same force and
effect as though made on and as of the date of the Borrowing.
4. Proceeds of Borrowing. The Administrative Agent is authorized to
---------------------
deposit the proceeds of the Borrowing requested hereby, other than a Borrowing
constituting a rollover or conversion of an existing Borrowing, to:_____________
5. Execution Authorized. This Borrowing Request is executed on
--------------------
___________________, 19___, by a Responsible Officer. The undersigned, in such
capacity, hereby certifies each and every matter contained herein to be true and
correct.
of
Prentiss Properties Acquisition Partners, L.P.,
a Delaware limited partnership
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EXHIBIT B
COMPLIANCE CERTIFICATE
Under Credit Agreement dated as of October 17, 1996,
between Prentiss Properties Acquisition Partners, L.P.,
Bank One, Texas, N.A., as Administrative Agent,
NationsBank of Texas, N.A., as Documentation Agent, and
the Lenders defined therein (the "CREDIT AGREEMENT")
The undersigned, as _______________________________________________ of
Prentiss Properties Acquisition Partners, L.P. ("BORROWER"), pursuant to SECTION
7.1 of the Credit Agreement, hereby, certifies to Bank One, Texas, N.A., as
Administrative Agent as follows:
1. A review of the activities of Borrower during the most recently ended
fiscal quarter of Borrower has been made under my supervision.
2. As of the date hereof, all of the representations and warranties of
Borrower contained in the Credit Agreement and each of the Loan Documents (as
defined in the Credit Agreement) are true and correct in all material respects
(except to the extent that they speak to a specific date or are based on facts
which have changed by transactions expressly contemplated or permitted by the
Credit Agreement).
3. No event has occurred and is continuing which constitutes a Default or
a Potential Default.
4. The following covenant computations, together with the supporting
scheduled attached hereto, are true and correct:
A. TANGIBLE NET WORTH.
Actual: $______________
Minimum Required: $250,000,000.00
B. LEVERAGE RATIO.
Actual:
Total Indebtedness $______________(1)
Tangible Net Worth $______________(2)
Ratio of (1) to (2):
Maximum: 1.0 to 1.0
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<PAGE>
C. INTEREST EXPENSE COVERAGE RATIO.
EBITDA $ ______________(1)
Interest Expense $ ______________(2)
Ratio of (1) to (2): ______________
Minimum Required: 2.25 to 1.0
D. DEBT SERVICE COVERAGE RATIO.
EBITDA $ ______________
Minus: Capital Expenditures
Subtotal ______________(1)
Debt Service ______________(2)
Ratio of (1) to (2): ______________
Minimum Required: 1.75 to 1.0
E. DISTRIBUTIONS.
(i) Borrower:
Funds from Operations $_____________(1)
Distributions $_____________(2)
Percent (2)
divided by (1) _____________
(ii) Guarantor:
Funds from Operations $_____________(1)
Distributions $_____________(2)
Percent (2)
divided by (1) _____________
Date: ____________
__________________________________________________
of
Prentiss Properties Acquisition Partners, L.P.,
a Delaware limited partnership
Page 14
<PAGE>
EXHIBIT C
FORM OF GUARANTY
UNCONDITIONAL GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT is executed as of October 17, 1996, by PRENTISS
PROPERTIES TRUST, a Maryland real estate investment trust ("GUARANTOR") for the
benefit of the Loan Parties defined below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Prentiss Properties Acquisition Partners, L.P., a Delaware limited
partnership ("BORROWER"), may from time-to-time be indebted to the Loan Parties
pursuant to that certain Credit Agreement dated of even date herewith (herein
referred to, together with all amendments, modifications, or supplements
thereof, as the "CREDIT AGREEMENT"), by and between Borrower, each of the
Lenders that are parties thereto (the "LENDERS"), Bank One, Texas, N.A., a
national banking association (the "ADMINISTRATIVE AGENT"), as Administrative
Agent for the Lenders, and NationsBank of Texas, N.A., a national banking
association (the "DOCUMENTATION AGENT"), as Documentation Agent for the Lenders
(the Lenders, the Administrative Agent, and the Documentation Agent, together
with their respective successors and assigns are herein called the "LOAN
PARTIES");
WHEREAS, capitalized terms used herein shall, unless otherwise indicated,
have the respective meanings set forth in the Credit Agreement;
WHEREAS, the Loan Parties are not willing to make loans under the Credit
Agreement or otherwise extend credit to Borrower unless Guarantor
unconditionally guarantees payment of all present and future indebtedness and
obligations of Borrower to the Loan Parties under the Credit Agreement and the
Loan Documents; and
WHEREAS, Guarantor will benefit from the Loan Parties' extension of credit
to Borrower;
NOW, THEREFORE, as an inducement to the Loan Parties to enter into the
Credit Agreement and to make loans to Borrower thereunder, and to extend such
credit to Borrower as the Loan Parties may from time-to-time agree to extend,
and for other good and valuable consideration, the receipt and legal sufficiency
of which are hereby acknowledged, Guarantor hereby guarantees payment of the
Guaranteed Debt (hereinafter defined) as more specifically described hereinbelow
in SECTION 1.03 and hereby agrees as follows:
ARTICLE ___
NATURE AND SCOPE OF GUARANTY
SECTION 1.01. DEFINITION OF GUARANTEED DEBT. As used herein, the term
"GUARANTEED DEBT" means:
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(a) All principal, interest, fees, reasonable attorneys' fees, commitment
fees, liabilities for costs and expenses, and other indebtedness, obligations,
and liabilities of Borrower to the Loan Parties at any time created or arising
in connection with the Credit Agreement, or any amendment thereto or
substitution therefor, including, but not limited to, all indebtedness,
obligations and liabilities of Borrower to the Loan Parties arising under the
Notes and under the other Loan Documents; and
(b) All costs, expenses and fees, including, but not limited to court costs
and reasonable attorneys' fees, arising in connection with the collection of any
or all amounts, indebtedness, obligations and liabilities of Borrower to the
Loan Parties described in ITEM (A) of this SECTION 1.01.
SECTION 1.02. GUARANTEED DEBT NOT REDUCED BY OFFSET. The indebtedness,
liabilities, obligations, and other Guaranteed Debt guaranteed hereby, and the
liabilities and obligations of Guarantor to the Loan Parties hereunder, shall
not be reduced, discharged, or released because or by reason of any existing or
future offset, claim, or defense of Borrower, or any other party, against any
Loan Party or against payment of the Guaranteed Debt, whether such offset, claim
or defense arises in connection with the Guaranteed Debt (or the transactions
creating the Guaranteed Debt) or otherwise. Without limiting the foregoing or
Guarantor's liability hereunder, to the extent that any Loan Party advances
funds or extends credit to Borrower, and does not receive payments or benefits
thereon in the amounts and at the times required or provided by applicable
agreements or laws, Guarantor is absolutely liable to make such payments to (and
confer such benefits on) such Loan Party, on a timely basis.
SECTION 1.03. GUARANTY OF OBLIGATION. Guarantor hereby irrevocably and
unconditionally guarantees to the Loan Parties (a) the due and punctual payment
of the Guaranteed Debt, and (b) the timely performance of all other obligations
now or hereafter owed by Borrower to the Loan Parties under the Credit
Agreement. Guarantor hereby irrevocably and unconditionally covenants and
agrees that it is liable for the Guaranteed Debt as primary obligor.
SECTION 1.04. NATURE OF GUARANTY. This Guaranty Agreement is intended to be
an irrevocable, absolute, continuing guaranty of payment and is not a guaranty
of collection. This Guaranty Agreement may not be revoked by Guarantor;
provided, however, if, according to applicable law, it shall ever be determined
or held that a guarantor under a continuing guaranty such as this Guaranty
Agreement shall have the absolute right, notwithstanding the express agreement
of such a guarantor otherwise, to revoke such guaranty as to Guaranteed Debt
which has then not yet arisen, then Guarantor may deliver to the Administrative
Agent written notice, in addition to giving such notice as provided in SECTION
5.02 hereof, that Guarantor will not be liable hereunder for any Guaranteed Debt
created, incurred, or arising after the giving of such notice, and such notice
will be effective as to Guarantor from and after (but not before) such times as
said written notice is actually delivered to, in addition to giving such notice
as provided in SECTION 5.02 hereof, and received by and receipted for in writing
by the Administrative Agent; provided that such notice shall not in anywise
affect, impair, or limit the liability and responsibility of any other person or
entity with respect to any Guaranteed Debt theretofore existing or thereafter
existing, arising, renewed, extended, or modified; provided, further, that such
notice shall not affect, impair, or release the liability and responsibility of
Guarantor with respect to Guaranteed Debt created, incurred, or arising (or in
respect of any Guaranteed Debt agreed or contemplated, in any respect, to be
created, whether advanced or not and whether committed to by the Loan Parties or
not, including, without limitation, any discretionary advances or extensions of
credit which may be made by any Loan Party at its option in the future under any
type of loan or credit agreement, arrangement or undertaking) prior to the
receipt of such notice by the Administrative Agent as aforesaid, or in respect
of any renewals, extensions, or modifications of such
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Guaranteed Debt, or in respect of interest or costs of collection thereafter
accruing on or with respect to such Guaranteed Debt, or with respect to
attorneys' fees thereafter becoming payable hereunder with respect to such
Guaranteed Debt, and shall continue to be effective with respect to any
Guaranteed Debt arising or created after any attempted revocation by Guarantor.
The fact that at any time or from time-to-time the Guaranteed Debt may be
increased, reduced, or paid in full shall not release, discharge, or reduce the
obligation of Guarantor with respect to indebtedness or obligations of Borrower
to the Loan Parties thereafter incurred (or other Guaranteed Debt thereafter
arising) under the Credit Agreement, the Notes, or otherwise. This Guaranty
Agreement may be enforced by the Loan Parties and any subsequent holder of the
Guaranteed Debt and shall not be discharged by the assignment or negotiation of
all or part of the Guaranteed Debt.
SECTION 1.05. PAYMENT BY GUARANTOR. If all or any part of the Guaranteed
Debt shall not be punctually paid when due, whether at maturity or earlier by
acceleration or otherwise, then Guarantor shall, immediately upon demand by the
Administrative Agent, and without presentment, protest, notice of protest,
notice of nonpayment, notice of intention to accelerate or acceleration, or any
other notice whatsoever, pay in lawful money of the United States of America,
the amount due on the Guaranteed Debt to the Administrative Agent, for the
benefit of the Loan Parties, at the Administrative Agent's principal office in
Dallas, Texas. Such demand(s) may be made at any time coincident with or after
the time for payment of all or part of the Guaranteed Debt, and may be made from
time-to-time with respect to the same or different items of Guaranteed Debt.
Such demand shall be deemed made, given and received in accordance with SECTION
5.02 hereof.
SECTION 1.06. PAYMENT OF EXPENSES. In the event that Guarantor should
breach or fail to timely perform any provisions of this Guaranty Agreement, then
Guarantor shall, immediately upon demand by the Administrative Agent, pay to the
Administrative Agent, for the benefit of the Loan Parties, all costs and
expenses (including court costs and reasonable attorneys' fees) incurred by the
Loan Parties in the enforcement hereof or the preservation of the Loan Parties'
rights hereunder. The covenant contained in this SECTION 1.06 shall survive the
payment of the Guaranteed Debt.
SECTION 1.07. NO DUTY TO PURSUE OTHERS. It shall not be necessary for any
Loan Party (and Guarantor hereby waives any rights which Guarantor may have to
require any Loan Party), in order to enforce such payment by Guarantor, first to
(a) institute suit or exhaust its remedies against Borrower or others liable on
the Guaranteed Debt or any other person, (b) enforce the Loan Parties' rights
against any security which shall ever have been given to secure the Guaranteed
Debt, (c) enforce the Loan Parties's rights against any other guarantors of the
Guaranteed Debt, (d) join Borrower or any others liable on the Guaranteed Debt
in any action seeking to enforce this Guaranty Agreement, (e) exhaust any
remedies available to the Loan Parties against any security which shall ever
have been given to secure the Guaranteed Debt, or (e) resort to any other means
of obtaining payment of the Guaranteed Debt. The Loan Parties shall not be
required to mitigate damages or take any other action to reduce, collect, or
enforce the Guaranteed Debt. Further, Guarantor expressly waives each and every
right to which it may be entitled by virtue of the suretyship law of the State
of Texas, including without limitation, any rights pursuant to Rule 31, Texas
Rules of Civil Procedure, Articles 1986 and 1987, Revised Civil Statutes of
Texas and Chapter 34 of the Texas Business and Commerce Code.
SECTION 1.08. WAIVER OF NOTICES, ETC. Guarantor agrees to the provisions of
the Credit Agreement, the Notes, and the other Loan Documents, and hereby waives
notice of (a) any loans or advances made by any Loan Party to Borrower, (b)
acceptance of this Guaranty Agreement, (c) any
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amendment or extension of the Credit Agreement, the Notes, the other Loan
Documents, or any other instrument or document pertaining to all or any part of
the Guaranteed Debt, (d) the execution and delivery by Borrower and any Loan
Party of any other loan or credit agreement or of Borrower's execution and
delivery of any promissory notes or other documents in connection therewith, (e)
the occurrence of any Default or Potential Default, (f) any Loan Party's
transfer or disposition of the Guaranteed Debt, or any part thereof, (g) sale or
foreclosure (or posting or advertising for sale or foreclosure) of any
collateral for the Guaranteed Debt, (h) protest, proof of nonpayment, or default
by Borrower, or (i) any other action at any time taken or omitted by any Loan
Party, and, generally, all demands and notices of every kind in connection with
this Guaranty Agreement, the Credit Agreement, the Notes, the other Loan
Documents, and any documents or agreements evidencing, securing or relating to
any of the Guaranteed Debt and the obligations hereby guaranteed.
SECTION 1.09. EFFECT OF BANKRUPTCY, OTHER MATTERS. In the event that,
pursuant to any insolvency, bankruptcy, reorganization, receivership, or other
debtor relief law, or any judgment, order, or decision thereunder, or for any
other reason, (a) any Loan Party must rescind or restore any payment, or any
part thereof, received by such Loan Party in satisfaction of the Guaranteed
Debt, as set forth herein, any prior release or discharge from the terms of this
Guaranty Agreement given to Guarantor by such Loan Party shall be without
effect, and this Guaranty Agreement shall remain in full force and effect, (b)
Borrower shall cease to be liable to the Loan Parties for any of the Guaranteed
Debt (other than by reason of the indefeasible payment in full thereof by
Borrower), the obligations of Guarantor under this Guaranty Agreement shall
remain in full force and effect. It is the intention of the Loan Parties and
Guarantor that Guarantor's obligations hereunder shall not be discharged except
by Guarantor's performance of such obligations and then only to the extent of
such performance. Without limiting the generality of the foregoing, it is the
intention of the Loan Parties and Guarantor that the filing of any bankruptcy or
similar proceeding by or against Borrower or any other person or party obligated
on any portion of the Guaranteed Debt shall not affect the obligations of
Guarantor under this Guaranty Agreement or the rights of the Loan Parties under
this Guaranty Agreement, including, without limitation, the right or ability of
the Loan Parties to pursue or institute suit against Guarantor for the entire
Guaranteed Debt.
ARTICLE II
ADDITIONAL EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR'S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following, and agrees
that Guarantor's obligations under this Guaranty Agreement shall not be
released, diminished, impaired, reduced, or adversely affected by any of the
following, and waives any common law, equitable, statutory or other rights
(including without limitation rights to notice) which Guarantor might otherwise
have as a result of or in connection with any of the following:
SECTION 2.01. MODIFICATIONS, ETC. Any renewal, extension, increase,
modification, alteration, or rearrangement of all or any part of the Guaranteed
Debt, or of the Credit Agreement, the Notes, or any other Loan Document;
SECTION 2.02. ADJUSTMENT, ETC. Any adjustment, indulgence, forbearance,
or compromise that might be granted or given by any Loan Party to Borrower or
Guarantor;
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SECTION 2.03. CONDITION, COMPOSITION OR STRUCTURE OF BORROWER OR GUARANTOR.
The insolvency, bankruptcy, arrangement, adjustment, composition, structure,
liquidation, disability, dissolution, or lack of power of Borrower or any other
party at any time liable for the payment of all or part of the Guaranteed Debt;
or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of
any or all of the assets of Borrower or Guarantor, or any changes in name,
business, location, composition, structure, or changes in the shareholders,
partners, or members (whether by accession, secession, cessation, death,
dissolution, transfer of assets, or other matter) of Borrower or Guarantor; or
any reorganization of Borrower or Guarantor;
SECTION 2.04. INVALIDITY OF GUARANTEED DEBT. The invalidity, illegality,
or unenforceability of all or any part of the Guaranteed Debt, or any document
or agreement executed in connection with the Guaranteed Debt, for any reason
whatsoever, including without limitation the fact that (a) the Guaranteed Debt,
or any part thereof, exceeds the amount permitted by law, (b) the act of
creating the Guaranteed Debt or any part thereof is ultra vires, (c) the
officers or representatives executing the Credit Agreement, the Notes, the other
Loan Documents, or other documents or otherwise creating the Guaranteed Debt
acted in excess of their authority, (d) the Guaranteed Debt violates applicable
usury laws, (e) Borrower has valid defenses, claims, or offsets (whether at law,
in equity, or by agreement) which render the Guaranteed Debt wholly or partially
uncollectible from Borrower, (f) the creation, performance, or repayment of the
Guaranteed Debt (or the execution, delivery, and performance of any document or
instrument representing part of the Guaranteed Debt or executed in connection
with the Guaranteed Debt, or given to secure the repayment of the Guaranteed
Debt) is illegal, uncollectible, or unenforceable, or (g) the Credit Agreement,
the Notes, the other Loan Documents, or other documents or instruments
pertaining to the Guaranteed Debt have been forged or otherwise are irregular or
not genuine or authentic.
SECTION 2.05. RELEASE OF OBLIGORS. Any full or partial release of the
liability of Borrower on the Guaranteed Debt or any part thereof, or of any co-
guarantors, or any other person or entity now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to pay,
perform, guarantee, or assure the payment of the Guaranteed Debt or any part
thereof, it being recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Guaranteed Debt in full without assistance
or support of any other party, and Guarantor has not been induced to enter into
this Guaranty Agreement on the basis of a contemplation, belief, understanding,
or agreement that other parties will be liable to perform the Guaranteed Debt,
or that the Loan Parties will look to other parties to perform the Guaranteed
Debt; notwithstanding the foregoing, Guarantor does not hereby waive or release
(expressly or impliedly) any rights of subrogation, reimbursement, or
contribution which it may have, after payment in full of the Guaranteed Debt,
against others liable on the Guaranteed Debt; Guarantor's rights of subrogation
and reimbursement are, however, subordinate to the rights and claims of the Loan
Parties;
SECTION 2.06. OTHER SECURITY. The taking or accepting of any other
security, collateral, or guaranty, or other assurance of payment, for all or any
part of the Guaranteed Debt;
SECTION 2.07. RELEASE OF COLLATERAL, ETC. Any release, surrender,
exchange, subordination, deterioration, waste, loss, or impairment (including
without limitation negligent, willful, unreasonable, or unjustifiable
impairment) of any collateral, property, or security, at any time existing in
connection with, or assuring or securing payment of, all or any part of the
Guaranteed Debt;
SECTION 2.08. CARE AND DILIGENCE. The failure of any Loan Party or any
other party to exercise
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diligence or reasonable care or act, fail to act, or comply with any duty in the
administration, preservation, protection, enforcement, sale application,
disposal, or other handling or treatment of all or any part of Guaranteed Debt
or any collateral, property, or security at any time securing any portion
thereof, including, without limiting the generality of the foregoing, the
failure to conduct any foreclosure or other remedy fairly, in a commercially
reasonable manner, or in such a way so as to obtain the best possible price or a
favorable price or otherwise act or fail to act;
SECTION 2.09. STATUS OF LIENS. The fact that any collateral, security,
security interest, or lien contemplated or intended to be given, created, or
granted as security for the repayment of the Guaranteed Debt shall not be
properly perfected or created, or shall prove to be unenforceable or subordinate
to any other security interest or lien, it being recognized and agreed by
Guarantor that Guarantor is not entering into this Guaranty Agreement in
reliance on, or in contemplation of the benefits of, the validity,
enforceability, collectibility, or value of any of the collateral for the
Guaranteed Debt; notwithstanding the foregoing, Guarantor does not hereby waive
or release (expressly or impliedly) any right to be subrogated to the rights of
the Loan Parties in any collateral or security for the Guaranteed Debt after
payment in full of the Guaranteed Debt; Guarantor's rights of subrogation are,
however, subordinate to the rights, claims, liens and security interests of the
Loan Parties;
SECTION 2.10. OFFSET. Any existing or future right of offset, claim, or
defense of Borrower against the Loan Parties, or any other party, or against
payment of the Guaranteed Debt, whether such right of offset, claim, or defense
arises in connection with the Guaranteed Debt (or the transactions creating the
Guaranteed Debt) or otherwise;
SECTION 2.11. MERGER. The reorganization, merger, or consolidation of
Borrower or Guarantor into or with any other corporation or entity;
SECTION 2.12. PREFERENCE. Any payment by Borrower to any Loan Party is
held to constitute a preference under bankruptcy laws, or for any reason any
Loan Party is required to refund such payment or pay such amount to Borrower or
someone else; or
SECTION 2.13. OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or
omitted to be taken with respect to the Credit Agreement, the Guaranteed Debt,
or the security and collateral therefor, whether or not such action or omission
prejudices Guarantor or increases the likelihood or risk that Guarantor will be
required to pay the Guaranteed Debt pursuant to the terms hereof; it is the
unambiguous and unequivocal intention of Guarantor that Guarantor shall be
obligated to pay the Guaranteed Debt when due, notwithstanding any occurrence,
circumstance, event, action, or omission whatsoever, whether contemplated or
uncontemplated, and whether or not otherwise or particularly described herein,
except for the full and final payment and satisfaction of the Guaranteed Debt.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce the Loan Parties to enter into the Credit Agreement and extend
credit to Borrower, Guarantor represents and warrants to the Loan Parties that:
SECTION 3.01. BENEFIT. Guarantor has received, or will receive, direct or
indirect benefit from the
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making of this Guaranty and the Guaranteed Debt;
SECTION 3.02. FAMILIARITY AND RELIANCE. Guarantor is familiar with, and has
independently reviewed books and records regarding, the financial condition of
Borrower and is familiar with the value of any and all collateral intended to be
created as security for the payment of the Guaranteed Debt; however, Guarantor
is not relying on such financial condition or the collateral as an inducement to
enter into this Guaranty Agreement;
SECTION 3.03. NO REPRESENTATION BY THE LOAN PARTIES. No Loan Party or any
other party has made any representation, warranty, or statement to Guarantor in
order to induce Guarantor to execute this Guaranty Agreement;
SECTION 3.04. GUARANTOR'S FINANCIAL CONDITION. As of the date hereof, and
after giving effect to this Guaranty Agreement and the contingent obligation
evidenced hereby, Guarantor is, and will be, solvent, and has and will have
assets which, fairly valued, exceed its obligations, liabilities, and debts;
SECTION 3.05. DIRECTORS' DETERMINATION OF BENEFIT. The Board of Directors
of Guarantor, acting pursuant to a duly called and constituted meeting, after
proper notice, or pursuant to a valid unanimous consent, has determined that
this Guaranty directly or indirectly benefits Guarantor and is in the best
interests of Guarantor;
SECTION 3.06. LEGALITY. The execution, delivery, and performance by
Guarantor of this Guaranty Agreement and the consummation of the transactions
contemplated hereunder (a) have been duly authorized by all necessary trust
action of Guarantor, and (b) do not, and will not, contravene or conflict with
any law, statute or regulation whatsoever to which Guarantor is subject or
constitute a default (or an event which with notice or lapse of time or both
would constitute a default) under, or result in the breach of, any indenture,
mortgage, deed of trust, charge, lien, or any contract, agreement, or other
instrument to which Guarantor is a party or which may be applicable to Guarantor
or any of its assets, or violate any provisions of its Trust Agreement, Bylaws,
or any other organizational document of Guarantor; this Guaranty Agreement is a
legal and binding obligation of Guarantor and is enforceable in accordance with
its terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors' rights; and
SECTION 3.08. SURVIVAL. All representations and warranties made by
Guarantor herein shall survive the execution hereof.
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS
SECTION 4.01. SUBORDINATION OF GUARANTOR CLAIMS. As used herein, the term
"GUARANTOR CLAIMS" shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligations of Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. The Guarantor
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Claims shall include without limitation all rights and claims of Guarantor
against Borrower (arising as a result of subrogation or otherwise) as a result
of Guarantor's payment of all or a portion of the Guaranteed Debt. Until the
Guaranteed Debt shall be paid and satisfied in full and Guarantor shall have
performed all of its obligations hereunder, if a Potential Default or Default
exists, then Guarantor shall not receive or collect, directly or indirectly,
from Borrower or any other party any amount upon the Guarantor Claims.
SECTION 4.02. CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, the Loan Parties shall have the right
to prove its claim in any such proceeding so as to establish its rights
hereunder and receive directly from the receiver, trustee, or other court
custodian dividends and payments which would otherwise be payable upon Guarantor
Claims. Guarantor hereby assigns such dividends and payments to the Loan
Parties. Should any Loan Party receive, for application upon the Guaranteed
Debt, any such dividend or payment which is otherwise payable to Guarantor, and
which, as between Borrower and Guarantor, shall constitute a credit upon the
Guarantor Claims, then upon payment to the Loan Parties in full of the
Guaranteed Debt, Guarantor shall become subrogated to the rights of the Loan
Parties to the extent that such payments to the Loan Parties on the Guarantor
Claims have contributed toward the liquidation of the Guaranteed Debt, and such
subrogation shall be with respect to that proportion of the Guaranteed Debt
which would have been unpaid if the Loan Parties had not received dividends or
payments upon the Guarantor Claims.
SECTION 4.03. PAYMENTS HELD IN TRUST. In the event that, notwithstanding
SECTIONS 4.01 and 4.02 above, Guarantor should receive any funds, payment, claim
or distribution which is prohibited by such Sections, Guarantor agrees to hold
in trust for the Loan Parties, in kind, all funds, payments, claims, or
distributions so received, and agrees that he shall have absolutely no dominion
over such funds, payments, claims, or distributions so received except to pay
them promptly to the Administrative Agent, for the benefit of the Loan Parties,
and Guarantor covenants promptly to pay the same to the Administrative Agent,
for the benefit of the Loan Parties.
SECTION 4.04. LIENS SUBORDINATE. Guarantor agrees that any liens,
security interests, judgment liens, charges, or other encumbrances upon
Borrower's assets securing payment of the Guarantor Claims shall be and remain
inferior and subordinate to any liens, security interests, judgment liens,
charges, or other encumbrances upon Borrower's assets securing payment of the
Guaranteed Debt, regardless of whether such encumbrances in favor of Guarantor
or the Loan Parties presently exist or are hereafter created or attach. Without
the prior written consent of the Administrative Agent, Guarantor shall not (a)
exercise or enforce any creditor's right it may have against Borrower, or (b)
foreclose, repossess, sequester, or otherwise take steps or institute any action
or proceedings (judicial or otherwise, including, without limitation, the
commencement of, or joinder in, any liquidation, bankruptcy, rearrangement,
debtor's relief, or insolvency proceeding) to enforce any liens, mortgages,
deeds of trust, security interest, collateral rights, judgments, or other
encumbrances on assets of Borrower held by Guarantor.
SECTION 4.05. NOTATION OF RECORDS. All promissory notes, accounts
receivable ledgers, or other evidences of the Guarantor Claims accepted by or
held by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
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ARTICLE V
MISCELLANEOUS
SECTION 5.01. WAIVER. No failure to exercise, and no delay in exercising,
on the part of any Loan Party, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right. The rights of the
Loan Parties hereunder shall be in addition to all other rights provided by law.
No modification or waiver of any provision of this Guaranty Agreement, nor
consent to departure therefrom, shall be effective unless in writing and no such
consent or waiver shall extend beyond the particular case and purpose involved.
No notice or demand given in any case shall constitute a waiver of the right to
take other action in the same, similar or other instances without such notice or
demand.
SECTION 5.02. NOTICES. Any notices or other communications required or
permitted to be given by this Guaranty Agreement must be (a) given in writing
and personally delivered or mailed by prepaid certified or registered mail,
return receipt requested, or (b) made by tested telex delivered or transmitted,
to the party to whom such notice or communication is directed, to the address of
such party as follows:
Guarantor:
Prentiss Properties Trust
Until October 28, 1996:
1717 Main Street, Suite 5000
Dallas, Texas 75201
Attention: Mr. Michael V. Prentiss
Mr. Mark Doran
From and after October 28, 1996:
3890 W. Northwest Highway, Suite 400
Dallas, 75220
Attention: Mr. Michael V. Prentiss
Mr. Mark Doran
Loan Parties:
Bank One, Texas, N.A., as Administrative Agent
1717 Main Street, 3rd Floor
P.O. Box 655415
Dallas, Texas 75265-5415
Attention: Mr. Roderick Washington
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is personally delivered as
aforesaid or, if mailed, on the day it is mailed as aforesaid, or, if
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transmitted by telex, on the day that such notice is transmitted as aforesaid.
Any party may change its address for purposes of this Guaranty Agreement by
giving notice of such change to the other party pursuant to this SECTION 5.02.
SECTION 5.03. GOVERNING LAW. This Guaranty Agreement has been prepared,
and is intended to be performed in the State of Texas, and the substantive laws
of such state shall govern the validity, construction, enforcement, and
interpretation of this Guaranty Agreement. For purposes of this Guaranty
Agreement and the resolution of disputes hereunder, Guarantor hereby irrevocably
submits and consents to, and waives any objection to, the non-exclusive
jurisdiction of the courts of the State of Texas located in Dallas County, Texas
and of the federal court located in the Northern Judicial District of Texas.
SECTION 5.04. INVALID PROVISIONS. If any provision of this Guaranty
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Guaranty Agreement, such provision
shall be fully severable and this Guaranty Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part of this Guaranty Agreement, and the remaining provisions of
this Guaranty Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
from this Guaranty Agreement, unless such continued effectiveness of this
Guaranty Agreement, as modified, would be contrary to the basic understandings
and intentions of the parties as expressed herein.
SECTION 5.05. ENTIRETY AND AMENDMENTS. This Guaranty Agreement embodies
the entire agreement between the parties and supersedes all prior agreements and
understandings, if any, relating to the subject matter hereof, and this Guaranty
Agreement may be amended only by an instrument in writing executed by an
authorized officer of the party against whom such amendment is sought to be
enforced.
SECTION 5.06. PARTIES BOUND; ASSIGNMENT. This Guaranty Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, assigns and legal representatives; provided, however, that Guarantor
may not, without the prior written consent of the Administrative Agent, assign
any of its rights, powers, duties, or obligations hereunder.
SECTION 5.07. HEADINGS. Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Guaranty Agreement.
SECTION 5.08. MULTIPLE COUNTERPARTS. This Guaranty Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same agreement, and any of the parties hereto may execute
this Guaranty Agreement by signing any such counterpart.
SECTION 5.09. RIGHTS AND REMEDIES. If Guarantor becomes liable for any
indebtedness owing by Borrower to the Loan Parties, by endorsement or otherwise,
other than under this Guaranty Agreement, such liability shall not be in any
manner impaired or affected hereby and the rights of the Loan Parties hereunder
shall be cumulative of any and all other rights that the Loan Parties (or any of
them) may ever have against Guarantor. The exercise by the Loan Parties of any
right or remedy hereunder or under any other instrument, or at law or in equity,
shall not preclude the concurrent or subsequent exercise of any other right or
remedy.
EXECUTED as of the day and year first above written.
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GUARANTOR:
PRENTISS PROPERTIES TRUST
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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EXHIBIT D
REVOLVING CREDIT NOTE
$_____________________ Dallas, Texas As of ____________, 1996
1. FOR VALUE RECEIVED, PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware limited partnership ("MAKER"), hereby unconditionally promises to pay
to the order of __________ ("PAYEE"), at the address of the Administrative Agent
(defined below) set forth in the Credit Agreement defined below, the sum of
_________________________ Dollars ($ _______________________________) (or, if
less, so much thereof as may be advanced), in lawful money of the United States
of America. Capitalized terms not defined herein shall have the meaning
assigned to those terms in the Credit Agreement.
2. The unpaid principal amount of, and accrued unpaid interest on, this
Note is payable in accordance with the Credit Agreement.
3. The unpaid principal balance advanced and outstanding hereunder shall
bear interest from the date of advance until maturity at the rate per annum
provided in the Credit Agreement that is selected by Maker pursuant to the
Credit Agreement. The interest rate specified in this section is subject to
adjustment under the circumstances described in the Credit Agreement. Interest
shall be computed in the manner provided in the Credit Agreement.
4. Notwithstanding any provision contained in this Note or any other
document executed or delivered in connection with this Note or in connection
with the Credit Agreement, Payee shall never be deemed to have contracted for or
be entitled to receive, collect or apply as interest on this Note, any amount in
excess of the maximum rate of interest permitted to be charged by applicable
law, and, if Payee ever receives, collects or applies as interest any such
excess, then the amount that would be excessive interest shall be applied to
reduce the unpaid principal balance of this Note, and, if the principal balance
of this Note is paid in full by that application, then any remaining excess
shall promptly be paid to Maker. In determining whether the interest paid or
payable under any specific contingency exceeds the highest lawful rate, Maker
and Payee shall, to the maximum extent permitted under applicable law, (a)
characterize any non-principal payment (other than payments expressly designated
as interest payments hereunder) as an expense or fee rather than as interest,
(b) exclude voluntary prepayments and the effect thereof, and (c) spread the
total amount of interest throughout the entire contemplated term of this Note so
that the interest rate is uniform throughout that term.
5. This Note has been executed and delivered pursuant to a Credit
Agreement (as modified, amended, renewed or extended, the "CREDIT AGREEMENT")
dated as of October 17, 1996, executed by and between Maker, Bank One, Texas,
N.A., as Administrative Agent (together with any successor or assigns, the
"ADMINISTRATIVE AGENT"), NationsBank of Texas, N.A., as Documentation Agent,
Payee, and the Lenders defined therein, and is one of the "Notes" referred to
therein, and the holder of this Note is entitled to the benefits provided in the
Credit Agreement. Reference is hereby made to the Credit Agreement for a
statement of (a) the obligation of Payee to advance funds hereunder, (b) the
prepayment rights and obligations of Maker, and (c) the events upon which the
maturity of this Note may be accelerated.
6. If the principal of, or any installment of interest on, this Note
becomes due and payable on a day other than a Business Day, then the maturity
thereof shall be extended to the next succeeding Business Day. If this Note, or
any installment or payment due hereunder, is not paid when due, whether at
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maturity or by acceleration, or if it is collected through a bankruptcy, probate
or other court, whether before or after maturity, then Maker shall pay all costs
of collection, including, but not limited to, reasonable attorneys' fees
incurred by the holder of this Note. All past due principal of, and to the
extent permitted by applicable law, interest on this Note shall bear interest
until paid at the rate provided in the Credit Agreement.
7. Except as expressly provided in the Credit Agreement, Maker and all
sureties, endorsers, guarantors and other parties ever liable for payment of any
sums payable pursuant to the terms of this Note, jointly and severally waive
demand, presentment for payment, protest, notice of protest, notice of
acceleration, notice of intent to accelerate, diligence in collection, the
bringing of any suit against any party and any notice of or defense on account
of any extensions, renewals, partial payments or changes in any manner of or in
this Note or in any of its terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.
8. All Borrowings made by Payee, the respective Interest Periods thereof
(if applicable), and all repayments of the principal thereof may be recorded by
Payee and, before any transfer hereof, endorsed by Payee on the schedule
attached hereto, or on a continuation of the schedule attached to and a part
hereof, provided that the failure of Payee to record any endorsement shall not
affect the obligation of Maker hereunder or under the Credit Agreement.
9. This Note is being executed and delivered, and is intended to be
performed in the State of Texas. Except to the extent that the laws of the
United States may apply to the terms hereof, the substantive laws of the State
of Texas shall govern the validity, construction, enforcement and interpretation
of this Note.
PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
a Delaware limited partnership
By: PRENTISS PROPERTIES I, INC.,
General Partner
By:
-----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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EXHIBIT E
FORM OF ASSIGNMENT AND ACCEPTANCE
This Assignment and Acceptance (the "ASSIGNMENT AND ACCEPTANCE") is made as
of ______________________, 199______ (the "EFFECTIVE DATE"), between ___________
("ASSIGNOR") and _____________ ("ASSIGNEE").
Reference is made to that certain Credit Agreement dated as of October 17,
1996 (the "CREDIT AGREEMENT") among Prentiss Properties Acquisition Partners,
L.P. ("BORROWER"), Bank One, Texas, N.A., a national banking association, as
Administrative Agent for the Lenders defined therein (the "LENDERS"),
NationsBank of Texas, N.A., a national banking association, as Documentation
Agent for the Lenders, and the Lenders. This Assignment and Acceptance is
executed and delivered pursuant to, and as contemplated in, the Credit
Agreement. Capitalized terms used but not defined herein shall have the
meanings assigned thereto in the Credit Agreement.
Assignor and Assignee hereby covenant and agree as follows:
1. Assignor hereby sells and assigns to Assignee, and Assignee hereby
purchases and assumes from Assignor, $ ___________ of Assignor's Commitment and
Principal Debt, representing a Pro Rata Part of the Total Commitment and Total
Principal Debt of _____% as of the Effective Date. The foregoing interest for
all events and circumstances shall be deemed such Assignee's Pro Rata Part (in
addition to any other Pro Rata Part of Assignee, if any) in the Total
Commitment, the Total Principal Debt, the Loan Documents and all payments made
to or received from Borrower pursuant to the Loan Documents and is subject to
the terms and conditions provided in the Loan Documents.
2. Assignor (i) hereby represents and warrants to Assignee that Assignor
is the legal and beneficial owner of the Pro Rata Part being assigned by it
hereunder and such interest is free and clear of any adverse claim, and (ii)
hereby represents and warrants that as of the date hereof the Pro Rata Part in
the Total Commitment and the Total Principal Debt being assigned hereunder is
% without giving effect to assignments that are not yet effective.
3. Assignee hereby confirms and acknowledges that, except as specifically
set forth herein, Assignor: (i) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Documents, or the execution, legality,
validity, enforceability, genuineness, sufficiency, or value of the Loan
Documents, or any other instrument or document furnished pursuant thereto; (ii)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of Borrower or any other person or entity which is a
party to any of the Loan Documents (collectively, "Other Party"); and (iii)
makes no representation or warranty and assumes no responsibility with respect
to the performance or observance by Borrower or any Other Party of any of its
obligations under any of the Loan Documents or any other instrument or document
furnished pursuant thereto.
4. Assignee hereby: (i) confirms that it has received a copy of the Loan
Documents, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; and (ii) agrees that it will, independently and
without reliance upon Assignor or any other counterparty and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking
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action under the Loan Documents.
5. Assignee hereby: (i) appoints and authorizes the Administrative Agent
under the Loan Documents to take such action as administrative agent on its
behalf and to exercise such powers under the Loan Documents as are delegated to
the Administrative Agent by the terms of the Loan Documents; and (ii) agrees
with Assignor for the benefit of the Administrative Agent and Borrower that it
will perform all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a counterparty (including, without limitation,
the obligation to make payments pursuant to the Loan Documents) and that it
shall be liable directly to Assignor, the Administrative Agent, Borrower and, as
provided in the Credit Agreement, to each Lender for the performance of such
obligations.
6. If Assignee is organized under the laws of a jurisdiction outside the
United States, it hereby represents and agrees that it has delivered or will
within three (3) days after the date of the execution of this Agreement deliver
to Assignor and the Administrative Agent completed and signed copies of any
forms that may be required by the United States Internal Revenue Service in
order to certify Assignee's exemption from United States withholding taxes with
respect to any payment or distributions made or to be made to Assignee with
respect to the Loan Documents.
7. As of the Effective Date, (a) Assignee shall be a party to the Loan
Documents and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a counterparty thereunder, and (b) Assignor shall,
to the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations in the Loan Documents with respect to the
Pro Rata Part being assigned hereunder.
8. Assignee hereby represents and warrants as of the Effective Date:
a. Assignee has all necessary corporate power and authority to purchase
and own the interest being assigned to it hereunder, and has all necessary
corporate power and authority to perform all its obligations with respect to
this Assignment and Acceptance;
b. The execution and delivery of this Assignment and Acceptance and all
other instruments and documents executed in connection herewith have been duly
authorized by all requisite corporate action of Assignee; and
c. No approval, authorization, order, license or consent of, or
registration or filing with, any governmental authority or other person is
required in connection with this Assignment and Acceptance.
9. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of Texas, without giving effect to the
conflict of laws principles thereof.
10. This Agreement may be executed in two or more counterparts each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
11. Assignee's address for notices and payments under the Agreement and
this Assignment and Acceptance are set forth in SCHEDULE 1 attached hereto and
made a part hereof. Assignee may by notice in accordance with the Credit
Agreement to Assignor, the Administrative Agent and Borrower change the address
or telex number or facsimile number at which notices, communications and
payments are to be given to it.
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ASSIGNOR:
--------------------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
ASSIGNEE:
--------------------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
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ACCEPTED BY THE ADMINISTRATIVE AGENT
THIS _____ DAY OF ___________________
ADMINISTRATIVE AGENT:
By:
----------------------------------
Title:
-------------------------------
ACCEPTED BY THE DOCUMENTATION AGENT
THIS ____ DAY OF _______________
DOCUMENTATION AGENT:
By:
----------------------------------
Title:
-------------------------------
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SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE
ADDRESS FOR NOTICES AND ACCOUNTS FOR PAYMENTS
Address:
--------------------------------
Telecopier:
---------------------
Account for Payments
- --------------------
Account No.:
--------------------------------
Attention:
--------------------------------
Reference:
--------------------------------
Depositary:
--------------------------------
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EXHIBIT F
FORM OF DEED OF TRUST
DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT
AND FINANCING STATEMENT
THIS DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT
(this "DEED OF TRUST") dated ______________________, 19____ is executed and
delivered by Grantor for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged by Grantor.
ARTICLE 1
CERTAIN DEFINITIONS; GRANTING CLAUSES; SECURED INDEBTEDNESS
Section 1.1. CERTAIN DEFINITIONS AND REFERENCE TERMS. In addition to
other terms defined herein, each of the following terms shall have the meaning
assigned to it:
"AGENT": Bank One, Texas, N.A., a national banking association.
"BORROWER": Prentiss Properties Acquisition Partners, L.P., a Delaware
limited partnership.
"CREDIT AGREEMENT": Credit Agreement dated as of October 17, 1996,
executed by Borrower, Agent, as Administrative Agent for the Lenders,
NationsBank of Texas, N.A., a national banking association, as Documentation
Agent for the Lenders, and the Lenders.
"GRANTOR": _____________________________________.
"LENDER": Any one of the Lenders.
"LENDERS": Each of the Lenders executing the Credit Agreement, and their
respective successors and assigns.
"PROMISSORY NOTES": Revolving Credit Notes dated as of October 17, 1996,
made by Borrower payable to the order of Lenders in the aggregate principal face
amount of $100,000,000.00 bearing interest as therein provided, containing a
provision for the payment of a reasonable additional amount as attorneys' fees,
and finally maturing on October 14, 1999.
"TRUSTEE": Robert F. Nelson, of Dallas County, Texas, or any successor or
substitute appointed and designated as herein provided from time-to-time acting
hereunder.
Section 1.2. MORTGAGED PROPERTY. Grantor does hereby GRANT, BARGAIN, SELL,
CONVEY, TRANSFER, ASSIGN and SET OVER to Trustee the following: (a) the real
estate (herein called the "LAND") described on EXHIBIT A which is attached
hereto and incorporated herein by reference, and: (i) all improvements now or
hereafter situated or to be situated on the Land (herein together called the
"IMPROVEMENTS"); and (ii) all right, title and interest of Grantor in and to:
(1) all streets, roads, alleys, easements, rights-of-way, licenses, rights of
ingress and egress, vehicle parking rights, and public places,
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existing or proposed, abutting, adjacent, used in connection with or pertaining
to the Land or the Improvements; (2) any strips or gores between the Land and
abutting or adjacent properties; and (3) all water and water rights, timber,
crops, and mineral interests on or pertaining to the Land (the Land,
Improvements and other rights, titles and interests referred to in this clause
(a) being herein sometimes collectively called the "PREMISES"); (b) all
fixtures, equipment, systems, machinery, furniture, furnishings, appliances,
inventory, goods, building and construction materials, supplies, and articles of
personal property, of every kind and character, now owned or hereafter acquired
by Grantor, which are now or hereafter attached to or situated in, on or about
the Land or the Improvements, or used in or necessary to the complete and proper
planning, development, use, occupancy, or operation thereof, or acquired
(whether delivered to the Land or stored elsewhere) for use or installation in
or on the Land or the Improvements, and all renewals and replacements of,
substitutions for, and additions to the foregoing (the properties referred to in
this clause (b) being herein sometimes collectively called the "ACCESSORIES,"
all of which are hereby declared to be permanent accessions to the Land); (c)
all right, title, and interest of Grantor in and to the following: (i) plans
and specifications for the Improvements; (ii) Grantor's rights, but not
liability for any breach by Grantor, under all commitments (including any
commitment for financing to pay any of the secured indebtedness, as defined
below), insurance policies, and other contracts and general intangibles
(including but not limited to trademarks, trade names, and symbols, other than
for "Prentiss Properties" or derivations thereof) related to the Premises or the
Accessories or the operation thereof; (iii) deposits (including but not limited
to Grantor's rights in tenants' security deposits, deposits with respect to
utility services to the Premises, and any deposits or reserves hereunder or
under any other Loan Document for taxes, insurance or otherwise), money,
accounts, instruments, documents, notes, and chattel paper arising from or by
virtue of any transactions related to the Premises or the Accessories (without
derogation of ARTICLE 3 hereof); (iv) permits, licenses, franchises,
certificates, development rights, commitments, and rights for utilities, and
other rights and privileges obtained in connection with the Premises or the
Accessories; (v) leases, rents, royalties, bonuses, issues, profits, revenues,
and other benefits of the Premises and the Accessories (without derogation of
ARTICLE 3 hereof); (vi) oil, gas, and other hydrocarbons and other minerals
produced from or allocated to the Land and all products processed or obtained
therefrom, and the proceeds thereof; and (vii) engineering, accounting, title,
legal, and other technical or business data concerning the Mortgaged Property
which are in the possession of Grantor or in which Grantor can otherwise grant a
security interest; and (d) all right, title, and interest of Grantor in and to
the following: (i) proceeds of or arising from the properties, rights, titles,
and interests referred to above in this SECTION 1.2, including but not limited
to proceeds of any sale, lease, or other disposition thereof, proceeds of each
policy of insurance relating thereto (including premium refunds), proceeds of
the taking thereof or of any rights appurtenant thereto, including change of
grade of streets, curb cuts, or other rights of access, by eminent domain or
transfer in lieu thereof for public or quasi-public use under any law, and
proceeds arising out of any damage thereto; and (ii) other interests of every
kind and character which Grantor now has or hereafter acquires in, to or for the
benefit of the properties, rights, titles and interests referred to above in
this SECTION 1.2 and all property used or useful in connection therewith,
including but not limited to rights of ingress and egress and remainders,
reversions, and reversionary rights or interests; and if the estate of Grantor
in any of the property referred to above in this SECTION 1.2 is a leasehold
estate, this conveyance shall include, and the lien and security interest
created hereby shall encumber and extend to, all other or additional title,
estates, interests, or rights which are now owned or may hereafter be acquired
by Grantor in or to the property demised under the lease creating the leasehold
estate; TO HAVE AND TO HOLD the foregoing rights, interests and properties, and
all rights, estates, powers, and privileges appurtenant thereto (herein
collectively called the "MORTGAGED PROPERTY"), unto Trustee, and his successors
or substitutes in this trust, and to his or their successors and assigns, in
trust, however, upon the terms, provisions, and conditions herein set forth.
Section 1.3. SECURITY INTEREST. Grantor hereby grants to Agent, for the
ratable benefit of Holders (as hereinafter defined), a security interest in all
of the Mortgaged Property which constitutes personal property or fixtures
(herein sometimes collectively called the "COLLATERAL"). In addition to its
rights hereunder or otherwise, Agent, on behalf of Holders, shall have all of
the rights of a secured party
<PAGE>
under the Texas Business and Commerce Code, or under the Uniform Commercial Code
in force in any other state to the extent the same is applicable law.
Section 1.4. NOTE, LOAN DOCUMENTS, OTHER OBLIGATIONS. This Deed of Trust
is made to secure and enforce the payment and performance of the following
promissory notes, obligations, indebtedness, and liabilities and all renewals,
extensions, supplements, increases, and modifications thereof in whole or in
part from time-to-time: (a) the Promissory Notes and all other notes given in
substitution therefor or in modification, supplement, increase, renewal, or
extension thereof, in whole or in part (such note or notes, whether one or more,
as from time-to-time renewed, extended, supplemented, increased, or modified and
all other notes given in substitution therefor, or in modification, renewal, or
extension thereof, in whole or in part, being hereinafter called the "NOTES,"
and the Lenders, or the subsequent holder at the time in question of any Note or
any of the secured indebtedness, as hereinafter defined, being herein
individually called "HOLDERS" and collectively called "HOLDERS"); (b) all
indebtedness and other obligations owed by Borrower to Agent and Holders now or
hereafter incurred or arising pursuant to or permitted by the provisions of the
Credit Agreement, the Notes, this Deed of Trust, or any other document now or
hereafter evidencing, governing, guaranteeing, securing, or otherwise executed
in connection with the loan evidenced by the Credit Agreement and the Notes (the
Credit Agreement, the Notes, this Deed of Trust, and such other documents, as
they or any of them may have been or may be from time-to-time renewed, extended,
supplemented, increased, or modified, being herein sometimes collectively called
the "LOAN DOCUMENTS"); and (c) all other loans and future advances made by Agent
and/or Holders to Borrower pursuant to the Loan Documents and all other debts,
obligations, and liabilities of Borrower of every kind and character now or
hereafter existing in favor of Agent and/or Holders, whether direct or indirect,
primary or secondary, joint or several, fixed or contingent, secured or
unsecured, arising under the Credit Agreement, it being contemplated that
Borrower may hereafter become indebted to Agent and/or Holders for such further
debts, obligations, and liabilities pursuant to the Loan Documents; provided,
however, and notwithstanding the foregoing provisions of this clause (c), this
Deed of Trust shall not secure any such other loan, advance, debt, obligation,
or liability with respect to which Holder is by applicable law prohibited from
obtaining a lien on real estate nor shall this clause (c) operate or be
effective to constitute or require any assumption or payment by any person, in
any way, of any debt of any other person to the extent that the same would
violate or exceed the limit provided in any applicable usury or other law. The
indebtedness referred to in this SECTION 1.4 is hereinafter sometimes referred
to as the "SECURED INDEBTEDNESS" or the "INDEBTEDNESS SECURED HEREBY."
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.1. Grantor represents, warrants, and covenants as follows:
(a) PERFORMANCE. Grantor will timely and properly perform and comply with
all of the covenants, agreements, and conditions imposed upon it by this Deed of
Trust and the other Loan Documents and will not permit a default to occur
hereunder or thereunder. Time shall be of the essence in this Deed of Trust.
(b) TITLE AND PERMITTED ENCUMBRANCES. Grantor has, in Grantor's own right,
and Grantor covenants to maintain, lawful, good and indefeasible title to the
Mortgaged Property, free and clear of all liens, charges, claims, security
interests, and encumbrances except for (i) the matters, if any, set forth on
EXHIBIT B hereto, which are Permitted Encumbrances only to the extent the same
are valid and subsisting
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and affect the Mortgaged Property, (ii) the liens and security interests
evidenced by this Deed of Trust, (iii) statutory liens for ad valorem taxes and
standby fees on the Mortgaged Property which are not yet delinquent, (iv) other
liens and security interests (if any) in favor of Lender, and (v) Permitted
Liens (as defined in the Credit Agreement) (the matters described in the
foregoing clauses (i), (ii), (iii), (iv), and (v) being herein called the
"PERMITTED ENCUMBRANCES"). Grantor, and Grantor's successors and assigns, will
warrant and forever defend title to the Mortgaged Property, subject as aforesaid
to Trustee and his successors or substitutes and assigns, against the claims and
demands of all persons claiming or to claim the same or any part thereof.
Grantor will punctually pay, perform, observe, and keep all covenants,
obligations, and conditions in or pursuant to any Permitted Encumbrance and will
not modify or permit modification of any Permitted Encumbrance without the prior
written consent of Agent. Inclusion of any matter as a Permitted Encumbrance
does not constitute approval or waiver by Agent of any existing or future
violation or other breach thereof by Grantor, by the Mortgaged Property or
otherwise. If any right or interest of Agent or Holders in the Mortgaged
Property or any part thereof shall be endangered or questioned or shall be
attacked directly or indirectly, Trustee, Agent, and Holders, or any of them
(whether or not named as parties to legal proceedings with respect thereto), are
hereby authorized and empowered to take such steps as in their discretion may be
proper for the defense of any such legal proceedings or the protection of such
right or interest of Agent or Holders, including but not limited to the
employment of independent counsel, the prosecution or defense of litigation, and
the compromise or discharge of adverse claims. All expenditures so made of every
kind and character shall be due and payable upon demand (which obligation
Grantor hereby promises to pay) owing by Grantor to Agent, Holders or Trustee
(as the case may be), and the party (Agent, Holders or Trustee, as the case may
be) making such expenditures shall be subrogated to all rights of the person
receiving such payment. Agent, Holders, or Trustee (as the case may be) shall
exercise their reasonable best efforts to notify Grantor prior to taking any
such steps or incurring any such expenditures, except in the case of exigent
circumstances.
(c) TAXES AND OTHER IMPOSITIONS. Except to the extent of reserves required
pursuant to SECTION 2.1(E), Grantor will pay, or cause to be paid, prior to
delinquency all taxes, assessments, and other charges or levies imposed upon or
against or with respect to the Mortgaged Property or the ownership, use,
occupancy or enjoyment of any portion thereof, or any utility service thereto,
including but not limited to all ad valorem taxes assessed against the Mortgaged
Property or any part thereof, and shall deliver promptly to Holder such evidence
of the payment thereof as Agent may require, except that Grantor may contest
taxes, assessments, and other charges or levies in good faith by appropriate
proceedings if Grantor has established reserves in accordance with GAAP or
obtained other security (in each case reasonably acceptable to Agent).
(d) INSURANCE. Grantor shall obtain and maintain at Grantor's sole expense:
(1) mortgagee title insurance issued to Agent, for the benefit of Holders,
covering the Premises as required by Agent; (2) all-risk insurance with respect
to all insurable Mortgaged Property, against loss or damage by fire, lightning,
windstorm, explosion, hail, tornado and such hazards as are presently included
in so-called "all-risk" coverage and against such other insurable hazards as
Agent may require, in an amount not less than 100% of the full replacement cost
(exclusive of costs of excavations, foundations, underground utilities and
footings), including the cost of debris removal, without deduction for
depreciation and sufficient to prevent Grantor and Agent from becoming a
coinsurer, such insurance to be in Builder's Risk (nonreporting) form during and
with respect to any construction on the Premises; (3) if and to the extent any
portion of the Premises is in a special flood hazard area, a flood insurance
policy in an amount equal to the lesser of the aggregate principal face amount
of the Notes or the amount required by Agent; (4) comprehensive general public
liability insurance, on an "occurrence" basis, for the benefit of Grantor,
Agent, and Holders as additional named insureds; (5) statutory workers'
compensation insurance with respect to any work on or about the Premises; and
(6) such other insurance on the Mortgaged Property as may from time-to-time be
reasonably required by Agent and against other insurable hazards or casualties
which at the time are commonly insured against in the case of premises similarly
situated, due regard being given to the height, type, construction, location,
use, and occupancy of buildings and improvements. All
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insurance policies shall be issued and maintained by insurers, in amounts, with
deductibles, and in form reasonably satisfactory to Agent, and shall require not
less than thirty (30) days' prior written notice to Agent of any cancellation or
change of coverage. All insurance policies maintained, or caused to be
maintained, by Grantor with respect to the Mortgaged Property, except for public
liability insurance, shall provide that each such policy shall be primary
without right of contribution from any other insurance that may be carried by
Grantor or Agent and that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured. If any insurer which has issued a policy of title,
hazard, liability, or other insurance required pursuant to this Deed of Trust or
any other Loan Document becomes insolvent or the subject of any bankruptcy,
receivership or similar proceeding or if in Agent's reasonable opinion the
financial responsibility of such insurer is or becomes inadequate, Grantor
shall, in each instance promptly upon the request of Agent and at Grantor's
expense, obtain and deliver to Agent a like policy (or, if and to the extent
permitted by Agent, a certificate of insurance) issued by another insurer, which
insurer and policy meet the requirements of this Deed of Trust or such other
Loan Document, as the case may be. Without limiting the discretion of Agent with
respect to required endorsements to insurance policies, all such policies for
loss of or damage to the Mortgaged Property shall contain a standard mortgage
clause (without contribution) naming Agent as mortgagee with loss proceeds
payable to Agent, for the benefit of Lenders, notwithstanding: (i) any act,
failure to act, or negligence of or violation of any warranty, declaration, or
condition contained in any such policy by any named insured; (ii) the occupation
or use of the Mortgaged Property for purposes more hazardous than permitted by
the terms of any such policy; (iii) any foreclosure or other action by Agent or
any Holder under the Loan Documents; or (iv) any change in title to or ownership
of the Mortgaged Property or any portion thereof, such proceeds to be held for
application as provided in the Loan Documents. A copy of the original policy and
a satisfactory certificate of insurance shall be delivered to Agent at the time
of execution of this Deed of Trust, with premiums fully paid, and each renewal
or substitute policy (or certificate) shall be delivered to Agent, with premiums
fully paid, at least ten (10) days before the termination of the policy it
renews or replaces. Grantor shall pay all premiums on policies required
hereunder as they become due and payable and promptly deliver to Agent evidence
satisfactory to Agent of the timely payment thereof. If any loss occurs at any
time when Grantor has failed to perform Grantor's covenants and agreements in
this paragraph, Agent, for the benefit of Holders, shall nevertheless be
entitled to the benefit of all insurance covering the loss and held by or for
Grantor, to the same extent as if it had been made payable to Agent. While a
default exists, Agent shall have the right (but not the obligation) to make
proof of loss for, settle, and adjust any claim under, and receive the proceeds
of, all insurance for loss of or damage to the Mortgaged Property, and the
expenses incurred by Agent in the adjustment and collection of insurance
proceeds shall be a part of the secured indebtedness and shall be due and
payable to Agent on demand. Agent shall not be, under any circumstances, liable
or responsible for the obtaining, maintaining, or adequacy of any insurance or
for failure to collect or exercise diligence in the collection of any of such
proceeds or for failure to see to the proper application of any amount paid over
to Grantor. Any such proceeds received by Agent shall, after deduction therefrom
of all reasonable expenses actually incurred by Agent, including reasonable
attorneys' fees, at Agent's option be (1) released to Grantor, or (2) applied
(upon compliance with such terms and conditions as may be required by Agent) to
repair or restoration, either partly or entirely, of the Mortgaged Property so
damaged, or (3) applied to the payment of the secured indebtedness in such order
and manner as provided in the Credit Agreement, whether or not due. In any
event, the unpaid portion of the secured indebtedness shall remain in full force
and effect and the payment thereof shall not be excused. Grantor shall at all
times comply with the requirements of the insurance policies required hereunder
and of the issuers of such policies and of any board of fire underwriters or
similar body as applicable to or affecting the Mortgaged Property.
If there is loss or damage to the Mortgaged Property, then the Mortgaged
Property may, at the request of Grantor, be removed from the Borrowing Base (as
defined in the Credit Agreement) and all or a portion of the insurance proceeds
shall be delivered to Grantor, so long as, after giving effect to such removal
and delivery of insurance proceeds, no default exists and the remaining
Borrowing Base exceeds the Obligation (as defined in the Credit Agreement).
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<PAGE>
Subject to the immediately preceding paragraph, if there is loss or damage
to the Mortgaged Property, then Agent shall, on behalf of Holders, use such
insurance proceeds to allow Grantor, upon Grantor's written request within
twenty (20) days of a loss, to restore or rebuild the Mortgaged Property,
provided that all of the following conditions are satisfied: (i) Agent
determines, in its reasonable discretion, that it is economically, financially,
and practically feasible to repair and restore the Mortgaged Property to
substantially the same character as prior to such damage or destruction on or
before sixty (60) days prior to the Termination Date (as defined in the Credit
Agreement), which must be a date not more than six (6) months following the date
such insurance proceeds are received by Agent; (ii) the total cost of repairing
and restoring the Mortgaged Property to its previous condition, as estimated by
an consultant approved by Agent, shall not be greater than the amount of such
insurance proceeds together with any sums that Grantor deposits with Agent in
advance for the purpose of paying for the cost of such repairs and restoration;
(iii) such restoration and repair shall be accomplished in accordance with the
requirements and conditions relating to advancement and disbursement of funds
determined by Agent; (iv) no default exists; and (v) Grantor shall provide Agent
with evidence that the loss or damage to the Mortgaged Property will not result
in termination of the tenancy of the existing tenants in the Mortgaged Property
occupying more than thirty-three and one-third percent (33-1/3%) of the rentable
square footage of the Mortgaged Property, including, if requested by Agent,
appropriate estoppel letters from such tenants and/or evidence that Grantor has
obtained substitute tenants. The Mortgaged Property shall be repaired and
restored so as to be of at least equal value in substantially the same character
as prior to such damage or destruction. Notwithstanding the foregoing, Lender
shall have no obligation to Borrower to provide such proceeds to restore the
Mortgaged Property if the sums referred to in (ii) are not sufficient to pay the
costs of the restoration.
If such proceeds are made available by Agent to Grantor, any surplus which
may remain out of said insurance proceeds after payment of all costs and
expenses of such repair and restoration shall, at the option of Lender, be
applied first, to any expenses payable by Grantor pursuant to the Credit
Agreement, second, to accrued but unpaid interest on the secured indebtedness,
third, to outstanding principal of the secured indebtedness, and fourth,
returned to Grantor.
(e) RESERVE FOR INSURANCE, TAXES AND ASSESSMENTS. Upon request of Agent
while a default exists, to secure certain of Grantor's obligations in paragraphs
(c) and (d) above, but not in lieu of such obligations, Grantor will deposit
with Agent a sum equal to ad valorem taxes, assessments, and charges (which
charges for the purpose of this paragraph shall include without limitation any
recurring charge which could result in a lien against the Mortgaged Property)
against the Mortgaged Property for the current year and the premiums for such
policies of insurance for the current year, all as estimated by Agent and
prorated to the end of the calendar month following the month during which
Agent's request is made, and thereafter will deposit with Agent, on each date
when an installment of principal and/or interest is due on the Notes, sufficient
funds (as estimated from time-to-time by Agent) to permit Agent to pay at least
fifteen (15) days prior to the due date thereof, the next maturing ad valorem
taxes, assessments and charges and premiums for such policies of insurance.
Agent shall have the right to rely upon tax information furnished by applicable
taxing authorities in the payment of such taxes or assessments and shall have no
obligation to make any protest of any such taxes or assessments. Any excess over
the amounts required for such purposes shall be held by Agent for future use or
refunded to Grantor, at Agent's option, and any deficiency in such funds so
deposited shall be made up by Grantor upon demand of Agent. All such funds so
deposited shall bear no interest, may be mingled with the general funds of
Agent, and shall be applied by Agent toward the payment of such taxes,
assessments, charges, and premiums when statements therefore are presented to
Agent by Grantor (which statements shall be presented by Grantor to Agent a
reasonable time before the applicable amount is due); provided, however, that,
if a default shall have occurred hereunder, such funds may at Agent's option be
applied to the payment of the secured indebtedness in the order provided in the
Credit Agreement, and that Agent may (but shall have no obligation) at any time,
in its discretion, apply all or any part of such funds toward the payment of any
such taxes, assessments, charges,
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or premiums which are past due, together with any penalties or late charges with
respect thereto. The conveyance or transfer of Grantor's interest in the
Mortgaged Property for any reason (including without limitation the foreclosure
of a subordinate lien or security interest or a transfer by operation of law)
shall constitute an assignment or transfer of Grantor's interest in and rights
to such funds held by Agent under this paragraph but subject to the rights of
Agent hereunder.
(f) CONDEMNATION. Grantor shall notify Agent immediately of any threatened
or pending proceeding for condemnation affecting the Mortgaged Property or
arising out of damage to the Mortgaged Property, and Grantor shall, at Grantor's
expense, diligently prosecute any such proceedings. Agent shall have the right
(but not the obligation) to participate in any such proceeding and to be
represented by counsel of its own choice. Agent shall be entitled to receive
all sums which may be awarded or become payable to Grantor for the condemnation
of the Mortgaged Property, or any part thereof, for public or quasi-public use,
or by virtue of private sale in lieu thereof, and any sums which may be awarded
or become payable to Grantor for injury or damage to the Mortgaged Property.
Grantor shall, promptly upon request of Agent, execute such additional
assignments and other documents as may be necessary from time-to-time to permit
such participation and to enable Agent to collect and receipt for any such sums.
All such sums are hereby assigned to Agent, for the benefit of Holders, and
shall, after deduction therefrom of all reasonable expenses actually incurred by
Agent, including reasonable attorneys' fees, at Agent's option be (1) released
to Grantor, or (2) applied (upon compliance with such terms and conditions as
may be required by Agent) to repair or restoration of the Mortgaged Property so
affected, or (3) applied to the payment of the secured indebtedness in such
order and manner as provided in the Credit Agreement, whether or not due. In any
event the unpaid portion of the secured indebtedness shall remain in full force
and effect and the payment thereof shall not be excused. Agent shall not be,
under any circumstances, liable or responsible for failure to collect or to
exercise diligence in the collection of any such sum or for failure to see to
the proper application of any amount paid over to Grantor. Agent is hereby
authorized, in the name of Grantor, to execute and deliver valid acquittances
for, and to appeal from, any such award, judgment, or decree. All costs and
expenses (including but not limited to attorneys' fees) incurred by Agent in
connection with any condemnation shall be a demand obligation owing by Grantor
(which Grantor hereby promises to pay) to Agent pursuant to this Deed of Trust.
(g) COMPLIANCE WITH LEGAL REQUIREMENTS. The Mortgaged Property and the
use, operation, and maintenance thereof and all activities thereon do and shall
at all times comply with all applicable Legal Requirements (defined below). The
Mortgaged Property is not, and shall not be, dependent on any other property or
premises or any interest therein other than the Mortgaged Property to fulfill
any requirement of any Legal Requirement. Grantor shall not, by act or
omission, permit any building or other improvement not subject to the lien of
this Deed of Trust to rely on the Mortgaged Property or any interest therein to
fulfill any requirement of any Legal Requirement. No part of the Mortgaged
Property constitutes a nonconforming use under any zoning law or similar law or
ordinance. Grantor has obtained and shall preserve in force all requisite
zoning, utility, building, health, and operating permits from the governmental
authorities having jurisdiction over the Mortgaged Property which Grantor (as
opposed to any tenant) is required to maintain. If Grantor receives a notice or
claim from any person that the Mortgaged Property, or any use, activity,
operation, or maintenance thereof or thereon, is not in compliance with any
Legal Requirement, Grantor will promptly furnish a copy of such notice or claim
to Agent. Grantor has received no notice and has no knowledge of any such
noncompliance. As used in this Deed of Trust: (i) the term "LEGAL REQUIREMENT"
means any law (defined below), agreement, covenant, restriction, easement, or
condition (including, without limitation of the foregoing, any condition or
requirement imposed by any insurance or surety company), as any of the same now
exists or may be changed or amended or come into effect in the future; and (ii)
the term "LAW" means any federal, state, or local law, statute, ordinance, code,
rule, regulation, license, permit, authorization, decision, order, injunction,
or decree, domestic or foreign.
(h) MAINTENANCE, REPAIR AND RESTORATION. Grantor will keep the Mortgaged
Property in good order, repair, operating condition, and appearance, causing all
necessary repairs, renewals,
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replacements, additions and improvements to be promptly made, and will not allow
any of the Mortgaged Property to be misused, abused, or wasted or to
deteriorate, ordinary wear and tear excepted. Notwithstanding the foregoing,
Grantor will not, without the prior written consent of Agent, (i) remove from
the Mortgaged Property any fixtures or personal property covered by this Deed of
Trust except such as is replaced by Grantor by an article of equal suitability
and value, owned by Grantor, free and clear of any lien or security interest
(except that created by this Deed of Trust), or (ii) make any structural
alteration to the Mortgaged Property or any other alteration thereto which
materially and adversely impairs the value thereof. If any act or occurrence of
any kind or nature (including any condemnation or any casualty for which
insurance was not obtained or obtainable) shall result in damage to or loss or
destruction of the Mortgaged Property, Grantor shall give prompt notice thereof
to Agent and Grantor shall promptly, at Grantor's sole cost and expense and
regardless of whether insurance or condemnation proceeds (if any) shall be
available or sufficient for the purpose, commence and continue diligently to
completion to restore, repair, replace, and rebuild the Mortgaged Property as
nearly as possible to its value, condition, and character immediately prior to
the damage, loss or destruction, unless the Mortgaged Property is removed from
the Borrowing Base as provided in SECTION 2.1(D).
(i) NO OTHER LIENS. Except as otherwise permitted in the Credit Agreement,
Grantor will not, without the prior written consent of Agent, create, place or
permit to be created or placed, or through any act or failure to act, acquiesce
in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or
involuntary lien, whether statutory, constitutional or contractual, security
interest, encumbrance or charge, or conditional sale or other title retention
document, against or covering the Mortgaged Property, or any part thereof, other
than the Permitted Encumbrances, regardless of whether the same are expressly or
otherwise subordinate to the lien or security interest created in this Deed of
Trust, and should any of the foregoing become attached hereafter in any manner
to any part of the Mortgaged Property without the prior written consent of
Agent, Grantor will cause the same to be promptly discharged and released.
Grantor will own all parts of the Mortgaged Property and will not acquire any
fixtures, equipment or other property forming a part of the Mortgaged Property
pursuant to a lease, license, security agreement, or similar agreement, whereby
any party has or may obtain the right to repossess or remove same, without the
prior written consent of Agent, except for equipment leases entered into in the
ordinary course of Grantor's business. If Agent consents to the voluntary grant
by Grantor of any lien, security interest, or other encumbrance (hereinafter
called "SUBORDINATE DEED OF TRUST") covering any of the Mortgaged Property or if
the foregoing prohibition is determined by a court of competent jurisdiction to
be unenforceable as to a Subordinate Deed of Trust, any such Subordinate Deed of
Trust shall contain express covenants to the effect that: (1) the Subordinate
Deed of Trust is unconditionally subordinate to this Deed of Trust and all
Leases (hereinafter defined); (2) if any action (whether judicial or pursuant to
a power of sale) shall be instituted to foreclose or otherwise enforce the
Subordinate Deed of Trust, no tenant of any of the Leases (hereinafter defined)
shall be named as a party defendant, and no action shall be taken that would
terminate any occupancy or tenancy without the prior written consent of Agent;
(3) Rents (hereinafter defined), if collected by or for the holder of the
Subordinate Deed of Trust, shall be applied first to the payment of the secured
indebtedness then due and expenses incurred in the ownership, operation, and
maintenance of the Mortgaged Property in such order as provided in the Credit
Agreement, prior to being applied to any indebtedness secured by the Subordinate
Deed of Trust; (4) written notice of default under the Subordinate Deed of Trust
and written notice of the commencement of any action (whether judicial or
pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate
Deed of Trust or to seek the appointment of a receiver for all or any part of
the Mortgaged Property shall be given to Agent with or immediately after the
occurrence of any such default or commencement; and (5) neither the holder of
the Subordinate Deed of Trust, nor any purchaser at foreclosure thereunder, nor
anyone claiming by, through or under any of them shall succeed to any of
Grantor's rights hereunder without the prior written consent of Agent.
(j) OPERATION OF MORTGAGED PROPERTY. Grantor will operate the Mortgaged
Property in a good and workmanlike manner and in accordance with all Legal
Requirements and will pay all fees or charges of any kind in connection
therewith. Grantor will keep the Mortgaged Property occupied so as not
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to impair the insurance carried thereon. Grantor will not use or occupy or
conduct any activity on, or allow the use or occupancy of or the conduct of any
activity on, the Mortgaged Property in any manner which violates any Legal
Requirement or which constitutes a public or private nuisance or which makes
void, voidable or cancelable, or increases the premium of, any insurance then in
force with respect thereto. Grantor will not initiate or permit any zoning
reclassification of the Mortgaged Property or seek any variance under existing
zoning ordinances applicable to the Mortgaged Property or use or permit the use
of the Mortgaged Property in such a manner which would result in such use
becoming a nonconforming use under applicable zoning ordinances or other Legal
Requirement. Grantor will not, without the prior written consent of Agent (such
consent of Agent not to be unreasonably withheld), impose any easement,
restrictive covenant, or encumbrance upon the Mortgaged Property, except for
easements that do not materially and adversely affect the Mortgaged Property,
execute or file any subdivision plat or condominium declaration affecting the
Mortgaged Property or consent to the annexation of the Mortgaged Property to any
municipality. Grantor will not do or suffer to be done any act whereby the value
of any part of the Mortgaged Property may be materially and adversely lessened.
Grantor will preserve, protect, renew, extend, and retain all material rights
and privileges granted for or applicable to the Mortgaged Property. Without the
prior written consent of Agent, there shall be no drilling or exploration for or
extraction, removal, or production of any mineral, hydrocarbon, gas, natural
element, compound, or substance (including sand and gravel) from the surface or
subsurface of the Land regardless of the depth thereof or the method of mining
or extraction thereof. Grantor will cause all debts and liabilities of any
character (including without limitation all debts and liabilities for labor,
material and equipment and all debts and charges for utilities servicing the
Mortgaged Property) incurred in the construction, maintenance, operation, and
development of the Mortgaged Property to be promptly paid, except for debts and
liabilities being contested in good faith by appropriate proceedings and for
which Grantor has established reserves in accordance with GAAP or obtained other
security (in each case reasonably acceptable to the Administrative Agent).
(k) CERTAIN ENVIRONMENTAL MATTERS.
(i) DEFINITIONS. As used in this Deed of Trust: (1) "ENVIRONMENTAL
CLAIM" means any investigative, enforcement, cleanup, removal, containment,
remedial, or other governmental or regulatory action at any time threatened,
instituted, or completed pursuant to any applicable Environmental Requirement
against Grantor or against or with respect to the Mortgaged Property or any use
or activity on the Mortgaged Property, and any claim at any time threatened or
made by any person against Grantor or against or with respect to the Mortgaged
Property or any use or activity on the Mortgaged Property, relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from any
Hazardous Substance; (2) "ENVIRONMENTAL REQUIREMENT" means any Legal Requirement
which pertains to ground or air or water or noise pollution or contamination,
underground or aboveground tanks, health or the environment, including without
limitation, the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended ("CERCLA"), the Resource Conservation and Recovery Act
of 1976, as amended ("RCRA"), the Texas Water Code and the Texas Solid Waste
Disposal; and (3) "HAZARDOUS SUBSTANCE" means any substance, whether solid,
liquid or gaseous: (a) which is listed, defined or regulated as a "hazardous
substance," "hazardous waste" or "solid waste", or otherwise classified as
hazardous or toxic, in or pursuant to any Environmental Requirement; or (b)
which is or contains petroleum products, asbestos, radon, any polychlorinated
biphenyl, urea formaldehyde foam insulation, or explosive or radioactive
material; or (c) which causes or poses a threat to cause a contamination or
nuisance on the Mortgaged Property or on any adjacent property or a hazard to
the environment or to the health or safety of persons on the Mortgaged Property.
As used in this PARAGRAPH (K), the word "on" when used with respect to the
Mortgaged Property or adjacent property means "on, in, under, above or about."
(ii) REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants
to Agent and Holders, without regard to whether Agent or any Holder has or
hereafter obtains any knowledge or report of the environmental condition of the
Mortgaged Property, that (except as specifically disclosed to
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Agent in a written environmental report or other writing delivered by Grantor to
Agent prior to the date of execution hereof): (1) during the period of Grantor's
ownership of the Mortgaged Property, the Mortgaged Property has not been used
for industrial or manufacturing purposes, for landfill, dumping or other waste
disposal activity or operation, for generation, storage, use, sale, treatment,
processing, recycling, or disposal of any Hazardous Substance, or for any other
use that would give rise to the release of any Hazardous Substance on the
Mortgaged Property except for (A) the storage and use of cleaning and
maintenance materials, used and stored in commercially reasonable quantities and
in compliance with applicable Environmental Requirements, and (B) light
manufacturing and distribution activities of tenants, in compliance with
applicable Environmental Requirements, provided that such tenants are not
primarily engaged in the treatment, processing, recycling, or disposal of any
Hazardous Substance, or for any other use that would give rise to the release of
any Hazardous Substance on the Mortgaged Property; (2) to the best of Grantor's
knowledge after inquiry in accordance with good commercial or customary
practices, no use of the Mortgaged Property described in clause (1) preceding
occurred at any time prior to the period of Grantor's ownership of the Mortgaged
Property nor did any such use on any adjacent property occur during or at any
time prior to the period of Grantor's ownership of the Mortgaged Property, and
there is no Hazardous Substance, storage tanks (or similar vessel), sump or well
on the Mortgaged Property; (3) Grantor has received no notice and has no
knowledge of any Environmental Claim or any completed, pending, proposed or
threatened investigation or inquiry concerning the presence or release of any
Hazardous Substance on the Mortgaged Property or on any adjacent property or
concerning whether any condition, use or activity on the Mortgaged Property or
on any adjacent property is in violation of any Environmental Requirement; (4)
the present conditions, uses, and activities on the Mortgaged Property do not
violate any Environmental Requirement and the use of the Mortgaged Property
which Grantor (and each tenant and subtenant, if any) makes and intends to make
of the Mortgaged Property complies and will comply with all applicable
Environmental Requirements; (5) the Mortgaged Property is not currently on, and
to the best of Grantor's knowledge after inquiry in accordance with good
commercial or customary practices, has never been on, any federal or state
"superfund" or "superlien" list; and (6) neither Grantor, nor to Grantor's
knowledge any tenant or subtenant, has obtained or is required to obtain any
permit or other authorization to construct, occupy, operate, use, or conduct any
activity on any of the Mortgaged Property by reason of any Environmental
Requirement.
(iii) VIOLATIONS. Grantor will not cause, commit, permit or allow to
continue any violation of any Environmental Requirement by Grantor or by or with
respect to the Mortgaged Property or any use or activity on the Mortgaged
Property, or the attachment of any environmental lien to the Mortgaged Property.
Grantor will not place, install, dispose of, or release, or cause, permit or
allow the placing, installation, disposal or release of, any Hazardous Substance
or storage tank (or similar vessel) on the Mortgaged Property and will keep the
Mortgaged Property free of any Hazardous Substance, if the failure to do any of
the foregoing would subject the Mortgaged Property to remediation or reporting
requirements under any Environmental Requirement, except for (A) the storage and
use of cleaning and maintenance materials, used and stored in commercially
reasonable quantities in compliance with applicable Environmental Requirements,
and (B) light manufacturing and distribution activities of tenants, in
compliance with applicable Environmental Requirements, provided that such
tenants are not primarily engaged in the treatment, processing, recycling, or
disposal of any Hazardous Substance.
(iv) NOTICE TO AGENT. Grantor will promptly advise Agent in writing
of any Environmental Claim or of the discovery of any Hazardous Substance on the
Mortgaged Property, as soon as Grantor first obtains knowledge thereof,
including a full description of the nature and extent of the Environmental Claim
and/or Hazardous Substance and all relevant circumstances.
(v) SITE ASSESSMENTS AND INFORMATION. If Agent shall ever have
reason to believe that any Hazardous Substance affects the Mortgaged Property,
or if any Environmental Claim is made or threatened, or if a default shall have
occurred, Grantor will at its expense provide to Agent from time-to-time, in
each case within thirty (30) days of Agent's request, a report (including all
drafts thereof if
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requested by Agent) of an environmental assessment of the Mortgaged Property
made after the date of Agent's request and of such scope (including but not
limited to the taking of soil borings, air and groundwater samples and other
above and below ground testing) as Agent may request and by a consulting firm
acceptable to Agent. Grantor will cooperate with each consulting firm making any
such assessment and will supply to the consulting firm, from time-to-time and
promptly on request, all information available to Grantor to facilitate the
completion of the assessment and report.
(vi) REMEDIAL ACTIONS. Without limitation of Agent's rights to
declare a default and to exercise all remedies available by reason thereof, if
any Hazardous Substance is discovered on the Mortgaged Property at any time and
regardless of the cause, Grantor shall: (1) promptly at Grantor's sole risk and
expense remove, treat, and dispose of the Hazardous Substance in compliance with
all applicable Environmental Requirements and solely under Grantor's name (or if
removal is prohibited by any Environmental Requirement, take whatever action is
required by applicable Environmental Requirements), in addition to taking such
other action as is necessary to have the full use and benefit of the Mortgaged
Property as contemplated by the Loan Documents, and provide Agent with
satisfactory evidence thereof; and (2) if requested by Agent, provide to Agent
within thirty (30) days of Agent's request a bond, letter of credit, or other
financial assurance evidencing to Agent's satisfaction that all necessary funds
are readily available to pay the costs and expenses of the actions required by
clause (1) preceding and to discharge any assessments or liens established
against the Mortgaged Property as a result of the presence of the Hazardous
Substance on the Mortgaged Property.
(l) FURTHER ASSURANCES. Grantor will, promptly on request of Agent: (i)
correct any defect, error, or omission which may be discovered in the contents,
execution, or acknowledgment of this Deed of Trust or any other Loan Document;
(ii) execute, acknowledge, deliver, procure, and record and/or file such further
documents (including, without limitation, further deeds of trust, security
agreements, financing statements, continuation statements, and assignments of
rents or leases) and do such further acts as may be reasonably necessary,
desirable, or proper to carry out more effectively the purposes of this Deed of
Trust and the other Loan Documents, to more fully identify and subject to the
liens and security interests hereof any property intended to be covered hereby
(including specifically, but without limitation, any renewals, additions,
substitutions, replacements, or appurtenances to the Mortgaged Property) or as
deemed advisable by Agent to protect the lien or the security interest hereunder
against the rights or interests of third persons; and (iii) provide such
certificates, documents, reports, information, affidavits, and other instruments
and do such further acts as may be reasonably necessary, desirable, or proper in
the reasonable determination of Agent to enable Agent to comply with the
requirements or requests of any agency having jurisdiction over Agent or any
examiners of such agencies with respect to the indebtedness secured hereby,
Grantor or the Mortgaged Property. Grantor shall pay all costs connected with
any of the foregoing, which shall be a demand obligation owing by Grantor (which
Grantor hereby promises to pay) to Agent pursuant to this Deed of Trust.
(m) FEES AND EXPENSES. Without limitation of any other provision of this
Deed of Trust or of any other Loan Document and to the extent not prohibited by
applicable law, Grantor will pay, and will reimburse to Agent and/or Trustee on
demand to the extent paid by Agent and/or Trustee all costs and expenses,
including reasonable attorneys' fees and expenses, incurred or expended in
connection with the exercise of any right or remedy, or the enforcement of any
obligation of Grantor, hereunder.
(n) INDEMNIFICATION.
(i) Grantor will indemnify and hold harmless Agent, Holders, and
Trustee from and against, and reimburse them on demand for, any and all
Indemnified Matters (defined below). For purposes of this paragraph (p), the
terms "Agent," "Holder," and "Trustee" shall include the directors, officers,
partners, employees, and agents of Agent, each Holder, and Trustee,
respectively, and any persons
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owned or controlled by, owning or controlling, or under common control or
affiliated with any Agent, Holder, or Trustee, respectively. WITHOUT LIMITATION,
THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO
MATTERS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE
OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PERSON. However, such indemnities shall
not apply to a particular indemnified person to the extent that the subject of
the indemnification is caused by or arises out of the gross negligence or
willful misconduct of that indemnified person. Any amount to be paid under this
PARAGRAPH (N) by Grantor to Agent, any Holder, and/or Trustee shall be a demand
obligation owing by Grantor (which Grantor hereby promises to pay) to Agent, any
Holder, and/or Trustee pursuant to this Deed of Trust. Nothing in this
paragraph, elsewhere in this Deed of Trust or in any other Loan Document shall
limit or impair any rights or remedies of Agent, any Holder, and/or Trustee
(including without limitation any rights of contribution or indemnification)
against Grantor or any other person under any other provision of this Deed of
Trust, any other Loan Document, any other agreement or any applicable Legal
Requirement.
(ii) As used herein, the term "INDEMNIFIED MATTERS" means any and all
claims, demands, liabilities (including strict liability), losses, damages
(including consequential damages), causes of action, judgments, penalties,
costs, and expenses (including without limitation, reasonable fees and expenses
of attorneys and other professional consultants and experts, and of the
investigation and defense of any claim, whether or not such claim is ultimately
defeated, and the settlement of any claim or judgment including all value paid
or given in settlement) of every kind, known or unknown, foreseeable or
unforeseeable, which may be imposed upon, asserted against or incurred or paid
by, Agent, any Holder, and/or Trustee at any time and from time-to-time,
whenever imposed, asserted or incurred, because of, resulting from, in
connection with, or arising out of any transaction, act, omission, event or
circumstance in any way connected with the Mortgaged Property or with this Deed
of Trust or any other Loan Document, including but not limited to any bodily
injury or death or property damage occurring in or upon or in the vicinity of
the Mortgaged Property through any cause whatsoever at any time on or before the
Release Date, any act performed or omitted to be performed hereunder or under
any other Loan Document on or before the Release Date, any breach by Grantor of
any representation, warranty, covenant, agreement, or condition contained in
this Deed of Trust or in any other Loan Document, any default as defined herein,
any claim under or with respect to any Lease (hereinafter defined) and any
Environmental Matter (defined below) on or before the Release Date. As used
herein, the term "ENVIRONMENTAL MATTER" means: (a) the presence of any Hazardous
Substance on, in, under, above, or about the Mortgaged Property, or the
migration or release or threatened migration or release of any Hazardous
Substance on, to, from, or through the Mortgaged Property, on or at any time
before the Release Date; or (b) any act, omission, event, or circumstance
existing or occurring in connection with the handling, treatment, containment,
removal, storage, decontamination, clean-up, transport, or disposal of any
Hazardous Substance which is at any time on or before the Release Date present
on, in, under, above or about the Mortgaged Property; or (c) any violation on or
before the Release Date, of any Environmental Requirement in effect on or before
the Release Date, regardless of whether any act, omission, event or circumstance
giving rise to the violation constituted a violation at the time of the
occurrence or inception of such act, omission, event or circumstance; or (d) any
Environmental Claim, or the filing or imposition of any environmental lien
against the Mortgaged Property, because of, resulting from, in connection with,
or arising out of any of the matters referred to in clauses (a) through (c)
preceding; and regardless of whether any of the matters referred to in the
foregoing clauses (a) through (d) was caused by Grantor or Grantor's tenant or
any subtenant, or a prior owner of the Mortgaged Property or its tenant or any
subtenant, or any third party. Without limitation of the definition of
Indemnified Matters herein, Grantor's indemnification obligations regarding any
Environmental Matter shall include injury or damage to any person, property or
natural resource occurring upon or off of the Mortgaged Property (including but
not limited to the cost of demolition and rebuilding of any improvements on real
property), the preparation of any feasibility studies or reports and the
performance of any cleanup, remediation, removal, response, abatement,
containment, closure, restoration, monitoring, or similar work required by any
Environmental Requirement or necessary to have the full use and benefit of the
Mortgaged Property as contemplated by the Loan Documents (including, without
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limitation, any of the same in connection with any foreclosure, or transfer in
lieu thereof), and all liability to pay or indemnify any person for costs in
connection with any of the foregoing. The term "RELEASE DATE" as used herein
means the earlier of the following two dates: (i) the date on which the
indebtedness and obligations secured hereby have been paid and performed in full
and this Deed of Trust has been released, or (ii) the date on which the lien of
this Deed of Trust is fully and finally foreclosed or a conveyance by deed in
lieu of such foreclosure is fully and finally effective, and possession of the
Mortgaged Property has been given to the purchaser or grantee free of occupancy
and claims to occupancy by Grantor and Grantor's heirs, devisees,
representatives, successors, and assigns; provided, that if such payment,
performance, release, foreclosure, or conveyance is challenged, in bankruptcy
proceedings or otherwise, the Release Date shall be deemed not to have occurred
until such challenge is rejected, dismissed, or withdrawn with prejudice. The
indemnities in this PARAGRAPH (N) shall not terminate upon the Release Date or
upon the release, foreclosure or other termination of this Deed of Trust but
will survive the Release Date, foreclosure of this Deed of Trust or conveyance
in lieu of foreclosure, the repayment of the secured indebtedness, the discharge
and release of this Deed of Trust and the other Loan Documents, any bankruptcy
or other debtor relief proceeding, and any other event whatsoever.
(o) RECORDS AND FINANCIAL REPORTS. Grantor will keep accurate books and
records in accordance with sound accounting principles in which full, true and
correct entries shall be promptly made with respect to the Mortgaged Property
and the operation thereof, and upon reasonable notice will permit all such books
and records to be inspected and copied, and, subject to rights of tenants, the
Mortgaged Property to be inspected and photographed, by Agent and its
representatives upon reasonable notice and during normal business hours and at
any other reasonable times. Without limitation of other or additional
requirements in any of the other Loan Documents, Grantor will furnish to Agent
current operating statements itemizing all income and expenses of the Mortgaged
Property, for each month (and for the fiscal year through the end of such month)
as soon as reasonably practicable but in any event within thirty (30) days after
the end of such month and for each fiscal year of Grantor within ninety (90)
days after the end thereof including also a projection of such operations for
the next fiscal year. Each financial statement submitted pursuant to this
paragraph shall be certified in writing as true and correct by Grantor (or if
Grantor is not a natural person, by a representative of Grantor acceptable to
Agent). Grantor will furnish to Agent at Grantor's expense all evidence which
Agent may from time-to-time reasonably request as to compliance with all
provisions of the Loan Documents. Any inspection or audit of the Mortgaged
Property or the books and records of Grantor, or the procuring of documents and
financial and other information, by or on behalf of Agent shall be for Agent's
protection only, and shall not constitute any assumption of responsibility to
Grantor or anyone else with regard to the condition, construction, maintenance,
or operation of the Mortgaged Property nor Agent's approval of any certification
given to Agent nor relieve Grantor of any of Grantor's obligations. Grantor
consents to the delivery by Agent to any acquirer or prospective acquirer of any
interest or participation in or with respect to all or part of the secured
indebtedness such information as Agent now or hereafter has relating to the
Mortgaged Property, Grantor, any party obligated for payment of any part of the
secured indebtedness, any tenant or guarantor under any lease affecting any part
of the Mortgaged Property and any agent or guarantor under any management
agreement affecting any part of the Mortgaged Property.
(p) TAXES ON NOTES OR DEED OF TRUST. Grantor will promptly pay all income,
franchise, and other taxes owing by Grantor and any stamp taxes or other taxes
(unless such payment by Grantor is prohibited by law) which may be required to
be paid with respect to the Credit Agreement, the Notes, this Deed of Trust, or
any other instrument evidencing or securing any of the secured indebtedness. In
the event of the enactment after this date of any law of any governmental entity
applicable to Agent, Holders, the Credit Agreement, the Notes, the Mortgaged
Property, or this Deed of Trust deducting from the value of property for the
purpose of taxation any lien or security interest thereon, or imposing upon
Agent the payment of the whole or any part of the taxes or assessments or
charges or liens herein required to be paid by Grantor, or changing in any way
the laws relating to the taxation of deeds of trust or mortgages or security
agreements or debts secured by deeds of trust or mortgages or security
agreements or the interest
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of the mortgagee or secured party in the property covered thereby, or the manner
of collection of such taxes, so as to affect this Deed of Trust or the
indebtedness secured hereby or Agent, then, and in any such event, Grantor, upon
demand by Agent, shall pay such taxes, assessments, charges or liens, or
reimburse Agent therefor; provided, however, that if in the opinion of counsel
for Agent (i) it might be unlawful to require Grantor to make such payment or
(ii) the making of such payment might result in the imposition of interest
beyond the maximum amount permitted by law, then and in such event, then Agent,
at the direction of the Required Lenders (as defined in the Credit Agreement),
may elect, by notice in writing given to Grantor, to declare all of the
indebtedness secured hereby to be and become due and payable sixty (60) days
from the giving of such notice.
(q) STATEMENT CONCERNING NOTES OR DEED OF TRUST. Grantor shall at any time
and from time-to-time furnish within seven (7) days of request by Agent a
written statement in such form as may be required by Agent stating that (i) the
Credit Agreement the Notes, this Deed of Trust, and the other Loan Documents
are valid and binding obligations of Grantor, enforceable against Grantor in
accordance with their terms subject to general principles of equity and
applicable debtor relief laws affecting the rights of creditors generally; (ii)
the unpaid principal balance of the Notes; (iii) the date to which interest on
the Notes is paid; (iv) the Credit Agreement, the Notes, this Deed of Trust and
the other Loan Documents have not been released, subordinated or modified; and
(v) there are no offsets or defenses against the enforcement of the Credit
Agreement, the Notes, this Deed of Trust, or any other Loan Document. If any of
the foregoing statements are untrue, Grantor shall, alternatively, specify the
reasons therefor.
Section 2.2. PERFORMANCE BY AGENT ON GRANTOR'S BEHALF. Grantor agrees
that, if Grantor fails to perform any act or to take any action which under any
Loan Document Grantor is required to perform or take, or to pay any money which
under any Loan Document Grantor is required to pay, and whether or not the
failure then constitutes a default hereunder or thereunder, and whether or not
there has occurred any default or defaults hereunder or the secured indebtedness
has been accelerated, Agent, in Grantor's name or its own name, may, but shall
not be obligated to, perform or cause to be performed such act or take such
action or pay such money, and any expenses so incurred by Agent and any money so
paid by Agent shall be payable promptly following demand (which obligation
Grantor hereby promises to pay), shall be a part of the indebtedness secured
hereby, and Agent, upon making such payment, shall be subrogated to all of the
rights of the person, entity, or body politic receiving such payment. Upon
reasonable notice and subject to the rights of tenants, Agent and its designees
shall have the right to enter upon the Mortgaged Property at any time and from
time-to-time for any such purposes. No such payment or performance by Agent
shall waive or cure any default or waive any right, remedy or recourse of Agent
or any Holder. Any such payment may be made by Agent in reliance on any
statement, invoice or claim without inquiry into the validity or accuracy
thereof. Each amount due and owing by Grantor to Agent or any Holder pursuant
to this Deed of Trust shall bear interest, from the date such amount becomes due
until paid, at the rate per annum provided in the Credit Agreement for interest
on past-due principal owed on the Notes but never in excess of the maximum
nonusurious amount permitted by applicable law, which interest shall be payable
to Agent and to Holders promptly following demand; and all such amounts,
together with such interest thereon, shall automatically and without notice be a
part of the indebtedness secured hereby. The amount and nature of any expense
by Agent hereunder and the time when paid shall be fully established by the
certificate of Agent or any of Agent's officers or agents. Agent shall exercise
its reasonable best efforts to notify Grantor prior to taking any such steps or
incurring any such expenditures, except in the case of exigent circumstances.
Section 2.3. ABSENCE OF OBLIGATIONS OF AGENT OR HOLDERS WITH RESPECT TO
MORTGAGED PROPERTY. Notwithstanding anything in this Deed of Trust to the
contrary, including, without limitation, the definition of "Mortgaged Property"
and/or the provisions of ARTICLE 3 hereof, (i) to the extent permitted by
applicable law, the Mortgaged Property is composed of Grantor's rights, titles
and interests therein but not Grantor's obligations, duties, or liabilities
pertaining thereto, (ii) neither Agent nor any Holder assumes nor shall have any
obligations, duties, or liabilities in connection with any portion of the items
described in the
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definition of "Mortgaged Property" herein, either prior to or after obtaining
title to such Mortgaged Property, whether by foreclosure sale, the granting of a
deed in lieu of foreclosure or otherwise, and (iii) Agent may, at any time prior
to or after the acquisition of title to any portion of the Mortgaged Property as
above described, advise any party in writing as to the extent of Agent's
interest therein and/or expressly disaffirm in writing any rights, interests,
obligations, duties, and/or liabilities with respect to such Mortgaged Property
or matters related thereto. Without limiting the generality of the foregoing, it
is understood and agreed that neither Agent nor any Holder shall have any
obligations, duties, or liabilities prior to or after acquisition of title to
any portion of the Mortgaged Property, as lessee under any lease or purchaser or
seller under any contract or option unless Agent or such Holder elects otherwise
by written notification.
ARTICLE 3
COLLATERAL ASSIGNMENT OF RENTS AND LEASES
Section 3.1. ASSIGNMENT. As additional security for the indebtedness
secured hereby, Grantor hereby assigns to Agent, for the benefit of Holders, all
Rents (hereinafter defined) and all of Grantor's rights in and under all Leases
(hereinafter defined). Upon the occurrence of a default hereunder, Agent shall
have the right, power, and privilege (but shall be under no duty) to demand
possession of the Rents, which demand shall to the fullest extent permitted by
applicable law be sufficient action by Agent to entitle Agent to immediate and
direct payment of the Rents, (including delivery to Agent of Rents collected for
the period in which the demand occurs and for any subsequent period), for
application as provided in this Deed of Trust, all without the necessity of any
further action by Agent, including, without limitation, any action to obtain
possession of the Land, Improvements or any other portion of the Mortgaged
Property. Grantor hereby authorizes and directs the tenants under the Leases to
pay Rents to Agent upon written demand by Agent, without further consent of
Grantor, without any obligation to determine whether a default has in fact
occurred and regardless of whether Agent has taken possession of any portion of
the Mortgaged Property, and the tenants may rely upon any written statement
delivered by Agent to the tenants. Any such payment to Agent shall constitute
payment to Grantor under the Leases, and Grantor hereby appoints Agent as
Grantor's lawful attorney-in-fact for giving, and Agent is hereby empowered to
give, acquittances to any tenants for such payments to Agent after a default.
The assignment contained in this SECTION shall become null and void upon the
release of this Deed of Trust. As used herein: (i) "LEASE" means each existing
or future lease, sublease (to the extent of Grantor's rights thereunder) or
other agreement under the terms of which any person has or acquires any right to
occupy or use the Mortgaged Property, or any part thereof, or interest therein,
and each existing or future guaranty of payment or performance thereunder, and
all extensions, renewals, modifications and replacements of each such lease,
sublease, agreement or guaranty; and (ii) "RENTS" means all of the rents,
revenue, income, profits and proceeds derived and to be derived from the
Mortgaged Property or arising from the use or enjoyment of any portion thereof
or from any Lease, including but not limited to liquidated damages following
default under any such Lease, all proceeds payable under any policy of insurance
covering loss of rents resulting from untenantability caused by damage to any
part of the Mortgaged Property, all of Grantor's rights to recover monetary
amounts from any tenant in bankruptcy including, without limitation, rights of
recovery for use and occupancy and damage claims arising out of Lease defaults,
including rejections, under any applicable Debtor Relief Law (as hereinafter
defined), together with any sums of money that may now or at any time hereafter
be or become due and payable to Grantor by virtue of any and all royalties,
overriding royalties, bonuses, delay rentals and any other amount of any kind or
character arising under any and all present and all future oil, gas, mineral and
mining leases covering the Mortgaged Property or any part thereof, and all
proceeds and other amounts paid or owing to Grantor under or pursuant to any and
all contracts and bonds relating to the construction or renovation of the
Mortgaged Property.
Section 3.2. COVENANTS, REPRESENTATIONS AND WARRANTIES CONCERNING LEASES
AND RENTS.
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Grantor covenants, represents, and warrants that: (i) Grantor has good title to,
and is the owner of the entire landlord's interest in, the Leases and Rents
hereby assigned and authority to assign them; (ii) all Leases are valid and
enforceable, and in full force and effect, and are unmodified except as stated
therein; (iii) unless otherwise stated in a Permitted Encumbrance, no Rents or
Leases have been or will be assigned, mortgaged, pledged, or otherwise
encumbered and no other person has or will acquire any right, title or interest
in such Rents or Leases; (iv) no Rents have been waived, released, discounted,
set off, or compromised except in the ordinary course of Grantor's business; (v)
except as stated in the Leases, Grantor has not received any funds or deposits
from any tenant for which credit has not already been made on account of accrued
Rents; (vi) Grantor shall perform all of its obligations under the Leases and
enforce the tenants' obligations under the leases to the extent enforcement is
prudent under the circumstances; (vii) Grantor will not (except in the ordinary
course of Grantor's business so long as no default exists) without the prior
written consent of Agent, waive, release, discount, set off, compromise, reduce,
or defer any Rent, receive or collect Rents more than one (1) month in advance,
grant any rent-free period to any tenant, reduce any Lease term or waive,
release, or otherwise modify any other material obligation under any Lease,
approve or consent to an assignment of a Lease or a subletting of any part of
the premises covered by a Lease, or settle or compromise any claim against a
tenant under a Lease in bankruptcy or otherwise; (viii) Grantor will not, except
in good faith where the tenant is in material default thereunder or in the
ordinary course of Borrower's business so long as no default exists, terminate
or consent to the cancellation or surrender of any Lease having an unexpired
term of one year or more unless promptly after the cancellation or surrender a
new Lease of such premises is made with a new tenant having a credit standing,
in Agent's judgment, at least equivalent to that of the tenant whose Lease was
canceled, on substantially the same terms as the terminated or canceled Lease;
(ix) Grantor will not execute any Lease except in accordance with the Loan
Documents and for actual occupancy by the tenant thereunder; (x) Grantor shall
give prompt notice to Agent, as soon as Grantor first obtains notice the
commencement of any action, by any tenant or subtenant under or with respect to
a Lease regarding any claimed damage, default, diminution of or offset against
Rent, cancellation of the Lease, or constructive eviction, and Grantor shall
defend, at Grantor's expense, any proceeding pertaining to any Lease, including,
if Agent so requests, any such proceeding to which Agent is a party; (xi)
Grantor shall as often as requested by Agent (but not more often than once each
calendar month), within ten (10) days of each request, deliver to Agent a
complete rent roll of the Mortgaged Property in such detail as Agent may
reasonably require, and financial statements of the tenants, subtenants and
guarantors under the Leases to the extent available to Grantor, and deliver to
such of the tenants and others obligated under the Leases specified by Agent
written notice of the assignment in SECTION 3.1 hereof in form and content
satisfactory to Agent; (xii) promptly upon request by Agent, Grantor shall
deliver to Agent executed originals of all Leases and copies of all records
relating thereto; (xiii) there shall be no merger of the leasehold estates,
created by the Leases, with the fee estate of the Land without the prior written
consent of Agent; and (xiv) Agent may at any time and from time-to-time by
specific written instrument intended for the purpose, unilaterally subordinate
the lien of this Deed of Trust to any Lease, without joinder or consent of, or
notice to, Grantor, any tenant or any other person, and notice is hereby given
to each tenant under a Lease of such right to subordinate; and (xv) the Leases
and all of each lessee's rights thereunder are, shall be, and shall remain
subordinate and inferior to this Deed of Trust, the other Loan Documents, and
the liens and security interests created hereby and thereby. No such
subordination shall constitute a subordination to any lien or other encumbrance,
whenever arising, or improve the right of any junior lienholder; and nothing
herein shall be construed as subordinating this Deed of Trust to any Lease.
Section 3.3. NO LIABILITY OF AGENT OR HOLDER. Agent's acceptance of this
assignment shall not be deemed to constitute Agent a "mortgagee in possession,"
nor obligate Agent to appear in or defend any proceeding relating to any Lease
or to the Mortgaged Property, or to take any action hereunder, expend any money,
incur any expenses, or perform any obligation or liability under any Lease, or
assume any obligation for any deposit delivered to Grantor by any tenant and not
as such delivered to and accepted by Agent. Neither Agent nor any Holder shall
be liable for any injury or damage to person or property in or about the
Mortgaged Property, or for Agent's failure to collect or to exercise diligence
in collecting Rents,
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but shall be accountable only for Rents that it shall actually receive. Neither
the assignment of Leases and Rents nor enforcement of Agent's rights regarding
Leases and Rents (including collection of Rents) nor possession of the Mortgaged
Property by Agent nor Agent's consent to or approval of any Lease (nor all of
the same), shall render Agent liable on any obligation under or with respect to
any Lease or constitute affirmation of, or any subordination to, any Lease,
occupancy, use or option. If Agent seeks or obtains any judicial relief
regarding Rents or Leases, the same shall in no way prevent the concurrent or
subsequent employment of any other appropriate rights or remedies nor shall same
constitute an election of judicial relief for any foreclosure or any other
purpose. Agent neither has nor assumes any obligations as lessor or landlord
with respect to any Lease. The rights of Agent under this ARTICLE 3 shall be
cumulative of all other rights of Agent under the Loan Documents or otherwise.
ARTICLE 4
DEFAULT
Section 4.1. EVENTS OF DEFAULT. The occurrence of any one of the
following shall be a default under this Deed of Trust ("DEFAULT"):
(a) CREDIT AGREEMENT. A Default under the Credit Agreement.
(b) TRANSFER OF THE MORTGAGED PROPERTY. Except as otherwise permitted in
the Loan Documents, any sale, lease, conveyance, assignment, pledge,
encumbrance, or transfer of all or any part of the Mortgaged Property or any
interest therein, voluntarily or involuntarily, whether by operation of law or
otherwise, except: (i) sales or transfers of items of the Accessories which
have become obsolete or worn beyond practical use and which have been replaced
by adequate substitutes, owned by Grantor, having a value equal to or greater
than the replaced items when new; and (ii) the grant, in the ordinary course of
business, of a leasehold interest in a part of the Improvements to a tenant for
occupancy, not containing a right or option to purchase and not in contravention
of any provision of this Deed of Trust or of any other Loan Document. Agent
may, in its sole discretion, waive a default under this paragraph, but it shall
have no obligation to do so, and any waiver may be conditioned upon such one or
more of the following (if any) which Agent may require: the grantee's
integrity, reputation, character, creditworthiness and management ability being
satisfactory to Agent in its sole judgment and grantee executing, prior to such
sale or transfer, a written assumption agreement containing such terms as Agent
may require, a principal paydown on the Note, an increase in the rate of
interest payable under the Note, a transfer fee, a modification of the term of
the Note, and any other modification of the Loan Documents which Agent may
require.
(c) ABANDONMENT. The owner of the Mortgaged Property abandons any of the
Mortgaged Property.
(d) DEFAULT UNDER OTHER LIEN. A default or event of default occurs under
any lien, security interest, or assignment covering the Mortgaged Property or
any part thereof (whether or not Agent has consented, and without hereby
implying Agent's consent, to any such lien, security interest, or assignment not
created hereunder), or the holder of any such lien, security interest, or
assignment declares a default or institutes foreclosure or other proceedings for
the enforcement of its remedies thereunder.
(e) ENFORCEABILITY; PRIORITY. The liens, mortgages, or security interests
of Agent in any of the Mortgaged Property, for the benefit of Lenders, become
unenforceable in whole or in part, or cease to be of the priority herein
required, or the validity or enforceability thereof, in whole or in part, shall
be challenged or denied by Grantor or any person obligated to pay any part of
the secured indebtedness, unless the Mortgaged Property is removed from the
Borrowing Base and, after giving effect thereto, no default exists
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and the remaining Borrowing Base exceeds the Obligation.
(f) OTHER LOAN DOCUMENTS. A default or event of default occurs under any
Loan Document, other than this Deed of Trust, and the same is not remedied
within the applicable period of grace (if any) provided in such Loan Document.
Section 4.2 NOTICE AND CURE. If any provision of this Deed of Trust or any
other Loan Document provides for Agent to give to Grantor any notice regarding a
default or incipient default, then if Agent shall fail to give such notice to
Grantor as provided, the sole and exclusive remedy of Grantor for such failure
shall be to seek appropriate equitable relief to enforce the agreement to give
such notice and to have any acceleration of the maturity of the Notes and the
secured indebtedness postponed or revoked and foreclosure proceedings in
connection therewith delayed or terminated pending or upon the curing of such
default in the manner and during the period of time permitted by such agreement,
if any, and Grantor shall have no right to damages or any other type of relief
not herein specifically set out against Agent, all of which damages or other
relief are hereby waived by Grantor. Nothing herein or in any other Loan
Document shall operate or be construed to add on or make cumulative any cure or
grace periods specified in any of the Loan Documents.
ARTICLE 5
REMEDIES
Section 5.1. CERTAIN REMEDIES. If a default shall occur and be
continuing, Agent may (but shall have no obligation to) exercise any one or more
of the following remedies, without notice (unless notice is required by
applicable statute):
(a) ACCELERATION. Agent may at any time and from time-to-time declare any
or all of the secured indebtedness immediately due and payable and such secured
indebtedness shall thereupon be immediately due and payable, without
presentment, demand, protest, notice of protest, notice of acceleration or of
intention to accelerate or any other notice or declaration of any kind, all of
which are hereby expressly waived by Grantor. Without limitation of the
foregoing, upon the occurrence of a default described in Section 10.3 of the
Credit Agreement, all of the secured indebtedness shall thereupon be immediately
due and payable, without presentment, demand, protest, notice of protest,
declaration or notice of acceleration or intention to accelerate, or any other
notice, declaration, or act of any kind, all of which are hereby expressly
waived by Grantor.
(b) ENFORCEMENT OF ASSIGNMENT OF RENTS. Prior or subsequent to taking
possession of any portion of the Mortgaged Property or taking any action with
respect to such possession, Agent may: (1) collect and/or sue for the Rents in
Agent's own name, give receipts and releases therefor, and after deducting all
expenses of collection, including reasonable attorneys' fees and expenses, apply
the net proceeds thereof to the secured indebtedness in such manner and order as
Agent may elect and/or to the operation and management of the Mortgaged
Property, including the payment of management, brokerage, and reasonable
attorneys' fees and expenses; and (2) require Grantor to transfer all security
deposits and records thereof to Agent together with original counterparts of the
Leases.
(c) FORECLOSURE. Upon the occurrence of a default, Trustee, or his
successor or substitute, is authorized and empowered and it shall be his special
duty at the request of Agent to sell the Mortgaged Property or any part thereof
situated in the State of Texas, at the courthouse of any county (whether or not
the counties in which the Mortgaged Property is located are contiguous, if the
Mortgaged Property is located in more than one county) in the State of Texas in
which any part of the Mortgaged Property is
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situated, at public vendue to the highest bidder for cash between the hours of
ten o'clock a.m. and four o'clock p.m. on the first Tuesday in any month or at
such other place, time and date as provided by the statutes of the State of
Texas then in force governing sales of real estate under powers of sale
conferred by deed of trust, after having given notice of such sale in accordance
with such statutes. Any sale made by Trustee hereunder may be as an entirety or
in such parcels as Agent may request. To the extent permitted by applicable law,
any sale may be adjourned by announcement at the time and place appointed for
such sale without further notice except as may be required by law. The sale by
Trustee of less than the whole of the Mortgaged Property shall not exhaust the
power of sale herein granted, and Trustee is specifically empowered to make
successive sale or sales under such power until the whole of the Mortgaged
Property shall be sold; and, if the proceeds of such sale of less than the whole
of the Mortgaged Property shall be less than the aggregate of the indebtedness
secured hereby and the expense of executing this trust as provided herein, this
Deed of Trust and the lien hereof shall remain in full force and effect as to
the unsold portion of the Mortgaged Property just as though no sale had been
made; provided, however, that Grantor shall never have any right to require the
sale of less than the whole of the Mortgaged Property but Agent shall have the
right, at its sole election, to request Trustee to sell less than the whole of
the Mortgaged Property. Trustee may, after any request or direction by Agent,
sell not only the real property but also the Collateral and other interests
which are a part of the Mortgaged Property, or any part thereof, as a unit and
as a part of a single sale, or may sell any part of the Mortgaged Property
separately from the remainder of the Mortgaged Property. It shall not be
necessary for Trustee to have taken possession of any part of the Mortgaged
Property or to have present or to exhibit at any sale any of the Collateral.
After each sale, Trustee shall make to the purchaser or purchasers at such sale
good and sufficient conveyances in the name of Grantor, conveying the property
so sold to the purchaser or purchasers with general warranty of title by
Grantor, subject to the Permitted Encumbrances (and to such leases and other
matters, if any, as Trustee may elect upon request of Agent), and shall receive
the proceeds of said sale or sales and apply the same as herein provided.
Payment of the purchase price to the Trustee shall satisfy the obligation of
purchaser at such sale therefor, and such purchaser shall not be responsible for
the application thereof. The power of sale granted herein shall not be exhausted
by any sale held hereunder by Trustee or his substitute or successor, and such
power of sale may be exercised from time-to-time and as many times as Agent may
deem necessary until all of the Mortgaged Property has been duly sold and all
secured indebtedness has been fully paid. In the event any sale hereunder is not
completed or is defective in the opinion of Agent, such sale shall not exhaust
the power of sale hereunder and Agent shall have the right to cause a subsequent
sale or sales to be made hereunder. Any and all statements of fact or other
recitals made in any deed or deeds or other conveyances given by Trustee or any
successor or substitute appointed hereunder as to nonpayment of the secured
indebtedness or as to the occurrence of any default, or as to Agent's having
declared all of said indebtedness to be due and payable, or as to the request to
sell, or as to notice of time, place and terms of sale and the properties to be
sold having been duly given, or as to the refusal, failure or inability to act
of Trustee or any substitute or successor trustee, or as to the appointment of
any substitute or successor trustee, or as to any other act or thing having been
duly done by Agent or by such Trustee, substitute or successor, shall be taken
as prima facie evidence of the truth of the facts so stated and recited. The
Trustee or his successor or substitute may appoint or delegate any one or more
persons as agent to perform any act or acts necessary or incident to any sale
held by Trustee, including the posting of notices and the conduct of sale, but
in the name and on behalf of Trustee, his successor or substitute. If Trustee or
his successor or substitute shall have given notice of sale hereunder, any
successor or substitute Trustee thereafter appointed may complete the sale and
the conveyance of the property pursuant thereto as if such notice had been given
by the successor or substitute Trustee conducting the sale.
(d) UNIFORM COMMERCIAL CODE. Without limitation of Agent's rights of
enforcement with respect to the Collateral or any part thereof in accordance
with the procedures for foreclosure of real estate, Agent may exercise its
rights of enforcement with respect to the Collateral or any part thereof under
the Texas Business and Commerce Code as amended (or under the Uniform Commercial
Code in force in any other state to the extent the same is applicable law) and
in conjunction with, in addition to or in substitution for those rights and
remedies: (1) Agent may enter upon Grantor's premises to take possession of,
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assemble and collect the Collateral or, to the extent and for those items of the
Collateral permitted under applicable law, to render it unusable; (2) Agent may
require Grantor to assemble the Collateral and make it available at a place
Agent designates which is mutually convenient to allow Agent to take possession
or dispose of the Collateral; (3) written notice mailed to Grantor as provided
herein at least ten (10) days prior to the date of public sale of the Collateral
or prior to the date after which private sale of the Collateral will be made
shall constitute reasonable notice; (4) any sale made pursuant to the provisions
of this paragraph shall be deemed to have been a public sale conducted in a
commercially reasonable manner ifheld contemporaneously with and upon the same
notice as required for the sale of the Mortgaged Property under power of sale as
provided in paragraph (c) above in this SECTION 5.1; (5) in the event of a
foreclosure sale, whether made by Trustee under the terms hereof, or under
judgment of a court, the Collateral and the other Mortgaged Property may, at the
option of Agent, be sold as a whole; (6) it shall not be necessary that Agent
take possession of the Collateral or any part thereof prior to the time that any
sale pursuant to the provisions of this SECTION is conducted and it shall not be
necessary that the Collateral or any part thereof be present at the location of
such sale; (7) with respect to application of proceeds of disposition of the
Collateral under SECTION 5.3 hereof, the costs and expenses incident to
disposi tion shall include the reasonable expenses of retaking, holding,
preparing for sale or lease, selling, leasing and the like and the reasonable
attorneys' fees and legal expenses incurred by Agent; (8) any and all statements
of fact or other recitals made in any bill of sale or assignment or other
instrument evidencing any foreclosure sale hereunder as to nonpayment of the
secured indebtedness or as to the occurrence of any default, or as to Agent
having declared all of such indebtedness to be due and payable, or as to notice
of time, place and terms of sale and of the properties to be sold having been
duly given, or as to any other act or thing having been duly done by Agent,
shall be taken as prima facie evidence of the truth of the facts so stated and
recited; and (9) Agent may appoint or delegate any one or more persons as agent
to perform any act or acts necessary or incident to any sale held by Agent,
including the sending of notices and the conduct of the sale, but in the name
and on behalf of Agent.
(e) LAWSUITS. Agent may proceed by a suit or suits in equity or at law,
whether for collection of the indebtedness secured hereby, the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for any foreclosure hereunder or for
the sale of the Mortgaged Property under the judgment or decree of any court or
courts of competent jurisdiction.
(f) ENTRY ON MORTGAGED PROPERTY. Agent is authorized, prior or subsequent
to the institution of any foreclosure proceedings, to the fullest extent
permitted by applicable law, to enter upon the Mortgaged Property, or any part
thereof, and to take possession of the Mortgaged Property and all books and
records relating thereto, and to exercise without interference from Grantor any
and all rights which Grantor has with respect to the management, possession,
operation, protection or preservation of the Mortgaged Property. Agent shall
not be deemed to have taken possession of the Mortgaged Property or any part
thereof except upon the exercise of its right to do so, and then only to the
extent evidenced by its demand and overt act specifically for such purpose. All
costs, expenses and liabilities of every character incurred by Agent in
managing, operating, maintaining, protecting or preserving the Mortgaged
Property shall constitute a demand obligation of Grantor (which obligation
Grantor hereby promises to pay) to Agent pursuant to this Deed of Trust. If
necessary to obtain the possession provided for above, Agent may invoke any and
all legal remedies to dispossess Grantor. In connection with any action taken
by Agent pursuant to this SECTION, Agent shall not be liable for any loss
sustained by Grantor resulting from any failure to let the Mortgaged Property or
any part thereof, or from any act or omission of Agent in managing the Mortgaged
Property unless such loss is caused by the willful misconduct and bad faith of
Agent, nor shall Agent be obligated to perform or discharge any obligation,
duty, or liability of Grantor arising under any lease or other agreement
relating to the Mortgaged Property or arising under any Permitted Encumbrance or
otherwise arising. Grantor hereby assents to, ratifies and confirms any and all
actions of Agent with respect to the Mortgaged Property taken under this
SECTION.
(g) RECEIVER. Agent shall as a matter of right be entitled to the
appointment of a receiver or
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receivers for all or any part of the Mortgaged Property, whether such
receivership be incident to a proposed sale (or sales) of such property or
otherwise, and without regard to the value of the Mortgaged Property or the
solvency of any person or persons liable for the payment of the indebtedness
secured hereby, and Grantor does hereby irrevocably consent to the appointment
of such receiver or receivers, waives any and all defenses to such appointment,
agrees not to oppose any application therefor by Agent, and agrees that such
appointment shall in no manner impair, prejudice or otherwise affect the rights
of Agent to application of Rents as provided in this Deed of Trust. Nothing
herein is to be construed to deprive Agent of any other right, remedy, or
privilege it may have under the law to have a receiver appointed. Any money
advanced by Agent in connection with any such receivership shall be a demand
obligation (which obligation Grantor hereby promises to pay) owing by Grantor to
Agent pursuant to this Deed of Trust.
(h) TERMINATION OF COMMITMENT TO LEND. Agent may terminate any commitment
or obligation of Holders to lend or disburse funds under any Loan Document.
(i) OTHER RIGHTS AND REMEDIES. Agent and each Holder may exercise any and
all other rights and remedies which Agent and such Holder may have under the
Loan Documents, or at law or in equity or otherwise.
Section 5.2. EFFECTIVE AS DEED OF TRUST. This instrument shall be effective
as a mortgage as well as a deed of trust and upon the occurrence of a default
may be foreclosed as to any of the Mortgaged Property in any manner permitted by
applicable law, and any foreclosure suit may be brought by Trustee or by Agent;
and to the extent, if any, required to cause this instrument to be so effective
as a mortgage as well as a deed of trust, Grantor hereby mortgages the Mortgaged
Property to Agent, for the benefit of Holders. In the event a foreclosure
hereunder shall be commenced by Trustee, or his substitute or successor, Agent
may at any time before the sale of the Mortgaged Property direct Trustee to
abandon the sale, and may then institute suit for the collection of the Notes
and/or any other secured indebtedness, and for the foreclosure of this Deed of
Trust. It is agreed that if Agent or any Holder should institute a suit for the
collection of the Note or any other secured indebtedness and for the foreclosure
of this Deed of Trust, Agent may at any time before the entry of a final
judgment in said suit dismiss the same, and require Trustee, his substitute or
successor to sell the Mortgaged Property in accordance with the provisions of
this Deed of Trust.
Section 5.3. PROCEEDS OF FORECLOSURE. The proceeds of any sale held by
Trustee or Agent or any receiver or public officer in foreclosure of the liens
and security interests evidenced hereby shall be applied to the secured
indebtedness as provided in the Credit Agreement.
Section 5.4. AGENT AS PURCHASER. Agent, for itself or on behalf of
Holders, shall have the right to become the purchaser at any sale held by
Trustee or substitute or successor or by any receiver or public officer or at
any public sale, and Holders shall have the right to credit upon the amount of
Agent's successful bid, to the extent necessary to satisfy such bid, all or any
part of the secured indebtedness in such manner and order as required by the
Credit Agreement.
Section 5.5. FORECLOSURE AS TO MATURED DEBT. Upon the occurrence of a
default, Agent shall have the right to proceed with foreclosure (judicial or
nonjudicial) of the liens and security interests hereunder without declaring the
entire secured indebtedness due, and in such event any such foreclosure sale may
be made subject to the unmatured part of the secured indebtedness; and any such
sale shall not in any manner affect the unmatured part of the secured
indebtedness, but as to such unmatured part this Deed of Trust shall remain in
full force and effect just as though no sale had been made. The proceeds of such
sale shall be applied as provided in SECTION 5.3 hereof. Several sales may be
made hereunder without exhausting the right of sale for any unmatured part of
the secured indebtedness.
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Section 5.6. REMEDIES CUMULATIVE. All rights and remedies provided for
herein and in any other Loan Document are cumulative of each other and of any
and all other rights and remedies existing at law or in equity, and Trustee,
Agent and Holders shall, in addition to the rights and remedies provided herein
or in any other Loan Document, be entitled to avail themselves of all such other
rights and remedies as may now or hereafter exist at law or in equity for the
collection of the secured indebtedness and the enforcement of the covenants
herein and the foreclosure of the liens and security interests evidenced hereby,
and the resort to any right or remedy provided for hereunder or under any such
other Loan Document or provided for by law or in equity shall not prevent the
concurrent or subsequent employment of any other appropriate right or rights or
remedy or remedies.
Section 5.7. AGENT'S AND HOLDERS' DISCRETION AS TO SECURITY. Agent and
Holders may resort to any security given by this Deed of Trust or to any other
security now existing or hereafter given to secure the payment of the secured
indebtedness, in whole or in part, and in such portions and in such order as
provided in the Credit Agreement, and any such action shall not in anywise be
considered as a waiver of any of the rights, benefits, liens, or security
interests evidenced by this Deed of Trust.
Section 5.8. GRANTOR'S WAIVER OF CERTAIN RIGHTS. To the full extent
Grantor may do so, Grantor agrees that Grantor will not at any time insist upon,
plead, claim or take the benefit or advantage of any law now or hereafter in
force providing for any appraisement, valuation, stay, extension or redemption,
and Grantor, for Grantor, Grantor's heirs, devisees, representatives, successors
and assigns, and for any and all persons ever claiming any interest in the
Mortgaged Property, to the extent permitted by applicable law, hereby waives and
releases all rights of redemption, valuation, appraisement, stay of execution,
notice of intention to mature or declare due the whole of the secured
indebtedness, notice of election to mature or declare due the whole of the
secured indebtedness and all rights to a marshaling of assets of Grantor,
including the Mortgaged Property, or to a sale in inverse order of alienation in
the event of foreclosure of the liens and/or security interests hereby created.
Grantor shall not have or assert any right under any statute or rule of law
pertaining to the marshaling of assets, sale in inverse order of alienation, the
exemption of homestead, the administration of estates of decedents, or other
matters whatever to defeat, reduce or affect the right of Agent under the terms
of this Deed of Trust to a sale of the Mortgaged Property for the collection of
the secured indebtedness without any prior or different resort for collection,
or the right of Agent under the terms of this Deed of Trust to the payment of
the secured indebtedness out of the proceeds of sale of the Mortgaged Property
in preference to every other claimant whatever. Grantor waives any right or
remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the
Texas Business and Commerce Code, or any other provision of Texas law,
pertaining to the rights and remedies of sureties. If any law referred to in
this SECTION and now in force, of which Grantor or Grantor's heirs, devisees,
representatives, successors or assigns or any other persons claiming any
interest in the Mortgaged Property might take advantage despite this SECTION,
shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to preclude the application of this SECTION.
Section 5.9. DELIVERY OF POSSESSION AFTER FORECLOSURE. In the event there
is a foreclosure sale hereunder and at the time of such sale, Grantor or
Grantor's heirs, devisees, representatives, successors or assigns are occupying
or using the Mortgaged Property, or any part thereof, each and all shall
immediately become the tenant of the purchaser at such sale, which tenancy shall
be a tenancy from day to day, terminable at the will of either landlord or
tenant, at a reasonable rental per day based upon the value of the property
occupied, such rental to be due daily to the purchaser; and to the extent
permitted by applicable law, the purchaser at such sale shall, notwithstanding
any language herein apparently to the contrary, have the sole option to demand
immediate possession following the sale or to permit the occupants to remain as
tenants at will. In the event the tenant fails to surrender possession of said
property upon demand, the purchaser shall be entitled to institute and maintain
a summary action for possession of the property (such as an action for forcible
detainer) in any court having jurisdiction.
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ARTICLE 6
MISCELLANEOUS
Section 6.1. SCOPE OF DEED OF TRUST. This Deed of Trust is a deed of
trust and mortgage of both real and personal property, a security agreement, a
financing statement and a collateral assignment, and also covers proceeds and
fixtures.
Section 6.2. EFFECTIVE AS A FINANCING STATEMENT. This Deed of Trust shall
be effective as a financing statement filed as a fixture filing with respect to
all fixtures included within the Mortgaged Property and is to be filed for
record in the real estate records of each county where any part of the Mortgaged
Property (including said fixtures) is situated. This Deed of Trust shall also
be effective as a financing statement covering minerals or the like (including
oil and gas) and accounts subject to Subsection (e) of Section 9.103 of the
Texas Business and Commerce Code, as amended, and similar provisions (if any) of
the Uniform Commercial Code as enacted in any other state where the Mortgaged
Property is situated which will be financed at the wellhead or minehead of the
wells or mines located on the Mortgaged Property and is to be filed for record
in the real estate records of each county where any part of the Mortgaged
Property is situated. This Deed of Trust shall also be effective as a financing
statement covering any other Mortgaged Property and may be filed in any other
appropriate filing or recording office. The mailing address of Grantor is the
address of Grantor set forth at the end of this Deed of Trust and the address of
Agent from which information concerning the security interests hereunder may be
obtained is the address of Agent set forth at the end of this Deed of Trust. A
carbon, photographic or other reproduction of this Deed of Trust or of any
financing statement relating to this Deed of Trust shall be sufficient as a
financing statement for any of the purposes referred to in this SECTION.
Section 6.3. NOTICE TO ACCOUNT DEBTORS. In addition to the rights granted
elsewhere in this Deed of Trust, Agent may at any time notify the account
debtors or obligors of any accounts, chattel paper, negotiable instruments or
other evidences of indebtedness included in the Collateral to pay Agent
directly.
Section 6.4. WAIVER BY AGENT. Agent may at any time and from time-to-time
by a specific writing intended for the purpose: (a) waive compliance by Grantor
with any covenant herein made by Grantor to the extent and in the manner
specified in such writing; (b) consent to Grantor's doing any act which
hereunder Grantor is prohibited from doing, or to Grantor's failing to do any
act which hereunder Grantor is required to do, to the extent and in the manner
specified in such writing; (c) release any part of the Mortgaged Property or any
interest therein from the lien and security interest of this Deed of Trust,
without the joinder of Trustee; or (d) release any party liable, either directly
or indirectly, for the secured indebtedness or for any covenant herein or in any
other Loan Document, without impairing or releasing the liability of any other
party. No such act shall in any way affect the rights or powers of Agent, any
Holder or Trustee hereunder except to the extent specifically agreed to by Agent
or any Holder in such writing.
Section 6.5. NO IMPAIRMENT OF SECURITY. The lien, security interest and
other security rights of Agent hereunder or under any other Loan Document shall
not be impaired by any indulgence, moratorium or release granted by Agent
including, but not limited to, any renewal, extension or modification which
Agent may grant with respect to any secured indebtedness, or any surrender,
compromise, release, renewal, extension, exchange or substitution which Agent
may grant in respect of the Mortgaged Property, or any part thereof or any
interest therein, or any release or indulgence granted to any endorser,
guarantor or surety of any secured indebtedness. The taking of additional
security by Agent shall not release or impair the lien, security interest, or
other security rights of Agent hereunder or affect the liability of Grantor or
of any endorser, guarantor or surety, or improve the right of any junior
lienholder in the Mortgaged Property
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(without implying hereby Agent's consent to any junior lien).
Section 6.6. ACTS NOT CONSTITUTING WAIVER BY AGENT. Agent may waive any
default without waiving any other prior or subsequent default. Agent may remedy
any default without waiving the default remedied. Neither failure by Agent to
exercise, nor delay by Agent in exercising, nor discontinuance of the exercise
of any right, power or remedy (including but not limited to the right to
accelerate the maturity of the secured indebtedness or any part thereof) upon or
after any default shall be construed as a waiver of such default or as a waiver
of the right to exercise any such right, power or remedy at a later date. No
single or partial exercise by Agent of any right, power or remedy hereunder
shall exhaust the same or shall preclude any other or further exercise thereof,
and every such right, power or remedy hereunder may be exercised at any time and
from time-to-time. No modification or waiver of any provision hereof nor
consent to any departure by Grantor therefrom shall in any event be effective
unless the same shall be in writing and signed by Agent and then such waiver or
consent shall be effective only in the specific instance, for the purpose for
which given and to the extent therein specified. No notice to nor demand on
Grantor in any case shall of itself entitle Grantor to any other or further
notice or demand in similar or other circumstances. Remittances in payment of
any part of the secured indebtedness other than in the required amount in
immediately available U.S. funds shall not, regardless of any receipt or credit
issued therefor, constitute payment until the required amount is actually
received by Agent in immediately available U.S. funds and shall be made and
accepted subject to the condition that any check or draft may be handled for
collection in accordance with the practice of the collecting bank or banks.
Acceptance by Agent of any payment in an amount less than the amount then due on
any secured indebtedness shall be deemed an acceptance on account only and shall
not in any way excuse the existence of a default hereunder.
Section 6.7. GRANTOR'S SUCCESSORS. If the ownership of the Mortgaged
Property or any part thereof becomes vested in a person other than Grantor,
Agent may, without notice to Grantor, deal with such successor or successors in
interest with reference to this Deed of Trust and to the indebtedness secured
hereby in the same manner as with Grantor, without in any way vitiating or
discharging Grantor's liability hereunder or for the payment of the indebtedness
or performance of the obligations secured hereby. No transfer of the Mortgaged
Property, no forbearance on the part of Agent, and no extension of the time for
the payment of the indebtedness secured hereby given by Agent shall operate to
release, discharge, modify, change or affect, in whole or in part, the liability
of Grantor hereunder for the payment of the indebtedness or performance of the
obligations secured hereby or the liability of any other person hereunder for
the payment of the indebtedness secured hereby. Each Grantor agrees that it
shall be bound by any modification of this Deed of Trust or any of the other
Loan Documents made by Agent and any subsequent owner of the Mortgaged Property,
with or without notice to such Grantor, and no such modifications shall impair
the obligations of such Grantor under this Deed of Trust or any other Loan
Document. Nothing in this SECTION or elsewhere in this Deed of Trust shall be
construed to imply Agent's consent to any transfer of the Mortgaged Property.
Section 6.8. PLACE OF PAYMENT; FORUM. All secured indebtedness which may
be owing hereunder at any time by Grantor shall be payable at the place
designated in the Notes (or if no such designation is made, at the address of
Agent indicated at the end of this Deed of Trust). Grantor hereby irrevocably
submits generally and unconditionally for itself and in respect of its property
to the non-exclusive jurisdiction of any Texas state court, or any United States
federal court, sitting in the county in which the secured indebtedness is
payable, and to the non exclusive jurisdiction of any state or United States
federal court sitting in the state in which any of the Mortgaged Property is
located, over any suit, action or proceeding arising out of or relating to this
Deed of Trust or the secured indebtedness. Grantor hereby agrees and consents
that, in addition to any methods of service of process provided for under
applicable law, all service of process in any such suit, action or proceeding in
any Texas state court, or any United States federal court, sitting in the county
in which the secured indebtedness is payable may be made by certified or
registered mail, return receipt requested, directed to Grantor at its address
stated in this Deed of Trust, or at a subsequent address of Grantor of which
Agent received actual notice from Grantor in
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accordance with this Deed of Trust, and service so made shall be complete five
(5) days after the same shall have been so mailed.
Section 6.9. SUBROGATION TO EXISTING LIENS; VENDOR'S LIEN. To the extent
that proceeds of the Notes are used to pay indebtedness secured by any
outstanding lien, security interest, charge or prior encumbrance against the
Mortgaged Property, such proceeds have been advanced by Holder at Grantor's
request, and Agent shall be subrogated to any and all rights, security interests
and liens owned by any owner or holder of such outstanding liens, security
interests, charges or encumbrances, however remote, irrespective of whether said
liens, security interests, charges or encumbrances are released, and all of the
same are recognized as valid and subsisting and are renewed and continued and
merged herein to secure the secured indebtedness, but the terms and provisions
of this Deed of Trust shall govern and control the manner and terms of
enforcement of the liens, security interests, charges and encumbrances to which
Agent is subrogated hereunder. It is expressly understood that, in
consideration of the payment of such indebtedness by Agent, Grantor hereby
waives and releases all demands and causes of action for offsets and payments in
connection with the said indebtedness. If all or any portion of the proceeds of
the loan evidenced by the Credit Agreement and the Notes or of any other secured
indebtedness has been advanced for the purpose of paying the purchase price for
all or a part of the Mortgaged Property, no vendor's lien is waived; and Agent
shall have, and is hereby granted, a vendor's lien on the Mortgaged Property as
cumulative additional security for the secured indebtedness. Agent may
foreclose under this Deed of Trust or under the vendor's lien without waiving
the other or may foreclose under both.
Section 6.10. APPLICATION OF PAYMENTS TO CERTAIN INDEBTEDNESS. If any
part of the secured indebtedness cannot be lawfully secured by this Deed of
Trust or if any part of the Mortgaged Property cannot be lawfully subject to the
lien and security interest hereof to the full extent of such indebtedness, then
all payments made shall be applied on said indebtedness first in discharge of
that portion thereof which is not secured by this Deed of Trust.
Section 6.11. COMPLIANCE WITH USURY LAWS. It is the intent of Grantor,
Agent, and Holders and all other parties to the Loan Documents to conform to and
contract in strict compliance with applicable usury law from time-to-time in
effect. All agreements between Agent, Holders, and Grantor (or any other party
liable with respect to any indebtedness under the Loan Documents) are hereby
limited by the provisions of this SECTION which shall override and control all
such agreements, whether now existing or hereafter arising. In no way, nor in
any event or contingency (including but not limited to prepayment, default,
demand for payment, or acceleration of the maturity of any obligation), shall
the interest taken, reserved, contracted for, charged, chargeable, or received
under this Deed of Trust, the Credit Agreement, the Notes or any other Loan
Document or otherwise, exceed the maximum nonusurious amount permitted by
applicable law (the "Maximum Amount"). If, from any possible construction of
any document, interest would otherwise be payable in excess of the Maximum
Amount, any such construction shall be subject to the provisions of this SECTION
and such document shall ipso facto be automatically reformed and the interest
payable shall be automatically reduced to the Maximum Amount, without the
necessity of execution of any amendment or new document. If Agent or any Holder
shall ever receive anything of value which is characterized as interest under
applicable law and which would apart from this provision be in excess of the
Maximum Amount, an amount equal to the amount which would have been excessive
interest shall, without penalty, be applied to the reduction of the principal
amount owing on the secured indebtedness in the inverse order of its maturity
and not to the payment of interest, or refunded to Grantor or the other payor
thereof if and to the extent such amount which would have been excessive exceeds
such unpaid principal. The right to accelerate maturity of the Notes or any
other secured indebtedness does not include the right to accelerate any interest
which has not otherwise accrued on the date of such acceleration, and Holders do
not intend to charge or receive any unearned interest in the event of
acceleration. All interest paid or agreed to be paid to Holders shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full stated term (including any renewal or extension) of such
indebtedness so that the amount of interest on account of such indebtedness does
not exceed the Maximum
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Amount. As used in this SECTION, the term "applicable law" shall mean the laws
of the State of Texas or the federal laws of the United States applicable to
this transaction, whichever laws allow the greater interest, as such laws now
exist or may be changed or amended or come into effect in the future.
Section 6.12. SUBSTITUTE TRUSTEE. The Trustee may resign by an instrument
in writing addressed to Agent, or Trustee may be removed at any time with or
without cause by an instrument in writing executed by Agent. In case of the
death, resignation, removal, or disqualification of Trustee, or if for any
reason Agent shall deem it desirable to appoint a substitute or successor
trustee to act instead of the herein named trustee or any substitute or
successor trustee, then Agent shall have the right and is hereby authorized and
empowered to appoint a successor trustee, or a substitute trustee, without other
formality than appointment and designation in writing executed by Agent and the
authority hereby conferred shall extend to the appointment of other successor
and substitute trustees successively until the indebtedness secured hereby has
been paid in full, or until the Mortgaged Property is fully and finally sold
hereunder. If Agent is a corporation or association and such appointment is
executed on its behalf by an officer of such corporation or association, such
appointment shall be conclusively presumed to be executed with authority and
shall be valid and sufficient without proof of any action by the board of
directors or any superior officer of the corporation or association. Upon the
making of any such appointment and designation, all of the estate and title of
Trustee in the Mortgaged Property shall vest in the named successor or
substitute Trustee and he shall thereupon succeed to, and shall hold, possess
and execute, all the rights, powers, privileges, immunities and duties herein
conferred upon Trustee. All references herein to "Trustee" shall be deemed to
refer to Trustee (including any successor or substitute appointed and designated
as herein provided) from time-to-time acting hereunder.
Section 6.13. NO LIABILITY OF TRUSTEE. The Trustee shall not be liable for
any error of judgment or act done by Trustee in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever (including
Trustee's negligence), except for Trustee's gross negligence or willful
misconduct. The Trustee shall have the right to rely on any instrument,
document or signature authorizing or supporting any action taken or proposed to
be taken by him hereunder, believed by him in good faith to be genuine. All
moneys received by Trustee shall, until used or applied as herein provided, be
held in trust for the purposes for which they were received, but need not be
segregated in any manner from any other moneys (except to the extent required by
law), and Trustee shall be under no liability for interest on any moneys
received by him hereunder. Grantor hereby ratifies and confirms any and all
acts which the herein named Trustee or his successor or successors, substitute
or substitutes, in this trust, shall do lawfully by virtue hereof. Grantor will
reimburse Trustee for, and save him harmless against, any and all liability and
expenses which may be incurred by him in the performance of his duties. The
foregoing indemnity shall not terminate upon discharge of the secured
indebtedness or foreclosure, or release or other termination, of this Deed of
Trust.
Section 6.14. RELEASE OF DEED OF TRUST. If all of the secured
indebtedness be paid as the same becomes due and payable and all of the
covenants, warranties, undertakings and agreements made in this Deed of Trust
are kept and performed, and all obligations, if any, of Holders for further
advances have been terminated, then, and in that event only, all rights under
this Deed of Trust shall terminate (except to the extent expressly provided
herein with respect to indemnifications, representations and warranties and
other rights which are to continue following the release hereof) and the
Mortgaged Property shall become wholly clear of the liens, security interests,
conveyances and assignments evidenced hereby, and such liens and security
interests shall be released by Agent in due form at Grantor's cost. Without
limitation, all provisions herein for indemnity of Agent, Holders, or Trustee
shall survive discharge of the secured indebtedness and any foreclosure, release
or termination of this Deed of Trust.
Section 6.15. NOTICES. All notices, requests, consents, demands and other
communications required or which any party desires to give hereunder or under
any other Loan Document shall be in writing
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and, unless otherwise specifically provided in such other Loan Document, shall
be deemed sufficiently given or furnished if delivered by personal delivery, by
courier, or by registered or certified United States mail, postage prepaid,
addressed to the party to whom directed at the addresses specified at the end of
this Deed of Trust (unless changed by similar notice in writing given by the
particular party whose address is to be changed) or by telegram, telex, or
facsimile. Any such notice or communication shall be deemed to have been given
either at the time of personal delivery or, in the case of courier or mail, as
of the date of first attempted delivery at the address and in the manner
provided herein, or, in the case of telegram, telex or facsimile, upon receipt;
provided that, service of a notice required by Texas Property Code Section
51.002, as amended, shall be considered complete when the requirements of that
statute are met. Notwithstanding the foregoing, no notice of change of address
shall be effective except upon receipt. This SECTION shall not be construed in
any way to affect or impair any waiver of notice or demand provided in any Loan
Document or to require giving of notice or demand to or upon any person in any
situation or for any reason.
Section 6.16. INVALIDITY OF CERTAIN PROVISIONS. A determination that any
provision of this Deed of Trust is unenforceable or invalid shall not affect the
enforceability or validity of any other provision and the determination that the
application of any provision of this Deed of Trust to any person or circumstance
is illegal or unenforceable shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
Section 6.17. GENDER; TITLES; CONSTRUCTION. Within this Deed of Trust,
words of any gender shall be held and construed to include any other gender, and
words in the singular number shall be held and construed to include the plural,
unless the context otherwise requires. Titles appearing at the beginning of any
subdivisions hereof are for convenience only, do not constitute any part of such
subdivisions, and shall be disregarded in construing the language contained in
such subdivisions. The use of the words "herein," "hereof," "hereunder" and
other similar compounds of the word "here" shall refer to this entire Deed of
Trust and not to any particular ARTICLE, SECTION, paragraph or provision. The
term "person" and words importing persons as used in this Deed of Trust shall
include firms, associations, partnerships (including limited partnerships),
joint ventures, trusts, corporations and other legal entities, including public
or governmental bodies, agencies or instrumentalities, as well as natural
persons.
Section 6.18. REPORTING COMPLIANCE. Grantor agrees to comply with any and
all reporting requirements applicable to the transaction evidenced by the Notes
and secured by this Deed of Trust which are set forth in any law, statute,
ordinance, rule, regulation, order or determination of any governmental
authority, including but not limited to The International Investment Survey Act
of 1976, The Agricultural Foreign Investment Disclosure Act of 1978, The Foreign
Investment in Real Property Tax Act of 1980 and the Tax Reform Act of 1984 and
further agrees upon request of Agent to furnish Agent with evidence of such
compliance.
Section 6.19. AGENT'S CONSENT. Except where otherwise expressly provided
herein, in any instance hereunder where the approval, consent or the exercise of
judgment of Agent is required or requested, (i) the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of Agent, and Agent shall not, for any reason or to any extent, be
required to grant such approval or consent or exercise such judgment in any
particular manner, regardless of the reasonableness of either the request or
Agent's judgment, and (ii) no approval or consent of Agent shall be deemed to
have been given except by a specific writing intended for the purpose and
executed by an authorized representative of Agent.
Section 6.20. GRANTOR. Unless the context clearly indicates otherwise, as
used in this Deed of Trust, "Grantor" means the grantors named in SECTION 1.1
hereof or any of them. The obligations of Grantor hereunder shall be joint and
several. If any Grantor, or any signatory who signs on behalf of any Grantor,
is a corporation, partnership or other legal entity, Grantor and any such
signatory, and the person or persons signing for it, represent and warrant to
Agent that this instrument is executed, acknowledged and
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delivered by Grantor's duly authorized representatives. If Grantor is an
individual, no power of attorney granted by Grantor herein shall terminate on
Grantor's disability.
Section 6.21. EXECUTION; RECORDING. This Deed of Trust has been executed
in several counterparts, all of which are identical, and all of which
counterparts together shall constitute one and the same instrument. The date or
dates reflected in the acknowledgments hereto indicate the date or dates of
actual execution of this Deed of Trust, but such execution is as of the date
shown on the first page hereof, and for purposes of identification and reference
the date of this Deed of Trust shall be deemed to be the date reflected on the
first page hereof. Grantor will cause this Deed of Trust and all amendments and
supplements thereto and substitutions therefor and all financing statements and
continuation statements relating thereto to be recorded, filed, re-recorded and
refiled in such manner and in such places as Trustee or Agent shall reasonably
request and will pay all such recording, filing, re-recording and refiling
taxes, fees and other charges.
Section 6.22. SUCCESSORS AND ASSIGNS. The terms, provisions, covenants
and conditions hereof shall be binding upon Grantor, and the heirs, devisees,
representatives, successors and assigns of Grantor, and shall inure to the
benefit of Trustee and Agent and shall constitute covenants running with the
Land. All references in this Deed of Trust to Grantor shall be deemed to include
all such heirs, devisees, representatives, successors and assigns of Grantor.
Section 6.23. MODIFICATION OR TERMINATION. The Loan Documents may only be
modified or terminated by a written instrument or instruments intended for that
purpose and executed by the party against which enforcement of the modification
or termination is asserted. Any alleged modification or termination which is not
so documented shall not be effective as to any party.
Section 6.24. NO PARTNERSHIP, ETC. The relationship between Agent,
Holders, and Grantor is solely that of agent, lender and borrower. Neither Agent
nor any Holder has any fiduciary or other special relationship with Grantor.
Nothing contained in the Loan Documents is intended to create any partnership,
joint venture, association or special relationship between Grantor, Agent, or
Holders or in any way make Agent or any Holder a co-principal with Grantor with
reference to the Mortgaged Property. All agreed contractual duties between or
among Agent, Holders, Grantor, and Trustee are set forth herein and in the other
Loan Documents and any additional implied covenants or duties are hereby
disclaimed. Any inferences to the contrary of any of the foregoing are hereby
expressly negated.
Section 6.25. APPLICABLE LAW. This Deed of Trust, and its validity,
enforcement and interpretation, shall be governed by Texas law (without regard
to any conflict of laws principles) and applicable United States federal law.
Section 6.26. ENTIRE AGREEMENT. The Loan Documents constitute the entire
understanding and agreement between Grantor, Agent, and Holders with respect to
the transactions arising in connection with the indebtedness secured hereby and
supersede all prior written or oral understandings and agreements between
Grantor, Agent, and Holders with respect to the matters addressed in the Loan
Documents. Grantor hereby acknowledges that, except as incorporated in writing
in the Loan Documents, there are not, and were not, and no persons are or were
authorized by Agent or Holders to make, any representations, understandings,
stipulations, agreements or promises, oral or written, with respect to the
matters addressed in the Loan Documents.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Remainder of Page Intentionally Left Blank;
Signature Pages to Follow.]
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IN WITNESS WHEREOF, this instrument is executed by Grantor as to the date
first written on page 1 hereof.
The address and federal tax identification number of Grantor are:
- ------------------------------------------- Grantor:
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
Federal Tax No.
----------------------------
The address of Agent is (including county):
Bank One, Texas, N.A.
1717 Main Street
Dallas, Texas 75201
Attention: Mr. Roderick Washington
The State of Texas (S)
(S)
County of Dallas (S)
This instrument was acknowledged before me on _____________________________
________________________, 1996 by ______________________________________________
_______________________________________________________________________________.
______________________________________________
(S E A L) Notary Public, State of Texas
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EXHIBIT A
TO
DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT
AND FINANCING STATEMENT
LAND
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EXHIBIT B
TO
DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT
AND FINANCING STATEMENT
PERMITTED ENCUMBRANCES
Page 1
<PAGE>
EXHIBIT G
FORM OF ASSIGNMENT OF LEASES AND RENTS
ASSIGNMENT OF LEASES AND RENTS
THIS ASSIGNMENT OF LEASES AND RENTS (the "ASSIGNMENT") is made as of
________________, 19___, by PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware limited partnership ("ASSIGNOR"), to BANK ONE, TEXAS, N.A., for itself
and as Administrative Agent for the Lenders defined below (in such capacity,
together with its successors and assigns, "ASSIGNEE").
W I T N E S S E T H:
- - - - - - - - - -
1. Assignor, Assignee, NationsBank of Texas, N.A., as Documentation Agent,
and certain other lenders (such lenders together with Assignee in its capacity
as a lender are collectively referred to herein as the "LENDERS") have entered
into that certain Credit Agreement (as from time-to-time amended, supplemented,
or restated, the "CREDIT AGREEMENT") dated as of October 17, 1996.
2. Assignor has delivered those certain Revolving Credit Notes (together
with all renewals, extensions, substitutions, replacements, and modifications
thereof, the "NOTES"), dated of even date with the Credit Agreement in the
aggregate original principal amount of $100,000,000.00, payable to the order of
the Lenders.
3. The obligations of Assignor under the Credit Agreement and the Notes
are secured by, among other collateral, liens and security interests pursuant to
that certain Deed of Trust, Assignment, Security Agreement, and Financing
Statement (the "DEED OF TRUST") dated of even date herewith, executed by
Assignor in favor of Robert F. Nelson, Trustee, covering certain real estate in
____________ County, _________, more fully described on EXHIBIT A attached
hereto and incorporated herein by reference, along with the related and
appurtenant improvements, fixtures and personal property, and related interests
described therein (collectively, the "MORTGAGED PROPERTIES").
4. All capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
5. The Mortgaged Properties are and, from time-to-time, may be, leased, in
whole or in part, to certain third parties.
6. The parties hereto wish to provide an additional source of payment of
the Obligation (as such term is defined in the Credit Agreement).
NOW, THEREFORE, for and in consideration of the loan made to Assignor by
Lenders, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, Assignor hereby agrees as follows:
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ARTICLE I: ASSIGNMENT
1.1 Assignor does hereby grant, transfer, and assign unto Assignee the
following:
A. All of Assignor's right, title, and interest in and to all present
and future ground leases, space leases, subleases or other agreements or
arrangements, whether written or oral, and all agreements for the use or
occupancy of any portion of the Mortgaged Properties, together with any and
all extensions or renewals of said leases and agreements and any and all
future leases or agreements upon or covering the use or occupancy of all or
any part of the Mortgaged Properties, all such leases, agreements,
subleases, and tenancies, whether now or in the future existing, being
hereinafter collectively referred to as the "LEASES;"
B. Any and all guaranties of performance by lessees under any of the
Leases; and
C. The immediate and continuing right to collect and receive all of
the rents, royalties, bonuses, income, receipts, revenues, issues, profits
and other benefits derived from the Mortgaged Properties or any part
thereof, or the occupation, use or enjoyment of the Mortgaged Properties,
or any part thereof, or from any Lease, and including, but not limited to,
minimum rents, additional rents, percentage rents, common area maintenance
charges, parking charges, tax and insurance premium contributions, and
liquidated damages following default, premiums payable by any lessee upon
the exercise of any cancellation privilege provided for in any of the
Leases, and all proceeds payable under any policy of insurance covering the
loss of rent resulting from untenantability caused by destruction or damage
of the Mortgaged Properties, together with any and all rights and claims of
any kind which Assignor may have against any lessee under the Leases or
against any subtenants or occupants of the Mortgaged Properties, all such
monies, rights and claims in this paragraph described being hereinafter
referred to as the "RENTS."
1.2 A. Until Assignee notifies Assignor of a Default (as defined in the
Credit Agreement), Assignor shall collect Rents directly from each lessee,
sublessee, tenant, or other person having the right to occupy, use, or
manage the Mortgaged Properties, or any part thereof, under the Leases
(being hereinafter collectively referred to as the "LESSEES"), and the
Lessees may pay Rents directly to Assignor, but Assignor covenants to hold
the Rents in trust, to be applied, and Assignor covenants to apply the
Rents, to (a) payment and performance of the Notes and the remaining
Obligation and (b) reasonable and necessary expenses of and charges with
respect to the ownership, maintenance and operation of the Mortgaged
Properties, all before the Rents are applied by Assignor for any other
purpose; provided, however, that Assignor shall not receive from any Lessee
more than one (1) month's rental (but excluding security deposits) in
advance of the accrual of such rental.
B. 1. Upon receipt by Assignor from Assignee of notice of the
occurrence of a Default and that Rents shall be paid directly to
Assignee, Assignor is directed to pay directly to Assignee all Rents
thereafter accruing. Rents so received by Assignee shall be applied
by Assignee, at its option, in any order determined by Assignee, in
its sole and unreviewable discretion, notwithstanding any
instructions, directions or requests from Assignor to the contrary, to
(a) the payment and performance of the Notes and the remaining
Obligation, and/or (b) expenses of and charges with respect to the
ownership, maintenance, and operation of the Mortgaged Properties (and
including, at Assignee's option, the maintenance, without interest
thereon, of one or more reserves for replacements, taxes and/or
insurance), all before the Rents are applied for any other purpose not
inconsistent with the Loan Documents.
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2. Upon receipt by Assignor, any manager of the Mortgaged Properties
and/or any Lessee from Assignee of notice of the occurrence of a
Default and that Rents shall be paid directly to Assignee, Assignor,
such manager and/or any Lessee that receives notice of the occurrence
of a Default are hereby authorized and directed to pay directly to
Assignee all Rents thereafter accruing, and the receipt of Rents by
Assignee shall be a release of each such manager and Lessee to the
extent of all amounts so paid. Rents so received by Assignee shall be
applied by Assignee, at its option, in any order determined by
Assignee, in its sole and unreviewable discretion, notwithstanding any
instructions, directions or requests from Assignor or any manager or
Lessee to the contrary, to (a) the payment and performance of the
Notes and the remaining Obligation, and/or (b) expenses of and charges
with respect to the ownership, maintenance and operation of the
Mortgaged Properties (and including, at Assignee's option, the
maintenance, without interest thereon, of one or more reserves for
replacements, taxes and/or insurance), all before the Rents are
applied for any other purpose not inconsistent with the Loan
Documents.
3. Following satisfaction of the Obligation, this Assignment shall
terminate, and all Rents shall be paid to Assignor as its interests
may appear in the Leases.
ARTICLE II: REPRESENTATIONS AND WARRANTIES
To induce Assignee to loan funds, the obligation for the repayment of which
is evidenced by the Notes and the Credit Agreement, Assignor does hereby
represent and warrant to Assignee that the representations and warranties set
forth in Section 3.2 of the Deed of Trust are true and correct.
ARTICLE III: ASSIGNOR'S COVENANTS
So long as this assignment remains in effect, Assignor covenants and agrees
that (unless Assignee shall otherwise consent in writing) Assignor shall comply
with the covenants and agreements of Assignor in Section 3.2 of the Deed of
Trust.
ARTICLE IV: ASSIGNEE'S RIGHTS
4.1 Upon or at any time after the occurrence and during the continuance of a
Default, Assignee, at its option, without notice and without regard to the
adequacy of any security for the Obligation, shall have the right, power, and
authority, at its option, to exercise and enforce any or all of the following
rights and remedies:
A. To terminate the right granted in SECTION 1.2.A. hereof to
Assignor to collect the Rents as aforesaid, and require that Assignor, the
manager of the Mortgaged Properties and/or Lessees pay Rents to Assignee by
giving notice as provided in SECTION 1.2.B., and, without taking
possession, in Assignee's own name, to demand, collect, receive, sue for,
attach, and levy upon the Rents, to give proper receipts, releases, and
acquittances therefor and, after deducting all necessary and reasonable
expenses of collection, including reasonable attorneys' fees, to apply the
net proceeds thereof, together with any funds of Assignor deposited with
Assignee, as provided in SECTION 1.2.B.;
B. To exercise all of the rights and remedies provided for in the
Notes, the Deed of Trust, the Credit Agreement, this Assignment, or any
other instrument or document evidencing or securing the Notes or executed
in connection therewith;
Page 1
<PAGE>
C. Without regard to the adequacy of the Rents, with or without any
action or proceeding, through any person or by any agent, or by the
trustee(s) designated in the Deed of Trust, or by a receiver to be
appointed by court, and irrespective of Assignor's possession, to enter
upon, take possession of, manage, and operate the Mortgaged Properties, or
any part thereof, to make, modify, enforce, cancel, or accept the
surrender of any Lease, to remove and evict any lessee, to increase or
reduce Rents, to decorate, to clean, and to make repairs, and to otherwise
do any act or incur any costs or expenses that Assignee shall deem proper
to collect the Rents assigned hereunder, as fully and to the same extent as
Assignor could do if in possession, and in such event to apply any funds so
collected to (i) the ownership, maintenance and operation of the Mortgaged
Properties (and including, at Assignee's option, the maintenance, without
interest thereon, of one or more reserves for replacements, taxes, and/or
insurance), but in such order as Assignee shall deem proper, including
payment of reasonable management, brokerage, and attorneys' fees, and (ii)
the payment of the Obligation (as Assignee may in its sole discretion
determine).
4.2 Neither the collection of the Rents and application thereof, nor the entry
upon and taking possession of the Mortgaged Properties as contemplated in this
ARTICLE shall cure or waive any default, waive, modify, or affect any notice of
default given by Assignor to Assignee in accordance with the terms of this
Assignment, the Credit Agreement, the Notes or any other Loan Document or
invalidate any act done pursuant to such notice, and the enforcement of such
right or remedy by Assignee, once exercised, shall continue for so long as
Assignee shall elect, notwithstanding that its collection of the Rents may have
cured for a time the original Default. If, after exercising rights under this
ARTICLE, Assignee shall thereafter elect to discontinue the exercise of such
right or remedy, the same or any other right or remedy under this ARTICLE may be
reasserted at any time and from time-to-time following any subsequent Default.
4.3 None of the rights or remedies of the Assignee under any of the Loan
Documents shall be delayed or in any way prejudiced by virtue of this
Assignment, and this Assignment is intended to be cumulative of and in addition
to all other rights and remedies granted to the Assignee.
ARTICLE V: MISCELLANEOUS
5.1. Notwithstanding any provision in this Assignment to the contrary, upon
full payment and satisfaction of the Obligation, this Assignment shall
terminate, but the affidavit, certificate, letter or statement of any officer or
agent of Assignee stating that any part of the Obligation remains unpaid or
undischarged shall constitute conclusive evidence of the validity, effectiveness
or continuing force of this Assignment, and any person, firm or corporation may,
and is hereby authorized to, rely thereon. Written demand made by Assignee
delivered to the manager of the Mortgaged Properties and/or any Lessee for
payment of Rents by reason of the occurrence of any Default claimed by Assignee
shall be sufficient evidence of each such manager's and such Lessee's obligation
and authority to make all future payments of Rents to Assignee without the
necessity for further consent by the Assignor. Assignor hereby indemnifies and
agrees to hold each such manager and Lessee free and harmless from and against
all liability, loss, cost, damage or expense suffered or incurred by such
manager or Lessee by reason of its compliance with any demand for payment of
Rents made by the Assignee contemplated by the preceding sentence.
5.2. If Assignee receives any Rents as provided in this Assignment, then the
provisions of SECTION 6.11 of the Deed of Trust shall apply to the Rents
received by Assignee.
5.3. The Assignee shall not be liable for any loss sustained by the Assignor
resulting from the Assignee's failure to let the Mortgaged Properties after the
occurrence of a Default, or from any other act
Page 1
<PAGE>
or omission of the Assignee in managing the Mortgaged Properties after the
occurrence of a Default, unless such loss is caused by the willful misconduct,
gross negligence, or bad faith of the Assignee. Nor shall the Assignee be
obligated to perform or discharge nor does the Assignee hereby undertake to
perform or discharge any obligation, duty, or liability under the Leases or
under or by reason of this Assignment and the Assignor shall, and does hereby
agree to, indemnify the Assignee for, and to hold the Assignee harmless from,
any and all liability, loss, or damage which may or might be incurred under the
Leases or under or by reason of this Assignment, and from any and all claims and
demands whatsoever which may be asserted against the Assignee by reason of any
alleged obligations or undertakings on its part to perform or discharge any of
the terms, covenants, or agreements contained in the Leases, except for the
willful misconduct, gross negligence, or bad faith of Assignee. Should the
Assignee incur any such liability under the Leases or under or by reason of this
Assignment or in defense of any such claims or demands, the amount thereof,
including costs, expenses, and reasonable attorneys' fees shall constitute a
portion of the Obligation. And it is further understood that this Assignment
shall not operate to place responsibility for the control, care, management, or
repair of the Mortgaged Properties upon the Assignee, nor for the carrying out
of any of the terms and conditions of the Leases; nor shall it operate to make
the Assignee responsible or liable for any waste committed on the Mortgaged
Properties by the Lessees or any other parties, or for any dangerous or
defective condition of the Mortgaged Properties, or for any negligence (except
for gross negligence or willful misconduct of Assignee) in the management,
upkeep, repair, or control of the Mortgaged Properties resulting in loss,
injury, or death to any lessee, licensee, employee, or stranger. ASSIGNOR
ACKNOWLEDGES AND CONFIRMS THAT ITS OBLIGATIONS AND INDEMNITEES UNDER THIS
SECTION 5.3. INCLUDE ANY CLAIMS RESULTING FROM THE NEGLIGENCE OR ALLEGED
NEGLIGENCE OF ASSIGNEE.
5.4. Assignee shall not be liable for Assignee's failure to collect, or its
failure to exercise diligence in the collection of, Rents, but shall be
accountable only for Rents that it shall actually receive.
5.5. As between Assignee and Assignor and any person claiming through or under
Assignor, this Assignment is intended to be absolute, unconditional and
presently effective, and the provisions of SECTIONS 1.2.B. and 4.1.A. regarding
notice of default by Assignee to the manager of the Mortgaged Properties and/or
Lessees are intended solely for the benefit of such Persons and shall never
inure to the benefit of Assignor or any person claiming through or under
Assignor, other than a manager or Lessee who has not received a notice of
default.
5.6. It shall never be necessary for Assignee to institute legal proceedings of
any kind whatsoever to enforce the provisions of this Assignment regarding
collecting Rents.
5.7. This Assignment shall be governed by and construed under the laws of the
State of Texas.
[Remainder of page intentionally left blank;
signature page to follow.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be
duly executed as of the day and year first written above.
ASSIGNOR:
--------
PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware limited partnership
By: PRENTISS PROPERTIES I, INC.,
General Partner
By:
-----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on _____________________, ____ by
___________________, __________________ of PRENTISS PROPERTIES, I, INC., a
__________________________corporation, General Partner of PRENTISS PROPERTIES
ACQUISITION PARTNERS, L.P., a Delaware limited partnership, on behalf thereof.
----------------------------------------------------
Notary Public Signature
(PERSONALIZED SEAL)
<PAGE>
EXHIBIT H
FORM OF LOCAL COUNSEL OPINION
[BORROWER'S COUNSEL'S LETTERHEAD]
[date]
Bank One, Texas, N.A.
as Administrative Agent for the
Lenders defined below
1717 Main Street
Dallas, Texas 75201
NationsBank of Texas, N.A.,
as Documentation Agent for the
Lenders defined below
901 Main Street, 51st Floor
Dallas, Texas 75202-3714
Each of the Lenders
Ladies and Gentlemen:
We have acted as counsel to Prentiss Properties Acquisition Partners, L.P., a
Delaware limited partnership ("BORROWER") [and ________________, a
_________________ ("GRANTOR")] in connection with a $100,000,000.00 credit
facility under that certain Credit Agreement dated as of October 17, 1996 (the
"CREDIT AGREEMENT"), between Borrower, Bank One, Texas, N.A., a national banking
association, as Administrative Agent for the Lenders (in such capacity, the
"ADMINISTRATIVE AGENT"), NationsBank of Texas, N.A., a national banking
association, as Documentation Agent for the Lenders, and each of the Lenders
defined therein (collectively sometimes referred to herein, together with any
successors and assigns, as the "LENDERS").
All capitalized terms used herein shall, unless otherwise indicated, have the
same meanings assigned to such terms in the Credit Agreement.
DOCUMENTS REVIEWED
In connection with rendering this opinion, we have reviewed the following
documents:
<PAGE>
1. Deed of Trust, Assignment, Security Agreement and Financing Statement
dated ____________, 199__, executed by Borrower [Grantor] to Trustee, for the
benefit of the Administrative Agent;
2. Assignment of Leases and Rents dated _________, 1995 from Borrower
[Grantor] in favor of the Administrative Agent; and
3. Financing Statements (herein so called) executed by Borrower [Grantor],
filed in the Real Property Records of _____________ County, ________________,
and with the Office of the Secretary of State of the State of _______.
The documents described in items 1-3 above are collectively called the
"SECURITY DOCUMENTS." The real and personal property collateral covered by the
Security Documents are collectively called the "COLLATERAL."
QUALIFICATIONS
We have assumed, with your permission: (a) the genuineness of all signatures;
(b) the conformity to authentic original documents of all documents submitted to
us as certified, conformed or photostatic copies; (c) that the execution,
delivery and performance of the Security Documents have been duly authorized by
all necessary partnership, trust, corporate, or other action on the part of each
of the parties thereto; and (d) that each of the Security Documents is a legal,
valid, and binding obligation of the parties thereto other than Borrower [or
Grantor], enforceable against such parties in accordance with their respective
terms. We understand that, with respect to the matters described in (c), you
will be relying upon the opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
We are licensed to practice law only in the State of ____________, and the
opinions expressed herein are to the laws of the State of __________ and to the
federal laws of the United States of America.
OPINIONS
Based upon the foregoing, but subject to the qualifications set forth herein,
we are of the opinion that:
1. The Security Documents are legal, valid and binding obligations of
Borrower [Grantor], enforceable against Borrower [Grantor] in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting the enforceability of creditors' rights generally and general
principles of equity and except that equity.
2. A _______________ court, in a case properly presented, would uphold the
Texas choice of law provisions in the Security Documents.
3. The filing of the Financing Statements in the Office of the Secretary of
State of ___________ and the recording of the Security Documents in the Real
Property Records of the __________ County, ___________________, are the only
filings and recordings necessary to perfect the lien and security interest which
is granted by the Security Documents in the personal property Collateral
described therein that is owned by Borrower [Grantor], and located in such
county.
<PAGE>
4. Assuming that the internal laws of the State of _______ apply in all
respects to the opinions stated herein, foreclosure against all or a portion of
the Collateral located in _____________, properly structured, can be effected in
__________ without causing an extinguishment or payment of the obligations to
the Lenders evidenced by the Credit Agreement (the "SECURED OBLIGATIONS"),
except to the extent of the foreclosure bid assuming such bid complies with
_________ law. When so properly structured, the liens and security interests
created by the Security Documents against that portion of the Collateral, if
any, that has not been subjected to foreclosure shall remain in full force and
effect to secure that portion of the Secured Obligations remaining unpaid after
such foreclosure sale and any other foreclosure sales.
5. Under the statutes of the State of __________, Borrower [Grantor] has
adequate power and authority to conduct its business with respect to the
Collateral in the State of ____________.
6. Neither the Administrative Agent, the Documentation Agent, nor the
Lenders will be subject to taxation by the State of _____________ solely by
virtue of making the loans to Borrower [Grantor], or taking liens and security
interests in the Collateral under the Security Documents.
7. Upon the filing thereof, there will be no recording, intangible, or
mortgage tax due and payable in connection with any of the Security Documents,
other than nominal filing fees.
8. The Security Documents are in recordable form in the State of ________.
9. Neither the making of the loans pursuant to the Credit Agreement, nor the
execution, delivery and recording of the Security Documents, shall require that
the Administrative Agent, the Documentation Agent or any Lender qualify as a
foreign corporation to conduct business in the State of _______________.
Sincerely,
<PAGE>
EXHIBIT 10.4
MODIFICATION, AMENDMENT, AND INCREASE
OF CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS
THIS MODIFICATION, AMENDMENT, AND INCREASE OF CREDIT AGREEMENT AND OTHER
LOAN DOCUMENTS (this "AMENDMENT") is entered into on January __, 1997, to be
effective as of January 24, 1997, between PRENTISS PROPERTIES ACQUISITION
PARTNERS, L.P., a Delaware limited partnership ("BORROWER"), each of the banks
or other lending institutions which is a signatory to this Amendment
(collectively, the "LENDERS"), BANK ONE, TEXAS, N.A., a national banking
association, as Administrative Agent for the Lenders (in such capacity, together
with its successors in such capacity, the "ADMINISTRATIVE AGENT"), and
NATIONSBANK OF TEXAS, N.A., a national banking association, as Documentation
Agent for the Lenders (in such capacity, together with its successors in such
capacity, the "DOCUMENTATION AGENT").
R E C I T A L S
- - - - - - - -
A. Borrower, the Lenders, the Administrative Agent, and the Documentation
Agent are parties to the Credit Agreement (as increased, renewed, extended,
modified, and amended from time-to-time, the "CREDIT AGREEMENT") dated as of
October 17, 1996, providing for a $100,000,000.00 revolving line of credit.
B. Capitalized terms used herein shall, unless otherwise indicated, have
the respective meanings set forth in the Credit Agreement.
C. Borrower has requested that (i) each Lender increase its Commitment,
(ii) the Lenders increase the Total Commitment, and (iii) the Administrative
Agent, the Documentation Agent, and the Lenders modify certain other provisions
contained in the Credit Agreement.
D. The parties hereto desire to amend the Credit Agreement and certain
other Loan Documents, subject to the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower, the Lenders, the
Administrative Agent, and the Documentation Agent agree as follows:
1. AMENDMENTS TO THE CREDIT AGREEMENT.
(a) The definition of "Applicable Margin" in SECTION 1.1 of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:
"APPLICABLE MARGIN" means, at the time of determination thereof, the
interest margin over the Base Rate or the Eurodollar Rate, as the case may
be, based upon the Rating Requirement as follows:
<PAGE>
<TABLE>
<CAPTION>
======================================================================
RATING REQUIREMENT APPLICABLE MARGIN
======================================================================
MOODY'S RATING S & P RATING BASE RATE EURODOLLAR
BORROWINGS BORROWINGS
<S> <C> <C> <C>
======================================================================
Less than Less than 0% 1.75%
Baa3 or not BBB- or not
rated rated
----------------------------------------------------------------------
Baa3 BBB- 0% 1.50%
----------------------------------------------------------------------
Baa2 or BBB or better 0% 1.25%
better
======================================================================
</TABLE>
(b) The definition of "Pay Rate Constant" in SECTION 1.1 of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:
"PAY RATE CONSTANT" means, as of any date, a variable Constant Annual
Percentage utilizing (a) a rate of interest equal to the greater of (i) the
Base Rate plus the Applicable Margin as of such date, or (ii) the
Eurodollar Rate for an Interest Period of one (1) month plus the Applicable
Margin as of such date, and (b) a twenty-five (25) year amortization.
(c) SECTION 3.1(a) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following:
(a) The Principal Debt shall be evidenced by the Notes, which Notes
shall be payable to the Lenders in the aggregate stated principal
amount of the Total Commitment.
(d) SECTION 3.19(c) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following:
(C) COMMITMENT FEES.
(i) Borrower shall pay to the Administrative Agent, for the
account of the Lenders, the commitment fees described in the letter
agreement or agreements between Borrower, the Administrative Agent,
and the Lenders.
(ii) Borrower agrees to pay to the Administrative Agent, for the
ratable account of the Lenders, a commitment fee equal to the sum of
the amounts obtained by multiplying the average daily Unused
Commitment set forth below times the applicable percentage set forth
opposite such portion below:
<TABLE>
<CAPTION>
=========================================================================
UNUSED COMMITMENTS APPLICABLE PERCENTAGE PER ANNUM
<S> <C>
=========================================================================
$0.00 through $74,999,999.99 0.125%
-------------------------------------------------------------------------
Equal to or greater than $75,000,000.00 0.25%
=========================================================================
</TABLE>
-2-
<PAGE>
Such commitment fee shall be due and payable in arrears on the first
(1st) day of each April, July, October, and January during the term
hereof, commencing on April 1, 1997, and on the Termination Date, based
upon the Unused Commitment for each day during the quarter ending on
such date. Solely for purposes of this SECTION 3.19(c), "ratable"
means, for any calculation period, with respect to any Lender, the
proportion that (A) the average daily unused Commitment of such Lender
during the period bears to (B) the aggregate amount of the average
daily unused Total Commitment during the period.
(e) SECTION 9.1 of the Credit Agreement is hereby deleted in its entirety
and replaced with the following:
9.1 MINIMUM TANGIBLE NET WORTH. As of any date, Tangible Net Worth
to be less than the sum of (i) $275,000,000.00, and (ii) eighty percent
(80%) of the amount of net cash proceeds of any equity issuances of
Borrower or Guarantor, as the case may be, subsequent to the IPO.
(f) SECTION 13.11(e) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following:
(E) Until March 31, 1997, each Agent shall identify and solicit
prospective Purchasers or Participants to be assignees of or participants
in the Rights and obligations of each Agent under this Agreement (in such
capacity, "SYNDICATING LENDERS") in an amount of up to $100,000,000.00.
During such period, the Syndicating Lenders shall (i) not solicit or enter
into any such assignment or participation except as provided in this
SECTION 13.11(e), and (ii) refer each prospective Purchaser or Participant
that expresses an interest in purchasing or acquiring any such assignment
or participation to the other Syndicating Lender. Each Syndicating Lender,
upon identifying any prospective Purchaser or Participant desiring to be an
assignee of or participant in any portion of the Rights and obligations of
the Syndicating Lenders under this Agreement, shall deliver written notice
to the other Syndicating Lender of the terms of such transaction ("PROPOSED
SYNDICATION TRANSACTION"). Each Syndicating Lender shall have the right to
participate in such Proposed Syndication Transaction on the terms set forth
in such notice by so notifying the other Syndicating Lender within five (5)
days of receiving such notice. The assignment or participation effected by
such Proposed Syndication Transaction shall be allotted equally to each
participating Syndicating Lender. Notwithstanding anything contained to
the contrary in SECTION 13.11(c), the aggregate assignments to a Purchaser
by the Syndicating Lenders shall be in an aggregate amount of not less
$15,000,000.00 or a greater integral multiple of $1,000,000.00.
(g) SCHEDULE 1 to the Credit Agreement is hereby deleted in its entirety
and replaced with SCHEDULE 1 attached hereto.
(h) SCHEDULE 2 to the Credit Agreement is hereby deleted in its entirety
and replaced with SCHEDULE 2 attached hereto.
2. AMENDMENTS TO OTHER LOAN DOCUMENTS.
-3-
<PAGE>
(a) All references in the Loan Documents to the Credit Agreement shall
henceforth include references to the Credit Agreement, as modified, amended, and
increased hereby, and as may, from time- to-time, be further amended, modified,
extended, renewed, and/or increased.
(b) Any and all of the terms and provisions of the Loan Documents are
hereby amended and modified wherever necessary, even though not specifically
addressed herein, so as to conform to the amendments and modifications set forth
herein.
3. RATIFICATIONS. Borrower (a) ratifies and confirms all provisions of
the Loan Documents as amended by this Amendment, (b) ratifies and confirms that
all guaranties, assurances, and Liens granted, conveyed, or assigned to the
Administrative Agent, the Documentation Agent, or the Lenders under the Loan
Documents are not released, reduced, or otherwise adversely affected by this
Amendment and continue to guarantee, assure, and secure full payment and
performance of the present and future Obligation, and (c) agrees to perform such
acts and duly authorize, execute, acknowledge, deliver, file, and record such
additional documents, and certificates as the Administrative Agent, the
Documentation Agent, and the Lenders may reasonably request in order to create,
perfect, preserve, and protect those guaranties, assurances, and Liens.
4. REPRESENTATIONS. Borrower represents and warrants to the
Administrative Agent, the Documentation Agent, and the Lenders that as of the
date of this Amendment: (a) the Amendment Documents (defined below) have been
duly authorized, executed, and delivered by Borrower and each of the other
Companies that are parties to the Amendment Documents; (b) no action of, or
filing with, any Governmental Authority is required to authorize, or is
otherwise required in connection with, the execution, delivery, and performance
by Borrower or the other Companies of the Amendment Documents to which they are
a party, other than recordation of the Amendment Documents described in ITEM 4
of EXHIBIT A; (c) the Loan Documents, as amended by the Amendment Documents, are
valid and binding upon Borrower and the other Companies that are parties to the
Amendment Documents and are enforceable against Borrower and the other Companies
in accordance with their respective terms, except as limited by Debtor Relief
Laws and general principles of equity; (d) the execution, delivery, and
performance by Borrower and the other Companies to which they are a party of the
Amendment Documents do not require the consent of any other Person and do not
and will not constitute a violation of any Governmental Requirement, order of
any Governmental Authority, or material agreements to which Borrower or any
other Company is a party thereto or by which Borrower or any other Company is
bound; (e) all representations and warranties in the Loan Documents are true and
correct in all material respects on and as of the date of this Amendment, except
to the extent that (i) any of them speak to a different specific date, or (ii)
the facts on which any of them were based have been changed by transactions
contemplated or permitted by the Credit Agreement; and (f) both before and after
giving effect to the Amendment Documents, no Potential Default or Default
exists.
5. CONDITIONS. This Amendment and the other Amendment Documents shall not
be effective unless and until:
(a) the Agents shall have received the documents set forth on EXHIBIT A
attached hereto (the "AMENDMENT DOCUMENTS"), in form and substance acceptable to
the Agents;
(b) the representations and warranties in this Amendment are true and
correct in all material respects on and as of the date of this Amendment, except
to the extent that (i) any of them speak to a different specific date, or (ii)
the facts on which any of them were based have been changed by transactions
contemplated or permitted by the Credit Agreement; and
-4-
<PAGE>
(c) both before and after giving effect to this Amendment, no Potential
Default or Default exists.
6. CONTINUED EFFECT. Except to the extent amended hereby or by any
documents executed in connection herewith, all terms, provisions, and conditions
of the Credit Agreement and the other Loan Documents, and all documents executed
in connection therewith, shall continue in full force and effect and shall
remain enforceable and binding in accordance with their respective terms.
7. MISCELLANEOUS. Unless stated otherwise (a) the singular number
includes the plural and vice versa and words of any gender include each other
gender, in each case, as appropriate, (b) headings and captions may not be
construed in interpreting provisions, (c) this Amendment must be construed --
and its performance enforced -- under Texas law, (d) if any part of this
Amendment is for any reason found to be unenforceable, all other portions of it
nevertheless remain enforceable, and (e) this Amendment may be executed in any
number of counterparts with the same effect as if all signatories had signed the
same document, and all of those counterparts must be construed together to
constitute the same document.
8. ENTIRETIES. THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS
AMENDED BY THIS AMENDMENT AND THE OTHER AMENDMENT DOCUMENTS, REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF THE CREDIT AGREEMENT
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
9. PARTIES. This Amendment binds and inures to Borrower, the
Administrative Agent, the Documentation Agent, and the Lenders and their
respective successors and permitted assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGES TO FOLLOW.]
-5-
<PAGE>
SIGNATURE PAGE TO MODIFICATION, AMENDMENT, AND INCREASE
OF CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS
BETWEEN PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
BANK ONE, TEXAS, N.A., AS ADMINISTRATIVE AGENT,
NATIONSBANK OF TEXAS, N.A., AS DOCUMENTATION AGENT,
AND THE LENDERS DEFINED THEREIN
EXECUTED as of the day and year first mentioned.
PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
a Delaware limited partnership,
as Borrower
By: PRENTISS PROPERTIES I, INC.,
General Partner
By:
----------------------------------------
Mark R. Doran
Executive Vice President
-6-
<PAGE>
SIGNATURE PAGE TO MODIFICATION, AMENDMENT, AND INCREASE
OF CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS
BETWEEN PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
BANK ONE, TEXAS, N.A., AS ADMINISTRATIVE AGENT,
NATIONSBANK OF TEXAS, N.A., AS DOCUMENTATION AGENT,
AND THE LENDERS DEFINED THEREIN
BANK ONE, TEXAS, N.A.,
as the Administrative Agent and a Lender
By:
---------------------------------------------
Roderick Washington
Vice President
-7-
<PAGE>
SIGNATURE PAGE TO MODIFICATION, AMENDMENT, AND INCREASE
OF CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS
BETWEEN PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
BANK ONE, TEXAS, N.A., AS ADMINISTRATIVE AGENT,
NATIONSBANK OF TEXAS, N.A., AS DOCUMENTATION AGENT,
AND THE LENDERS DEFINED THEREIN
NATIONSBANK OF TEXAS, N.A.,
as the Documentation Agent and a Lender
By:
---------------------------------------------
John B. Lamb
Senior Vice President
-8-
<PAGE>
To induce the Administrative Agent, the Documentation Agent, and the
Lenders to enter into this Amendment, the undersigned jointly and severally (a)
consent and agree to the Amendment Documents' execution and delivery, (b) ratify
and confirm that all guaranties, assurances, and Liens granted, conveyed, or
assigned to the Administrative Agent or the Lenders under the Loan Documents are
not released, diminished, impaired, reduced, or otherwise adversely affected by
the Amendment Documents and continue to guarantee, assure, and secure the full
payment and performance of all present and future Obligation (except to the
extent specifically limited by the terms of such guaranties, assurances, or
Liens, (c) agree to perform such acts and duly authorize, execute, acknowledge,
deliver, file, and record such additional guaranties, assignments, security
agreements, deeds of trust, mortgages, and other agreements, documents,
instruments, and certificates as the Administrative Agent, the Documentation
Agent, and the Lenders may reasonably deem necessary or appropriate in order to
create, perfect, preserve, and protect those guaranties, assurances, and Liens,
and (d) waive notice of acceptance of this consent and agreement, which consent
and agreement binds the undersigned and their successors and permitted assigns
and inures to the Administrative Agent, the Documentation Agent, and the Lenders
and their respective successors and permitted assigns.
PRENTISS PROPERTIES TRUST, a Maryland real estate
investment trust
By:
----------------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
PL PROPERTIES ASSOCIATES, L.P., a Delaware limited
partnership
By: PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware limited partnership, General Partner
By: PRENTISS PROPERTIES I, INC., a Delaware
corporation, General Partner
By:
-----------------------------------------
Mark R. Doran
Executive Vice President
WESTERN AVENUE ASSOCIATES LIMITED PARTNERSHIP, a
Maryland limited partnership
-9-
<PAGE>
By: PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware limited partnership, General Partner
By: PRENTISS PROPERTIES I, INC., a Delaware
corporation, General Partner
By:
-----------------------------------------
Mark R. Doran
Executive Vice President
RUN DEEP LIMITED PARTNERSHIP, a Maryland limited
partnership
By: PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware limited partnership, General Partner
By: PRENTISS PROPERTIES I, INC., a Delaware
corporation, General Partner
By:
-----------------------------------------
Mark R. Doran
Executive Vice President
RIVERSIDE INVESTORS, a Maryland general partnership
By: PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware limited partnership, General Partner
By: PRENTISS PROPERTIES I, INC., a Delaware
corporation, General Partner
By:
-----------------------------------------
Mark R. Doran
Executive Vice President
PRENTISS O'HARE ILLINOIS, INC., an Illinois corporation
By:
----------------------------------------------------
Mark R. Doran
Executive Vice President
-10-
<PAGE>
EXHIBIT A
LIST OF AMENDMENT DOCUMENTS
1. This Amendment.
2. A Note executed by Borrower and payable to the order of Bank One, Texas,
N.A. in the original principal amount of $75,000,000.00, which note shall
be in modification, increase, and substitution of the Note delivered
pursuant to the Credit Agreement.
3. A Note executed by Borrower and payable to the order of NationsBank of
Texas, N.A. in the original principal amount of $75,000,000.00, which note
shall be in modification, increase, and substitution of the Note delivered
pursuant to the Credit Agreement.
4. Amendments to the Collateral Documents covering each of the following
Projects:
-----------------------
PROJECT
-----------------------
C-2 Park West
(Texas)
-----------------------
5307 E. Mockingbird
(Texas)
-----------------------
Cottonwood Office
(Texas)
-----------------------
Plaza on Bachman
(Texas)
-----------------------
Nicholson III
(Texas)
-----------------------
13425 Branchview
(Texas)
-----------------------
1002 Avenue T
(Texas)
-----------------------
1025 Vantage
(Texas)
-----------------------
West Loop
(Texas)
-----------------------
8521 Leesburg Pike
(Virginia)
-----------------------
Cumberland Office Park
(Georgia)
-----------------------
1329 Western
(Maryland)
-----------------------
4611 Mercedes
(Maryland)
-----------------------
8869 Greenwood
(Maryland)
-----------------------
Deep Run
(Maryland)
-----------------------
-11-
<PAGE>
5. Endorsements (or other arrangements acceptable to the Administrative Agent
and the Documentation Agent) to each Mortgagee Policy of Title Insurance
issued with respect to the Projects listed above.
6. Officer's Certificate of Prentiss Properties I, Inc. ("PPI") certifying the
(a) constituent documents and resolutions of PPI, (b) constituent documents
of Borrower, (c) constituent documents of each other Company (including PL
Properties, L.P., Riverside Investors, Western Avenue Associates Limited
Partnership, Run Deep Limited Partnership, and Prentiss O'Hare Illinois,
Inc.), and (d) the incumbency of officers of PPI.
7. Officer's Certificate of Prentiss Properties Trust certifying the (a)
constituent documents and resolutions of Prentiss Properties Trust, and (b)
the incumbency of officers of Prentiss Properties Trust.
8. Certificates of Existence and Good Standing of Borrower issued by the
Delaware Secretary of State.
9. Opinions of the Companies' Texas, Maryland, Georgia, Virginia, and Illinois
counsel.
10. Such other information or documents as may be reasonably required by
Lender.
-12-
<PAGE>
SCHEDULE 1
PARTIES, ADDRESSES, COMMITMENTS AND WIRING INFORMATION
<TABLE>
<CAPTION>
================================================================================
BORROWER
<S> <C> <C>
================================================================================
Prentiss Properties Acquisition
Partners, L.P.
3890 W. Northwest Highway, Suite 400
Dallas, Texas 75220
Attention: Mr. Michael V. Prentiss /
Mr. Mark Doran
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, Esq.
================================================================================
ADMINISTRATIVE AGENT
================================================================================
Bank One, Texas, N.A.
1717 Main Street
Dallas, Texas 75201
Attention: Mr. Roderick Washington
Vice President
Fax: (214) 290-2275
Wiring Instructions:
Bank One, Texas, N.A.
ABA No. 111000614
Reference: Prentiss Properties
Acquisition Partners, L.P.
Attention: Ms. Elaine Smith
(214) 290-2675
================================================================================
DOCUMENTATION AGENT
================================================================================
NationsBank of Texas, N.A.
901 Main Street, 51st Floor
Dallas, Texas 75283-1000
Attn: Mr. Robert H. Shore
Assistant Vice President
Fax: (214) 508-1571
Wiring Instructions:
NationsBank of Texas, N.A.
ABA # 111000025
Corporate Loans FTA 129-2000-883
Reference: Prentiss Properties
Acquisition Partners, L.P.
Attention: Betty Bowers (214) 508-1552
================================================================================
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Pro Rata Part of the
LENDERS Commitment Commitments
<S> <C> <C>
================================================================================
Bank One, Texas, N.A. $75,000,000.00 50%
1717 Main Street
Dallas, Texas 75201
Attention: Mr. Roderick Washington
Vice President
Fax: (214) 290-2275
Wiring Instructions:
Bank One, Texas, N.A.
ABA No. 111000614
Reference: Prentiss Properties
Acquisition Partners, L.P.
Attention: Ms. Elaine Smith
(214) 290-2675
- --------------------------------------------------------------------------------
NationsBank of Texas, N.A. $75,000,000.00 50%
901 Main Street, 51st Floor
P.O. Box 831000
Dallas, Texas 75283-1000
Attn: Mr. Robert H. Shore
Assistant Vice President
Fax: (214) 508-1571
Wiring Instructions:
NationsBank of Texas, N.A.
ABA # 111000025
Corporate Loans FTA 129-2000-883
Reference: Prentiss Properties
Acquisition Partners, L.P.
Attention: Betty Bowers (214) 508-1552
================================================================================
Total Commitments $150,000,000 100%
================================================================================
</TABLE>
-14-
<PAGE>
SCHEDULE 2
PROJECTS ADMITTED INTO BORROWING BASE
AS OF JANUARY 24, 1997
<TABLE>
<CAPTION>
-------------------------------------------------------------
PROJECT APPROVED COST SQUARE FOOTAGE
<S> <C> <C>
-------------------------------------------------------------
C-2 Park West $45,000,000 344,216
(Texas)
-------------------------------------------------------------
5307 E. Mockingbird $ 4,500,000 118,945
(Texas)
-------------------------------------------------------------
Cottonwood Office $11,250,000 164,111
(Texas)
-------------------------------------------------------------
Plaza on Bachman $10,000,000 125,903
(Texas)
-------------------------------------------------------------
Nicholson III $ 2,500,000 155,712
(Texas)
-------------------------------------------------------------
13425 Branchview $ 2,050,000 121,250
(Texas)
-------------------------------------------------------------
1002 Avenue T $ 2,125,000 100,000
(Texas)
-------------------------------------------------------------
1025 Vantage $ 1,200,000 50,000
(Texas)
-------------------------------------------------------------
West Loop $ 3,250,000 75,231
(Texas)
-------------------------------------------------------------
8521 Leesburg Pike $ 8,000,000 145,257
(Virginia)
-------------------------------------------------------------
Cumberland Office Park $22,700,000 530,198
(Georgia)
-------------------------------------------------------------
1329 Western $ 5,750,000 185,600
(Maryland)
-------------------------------------------------------------
4611 Mercedes $ 5,429,000 128,133
(Maryland)
-------------------------------------------------------------
8869 Greenwood $ 2,050,000 89,582
(Maryland)
-------------------------------------------------------------
Deep Run $ 5,400,000 169,112
(Maryland)
-------------------------------------------------------------
1717 Deerfield $21,550,000 137,904
(Illinois)
-------------------------------------------------------------
O'Hare Plaza II $25,520,000 232,943
-------------------------------------------------------------
9080 Junction $ 4,500,000 108,350
-------------------------------------------------------------
</TABLE>
-15-
<PAGE>
EXHIBIT 10.29
================================================================================
LOAN AGREEMENT
Dated as of February 26, 1997
Between
PRENTISS PROPERTIES REAL ESTATE FUND I, L.P.,
as Borrower
AND
LEHMAN BROTHERS REALTY CORPORATION
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION........................... 1
Section 1.1 Definitions........................................ 1
Section 1.2 Principles of Construction......................... 16
II. GENERAL TERMS..................................................... 16
Section 2.1 Loan Commitment; Disbursement to Borrower.......... 16
2.1.1 The Loan................................................ 16
2.1.2 Disbursement to Borrower................................ 16
2.1.3 The Note................................................ 16
2.1.4 Advances................................................ 16
Section 2.2 Use of Proceeds.................................... 17
Section 2.3 Loan Repayment and Defeasance...................... 18
2.3.1 Repayment............................................... 18
2.3.2 Mandatory Prepayments................................... 18
2.3.3 Voluntary Defeasance of the Loan........................ 18
Section 2.4 Release of Properties.............................. 21
2.4.1 Release of All the Properties........................... 21
2.4.2 Release of Individual Properties........................ 21
2.4.3 Successor Borrower...................................... 22
2.4.4 Release on Payment in Full.............................. 23
Section 2.5 Interest........................................... 23
2.5.1 Generally............................................... 23
2.5.2 Default Rate; Post-Maturity Interest.................... 23
Section 2.6 Payments and Computations.......................... 24
2.6.1 Making of Payments...................................... 24
2.6.2 Computations............................................ 24
2.6.3 Intentionally Omitted................................... 24
2.6.4 Payments After Anticipated Repayment Date............... 24
2.6.5 Payments Received in the Cash Collateral Account........ 25
Section 2.7 Substitution of Properties......................... 25
III. CONDITIONS PRECEDENT.............................................. 34
Section 3.1 Conditions Precedent to Initial Advance............ 34
Section 3.2 Conditions Precedent to Subsequent Advances........ 38
Section 3.3 Conditions Precedent to Additional Advance......... 44
Section 3.4. Conditions Precedent to Advances.................. 45
IV. REPRESENTATIONS AND WARRANTIES.................................... 46
Section 4.1 Borrower Representations........................... 46
-i-
<PAGE>
Page
----
Section 4.2 Survival of Representations........................ 56
V. AFFIRMATIVE COVENANTS............................................. 56
Section 5.1 Borrower Covenants................................. 56
VI. NEGATIVE COVENANTS................................................ 63
Section 6.1 Borrower's Negative Covenants...................... 63
VII. CASUALTY; CONDEMNATION; ESCROWS................................... 65
Section 7.1 Insurance; Casualty and Condemnation............... 65
7.1.1 Insurance............................................... 65
7.1.2 Condemnation............................................ 69
7.1.3 Restoration............................................. 69
Section 7.2 Intentionally Omitted.............................. 74
Section 7.3 Tax and Insurance Escrow Fund...................... 74
7.3.1 Tax and Insurance Escrow Fund........................... 74
7.3.2 Grant of Security Interest.............................. 75
7.3.3 Application of Tax and Insurance Escrow Fund............ 75
Section 7.4 Intentionally Omitted.............................. 76
Section 7.5 Ground Lease Escrow Fund........................... 76
VIII.DEFAULTS.......................................................... 76
Section 8.1 Event of Default................................... 76
Section 8.2 Remedies........................................... 79
Section 8.3 Remedies Cumulative................................ 80
IX. SPECIAL PROVISIONS................................................ 81
Section 9.1 Sale of Notes and Securitization................... 81
Section 9.2 Securitization Indemnification..................... 82
Section 9.3 Rating Surveillance................................ 86
Section 9.4 Exculpation........................................ 86
9.4.1 Exculpation............................................. 86
9.4.2 Reservation of Certain Rights........................... 86
9.4.3 Exceptions to Exculpation............................... 86
9.4.4 Bankruptcy Claims....................................... 87
Section 9.5 Cash Management.................................... 87
9.5.1 Lockbox Account......................................... 87
9.5.2 Cash Collateral Account................................. 87
Section 9.6 Servicer........................................... 89
X. MISCELLANEOUS..................................................... 89
Section 10.1 Survival.......................................... 89
Section 10.2 Lender's Discretion............................... 89
-ii-
<PAGE>
Page
----
Section 10.3 Governing Law................................... 90
Section 10.4 Modification, Waiver in Writing................. 91
Section 10.5 Delay Not a Waiver.............................. 91
Section 10.6 Notices......................................... 92
Section 10.7 Trial by Jury................................... 93
Section 10.8 Headings........................................ 93
Section 10.9 Severability.................................... 93
Section 10.10 Waiver of Notice................................ 93
Section 10.11 Remedies of Borrower............................ 93
Section 10.12 Expenses; Indemnity............................. 94
Section 10.13 Exhibits and Schedules Incorporated............. 95
Section 10.14 No Joint Venture or Partnership;
No Third Party Beneficiaries................... 95
Section 10.15 Publicity....................................... 95
Section 10.16 Cross-Default; Cross-Collateralization;
Waiver of Marshalling of Assets................ 96
Section 10.17 Waiver of Counterclaim.......................... 96
Section 10.18 Conflict; Construction of Documents; Reliance... 96
Section 10.19 Brokers and Financial Advisors.................. 97
Section 10.20 Prior Agreements................................ 97
Section 10.21 Counterparts.................................... 97
-iii-
<PAGE>
SCHEDULES
---------
Schedule I - List of Properties and Release Amounts
Schedule II - List of Additional Properties
Schedule III - Litigation
Schedule IV - Form of Estoppel Certificate
Schedule V - Form of Subordination, Nondisturbance and Attornment
Agreement
Schedule VI - Leases Without Provision for Subordination or Attornment
Schedule VII - Increases in Release Amounts in connection with Additional
Advance
Schedule VIII - Closing Date Property Values
-iv-
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of February 26, 1997 (this "AGREEMENT"),
---------
between PRENTISS PROPERTIES REAL ESTATE FUND I, L.P., a Delaware Limited
Partnership having its principal place of business at 3890 West Northwest
Highway, Suite 400, Dallas, Texas 75220 ("BORROWER") and LEHMAN BROTHERS REALTY
--------
CORPORATION, a Delaware corporation having an address at Three World Financial
Center, New York, New York 10281 ("LENDER").
------
All capitalized terms used herein shall have the respective meanings
set forth in Article I hereof.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower desires to obtain from Lender, and Lender is willing
to make to Borrower, a loan in the principal amount of up to ONE HUNDRED NINETY-
FIVE MILLION ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($195,100,000) (the "LOAN")
----
pursuant to the terms and provisions set forth in this Agreement and the other
Loan Documents;
NOW, THEREFORE, in consideration of the making of the Loan by Lender
and the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereto hereby covenant, agree, represent and warrant as
follows:
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
---------------------------------------
SECTION 1.1 DEFINITIONS.
-----------
For all purposes of this Agreement, except as otherwise expressly
required or unless the context clearly indicates a contrary intent:
"ACCOUNT HOLDER" shall have the meaning set forth in Section 9.5.1.
-------------- -------------
"ACCRUED INTEREST" shall have the meaning set forth in Section 2.6.4.
---------------- -------------
"ADDITIONAL ADVANCE" shall have the meaning set forth in Section
------------------ -------
2.1.4(c).
- --------
"ADDITIONAL ADVANCE CLOSING DATE" shall mean the date of the funding
-------------------------------
of the Additional Advance pursuant to Section 2.1.4(c).
----------------
"ADDITIONAL ADVANCE RATE" shall mean the rate that is the quotient of
(a) the sum of (i) the product of the Subsequent Advance Rate immediately prior
to the Additional Advance multiplied by the total of the Initial Advance and any
Subsequent Advance plus (ii) the product of the Additional Advance multiplied by
the prevailing yield, as of the Additional Advance Closing Date, on United
States Treasury obligations maturing on
-1-
<PAGE>
the date most closely approximating the Anticipated Repayment Date plus one
hundred fifteen basis points (1.15%) divided by (b) the Total Advances.
"ADDITIONAL PROPERTY" shall have the meaning set forth in Section
------------------- -------
2.1.4(b).
- --------
"ADJUSTED RELEASE AMOUNT" shall mean for an Individual Property the
-----------------------
product of the Pro rata Release Amount for such Individual Property and one
hundred fifteen percent (115%).
"AFFILIATE" shall mean, as to any Person, any other Person that,
---------
directly or indirectly, is in control of, is controlled by or is under common
control with such Person.
"ALTA" shall mean American Land Title Association, or any successor
----
thereto.
"ANNUAL BUDGET" shall mean the operating budget, including all planned
-------------
capital expenditures, for all the Properties prepared by Borrower for the
applicable Fiscal Year or other period.
"ANTICIPATED REPAYMENT DATE" shall mean February 26, 2007.
--------------------------
"APPLICABLE INTEREST RATE" shall mean (a) from the date hereof through
------------------------
but not including the Anticipated Repayment Date, the Regular Interest Rate, and
(b) from and after the Anticipated Repayment Date through and including the date
the Note is paid in full, the Matured Performing Rate.
"APPROVED ANNUAL BUDGET" shall have the meaning specified in Section
---------------------- -------
2.6.4.
- -----
"ASSIGNMENT OF LEASES" shall mean, with respect to one or more
--------------------
Individual Properties, that certain first priority Assignment of Leases and
Rents, dated as of the date hereof, from Borrower, as assignor, to Lender, as
assignee, assigning to Lender all of Borrower's interest in and to the Leases
and Rents of such Individual Properties as security for the Loan, as the same
may be amended, restated, replaced, supplemented or otherwise modified from time
to time.
"ASSIGNMENT OF MANAGEMENT AGREEMENT" shall mean, with respect to the
----------------------------------
Properties, that certain Assignment of Management Agreement and Subordination of
Management Fees, dated as of the date hereof, between Prentiss Properties
Management, L.P., a Texas limited partnership, and Lender.
"ASSIGNMENTS OF LEASES" shall mean, collectively all of the Assignment
---------------------
of Leases encumbering the Properties.
"AWARD" shall have the meaning set forth in Section 7.1.2.
----- -------------
"BASIC CARRYING COSTS" shall mean, with respect to an Individual
--------------------
Property, the sum of the following costs associated with such Individual
Property for the relevant Fiscal
-2-
<PAGE>
Year or payment period: (i) real property taxes with respect to such Individual
Property and (ii) insurance premiums with respect to such Individual Property.
"BORROWER" shall mean Prentiss Properties Real Estate Fund I, L.P, a
--------
Delaware limited partnership, together with its successors and assigns.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
------------
other day on which national banks in New York are not open for business.
"CAPITAL EXPENDITURES" for any period shall mean the amount expended
--------------------
for items capitalized under GAAP (including expenditures for building
improvements or major repairs, leasing commissions and tenant improvements).
"CASH COLLATERAL ACCOUNT" shall have the meaning set forth in Section
----------------------- -------
9.5.2(a).
- --------
"CASH EXPENSES" shall mean, for any period, the operating expenses for
-------------
the operation of an Individual Property (including rent under any applicable
ground lease) as set forth in an Approved Annual Budget to the extent that such
expenses are actually incurred by Borrower minus payments into the Tax and
Insurance Escrow Fund.
"CASUALTY/CONDEMNATION INVOLUNTARY PREPAYMENT" shall have the meaning
--------------------------------------------
set forth in Section 2.3.2.
-------------
"CASUALTY CONSULTANT" shall have the meaning set forth in Section
------------------- -------
7.1.3(b)(iii).
- -------------
"CASUALTY RETAINAGE" shall have the meaning set forth in Section
------------------ -------
7.1.3(b)(iv).
- ------------
"CLOSING DATE" shall mean the date of the funding of the initial
------------
advance of a portion of the proceeds of the Loan.
"CLOSING DATE DEBT SERVICE COVERAGE RATIO" shall have the meaning set
----------------------------------------
forth in Section 2.4.2(d).
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
----
as it may be further amended from time to time, any successor statutes thereto,
and applicable U.S. Department of Treasury regulations issued pursuant thereto
in temporary or final form.
"CONDEMNATION PROCEEDS" shall have the meaning set forth in Section
--------------------- -------
7.1.3(b).
- --------
"CPI" shall mean the Consumer Price Index as published by the Bureau
---
of Labor Statistics of the U.S. Department of Labor, All Items for Urban Wage
Earners and Clerical Workers or any appropriate successor or substitute index.
"DEBT" shall mean the outstanding principal amount set forth in, and
----
evidenced by, the Note together with all interest accrued and unpaid thereon and
all other sums
-3-
<PAGE>
(including the Yield Maintenance Premium) due to Lender in respect of the Loan
under the Note, this Agreement, the Mortgages or any other Loan Document.
"DEBT SERVICE" shall mean, with respect to any particular period of
------------
time, scheduled principal and interest payments under the Note.
"DEBT SERVICE COVERAGE RATIO" shall mean a ratio for the applicable
---------------------------
period in which the numerator is the Net Operating Income for such period as set
forth in the statements required hereunder and the denominator is the aggregate
amount of principal and interest due and payable on the Note (or, in the event a
Defeasance Event has occurred, the Undefeased Note) for such period or such
other debt service calculation expressly set forth in this Agreement.
"DEFAULT" shall mean the occurrence of any event hereunder or under
-------
any other Loan Document which, but for the giving of notice or passage of time,
or both, would be an Event of Default.
"DEFAULT RATE" shall have the meaning set forth in the Note.
------------
"DEFEASANCE DATE" shall have the meaning set forth in Section
--------------- -------
2.3.3(a)(ii).
- ------------
"DEFEASANCE DEPOSIT" shall mean an amount equal to the remaining
------------------
principal amount of the Note or the principal amount of the Defeased Note, as
applicable, the Yield Maintenance Premium, any costs and expenses incurred or to
be incurred in the purchase of U.S. Obligations necessary to meet the Scheduled
Defeasance Payments and any revenue, documentary stamp or intangible taxes or
any other tax or charge due in connection with the transfer of the Note, the
creation of the Defeased Note and the Undefeased Note, if applicable, any
transfer of the Defeased Note or otherwise required to accomplish the agreements
of Sections 2.3 and 2.4 hereof;
------------ ----
"DEFEASANCE EVENT" shall have the meaning set forth in Section
---------------- -------
2.3.3(a).
- --------
"DEFEASED NOTE" shall have the meaning set forth in Section
------------- -------
2.3.3(a)(vi) hereof.
- ------------
"DISCLOSURE DOCUMENT" shall have the meaning set forth in Section
------------------- -------
9.2(a).
- ------
"EAR" shall have the meaning set forth in Section 3.2(h).
--- --------------
"ELIGIBLE ACCOUNT" shall mean a separate and identifiable account from
----------------
all other funds held by the holding institution that is either (a) an account or
accounts maintained with a federal or state-chartered depository institution or
trust company which complies with the definition of Eligible Institution or (b)
a segregated trust account or accounts maintained with the corporate trust
department of a federal depository institution or state-chartered depository
institution subject to regulations regarding fiduciary funds on deposit similar
to Title 12 of the Code of Federal Regulations Section 9.10(b) which, in either
case, has
-4-
<PAGE>
corporate trust powers, acting in its fiduciary capacity. An Eligible Account
will not be evidenced by a certificate of deposit, passbook or other instrument.
"ELIGIBLE INSTITUTION" shall mean an institution whose (a) commercial
--------------------
paper, short-term debt obligations or other short-term deposits are rated at
least "A-3" by Standard & Poor's Rating Services, if the deposits are to be held
in the account for less than thirty (30) days, or (b) long-term unsecured debt
obligations are rated at least "A", if deposits are to be held in the account
more than thirty (30) days.
"ELIGIBLE INVESTMENTS" shall mean any one or more of the following
--------------------
investments in obligations or securities acquired at a purchase price of not
greater than par, including those issued by Lender or any Affiliate of Lender,
provided that such obligations or securities are either payable on demand or
have a maturity not later than the Business Day immediately prior to the date on
which the proceeds thereof are anticipated to be expended or applied pursuant to
the terms of the Loan Documents:
(i) direct obligations of, and obligations fully guaranteed as to
payment of principal and interest by, the United States, Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association or any agency or
instrumentality of the United States of America provided such obligations are
backed by the full faith and credit of the United States of America;
(ii) general obligations of or obligations guaranteed by any state
of the United States or the District of Columbia at all times having the highest
long-term debt rating of the Rating Agencies, or such lower rating (but not
lower than the second highest such rating category of the Rating Agencies) as
will not or would not result in the qualification, reduction or withdrawal of
the initial ratings assigned in connection with a Securitization by the Rating
Agencies, as evidenced by a letter confirming such result by the Rating
Agencies;
(iii) commercial or finance company paper which is rated at all times
by the Rating Agencies in its highest unsecured commercial or finance company
paper rating category or such lower unsecured commercial or finance company
paper rating category (but not lower than the second highest such rating
category of the Rating Agencies) as will not or would not result in the
qualification, reduction or withdrawal of the initial ratings assigned in
connection with a Securitization by the Rating Agencies, as evidenced by a
letter confirming such result by the Rating Agencies;
(iv) certificates of deposit, demand or time deposits, federal funds
or bankers' acceptances issued by any depository institution or trust company
incorporated under the laws of the United States of America or of any state
thereof and subject to supervision and examination by federal or state banking
authorities, provided that the commercial paper or long-term unsecured debt
obligations of such depository institution or trust company (or in the case of
the principal depository institution or trust company in a holding company
system, the commercial paper or long-term unsecured debt obligations of such
holding company) are rated at all times in the highest rating category for such
securities by the Rating Agencies, or such lower category for such securities
(but not lower than the second highest such rating category
-5-
<PAGE>
of the Rating Agencies) as will not or would not result in the qualification,
reduction or withdrawal of the initial ratings assigned in connection with a
Securitization by the Rating Agencies, as evidenced by a letter confirming such
result by the Rating Agencies;
(v) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation as will not or would not result in the
qualification, reduction or withdrawal of the initial ratings assigned in
connection with a Securitization by the Rating Agencies, as evidenced by a
letter confirming such result by the Rating Agencies;
(vi) repurchase obligations with respect to any security described
in clauses (i) and (ii) of this definition, in each case entered into with a
depository institution or trust company (acting as principal) described in
clause (iv) above ;
(vii) securities (other than stripped bonds or stripped coupons)
bearing interest or sold at a discount that are issued by any corporation
incorporated under the laws of the United States of America or any state thereof
or the District of Columbia which are rated at all times in the highest rating
category of the Rating Agencies, or in such lower category (but not lower than
the second highest such rating category of the Rating Agencies) as will not or
would not result in the qualification, reduction or withdrawal of the initial
ratings assigned in connection with a Securitization by the Rating Agencies, as
evidenced by a letter confirming such result by the Rating Agencies;
(viii) interests in money market funds which at all times have a
rating of "AAA" by the Rating Agencies, or such lower rating (but not lower than
the second highest rating category of the Rating Agencies for money market
funds) as will not or would not result in the qualification, reduction or
withdrawal of the initial ratings assigned in connection with a Securitization
by the Rating Agencies, as evidenced by a letter confirming such result from the
Rating Agencies; and
(ix) such other investment bearing interest or sold at a discount
acceptable to Lender and the Rating Agencies as will or would not result in the
qualification, reduction or withdrawal of the initial ratings assigned in
connection with a Securitization by the Rating Agencies, as evidenced by a
letter confirming such result from the Rating Agencies; provided that such
investment shall be rated at all times by the Rating Agencies not lower than its
second highest rating category for investments of such type.
No obligation or security set forth above shall be an Eligible
Investment if (y) such obligation or security evidences a right to receive only
interest payments or (z) the right to receive principal and interest payments
derived from the underlying investment provide a yield to maturity in excess of
one hundred twenty percent (120%) of the yield to maturity at par of such
underlying investment.
"ENVIRONMENTAL INDEMNITY" shall mean, collectively, one or more
-----------------------
Environmental Indemnity Agreements with respect to one or more Individual
Properties executed by Borrower in connection with the Loan for the benefit of
Lender.
"ERISA" shall have the meaning set forth in Section 6.1(k).
----- --------------
-6-
<PAGE>
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1(a).
---------------- --------------
"EXCESS CASH FLOW" shall mean, for any period after the Anticipated
----------------
Repayment Date, the sum of (a) Gross Income from Operations, plus (b)
depreciation and amortization (to the extent deducted in determining net
operating income) for such period, plus (c) disbursements from any of the Tax
and Insurance Escrow Fund, the Ground Lease Escrow Fund, if any, or any other
escrows or reserves approved by Lender or provided for under the Loan Documents,
minus (d) payments of interest on the Loan in the amount of the Monthly Debt
Service Amount paid in accordance with this Agreement during an applicable
period, minus (e) payments into the Tax and Insurance Escrow Fund, the Ground
Lease Escrow Fund and other reserves required under the Loan Documents, minus
(f) Operating Expenses incurred in accordance with the Approved Annual Budget,
and minus (g) capital expenses with respect to the operation and maintenance of
the Properties incurred in accordance with the Approved Annual Budget and paid
to (i) Persons that are not Affiliates of Borrower or (ii) to Manager pursuant
to the terms and provisions of the Management Agreement.
"EXCHANGE ACT" shall have the meaning set forth in Section 9.2(a).
------------ --------------
"EXTRAORDINARY EXPENSE" shall have the meaning set forth in Section
--------------------- -------
2.6.4(b).
- --------
"FISCAL YEAR" shall mean each twelve month period commencing on
-----------
January 1 and ending on December 31 during each year of the term of the Loan.
"GAAP" shall mean generally accepted accounting principles as of the
----
date of the applicable financial report.
"GOVERNMENTAL AUTHORITY" shall mean any court, board, agency,
----------------------
commission, office or authority of any nature whatsoever for any governmental
unit (federal, state, county, district, municipal, city or otherwise) whether
now or hereafter in existence.
"GROSS INCOME FROM OPERATIONS" shall mean all income, calculated on a
----------------------------
cash basis with respect to past periods or calculated on an accrual basis with
respect to future periods, which calculations shall be reasonably acceptable to
Lender and based upon operating statements and other information delivered to
Lender by Borrower, derived from the ownership and operation of the Properties
from whatever source, including, but not limited to, all rent, utility charges,
escalations, forfeited security deposits, service fees or charges, license fees,
parking fees, rent concessions or credits, and any business interruption
insurance proceeds but excluding rent, sales, use and occupancy or other taxes
on receipts required to be accounted for by Borrower to any government or
governmental agency, refunds and uncollectible accounts, sales of furniture,
fixtures and equipment, proceeds of casualty insurance and condemnation awards
(other than condemnation awards constituting compensation for temporary
takings); provided, however, the proceeds of casualty insurance and condemnation
awards shall not be included in this definition whenever this definition is used
for purposes of computing Debt Service Coverage Ratio. Gross income shall not
be diminished as a result of the Mortgages or the creation of any intervening
estate or interest in the Properties or any part thereof.
-7-
<PAGE>
"GROUND LEASE" shall mean that certain Lease dated October 31, 1985 by
------------
and between Satfield Company, a Michigan Corporation, as lessor, Abraham
Satovsky and Lester Satovsky, jointly, and W.R. Southfield Associates II Limited
Partnership, an Illinois limited partnership (and predecessor in interest to
Borrower), as lessee, and recorded on October 3, 1996 in Liber 16653, Page 644
of the Office of the Register of Deeds of Oakland County, Michigan, as amended
pursuant to that certain First Amendment to Lease dated July 20, 1988 by and
between Satfield Company, Abraham Satovsky, Lester Satovsky, and W.R. Southfield
Associates II Limited Partnership.
"GROUND LEASE ESCROW FUND" shall have the meaning set forth in Section
------------------------ -------
7.5 hereof.
- ---
"IMPROVEMENTS" shall have the meaning set forth in the related
------------
Mortgage with respect to each Individual Property.
"INCOME TAXES" shall mean, for any period, the federal and state
------------
income taxes payable by the partners of the Borrower with respect to the
Borrower's taxable income for such period.
"INDEPENDENT DIRECTOR" shall have the meaning set forth in Section
-------------------- -------
4.1(ee)(xvi).
- ------------
"INDIVIDUAL PROPERTY" shall mean Borrower's fee or leasehold interest
-------------------
in each parcel of real property and the improvements thereon owned by Borrower
encumbered by a Mortgage on the Closing Date together with each Additional
Property thereafter encumbered by a Mortgage from and after the date such
Additional Property is so encumbered, together with all rights pertaining to
such property and improvements, as more particularly described in the Granting
Clauses of such Mortgages and referred to therein as the "Property".
"INITIAL ADVANCE" shall mean Lender's initial advance of proceeds of
---------------
the Loan in the amount of Ninety-Six Million One Hundred Thousand and No/100
Dollars ($96,100,000).
"INSOLVENCY OPINION" shall have the meaning set forth in Section
------------------ -------
4.1(ee)(xviii).
- --------------
"INSURANCE PREMIUMS" shall have the meaning set forth in Section
------------------ -------
7.1.1(b) hereof.
- --------
"INSURANCE PROCEEDS" shall have the meaning set forth in Section
------------------ -------
7.1.3(b).
- --------
"LANDLORD" shall have the meaning set forth in Section 4.1.(hh).
-------- ----------------
"LEASE" shall mean any lease, or, to the extent of the interest
-----
therein of Borrower, any sublease or subsublease, letting, license, concession
or other agreement (whether written or oral and whether now or hereafter in
effect) pursuant to which any person is granted a possessory interest in, or
right to use or occupy all or any portion of any space in
-8-
<PAGE>
any Individual Property of Borrower, and every modification, amendment or other
agreement relating to such lease, sublease, subsublease, or other agreement
entered into in connection with such lease, sublease, subsublease, or other
agreement and every guarantee of the performance and observance of the
covenants, conditions and agreements to be performed and observed by the other
party thereto.
"LEASE GUARANTY" shall have the meaning set forth in Section 5.1(r).
-------------- --------------
"LEGAL REQUIREMENTS" shall mean, with respect to each Individual
------------------
Property, all federal, state, county, municipal and other governmental statutes,
laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions
of Governmental Authorities affecting such Individual Property or any part
thereof or the construction, use, alteration or operation thereof, or any part
thereof, whether now or hereafter enacted and in force, and all material
permits, licenses and authorizations and regulations relating thereto, and all
material covenants, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Borrower, at any time in force
affecting such Individual Property or any part thereof, including, without
limitation, any which may (i) require repairs, modifications or alterations in
or to such Individual Property or any part thereof, or (ii) in any material way
limit the use and enjoyment thereof.
"LEHMAN" shall have the meaning set forth in Section 9.2(b).
------ --------------
"LEHMAN GROUP" shall have the meaning set forth in Section 9.2(b).
------------ --------------
"LENDER" shall mean Lehman Brothers Holdings Realty Corporation,
------
together with its successors and assigns.
"LIABILITIES" shall have the meaning set forth in Section 9.2(b).
----------- --------------
"LICENSES" shall have the meaning set forth in Section 4.1(v).
-------- --------------
"LIEN" shall mean, with respect to each Individual Property, any
----
mortgage, deed of trust, lien, pledge, hypothecation, assignment, security
interest, or any other encumbrance, charge or transfer of, on or affecting the
related Individual Property or any portion thereof or Borrower, or any interest
therein, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, the filing of any financing statement (other
than a financing statement giving notice of a true lease), and mechanic's,
materialmen's and other similar liens and encumbrances.
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note,
--------------
the Mortgage and Assignment of Leases encumbering each Individual Property, the
Environmental Indemnity, the Assignment of Management Agreement and any other
document evidencing or securing the Loan.
"LOCKBOX ACCOUNT" shall have the meaning set forth in Section 9.5.1.
--------------- -------------
-9-
<PAGE>
"MANAGEMENT AGREEMENT" shall mean, with respect to the Properties, the
--------------------
management agreement entered into by and between Borrower and the Manager and
approved by Lender, pursuant to which the Manager is to provide management and
other services with respect to said Individual Property.
"MANAGEMENT FEE" shall mean all amounts payable to Manager pursuant to
--------------
the Management Agreement.
"MANAGER" shall mean Prentiss Properties Management, L.P., a Texas
-------
limited partnership .
"MATURED PERFORMING RATE" shall mean a rate per annum equal to the
-----------------------
greater of (i) the Regular Interest Rate plus two percent (2%) or (ii) the
Treasury Rate plus two percent (2%).
"MATURITY DATE" shall mean February 26, 2027 or such other date on
-------------
which the final payment of principal of the Note becomes due and payable as
therein provided, whether at a stated maturity, by declaration of acceleration,
or otherwise.
"MONTHLY DEBT SERVICE PAYMENT AMOUNT" shall have the meaning set forth
-----------------------------------
in Section 2.5.1.
-------------
"MORTGAGE" shall mean, with respect to one or more Individual
--------
Properties, that certain first priority Mortgage and Security Agreement,
Leasehold Mortgage and Security Agreement or Deed of Trust and Security
Agreement executed and delivered by Borrower as security for the Loan made to
Borrower and encumbering such Individual Properties, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time.
"MORTGAGES" shall mean, collectively, all of the Mortgages encumbering
---------
the Properties.
"NET OPERATING INCOME" means, for the relevant calculation period, the
--------------------
amount obtained by subtracting Operating Expenses from Gross Income from
Operations.
"NET PROCEEDS" shall have the meaning set forth in Section 7.1.3(b).
------------ ----------------
"NET PROCEEDS DEFICIENCY" shall have the meaning set forth in Section
----------------------- -------
7.1.3(b)(vi).
- ------------
"NON-CURABLE PROPERTY DEFAULT" shall mean a Default, other than a
----------------------------
Default which can be cured by the payment of money, which (i) arises by reason
of a circumstance or state of facts existing at or with respect to an Individual
Property and (ii) cannot practicably be remedied within the notice and cure
periods provided therefor in the Loan Documents.
"NOTE" shall mean that certain Promissory Note of even date herewith,
----
made by Borrower in favor of Lender, as the same may be amended, restated,
replaced, supplemented
-10-
<PAGE>
or otherwise modified from time to time, including any Defeased Note and
Undefeased Note that may exist from time to time.
"OFFICER'S CERTIFICATE" shall mean a certificate delivered to Lender
---------------------
by Borrower which is signed by an authorized officer of the general partner of
Borrower.
"OPERATING EXPENSES" shall mean, for any period, all ordinary and
------------------
customary out-of-pocket expenses, the calculation of which shall be reasonably
satisfactory to Lender, incurred by or on behalf of Borrower for or in
connection with the ownership, operation, leasing and maintenance of the
Properties paid to Persons that are not Affiliates of Borrower or, if paid to
Affiliates of Borrower, in amounts reflecting an arm's-length transaction on
market terms. Operating Expenses shall not include (a) the cost of repairs,
additions, alterations, improvements, leasing and brokerage commissions and
other costs (including financing costs) to the extent same are required to be
capitalized in accordance with GAAP, (b) depreciation and other non-cash
charges, (c) principal and interest payments on the Loan, (d) any income or
capital gains taxes payable upon the income or capital gains of Borrower or its
partners, (e) after the Anticipated Repayment Date for purposes of calculating
Excess Cash Flow, extraordinary non-recurring expenses incurred in connection
with the ownership, operation and maintenance of the Properties that do not
constitute an Extraordinary Expense and (f) Borrower's overhead, entity and
audit expenses.
"OTHER CHARGES" shall mean all ground rents, maintenance charges,
-------------
impositions other than Taxes, and any other charges, including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Properties, now or hereafter levied or assessed or
imposed against the Properties or any part thereof.
"OUTSIDE CLOSING DATE" shall have the meaning set forth in Section
-------------------- -------
2.1.4.
- -----
"PERMITTED ENCUMBRANCES" shall mean, with respect to an Individual
----------------------
Property, collectively, (a) the Liens and security interests created by the Loan
Documents; (b) all Liens, encumbrances and other matters disclosed in the Title
Insurance Policies relating to such Individual Property or any part thereof or
insured over to Lender's satisfaction; (c) Liens, if any, for Taxes imposed by
any Governmental Authority not yet due or delinquent or being contested in
accordance with the terms and provisions of Section 5.1(b); (d) any and all
--------------
utility or access easements that may exist or may hereafter be granted by
Borrower and that do not materially and adversely affect (i) the marketability
of title to such Individual Property, (ii) the fair market value of such
Individual Property, (iii) the use of such Individual Property for its use as of
the date hereof or (iv) Borrower's ability to comply with the terms and
provisions of the Loan Documents; (e) rights of existing and future tenants, as
tenants only, pursuant to the Leases; (f) Liens for Labor and Material Costs (as
defined in the Mortgage) being contested in accordance with the terms and
provisions of Section 3.6(b) of the Mortgage and (g) such other title and survey
exceptions as Lender has approved or may approve in writing in Lender's
reasonable discretion.
"PERMITTED PREPAYMENT DATE" shall mean November 26, 2006.
-------------------------
-11-
<PAGE>
"PERSON" shall mean any individual, corporation, partnership, joint
------
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"PERSONAL PROPERTY" shall have the meaning set forth in the Mortgage
-----------------
with respect to each Individual Property.
"PHYSICAL CONDITIONS REPORT" shall mean, with respect to each
--------------------------
Individual Property, a report prepared by a company reasonably satisfactory to
Lender regarding the physical condition of such Individual Property, reasonably
satisfactory in form and substance to Lender, which report shall, among other
things, (i) confirm that such Individual Property and its use complies, in all
material respects, with all applicable Legal Requirements (including, without
limitation, zoning, subdivision and building laws) and (ii) include a copy of a
final certificate of occupancy with respect to all Improvements on such
Individual Property or, with respect to the Individual Property known as One
Northwestern Plaza, a temporary certificate of occupancy with respect to all
Improvements on such Individual Property.
"POLICIES" and "POLICY" shall have the meaning specified in Section
-------- ------ -------
7.1.1(b).
- --------
"PRO RATA RELEASE AMOUNT" shall mean for an Individual Property or
-----------------------
Subparcel the product of (a) the quotient obtained by dividing the Release
Amount for such Individual Property or Subparcel by the sum of the original
Release Amount for all Properties, and (b) the outstanding principal balance of
the Loan.
"PRO RATA SUBSTITUTE RELEASE AMOUNT" shall mean for a Substitute
----------------------------------
Property the product of (a) the quotient obtained by dividing the Substitute
Release Amount for such Individual Property by the sum of the original Release
Amount for all Properties, and (b) the outstanding principal balance of the
Loan.
"PROPERTIES" shall mean, collectively, all of the Individual
----------
Properties.
"PROVIDED INFORMATION" shall have the meaning set forth in Section
-------------------- -------
9.1(a).
- ------
"RATING AGENCY" shall mean any one or more, but in no event more than
-------------
three, of Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc.,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Fitch
Investors Service, Inc. or any other nationally-recognized statistical rating
agency which has been selected by Lender in its sole discretion in connection
with a Securitization.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
---------------------- -------
9.2(b).
- ------
"REGULAR INTEREST RATE" shall mean a rate of 7.56% per annum.
---------------------
"RELEASE AMOUNT" shall mean for an Individual Property or Subparcel
--------------
the amount set forth on Schedule I hereto.
----------
-12-
<PAGE>
"RELEASE DATE" shall mean the earlier of (i) the date that is two (2)
------------
years from the "startup day" within the meaning of Section 860G(a)(9) of the
Code of the REMIC Trust and (ii) the date that is thirty (30) months from the
Outside Closing Date.
"REMIC TRUST" shall mean a "real estate mortgage investment conduit"
-----------
within the meaning of Section 860D of the Code that holds the Note.
"RENTABLE SPACE PERCENTAGE" shall have the meaning set forth in
-------------------------
Section 7.1.3(b)(i)(C).
- ----------------------
"RENTS" shall have the meaning set forth in the Mortgage with respect
-----
to each Individual Property.
"RESTORATION" shall have the meaning set forth in Section 7.1.1(g).
----------- ----------------
"SCHEDULED DEFEASANCE PAYMENTS" shall have the meaning set forth in
-----------------------------
Section 2.3.3(b).
- ----------------
"SECONDARY MARKET TRANSACTION" shall mean any transaction in which the
----------------------------
Lender (i) sells the Loan, the Note and the other Loan Documents to one or more
investors as a whole loan, (ii) participates the Loan to one or more investors,
(iii) deposits the Loan, the Mortgages, the Note and other Loan Documents with a
trust, which trust may sell certificates to investors evidencing an ownership
interest in the trust assets, or (iv) otherwise sells the Loan or interest
therein to investors.
"SECURITIES" shall have the meaning set forth in Section 9.1.
---------- -----------
"SECURITIES ACT" shall have the meaning set forth in Section 9.2(a).
-------------- --------------
"SECURITIZATION" shall have the meaning set forth in Section 9.1.
-------------- -----------
"SECURITY AGREEMENT" shall have the meaning set forth in Section
------------------ -------
2.3.3(a)(vii).
- -------------
"SERVICER" shall have the meaning set forth in Section 9.6.
-------- -----------
"SERVICING AGREEMENT" shall have the meaning set forth in Section 9.6.
------------------- -----------
"SEVERED LOAN DOCUMENTS" shall have the meaning set forth in Section
---------------------- -------
8.2(c).
- ------
"SHELL AGREEMENT" shall have the meaning set forth in Section 3.2(h).
---------------
"STATE" shall mean, with respect to an Individual Property, the State
-----
or Commonwealth in which such Individual Property or any part thereof is
located.
"SUBPARCEL" shall mean a separately identifiable subparcel forming a
---------
part of an Individual Property as set forth on Schedule I or Schedule II.
---------- -----------
"SUBSEQUENT ADVANCE" shall have the meaning set forth in Section
------------------ -------
2.1.4(b).
- ---------
-13-
<PAGE>
"SUBSEQUENT ADVANCE CLOSING DATE" shall mean the date of the funding
-------------------------------
of any subsequent advance of a portion of the proceeds of the Loan pursuant to
Section 2.1.4.
- -------------
"SUBSEQUENT ADVANCE RATE" shall mean, with respect to each Subsequent
-----------------------
Advance, the rate that is the quotient of (a) the sum of (i) the product of the
Regular Interest Rate immediately prior to such Subsequent Advance multiplied by
One Hundred Sixty Million and No/100 Dollars ($160,000,000) plus (ii) the
product of (A) the excess of (1) the sum of the Initial Advance, any prior
Subsequent Advance and such Subsequent Advance over (2) One Hundred Sixty
Million and No/100 Dollars ($160,000,000) multiplied by (B) the prevailing
yield, as of such Subsequent Advance Closing Date, on United States Treasury
obligations maturing on the date most closely approximating the Anticipated
Repayment Date plus one hundred fifteen basis points (1.15%) divided by (b) the
Total Advances.
"SUBSEQUENT ADVANCE REQUEST" shall have the meaning set forth in
--------------------------
Section 2.1.4(b).
- -----------------
"SUBSTITUTE PROPERTY" shall have the meaning set forth in Section 2.7.
------------------- -----------
"SUBSTITUTE RELEASE AMOUNT" shall have the meaning set forth in
-------------------------
Section 2.7.
- -----------
"SUBSTITUTED PROPERTY" shall have the meaning set forth in Section
-------------------- -------
2.7.
"SUBSTITUTION CONDITIONS" shall mean that all Properties released
-----------------------
during the term of the Loan do not represent in the aggregate more than twenty-
five (25%) percent of (i) the aggregate Net Operating Income of all of the
Properties for the twelve (12) month period immediately preceding the Outside
Closing Date or for the twelve (12) month period immediately preceding the date
of substitution and (ii) the value of the Properties as of the Closing Date as
set forth on Schedule VIII hereto.
-------------
"SUCCESSOR BORROWER" shall have the meaning set forth in Section
------------------ -------
2.4.3.
"SURVEY" shall mean a survey of the Individual Property in question
------
prepared by a surveyor licensed in the State and reasonably satisfactory to
Lender and the company or companies issuing the Title Insurance Policies, and
containing a certification of such surveyor reasonably satisfactory to Lender.
"TAX AND INSURANCE ESCROW FUND" shall have the meaning set forth in
-----------------------------
Section 7.3.1.
- -------------
"TAXES" shall mean all real estate and personal property taxes,
-----
assessments, water rates or sewer rents, now or hereafter levied or assessed or
imposed against any of the Properties or part thereof.
"TITLE INSURANCE POLICY" shall mean, with respect to each Individual
----------------------
Property, an ALTA mortgagee title insurance policy (or the form of mortgagee
title insurance policy promulgated by applicable State laws and regulations) in
the form (reasonably acceptable to
-14-
<PAGE>
Lender) issued with respect to such Individual Property and insuring the lien of
the Mortgage encumbering such Individual Property.
"THRESHOLD AMOUNT" shall have the meaning set forth in Section 5.1(s)
---------------- --------------
"TOTAL ADVANCES" shall mean the sum of the Initial Advance, any
--------------
Subsequent Advance and any Additional Advance made as of the date specified.
"TREASURY RATE" shall mean, as of the Anticipated Repayment Date, the
-------------
yield, calculated by linear interpolation (rounded to the nearest one-thousandth
of one percent (i.e., 0.001%) of the yields of noncallable United States
----
Treasury obligations with terms (one longer and one shorter) most nearly
approximately the period from such date of determination to the Maturity Date,
as determined by Lender on the basis of Federal Reserve Statistical Release
H.15-Selected Interest Rates under the heading U.S. Governmental
Security/Treasury Constant Maturities, or other recognized source of financial
market information selected by Lender.
"UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial
--- -----------------------
Code as in effect in the applicable State or Commonwealth in which an Individual
Property is located.
"UNDEFEASED NOTE" shall have the meaning set forth in Section
--------------- -------
2.3.3(a)(vi) hereof.
- ------------
"UNDERWRITER GROUP" shall have the meaning set forth in Section
----------------- -------
9.2(b).
"U.S. OBLIGATIONS" shall mean direct non-callable obligations of the
----------------
United States of America.
"YIELD MAINTENANCE PREMIUM" shall mean the amount (if any) which, when
-------------------------
added to the remaining principal amount of the Note or the principal amount of
Defeased Note, as applicable, will be sufficient to purchase U.S. Obligations
providing the required Scheduled Defeasance Payments.
SECTION 1.2 PRINCIPLES OF CONSTRUCTION.
--------------------------
All references to sections, schedules and exhibits are to sections,
schedules and exhibits in or to this Agreement unless otherwise specified.
Unless otherwise specified, the words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise specified, all meanings attributed to defined terms herein
shall be equally applicable to both the singular and plural forms of the terms
so defined.
-15-
<PAGE>
II. GENERAL TERMS
-------------
SECTION 2.1 LOAN COMMITMENT; DISBURSEMENT TO BORROWER.
-----------------------------------------
2.1.1 THE LOAN. Subject to and upon the terms and conditions set
--------
forth herein, Lender hereby agrees to make the Loan to Borrower in the principal
amount of up to One Hundred Ninety-Five Million One Hundred Thousand and No/100
Dollars ($195,100,000). The Loan shall mature on the Maturity Date.
2.1.2 DISBURSEMENT TO BORROWER. Borrower may request and receive
------------------------
only one borrowing hereunder in respect of the Loan, which borrowing may be
advanced to Borrower in not more than three (3) disbursements in accordance with
the terms hereof, and any amount borrowed and repaid hereunder in respect of
the Loan may not be reborrowed. Borrower shall, on the Closing Date, receive
the Initial Advance, subject to the direction given by Borrower as to the
application of Loan proceeds to pay certain closing costs and to fund the Tax
and Insurance Escrow Fund and the Ground Lease Escrow Fund in accordance with
the provisions of this Agreement. Borrower shall, on any Subsequent Advance
Closing Date, receive the related Subsequent Advance, subject to the direction
given by Borrower as to the application of Loan proceeds to pay certain closing
costs and to fund the Tax and Insurance Escrow Fund in accordance with the
provisions of this Agreement.
2.1.3 THE NOTE. The Loan shall be evidenced by the Note of Borrower,
--------
in the original principal amount of the Loan. The Note shall bear interest as
provided in Section 2.5 and shall be subject to repayment as provided in Section
----------- -------
2.3. The Note shall be entitled to the benefits of this Agreement and shall be
- ---
secured by the Mortgages, the Assignments of Leases and the other Loan
Documents.
2.1.4 ADVANCES. (a) Lender shall make, and Borrower shall accept,
--------
the Initial Advance subject to and upon the conditions and terms contained
herein including, without limitation, the conditions contained in Section 3.1.
------------
hereof.
(b) In addition to the Initial Advance, Borrower may request and
receive not more than two (2) subsequent advances of a portion of the proceeds
of the Loan not previously advanced (each, a "SUBSEQUENT ADVANCE"); provided,
------------------
however, that (1) the amount of any Subsequent Advance and the Release Amount of
any Additional Property to be encumbered by a Mortgage in connection with such
Subsequent Advance shall be determined by Lender in its sole discretion after
Lender's review of the Subsequent Advance Request and all due diligence
materials and other information required for the satisfaction of the conditions
set forth in Section 3.2 and (2) Borrower shall have satisfied each of the
-----------
conditions contained in Section 3.2. Lender shall not be obligated to make a
-----------
Subsequent Advance after March 30, 1997 (the "OUTSIDE CLOSING DATE"). Borrower
--------------------
may submit to Lender, at any time after the Closing Date and not later than five
(5) days prior to the Outside Closing Date, a written request for a Subsequent
Advance in form and substance acceptable to Lender (each such request being
hereinafter referred to as a "SUBSEQUENT ADVANCE REQUEST"). Each Subsequent
--------------------------
Advance Request shall, among other things, (i) request an advance of Loan
proceeds in an amount no less than One Million and No/100 Dollars ($1,000,000),
(ii) set forth one or more of the
-16-
<PAGE>
properties listed on Schedule II hereto (each such property so identified being
-----------
hereinafter referred to as an "ADDITIONAL PROPERTY") which shall be encumbered
-------------------
by a Mortgage and included as an Individual Property hereunder as security for
the Loan and (iii) set forth the proposed Subsequent Advance Closing Date with
respect to the Subsequent Advance requested, which Subsequent Advance Closing
Date shall be no less than five (5) days subsequent to the date on which the
Subsequent Advance Request is received by Lender. Borrower hereby acknowledges
that Borrower's agreement that each Additional Property so identified secure the
related Subsequent Advance and all prior advances of proceeds of the Loan is a
material inducement to Lender to make the Loan.
(c) In addition to the Initial Advance and the Subsequent Advances,
prior to the Securitization, Lender may, in its sole discretion, make, and
Borrower may, at its option accept, an additional advance of all or a portion of
the remaining proceeds of the Loan (the "ADDITIONAL ADVANCE"); provided,
------------------
however, that (i) the amount of the Additional Advance shall be determined by
Lender in its sole discretion and (ii) if Borrower determines to accept the
Additional Advance, Borrower shall have satisfied each of the conditions
contained in Section 3.3. In no event shall the total proceeds of the Loan
-----------
advanced to Borrower pursuant to this Section 2.1 exceed One Hundred Ninety-Five
-----------
Million One Hundred Thousand and No/100 Dollars ($195,100,000). If the
Additional Advance is made, the Release Amount with respect to each Individual
Property and Subparcel shall be increased by a portion of the Additional Advance
as set forth on Schedule VII hereto.
SECTION 2.2 USE OF PROCEEDS.
---------------
Borrower shall use the proceeds of the Loan disbursed to it pursuant
to this Agreement to (a) repay and discharge any existing loans relating to the
Properties, (b) pay all past-due Basic Carrying Costs, if any, in respect of the
Properties, (c) fund the Tax and Insurance Escrow Fund and the Ground Lease
Escrow Fund, (d) pay costs and expenses incurred in connection with the Closing
of the Loan, as approved by Lender, (e) fund any working capital requirements of
the Properties, and (f) distribute the balance, if any, to the Borrower's
partners or as Borrower may otherwise determine in its sole discretion.
SECTION 2.3 LOAN REPAYMENT AND DEFEASANCE.
-----------------------------
2.3.1 REPAYMENT. Borrower shall repay any outstanding principal
---------
indebtedness of the Loan in full on the Maturity Date, together with interest
thereon to (but excluding) the date of repayment. Other than as set forth in
Section 2.3.2 below, the Borrower shall have no right to prepay all or any
- -------------
portion of the Loan prior to the Permitted Prepayment Date. On the Permitted
Prepayment Date or on any scheduled payment date thereafter, Borrower may, at
its option and upon five (5) Business Days prior written notice from Borrower to
Lender, prepay in whole or in part the Debt without payment of the Yield
Maintenance Premium or any other premium or consideration. Any such payment
shall be applied to the last payments of principal and interest due under the
Loan. If prior to the Permitted Prepayment Date and following the occurrence of
any Event of Default, Borrower shall tender payment of an amount sufficient to
satisfy all or any portion of the Debt, such tender by Borrower shall be deemed
to be voluntary and Borrower shall pay, in addition to the
-17-
<PAGE>
Debt, the Yield Maintenance Premium, if any, that would be required if a
Defeasance Event had occurred.
2.3.2 MANDATORY PREPAYMENTS. The Loan is subject to mandatory
---------------------
prepayment in certain instances of Casualty and Condemnation (each a
"CASUALTY/CONDEMNATION INVOLUNTARY PREPAYMENT"), in the manner and to the extent
- ---------------------------------------------
set forth in Section 7.1.3 hereof. Each Casualty/Condemnation Involuntary
-------------
Prepayment shall be made on a scheduled payment date and include all accrued and
unpaid interest up to but not including such scheduled payment date or, if not
paid on a scheduled payment date, include interest that would have accrued on
such prepayment through the next regularly scheduled payment date.
2.3.3 VOLUNTARY DEFEASANCE OF THE LOAN. (a) At any time after the
--------------------------------
Release Date and prior to the Anticipated Repayment Date, Borrower may
voluntarily defease all or any portion of the Loan by depositing with Lender
U.S. Obligations that, assuming Borrower prepays the Note in full on the
Anticipated Repayment Date, produce payments which replicate the payment
obligations of the Borrower under the Note, or that portion of the Note which
the Borrower wishes to defease (hereinafter, a "DEFEASANCE EVENT"). Each
----------------
Defeasance Event by the Borrower shall be subject to the satisfaction of the
following conditions precedent:
(i) No Event of Default shall have occurred and be
continuing as of the Defeasance Date other than a Non-
Curable Property Default with respect to an Individual
Property to be released from the Lien of the related
Mortgage in connection with the Defeasance Event
pursuant to Section 2.4, provided that, after the
-----------
occurrence of such Defeasance Event and such release of
the Individual Property, no Event of Default shall have
occurred and be continuing;
(ii) Borrower shall provide not less than thirty (30) days
prior written notice to Lender specifying a regularly
scheduled payment date (the "DEFEASANCE DATE") on which
the Defeasance Event is to occur. Such notice shall
indicate the principal amount of the Note to be
defeased;
(iii) Borrower shall pay to Lender all accrued and unpaid
interest on the principal balance of the Note to but not
including the Defeasance Date. If for any reason the
Defeasance Date is not a regularly scheduled payment
date, the Borrower shall also pay interest that would
have accrued on the Note through the next regularly
scheduled payment date;
(iv) Borrower shall pay to Lender all other sums, not
including scheduled interest or principal payments, then
due and payable
-18-
<PAGE>
under the Note, this Agreement, the Mortgages, and the
other Loan Documents;
(v) Borrower shall deposit with Lender the required
Defeasance Deposit for the Defeasance Event;
(vi) In the event only a portion of the Loan is the subject
of the Defeasance Event, Borrower shall prepare all
necessary documents to amend and restate the Note and
issue two substitute notes, one note having a principal
balance equal to the defeased portion of the original
Note (the "DEFEASED NOTE") and the other note having a
-------------
principal balance equal to the undefeased portion of the
Note (the "UNDEFEASED NOTE"). The Defeased Note and
---------------
Undefeased Note shall have identical terms as the Note
except for the principal balance. A Defeased Note cannot
be the subject of any further Defeasance Event;
(vii) Borrower shall execute and deliver a security agreement,
in form and substance reasonably satisfactory to Lender,
creating a first priority lien on the Defeasance Deposit
and the U.S. Obligations purchased with the Defeasance
Deposit in accordance with this provision of this
Section 2.3.3 (the "SECURITY AGREEMENT");
------------- ------------------
(viii) Borrower shall deliver an opinion of counsel for
Borrower in form reasonably satisfactory to Lender
stating, among other things, that Borrower has legally
and validly transferred and assigned the U.S.
Obligations and all obligations, rights and duties under
and to the Note or the Defeased Note, as applicable, to
the Successor Borrower, that Lender has a perfected
first priority security interest in the Defeasance
Deposit and the U.S. Obligations delivered by Borrower,
and that any REMIC Trust formed pursuant to a
Securitization will not fail to maintain its status as a
"real estate mortgage investment conduit" within the
meaning of Section 860D of the Code as a result of such
Defeasance Event;
(ix) Borrower shall deliver evidence in writing from the
applicable Rating Agencies to the effect that the
Defeasance Event and any related release of any of the
Individual Properties pursuant to Section 2.4 will not
in and of itself result in a withdrawal, qualification
or downgrade of the respective ratings in effect
immediately prior to such Defeasance Event for the
Securities issued in connection with the Securitization
which are then outstanding. If required by the
applicable Rating Agencies, the Borrower shall also
deliver or cause to be delivered a non-consolidation
opinion with respect to the Successor Borrower in
-19-
<PAGE>
form and substance reasonably satisfactory to Lender
and the applicable Rating Agencies;
(x) Borrower shall deliver an Officer's Certificate of
Borrower certifying that the requirements set forth in
this Section 2.3.3(a) have been satisfied;
----------------
(xi) Borrower shall deliver such other certificates,
documents or instruments as Lender may reasonably
request; and
(xii) Borrower shall pay all costs and expenses of Lender
incurred in connection with the Defeasance Event,
including any costs and expenses associated with a
release of one or more Liens as provided in Section 2.4
-----------
hereof as well as reasonable attorneys' fees and
expenses.
(b) In connection with each Defeasance Event, Borrower hereby
appoints Lender as its agent and attorney-in-fact for the purpose of using the
Defeasance Deposit to purchase U.S. Obligations which provide payments on or
prior to, but as close as possible to, all successive scheduled payment dates
after the Defeasance Date upon which payments are required under this Agreement
and the Note (in the case of a Defeasance Event for the entire outstanding
principal balance of the Loan) or the Defeased Note (in the case of a Defeasance
Event for only a portion of the outstanding principal balance of the Loan)
assuming Borrower repays the Note in full on the Anticipated Repayment Date (the
"SCHEDULED DEFEASANCE PAYMENTS"). Borrower, pursuant to the Security Agreement
- ------------------------------
or other appropriate document, shall authorize and direct that the payments
received from the U.S. Obligations may be made directly to the Cash Collateral
Account (unless otherwise directed by Lender) and applied to satisfy the
obligations of Borrower under the Note or the Defeased Note, as applicable. Any
portion of the Defeasance Deposit in excess of the amount necessary to purchase
the U.S. Obligations required by this Section 2.3 and satisfy Borrower's
-----------
obligations under this Section 2.3 and Section 2.4 shall be remitted to
----------- -----------
Borrower.
SECTION 2.4 RELEASE OF PROPERTIES. Except as set forth in this
---------------------
Section 2.4, no repayment, prepayment or defeasance of all or any portion of the
- -----------
Note shall cause, give rise to a right to require, or otherwise result in, the
release of any Lien of any Mortgage on any of the Properties.
2.4.1 RELEASE OF ALL THE PROPERTIES. (a) If the Borrower has
-----------------------------
elected to defease the entire Note and the requirements of Section 2.3 have been
-----------
satisfied, all of the Properties shall be released from the Liens of their
respective Mortgages and the U.S. Obligations, pledged pursuant to the Security
Agreement, shall be the sole source of collateral securing the Note.
(b) In connection with the release of the Liens, the Borrower
shall submit to Lender, not less than thirty (30) days prior to the Defeasance
Date, a release of Lien (and related Loan Documents) for each Individual
Property for execution by Lender. Such release shall be in a form appropriate in
each jurisdiction in which an Individual Property is
-20-
<PAGE>
located and satisfactory to Lender in its reasonable discretion. In addition,
Borrower shall provide all other documentation Lender reasonably requires to be
delivered by Borrower in connection with such release, together with an
Officer's Certificate of Borrower certifying that such documentation (i) is in
compliance with all Legal Requirements, and (ii) will effect such releases in
accordance with the terms of this Agreement.
2.4.2 RELEASE OF INDIVIDUAL PROPERTIES. Borrower on one or more
--------------------------------
occasions may obtain (i) the release of an Individual Property or a Subparcel
from the Lien of the Mortgage thereon (and related Loan Documents) and (ii) the
release of Borrower's obligations under the Loan Documents with respect to such
Individual Property or Subparcel (other than those expressly stated to survive),
upon satisfaction of each of the following conditions:
(a) If such release occurs prior to the Anticipated Repayment
Date, the principal balance of the Defeased Note shall equal the Adjusted
Release Amount for the applicable Individual Property or Subparcel and if the
release shall occur after the Anticipated Repayment Date, then the Borrower,
upon at least thirty (30) days' notice, shall remit to the Lender, on any
regularly scheduled payment date, an amount equal to the Adjusted Release Amount
for the applicable Individual Property or Subparcel.
(b) If such release occurs prior to the Anticipated Repayment
Date, the requirements of Section 2.3.3 have been satisfied.
-------------
(c) Borrower shall submit to Lender, not less than thirty (30)
days prior to the date of such release, a release of Lien (and related Loan
Documents) for such Individual Property or Subparcel for execution by Lender.
Such release shall be in a form appropriate in each jurisdiction in which the
Individual Property or Subparcel is located and reasonably satisfactory to
Lender. In addition, Borrower shall provide all other documentation Lender
reasonably requires to be delivered by Borrower in connection with such release,
together with an Officer's Certificate of Borrower certifying that such
documentation (i) is in compliance with all Legal Requirements, (ii) will effect
such release in accordance with the terms of this Agreement, and (iii) will not
impair or otherwise adversely affect the Liens, security interests and other
rights of Lender under the Loan Documents not being released (or as to the
parties to the Loan Documents and Properties (or portion thereof) subject to the
Loan Documents not being released).
(d) After giving effect to such release, other than a release
in connection with a Casualty/Condemnation Involuntary Prepayment or a Non-
Curable Property Default, the Debt Service Coverage Ratio for all of the
Properties (or portion thereof) then remaining subject to the Liens of the
Mortgages calculated with respect to the twelve (12) full calendar months
immediately preceding the release of the Individual Property or Subparcel and
projected with respect to the twelve (12) full calendar months immediately
following the release of the Individual Property or Subparcel shall be no less
than 2.04 (the "CLOSING DATE DEBT SERVICE COVERAGE RATIO").
----------------------------------------
(e) With respect to the release of a Subparcel from the Lien of the
Mortgage thereon (and related Loan Documents), (i) the transfer of such
Subparcel to a Person
-21-
<PAGE>
other than Borrower in connection with such release shall not cut off or
interfere with any access rights or easements necessary for the continued
operation of the related Individual Property in the manner operated prior to
such transfer and any deed executed and delivered in connection with any such
transfer shall be subject and subordinate to such rights and easements; (ii) an
accurate legal description of such Subparcel sufficient for recordation purposes
together with a survey depicting such Subparcel or other description of the
location of such Subparcel and evidence of compliance with all relevant
subdivision requirements reasonably satisfactory to Lender shall be delivered to
Lender for review prior to such transfer; (iii) any reciprocal easement
agreement to be entered into in connection with such transfer shall be delivered
to Lender for its review and approval, such approval not to be unreasonably
withheld; (iv) any consents or approvals with respect to subdivision or zoning
that are required in connection with such transfer shall have been obtained; (v)
prior to such transfer, Lender shall be provided with evidence that the portion
of the Individual Property remaining subject to the Lien of the related Mortgage
after such release shall continue to comply with all Legal Requirements,
including, without limitation, applicable zoning, land use, subdivision,
parking, traffic and fire safety Legal Requirements and (vi) in connection with
such release, Borrower shall deliver to Lender an endorsement to the Title
Insurance Policy insuring the Lien of the related Mortgage, satisfactory to
Lender or, if such an endorsement is not available, other evidence satisfactory
to Lender, reflecting the continued insurance of the Lien of the related
Mortgage with respect to the portion of the Individual Property remaining
subject to the Lien of the related Mortgage after such release.
2.4.3. SUCCESSOR BORROWER. In connection with any release of a Lien
------------------
under this Section 2.4, Lender shall, or Lehman Brothers Realty Corporation at
-----------
its option may, establish or designate a successor entity (the "SUCCESSOR
---------
BORROWER") and Borrower shall transfer and assign all obligations, rights and
- --------
duties under and to the Note or the Defeased Note, as applicable, together with
the pledged U.S. Obligations to such Successor Borrower. Such Successor
Borrower shall assume the obligations under the Note or the Defeased Note, as
applicable, and the Security Agreement and Borrower shall be relieved of its
obligations under such documents. The Borrower shall pay One Thousand and
No/100 Dollars ($1,000) to any such Successor Borrower as consideration for
assuming the obligations under the Note or the Defeased Note, as applicable, and
the Security Agreement. Notwithstanding anything in this Agreement to the
contrary, no other assumption fee shall be payable upon a transfer of the Note
in accordance with this Section 2.4.3, but Borrower shall pay all costs and
-------------
expenses incurred by Lender, including, without limitation, Lender's attorneys'
fees and expenses, incurred in connection therewith.
2.4.4 RELEASE ON PAYMENT IN FULL. Lender shall, upon the written
--------------------------
request and at the expense of Borrower, upon payment in full of all principal
and interest on the Loan and all other amounts due and payable under the Loan
Documents in accordance with the terms and provisions of the Note and this Loan
Agreement, release the Liens of the Mortgages not theretofore released.
-22-
<PAGE>
SECTION 2.5 INTEREST.
--------
2.5.1 GENERALLY. Interest on the Loan and the Note shall accrue at
---------
the Applicable Interest Rate and shall be calculated in accordance with Section
-------
2.6.2. Interest on the Loan shall be paid in arrears in monthly installments
- -----
(the amount of each such installment, the "MONTHLY DEBT SERVICE PAYMENT AMOUNT")
-----------------------------------
on the tenth day of each calendar month up to and including the tenth day of
February, 2027; each of such payments to be calculated at the Regular Interest
Rate. The outstanding principal balance of the Loan together with all accrued
and unpaid interest thereon shall be due and payable on the Maturity Date. All
amounts due under the Note shall be payable without setoff, counterclaim or any
other deduction whatsoever.
2.5.2 DEFAULT RATE; POST-MATURITY INTEREST. Upon the occurrence of a
------------------------------------
Default in the payment of any principal or interest due under the Loan Documents
or an Event of Default, Lender shall be entitled to receive and Borrower shall
pay to Lender interest on the entire outstanding principal balance of the Note
and, to the extent permitted by applicable law, or any other amounts due at the
Default Rate. Interest at the Default Rate shall be computed from the
occurrence of the Default in the payment of principal, interest or other sums
due under the Loan Documents or the Event of Default until the actual receipt
and collection of the Debt (or that portion thereof that is then due) or the
cure of any other Event of Default. Interest at the Default Rate, to the extent
permitted by applicable law, shall be added to the Debt and shall be secured by
the Mortgages. This subsection, however, shall not be construed as an agreement
or privilege to extend the date of the payment of the Debt, nor as a waiver of
any other right or remedy accruing to Lender by reason of the occurrence of any
Event of Default.
SECTION 2.6 PAYMENTS AND COMPUTATIONS.
-------------------------
2.6.1 MAKING OF PAYMENTS. Whenever any payment hereunder or under
------------------
the Note shall be stated to be due on a day which is not a Business Day, such
payment in the amount due on such non-Business Day shall be paid on the
immediately preceding Business Day.
2.6.2 COMPUTATIONS. Interest payable hereunder or under the Note by
------------
Borrower shall be computed on the basis of the actual number of days elapsed in
a 360-day year.
2.6.3 INTENTIONALLY OMITTED
2.6.4 PAYMENTS AFTER ANTICIPATED REPAYMENT DATE. (a) For the partial
-----------------------------------------
year period commencing on the Anticipated Repayment Date, and for each Fiscal
Year thereafter, the Borrower shall submit to Lender for Lender's written
approval the Annual Budget not later than thirty (30) days prior to the
commencement of such period or Fiscal Year. Such Annual Budget shall be in form
and substance reasonably satisfactory to Lender setting forth in reasonable
detail budgeted monthly operating income and monthly operating capital and
monthly operating and other expenses for the Properties, including all planned
capital expenditures in respect of the Properties for such period or Fiscal
Year. Each such
-23-
<PAGE>
Annual Budget approved by Lender shall hereinafter be referred to as an
"APPROVED ANNUAL BUDGET". Until such time that Lender approves a proposed Annual
----------------------
Budget, the most recently Approved Annual Budget shall apply; provided that,
such Approved Annual Budget shall be adjusted to reflect actual increases in
real estate taxes, insurance premiums and utilities expenses.
(b) In the event that, after the Anticipated Repayment Date,
the Borrower must incur an extraordinary operating expense or capital expense
not set forth in the Annual Budget (each an "EXTRAORDINARY EXPENSE"), then the
---------------------
Borrower shall promptly deliver to Lender a reasonably detailed explanation of
such proposed Extraordinary Expense for the Lender's approval.
(c) From and after the Anticipated Repayment Date, interest
shall accrue on the unpaid principal balance from time to time outstanding on
the Note at the Matured Performing Rate. Borrower shall continue to make
payments of interest in monthly installments beginning on the Anticipated
Repayment Date and on the tenth day of each calendar month thereafter up to and
including the Maturity Date in an amount equal to the Monthly Debt Service
Payment Amount and, notwithstanding the following provision with respect to
Accrued Interest, the failure to make any such payment as and when due shall
constitute an Event of Default. Each Monthly Debt Service Payment Amount paid
after the Anticipated Repayment Date shall be applied to the payment of interest
computed at the Regular Interest Rate. Interest accrued at the Matured
Performing Rate and not paid pursuant to the preceding sentence shall be
deferred and added to the Debt and shall earn interest at the Matured Performing
Rate to the extent permitted by applicable law (such accrued interest is
hereinafter defined as "ACCRUED INTEREST"). In addition to such payments of
----------------
interest, from and after th Anticipated Repayment Date, Borrower shall make
payments in reduction of the outstanding principal balance of the Loan in
monthly installments beginning on the Anticipated Repayment Date and on the
tenth day of each calendar month thereafter up to and including the Maturity
Date in an amount equal to the Excess Cash Flow for the immediately preceding
calendar month. All of the Debt, including any Accrued Interest, shall be due
and payable on the Maturity Date.
2.6.5 PAYMENTS RECEIVED IN THE CASH COLLATERAL ACCOUNT.
------------------------------------------------
Notwithstanding anything to the contrary contained in this Agreement or the
other Loan Documents, and provided no Event of Default has occurred and is
continuing, Borrower's obligations with respect to the monthly payment of
principal and interest and amounts due for the Tax and Insurance Escrow Fund,
the Ground Lease Escrow Fund and any other payment reserves established pursuant
to this Agreement or any other Loan Document shall be deemed satisfied to the
extent sufficient amounts are deposited in the Cash Collateral Account to
satisfy such obligations on the dates each such payment is required, regardless
of whether any of such amounts are so applied by Lender.
SECTION 2.7 SUBSTITUTION OF PROPERTIES. Subject to the terms and
--------------------------
conditions set forth in this Section 2.7, Borrower may obtain a release of the
-----------
Lien of a Mortgage (and the related Loan Documents) encumbering an Individual
Property (a "SUBSTITUTED PROPERTY") by substituting therefor another office or
--------------------
industrial property acquired by Borrower (individually,
-24-
<PAGE>
a "SUBSTITUTE PROPERTY" and collectively, the "SUBSTITUTE PROPERTIES"), provided
------------------- ---------------------
that (a) the Substitution Conditions are satisfied with respect to Substitute
Properties other than a Substituted Property damaged by a casualty or affected
by a condemnation or eminent domain proceeding and for which Net Proceeds have
not been made available by Lender to Borrower for Restoration pursuant to the
terms and provisions of Section 7.1.3, (b) no such substitution may occur after
-------------
the Anticipated Repayment Date and (c) such substitution shall not be allowed
more than three (3) times during the term of the Loan. In addition, any such
substitution shall be subject, in each case, to the satisfaction of the
following conditions precedent:
(i) Lender shall have received a copy of a deed or an assignment
and assumption of lessee's interest in the Ground Lease
(together with the ground lessor's consent thereto), as
applicable, conveying all of Borrower's right, title and
interest in and to the Substituted Property to an entity other
than Borrower and a letter from Borrower countersigned by a
title insurance company acknowledging receipt of such deed or
assignment and assumption, as applicable, and agreeing to
record such deed or assignment and assumption, as applicable,
in the real estate records for the county in which the
Substituted Property is located.
(ii) Lender shall have received an appraisal of the Substitute
Property dated no more than sixty (60) days prior to the
substitution by an appraiser acceptable to the Rating Agencies,
indicating an appraised value of the Substitute Property that
is equal to or greater than the value of the Substituted
Property determined by Lender at the time of the encumbrance of
the Substituted Property by the related Mortgage in connection
with the Initial Advance or a Subsequent Advance, as
applicable.
(iii) After giving effect to the substitution, the Debt Service
Coverage Ratio for the Loan for all of the Properties is not
less than the Debt Service Coverage Ratio for the Loan for all
of the Properties as of the Outside Closing Date and as of the
date immediately preceding the substitution.
(iv) The Net Operating Income for the Substitute Property does not
show a downward trend over the three (3) years immediately
prior to the date of substitution or, with respect to a
Substitute Property for which information regarding the Net
Operating Income of such Substitute Property for the three (3)
years immediately prior to the date of substitution cannot be
obtained by Borrower after Borrower's exercise of diligent
efforts, the Net Operating Income shall not show a downward
trend for such period of time immediately prior to the date of
substitution as
-25-
<PAGE>
may be determined from the information regarding such Net
Operating Income available.
(v) The Net Operating Income and Debt Service Coverage Ratio (for
the twelve (12) month period immediately preceding the
substitution) for the Substitute Property is greater than one
hundred twenty-five percent (125%) of the Net Operating Income
and Debt Service Coverage Ratio (for the twelve (12) month
period immediately preceding the substitution) for the related
Substituted Property. For purposes of this clause (v), the Debt
Service Coverage Ratio with respect to a Substitute Property or
a Substituted Property shall be calculated using the Net
Operating Income with respect to such Substitute Property or
the Substituted Property, as applicable, and the principal and
interest due and payable on the Note with respect to the
related Pro rata Substitute Release Amount or Pro rata Release
Amount, as applicable.
(vi) Lender shall have received evidence in writing from the Rating
Agencies to the effect that such substitution will not result
in a withdrawal, qualification or downgrade of the respective
ratings in effect immediately prior to such substitution for
the Securities issued in connection with the Securitization
that are then outstanding.
(vii) No Default or Event of Default shall have occurred and be
continuing and Borrower shall be in compliance in all material
respects with all terms and conditions set forth in this
Agreement and in each Loan Document on Borrower's part to be
observed or performed. Lender shall have received a certificate
from Borrower confirming the foregoing, stating that the
representations and warranties of Borrower contained in this
Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of the substitution
with respect to Borrower, the Properties and the Substitute
Property and containing any other representations and
warranties with respect to Borrower, the Properties, the
Substitute Property or the Loan as the Rating Agencies may
require, unless such certificate would be inaccurate, such
certificate to be in form and substance satisfactory to the
Rating Agencies.
(viii) Borrower shall have executed, acknowledged and delivered to
Lender (A) a Mortgage, an Assignment of Leases and two UCC
Financing Statements with respect to the Substitute Property,
together with a letter from Borrower countersigned by a title
insurance company acknowledging receipt of such Mortgage,
-26-
<PAGE>
Assignment of Leases and UCC-1 Financing Statements and
agreeing to record or file, as applicable, such Mortgage,
Assignment of Leases and Rents and one of the UCC-1 Financing
Statements in the real estate records for the county in which
the Substitute Property is located and to file one of the UCC-1
Financing Statement in the office of the Secretary of State of
the state in which the Substitute Property is located, so as to
effectively create upon such recording and filing valid and
enforceable Liens upon the Substitute Property, of the
requisite priority, in favor of Lender (or such other trustee
as may be desired under local law), subject only to the
Permitted Encumbrances and such other Liens as are permitted
pursuant to the Loan Documents and (B) an Assignment of
Agreements and an Environmental Indemnity with respect to the
Substitute Property. The Mortgage, Assignment of Leases, UCC-1
Financing Statements and Environmental Indemnity shall be the
same in form and substance as the counterparts of such
documents executed and delivered with respect to the related
Substituted Property subject to modifications reflecting the
Substitute Property as the Individual Property that is the
subject of such documents and such modifications reflecting the
laws of the state in which the Substitute Property is located
as shall be recommended by the counsel admitted to practice in
such state and delivering the opinion as to the enforceability
of such documents required pursuant to clause (xv) below. The
Mortgage encumbering the Substitute Property shall secure all
amounts evidenced by the Note, provided that in the event that
the jurisdiction in which the Substitute Property is located
imposes a mortgage recording, intangibles or similar tax and
does not permit the allocation of indebtedness for the purpose
of determining the amount of such tax payable, the principal
amount secured by such Mortgage shall be equal to one hundred
fifty percent (150%) of the amount of the Loan allocated to the
Substitute Property. The amount of the Loan allocated to the
Substitute Property (such amount being hereinafter referred to
as the "SUBSTITUTE RELEASE AMOUNT") shall the Release Amount of
-------------------------
the related Substituted Property.
(ix) Lender shall have received (A) any "tie-in" or similar
endorsement to each Title Insurance Policy insuring the Lien of
an existing Mortgage as of the date of the substitution
available with respect to the Title Insurance Policy insuring
the Lien of the Mortgage with respect to the Substitute
Property and (B) a Title Insurance Policy (or a marked, signed
and redated commitment to issue such Title Insurance Policy)
insuring the Lien of the Mortgage encumbering the Substitute
Property, issued by the title
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<PAGE>
company that issued the Title Insurance Policies insuring the
Lien of the existing Mortgages and dated as of the date of the
substitution, with reinsurance and direct access agreements
that replace such agreements issued in connection with the
Title Insurance Policy insuring the Lien of the Mortgage
encumbering the Substituted Property. The Title Insurance
Policy issued with respect to the Substitute Property shall (1)
provide coverage in the amount of the Substitute Release Amount
if the "tie-in" or similar endorsement described above is
available or, if such endorsement is not available, in an
amount equal to one hundred fifty percent (150%) of the
Substitute Release Amount, (2) insure Lender that the relevant
Mortgage creates a valid first lien on the Substitute Property
encumbered thereby, free and clear of all exceptions from
coverage other than Permitted Encumbrances and standard
exceptions and exclusions from coverage (as modified by the
terms of any endorsements), (3) contain such endorsements and
affirmative coverages as are contained in the Title Insurance
Policies insuring the Liens of the existing Mortgages, and (4)
name Lender as the insured. Lender also shall have received
copies of paid receipts showing that all premiums in respect of
such endorsements and Title Insurance Policies have been paid.
(x) Intentionally omitted.
(xi) Lender shall have received a current title survey for each
Substitute Property, certified to the title company and Lender
and their successors and assigns, in the same form and having
the same content as the certification of the Survey of the
Substituted Property prepared by a professional land surveyor
licensed in the state in which the Substitute Property is
located and acceptable to the Rating Agencies in accordance
with the 1992 Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys. Such survey shall reflect the
same legal description contained in the Title Insurance Policy
relating to such Substitute Property and shall include, among
other things, a metes and bounds description of the real
property comprising part of such Substitute Property. The
surveyor's seal shall be affixed to each survey and each survey
shall certify that the surveyed property is not located in a
"one-hundred-year flood hazard area."
(xii) Lender shall have received valid certificates of insurance
indicating that the requirements for the policies of insurance
required for an Individual Property hereunder have been
satisfied with respect to the Substitute Property and evidence
of the payment of all premiums payable for the existing policy
period.
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<PAGE>
(xiii) Lender shall have received a Phase I environmental report and,
if recommended under the Phase I environmental report, a Phase
II environmental report, which conclude that the Substitute
Property does not contain any Hazardous Substance (as defined
in the Mortgage) and is not subject to any risk of
contamination from any off-site Hazardous Substance. If any
such report discloses the presence of any Hazardous Substance
or the risk of contamination from any off-site Hazardous
Substance, such report shall include an estimate of the cost of
any related remediation and Borrower shall deposit with Lender
an amount equal to one hundred fifty percent (150%) of such
estimated cost, which deposit shall constitute additional
security for the Loan and shall be released to Borrower upon
the delivery to Lender of (A) an update to such report
indicating that there is no longer any Hazardous Substance on
the Substitute Property or any danger of contamination from any
off-site Hazardous Substance that has not been fully remediated
and (B) paid receipts indicating that the costs of all such
remediation work have been paid.
(xiv) Borrower shall deliver or cause to be delivered to Lender (A)
updates certified by Borrower of all organizational
documentation related to Borrower and/or the formation,
structure, existence, good standing and/or qualification to do
business delivered to Lender in connection with the Initial
Advance; (B) good standing certificates, certificates of
qualification to do business in the jurisdiction in which the
Substitute Property is located (if required in such
jurisdiction) and (C) resolutions of the general partner of
Borrower authorizing the substitution and any actions taken in
connection with such substitution.
(xv) Lender shall have received the following opinions of Borrower's
counsel: (A) an opinion or opinions of counsel admitted to
practice under the laws of the state in which the Substitute
Property is located stating that the Loan Documents delivered
with respect to the Substitute Property pursuant to clause
(viii) above are valid and enforceable in accordance with their
terms, subject to the laws applicable to creditors' rights and
equitable principles, and that Borrower is qualified to do
business and in good standing under the laws of the
jurisdiction where the Substitute Property is located or that
Borrower is not required by applicable law to qualify to do
business in such jurisdiction; (B) an opinion of Akin, Gump,
Strauss, Hauer & Feld, L.L.P. or such other counsel acceptable
to the Rating Agencies stating that the Loan Documents
delivered with respect to the Substitute Property pursuant to
clause (viii) above were duly authorized, executed and
delivered by Borrower and that the execution and
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<PAGE>
delivery of such Loan Documents and the performance by Borrower
of its obligations thereunder will not cause a breach of, or a
default under, any agreement, document or instrument to which
Borrower is a party or to which it or its properties are bound;
(C) an opinion of counsel acceptable to the Rating Agencies
stating that subjecting the Substitute Property to the Lien of
the related Mortgage and the execution and delivery of the
related Loan Documents does not and will not affect or impair
the ability of Lender to enforce its remedies under all of the
Loan Documents or to realize the benefits of the cross-
collateralization provided for thereunder; (D) an update of the
Insolvency Opinion indicating that the substitution does not
affect the opinions set forth therein; (E) an opinion of
counsel acceptable to the Rating Agencies stating that the
substitution and the related transactions do not constitute a
fraudulent conveyance under applicable bankruptcy and
insolvency laws and (F) an opinion of counsel acceptable to the
Rating Agencies that the substitution does not constitute a
"significant modification" of the Loan under Section 1001 of
the Code or otherwise cause a tax to be imposed on a
"prohibited transaction" by any REMIC Trust .
(xvi) Borrower shall have paid all Basic Carrying Costs relating to
each of the Properties and the Substitute Property, including
without limitation, (i) accrued but unpaid insurance premiums
relating to each of the Properties and the Substitute Property,
(ii) currently due Taxes (including any in arrears) relating to
each of the Properties and the Substitute Property and (iii)
currently due Other Charges relating to each of the Properties
and Substitute Property.
(xvii) Borrower shall have paid or reimbursed Lender for all costs and
expenses incurred by Lender (including, without limitation,
reasonable attorneys fees and disbursements) in connection with
the substitution and Borrower shall have paid all recording
charges, filing fees, taxes or other expenses (including,
without limitation, mortgage and intangibles taxes and
documentary stamp taxes) payable in connection with the
substitution. Borrower shall have paid all costs and expenses
of the Rating Agencies incurred in connection with the
substitution.
(xviii)Lender shall have received annual operating statements and
occupancy statements for the Substitute Property for the most
current completed fiscal year and a current operating statement
for the Substituted Property, each certified to Lender as being
true and correct and a certificate from Borrower certifying
that
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<PAGE>
there has been no adverse change in the financial condition of
the Substitute Property since the date of such operating
statements.
(xix) Borrower shall have delivered to Lender estoppel certificates
from any existing tenants (A) constituting anchor tenants at
the Substitute Property, (B) leasing an entire building at the
Substitute Property and (C) that, together with those described
in clauses (A) and (B), lease no less than seventy-five percent
(75%) of the gross leasable area at the Substitute Property.
All such estoppel certificates shall be in the form attached
hereto as Schedule IV and shall indicate that (1) the subject
-----------
lease is a valid and binding obligation of the tenant
thereunder, (2) there are no defaults under such lease on the
part of the landlord or tenant thereunder, (3) the tenant
thereunder has no defense or offset to the payment of rent
under such leases, (4) no rent under such lease has been paid
more than one (1) month in advance, (5) the tenant thereunder
has no option or right of first refusal under such lease to
purchase all or any portion of the Substitute Property and (6)
all tenant improvement work required under such lease has been
completed and the tenant under such lease is in actual
occupancy of its leased premises. If an estoppel certificate
indicates that all tenant improvement work required under the
subject lease has not yet been completed, Borrower shall, if
required by the Rating Agencies, deliver to Lender financial
statements indicating that Borrower has adequate funds to pay
all costs related to such tenant improvement work as required
under such lease.
(xx) Lender shall have received copies of all tenant leases and any
ground leases affecting the Substitute Property certified by
Borrower as being true and correct. Lender shall have received
a current rent roll of the Substitute Property certified by
Borrower as being true and correct.
(xxi) Lender shall have received subordination, nondisturbance and
attornment agreements in the form attached hereto as Schedule V
----------
with respect to all of the Leases affecting the Substitute
Property other than such Leases that are, by their terms,
subordinate to the Mortgage with respect to the Substitute
Property.
(xxii) Lender shall have received (A) an endorsement to the Title
Insurance Policy insuring the Lien of the Mortgage encumbering
the Substitute Property insuring that the Substitute Property
constitutes a separate tax lot or, if such an endorsement is
not available in the state in which the Substitute Property is
located, a letter from the title insurance company issuing such
Title
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<PAGE>
Insurance Policy stating that the Substitute Policy constitutes
a separate tax lot or (B) a letter from the appropriate taxing
authority stating that the Substitute Property constitutes a
separate tax lot.
(xxiii)Lender shall have received a Physical Conditions Report with
respect to the Substitute Property stating that the Substitute
Property and its use comply in all material respects with all
applicable Legal Requirements (including, without limitation,
zoning, subdivision and building laws) and that the Substitute
Property is in good condition and repair and free of damage or
waste. If compliance with any Legal Requirements are not
addressed by the Physical Conditions Report, such compliance
shall be confirmed by delivery to Lender of a certificate of an
architect licensed in the state in which the Substitute
Property is located, a letter from the municipality in which
such Property is located, a certificate of a surveyor that is
licensed in the state in which the Substitute Property is
located (with respect to zoning and subdivision laws), an ALTA
3.1 zoning endorsement to the Title Insurance Policy delivered
pursuant to clause (ix) above (with respect to zoning laws) or
a subdivision endorsement to the Title Insurance Policy
delivered pursuant to clause (ix) above (with respect to
subdivision laws). If the Physical Conditions Report recommends
that any repairs be made with respect to the Substitute
Property, such Physical Conditions Report shall include an
estimate of the cost of such recommended repairs and Borrower
shall deposit with Lender an amount equal to one hundred fifty
percent (150%) of such estimated cost, which deposit shall
constitute additional security for the Loan and shall be
released to Borrower upon the delivery to Lender of (A) an
update to such Physical Conditions Report or a letter from the
engineer that prepared such Physical Conditions Report
indicating that the recommended repairs were completed in good
and workmanlike manner and (B) paid receipts indicating that
the costs of all such repairs have been paid.
(xxiv) Lender shall have received a certified copy of an amendment to
the Management Agreement reflecting the deletion of the
Substituted Property and the addition of the Substitute
Property as a property managed pursuant thereto and Manager
shall have executed and delivered to Lender an amendment to the
Assignment of Management Agreement reflecting such amendment to
the Management Agreement.
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<PAGE>
(xxv) Lender shall have received such other and further approvals,
opinions, documents and information in connection with the
substitution as the Rating Agencies may have requested.
(xxvi) Lender shall have received copies of all contracts and
agreements relating to the leasing and operation of the
Substitute Property (other than the Management Agreement)
together with a certification of Borrower attached to each such
contract or agreement certifying that the attached copy is a
true and correct copy of such contract or agreement and all
amendments thereto.
(xxvii)Borrower shall submit to Lender, not less than thirty (30) days
prior to the date of such substitution, a release of Lien (and
related Loan Documents) for the Substituted Property for
execution by Lender. Such release shall be in a form
appropriate for the jurisdiction in which the Substituted
Property is located and satisfactory to Lender in its sole
discretion. Borrower shall deliver an Officer's Certificate
certifying that the requirements set forth in this Section 2.7
-----------
have been satisfied.
Upon the satisfaction of the foregoing conditions precedent, Lender will release
its Lien from the Substituted Property to be released and the Substitute
Property shall be deemed to be an Individual Property for purposes of this
Agreement and the Substitute Release Amount with respect to such Substitute
Property shall be deemed to be the Release Amount with respect to such
Substitute Property for all purposes hereunder.
Notwithstanding anything to the contrary contained herein, Borrower's
rights pursuant to this Section 2.7 to obtain the release of the Lien of a
-----------
Mortgage encumbering an Individual Property affected by a Non-Curable Property
Default by substituting therefor a Substitute Property shall be subject to
Lender's right to waive the Non-Curable Property Default affecting such
Individual Property.
III. CONDITIONS PRECEDENT
--------------------
SECTION 3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE.
---------------------------------------
The obligation of Lender to make the Initial Advance hereunder is
subject to the fulfillment by Borrower or waiver by Lender of the following
conditions precedent no later than the Closing Date or such other date as set
forth below:
(a) Representations and Warranties; Compliance with Conditions. The
----------------------------------------------------------
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if made on and as of such date,
and no Default or an Event of Default shall have occurred and be continuing; and
Borrower shall be in compliance in all material respects with all terms and
conditions set forth in this Agreement and in each other Loan Document on its
part to be observed or performed.
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<PAGE>
(b) Loan Agreement and Note. Lender shall have received the original
-----------------------
of this Agreement and the Note, in each case, duly executed and delivered on
behalf of Borrower.
(c) Delivery of Loan Documents; Title Insurance; Reports; Leases.
------------------------------------------------------------
(i) Mortgages, Assignments of Leases, Assignments of Agreements.
-----------------------------------------------------------
Lender shall have received from Borrower fully executed and acknowledged
counterparts of the Mortgage, the Assignment of Leases and Assignments of the
Agreements relating to the Properties and evidence that counterparts of the
Mortgage and the Assignment of Leases have been delivered to the title company
for recording, in the reasonable judgment of Lender, so as to effectively create
upon such recording valid and enforceable Liens upon such Properties, of the
requisite priority, in favor of Lender (or such other trustee as may be required
or desired under local law), subject only to the Permitted Encumbrances and such
other Liens as are permitted pursuant to the Loan Documents. Lender shall have
also received from Borrower fully executed counterparts of the Environmental
Indemnity.
(ii) Title Insurance. Lender shall have received Title Insurance
---------------
Policies (or marked, signed and redated commitments to issue such Title
Insurance Policies) issued by a title company reasonably acceptable to Lender
and dated as of the Closing Date, with reinsurance and direct access agreements
reasonably acceptable to Lender. Such Title Insurance Policies shall (A)
provide coverage in an amount equal to the amount of the Release Amount of the
related Individual Property if the tie-in or similar endorsement described below
is available, or, if such endorsement is not available, in an amount equal to
one hundred fifty percent (150%) of the Release Amount of the related Individual
Property, (B) insure Lender that the relevant Mortgage creates a valid lien on
the Individual Property encumbered thereby of the requisite priority, free and
clear of all exceptions from coverage other than Permitted Encumbrances and
standard exceptions and exclusions from coverage (as modified by the terms of
any endorsements), (C) contain such endorsements and affirmative coverages as
Lender may reasonably request including, without limitation, any "tie-in" or
similar endorsement available with respect to the other Title Insurance Policies
issued in connection with the Initial Advance and (D) name Lender as the
insured. Lender also shall have received evidence that all premiums in respect
of such Title Insurance Policies have been paid.
(iii) Survey. Lender shall have received a current title survey
------
for each Individual Property, certified to the title company and Lender and
their successors and assigns, in form and content reasonably satisfactory to
Lender and prepared by a professional and properly licensed land surveyor
reasonably satisfactory to Lender in accordance with the 1992 Minimum Standard
Detail Requirements for ALTA/ACSM Land Title Surveys. Such survey shall reflect
the same legal description contained in the Title Insurance Policies relating to
such Individual Property referred to in clause (ii) above and shall include,
among other things, a metes and bounds description of the real property
comprising part of such Individual Property reasonably satisfactory to Lender.
The surveyor's seal shall be affixed to each survey and the surveyor shall
provide a certification for each survey in form and substance reasonably
acceptable to Lender.
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<PAGE>
(iv) Insurance. Lender shall have received valid certificates of
---------
insurance for the policies of insurance required hereunder, satisfactory to
Lender in its reasonable discretion, and evidence of the payment of all premiums
payable for the existing policy period.
(v) Environmental Reports. Lender shall have received a Phase I
---------------------
environmental report and, if applicable, a Phase II environmental report, in
respect of each Individual Property, in each case satisfactory in form and
substance to Lender in its reasonable discretion.
(vi) Intentionally Omitted.
----------------------
(vii) Encumbrances. Borrower shall have taken or caused to be
------------
taken such actions in such a manner so that Lender has a valid and perfected
Lien of the requisite priority as of the Closing Date with respect to each
Mortgage in the applicable Individual Property, subject only to applicable
Permitted Encumbrances and such other Liens as are permitted pursuant to the
Loan Documents, and Lender shall have received reasonably satisfactory evidence
thereof.
(d) Related Documents. Each additional document not specifically
-----------------
referenced herein, but relating to the transactions contemplated herein, shall
have been duly authorized, executed and delivered by all parties thereto and
Lender shall have received and approved certified copies thereof.
(e) Delivery of Organizational Documents. On or before the Closing
------------------------------------
Date, Borrower shall deliver or cause to be delivered to Lender copies certified
by Borrower of all organizational documentation related to Borrower and/or the
formation, structure, existence, good standing and/or qualification to do
business, as Lender may request in its reasonable discretion, including,
without limitation, good standing certificates, qualifications to do business in
the appropriate jurisdiction (if required in such jurisdictions), resolutions
authorizing the entering into of the Loan and incumbency certificates as may be
requested by Lender.
(f) Opinions of Borrower's Counsel. Lender shall have received
------------------------------
opinions of Borrower's counsel, which counsel shall be reasonably acceptable to
Lender, (i) with respect to non-consolidation, true sale or true contribution,
and fraudulent transfer issues, and (ii) with respect to due execution,
authority, enforceability of the Loan Documents, usury and such other matters as
Lender may reasonably require, all such opinions in form, scope and substance
customary for rated transactions and satisfactory to Lender and Lender's counsel
in their reasonable discretion.
(g) Intentionally Omitted.
---------------------
(h) Basic Carrying Costs. Borrower shall have paid all Basic Carrying
--------------------
Costs relating to each of the Properties which are in arrears, including without
limitation, (i) insurance premiums currently due with respect to each of the
Properties, (ii) currently due Taxes (including any in arrears) relating to each
of the Properties, and (iii) currently due Other
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<PAGE>
Charges relating to each of the Properties, which amounts shall be funded with
proceeds of the Loan.
(i) Completion of Proceedings. All corporate and other proceedings
-------------------------
taken or to be taken in connection with the transactions contemplated by this
Agreement and other Loan Documents and all documents incidental thereto shall be
satisfactory in form and substance to Lender, and Lender shall have received all
such counterpart originals or certified copies of such documents as Lender may
reasonably request.
(j) Payments. All payments, deposits or escrows required to be made
--------
or established by Borrower under this Agreement, the Note and the other Loan
Documents on or before the Closing Date shall have been paid.
(k) Intentionally Omitted.
---------------------
(l) Intentionally Omitted.
------------------------
(m) Transaction Costs. Borrower shall have paid or reimbursed Lender
-----------------
for all title insurance premiums and recording and filing fees incurred in
connection with the origination of the Loan.
(n) Origination Fee. Lender shall have received an origination fee
---------------
for structuring and placement services with respect to the Loan in the amount of
0.85% of the portion of the principal amount of the Loan advanced on the Closing
Date.
(o) Intentionally Omitted.
---------------------
(p) Material Adverse Change. There shall have been no material
-----------------------
adverse change in the financial condition or business condition of Borrower, or
the Properties, in the aggregate, since the date of Borrower's most recent
financial statement delivered to Lender. The income and expenses of the
Properties, in the aggregate, the occupancy leases thereof, and all other
features of the transaction shall be as represented to Lender without material
adverse change. Borrower shall not be the subject of any bankruptcy,
reorganization, or insolvency proceeding,
(q) Underlying Asset Documentation. Lender shall have received a copy
------------------------------
of each deed conveying each Individual Property to Borrower, each of which shall
be satisfactory in form and substance to Lender in its sole discretion.
(r) Estoppel Certificates. Borrower shall have delivered to Lender
---------------------
estoppel certificates from any existing tenants (i) constituting anchor tenants
at each Individual Property, (ii) leasing an entire building at the Individual
Property and (iii) that, together with those described in clauses (i) and (ii),
lease no less than seventy-five percent (75%) of the gross leasable area at each
Individual Property. All such estoppel certificates shall be in form and
substance reasonably satisfactory to Lender.
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<PAGE>
(s) Leases and Rent Roll. Lender shall have received copies of all
--------------------
tenant leases, certified copies of any tenant leases as requested by Lender and
certified copies of all ground leases affecting the Properties. Lender shall
have received a current certified rent roll of each Individual Property,
reasonably satisfactory in form and substance to Lender.
(t) Subordination and Attornment. Lender shall have received
----------------------------
appropriate instruments acceptable to Lender subordinating all of the Leases
affecting the Properties designated by Lender to the Mortgage, except such
Leases as Lender may specifically require to be superior to the Mortgage and
such Leases that contain self-executing subordination provisions acceptable to
Lender. Lender shall have received an agreement to attorn to Lender
satisfactory to Lender from any tenant under a Lease that does not provide for
such attornment by its terms.
(u) Debt Service Coverage Ratio. The Debt Service Coverage Ratio
---------------------------
projected for the twelve (12) month period immediately following the Closing
Date and calculated using an interest rate of 9.25% shall be no less than 1.40.
(v) Intentionally Omitted.
----------------------
(w) Tax Lot. Lender shall have received evidence that each Individual
-------
Property constitutes a separate tax lot, which evidence shall be reasonably
satisfactory in form and substance to Lender.
(x) Physical Conditions Reports. Lender shall have received Physical
---------------------------
Conditions Reports with respect to each Individual Property, which reports shall
be reasonably satisfactory in form and substance to Lender.
(y) Management Agreement. Lender shall have received a certified copy
--------------------
of the Management Agreement with respect to each Individual Property
satisfactory in form and substance to Lender and Borrower and Manager shall have
executed and delivered to Lender an Assignment of Management Agreement with
respect to each such Management Agreement.
(z) Further Documents. Lender or its counsel shall have received such
-----------------
other and further approvals, opinions, documents and information as Lender or
its counsel may have reasonably requested.
SECTION 3.2 CONDITIONS PRECEDENT TO SUBSEQUENT ADVANCES.
-------------------------------------------
The obligation of Lender to make any Subsequent Advance hereunder is
subject to the fulfillment by Borrower or waiver by Lender of the following
conditions precedent no later than the Subsequent Advance Closing Date with
respect to such Subsequent Advance or such other date as set forth below:
(a) Subsequent Advance Request. Lender shall have received a
--------------------------
Subsequent Advance Request in accordance with Section 2.1.4(b).
----------------
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<PAGE>
(b) Representations and Warranties; Defaults. The representations and
----------------------------------------
warranties of Borrower contained in this Agreement and the other Loan Documents
shall be true and correct in all material respects on and as of the Subsequent
Advance Closing Date with respect to Borrower, the Properties and each
Additional Property to be encumbered with a Mortgage in connection with such
Subsequent Advance with the same effect as if made on and as of such date, no
Default or Event of Default shall have occurred and be continuing and Borrower
shall be in compliance in all material respects with all terms and conditions
set forth in this Agreement and in each Loan Document on Borrower's part to be
observed or performed. Lender shall have received a certificate from Borrower
confirming the foregoing and any other representations and warranties with
respect to Borrower, the Properties, any Additional Property to be encumbered
with a Mortgage in connection with such Subsequent Advance or the Loan as Lender
may reasonably require, unless such certificate would be inaccurate, such
certificate to be in form and substance reasonably satisfactory to Lender.
(c) Modification of Existing Loan Documents. Borrower shall have
---------------------------------------
executed, acknowledged and delivered to Lender (A) an amendment to this
Agreement (1) if, after such Subsequent Advance, the Total Advances would exceed
One Hundred Sixty Million and No/100 Dollars ($160,000,000), restating the
Regular Interest Rate as the Subsequent Advance Rate calculated as of such
Subsequent Advance Closing Date and (2) restating the Closing Date Debt Service
Coverage Ratio as the Debt Service Coverage Ratio calculated for the twelve (12)
full calendar months immediately preceding such Subsequent Advance Closing Date
using the Subsequent Advance Rate with respect to such Subsequent Advance; (B)
any modification or amendment to any existing Mortgage or Assignment of Leases
encumbering any Individual Property as of the Subsequent Advance Closing Date or
any notice of such Subsequent Advance that Lender reasonably determines is
necessary or advisable to ensure that such Mortgage or Assignment of Leases
secures such Subsequent Advance and evidence that counterparts of such
modification, amendment or notice have been delivered to the title company for
recording and (C) any other modification, amendment or supplement to this
Agreement or the other Loan Documents that Lender may reasonably require in
connection with such Subsequent Advance and the related addition of any
Additional Property as security for the Loan.
(d) Additional Loan Documents. Borrower shall have executed,
-------------------------
acknowledged and delivered to Lender (A) a Mortgage, an Assignment of Leases and
one or more UCC Financing Statements with respect to each Additional Property to
be added as security for the Loan in connection with such Subsequent Advance and
evidence that counterparts of such Mortgage, Assignment of Leases and UCC-1
Financing Statements have been delivered to the title company for recording or
filing, as applicable, so as to effectively create upon such recording valid and
enforceable Liens upon such Additional Property, of the requisite priority, in
favor of Lender (or such other trustee as may be desired under local law),
subject only to the Permitted Encumbrances and such other Liens as are permitted
pursuant to the Loan Documents and (B) an Environmental Indemnity and any other
additional document that Lender may reasonably require with respect to the
addition of each Additional Property as security for the Loan in connection with
such Subsequent Advance.
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<PAGE>
(e) Title Insurance. Lender shall have received (A) (1) any available
---------------
endorsement to, or other modifications of, each Title Insurance Policy insuring
the Lien of an existing Mortgage delivered in connection with any prior advance
of the proceeds of the Loan as Lender determines is reasonably necessary or
advisable to ensure the continued priority of the Lien of such existing Mortgage
as amended or modified in connection with such Subsequent Advance and (2) any
"tie-in" or similar endorsement to each such Title Insurance Policy available
with respect to any Title Insurance Policy insuring the Lien of any Mortgage
with respect to an Additional Property delivered to Lender in connection with
such Subsequent Advance and (B) a Title Insurance Policy (or a marked, signed
and redated commitment to issue such Title Insurance Policy) insuring the Lien
of any Mortgage with respect to an Additional Property delivered to Lender in
connection with such Subsequent Advance, issued by a title company acceptable to
Lender and dated as of the Subsequent Advance Closing Date, with reinsurance and
direct access agreements reasonably acceptable to Lender. Such Title Insurance
Policies shall (1) provide coverage in an amount equal to the amount of the
Release Amount of the related Additional Property if the tie-in or similar
endorsement described above is available, or, if such endorsement is not
available, in an amount equal to one hundred fifty percent (150%) of the Release
Amount of the related Additional Property, (2) insure Lender that the relevant
Mortgage creates a valid lien on such Additional Property encumbered thereby of
the requisite priority, free and clear of all exceptions from coverage other
than Permitted Encumbrances and standard exceptions and exclusions from coverage
(as modified by the terms of any endorsements), (3) contain such endorsements
and affirmative coverages as Lender may reasonably request, and (4) name Lender
as the insured. Lender also shall have received evidence that all premiums in
respect of such endorsements, modifications and Title Insurance Policies have
been paid.
(f) Survey. Lender shall have received a current title survey for
------
each Additional Property to be encumbered by a Mortgage in connection with such
Subsequent Advance, certified to the title company and Lender and their
successors and assigns, in form and content reasonably satisfactory to Lender
and prepared by a professional and properly licensed land surveyor reasonably
satisfactory to Lender in accordance with the 1992 Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys. Such survey shall reflect the
same legal description contained in the Title Insurance Policies relating to
such Additional Property and shall include, among other things, a metes and
bounds description of the real property comprising part of such Additional
Property reasonably satisfactory to Lender. The surveyor's seal shall be
affixed to each survey and the surveyor shall provide a certification for each
survey in form and substance acceptable to Lender.
(g) Insurance. Lender shall have received valid certificates of
---------
insurance for the policies of insurance required hereunder with respect to each
Additional Property to be encumbered by a Mortgage in connection with such
Subsequent Advance, satisfactory to Lender in its reasonable discretion, and
evidence of the payment of all premiums payable for the existing policy period.
(h) Environmental Reports. Lender shall have received a Phase I
---------------------
environmental report and, if applicable, a Phase II environmental report, in
respect of each Additional Property to be encumbered by a Mortgage in connection
with such Subsequent
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<PAGE>
Advance other than such Additional Property known as Pacific Gateway Center, in
each case satisfactory in form and substance to Lender in its reasonable
discretion. If the Additional Property known as Pacific Gateway Center is to be
encumbered by a Mortgage in connection with such Subsequent Advance, Lender
shall have received (i) a copy of the Environmental Assessment Report for
Pacific Gateway Center dated August 1996 prepared by Montgomery Watson (the
"EAR"); (ii) a copy of that certain Shell/Cadillac Fairview Release and
---
Settlement Agreement dated September 12, 1996 (the "SHELL AGREEMENT") and (iii)
---------------
a letter from Shell Oil Company pursuant to Section 3.6 of the Shell Agreement
confirming that the Shell Agreement is in full force and effect, that there are
no breaches of the Shell Agreement or any other event or failures of any
conditions that may affect the right of Borrower to all rights and benefits
under the Shell Agreement.
(i) Encumbrances. Borrower shall have taken or caused to be taken
------------
such actions in such a manner so that Lender has a valid and perfected Lien of
the requisite priority as of the Subsequent Advance Closing Date with respect to
each Mortgage encumbering an Additional Property to be delivered in connection
with such Subsequent Advance, subject only to applicable Permitted Encumbrances
and such other Liens as are permitted pursuant to the Loan Documents, and Lender
shall have received reasonably satisfactory evidence thereof.
(j) Organizational Documents. On or before the Subsequent Advance
------------------------
Closing Date, Borrower shall deliver or cause to be delivered to Lender updates
certified by Borrower of all organizational documentation related to Borrower
and/or the formation, structure, existence, good standing and/or qualification
to do business delivered to Lender in connection with the initial advance under
the Loan and such additional organizational and authorizing documentation as
Lender may request pertaining to the Subsequent Advance including, without
limitation, good standing certificates, qualifications to do business in the
appropriate jurisdictions (if required in such jurisdictions) and taking into
consideration any Additional Property to be encumbered by a Mortgage in
connection with such Subsequent Advance, resolutions authorizing the entering
into of the Subsequent Advance and any related documentation and incumbency
certificates as may be reasonably requested by Lender.
(k) Opinions. Lender shall have received (i) an update of the
--------
Insolvency Opinion indicating that the Subsequent Advance does not affect the
opinions set forth therein and that the acquisition and encumbrance by a
Mortgage of any Additional Property in connection with the Subsequent Advance
does not constitute a fraudulent conveyance under applicable bankruptcy and
insolvency laws and (ii) opinions of Borrower's counsel, which counsel shall be
reasonably acceptable to Lender, with respect to due execution, authority,
enforceability of any of the documents described in clauses (c) and (d) above
and such other matters as Lender may reasonably require in connection with the
Subsequent Advance, all such updates and opinions in form, scope and substance
customary for rated transactions and satisfactory to Lender and Lender's counsel
in their reasonable discretion.
(l) Intentionally Omitted.
---------------------
(m) Basic Carrying Costs. Borrower shall have paid all Basic Carrying
--------------------
Costs relating to each of the Properties and each Additional Property to be
encumbered by a
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<PAGE>
Mortgage in connection with such Subsequent Advance which are in arrears,
including without limitation, (i) insurance premiums then due with respect to
each of the Properties and each Additional Property to be added as an Individual
Property in connection with such Subsequent Advance, (ii) currently due Taxes
(including any in arrears) relating to each of the Properties and each
Additional Property to be encumbered by a Mortgage in connection with such
Subsequent Advance and (iii) currently due Other Charges relating to each of the
Properties and each Additional Property to be encumbered by a Mortgage in
connection with such Subsequent Advance, which amounts shall be funded with
proceeds of the Subsequent Advance.
(n) Escrows. Borrower shall make such additional deposits to the Tax
-------
and Insurance Escrow Fund required pursuant to Section 7.3 with respect to each
-----------
Additional Property to be encumbered by a Mortgage in connection with such
Subsequent Advance, which amounts may be funded from the proceeds of such
Subsequent Advance.
(o) Intentionally Omitted.
---------------------
(p) Transaction Costs. Borrower shall have paid or reimbursed Lender
-----------------
for all title insurance premiums and recording and filing fees incurred in
connection with the Subsequent Advance.
(q) Origination Fee. Lender shall have received an origination fee
---------------
for structuring and placement services with respect to the Loan in the amount of
0.85% of the principal amount of the Subsequent Advance.
(r) Intentionally Omitted.
---------------------
(s) Material Adverse Change. There shall have been no material
-----------------------
adverse change in the financial condition or business condition of Borrower or
any Individual Property and any Additional Property to be encumbered by a
Mortgage in connection with such Subsequent Advance, in the aggregate, since the
date of Borrower's most recent financial statement delivered to Lender. The
income and expenses of the Properties and any Additional Property to be
encumbered by a Mortgage in connection with such Subsequent Advance, in the
aggregate, the occupancy leases thereof, and all other features of the
transaction shall be as represented to Lender without material adverse change.
Borrower shall not be the subject of any bankruptcy, reorganization, or
insolvency proceeding.
(t) Underlying Asset Documentation. Lender shall have received a copy
------------------------------
of each deed conveying each Additional Property to be encumbered by a Mortgage
in connection with such Subsequent Advance to Borrower, each of which shall be
satisfactory in form and substance to Lender in its sole discretion.
(u) Estoppel Certificates. Borrower shall have delivered to Lender
---------------------
estoppel certificates from any existing tenants (1) constituting anchor tenants
at such Additional Property, (2) leasing an entire building at such Additional
Property and (3) that, together with those described in clauses (1) and (2),
lease no less than seventy-five percent (75%) of the
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<PAGE>
gross leasable area at such Additional Property. All such estoppel certificates
in form and substance reasonably satisfactory to Lender.
(v) Leases and Rent Roll. Lender shall have received copies of all
--------------------
tenant leases, certified copies of any tenant leases as requested by Lender and
any ground leases affecting each Additional Property to be encumbered by a
Mortgage in connection with such Subsequent Advance. Lender shall have received
a current certified rent roll of each such Additional Property, reasonably
satisfactory in form and substance to Lender.
(w) Subordination. Lender shall have received appropriate instruments
-------------
acceptable to Lender subordinating all of the Leases affecting each Additional
Property to be encumbered by a Mortgage in connection with such Subsequent
Advance designated by Lender to the Mortgage, except such Leases as Lender may
specifically require to be superior to the Mortgage and such Leases that contain
self-executing subordination provisions acceptable to Lender. Lender shall have
received an agreement to attorn to Lender satisfactory to Lender from any tenant
under a Lease that does not provide for such attornment by its terms.
(x) Debt Service Coverage Ratio. The Debt Service Coverage Ratio
---------------------------
projected for the twelve (12) month period immediately following the Subsequent
Advance Closing Date and calculated using an interest rate of 9.25% shall be no
less than 1.40.
(y) Tax Lot. Lender shall have received evidence that each Additional
-------
Property to be encumbered by a Mortgage in connection with such Subsequent
Advance constitutes a separate tax lot, which evidence shall be reasonably
satisfactory in form and substance to Lender.
(z) Physical Conditions Reports. Lender shall have received Physical
---------------------------
Conditions Reports with respect to each Additional Property to be encumbered by
a Mortgage in connection with such Subsequent Advance, which reports shall be
reasonably satisfactory in form and substance to Lender.
(aa) Management Agreement. Lender shall have received a certified
--------------------
copy of any amendment to the Management Agreement necessary to reflect the
addition of any Additional Property to be encumbered by a Mortgage in connection
with such Subsequent Advance as a property managed pursuant thereto, which
amendment shall be reasonably satisfactory in form and substance to Lender and
Borrower and Manager shall have executed and delivered to Lender any amendment
or modification to the Assignment of Management Agreement that Lender reasonably
determines to be necessary or advisable with respect to such amendment to the
Management Agreement.
(bb) Further Documents. Lender and its counsel shall have completed
-----------------
their review of the documents and other information to be delivered pursuant to
this Section 3.2 and received such other and further approvals, opinions,
-----------
documents and information as Lender or its counsel may have reasonably
requested. Borrower shall satisfy such other conditions with respect to the
Subsequent Advance as a reasonably prudent lender would impose with respect to a
loan advance comparable to the Subsequent Advance and mortgaged property
comparable
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<PAGE>
to each Additional Property encumbered by a Mortgage in connection with such
Subsequent Advance.
SECTION 3.3 CONDITIONS PRECEDENT TO ADDITIONAL ADVANCE.
------------------------------------------
The determination by Lender to make the Additional Advance hereunder
is subject to the fulfillment by Borrower or waiver by Lender of the following
conditions precedent no later than the Additional Advance Closing Date or such
other date as set forth below:
(a) Representations and Warranties; Defaults. The representations and
----------------------------------------
warranties of Borrower contained in this Agreement and the other Loan Documents
shall be true and correct in all material respects on and as of the Additional
Advance Closing Date with respect to Borrower and the Properties with the same
effect as if made on and as of such date, no Default or Event of Default shall
have occurred and be continuing and Borrower shall be in compliance in all
material respects with all terms and conditions set forth in this Agreement and
in each Loan Document on Borrower's part to be observed or performed. Lender
shall have received a certificate from Borrower confirming the foregoing and any
other representations and warranties with respect to Borrower and the Properties
as Lender may reasonably require, unless such certificate would be inaccurate,
such certificate to be in form and substance reasonably satisfactory to Lender.
(b) Initial Advance and Subsequent Advances. Borrower shall have
---------------------------------------
received the Initial Advance and one or two Subsequent Advances pursuant to the
terms and conditions of this Loan Agreement, which Initial Advance and
Subsequent Advance (or Subsequent Advances) shall total not less than One
Hundred Eighty Million and No/100 Dollars ($180,000,000).
(c) Modification of Existing Loan Documents. Borrower shall have
---------------------------------------
executed, acknowledged and delivered to Lender (i) an amendment to this
Agreement (A) restating, as of the Additional Advance Closing Date, the
Subsequent Advance Rate as the Additional Advance Rate and (B) restating the
Closing Date Debt Service Coverage Ratio as the Debt Service Coverage Ratio
calculated for the twelve (12) full calendar months immediately preceding the
Additional Advance Closing Date using the Additional Advance Rate; (ii) any
modification or amendment to any existing Mortgage or Assignment of Leases
encumbering any Individual Property or any notice of the Additional Advance that
Lender reasonably determines is necessary or advisable to ensure that such
Mortgage or Assignment of Leases secures the Additional Advance and evidence
that counterparts of such modification, amendment or notice have been delivered
to the title company for recording and (iii) any other modification, amendment
or supplement to this Agreement or the other Loan Documents that Lender may
reasonably require in connection with such Additional Advance. Lender also shall
have received evidence that any recording or filing with respect to any such
modifications amendments or supplements have been paid.
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<PAGE>
(d) Title Insurance. Lender shall have received (i) an endorsement
to, or other modification of, each Title Insurance Policy insuring the Lien of
each Mortgage (other than the Mortgages encumbering the Individual Property
known as Park West E-1, the Individual Property known as Park West E-2 and the
Subparcel known as Building 19, forming a part of the Individual Property known
as Milwaukee Industrials) increasing the insured amount thereunder by the amount
by which the Release Amount of the related Individual Property shall be
increased pursuant to the terms and provisions of Section 2.1.4(c) and (ii) an
endorsement to, or other modification of, the Title Insurance Policy insuring
the lien of the Mortgage encumbering the Subparcel known as Building 19 forming
a part of the Individual Property known as Milwaukee Industrials increasing the
insured amount thereunder by one hundred fifty percent (150%) of the amount by
which the Release Amount of the related Subparcel shall be increased pursuant to
the terms and provisions of Section 2.1.4(c). Lender also shall have received
evidence that all premiums in respect of such endorsements and modifications to
the Title Insurance Policies have been paid.
(e) Origination Fee. Lender shall have received an origination fee
---------------
for structuring and placement services with respect to the Loan in the amount of
0.85% of the principal amount of the Additional Advance.
(f) Material Adverse Change. There shall have been no material
-----------------------
adverse change in the financial condition or business condition of Borrower or
any Individual Property, in the aggregate, since the date of Borrower's most
recent financial statement delivered to Lender. The income and expenses of the
Properties, in the aggregate, the occupancy leases thereof, and all other
features of the transaction shall be as represented to Lender without material
adverse change. Borrower shall not be the subject of any bankruptcy,
reorganization, or insolvency proceeding.
(g) Debt Service Coverage Ratio. The Debt Service Coverage Ratio
---------------------------
projected for the twelve (12) month period immediately following the Additional
Advance Closing Date and calculated using an interest rate of 9.25% shall be no
less than 1.40.
(h) Further Documents. Lender and its counsel shall have completed
-----------------
their review of the documents and other information to be delivered pursuant to
this Section 3.3 and received such other and further approvals, opinions,
-----------
documents and information as Lender or its counsel may have reasonably
requested. Borrower shall satisfy such other conditions with respect to the
Additional Advance as a reasonably prudent lender would impose with respect to a
loan advance comparable to the Additional Advance.
SECTION 3.4 CONDITIONS PRECEDENT TO ADVANCES.
---------------------------------
All conditions precedent to advances of proceeds of the Loan set forth
in Sections 3.1, 3.2 and 3.3 are solely for the benefit of Lender and any of
such conditions may be waived by Lender in its sole discretion.
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<PAGE>
IV. REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 4.1 BORROWER REPRESENTATIONS.
------------------------
Borrower represents and warrants as of the date hereof and as of the
Closing Date that:
(a) Organization. Borrower has been duly organized and is validly
------------
existing and in good standing with requisite power and authority to own its
properties and to transact the businesses in which it is now engaged. Borrower
is duly qualified to do business and is in good standing in each jurisdiction
where it is required to be so qualified in connection with its properties,
businesses and operations. Borrower possesses all material rights, licenses,
permits and authorizations, governmental or otherwise, necessary to entitle it
to own its properties and to transact the businesses in which it is now engaged,
and the sole business of Borrower is the ownership, management and operation of
the Properties.
(b) Proceedings. Borrower has taken all necessary action to authorize
-----------
the execution, delivery and performance of this Agreement and the other Loan
Documents. This Agreement and such other Loan Documents have been duly executed
and delivered by or on behalf of Borrower and constitute legal, valid and
binding obligations of Borrower enforceable against Borrower in accordance with
their respective terms, subject to applicable bankruptcy, insolvency and similar
laws affecting rights of creditors generally, and subject, as to enforceability,
to general principles of equity (regardless of whether enforcement is sought in
a proceeding in equity or at law).
(c) No Conflicts. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents by Borrower will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any of the property
or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, partnership agreement or other agreement or instrument to
which Borrower is a party or by which any of Borrower's property or assets is
subject, nor will such action result in any material violation of the provisions
of any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over Borrower or any of Borrower's properties
or assets, and any consent, approval, authorization, order, registration or
qualification of or with any court or any such regulatory authority or other
governmental agency or body required for the execution, delivery and performance
by Borrower of this Agreement or any other Loan Documents has been obtained and
is in full force and effect.
(d) Litigation. Except as otherwise set forth on Schedule IV hereto,
---------- -----------
there are no actions, suits or proceedings at law or in equity by or before any
Governmental Authority or other agency now pending or, to Borrower's knowledge,
threatened against or affecting Borrower or any of the Properties, which
actions, suits or proceedings, if determined against Borrower or any of the
Properties, might materially adversely affect the financial condition or
business of Borrower or the condition or ownership of any of the Properties.
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<PAGE>
(e) Agreements. Borrower is not a party to any agreement or
----------
instrument or subject to any restriction which might materially and adversely
affect Borrower or, other than the Permitted Encumbrances, any of the
Properties, or Borrower's business, properties or assets, operations or
financial condition,. Other than as set forth in the estoppel certificates from
tenants under Leases delivered to Lender in connection with the Loan, to
Borrower's knowledge, Borrower is not in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any material agreement or instrument to which it is a
party or by which Borrower or any of its Properties are bound.
(f) Title. Borrower has good and marketable fee or leasehold, as
-----
applicable, title to the real property comprising part of the Properties and
good title to the balance of such Properties, free and clear of all Liens
whatsoever except the Permitted Encumbrances, such other Liens as are permitted
pursuant to the Loan Documents and the Liens created by the Loan Documents.
Each Mortgage intended to encumber any of the Properties, when properly recorded
in the appropriate records, together with any Uniform Commercial Code financing
statements required to be filed in connection therewith, will create (i) a
valid, perfected first lien on the applicable Individual Property, subject only
to Permitted Encumbrances and the Liens created or permitted by the Loan
Documents and (ii) perfected security interests in and to, and perfected
collateral assignments of, all personalty (including the Leases) that can be
perfected by the filing of financing statements, all in accordance with the
terms thereof, in each case subject only to any applicable Permitted
Encumbrances, such other Liens as are permitted pursuant to the Loan Documents
and the Liens created by the Loan Documents. Borrower has paid for all work,
labor or materials (other than payments with respect to tenant improvement work
payable by the tenant pursuant to the related Lease and Liens for Labor and
Material Costs being contested in accordance with the terms and provisions of
Section 3.6(b) of the Mortgage) affecting any Individual Property currently due
- --------------
and payable.
(g) No Bankruptcy Filing. Borrower is not contemplating either the
--------------------
filing of a petition by it under any state or federal bankruptcy or insolvency
laws or the liquidation of all or a major portion of Borrower's assets or
property, and Borrower has no knowledge of any Person contemplating the filing
of any such petition against it.
(h) Intentionally Omitted.
---------------------
(i) No Plan Assets. Borrower is not an "employee benefit plan," as
--------------
defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the
assets of Borrower constitutes or will constitute "plan assets" of one or more
such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (i)
Borrower is not a "governmental plan" within the meaning of Section 3(32) of
ERISA and (ii) transactions by or with Borrower are not subject to state
statutes regulating investments of, and fiduciary obligations with respect to,
governmental plans.
(j) Compliance. Other than as set forth in the physical condition
----------
reports or the environmental reports with respect to the Properties delivered to
Lender in connection with
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<PAGE>
the Loan, Borrower and each of the Properties and the use thereof comply in all
material respects with all applicable Legal Requirements, including, without
limitation, building and zoning ordinances and codes. Borrower is not in default
or violation of any order, writ, injunction, decree or demand of any
Governmental Authority, the violation of which might materially adversely affect
the financial condition or business of Borrower. There has not been and shall
never be committed by Borrower or, to Borrower's knowledge, any other person in
occupancy of or involved with the operation or use of the Properties any act or
omission affording the federal government or any state or local government the
right of forfeiture as against any of the Properties or any part thereof or any
monies paid in performance of Borrower's obligations under any of the Loan
Documents. Borrower hereby covenants and agrees not to commit, permit or suffer
to exist any act or omission affording such right of forfeiture.
(k) Financial Information. All financial data prepared by or at the
---------------------
direction of Borrower, including, without limitation, the statements of cash
flow and income and operating expense, that have been delivered to Lender in
respect of the Properties (other than the projections contained in such
financial data requested by Lender, with respect to which Borrower makes no
representation or warranty) (i) are true, complete and correct in all material
respects, (ii) accurately represent the financial condition of the Properties as
of the date of such reports in all material respects, and (iii) to the extent
prepared by an independent certified public accounting firm, have been prepared
in accordance with GAAP consistently applied throughout the periods covered,
except as disclosed therein. Other than the Debt and the liabilities associated
with the Permitted Encumbrances, Borrower does not have any contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments that are known
to Borrower and none of such liabilities are reasonably likely to have a
materially adverse effect on the Properties or the operation thereof for their
current respective uses, except as referred to or reflected in said financial
statements. Since the date of such financial statements, there has been no
materially adverse change in the financial condition, operations or business of
Borrower from that set forth in said financial statements.
(l) Condemnation. No Condemnation or other proceeding has been
------------
commenced or, to Borrower's best knowledge, is contemplated with respect to all
or any portion of any of the Properties or for the relocation of roadways
providing access to any of the Properties.
(m) Federal Reserve Regulations. No part of the proceeds of the Loan
---------------------------
will be used for the purpose of purchasing or acquiring any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System or for any other purpose which would be inconsistent with such
Regulation U or any other Regulations of such Board of Governors, or for any
purposes prohibited by Legal Requirements or by the terms and conditions of this
Agreement or the other Loan Documents.
(n) Utilities and Public Access. Each Individual Property has rights
---------------------------
of access to public ways and is served by water, sewer, sanitary sewer and storm
drain facilities adequate to service such Individual Property for its respective
intended uses. All public
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<PAGE>
utilities necessary to the full use and enjoyment of each Individual Property
are located either in the public right-of-way abutting such Individual Property
(which are connected so as to serve such Individual Property without passing
over other property) or in recorded easements serving such Individual Property
and such easements are set forth in the Title Insurance Policies. All roads
necessary for the use of each Individual Property for its current respective
purpose have been completed and dedicated to public use and accepted by all
Governmental Authorities.
(o) Not a Foreign Person. Borrower is not a "foreign person" within
--------------------
the meaning of (S) 1445(f)(3) of the Code.
(p) Separate Lots. Each Individual Property is comprised of one (1)
-------------
or more parcels which constitute a separate tax lot and does not constitute a
portion of any other tax lot not a part of such Individual Property.
(q) Assessments. There are no pending or, to Borrower's knowledge,
-----------
proposed special or other assessments for public improvements or otherwise
affecting any of the Properties other than as reflected by the current Permitted
Exceptions, nor are there any contemplated improvements to any of the Properties
that may result in such special or other assessments.
(r) Enforceability. The Loan Documents are not subject to any right
--------------
of rescission, set-off, counterclaim or defense by Borrower, including the
defense of usury, nor would the operation of any of the terms of the Loan
Documents, or the exercise of any right thereunder, render the Loan Documents
unenforceable, and Borrower has not asserted any right of rescission, set-off,
counterclaim or defense with respect thereto.
(s) No Prior Assignment. As of the Closing Date, there will be no
-------------------
prior assignments of the Leases or any portion of the Rents due and payable or
to become due and payable which are presently outstanding.
(t) Insurance. Borrower has obtained and has delivered to Lender
---------
certified copies of all insurance policies reflecting the insurance coverages,
amounts and other requirements set forth in this Agreement.
(u) Use of Properties. Each of the Properties is used exclusively for
-----------------
office or industrial purposes and other appurtenant and related uses.
(v) Certificate of Occupancy; Licenses. All material certifications,
----------------------------------
permits, licenses and approvals, including without limitation, certificates of
completion and occupancy permits required for the legal use, occupancy and
operation of each of the Properties (collectively, the "LICENSES"), have been
--------
obtained and are in full force and effect. The Borrower shall keep and maintain
all material licenses necessary for the operation of each of the Properties.
The use being made of each Individual Property is in conformity in all material
respects with the certificate of occupancy issued for such Individual Property.
Notwithstanding the foregoing, only a temporary certificate of occupancy has
been obtained and is in full force and effect with respect to the Improvements
forming a part of the
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<PAGE>
Individual Property known as One Northwestern Plaza and Borrower hereby agrees
to exercise diligent efforts to satisfy any conditions set forth in such
temporary certificate of occupancy and obtain a permanent certificate of
occupancy with respect to such Improvements.
(w) Flood Zone. Except as shown on the Surveys, to Borrower's
----------
knowledge none of the Improvements on any of the Properties are located in a
"one-hundred-year flood hazard area" as identified by the Federal Insurance
Administration .
(x) Physical Condition. Other than as set forth in the physical
------------------
condition reports or the environmental reports with respect to the Properties
delivered to Lender in connection with the Loan, each of the Properties,
including, without limitation, all buildings, improvements, parking facilities,
sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire
protection systems, electrical systems, equipment, elevators, exterior sidings
and doors, landscaping, irrigation systems and all structural components, are in
good condition, order and repair in all material respects, subject to ordinary
wear and tear; to Borrower's knowledge, there exists no structural or other
material defects or damages in any of the Properties, whether latent or
otherwise, and Borrower has not received notice from any insurance company or
bonding company of any defects or inadequacies in any of the Properties, or any
part thereof, which would materially adversely affect the insurability of the
same or cause the imposition of extraordinary premiums or charges thereon or of
any termination or threatened termination of any policy of insurance or bond.
(y) Boundaries. Other than as shown on the Survey of the applicable
----------
Individual Property, all of the improvements which were included in determining
the appraised value of each Individual Property lie wholly within the boundaries
and building restriction lines of such Individual Property, and no improvements
on adjoining properties encroach upon such Individual Property, and no easements
or other encumbrances upon the applicable Individual Property encroach upon any
of the improvements, so as to affect the value or marketability of the
applicable Individual Property except those which are insured against by title
insurance.
(z) Leases. The Properties are not subject to any Leases other than
------
the Leases described in the rent rolls delivered to Lender in connection with
this Agreement. No person has any possessory interest in any of the Properties
or right to occupy the same except under and pursuant to the provisions of the
Leases and the right of the lessor under the Ground Lease to occupy a portion of
the related Individual Property pursuant to the terms and provisions of Article
XLI of the Ground Lease. Other than as set forth in the estoppel certificates
from tenants under Leases delivered to Lender in connection with the Loan, to
Borrower's knowledge, the current Leases are in full force and effect and there
are no defaults thereunder by either party and there are no conditions that,
with the passage of time or the giving of notice, or both, would constitute
defaults thereunder. Borrower is the sole owner of the entire lessor's interest
in the Leases. None of the Rents reserved in the Leases have been assigned or
otherwise pledged or hypothecated other than pursuant to the Loan Documents.
None of the Rents have been collected for more than one (1) month in advance of
when due under the applicable Lease. The premises demised under the Leases have
been completed and the tenants under the Leases have accepted the same and have
taken possession of the same on
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<PAGE>
a rent-paying basis other than those tenants under Leases for which premises are
being constructed or renovated as a condition to occupancy. Other than as set
forth in the estoppel certificates from tenants under Leases delivered to Lender
in connection with the Loan, to Borrower's knowledge, there exist no offsets or
defenses to the payment of any portion of the Rents. No Lease contains an option
to purchase, right of first refusal to purchase, or any other similar provision.
No Person has any possessory interest in, or right to occupy any portion of any
of the Properties except under and pursuant to a Lease. Except as set forth on
Schedule VI hereto, to Borrower's knowledge, all of the Leases are subordinate
- -----------
to the applicable Mortgage either pursuant to their terms or recorded
subordination agreements and all of the Leases provide that the tenant
thereunder agrees to attorn to Lender.
(aa) Survey. To Borrower's knowledge, the Survey for each of the
------
Properties delivered to Lender in connection with this Agreement does not fail
to reflect any matter that materially and adversely affects any of the
Properties or the title thereto.
(bb) Intentionally Omitted.
---------------------
(cc) Filing and Recording Taxes. All transfer taxes, deed stamps,
--------------------------
intangible taxes or other amounts in the nature of transfer taxes required to be
paid by any Person under applicable Legal Requirements currently in effect in
connection with the transfer of the Properties to Borrower have been paid. All
mortgage, mortgage recording, stamp, intangible or other similar tax required to
be paid by any Person under applicable Legal Requirements currently in effect in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan Documents, including, without
limitation, the Mortgages encumbering the Properties have been paid.
(dd) Investment Company Act; Other Regulations. Borrower is not an
-----------------------------------------
"investment company," within the meaning of, or that is required to register
under, the Investment Company Act of 1940, as amended, nor is Borrower a company
"controlled" by an "investment company" under such act as amended, except with
respect to an investment company that (i) controls Borrower, (ii) is required to
register under such act as amended and (iii) has so registered, which regulation
is in good standing.
(ee) Single-Purpose. Borrower hereby represents and warrants to, and
--------------
covenants with, Lender that as of the date hereof and until such time as the
Debt shall be paid in full:
(i) Borrower does not own and will not own any asset or property
other than (A) the Properties, and (B) incidental personal property necessary
for the ownership or operation of the Properties.
(ii) Borrower will not engage in any business other than the
ownership, management and operation of the Properties and Borrower will conduct
and operate its business as presently conducted and operated.
(iii) Borrower will not enter into any contract or agreement with
any Affiliate of Borrower, any constituent party of Borrower or any Affiliate of
any constituent
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<PAGE>
party, except upon terms and conditions that are intrinsically fair and
substantially similar to those that would be available on an arm's-length basis
with third parties other than any such party.
(iv) Borrower has not incurred and shall not incur any
indebtedness, secured or unsecured, direct or indirect, absolute or contingent
(including guaranteeing any obligation), other than (A) the Debt; (B) unsecured
trade payables and other unsecured indebtedness not evidenced by a note,
equipment leases and endorsements of checks, incurred by Borrower for or in
respect of the operation of the Properties in the ordinary course of operating
its business; (C) unsecured indebtedness not evidenced by a note payable or
reimbursable to a tenant under a Lease on account of work performed or costs
incurred by such tenant in connection with its occupancy of space at an
Individual Property pursuant to the Lease, including costs for tenant
improvement work; and (D) indebtedness relating solely to the financing of
construction of capital improvements, tenant improvements or building equipment
or leasing costs payable to third parties or the Manager in accordance with the
Property Management Agreement and incurred with respect to one or more of the
Individual Properties and costs associated with such indebtedness, either
unsecured or secured only by subordinate liens and (i) which in the aggregate
does not exceed an amount equal to five percent (5%) of the outstanding
principal amount of the Loan at any time, (ii) the proceeds of which are not
distributed to Borrower or any direct beneficial owner of an interest in
Borrower, but are instead used to fund directly the costs of items described
above, other than commissions and fees paid to Manager in accordance with the
Management Agreement, (iii) which is evidenced by a note or other written
agreement having terms (other than the interest rate and repayment terms) no
less favorable to Borrower than the terms of the Loan, (iv) the terms of which
shall require that the principal amount of such indebtedness be repaid from Net
Operating Income prior to any distributions to any direct beneficial owner of an
interest in Borrower (other than for income, franchise, or other taxes imposed
on Borrower for the privilege of doing business in the jurisdictions in which
the Property is located) and (v) is subject to a subordination and standstill
agreement satisfactory in form and substance to Lender. Except as set forth in
the immediately preceding sentence, no indebtedness other than the Debt may be
secured (subordinate or pari passu) by the Properties.
---- -----
(v) Borrower has not made and will not make any loans or advances
to any third party (including any affiliate or constituent party), and shall not
acquire obligations or securities of its Affiliates.
(vi) Borrower is and will remain solvent and Borrower will pay
its debts and liabilities (including, as applicable, shared personnel employment
and overhead expenses) from its assets as the same shall become due, subject to
Borrower's right to contest Taxes and Other Charges in accordance with Section
-------
5.1(b) and Labor and Material Costs in accordance with Section 3.6(b) of the
- ------
Mortgage.
(vii) Borrower has done or caused to be done and will do all
things necessary to observe partnership formalities and preserve its existence,
and Borrower will not, nor will Borrower permit any constituent party to amend,
modify or otherwise change the partnership certificate, partnership agreement,
articles of incorporation and bylaws, trust or
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<PAGE>
other organizational documents of Borrower or such constituent party without the
prior written consent of Lender.
(viii) Borrower will maintain books, records, financial
statements and bank accounts separate from those of its affiliates and any
constituent party and Borrower will file its own tax returns. Borrower shall
maintain its books, records, resolutions and agreements as official records.
(ix) Borrower will be, and at all times will hold itself out to
the public as, a legal entity separate and distinct from any other entity
(including any Affiliate of Borrower or any constituent party of Borrower),
shall correct any known misunderstanding regarding its status as a separate
entity, shall conduct business in its own name, shall not identify itself or any
of its Affiliates as a division or unit of the other and shall maintain and
utilize separate stationery, invoices and checks; provided, however that
Borrower may use the word "Prentiss" as a part of Borrower's name, may describe
itself as a "wholly-owned subsidiary" of Prentiss Properties Acquisition
Partners, L.P. so long as such description is true and correct and may permit
its relationship with its Affiliates to be disclosed in order to comply with any
public filing requirements applicable to Prentiss Properties Trust.
(x) Borrower is adequately capitalized and will maintain adequate
capital for the normal obligations reasonably foreseeable in a business of its
size and character and in light of its contemplated business operations.
(xi) Neither Borrower nor any constituent party will seek or
effect the liquidation, dissolution, winding up, consolidation or merger, in
whole or in part, of Borrower.
(xii) Borrower will not commingle the funds and other assets of
Borrower with those of any Affiliate or constituent party or any other Person.
For purposes of this clause (xii), funds distributed to partners of Borrower as
permitted under this Agreement shall no longer constitute funds of Borrower.
(xiii) Borrower has and will maintain its assets in such a manner
that it will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliate or constituent party or any other
Person.
(xiv) Borrower does not and will not hold itself out to be
responsible for the debts or obligations of any other Person.
(xv) If Borrower is a limited partnership, the general partner is
a corporation whose sole asset is its interest in Borrower and the general
partner will at all times comply, and will cause Borrower to comply, with each
of the representations, warranties, and covenants contained in this Section
-------
4.1(ee) as if such representation, warranty or covenant was made directly by
- -------
such general partner.
(xvi) Borrower shall at all times cause there to be at least one
(1) duly appointed member of the board of directors (an "INDEPENDENT DIRECTOR")
--------------------
of the general
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<PAGE>
partner of Borrower reasonably satisfactory to Lender who shall not have been at
the time of each such individual's appointment, and may not have been at any
time during the preceding five (5) years (A) a shareholder of, or an officer,
director, partner or employee of, Borrower or any of its shareholders,
subsidiaries or Affiliates, (B) a customer of, or supplier to (other than CT
Corp.), Borrower or any of its shareholders, subsidiaries or Affiliates which
derives more than ten percent (10%) of its revenues from its activities with
Borrower or its Affiliates, (C) a Person controlling or under common control
with any such shareholder, partner supplier or customer, or (D) a member of the
immediate family of any such shareholder, officer, director, partner, employee,
supplier or customer of any other director of Borrower. As used herein, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
(xvii) Borrower shall not cause or permit the board of directors
of the general partner of Borrower to take any action which, under the terms of
any certificate of incorporation, by-laws or any voting trust agreement with
respect to any common stock, requires a vote of the board of directors of the
general partner of Borrower unless at the time of such action there shall be at
least one (1) member who is an Independent Director.
(xviii) Borrower shall conduct its business so that the
assumptions made with respect to Borrower in that certain opinion letter dated
the date hereof (the "INSOLVENCY OPINION") delivered by Akin, Gump, Strauss,
------------------
Hauer & Feld in connection with the Loan shall be true and correct in all
respects.
(ff) No Change in Facts or Circumstances; Disclosure. All information
-----------------------------------------------
submitted by Borrower to Lender and in all financial statements, rent rolls,
reports, certificates and other documents submitted in connection with the Loan
or in satisfaction of the terms thereof and all statements of fact made by
Borrower in this Agreement or in any other Loan Document, are accurate, complete
and correct in all material respects to the best of Borrower's knowledge. To
the best of Borrower's knowledge, there has been no material adverse change in
any condition, fact, circumstance or event that would make any such information
inaccurate, incomplete or otherwise misleading in any material respect or that
otherwise materially and adversely affects or might materially and adversely
affect any of the Properties or the business operations or the financial
condition of Borrower. To the best of Borrower's knowledge, Borrower has
disclosed to Lender all material facts and has not failed to disclose any
material fact that could cause any representation or warranty made herein to be
materially misleading.
(gg) Illegal Activity. No portion of any Individual Property has been
----------------
or will be purchased with proceeds of any illegal activity.
(hh) Ground Lease. Borrower hereby represents and warrants to Lender
------------
the following with respect to the Ground Lease:
(i) RECORDING; MODIFICATION. The Ground Lease has been duly
recorded, the Ground Lease permits the interest of the Borrower to be encumbered
by a
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<PAGE>
mortgage, the landlord under the Ground Lease (the "LANDLORD") has approved
--------
and consented to the encumbrance of the Individual Property by the applicable
Mortgage and a complete and correct description of the Ground Lease, including
all amendments, modifications or supplements thereto, is set forth in the
definition thereof contained in Section 1.1. The Ground Lease may not be
-----------
canceled, terminated, surrendered or amended without the prior written consent
of Lender.
(ii) NO LIENS. Except for the Permitted Encumbrances, the
Borrower's interest in the Ground Lease is not subject to any liens or
encumbrances superior to, or of equal priority with, the Mortgage other than the
Landlord's related fee interest.
(iii) GROUND LEASE ASSIGNABLE. The Borrower's interest in the
Ground Lease is assignable to the Lender, and by Lender and its successors and
assigns, upon notice to, but without the consent of, the Landlord (or, if any
such consent is required, it has been obtained prior to the Closing Date).
(iv) DEFAULT. As of the Closing Date, the Ground Lease is in full
force and effect and, to the best of Borrower's knowledge, no default has
occurred under the Ground Lease and there is no existing condition which, but
for the passage of time or the giving of notice, could result in a default under
the terms of the Ground Lease.
(v) NOTICE. The Ground Lease requires the Landlord thereunder to
give notice of any default by the Borrower to the Lender. The Ground Lease, or
an estoppel letter received by the Lender from the Landlord, further provides
that notice of termination given under the Ground Lease is not effective against
the Lender unless a copy of the notice has been delivered to the Lender in the
manner described in the Ground Lease.
(vi) CURE. The Lender is permitted the opportunity (including,
where necessary, sufficient time to gain possession of the interest of the
Borrower under the Ground Lease) to cure any default under the Ground Lease,
which is curable after the receipt of notice of any default before the Landlord
thereunder may terminate the Ground Lease.
(vii) TERM. The Ground Lease has a term which extends not less
than ten (10) years beyond the Maturity Date of the Loan.
(viii) NEW LEASE. The Ground Lease requires the Landlord to enter
into a new lease upon termination of the Ground Lease for any reason, including
rejection of the Ground Lease in a bankruptcy proceeding.
(ix) INSURANCE PROCEEDS. Under the terms of the Ground Lease and
the related Mortgage, taken together, any related insurance and condemnation
proceeds will be held by Lender and applied either to the repair or restoration
of the applicable Individual Property or to the payment of the Debt in
accordance with the Loan Documents. In the event that insurance proceeds exceed
One Hundred Thousand and No/100 Dollars ($100,000) and are not otherwise
required to be paid to Lender pursuant to the Loan Documents, such insurance
proceeds will be paid to the Landlord and Borrower in escrow in an interest-
bearing account and applied to the repair or restoration of the applicable
Individual Property.
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<PAGE>
SECTION 4.2 SURVIVAL OF REPRESENTATIONS.
---------------------------
Borrower agrees that all of the representations and warranties of
Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the
-----------
other Loan Documents shall survive for so long as the context thereof requires
but at least as long as any amount remains owing to Lender under this Agreement
or any of the other Loan Documents by Borrower, provided that the accuracy of
such representations and warranties shall be determined as of the Closing Date
or a Subsequent Advance Date, as applicable. All representations, warranties,
covenants and agreements made in this Agreement or in the other Loan Documents
by Borrower shall be deemed to have been relied upon by Lender notwithstanding
any investigation heretofore or hereafter made by Lender or on its behalf.
V. AFFIRMATIVE COVENANTS
---------------------
SECTION 5.1 BORROWER COVENANTS.
------------------
From the date hereof and until payment and performance in full of all
obligations of Borrower under the Loan Documents or the earlier release of the
Liens of all Mortgages encumbering the Properties (and all related obligations)
in accordance with the terms of this Agreement and the other Loan Documents,
Borrower hereby covenants and agrees with Lender that:
(a) Existence; Compliance with Legal Requirements; Insurance.
--------------------------------------------------------
Borrower shall do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its partnership existence, rights, licenses,
permits and franchises and comply in all material respects with all Legal
Requirements applicable to it and the Properties (except for those Legal
Requirements being contested by Borrower in accordance with this Agreement and
other Loan Documents). Borrower shall at all times maintain, preserve and
protect all of its material property used in the conduct of its business and
shall keep all of the Properties in good working order and repair (except for
ordinary wear and tear and damage from a casualty or condemnation pending any
required restoration thereof), and from time to time make, or cause to be made,
all reasonably necessary repairs, renewals, replacements, betterments and
improvements thereto, all as more fully provided in the Mortgages encumbering
such Properties. Borrower shall keep each of the Properties insured at all
times by financially sound and reputable insurers, to such extent and against
such risks, and maintain liability and such other insurance, as is more fully
provided in this Agreement.
(b) Taxes and Other Charges. Borrower shall pay all Taxes and Other
-----------------------
Charges now or hereafter levied or assessed or imposed against the Properties or
any part thereof prior to delinquency or the imposition of any fine or penalty;
provided, however, Borrower's obligation to directly pay Taxes shall be
suspended for so long as Borrower complies with the terms and provisions of
Section 7.3 hereof. Borrower shall not suffer and shall promptly cause to be
- -----------
paid and discharged any lien or charge whatsoever which may be or become a lien
or charge against any of the Properties (subject to Borrower's right to contest
Taxes and Other Charges in accordance with this Section 5.1(b)), and shall
---------------
promptly pay for all utility services provided to the Properties. Borrower
shall furnish to Lender receipts for
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<PAGE>
the payment of the Taxes and the Other Charges prior to the date the same shall
become delinquent (provided, however, that Borrower is not required to furnish
such receipts for payment of Taxes in the event that such Taxes have been paid
by Lender pursuant to Section 7.3 hereof). After prior written notice to Lender,
-----------
Borrower, at its own expense, may contest by appropriate legal proceeding,
promptly initiated and conducted in good faith and with due diligence, the
amount or validity or application in whole or in part of any Taxes or Other
Charges, provided that (i) no Event of Default has occurred and remains uncured,
(ii) Borrower is permitted to do so under the provisions of any mortgage or deed
of trust affecting any of the Properties, (iii) such proceeding shall be
permitted under and be conducted in accordance with the provisions of any other
instrument to which Borrower is subject and shall not constitute a default
thereunder and such proceeding shall be conducted in accordance with all
applicable statutes, laws and ordinances, (iv) no Individual Property nor any
part thereof or interest therein will be in danger of being sold, forfeited,
terminated, canceled or lost, and (v) Borrower shall promptly upon final
determination thereof pay the amount of any such Taxes or Other Charges,
together with all costs, interest and penalties which may be payable in
connection therewith. In addition, if the Taxes or Other Charges are not paid in
full when the Borrower commences such contest, then the following shall apply:
(A) such proceeding shall suspend the collection of Taxes or Other Charges from
the applicable Individual Property, and (B) Borrower shall have furnished such
security as may be required in the proceeding, or as may be reasonably requested
by Lender or sufficient funds are on deposit in the Tax and Insurance Escrow
Fund to pay any such Taxes or Other Charges pursuant to Section 7.3, to insure
-----------
the payment of any such Taxes or Other Charges, together with all interest and
penalties thereon. Lender may pay over any such cash deposit or part thereof
held by Lender to the claimant entitled thereto at any time when, in the
reasonable judgment of Lender, the entitlement of such claimant is established
after Borrower's appeals have been exhausted.
(c) Litigation. Borrower shall give prompt written notice to Lender
----------
of any litigation or governmental proceedings pending or threatened against
Borrower which might materially adversely affect Borrower's financial condition
or business or any of the Properties.
(d) Access to Premises. Borrower shall permit agents, representatives
------------------
and employees of Lender to inspect (but not to perform invasive testing other
than as permitted pursuant to this Agreement, the Environmental Indemnity and
the other Loan Documents) any of the Properties or any part thereof at
reasonable hours upon reasonable advance notice subject to the rights of
tenants, subtenants and licensees with respect to the Properties.
(e) Notice of Default. Borrower shall promptly advise Lender of any
-----------------
material adverse change in Borrower's financial condition, or of the occurrence
of any Default or Event of Default of which Borrower has knowledge.
(f) Cooperate in Legal Proceedings. Borrower shall cooperate fully
------------------------------
with Lender with respect to any proceedings before any court, board or other
Governmental Authority which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the other Loan Documents
and, in connection therewith, permit Lender, at its election and at its cost, to
participate in any such proceedings.
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<PAGE>
(g) Perform Loan Documents. Borrower shall observe, perform and
----------------------
satisfy all the terms, provisions, covenants and conditions of, and shall pay
when due all reasonable costs, fees and expenses to the extent required under
the Loan Documents executed and delivered by, or applicable to, Borrower.
(h) Insurance Benefits. Borrower shall cooperate with Lender in
------------------
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable in connection with any of the Properties, and Lender shall be
reimbursed for any expenses reasonably incurred in connection therewith
(including reasonable attorneys' fees and disbursements, and the payment by
Borrower of the expense of an appraisal on behalf of Lender in case of a fire or
other casualty affecting any of the Properties or any part thereof) out of such
Insurance Proceeds.
(i) Further Assurances; Supplemental Mortgage Affidavits. Borrower
----------------------------------------------------
shall, at Borrower's sole cost and expense:
(i) furnish to Lender all instruments, documents, boundary
surveys, footing or foundation surveys, certificates, plans and specifications,
title and other insurance reports and agreements, and each and every other
document, certificate, agreement and instrument reasonably required to be
furnished by Borrower pursuant to the terms of the Loan Documents;
(ii) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts necessary
or desirable, to evidence, preserve and/or protect the collateral at any time
securing or intended to secure the obligations of Borrower under the Loan
Documents, as Lender may reasonably require under the Loan Documents; and
(iii) do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the better and more effective carrying out
of the intents and purposes of this Agreement and the other Loan Documents, as
Lender shall reasonably require from time to time.
(j) Intentionally Omitted.
---------------------
(k) Financial Reporting.
-------------------
(i) Borrower shall keep adequate books and records of account in
accordance with GAAP, or in accordance with other methods acceptable to Lender
in its reasonable discretion, consistently applied and furnish to Lender, in
electronic or other form acceptable to Lender, the following:
(A) (1) prior to the Anticipated Repayment Date, monthly
operating statements of each Individual Property together with a property
balance sheet for such month, prepared and certified by Borrower in the form
reasonably required by Lender, detailing the revenues received, the expenses
incurred and the net operating income before and after debt service (principal
and interest) and major capital improvements for that month and containing
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<PAGE>
appropriate year to date information, and containing a comparison for such month
with the annual budget delivered pursuant to clause (E), on a quarterly basis
within thirty (30) days after the end of each calendar quarter and (2) after the
Anticipated Repayment Date, monthly operating statements of each Individual
Property together with a property balance sheet for such month, prepared and
certified by Borrower in the form reasonably required by Lender, detailing the
revenues received, the expenses incurred and the net operating income before and
after debt service (principal and interests) and major capital improvements for
that month and containing appropriate year to date information, and containing a
comparison for such month with the annual budget delivered pursuant to clause
(E), on a monthly basis within fifteen (15) days after the end of each month;
(B) certified updated rent rolls signed and dated by Borrower,
detailing the names of all tenants of the Properties, the portion of
Improvements on the Properties occupied by each tenant, the base rent and any
other charges payable under each Lease and the term of each Lease, including the
expiration date, and any other information as is reasonably required by Lender,
within thirty (30) days after the end of each of each fiscal quarter;
(C) an annual audited consolidated operating statement of Borrower
detailing the total revenues received, total expenses incurred, total cost of
all capital improvements, total debt service and total cash flow for the
Properties, to be prepared and certified by a "Big Six" accounting firm, within
ninety (90) days after the close of each fiscal year of Borrower;
(D) an annual audited balance sheet and profit and loss statement of
Borrower in the form reasonably required by Lender, prepared and certified by a
"Big Six" accounting firm, within ninety (90) days after the close of each
fiscal year of Borrower; and
(E) an annual operating budget presented on a monthly basis consistent
with the monthly and annual operating statements described above for the
Property, including cash flow projections for the upcoming year, and all
proposed capital replacements and improvements at least fifteen (15) days prior
to the start of each calendar year prior to the Anticipated Repayment Date and
at least thirty (30) days prior to the start of each calendar year after the
Anticipated Repayment Date.
(ii) Upon reasonable request from Lender, Borrower and its Affiliates
shall furnish to Lender an accounting of all security deposits held in
connection with any Lease, including the name and identification number of the
accounts in which such security deposits are held, the name and address of the
financial institutions in which such security deposits are held and the name of
the Person to contact at such financial institution, along with any authority or
release necessary for Lender to obtain information regarding such accounts
directly from such financial institutions.
(iii) Borrower and its Affiliates shall furnish Lender with such
other additional financial or management information as may, from time to time,
be reasonably required by Lender in form and substance reasonably satisfactory
to Lender.
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<PAGE>
(l) Business and Operations. Borrower will continue to engage in the
-----------------------
businesses presently conducted by it as and to the extent the same are necessary
for the ownership, maintenance, management and operation of each of the
Properties. Borrower and its corporate general partner will qualify to do
business and will remain in good standing under the laws of each jurisdiction as
and to the extent the same are required for the ownership, maintenance,
management and operation of each of the Properties.
(m) Title to the Properties. Borrower will warrant and defend (i) the
-----------------------
title to each of the Properties and every part thereof, subject only to Liens
permitted hereunder (including Permitted Encumbrances), and (ii) the validity
and priority of the Liens of the Mortgages and the Assignments of Leases on the
Properties, subject only to Liens permitted hereunder (including Permitted
Encumbrances), in each case against the claims of all Persons whomsoever.
Borrower shall reimburse Lender for any losses, costs, damages or expenses
(including reasonable attorneys' fees and court costs) incurred by Lender if an
interest in any of the Properties, other than as permitted hereunder, is claimed
by another Person.
(n) Costs of Enforcement. In the event (i) that any Mortgage
--------------------
encumbering any of the Properties is foreclosed in whole or in part or that any
such Mortgage is put into the hands of an attorney for collection, suit, action
or foreclosure, (ii) of the foreclosure of any mortgage prior to or subsequent
to any Mortgage encumbering any of the Properties in which proceeding Lender is
made a party, or (iii) of the bankruptcy, insolvency, rehabilitation or other
similar proceeding in respect of Borrower or an assignment by Borrower for the
benefit of its creditors, Borrower, its successors or assigns, shall be
chargeable with and agrees to pay all costs of collection and defense, including
reasonable attorneys' fees in connection therewith and in connection with any
appellate proceeding or post-judgment action involved therein, which shall be
due and payable together with all required service or use taxes.
(o) Estoppel Statement. After request by Lender, Borrower shall
------------------
within ten (10) days furnish Lender with a statement, duly acknowledged and
certified, setting forth (A) the amount of the original principal amount of the
Loan, (B) the unpaid principal amount of the Loan, (C) the Applicable Interest
Rate, (D) the date installments of interest and/or principal were last paid, (E)
any offsets or defenses to the payment of the Debt, if any, and (F) that the
Note, this Agreement, the Mortgages and the other Loan Documents are valid,
legal and binding obligations and have not been modified or if modified, giving
particulars of such modification. Within ten (10) days of Borrower's request,
Lender will deliver to Borrower a statement setting forth (i) the unpaid
principal amount of the Loan, (ii) the Applicable Interest Rate, (iii) the
amount of the installment of interest and/or principal due and payable with
respect to the Loan on the scheduled payment date for the month in which such
statement is delivered and (iv) the date on which Lender last received a payment
with respect to the Loan.
(p) Loan Proceeds. Borrower shall use the proceeds of the Loan
-------------
received by it on the Closing Date only for the purposes set forth in Section
-------
2.2.
- ---
(q) Ground Lease. Borrower shall in a timely manner observe, perform
------------
and fulfill in all material respects each and every material covenant, term and
provision of the Ground Lease in accordance with the terms thereof.
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<PAGE>
(r) Leasing Matters. Borrower may enter into new Leases without the
---------------
consent of Lender, provided that each such new Lease shall provide for rental
rates and terms comparable to existing local market rates and terms (taking into
account the type and quality of tenant, the term of the Lease, the tenant
inducements or concessions under the Lease and the size and quality of the
demised space), shall be arm's-length transactions with bona fide, independent
third party tenants and shall be written on the standard form of lease which
shall have been approved by Lender in its reasonable discretion, without any
change thereto that would have a material adverse effect on the value of the
related Individual Property or materially and adversely affect the value of the
Lease as security for the Debt. Upon request, Borrower shall furnish Lender
with executed copies of all Leases. In addition, all renewals of Leases and all
proposed leases shall provide for rental rates and terms comparable to existing
local market rates and terms (taking into account the type and quality of
tenant, the term of the Lease, the tenant inducements or concessions under the
Lease and the size and quality of the demised space) and shall be arm's-length
transactions with bona fide, independent third party tenants. All Leases shall
provide that they are subordinate to the Mortgage with respect to the related
Individual Property and that the tenant agrees to attorn to Lender, unless
Lender agrees otherwise. Borrower (i) shall observe and perform in all material
respects all the material obligations imposed upon the landlord under the Leases
and shall not do or permit to be done anything to materially and adversely
affect the value of the Leases as security for the Debt; (ii) shall promptly
send copies to Lender of all notices of default which Borrower shall send or
receive thereunder; (iii) shall enforce all of the material terms, covenants and
conditions contained in the Leases upon the part of the lessee thereunder to be
observed or performed, short of termination thereof, which Borrower deems
reasonably prudent to enforce; (iv) shall not collect any of the Rents more than
one (1) month in advance of when due under the applicable Lease; (v) shall not
execute any other assignment of the lessor's interest in the Leases or the Rents
and (vi) shall not, without the prior written consent of Lender, amend, modify,
waive the provisions of, terminate, reduce the rents under or shorten the term
of any Lease. Notwithstanding the foregoing, Borrower may, without Lender's
consent (y) amend, modify or waive the provisions of any Leases if such action
does not have a material adverse effect upon the value of the related Individual
Property (taking into account the circumstances of the affected Lease) and (z)
terminate, reduce the rents under or shorten the term of any Leases if such
action (taking into account the planned alternative use of the related demised
space and the circumstances of the affected Lease) does not materially and
adversely affect the value of the related Individual Property. Borrower shall
not, without the prior consent of Landlord (A) alter, modify or change the terms
of any guaranty, letter of credit or other credit support with respect to the
Leases (a "LEASE GUARANTY") or cancel or terminate such Lease Guaranty (other
--------------
than such an action required by the terms of such Lease Guaranty or the related
Lease) if such action could materially and adversely affect the value of the
related Individual Property, or (B) consent to any assignment of or subletting
under the Leases not in accordance with their terms if such action could
materially and adversely affect the value of the related Individual Property.
(s) Alterations. Borrower shall obtain Lender's prior written
-----------
consent, which consent shall not be unreasonably withheld or delayed to any
alterations to any Improvements on any Individual Property that may have a
material adverse effect on Borrower's financial condition, the value of such
Individual Property or the Net Operating
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Income with respect to such Individual Property, other than tenant improvement
work performed pursuant to the terms and provisions of a Lease and not adversely
affecting any structural component of any Improvements, any utility or HVAC
system contained in any Improvements or the exterior of any building
constituting a part of any Improvements or alterations performed in connection
with the restoration of an Individual Property after the occurrence of a
casualty in accordance with the terms and provisions of this Agreement. If the
total unpaid amounts due and payable with respect to alterations to the
Improvements on the Properties (other than such amounts to be paid or reimbursed
by tenants under the Leases) shall at any time exceed five percent (5%) of the
outstanding principal balance of the Loan (the "THRESHOLD AMOUNT"), Borrower
----------------
shall promptly deliver to Lender as security for the payment of such amounts and
as additional security for Borrower's obligations under the Loan Documents any
of the following: (i) cash, (ii) U.S. Obligations, (iii) other securities having
a rating acceptable to Lender and that the applicable Rating Agencies have
confirmed in writing will not, in and of itself, result in a downgrade,
withdrawal or qualification of the initial, or, if higher, then current ratings
assigned in connection with any Securitization or (iv) a completion bond or
letter of credit issued by a financial institution having a rating by Standard &
Poor's Ratings Group of not less than A-1+ if the term of such bond or letter of
credit is no longer than three (3) months or, if such term is in excess of three
(3) months, issued by a financial institution having a rating that is acceptable
to Lender and that the applicable Rating Agencies have confirmed in writing will
not, in and of itself, result in a downgrade, withdrawal or qualification of the
initial, or, if higher, then current ratings assigned in connection with any
Securitization. Such security shall be in an amount equal to the excess of the
total unpaid amounts with respect to alterations to the Improvements on the
Properties (other than such amounts to be paid or reimbursed by tenants under
the Leases) over the Threshold Amount and may be reduced from time to time by
the cost estimated by Lender to terminate any of the alterations and restore the
related Individual Property to the extent necessary to prevent any material
adverse effect on the value of such Individual Property.
VI. NEGATIVE COVENANTS
------------------
SECTION 6.1 BORROWER'S NEGATIVE COVENANTS.
-----------------------------
From the date hereof until payment and performance in full of all
obligations of Borrower under the Loan Documents or the earlier release of the
Liens of all Mortgages encumbering each of the Properties in accordance with the
terms of this Agreement and the other Loan Documents, Borrower covenants and
agrees with Lender that it will not do, directly or indirectly, any of the
following:
(a) Operation of Properties. Borrower shall not, without the prior
-----------------------
consent of Lender (which consent shall not be unreasonably withheld or delayed),
terminate any Management Agreement relating to any Individual Property or
otherwise replace the Manager or enter into any other management agreements with
respect to any of the Properties; provided, however, that Borrower may replace
the Manager under the Management Agreement with an Affiliate of Manager, which
Affiliate shall assume in writing the Management Agreement subject to the
confirmation in writing from the applicable Rating Agencies that the replacement
of Manager with an Affiliate of Manager will not, in and of
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itself, result in a downgrade, qualification or withdrawal of the initial, or,
if higher, then current ratings assigned in connection with any Securitization.
(b) Liens. Borrower shall not, without the prior written consent of
-----
Lender, create, incur, assume or suffer to exist any Lien on any portion of any
of the Properties or permit any such action to be taken, except:
(i) Permitted Encumbrances;
(ii) Liens created by or permitted pursuant to the Loan
Documents;
(iii) Liens for Taxes, or Other Charges not yet delinquent or
accruing any penalty (subject to Borrower's right to contest Taxes and Other
Charges pursuant to Section 5.1(b)).
---------------
(c) Dissolution. Borrower shall not dissolve, terminate, liquidate,
-----------
merge with or consolidate into another Person.
(d) Change In Business. Borrower shall not enter into any line of
------------------
business other than the ownership and operation of the Properties, or make any
material change in the scope or nature of its business objectives, purposes or
operations, or undertake or participate in activities other than the continuance
of its present business.
(e) Debt Cancellation. Borrower shall not cancel or otherwise forgive
-----------------
or release any claim or debt owed to Borrower by any Person (other than the
termination of Leases in accordance with Section 5.1(r)), unless adequate
--------------
consideration is received and such cancellation or forgiveness occurs in the
ordinary course of Borrower's business or such cancellation or forgiveness is
prudent and commercially reasonable under the circumstances.
(f) Affiliate Transactions. Borrower shall not enter into, or be a
----------------------
party to, any transaction with an Affiliate of Borrower or any of the partners
of Borrower except in the ordinary course of business and on terms which are
fully disclosed to Lender in advance and are no less favorable to Borrower or
such Affiliate than would be obtained in a comparable arm's-length transaction
with an unrelated third party.
(g) Zoning. Borrower shall not initiate or consent to any zoning
------
reclassification of any portion of any of the Properties or seek any variance
under any existing zoning ordinance or use or permit the use of any portion of
any of the Properties in any manner that could result in such use becoming a
non-conforming use under any zoning ordinance or any other applicable land use
law, rule or regulation, without the prior consent of Lender, which consent
shall not be unreasonably withheld or delayed. If under applicable zoning
provisions the use of all or any portion of any of the Properties is or shall
become a nonconforming use, Borrower shall not cause or permit the nonconforming
use to be discontinued or abandoned without the prior written consent of Lender,
which consent shall not be unreasonably withheld or delayed.
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(h) Assets. Borrower shall not purchase or own any real property
------
other than the Properties.
(i) No Joint Assessment. Borrower shall not suffer, permit or
-------------------
initiate the joint assessment of any Individual Property (i) with any other real
property constituting a tax lot separate from such Individual Property, and (ii)
with any portion of such Individual Property which may be deemed to constitute
personal property, or any other procedure whereby the lien of any taxes which
may be levied against such personal property shall be assessed or levied or
charged to such Individual Property.
(j) Principal Place of Business. Borrower shall not change its
---------------------------
principal place of business set forth on the first page of this Agreement
without first giving Lender thirty (30) days prior written notice.
(k) ERISA. (i) Borrower shall not engage in any transaction which
-----
would cause any obligation, or action taken or to be taken, hereunder (or the
exercise by Lender of any of its rights under the Note, this Agreement or the
other Loan Documents) to be a non-exempt (under a statutory or administrative
class exemption) prohibited transaction under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
-----
(ii) Borrower further covenants and agrees to deliver to Lender
such certifications or other evidence from time to time throughout the term of
the Loan, as requested by Lender in its sole discretion, that (A) Borrower is
not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is
subject to Title I of ERISA, or a "governmental plan" within the meaning of
Section 3(3) of ERISA; (B) Borrower is not subject to state statutes regulating
investments and fiduciary obligations with respect to governmental plans; and
(C) one or more of the following circumstances is true:
(1) Equity interests in Borrower are publicly offered securities,
within the meaning of 29 C.F.R. (S)2510.3-101(b)(2);
(2) Less than twenty-five percent (25%) of each outstanding class
of equity interests in Borrower are held by "benefit plan investors"
within the meaning of 29 C.F.R. (S)2510.3-101(f)(2); or
(3) Borrower qualifies as an "operating company" or a "real
estate operating company" within the meaning of 29 C.F.R. (S)2510.3-
101(c) or (e) or an investment company registered under The Investment
Company Act of 1940.
VII. CASUALTY; CONDEMNATION; ESCROWS
-------------------------------
SECTION 7.1 INSURANCE; CASUALTY AND CONDEMNATION.
------------------------------------
7.1.1 INSURANCE.
---------
(a) Borrower shall obtain and maintain, or cause to be maintained,
insurance for Borrower and each of the Properties providing at least the
following coverages:
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(i) comprehensive all risk insurance on the Improvements and the
Personal Property, including contingent liability from Operation of Building
Laws, Demolition Costs and Increased Cost of Construction Endorsements, in each
case (A) in an amount equal to one hundred percent (100%) of the "Full
Replacement Cost," which for purposes of this Agreement shall mean actual
replacement value (exclusive of costs of excavations, foundations, underground
utilities and footings) with a waiver of depreciation, but the amount shall in
no event be less than the outstanding principal balance of the Loan; (B)
containing an agreed amount endorsement with respect to the Improvements and
Personal Property waiving all co-insurance provisions; (C) providing for no
deductible in excess of Ten Thousand and No/100 Dollars ($10,000) for all such
insurance coverage; and (D) containing an "Ordinance or Law Coverage" or
"Enforcement" endorsement if any of the Improvements or the use of the
Individual Property shall at any time constitute legal non-conforming structures
or uses. In addition, Borrower shall obtain (y) flood hazard if any portion of
the Improvements is currently or at any time in the future located in a
federally designated "special flood hazard area", flood hazard insurance in an
amount equal to the lesser of (1) the outstanding principal balance of the Note
or (2) the maximum amount of such insurance available under the National Flood
Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National
Flood Insurance Reform Act of 1994, as each may be amended or such greater
amount as Lender shall require; and (z) earthquake insurance in amounts and in
form and substance reasonably satisfactory to Lender in the event the Individual
Property is located in an area with a high degree of seismic activity, provided
that the insurance pursuant to clauses (y) and (z) hereof shall be on terms
consistent with the comprehensive all risk insurance policy required under this
subsection (i) except that the deductible on such flood hazard insurance with
respect to the Properties and such earthquake insurance with respect to the
Properties other than the Individual Property known as Pacific Gateway Center
shall not be in excess of Twenty-Five Thousand and No/100 Dollars ($25,000) and
such earthquake insurance shall not be in excess of five percent (5%) of the
replacement value of the Individual Property known as Pacific Gateway Center at
the time of loss;
(ii) commercial general liability insurance against claims for
personal injury, bodily injury, death or property damage occurring upon, in or
about the Individual Property, such insurance (A) to be on the so-called
"occurrence" form with a combined limit, including umbrella coverage, of not
less than Three Million and No/100 Dollars ($3,000,000) or, if any of the
Improvements contain elevators, Five Million and No/100 Dollars ($5,000,000);
(B) to continue at not less than the aforesaid limit until required to be
changed by Lender in writing by reason of changed economic conditions making
such protection inadequate; and (C) to cover at least the following hazards:
(1) premises and operations; (2) products and completed operations on an "if
any" basis; (3) independent contractors; and (4) blanket contractual liability
for all legal contracts;
(iii) business income insurance (A) with loss payable to Lender;
(B) covering all risks required to be covered by the insurance provided for in
subsection (i) above; (C) containing an extended period of indemnity endorsement
which provides that after the physical loss to the Improvements and Personal
Property has been repaired, the continued loss of income will be insured until
such income either returns to the same level it was at prior to the loss, or the
expiration of twelve (12) months from the date that the Property is repaired or
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replaced and operations are resumed, whichever first occurs, and notwithstanding
that the policy may expire prior to the end of such period; and (D) in an amount
equal to one hundred percent (100%) of the projected gross income from the
Individual Property for a period of twelve (12) months from the date that the
Individual Property is repaired or replaced and operations are resumed. The
amount of such business income insurance shall be determined prior to the date
hereof and at least once each year thereafter based on Borrower's reasonable
estimate of the gross income from the Property for the succeeding twenty-four
(24) month period. All proceeds payable to Lender pursuant to this subsection
shall be held by Lender and shall be applied to the obligations secured by the
Loan Documents from time to time due and payable hereunder and under the Note;
provided, however, that nothing herein contained shall be deemed to relieve
Borrower of its obligations to pay the obligations secured by the Loan Documents
on the respective dates of payment provided for in the Note and the other Loan
Documents except to the extent such amounts are actually paid out of the
proceeds of such business income insurance;
(iv) at all times during which structural construction, repairs
or alterations are being made with respect to the Improvements, and only if the
Individual Property coverage form does not otherwise apply, (A) owner's
contingent or protective liability insurance covering claims not covered by or
under the terms or provisions of the above mentioned commercial general
liability insurance policy; and (B) the insurance provided for in subsection (i)
above written in a so-called builder's risk completed value form (1) on a non-
reporting basis, (2) against all risks insured against pursuant to subsection
(i) above, (3) including permission to occupy the Individual Property, and (4)
with an agreed amount endorsement waiving co-insurance provisions;
(v) workers' compensation, subject to the statutory limits of the
state in which the Individual Property is located, and employer's liability
insurance with a limit of at least One Million and No/100 Dollars ($1,000,000)
per accident and per disease per employee, and One Million and No/100 Dollars
($1,000,000) for disease aggregate in respect of any work or operations on or
about the Individual Property, or in connection with the Individual Property or
its operation (if applicable);
(vi) comprehensive boiler and machinery insurance, if applicable,
in amounts as shall be reasonably required by Lender on terms consistent with
the commercial property insurance policy required under subsection (i) above;
(vii) umbrella liability insurance in an amount not less than Ten
Million and No/100 Dollars ($10,000,000) per occurrence on terms consistent with
the commercial general liability insurance policy required under subsection (ii)
above;
(viii) motor vehicle liability coverage for all owned and non-
owned vehicles, including rented and leased vehicles containing minimum limits
per occurrence, including umbrella coverage, of Five Million and No/100 Dollars
($5,000,000); and
(ix) upon sixty (60) days' written notice, such other reasonable
insurance and in such reasonable amounts as Lender from time to time may
reasonably request against such other insurable hazards which at the time are
commonly insured against for
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<PAGE>
property similar to the Individual Property located in or around the region in
which the Individual Property is located.
(b) All insurance provided for in Section 7.1.1(a) shall be obtained
----------------
under valid and enforceable policies (collectively, the "POLICIES" or in the
--------
singular, the "POLICY"), and any proposed change in such insurance coverage
------
shall be subject to the reasonable approval of Lender as to the compliance of
any such change with the requirements of Section 7.1.1(a). The Policies shall
----------------
be issued by financially sound and responsible insurance companies authorized to
do business in the state in which the Property is located and having a claims
paying ability rating of "AA" (or its equivalent) or better by at least two (2)
of the Rating Agencies one of which shall be Standard & Poor's Ratings Group if
Standard & Poor's Ratings Group is one of the Rating Agencies issuing a rating
in connection with the Securitization Transaction. The Policies described in
Section 7.1.1(a)(i), (iii), (iv)(B) and (vi) shall designate Lender as loss
- --------------------------------------------
payee. As soon as reasonably practicable and in no event less than five (5)
days prior to the expiration dates of the Policies theretofore furnished to
Lender, evidence that the Policies have been renewed and, no later than five (5)
days prior to the date due, evidence satisfactory to Lender of payment of the
premiums due thereunder (the "INSURANCE PREMIUMS"), shall be delivered by
------------------
Borrower to Lender; provided, however, that Borrower's obligation to directly
pay Insurance Premiums shall be suspended for so long as Borrower complies with
the terms and provisions of Section 7.3.
-----------
(c) Any blanket insurance Policy shall specifically allocate to the
Individual Property the amount of coverage from time to time required hereunder
and shall otherwise provide the same protection as would a separate Policy
insuring only the Property in compliance with the provisions of Section
-------
7.1.1(a).
- --------
(d) All Policies of insurance provided for or contemplated by Section
-------
7.1.1(a), except for the Policy referenced in Section 7.1.1(a)(v), shall name
- -------- -------------------
Borrower as the insured and Lender as the additional insured, as its interests
may appear, and in the case of property damage, boiler and machinery, flood and
earthquake insurance, shall contain a so-called New York standard non-
contributing mortgagee clause in favor of Lender providing that the loss
thereunder shall be payable to Lender.
(e) All Policies of insurance provided for in Section 7.1.1(a)(v)
-------------------
shall contain clauses or endorsements to the effect that:
(i) no act or negligence of Borrower, or anyone acting for
Borrower, or of any tenant under any Lease or other occupant, or failure to
comply with the provisions of any Policy, other than the failure to pay the
related Insurance Premium, which might otherwise result in a forfeiture of the
insurance or any part thereof, shall in any way affect the validity or
enforceability of the insurance insofar as Lender is concerned;
(ii) the Policy shall not be materially changed (other than to
increase the coverage provided thereby) or canceled without at least thirty (30)
days' written notice to Lender and any other party named therein as an
additional insured; and
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(iii) each Policy shall provide that the issuers thereof shall
give written notice to Lender if the Policy has not been renewed fifteen (15)
days prior to its expiration; and
(iv) Lender shall not be liable for any Insurance Premiums
thereon or subject to any assessments thereunder.
(f) If at any time Lender is not in receipt of written evidence that
all insurance required hereunder is in full force and effect, Lender shall have
the right, without notice to Borrower, to take such action as Lender deems
necessary to protect its interest in the Property, including, without
limitation, the obtaining of such insurance coverage as Lender in its reasonable
discretion deems necessary to satisfy the requirements of Section 7.1.1(a), and
----------------
all premiums incurred by Lender in connection with such action or in obtaining
such insurance and keeping it in effect shall be paid by Borrower to Lender upon
demand and until paid shall be secured by the Mortgages and shall bear interest
at the Default Rate.
(g) If the Individual Property shall be damaged or destroyed, in whole
or in part, by fire or other casualty, Borrower shall give prompt notice of such
damage to Lender and shall promptly commence and diligently prosecute the
completion of the repair and restoration of the Individual Property as nearly as
possible to the condition the Individual Property was in immediately prior to
such fire or other casualty, with such alterations as may be reasonably approved
by Lender (a "RESTORATION") and otherwise in accordance with Section 7.1.3.
----------- -------------
Borrower shall pay all costs of such Restoration whether or not such costs are
covered by insurance. Lender may, but shall not be obligated to make proof of
loss if not made promptly by Borrower;
(h) In the event of foreclosure of the Mortgage with respect to the
Individual Property, or other transfer of title to the Individual Property in
extinguishment in whole or in part of the Debt all right, title and interest of
Borrower in and to the Policies that are not blanket Policies then in force
concerning the Individual Property and all proceeds payable thereunder shall
thereupon vest in the purchaser at such foreclosure or Lender or other
transferee in the event of such other transfer of title.
SECTION 7.1.2 CONDEMNATION. Borrower shall promptly give Lender
------------
notice of the actual or threatened commencement of any condemnation or eminent
domain proceeding affecting any of the Properties and shall deliver to Lender
copies of any and all papers served in connection with such proceedings. Lender
may participate in any such proceedings, and Borrower shall from time to time
deliver to Lender all instruments requested by it to permit such participation.
Borrower shall, at its expense, diligently prosecute any such proceedings, and
shall consult with Lender, its attorneys and experts, and cooperate with them in
the carrying on or defense of any such proceedings. Notwithstanding any taking
by any public or quasi-public authority through eminent domain or otherwise
(including but not limited to any transfer made in lieu of or in anticipation of
the exercise of such taking), Borrower shall continue to pay the Debt at the
time and in the manner provided for its payment in the Note and in this
Agreement and the Debt shall not be reduced until any award or payment therefor
(an "AWARD") shall have been actually received and applied by Lender, after the
-----
deduction of
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expenses of collection, to the reduction or discharge of the Debt. Lender shall
not be limited to the interest paid on the Award by the condemning authority but
shall be entitled to receive out of the award interest at the rate or rates
provided herein or in the Note. If the Property or any portion thereof is taken
by a condemning authority, Borrower shall promptly commence and diligently
prosecute the Restoration of the Property and otherwise comply with the
provisions of Section 7.1.3. If the Property is sold, through foreclosure
-------------
or otherwise, prior to the receipt by Lender of the Award, Lender shall have the
right, whether or not a deficiency judgment on the Note shall have been sought,
recovered or denied, to receive the Award, or a portion thereof sufficient to
pay the Debt.
SECTION 7.1.3 RESTORATION. The following provisions shall apply in
-----------
connection with the Restoration of any Individual Property:
(a) If the Net Proceeds shall be less than Five Hundred Thousand and
No/100 Dollars ($500,000) and the costs of completing the Restoration shall be
less than Five Hundred Thousand and No/100 Dollars ($500,000), the Net Proceeds
will be disbursed by Lender to Borrower upon receipt, provided that all of the
conditions set forth in Section 7.1.3(b)(i) are met and Borrower delivers to
-------------------
Lender a written undertaking to expeditiously commence and to satisfactorily
complete with due diligence the Restoration in accordance with the terms of this
Agreement.
(b) If the Net Proceeds are equal to or greater than Five Hundred
Thousand and No/100 Dollars ($500,000) or the costs of completing the
Restoration is equal to or greater than Five Hundred Thousand and No/100 Dollars
($500,000) Lender shall make the Net Proceeds available for the Restoration in
accordance with the provisions of this Section 7.1.3. The term "NET PROCEEDS"
------------- ------------
for purposes of this Section 7.1.3 shall mean: (i) the net amount of all
-------------
insurance proceeds received by Lender pursuant to Section 7.1.1 (a)(i), (iv),
-------------------- ----
(vi) and (vii) as a result of such damage or destruction, after deduction of its
- ---- -----
reasonable costs and expenses (including, but not limited to, reasonable counsel
fees), if any, in collecting same ("INSURANCE PROCEEDS"), or (ii) the net amount
------------------
of the Award, after deduction of its reasonable costs and expenses (including,
but not limited to, reasonable counsel fees), if any, in collecting same
("CONDEMNATION PROCEEDS"), whichever the case may be.
---------------------
(i) The Net Proceeds shall be made available to Borrower for
Restoration provided that each of the following conditions are met:
(A) no Event of Default shall have occurred and be
continuing;
(B) (1) in the event the Net Proceeds are Insurance
Proceeds, less than fifty percent (50%) of the total floor area
of the Improvements on the Individual Property has been damaged,
destroyed or rendered unusable as a result of such fire or other
casualty or (2) in the event the Net Proceeds are Condemnation
Proceeds, less than ten percent (10%) of the land constituting
the Individual Property is taken, and such land is
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located along the perimeter or periphery of the Individual
Property, and no portion of the Improvements is located in such
land;
(C) Leases demising in the aggregate a percentage amount
equal to or greater than the Rentable Space Percentage of the
total rentable space in the Individual Property which has been
demised under executed and delivered Leases in effect as of the
date of the occurrence of such fire or other casualty or taking,
whichever the case may be, shall remain in full force and effect
during and after the completion of the Restoration,
notwithstanding the occurrence of any such fire or other casualty
or taking, whichever the case may be. The term "RENTABLE SPACE
--------------
PERCENTAGE" shall mean (1) in the event the Net Proceeds are
----------
Insurance Proceeds, a percentage amount equal to twenty-five
percent (25%) and (2) in the event the Net Proceeds are
Condemnation Proceeds, a percentage amount equal to ten percent
(10%);
(D) Borrower shall commence the Restoration as soon as
reasonably practicable (but in no event later than sixty (60)
days after the later of (1) the date such damage or destruction
or taking, whichever the case may be, occurs or (2) if any
related Insurance Proceeds or Condemnation Proceeds, as the case
may be, are to be paid to Lender in accordance with this Article
VII, the date on which Lender makes any such Insurance Proceeds
or Condemnation Proceeds received by Lender available to Borrower
pursuant to this Section 7.1.1) and shall diligently pursue the
-------------
same to satisfactory completion;
(E) Lender shall be reasonably satisfied that any operating
deficits, including all scheduled payments of principal and
interest under the Note, which will be incurred with respect to
the Individual Property as a result of the occurrence of any such
fire or other casualty or taking, whichever the case may be, will
be covered out of (1) the Net Proceeds, (2) the insurance
coverage referred to in Section 7.1.1(a)(iii), if applicable, or
---------------------
(3) by other funds of Borrower;
(F) Lender shall be satisfied that the Restoration will be
completed on or before the earliest to occur of (1) the Maturity
Date, (2) the earliest date required for such completion under
the terms of any Leases which are required in accordance with the
provisions of this Section 7.1.3(b) to remain in effect
----------------
subsequent to the occurrence of such fire or other casualty or
taking, whichever the case may be, and the completion of the
Restoration, (3) such time as may be required under applicable
zoning law, ordinance, rule or regulation in order to repair and
restore the Property to the condition it was in immediately prior
to such fire or other casualty or to as nearly as possible the
condition it was in immediately prior to such taking, as
applicable or (4) the expiration of the insurance coverage
referred to in Section 7.1.1(a)(iii);
---------------------
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(G) the Individual Property and the use thereof after the
Restoration will be, in all material respects, in compliance with
and permitted under all applicable zoning laws, ordinances, rules
and regulations;
(H) the Restoration shall be done and completed by Borrower
in an expeditious and diligent fashion and in material compliance
with all applicable governmental laws, rules and regulations
(including, without limitation, all applicable environmental
laws); and
(I) such fire or other casualty or taking, as applicable,
does not result in the loss of reasonably adequate access to the
Individual Property or the related Improvements.
(ii) The Net Proceeds shall be held by Lender in an interest-
bearing account and, until disbursed in accordance with the provisions
of this Section 7.1.3(b), shall constitute additional security for the
----------------
Debt and other obligations under the Loan Documents. The Net Proceeds
shall be disbursed by Lender to, or as directed by, Borrower from time
to time during the course of the Restoration, upon receipt of evidence
reasonably satisfactory to Lender that (A) all materials installed and
work and labor performed (except to the extent that they are to be
paid for out of the requested disbursement) in connection with the
Restoration have been paid for in full, and (B) there exist no notices
of pendency, stop orders, mechanic's or materialman's liens or notices
of intention to file same, or any other liens or encumbrances of any
nature whatsoever on the Individual Property arising out of the
Restoration which have not either been fully bonded to the reasonable
satisfaction of Lender and discharged of record or in the alternative
fully insured to the satisfaction of Lender by the title company
issuing the Title Insurance Policy.
(iii) All plans and specifications required in connection with
the Restoration shall be subject to prior review and acceptance in all
respects by Lender and by an independent consulting engineer selected
by Lender (the "CASUALTY CONSULTANT") and such acceptance shall not be
-------------------
unreasonable withheld. Lender shall have the use of the plans and
specifications and all permits, licenses and approvals required or
obtained in connection with the Restoration. The identity of the
contractors, subcontractors and materialmen engaged in the
Restoration, as well as the contracts under which they have been
engaged, shall be subject to prior review and acceptance by Lender and
the Casualty Consultant and such acceptance shall not be unreasonably
withheld. All reasonable costs and expenses incurred by Lender in
connection with making the Net Proceeds available for the Restoration
including, without limitation, reasonable counsel fees and
disbursements and the Casualty Consultant's fees, shall be paid by
Borrower.
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<PAGE>
(iv) In no event shall Lender be obligated to make disbursements
of the Net Proceeds in excess of an amount equal to the costs actually
incurred from time to time for work in place as part of the
Restoration, as certified by the Casualty Consultant, minus the
-----
Casualty Retainage. The term "CASUALTY RETAINAGE" shall mean an
------------------
amount equal to ten percent (10%) of the costs actually incurred for
work in place as part of the Restoration, as certified by the Casualty
Consultant, until the Restoration has been completed. The Casualty
Retainage shall in no event, and notwithstanding anything to the
contrary set forth above in this Section 7.1.3(b), be less than the
----------------
amount actually held back by Borrower from contractors, subcontractors
and materialmen engaged in the Restoration. The Casualty Retainage
shall not be released until the Casualty Consultant certifies to
Lender that the Restoration has been completed in accordance with the
provisions of this Section 7.1.3(b) and that all approvals necessary
----------------
for the re-occupancy and use of the Individual Property have been
obtained from all appropriate governmental and quasi-governmental
authorities, and Lender receives evidence satisfactory to Lender that
the costs of the Restoration have been paid in full or will be paid in
full out of the Casualty Retainage; provided, however, that Lender
will release the portion of the Casualty Retainage being held with
respect to any contractor, subcontractor or materialman engaged in the
Restoration as of the date upon which the Casualty Consultant
certifies to Lender that the contractor, subcontractor or materialman
has satisfactorily completed all work and has supplied all materials
in accordance with the provisions of the contractor's, subcontractor's
or materialman's contract, the contractor, subcontractor or
materialman delivers the lien waivers and evidence of payment in full
of all sums due to the contractor, subcontractor or materialman as may
be reasonably requested by Lender or by the title company issuing the
Title Insurance Policy, and Lender receives an endorsement to the
Title Insurance Policy insuring the continued priority of the lien of
the related Mortgage and evidence of payment of any premium payable
for such endorsement. If required by Lender, the release of any such
portion of the Casualty Retainage shall be approved by the surety
company, if any, which has issued a payment or performance bond with
respect to the contractor, subcontractor or materialman.
(v) Lender shall not be obligated to make disbursements of the
Net Proceeds more frequently than once every calendar month.
(vi) If at any time the Net Proceeds or the undisbursed balance
thereof shall not, in the reasonable opinion of Lender in consultation
with the Casualty Consultant, be sufficient to pay in full the balance
of the costs which are estimated by the Casualty Consultant to be
incurred in connection with the completion of the Restoration,
Borrower shall deposit the deficiency (the "NET PROCEEDS DEFICIENCY")
-----------------------
with Lender before any further disbursement of the Net Proceeds shall
be made. The Net Proceeds Deficiency deposited with Lender shall be
held by Lender and shall be disbursed for costs actually incurred in
connection with the Restoration on the same conditions applicable to
the
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<PAGE>
disbursement of the Net Proceeds, and until so disbursed pursuant
to this Section 7.1.3(b) shall constitute additional security for the
----------------
Debt and other obligations under the Loan Documents.
(vii) The excess, if any, of the Net Proceeds and the remaining
balance, if any, of the Net Proceeds Deficiency deposited with Lender
after the Casualty Consultant certifies to Lender that the Restoration
has been completed in accordance with the provisions of this Section
-------
7.1.3(b), and the receipt by Lender of evidence satisfactory to Lender
--------
that all costs incurred in connection with the Restoration have been
paid in full, shall be remitted by Lender to Borrower, provided no
Event of Default shall have occurred and shall be continuing under the
Note, this Security Instrument or any of the Other Security Documents.
(c) All Net Proceeds not required (i) to be made available for the
Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant
to Section 7.1.3(b)(vii) may be retained and applied by Lender toward the
---------------------
payment of the Debt, without the payment of any premium or penalty in connection
with the prepayment of any portion of the principal balance of the Loan, or, at
the discretion of Lender, the same may be paid, either in whole or in part, to
Borrower for such purposes as Lender shall designate, in its discretion. All
Net Proceeds retained and applied by Lender to the Debt shall be applied (A)
first, to the payment of all interest then due and owing under the Loan, (B)
second, to the payment of all other amounts then due and owing under the Loan
and the Loan Documents and (C) third, to the outstanding principal amount of the
Loan and the reduction of the Pro rata Release Amount with respect to the
Individual Property affected by the related casualty or condemnation; provided,
however, that the application of Net Proceeds set forth in clause (C) shall not
reduce the outstanding principal balance of the Loan for purposes of calculating
the Pro rata Release Amount of any Individual Property other than the Individual
Property affected by the related casualty or condemnation. If the Net Proceeds
applied as set forth in clause (C) above exceed the Pro rata Release Amount of
the Individual Property affected by the related casualty or condemnation, the
Pro rata Release Amount of each Individual Property other than the affected
Individual Property shall be reduced by the product of (1) such excess Net
Proceeds multiplied by (2) the quotient of the Pro rata Release Amount of such
other Individual Property divided by the total Pro rata Release Amounts of all
of the Properties other than the affected Individual Property.
SECTION 7.2 INTENTIONALLY OMITTED.
---------------------
SECTION 7.3 TAX AND INSURANCE ESCROW FUND.
-----------------------------
7.3.1 TAX AND INSURANCE ESCROW FUND. Borrower shall pay to Lender on
-----------------------------
the tenth day of each calendar month (i) one-twelfth of the Taxes that Lender
estimates will be payable during the next ensuing twelve (12) months in order to
accumulate with Lender sufficient funds to pay all such Taxes at least ten (10)
days prior to their respective due dates, and (ii) one-twelfth of the Insurance
Premiums that Lender estimates will be payable for the renewal of the coverage
afforded by the Policies with respect to all of the Properties upon the
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expiration thereof in order to accumulate with Lender sufficient funds to pay
all such Insurance Premiums at least thirty (30) days prior to the expiration of
the Policies (said amounts in (i) and (ii) above hereinafter called the "TAX AND
-------
INSURANCE ESCROW FUND"). The Tax and Insurance Escrow Fund and the payments of
- ---------------------
interest or principal or both, payable pursuant to the Note, shall be added
together and shall be paid as an aggregate sum by Borrower to Lender. Lender
will maintain the Tax and Escrow Fund in a segregated account and shall be
invested and reinvested by Lender, at Borrower's direction, in one or more
Eligible Investments, subject to the following restrictions: (A) such Eligible
Investments and the proceeds thereof shall be deemed a part of the Tax and
Insurance Escrow Fund; (B) each such Eligible Investment shall be made in the
name of Lender (in its capacity as such) or in the name of a nominee of Lender
under its complete and exclusive dominion and control or, if applicable law
provides for perfection of pledges of an instrument not evidenced by a
certificate or other instrument through registration of such pledge on books
maintained by or on behalf of the issuer of such investment, such pledge may be
so registered; (C) Lender shall have the sole control over such investment, the
income thereon and the proceeds thereof; (D) other than investments described in
clause (B) above, any certificate or other instrument evidencing such investment
shall be delivered directly to Lender or its agent; and (E) the proceeds of each
investment shall be remitted by the purchaser thereof directly to Lender.
Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and
Insurance Premiums required to be made by Borrower pursuant to Section 5.1
-----------
hereof and under the Mortgages. In making any payment relating to the Tax and
Insurance Escrow Fund, Lender may do so according to any bill, statement or
estimate procured from the appropriate public office (with respect to Taxes) or
insurer or agent (with respect to Insurance Premiums), without inquiry into the
accuracy of such bill, statement or estimate or into the validity of any tax,
assessment, sale, forfeiture, tax lien or title or claim thereof, unless
Borrower has notified Lender of Borrower's intention to contest any such Tax in
accordance with Section 5.1(b) hereof and promptly proceeds with such contest.
--------------
If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due
for Taxes and Insurance Premiums pursuant to Section 5.1 hereof, Lender shall,
-----------
in its sole discretion, return any excess to Borrower or credit such excess
against future payments to be made to the Tax and Insurance Escrow Fund. Any
amount remaining in the Tax and Insurance Escrow Fund after the Debt has been
paid in full shall be returned to Borrower. In allocating such excess, Lender
may deal with the Person shown on the records of Lender to be the owner of the
Properties. If at any time Lender reasonably determines that the Tax and
Insurance Escrow Fund is not or will not be sufficient to pay the items set
forth in clauses (i) and (ii) above, Lender shall notify Borrower of such
determination and Borrower shall increase its monthly payments to Lender by the
amount that Lender estimates is sufficient to make up the deficiency at least
ten (10) days prior to delinquency of the Taxes and/or thirty (30) days prior to
expiration of the Policies, as the case may be.
7.3.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges, assigns
--------------------------
and grants a security interest to Lender, as security for payment of all sums
due under the Loan and the performance of all other terms, conditions and
provisions of the Loan Documents and this Agreement on Borrower's part to be
paid and performed, of all Borrower's right, title and interest in and to the
Tax and Insurance Escrow Fund. Borrower shall not, without obtaining the prior
written consent of Lender, further pledge, assign or grant any security interest
in the
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<PAGE>
Tax and Insurance Escrow Fund or permit any lien or encumbrance to attach
thereto, or any levy to be made thereon, or any UCC-1 Financing Statements,
except those naming Lender as the secured party, to be filed with respect
thereto.
7.3.3 APPLICATION OF TAX AND INSURANCE ESCROW FUND. Until expended
--------------------------------------------
or applied as above provided, any amounts in the Tax and Insurance Escrow Fund
shall constitute additional security for the Debt. Upon the occurrence of an
Event of Default, Lender may apply any sums then present in the Tax and
Insurance Escrow Fund to the payment of the following items in any order in its
sole discretion: (i) Taxes and Other Charges; (ii) insurance premiums; (iii)
interest on the unpaid principal balance of the Note; (iv) amortization of the
unpaid principal balance of the Note; or (v) all other sums payable pursuant to
this Agreement and the other Loan Documents.
SECTION 7.4 INTENTIONALLY OMITTED.
---------------------
SECTION 7.5 GROUND LEASE ESCROW FUND.
------------------------
Borrower shall pay to Lender, together with the scheduled payment of
principal and interest under the Loan each month, an amount that is estimated by
Lender to be due and payable by Borrower under the Ground Lease for all rent and
any and all other charges which may be due by Borrower under the Ground Lease in
order to accumulate with Lender sufficient funds to pay all sums payable under
the Ground Lease at least ten (10) Business Days prior to the dates due (said
amounts, hereinafter called the "GROUND LEASE ESCROW FUND"). The Ground Lease
------------------------
Escrow Fund is for the purpose of paying all sums due under the Ground Lease.
Upon Borrower's failure to pay any rent or other charges due under the Ground
Lease after the receipt of any notice and the expiration of any cure period
available to Borrower pursuant to the Ground Lease, Lender may, in its
discretion, apply any amounts held in the Ground Lease Escrow Fund to the
payment of such rent or other charges; provided however, that the provisions of
this Section 7.5 shall not be deemed to create any obligation on the part of
-----------
Lender to pay any such rent or other charges from amounts on deposit in the
Ground Lease Escrow Fund. Borrower hereby pledges, assigns and grants a
security interest to Lender, as security for payment of all sums due under the
Loan and the performance of all other terms, conditions and provisions to be
paid and performed, of all Borrower's right, title and interest in and to the
Ground Lease Escrow Fund. Borrower shall not, without obtaining the prior
written consent of Lender, further pledge, assign or grant any security interest
in the Ground Lease Escrow Fund or permit any lien or encumbrance to attach
thereto, or any levy to be made thereon, or any UCC-1 Financing Statements,
except those naming Lender as the secured party, to be filed with respect
thereto. Upon the occurrence of an Event of Default, Lender may apply any sums
then present in the Ground Lease Escrow Fund to the payment of the Debt in any
order in its sole discretion. Until expended or applied as above provided, the
Ground Lease Escrow Fund shall constitute additional security for the Debt.
Notwithstanding the foregoing, the Borrower shall not be required to make
monthly deposits to the Ground Lease Escrow Fund so long as on the Closing Date
and for the remainder of the Term, the Borrower has deposited and maintains in
the Ground Lease Escrow Fund sufficient amounts for the payment of three (3)
months of rent and any and all other charges under the Ground Lease. Such
initial deposit may be increased by Lender in the amount Lender deems is
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<PAGE>
necessary in its reasonable discretion based on any increases in the rent due
under the Ground Lease.
VIII. DEFAULTS
--------
SECTION 8.1 EVENT OF DEFAULT.
----------------
(a) Each of the following events shall constitute an event of default
hereunder (an "EVENT OF DEFAULT"):
----------------
(i) if any payment of principal or interest under the Loan is not
paid when due or if any other amount payable under the Loan, this Agreement or
the other Loan Documents is not paid within (5) days after written notice to
Borrower from Lender;
(ii) if any of the Taxes or Other Charges are not paid prior to
the same becoming delinquent or the imposition of any penalty with respect to
the payment of such Taxes or Other Charges, subject to Borrower's right to
contest Taxes or Other Charges in accordance with the terms and provisions of
Section 5.1(b);
- --------------
(iii) if the Policies are not kept in full force and effect;
(iv) except as permitted in the Mortgages, if Borrower transfers
or encumbers any portion of the Properties without Lender's prior written
consent;
(v) if any representation or warranty made by Borrower or any
general partner of Borrower herein or in any other Loan Document, or in any
report, certificate, financial statement or other instrument, agreement or
document furnished by Borrower to Lender shall have been false or misleading in
any material respect as of the date the representation or warranty was made;
provided, however, that in the case of any such representation or warranty that
is susceptible of cure, if such representation or warranty shall remain uncured
for thirty (30) days after written notice to Borrower from Lender or, in the
case of any such representation or warranty that is susceptible of cure but
cannot reasonably be cured within such 30-day period and Borrower shall have
commenced to cure such representation or warranty within such 30-day period and
thereafter diligently and expeditiously proceeds to cure the same, such 30-day
period shall be extended for such time as is reasonably necessary for Borrower
in the exercise of due diligence to cure such representation or warranty, such
additional period not to exceed one hundred eighty (180) days;
(vi) if Borrower shall make an assignment for the benefit of
creditors;
(vii) if a receiver, liquidator or trustee shall be appointed for
Borrower or any general partner of Borrower or if Borrower or any general
partner of Borrower shall be adjudicated a bankrupt or insolvent, or if any
petition for bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by or
against, consented to, or acquiesced in by, Borrower or any general partner of
Borrower, or if any proceeding for the dissolution or liquidation of
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<PAGE>
Borrower or any general partner of Borrower shall be instituted; provided,
however, if such appointment, adjudication, petition or proceeding was
involuntary and not consented to by Borrower or any general partner of Borrower,
upon the same not being discharged, stayed or dismissed within one hundred
twenty (120) days;
(viii) if Borrower attempts to assign its rights under this
Agreement or any of the other Loan Documents or any interest herein or therein
in contravention of the Loan Documents;
(ix) if Borrower breaches any of its respective negative covenants
contained in Section 6.1(c), (e), (h) or (k) or any other negative covenant
-------------------------------
contained in Section 6.1 that is not susceptible of cure or any covenant
-----------
contained in Section 4.1(ee) hereof;
---------------
(x) with respect to any term, covenant or provision set forth
herein which specifically contains a notice requirement or grace period, if
Borrower shall be in default under such term, covenant or condition after the
giving of such notice or the expiration of such grace period;
(xi) if any of the assumptions contained in the Insolvency Opinion
delivered to Lender in connection with the Loan, or in any other "non-
consolidation" opinion delivered subsequent to the closing of the Loan, is or
shall become untrue in any material respect;
(xii) if Borrower shall fail to comply with the terms and
provisions of (a) that certain letter agreement dated the date hereof between
Borrower and Lender with respect to the Initial Advance post closing-obligations
or (b) the certain letter agreement between Borrower and Lender regarding post-
closing obligations with respect to the Subsequent Advance;
(xiii) if a default on the part of Borrower shall have occurred
under the Ground Lease and continued beyond any applicable notice and grace
period;
(xiv) if Borrower shall continue to be in Default under any of the
other terms, covenants or conditions of this Agreement not specified in
subsections (i) to (xiii) above, for ten (10) days after notice to Borrower from
Lender, in the case of any Default which can be cured by the payment of a sum of
money, or for thirty (30) days after written notice from Lender in the case of
any other Default; provided, however, that if such non-monetary Default is
susceptible of cure but cannot reasonably be cured within such 30-day period and
provided further that Borrower shall have commenced to cure such Default within
such 30-day period and thereafter diligently and expeditiously proceeds to cure
the same, such 30-day period shall be extended for such time as is reasonably
necessary for Borrower in the exercise of due diligence to cure such Default,
such additional period not to exceed one hundred eighty days (180); or
(xv) if there shall be default under any of the other Loan
Documents beyond any applicable cure periods contained in such documents,
whether as to Borrower or any of the Properties, or if any other such event
shall occur or condition shall exist, if the
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<PAGE>
effect of such event or condition is to accelerate the maturity of any portion
of the Debt or to permit Lender to accelerate the maturity of all or any portion
of the Debt.
(b) Upon the occurrence of an Event of Default (other than an Event of
Default described in clauses (vi), (vii) or (viii) above) and at any time
thereafter Lender may, in addition to any other rights or remedies available to
it pursuant to this Agreement and the other Loan Documents or at law or in
equity, take such action, without notice or demand, that Lender deems advisable
to protect and enforce its rights against Borrower and in and to all or any of
the Properties, including, without limitation, declaring the Debt to be
immediately due and payable, and Lender may enforce or avail itself of any or
all rights or remedies provided in the Loan Documents against Borrower and any
or all of the Properties, including, without limitation, all rights or remedies
available at law or in equity; and upon any Event of Default described in
clauses (vi), (vii) or (viii) above, the Debt and all other obligations of
Borrower hereunder and under the other Loan Documents shall immediately and
automatically become due and payable, without notice or demand, and Borrower
hereby expressly waives any such notice or demand, anything contained herein or
in any other Loan Document to the contrary notwithstanding.
(c) The parties hereto acknowledge that a Default or an Event of
Default arising solely from a Non-Curable Property Default shall no longer exist
upon the release of the Individual Property affected by such Non-Curable
Property Default from the Lien of the Mortgage thereon (and related Loan
Documents) pursuant to Section 2.4.2 or Section 2.7.
------------- -----------
SECTION 8.2 REMEDIES.
--------
(a) Upon the occurrence and during the continuance of an Event of
Default, all or any one or more of the rights, powers, privileges and other
remedies available to Lender against Borrower under this Agreement or any of the
other Loan Documents executed and delivered by, or applicable to, Borrower or at
law or in equity may be exercised by Lender at any time and from time to time,
whether or not all or any of the Debt shall be declared due and payable, and
whether or not Lender shall have commenced any foreclosure proceeding or other
action for the enforcement of its rights and remedies under any of the Loan
Documents with respect to all or any of the Properties. Any such actions taken
by Lender shall be cumulative and concurrent and may be pursued independently,
singly, successively, together or otherwise, at such time and in such order as
Lender may determine in its sole discretion, to the fullest extent permitted by
law, without impairing or otherwise affecting the other rights and remedies of
Lender permitted by law, equity or contract or as set forth herein or in the
other Loan Documents. Without limiting the generality of the foregoing,
Borrower agrees that if an Event of Default is continuing (i) Lender is not
subject to any "one action" or "election of remedies" law or rule, (ii) all
liens and other rights, remedies or privileges provided to Lender shall remain
in full force and effect until Lender has exhausted all of its remedies against
the Properties and each Mortgage has been foreclosed, sold and/or otherwise
realized upon in satisfaction of the Debt or the Debt has been paid in full, and
(iii) to the extent permitted by applicable law, Borrower hereby waives any and
all rights it may have by statute to assert that Lender is not entitled to any
additional recovery from the Properties because
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<PAGE>
Lender has not claimed a deficiency within the time prescribed by such statute
or otherwise failed to meet the procedural requirement for claiming a deficiency
judgment.
(b) With respect to Borrower and the Properties, nothing contained
herein or in any other Loan Document shall be construed as requiring Lender to
resort to any Individual Property for the satisfaction of any of the Debt in
preference or priority to any other Individual Property, and Lender may seek
satisfaction out of all of the Properties or any part thereof, in its absolute
discretion in respect of the Debt. In addition, Lender shall have the right
from time to time to partially foreclose the Mortgages in any manner and for any
amounts secured by the Mortgages then due and payable as determined by Lender in
its sole discretion including, without limitation, the following circumstances:
(i) in the event Borrower defaults beyond any applicable grace period in the
payment of one or more scheduled payments of principal and interest, Lender may
foreclose one or more of the Mortgages to recover such delinquent payments, or
(ii) in the event Lender elects to accelerate less than the entire outstanding
principal balance of the Loan, Lender may foreclose one or more of the Mortgages
to recover so much of the principal balance of the Loan as Lender may accelerate
and such other sums secured by one or more of the Mortgages as Lender may elect.
Notwithstanding one or more partial foreclosures, the Properties shall remain
subject to the Mortgages to secure payment of sums secured by the Mortgages and
not previously recovered.
(c) Lender shall have the right from time to time to sever the Note
and the other Loan Documents into one or more separate notes, mortgages and
other security documents (the "SEVERED LOAN DOCUMENTS") in such denominations as
----------------------
Lender shall determine in its sole discretion for purposes of evidencing and
enforcing its rights and remedies provided hereunder. Borrower shall execute
and deliver to Lender from time to time, promptly after the request of Lender, a
severance agreement and such other documents as Lender shall request in order to
effect the severance described in the preceding sentence, all in form and
substance reasonably satisfactory to Lender. Borrower shall not be obligated to
pay any costs or expenses incurred in connection with the preparation,
execution, recording or filing of the Severed Loan Documents and the Severed
Loan Documents shall not contain any representations, warranties or covenants
not contained in the Loan Documents and any such representations and warranties
contained in the Severed Loan Documents will be given by Borrower only as of the
Closing Date.
SECTION 8.3 REMEDIES CUMULATIVE.
-------------------
The rights, powers and remedies of Lender under this Agreement shall
be cumulative and not exclusive of any other right, power or remedy which Lender
may have against Borrower pursuant to this Agreement or the other Loan
Documents, or existing at law or in equity or otherwise. Lender's rights,
powers and remedies may be pursued singly, concurrently or otherwise, at such
time and in such order as Lender may determine in Lender's sole discretion. No
delay or omission to exercise any remedy, right or power accruing upon an Event
of Default shall impair any such remedy, right or power or shall be construed as
a waiver thereof, but any such remedy, right or power may be exercised from time
to time and as often as may be deemed expedient. A waiver of one Default or
Event of Default with respect to Borrower shall not be construed to be a waiver
of any subsequent
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<PAGE>
Default or Event of Default by Borrower or to impair any remedy, right or power
consequent thereon.
IX. SPECIAL PROVISIONS
------------------
SECTION 9.1 SALE OF NOTES AND SECURITIZATION.
--------------------------------
Lender shall have the right to sell, assign or otherwise transfer the
Loan or any portion thereof or interest therein held by Lender without the
consent of Borrower or the satisfaction of any other requirement with respect to
Borrower. At the request of the holder of the Note and, to the extent not
already required to be provided by Borrower under this Agreement, Borrower shall
use reasonable efforts to satisfy the market standards to which the holder of
the Note customarily adheres or which may be reasonably required in the
marketplace or by the Rating Agencies in connection with the sale of the Note or
participation therein or the first successful public or private securitization
(such sale and/or securitization, the "SECURITIZATION") of rated single or
--------------
multi-class securities (the "SECURITIES") secured by or evidencing ownership
----------
interests in the Note and the Mortgages, including, without limitation, to:
(a) (i) provide such financial and other information with respect to
the Properties, the Borrower and the Manager, (ii) provide
budgets relating to the Properties and (iii) to permit to be
performed or permitted such site inspection, appraisals, market
studies, environmental reviews and reports (Phase I reports and,
if appropriate, Phase II reports), engineering reports and other
due diligence investigations of the Properties, as may be
reasonably requested by the holder of the Note or the Rating
Agencies or as may be reasonably necessary or appropriate in
connection with the Securitization (the "PROVIDED INFORMATION"),
--------------------
together, if customary, with appropriate verification of and/or
consents to the use of the Provided Information through letters
of auditors or opinions of counsel of independent attorneys
reasonably acceptable to the Lender and acceptable to the Rating
Agencies; provided, however, that Phase II reports and other
invasive testing may not be performed at any of the Properties
until Borrower has received reasonably appropriate
indemnifications and evidence of insurance from any Person
preparing such report or performing such testing;
(b) cause counsel to render opinions as to non-consolidation,
fraudulent conveyance, and true sale or any other opinion
customary in securitization transactions with respect to the
Properties and Borrower and its affiliates, which counsel and
opinions shall be reasonably satisfactory to the holder of the
Note and the Rating Agencies;
(c) make such representations and warranties as of the closing date
of the Securitization with respect to the Properties, Borrower,
and the Loan Documents as are customarily provided in
securitization transactions and
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as may be reasonably requested by the holder of the Note or the
Rating Agencies and consistent with the facts covered by such
representations and warranties as they exist on the date thereof
to the extent such representations and warranties are true as of
the closing date of the Securitization, including the
representations and warranties made in the Loan Documents to the
extent such representations and warranties are true as of the
closing date of the Securitization; and
(d) execute such amendments to the Loan Documents and organizational
documents and enter into a lockbox or similar arrangement with
respect to the Rents as may be reasonably requested by the holder
of the Note or as may be requested by the Rating Agencies or as
may be otherwise necessary to effect the Securitization;
provided, however, that the Borrower shall not be required to
modify or amend any Loan Document if such modification or
amendment would (i) change the interest rate, the stated maturity
or the amortization of principal set forth in the Note, or (ii)
modify or amend any other material economic term of the Loan or
materially increase Borrower's obligations or liabilities under
the Loan Documents. Notwithstanding the foregoing, Lender may
elect to change the Maturity to the Anticipated Repayment Date in
connection with the Securitization and Borrower shall execute
such amendments to the Loan Documents as Lender shall determine
are necessary to reflect such change.
All third party costs and expenses incurred by Lender in connection with the
Securitization or other sale or transfer of the Loan and all reasonable third
party costs and expenses incurred by Borrower in connection with the
Securitization or other sale or transfer of the Loan shall be paid by Lender.
SECTION 9.2 SECURITIZATION INDEMNIFICATION.
------------------------------
(a) Borrower understands that certain of the Provided Information and
the books and records delivered to Lender pursuant to Section 5.1(k) may be
--------------
included in disclosure documents in connection with the Securitization,
including, without limitation, a prospectus or private placement memorandum
(each, a "DISCLOSURE DOCUMENT") and may also be included in filings with the
-------------------
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "SECURITIES ACT"), or the Securities and Exchange Act of 1934, as
--------------
amended (the "EXCHANGE ACT"), or provided or made available to investors or
------------
prospective investors in the Securities, the Rating Agencies, and service
providers relating to the Securitization. In the event that the Disclosure
Document is required to be revised prior to the sale of all Securities, the
Borrower will cooperate with the holder of the Note, at no cost to Borrower, in
updating the Disclosure Document by providing all current information necessary
to keep the Disclosure Document accurate and complete in all material respects.
(b) Borrower agrees to provide in connection with each of (i) a
preliminary and a private placement memorandum or (ii) a preliminary and final
prospectus, as applicable,
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an indemnification certificate (A) certifying that Borrower has carefully
examined such memorandum or prospectus, as applicable, including without
limitation, the sections entitled "Special Considerations," "Description of the
Mortgages," "Description of the Mortgage Loans and Mortgaged Properties," "The
Manager," "The Borrower" and "Certain Legal Aspects of the Mortgage Loan," and
such sections (and any other sections reasonably requested) do not, and with
respect to any portions of such sections prepared in reliance upon the reports
of third parties, to Borrower's knowledge do not, contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances under which they were
made, not misleading, (B) indemnifying Lender (and for purposes of this Section
9.2, Lender hereunder shall include its officers, directors and employees), the
Affiliate of Lehman Brothers, Inc. ("LEHMAN") that has filed the registration
------
statement relating to the securitization (the "REGISTRATION STATEMENT"), each of
----------------------
its directors, each of its officers who have signed the Registration Statement
and each person or entity who controls the Affiliate within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act
(collectively, the "LEHMAN GROUP"), and Lehman, each of its directors and each
------------
person who controls Lehman within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act (collectively, the "UNDERWRITER GROUP")
-----------------
for any losses, claims, damages or liabilities (the "LIABILITIES") to which
-----------
Lender, the Lehman Group or the Underwriter Group may become subject insofar as
the Liabilities arise out of any untrue statement or alleged untrue statement of
any material fact contained in such sections (other than any such statement made
in reliance upon the reports of third parties that do not, to Borrower's
knowledge, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading) or arise out of the
omission or alleged omission to state therein a material fact known to Borrower
and required to be stated in such sections or necessary in order to make the
statements in such sections or in light of the circumstances under which they
were made, not misleading and (C) agreeing to reimburse Lender, the Lehman Group
and the Underwriter Group for any legal or other expenses reasonably incurred by
Lender and Lehman in connection with investigating or defending the Liabilities;
provided, however, that Borrower will be liable in any such case under clauses
(B) or (C) above only to the extent that any such loss claim, damage, liability
or expense arises out of any such untrue statement or omission made therein in
reliance upon and in conformity with written information furnished to Lender by
or on behalf of Borrower expressly for use in the Disclosure Document; and
provided further, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Borrower by
Lender, any member of the Lehman Group or any member of the Underwriter Group
expressly for use in the Disclosure Document. The foregoing indemnity with
respect to any untrue statement contained in or omission from a preliminary
private placement memorandum or preliminary prospectus shall not inure to the
benefit of any member of the Underwriting Group (or any person controlling such
member of the Underwriting Group) from whom the Person asserting any such loss,
liability, claim, damage or expense purchased any of the Securities which are
the subject thereof if the Borrower shall sustain the burden of proving that any
such loss, liability, claim, damage or expense resulted from the fact that such
Person was not sent or given a copy of the
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final private placement memorandum or final prospectus at or prior to the
written confirmation of the sale of such Security to such Person and the loss,
liability, claim, damage or expense resulted from an untrue statement contained
in or omission from such preliminary private placement memorandum or preliminary
prospectus that was corrected in the final private placement memorandum or final
prospectus.
(c) In connection with filings under the Exchange Act, Borrower agrees
to indemnify (i) Lender, the Lehman Group and the Underwriter Group for
Liabilities to which Lender, the Lehman Group or the Underwriter Group may
become subject insofar as the Liabilities arise out of or are based upon the
omission or alleged omission to state in the Provided Information or Required
Records a material fact required to be stated in the Provided Information or
Required Records in order to make the statements in the Provided Information or
Required Records, in light of the circumstances under which they were made not
misleading and (ii) reimburse Lender, the Lehman Group or the Underwriter Group
for any legal or other expenses reasonably incurred by Lender, the Lehman Group
or the Underwriter Group in connection with defending or investigating the
Liabilities.
(d) Lehman agrees to indemnify and hold harmless Borrower, each of its
directors and each person who controls Borrower within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act (the "BORROWER GROUP")
---------- --------------
against any and all losses, claims, damages or liabilities, joint or several, to
which such group may become subject, under the Securities Act or otherwise, and
will reimburse such group for any legal or other expenses reasonably incurred by
such group in connection with investigating or defending any such loss, claim,
damage, liability or action, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in a
Disclosure Document or arise out of or are based upon the omission or the
alleged omission to state therein 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, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission relates to
information that does not accurately reflect Provided Information.
(e) Promptly after receipt by an indemnified party under this Section
-------
9.2 of notice of the commencement of any action, such indemnified party will, if
- ---
a claim in respect thereof is to be made against the indemnifying party under
this Section 9.2, notify the indemnifying party in writing of the commencement
-----------
thereof, but the omission to so notify the indemnifying party will not relieve
the indemnifying party from any liability which the indemnifying party may have
to any indemnified party hereunder except to the extent that failure to notify
causes prejudice to the indemnifying party. In the event that any action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled, jointly with
any other indemnifying party, to participate therein and, to the extent that it
(or they) may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel satisfactory to such indemnified party,
provided that no compromise or settlement shall be entered without the consent
of such indemnified party, which consent shall not be unreasonably withheld.
After
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notice from the indemnifying party to such indemnified party under the
immediately preceding sentence of this Section 9.2 and except as otherwise
-----------
explicitly provided herein, the indemnifying party shall not be responsible for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof; provided, however, if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there are any legal
defenses available to it and/or other indemnified parties that are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. The indemnifying party shall not
be liable for the expenses of more than one separate counsel unless an
indemnified party shall have reasonably concluded that there may be legal
defenses available to it that are different from or additional to those
available to another indemnified party. In no event shall an indemnifying party
be liable to an indemnified party under this Section 9.2 for any losses, claims,
-----------
damages or liabilities to which such indemnified party may become subject to the
extent the same arise by reason of the gross negligence, illegal acts, fraud or
willful misconduct of such indemnified party.
(f) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in Section 9.2(b),
---------------
(c) or (d) is for any reason held to be unenforceable by an indemnified party in
- --- ----
respect of any losses, claims, damages or liabilities (or action in respect
thereof) referred to therein which would otherwise be indemnifiable under
Section 9.2(b), (c) or (d), the indemnifying party shall contribute to the
- ------------------- ----
amount paid or payable by the indemnified party as a result of such losses,
claims, damages or liabilities (or action in respect thereof); provided,
however, that 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; and provided further, that Borrower will be liable under this
Section 9.2(f) only to the extent that any such loss, claim, damage or liability
- --------------
(or action in respect thereof) arises out of any untrue statement or omission
made therein in reliance upon and in conformity with written information
furnished to Lender by Borrower expressly for use in the Disclosure Document or
any failure to state any material fact known to Borrower and required to be
stated in such written information in order to make such written information in
light of the circumstances under which they were made not misleading. In
determining the amount of contribution to which the respective parties are
entitled, the following factors shall be considered: (i) Lehman's and Borrower's
relative knowledge and access to information concerning the matter with respect
to which claim was asserted; (ii) the opportunity to correct and prevent any
statement or omission; and (iii) any other equitable considerations appropriate
in the circumstances. Lehman and Borrower hereby agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation.
(g) The liabilities and obligations of both Borrower and Lender under
this Section 9.2 shall survive the termination of this Agreement and the
-----------
satisfaction and discharge of the Debt.
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SECTION 9.3 RATING SURVEILLANCE.
-------------------
The Borrower will cooperate with Lender to retain the Rating Agencies
to provide rating surveillance services on any certificates issued in a
Securitization. Such rating surveillance will be at the expense of Lender.
SECTION 9.4 EXCULPATION.
-----------
SECTION 9.4.1 EXCULPATION. Except as otherwise provided, Lender
-----------
shall not enforce the liability and obligation of Borrower to perform and
observe the obligations contained in the Note, this Agreement or any other Loan
Document by any action or proceeding wherein a money judgment shall be sought
against Borrower, except that Lender may bring a foreclosure action, action for
specific performance or other appropriate action or proceeding to enable Lender
to enforce and realize upon the Mortgages or any other Loan Document, and the
interest in the Properties, the Rents and any other collateral given to Lender
created by the Loan Documents; provided, however, that any judgment in any
action or proceeding shall be enforceable against Borrower only to the extent of
Borrower's interest in the Properties, in the Rents and in any other collateral
given to Lender. Lender, by accepting the Note and this Agreement, agrees that
it shall not, except as otherwise provided in Section 7.10 of the Mortgages, sue
for, seek or demand any deficiency judgment against Borrower, its partners or
any officer, employee or director of any partner of Borrower in any action or
proceeding, under or by reason of or under or in connection with the Note, this
Agreement or the other Loan Documents.
SECTION 9.4.2 RESERVATION OF CERTAIN RIGHTS. The provisions of
-----------------------------
Section 9.4.1 shall not (a) constitute a waiver, release or impairment of any
- -------------
obligation evidenced or secured by the Note, this Agreement or the other Loan
Documents; (b) impair the right of Lender to name Borrower as a party defendant
in any action or suit for judicial foreclosure and sale under the Mortgages; (c)
affect the validity or enforceability of any indemnity, guaranty, master lease
or similar instrument made in connection with the Note, this Agreement or the
other Loan Documents; (d) impair the right of Lender to obtain the appointment
of a receiver; (e) impair the enforcement of the Assignment of Leases and Rents
executed in connection herewith; (f) impair the right of Lender to obtain a
deficiency judgment or judgment on the Note against Borrower if necessary to
obtain any insurance proceeds or condemnation awards to which Lender would be
otherwise entitled under this Agreement; provided, however, Lender shall only
enforce such judgment against the proceeds and/or condemnation awards; or (g)
impair the right of Lender to enforce the provisions of Sections 7.10, 9.2, 9.3
and 9.4 of the Mortgages.
SECTION 9.4.3 EXCEPTIONS TO EXCULPATION. Notwithstanding the
-------------------------
provisions of this Section 9.4 to the contrary, Borrower shall be personally
-----------
liable to Lender for the losses it incurs due to: (i) fraud or intentional
misrepresentation by Borrower in connection with the Loan; (ii) Borrower's
misapplication or misappropriation of Rents received by Borrower after the
occurrence of an Event of Default; (iii) Borrower's misappropriation of tenant
security deposits or Rents collected more than thirty (30) days in advance of
when due under the applicable Lease; (iv) the misapplication or the
misappropriation of insurance proceeds or
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condemnation awards; (v) Borrower's failure to comply with the provisions of
Section 6.1(k); (vi) the breach of any provision in the Environmental Indemnity
- --------------
or Sections 8.1 or 8.2 of the Mortgages or any related indemnification or (vii)
Borrower's indemnification of Lender pursuant to Section 9.2.
-----------
SECTION 9.4.4. BANKRUPTCY CLAIMS. Nothing herein shall be deemed to
-----------------
be a waiver of any right which Lender may have under Sections 506(a), 506(b),
1111(b) or any other provisions of the Bankruptcy Code to file a claim for the
full amount of the Debt or to require that all collateral shall continue to
secure all of the Debt owing to Lender in accordance with the Note, this
Agreement and the other Loan Documents.
SECTION 9.5 CASH MANAGEMENT.
---------------
SECTION 9.5.1 LOCKBOX ACCOUNT. (a) Borrower shall establish and
---------------
maintain a segregated Eligible Account (the "LOCKBOX ACCOUNT") to be held by The
---------------
First National Bank of Chicago (the "ACCOUNT HOLDER") in the trust for the
--------------
benefit of Lender, which Lockbox Account shall be under the sole dominion and
control of Lender. The Lockbox Account shall be entitled "Prentiss Properties
Real Estate Fund I, L.P., as Borrower, and Lehman Brothers Realty Corporation,
as Lender, pursuant to Loan Agreement dated as of February 26, 1997-Lockbox
Account." Borrower hereby grants to Lender a first priority security interest
in the Lockbox Account and all deposits at any time contained therein and the
proceeds thereof and will take all actions necessary to maintain in favor of
Lender a perfected first priority security interest in the Lockbox Account,
including, without limitation, executing and filing UCC-1 Financing Statements
and continuations thereof and obtaining from the Account Holder such executed
acknowledgments of such security interest and agreements to act in accordance
with the Loan Documents as Lender may request. Borrower will not in any way
alter or modify the Lockbox Account and will notify Lender of the account number
thereof. Lender and Servicer shall have the sole right to make withdrawals from
the Lockbox Account.
(b) Borrower shall, or shall cause Manager to, deliver written
instructions to all tenants under Leases to deliver all Rents payable thereunder
directly to the Lockbox Account. Borrower shall, and shall cause Manager to,
deposit all amounts received by Borrower or Manager constituting Gross Receipts
into the Lockbox Account promptly upon receipt.
(c) Borrower shall obtain from Account Holder its agreement to
transfer to the Cash Collateral Account in immediately available funds by
federal wire transfer all amounts on deposit in the Lockbox Account once every
other Business Day throughout the term of the Loan.
SECTION 9.5.2. CASH COLLATERAL ACCOUNT. (a) Borrower shall
-----------------------
establish and maintain a segregated account (the "CASH COLLATERAL ACCOUNT") to
-----------------------
be held by Servicer in trust for the benefit of Lender, which Cash Collateral
Account shall be under the sole dominion and control of Lender. The Cash
Collateral Account shall be entitled "Prentiss Properties Real Estate Fund I,
L.P., as Borrower, and Lehman Brothers Realty Corporation, as Lender, pursuant
to Loan Agreement dated as of February 26, 1997 - Cash Collateral Account."
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Borrower hereby grants to Lender a first priority security interest in the Cash
Collateral Account and all deposits at any time contained therein and the
proceeds thereof and will take all actions necessary to maintain in favor of
Lender a perfected first priority security interest in the Lockbox Account,
including, without limitation, executing and filing UCC-1 Financing Statements
and continuations thereof. Lender and Servicer shall have the sole right to
make withdrawals from the Cash Collateral Account.
(b) Provided no Event of Default shall have occurred and be
continuing, on the tenth day of each calendar month (or, if such day is not a
Business Day, on the immediately preceding Business Day) all funds on deposit in
the Cash Collateral Account shall be applied by Lender to the payment of the
following items in the order indicated:
(i) First, payments to the Ground Lease Escrow Fund in accordance
with the terms and conditions of Section 7.5 of this Agreement, unless the
-----------
required balance thereof is otherwise replenished;
(ii) Second, payments to the Tax and Insurance Escrow Fund in
accordance with the terms and conditions of Section 7.3.1 hereof;
-------------
(iii) Third, payments of Debt Service in accordance with the Note
and this Agreement (with interest computed at the Regular Interest Rate);
(iv) Fourth, on or after the Anticipated Repayment Date, payments
for monthly Cash Expenses incurred in accordance with the related Approved
Annual Budget pursuant to a written request for payment submitted by Borrower to
Lender specifying the individual Cash Expenses and the Individual Properties to
which each such Cash Expenses applies in a form acceptable to Lender;
(v) Fifth, on or after the Anticipated Repayment Date, payments
for Extraordinary Expenses approved by Lender, if any;
(vi) Sixth, payment to the Lender of any amounts then due and
payable under the Loan Documents;
(vii) Seventh, prior to the Anticipated Repayment Date, payment
of any excess amounts to Borrower;
(viii) Eighth, on or after the Anticipated Repayment Date,
payments to Lender in reduction of the outstanding principal balance of the
Loan; and
(ix) Ninth, on or after the Anticipated Repayment Date, payments
to Lender for Accrued Interest.
(c) The insufficiency of funds on deposit in the Cash Collateral
Account shall not absolve Borrower of the obligation to make any payments, as
and when due pursuant to this Agreement and the other Loan Documents, of Debt
Service, to the Ground Lease Escrow Fund, to the Tax and Insurance Escrow Fund,
or any other sums required pursuant to
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the Loan Agreements, and such obligations shall be separate and independent, and
not conditioned on any event or circumstance whatsoever.
(d) Upon the request of Borrower, on not more than three (3)
occasions per calendar month, Lender will advise Borrower by telephone or, at
Lender's option, in writing of the current balance of the Cash Collateral
Account.
SECTION 9.6 SERVICER.
--------
At the option of Lender, the Loan may be serviced, at Lender's
expense, by a servicer and one or more special servicer (collectively, the
"SERVICER") selected by Lender and Lender may delegate all or any portion of its
- ---------
responsibilities under this Agreement and the other Loan Documents to the
Servicer pursuant to one or more servicing agreements (collectively, the
"SERVICING AGREEMENT") between Lender and Servicer. Lender will deliver, or
- --------------------
cause Servicer to deliver, to Borrower a copy of the monthly servicing report
prepared by Servicer with respect to the Loan.
X. MISCELLANEOUS
-------------
SECTION 10.1 SURVIVAL.
--------
This Agreement and all covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto shall
survive the making by Lender of the Loan and the execution and delivery to
Lender of the Note, and shall continue in full force and effect so long as all
or any of the Debt is outstanding and unpaid unless a longer period is expressly
set forth herein or in the other Loan Documents. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the legal representatives, successors and assigns of such party. All covenants,
promises and agreements in this Agreement, by or on behalf of Borrower, shall
inure to the benefit of the legal representatives, successors and assigns of
Lender.
SECTION 10.2 LENDER'S DISCRETION.
-------------------
Whenever pursuant to this Agreement or any other Loan Agreement,
Lender exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of Lender and shall be final and
conclusive.
SECTION 10.3 GOVERNING LAW.
-------------
(A) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE
BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF
THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK,
WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO
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THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL
RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF
THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE
CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS
CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS WITH RESPECT TO
THE REAL PROPERTY SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE
STATE IN WHICH THE APPLICABLE INDIVIDUAL PROPERTY IS LOCATED, IT BEING
UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE
LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND
ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING
HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND
THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW.
(B) TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY LEGAL SUIT, ACTION
OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS
AGREEMENT MAY AT LENDER'S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN
THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW
YORK GENERAL OBLIGATIONS LAW, AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY
NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH
SUIT, ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES
HEREBY DESIGNATE AND APPOINT CT CORPORATION SYSTEMS AT 1633 BROADWAY, NEW YORK,
NEW YORK 10019 AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT
SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID
SERVICE MAILED
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<PAGE>
OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO
LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY
TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN
OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE
DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL
PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN
OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR. SOLELY
AS A COURTESY TO BORROWER, LENDER WILL USE REASONABLE EFFORTS TO DELIVER A COPY
OF ANY PROCESS SERVED UPON SAID AGENT TO BORROWER AT BORROWER'S ADDRESSES SET
FORTH IN SECTION 10.6, PROVIDED THAT ANY FAILURE ON THE PART OF LENDER TO SO
------------
DELIVER ANY SUCH COPY SHALL IN NO MANNER LIMIT THE EFFECTIVENESS OF ANY PROCESS
SERVED UPON SAID AGENT.
SECTION 10.4 MODIFICATION, WAIVER IN WRITING.
-------------------------------
No modification, amendment, extension, discharge, termination or
waiver of any provision of this Agreement, or of the Note, or of any other Loan
Document, nor consent to any departure by Borrower therefrom, shall in any event
be effective unless the same shall be in a writing signed by the party against
whom enforcement is sought, and then such waiver or consent shall be effective
only in the specific instance, and for the purpose, for which given. Except as
otherwise expressly provided herein, no notice to, or demand on Borrower, shall
entitle Borrower to any other or future notice or demand in the same, similar or
other circumstances.
SECTION 10.5 DELAY NOT A WAIVER.
------------------
Neither any failure nor any delay on the part of Lender in insisting
upon strict performance of any term, condition, covenant or agreement, or
exercising any right, power, remedy or privilege hereunder, or under the Note or
under any other Loan Document, or any other instrument given as security
therefor, shall operate as or constitute a waiver thereof, nor shall a single or
partial exercise thereof preclude any other future exercise, or the exercise of
any other right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable under
this Agreement, the Note or any other Loan Document, Lender shall not be deemed
to have waived any right either to require prompt payment when due of all other
amounts due under this Agreement, the Note or the other Loan Documents, or to
declare a default for failure to effect prompt payment of any such other amount.
-89-
<PAGE>
SECTION 10.6 NOTICES.
-------
All notices or other written communications hereunder or under any
other Loan Document shall be deemed to have been properly given, if in writing
(i) upon delivery, if delivered in person or by facsimile transmission with
receipt acknowledged by the recipient thereof, (ii) one (1) Business Day
(defined below) after having been deposited for overnight delivery with any
reputable overnight courier service, or (iii) three (3) Business Days after
having been deposited in any post office or mail depository regularly maintained
by the U.S. Postal Service and sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to Borrower: Prentiss Properties Real Estate Fund I, L.P.
3890 West Northwest Highway, Suite 400
Dallas, Texas 75220
Attention: Mr. Thomas F. August and Mr. Mark Doran
Facsimile No. (214) 350-2437
With a copy to: Akin, Gump, Strauss, Hauer & Feld
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attention: Randall M. Ratner, Esq.
Facsimile No. (214) 969-4343
If to Lender: Lehman Brothers Realty Corporation
Three World Financial Center
New York, New York 10281
Attention: Mr. Michael DeMarco
Facsimile No. (212) 528-6824
With a copy to: Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: W. Christopher White, Esq.
Facsimile No. (212) 504-6666
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional or
different addresses for subsequent notices or communications.
SECTION 10.7 TRIAL BY JURY.
-------------
TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY AGREES NOT TO
ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY
RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR
HEREAFTER EXIST
-90-
<PAGE>
WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION
ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN
KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY
EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD
OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH
IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.
SECTION 10.8 HEADINGS.
--------
The Article and/or Section headings and the Table of Contents in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
SECTION 10.9 SEVERABILITY.
------------
Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
SECTION 10.10 WAIVER OF NOTICE.
----------------
Borrower shall not be entitled to any notices of any nature whatsoever
from Lender except with respect to matters for which this Agreement or the other
Loan Documents specifically and expressly provide for the giving of notice by
Lender to Borrower and except with respect to matters for which Borrower is not,
pursuant to applicable Legal Requirements, permitted to waive the giving of
notice. Borrower hereby expressly waives the right to receive any notice from
Lender with respect to any matter for which this Agreement or the other Loan
Documents do not specifically and expressly provide for the giving of notice by
Lender to Borrower.
SECTION 10.11 REMEDIES OF BORROWER.
--------------------
In the event that a claim or adjudication is made that Lender or its
agents have acted unreasonably or unreasonably delayed acting in any case where
by law or under this Agreement or the other Loan Documents, Lender or such
agent, as the case may be, has an obligation to act reasonably or promptly,
Borrower agrees that neither Lender nor its agents shall be liable for any
monetary damages, and Borrower's sole remedies shall be limited to commencing an
action seeking injunctive relief or declaratory judgment. The parties hereto
agree that any action or proceeding to determine whether Lender has acted
reasonably shall be determined by an action seeking declaratory judgment.
SECTION 10.12 EXPENSES; INDEMNITY.
-------------------
-91-
<PAGE>
(a) Borrower covenants and agrees to pay, or if Borrower fails to pay
to reimburse, Lender upon receipt of written notice from Lender for all
reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by Lender in connection with (i) Borrower's ongoing
performance of and compliance with Borrower's agreements and covenants contained
in this Agreement and the other Loan Documents on its part to be performed or
complied with after the Closing Date, including, without limitation, confirming
compliance with environmental and insurance requirements, other than any such
costs and expenses incurred in connection with the Securitization or other sale
or transfer of the Loan; (ii) Lender's ongoing performance and compliance with
all agreements and conditions contained in this Agreement and the other Loan
Documents on its part to be performed or complied with after the Closing Date,
other than (x) any such costs and expenses incurred in connection with the
Securitization or other sale or transfer of the Loan, (y) any fees payable to
the Servicer or (z) any amounts payable to the Rating Agencies in connection
with any rating surveillance services on any certificates issued in a
Securitization; (iii) the negotiation, preparation, execution, delivery and
administration of any consents, amendments, waivers or other modifications to
this Agreement and the other Loan Documents and any other documents or matters
requested by Lender; (iv) the filing and recording fees and expenses, title
insurance premiums and reasonable fees and expenses of counsel for providing to
Lender all required legal opinions, and other similar expenses incurred in
creating, perfecting and insuring the Liens in favor of Lender pursuant to this
Agreement and the other Loan Documents; (v) enforcing or preserving any rights,
in response to third party claims or the prosecuting or defending of any action
or proceeding or other litigation, in each case against, under or affecting
Borrower, this Agreement, the other Loan Documents, the Properties, or any other
security given for the Loan; and (vi) enforcing any obligations of or collecting
any payments due from Borrower under this Agreement, the other Loan Documents or
with respect to the Properties or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided,
however, that Borrower shall not be liable for the payment of any such costs and
expenses to the extent the same arise by reason of the gross negligence, illegal
acts, fraud or willful misconduct of Lender. Any cost and expenses due and
payable to Lender in accordance with this Agreement or the other Loan Documents
may be paid from any amounts in the Deposit Account.
(b) Borrower shall indemnify, defend and hold harmless Lender from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for Lender in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
Lender shall be designated a party thereto), that may be imposed on, incurred
by, or asserted against Lender in any manner relating to or arising out of (i)
any breach by Borrower of its material obligations under, or any material
misrepresentation by Borrower contained in, this Agreement or the other Loan
Documents, or (ii) the use or intended use of the proceeds of the Loan
(collectively, the "INDEMNIFIED LIABILITIES"); provided, however, that Borrower
-----------------------
shall not have any obligation to Lender hereunder to the extent that such
Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or
willful misconduct of Lender.
-92-
<PAGE>
SECTION 10.13 EXHIBITS AND SCHEDULES INCORPORATED.
-----------------------------------
The Exhibits and Schedules annexed hereto are hereby incorporated
herein as a part of this Agreement with the same effect as if set forth in the
body hereof.
SECTION 10.14 NO JOINT VENTURE OR PARTNERSHIP;
NO THIRD PARTY BENEFICIARIES.
-------------------------------
(a) Borrower and Lender intend that the relationships created
hereunder and under the other Loan Documents be solely that of borrower and
lender. Nothing herein or therein is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship between Borrower
and Lender nor to grant Lender any interest in the Properties other than that of
mortgagee or lender.
(b) This Agreement and the other Loan Documents are solely for the
benefit of Lender and the Borrower and nothing contained in this Agreement or
the other Loan Documents shall be deemed to confer upon anyone other than the
Lender and the Borrower any right to insist upon or to enforce the performance
or observance of any of the obligations contained herein or therein. All
conditions to the obligations of Lender to make the Loan hereunder are imposed
solely and exclusively for the benefit of Lender and no other Person shall have
standing to require satisfaction of such conditions in accordance with their
terms or be entitled to assume that Lender will refuse to make the Loan in the
absence of strict compliance with any or all thereof and no other Person shall
under any circumstances be deemed to be a beneficiary of such conditions, any or
all of which may be freely waived in whole or in part by Lender if, in Lender's
sole discretion, Lender deems it advisable or desirable to do so.
SECTION 10.15 PUBLICITY.
---------
All news releases, publicity or advertising by Borrower or their
Affiliates through any media intended to reach the general public which refers
to the Loan Documents or the financing evidenced by the Loan Documents, to the
Lender, Lehman, or any of their Affiliates shall be subject to the prior written
approval of Lender, which approval shall not be unreasonably withheld.
SECTION 10.16 CROSS-DEFAULT; CROSS-COLLATERALIZATION;
WAIVER OF MARSHALLING OF ASSETS.
--------------------------------------
(a) The Borrower acknowledges that Lender has made the Loan to the
Borrower upon the security of its collective interest in the Properties and in
reliance upon the aggregate of the Properties taken together being of greater
value as collateral security than the sum of the Properties taken separately.
The Borrower agrees that the Mortgages are and will be cross-collateralized and
cross-defaulted with each other so that (i) an Event of Default under any of the
Mortgages shall constitute an Event of Default under each of the other Mortgages
which secure the Note; (ii) an Event of Default under the Note or this Loan
Agreement shall constitute an Event of Default under each Mortgage; and (iii)
each Mortgage shall constitute
-93-
<PAGE>
security for the Note as if a single blanket lien were placed on all of the
Properties as security for the Note.
(b) To the fullest extent permitted by law, Borrower, for itself and
its successors and assigns, waives all rights to a marshalling of the assets of
Borrower, Borrower's partners and others with interests in Borrower, and of the
Properties, or to a sale in inverse order of alienation in the event of
foreclosure of all or any of the Mortgages, and agrees not to assert any right
under any laws pertaining to the marshalling of assets, the sale in inverse
order of alienation, homestead exemption, the administration of estates of
decedents, or any other matters whatsoever to defeat, reduce or affect the right
of Lender under the Loan Documents to a sale of the Properties for the
collection of the Debt without any prior or different resort for collection or
of the right of Lender to the payment of the Debt out of the net proceeds of the
Properties in preference to every other claimant whatsoever. In addition,
Borrower, for itself and its successors and assigns, waives in the event of
foreclosure of any or all of the Mortgages, any equitable right otherwise
available to the Borrower which would require the separate sale of the
Properties or require Lender to exhaust its remedies against any Individual
Property or any combination of the Properties before proceeding against any
other Individual Property or combination of Properties; and further in the event
of such foreclosure the Borrower does hereby expressly consents to and
authorizes, at the option of the Lender, the foreclosure and sale either
separately or together of any combination of the Properties.
SECTION 10.17 WAIVER OF COUNTERCLAIM.
----------------------
Borrower hereby waives the right to assert a counterclaim, other than
a compulsory counterclaim, in any action or proceeding brought against it by
Lender or its agents.
SECTION 10.18 CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE.
---------------------------------------------
In the event of any conflict between the provisions of this Loan
Agreement and any of the other Loan Documents, the provisions of this Loan
Agreement shall control. The parties hereto acknowledge that they were
represented by competent counsel in connection with the negotiation, drafting
and execution of the Loan Documents and that such Loan Documents shall not be
subject to the principle of construing their meaning against the party which
drafted same. Borrower acknowledges that, with respect to the Loan, Borrower
shall rely solely on its own judgment and advisors in entering into the Loan
without relying in any manner on any statements, representations or
recommendations of Lender or any parent, subsidiary or affiliate of Lender.
Lender shall not be subject to any limitation whatsoever in the exercise of any
rights or remedies available to it under any of the Loan Documents or any other
agreements or instruments which govern the Loan by virtue of the ownership by it
or any parent, subsidiary or affiliate of Lender of any equity interest any of
them may acquire in Borrower, and Borrower hereby irrevocably waives the right
to raise any defense or take any action on the basis of the foregoing with
respect to Lender's exercise of any such rights or remedies. Borrower
acknowledges that Lender engages in the business of real estate financings and
other real estate transactions and investments which may be viewed as adverse to
or competitive with the business of the Borrower or its affiliates.
-94-
<PAGE>
SECTION 10.19 BROKERS AND FINANCIAL ADVISORS.
------------------------------
Borrower hereby represents that it has dealt with no financial
advisors, brokers, underwriters, placement agents, agents or finders in
connection with the transactions contemplated by this Agreement. Borrower and
Lender hereby agree to indemnify and hold the other harmless from and against
any and all claims, liabilities, costs and expenses of any kind in any way
relating to or arising from a claim by any Person that such Person acted on
behalf of the indemnifying party in connection with the transactions
contemplated herein. The provisions of this Section 10.19 shall survive the
-------------
expiration and termination of this Agreement and the payment of the Debt.
SECTION 10.20 PRIOR AGREEMENTS.
----------------
This Agreement and the other Loan Documents contain the entire
agreement of the parties hereto and thereto in respect of the transactions
contemplated hereby and thereby, and all prior agreements among or between such
parties, whether oral or written are superseded by the terms of this Agreement
and the other Loan Documents.
SECTION 10.21 COUNTERPARTS.
------------
This Agreement may be executed in any number of counterparts, each of
which counterparts shall be deemed an original instrument and all of which
together shall constitute a single Security Instrument.
-95-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed by their duly authorized representatives, all as of the day and
year first above written.
PRENTISS PROPERTIES REAL ESTATE FUND I,
L.P., a Delaware limited partnership
By: Prentiss Properties II, Inc., a
Delaware corporation, its general
partner
By:
------------------------------
Name: Mark R. Doran
Title: Executive Vice President
LEHMAN BROTHERS REALTY CORPORATION
By:
-----------------------------
Name:
Title:
1
<PAGE>
SCHEDULE I
----------
LIST OF PROPERTIES AND RELEASE AMOUNTS
SCH I-1
<PAGE>
SCHEDULE II
-----------
LIST OF ADDITIONAL PROPERTIES
Chicago Industrials, Chicago, IL
Kansas City Industrials, Kansas City, MO
Milwaukee Industrials, Milwaukee, WI
Pacific Gateway Center, Los Angeles, CA
SCH II-1
<PAGE>
SCHEDULE III
------------
LITIGATION
None.
SCH III-1
<PAGE>
SCHEDULE IV
-----------
FORM OF ESTOPPEL CERTIFICATE
SCH IV-1
<PAGE>
SCHEDULE V
----------
FORM OF SUBORDINATION, NONDISTURBANCE
AND ATTORNMENT AGREEMENT
SCH V-1
<PAGE>
SCHEDULE VI
-----------
LEASES WITHOUT PROVISIONS FOR
SUBORDINATION OR ATTORNMENT
SCH VI-1
<PAGE>
SCHEDULE VII
------------
INCREASES IN RELEASE AMOUNTS
IN CONNECTION WITH ADDITIONAL ADVANCE
SCH VII-1
<PAGE>
SCHEDULE VIII
-------------
CLOSING DATE PROPERTY VALUES
SCH VIII-1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Prentiss Properties Trust on Form S-8 (File No. 333-20329) of our report dated
February 12, 1997, except as to Note 18 for which the date is February 20, 1997,
on our audit of the consolidated financial statements and financial statement
schedule of Prentiss Properties Trust as of December 31, 1996 and for the period
October 22, 1996 (inception of operations) through December 31, 1996 and on the
combined financial statements of the Predecessor Company as of December 31, 1995
and the period January 1, 1996 through October 21, 1996, and the years ended
December 31, 1995 and 1994, which report is included in this Annual Report on
Form 10-K.
Coopers & Lybrand L.L.P.
Dallas, Texas
March 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-22-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,226
<SECURITIES> 0
<RECEIVABLES> 7,148
<ALLOWANCES> 446
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 501,035
<DEPRECIATION> 18,507
<TOTAL-ASSETS> 531,026
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 203
<OTHER-SE> 325,018
<TOTAL-LIABILITY-AND-EQUITY> 531,026
<SALES> 0
<TOTAL-REVENUES> 13,787
<CGS> 0
<TOTAL-COSTS> 9,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 846
<INCOME-PRETAX> 4,996
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,996
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
