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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12675
KILROY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 95-4598246
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2250 East Imperial Highway, Suite 1200, El Segundo, California 90245
(Address of principal executive offices)
(310) 563-5500
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
As of November 12, 1999, 27,894,210 shares of common stock, par value $.01
per share, were outstanding.
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KILROY REALTY CORPORATION
QUARTERLY REPORT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I--FINANCIAL INFORMATION
<C> <S> <C>
Item 1. FINANCIAL STATEMENTS (unaudited)
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998.............................................. 3
Consolidated Statements of Operations for the Three and Nine
Months Ended
September 30, 1999 and 1998..................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998..................................... 5
Notes to the Consolidated Financial Statements.................. 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 27
PART II--OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS............................................... 30
Item 2. CHANGES IN SECURITIES........................................... 30
Item 3. DEFAULTS UPON SENIOR SECURITIES................................. 30
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 30
Item 5. OTHER INFORMATION............................................... 30
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 30
SIGNATURES...................................................... 31
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
KILROY REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
------
INVESTMENT IN REAL ESTATE (Note 2):
Land and improvements.............................. $ 279,499 $ 253,500
Buildings and improvements......................... 935,152 828,425
Undeveloped land and construction in progress, net. 139,392 112,359
---------- ----------
Total investment in real estate................... 1,354,043 1,194,284
Accumulated depreciation and amortization.......... (165,000) (145,437)
---------- ----------
Investment in real estate, net.................... 1,189,043 1,048,847
CASH AND CASH EQUIVALENTS............................ 6,857 6,443
RESTRICTED CASH...................................... 7,451 6,896
TENANT RECEIVABLES, NET.............................. 17,006 15,630
NOTES RECEIVABLE FROM RELATED PARTIES................ 8,798
DEFERRED FINANCING AND LEASING COSTS, NET............ 22,160 16,168
PREPAID EXPENSES AND OTHER ASSETS.................... 2,403 3,146
---------- ----------
TOTAL ASSETS...................................... $1,244,920 $1,105,928
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Mortgage debt (Note 3)............................. $ 236,667 $ 133,383
Unsecured line of credit (Note 3).................. 290,000 272,000
Accounts payable and accrued expenses.............. 16,334 16,791
Accrued distributions (Note 8)..................... 13,567 12,895
Rents received in advance and tenant security
deposits.......................................... 16,222 14,460
---------- ----------
Total liabilities................................. 572,790 449,529
---------- ----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS (Note 4):
8.075% Series A Cumulative Redeemable Preferred
unitholders....................................... 73,716 73,718
9.375% Series C Cumulative Redeemable Preferred
unitholders....................................... 34,464 34,410
Common unitholders................................. 75,646 72,372
Development LLCs................................... 9,766
---------- ----------
Total minority interests.......................... 193,592 180,500
---------- ----------
STOCKHOLDERS' EQUITY (Note 5):
Preferred stock, $.01 par value,
27,200,000 shares authorized,
none issued and outstanding ......................
8.075% Series A Cumulative Redeemable
Preferred stock, $.01 par value,
1,700,000 shares authorized,
none issued and outstanding.......................
Series B Junior Participating
Preferred stock, $.01 par value,
400,000 shares authorized, none issued and
outstanding.......................................
9.375% Series C Cumulative Redeemable
Preferred stock, $.01 par value,
700,000 shares authorized, none issued and
outstanding.......................................
Common stock, $.01 par value, 150,000,000 shares
authorized, 27,894,210 and 27,639,210 shares
issued and outstanding, respectively.............. 279 276
Additional paid-in capital......................... 493,409 487,467
Distributions in excess of earnings................ (15,150) (11,844)
---------- ----------
Total stockholders' equity........................ 478,538 475,899
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $1,244,920 $1,105,928
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES (Note 6):
Rental income...................... $ 34,959 $ 30,369 $ 101,941 $ 84,817
Tenant reimbursements.............. 4,214 3,768 12,530 10,845
Interest income.................... 239 308 860 1,191
Other income....................... 790 74 1,722 941
----------- ----------- ----------- -----------
Total revenues................... 40,202 34,519 117,053 97,794
----------- ----------- ----------- -----------
EXPENSES:
Property expenses.................. 5,054 4,732 15,517 13,769
Real estate taxes.................. 3,108 2,800 8,969 7,358
General and administrative
expenses.......................... 2,266 1,797 6,781 5,499
Ground leases...................... 331 302 1,002 897
Interest expense................... 6,501 5,263 18,420 14,642
Depreciation and amortization...... 7,900 6,740 22,577 19,159
----------- ----------- ----------- -----------
Total expenses................... 25,160 21,634 73,266 61,324
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS BEFORE GAIN ON
SALE OF OPERATING PROPERTIES, EQUITY
IN (LOSS) INCOME OF UNCONSOLIDATED
SUBSIDIARY AND MINORITY INTERESTS... 15,042 12,885 43,787 36,470
GAIN ON SALE OF OPERATING PROPERTIES. 75 75
EQUITY IN (LOSS) INCOME OF
UNCONSOLIDATED SUBSIDIARY........... (8) 1 (22) (24)
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTERESTS..... 15,109 12,886 43,840 36,446
----------- ----------- ----------- -----------
MINORITY INTERESTS:
Distributions on Cumulative
Redeemable Preferred units........ (2,334) (1,450) (7,003) (3,704)
Minority interest in earnings of
Operating Partnership............. (1,830) (1,451) (5,186) (4,093)
Minority interest in earnings of
Development LLCs.................. (34) (34)
----------- ----------- ----------- -----------
Total minority interests......... (4,198) (2,901) (12,223) (7,797)
----------- ----------- ----------- -----------
NET INCOME........................... $ 10,911 $ 9,985 $ 31,617 $ 28,649
=========== =========== =========== ===========
Net income per common share-basic
(Note 7)............................ $ 0.39 $ 0.36 $ 1.14 $ 1.07
=========== =========== =========== ===========
Net income per common share-diluted
(Note 7)............................ $ 0.39 $ 0.36 $ 1.14 $ 1.07
=========== =========== =========== ===========
Weighted average shares outstanding-
basic (Note 7)...................... 27,658,014 27,647,688 27,640,016 26,770,445
=========== =========== =========== ===========
Weighted average shares outstanding-
diluted (Note 7).................... 27,676,512 27,647,688 27,674,515 26,865,274
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................................... $ 31,617 $ 28,649
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................................. 22,577 19,159
Provision for uncollectable tenant receivables and deferred rent.............................. 1,744 1,059
Minority interest in earnings of Operating Partnership........................................ 5,186 4,093
Minority interest in earnings of Development LLCs............................................. 34
Restricted stock compensation................................................................. 381 405
Gain on sale of operating properties.......................................................... (75)
Gain on sale of undeveloped land.............................................................. (539)
Other......................................................................................... (213) (262)
Changes in assets and liabilities:
Tenant receivables........................................................................... (3,120) (6,494)
Deferred leasing costs....................................................................... (2,127) (401)
Prepaid expenses and other assets............................................................ 505 561
Accounts payable and accrued expenses........................................................ 466 4,596
Rents received in advance and tenant security deposits....................................... 1,762 2,395
Accrued distributions to Cumulative Redeemable Preferred unitholders......................... 52 757
--------- ---------
Net cash provided by operating activities................................................... 58,250 54,517
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for operating properties......................................................... (37,428) (216,168)
Expenditures for undeveloped land and construction in progress................................ (115,601) (65,353)
Proceeds from sale of operating properties.................................................... 11,000
Proceeds from sale of undeveloped land........................................................ 5,051
Cash paid for note receivable to related party................................................ (6,655)
Decrease in escrow deposits................................................................... 295 4,713
Net advances to unconsolidated subsidiary..................................................... (935) (382)
--------- ---------
Net cash used in investing activities....................................................... (137,618) (283,845)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock................................................... 82,146
Net proceeds from issuances of Cumulative Redeemable Preferred units.......................... 72,961
Net borrowings on unsecured line of credit.................................................... 18,000 128,000
Proceeds from issuance of mortgage debt....................................................... 125,000 5,000
Principal payments on mortgage debt........................................................... (21,716) (2,443)
Financing costs............................................................................... (918) (1,335)
Increase in restricted cash................................................................... (555) (616)
Distributions paid to common stockholders and common unitholders.............................. (40,029) (36,003)
--------- ---------
Net cash provided by financing activities................................................... 79,782 247,710
--------- ---------
Net increase in cash and cash equivalents...................................................... 414 18,382
Cash and cash equivalents, beginning of period................................................. 6,443 8,929
--------- ---------
Cash and cash equivalents, end of period ...................................................... $ 6,857 $ 27,311
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of capitalized interest........................................... $ 17,287 $ 13,580
========= =========
Distributions paid to Cumulative Redeemable Preferred unitholders............................. $ 6,930 $ 2,947
========= =========
NON-CASH TRANSACTIONS:
Accrual of distributions payable (Note 8)..................................................... $ 13,567 $ 12,811
========= =========
Issuance of common limited partnership units of the Operating Partnership to acquire operating
properties and undeveloped land (Note 2)..................................................... $ 9,915 $ 16,031
========= =========
Minority interest recorded in connection with Development LLC undeveloped land acquisitions
(Notes 2 and 4).............................................................................. $ 9,733
=========
Note receivable from related party satisfied in connection with Development LLC undeveloped
land acquisition (Note 2).................................................................... $ 2,267
=========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
1. Organization and Basis of Presentation
Organization
Kilroy Realty Corporation (the "Company") develops, owns, and operates
office and industrial real estate, primarily in Southern California. The
Company, which operates as a self-administered real estate investment trust
("REIT"), commenced operations upon the completion of its initial public
offering in January 1997. As of September 30, 1999, the Company's stabilized
portfolio consisted of 88 office properties and 88 industrial properties,
which encompassed approximately 6.2 million and 6.4 million rentable square
feet, respectively, and was 95.5% occupied. The Company's stabilized portfolio
consists of all of the Company's office and industrial properties excluding
properties recently developed by the Company that have not yet reached 95.0%
occupancy ("lease-up" properties) and projects currently under construction or
in pre-development. As of September 30, 1999, the Company had seven office
properties under construction which when completed are expected to encompass
an aggregate of 810,900 rentable square feet. In addition, the Company had
recently completed construction on two industrial properties encompassing an
aggregate of 558,100 rentable square feet, which were in lease-up at September
30, 1999. Lease-up properties are included in land and improvements and
building and improvements on the consolidated balance sheets upon building
shell completion. The Company owns its interests in all of its properties
through Kilroy Realty, L.P. (the "Operating Partnership") and Kilroy Realty
Finance Partnership, L.P. and conducts substantially all of its operations
through the Operating Partnership. The Company owned an 86.4% general
partnership interest in the Operating Partnership as of September 30, 1999.
The majority of the Company's properties are located in Southern California.
The ability of the tenants to honor the terms of their respective leases is
dependent upon the economic, regulatory and social factors affecting the
communities and industries in which the tenants operate.
Basis of Presentation
The accompanying interim financial statements have been prepared by the
Company's management in accordance with generally accepted accounting
principles and in conjunction with the rules and regulations of the Securities
and Exchange Commission ("SEC"). Certain information and footnote disclosures
required for annual financial statements have been condensed or excluded
pursuant to SEC rules and regulations. Accordingly, the interim financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the interim financial statements presented herein
reflect all adjustments of a normal and recurring nature which are considered
necessary for a fair presentation of the results for the interim periods
presented. The results of operations for the interim period are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. These financial statements should be read in conjunction
with the audited consolidated financial statements and the notes thereto
included in the Company's Annual Report on Amendment 1 to Form 10-K on Form
10K-A for the year ended December 31, 1998.
Certain prior year amounts have been reclassified to conform to the current
period's presentation.
6
<PAGE>
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
2. Acquisitions and Dispositions
Acquisitions
In February 1999, the Company acquired three acres of undeveloped land in
San Diego, California for $0.4 million in cash and 119,460 common limited
partnership units of the Operating Partnership valued at $2.5 million based
upon the closing share price of the Company's common stock as reported on the
New York Stock Exchange ("NYSE") at the time the property was acquired. The
undeveloped land was acquired from The Allen Group, a group of affiliated real
estate development companies based in Visalia, California. A former Executive
Vice President of the Company received 76,896 of the total 119,460 common
units issued in connection with the acquisition. The acquisition was based
upon terms that the Company believes were comparable to terms obtainable from
third-parties based on arm's-length negotiations and was funded primarily from
existing working capital.
In March 1999, the Company acquired one office property containing 126,000
aggregate rentable square feet in San Diego, California for $17.5 million in
cash and 168,402 common limited partnership units of the Operating Partnership
valued at $3.6 million based upon the closing share price of the Company's
common stock as reported on the NYSE at the time the property was acquired.
The office property, which is 100% leased through February 2014, was acquired
pursuant to an existing agreement executed by the Company and The Allen Group
in October 1997. In connection with this anticipated transaction, the Company
entered into an agreement in May 1998 to loan up to $2.3 million to a limited
liability company controlled by Richard S. Allen, a former member of the
Company's Board of Directors, to finance tenant improvements to this property.
The $2.3 million balance of the note and the related interest, which accrued
at a rate of Prime plus 1.00%, were repaid to the Company in connection with
the acquisition. A former Executive Vice President of the Company received
98,476 of the total 168,402 common units issued in connection with the
acquisition. The acquisition was based upon terms that the Company believes
were comparable to terms obtainable from third-parties based on arm's-length
negotiations and was funded primarily from existing working capital and
borrowings on the Company's revolving credit facility.
During the first quarter of 1999, the Company acquired a 50% interest in 55
acres of undeveloped land in San Diego, California for $16.1 million and
184,172 common limited partnership units of the Operating Partnership valued
at $3.8 million based upon the closing share price of the Company's common
stock as reported on the NYSE at the time the property was acquired. The
undeveloped land was acquired pursuant to an existing agreement executed by
the Company and The Allen Group in October 1997 that provided for the joint
development of two office projects with approximately 1.1 million aggregate
rentable square feet over the next five years. Both the Company and The Allen
Group contributed their respective 50% interests in the undeveloped land to
two limited liability companies (the "Development LLCs"). In connection with
this anticipated transaction, the Company entered into an agreement in May
1998 to loan up to $8.5 million to a limited partnership controlled by Richard
S. Allen to finance infrastructure improvements on the undeveloped land. The
$8.5 million balance of the note was assumed by one of the Development LLCs.
The related interest, which accrued at a rate of LIBOR plus 1.85%, was paid to
the Company by the limited partnership. A former Executive Vice President of
the Company received 69,694 of the total 184,172 common units issued in
connection with the acquisition. The acquisition was based upon terms that the
Company believes were comparable to terms obtainable from third-parties based
on arm's-length negotiations and was funded primarily from existing working
capital and borrowings on the Company's revolving credit facility.
In March 1999, the Company acquired construction materials for its Kilroy
Airport Center, Long Beach development project from a partnership controlled
by John B. Kilroy, Sr., the Chairman of the Company's Board
7
<PAGE>
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
of Directors, and John B. Kilroy, Jr., the Company's President and Chief
Executive Officer, for approximately $4.3 million. The acquisition of the
construction materials was based upon terms that the Company believes were
comparable to terms obtainable from third-parties based upon arm's-length
negotiations and was funded primarily with existing working capital and
borrowings on the Company's revolving credit facility.
In April 1999, the Company acquired nine acres of undeveloped land in San
Diego, California from an unaffiliated third party for $4.3 million in cash.
The Company acquired the undeveloped land by exercising an option obtained in
connection with the acquisition of the adjacent office property in April 1998.
Prior to the acquisition, the Company had leased the undeveloped land from the
seller under a ground lease. The acquisition of
the undeveloped land was funded primarily from existing working capital and
borrowings on the Company's revolving credit facility.
In May 1999, the Company acquired the 12.5% minority interest in a three-
building office complex in Diamond Bar, California from an unaffiliated third
party for $1.2 million in cash. The Company had originally purchased its 87.5%
interest in the office complex in September 1997. The acquisition of the
minority interest was funded primarily from existing working capital and
borrowings on the Company's revolving credit facility.
In July 1999, the Company acquired one office property containing
approximately 50,900 aggregate rentable square feet in San Diego, California
for $9.5 million in cash. The office property, which is 100% leased through
July 2004, was acquired from an unaffiliated third party. The acquisition was
funded primarily from existing working capital and borrowings on the Company's
revolving credit facility.
Dispositions
In February 1999, the Company sold eight acres of its 18-acre undeveloped
land parcel in Calabasas, California to the City of Calabasas for a total sales
price of $1.4 million. The land is part of a 66-acre development site which is
presently entitled for over 1.0 million rentable square feet of office, retail
and hotel development. The Company presently plans to develop 213,000 rentable
square feet of office space on the remaining ten acres it currently owns. The
infrastructure improvements on the land were financed with public facility
bonds which were refinanced in February 1999. In connection with the
refinancing, the portion of the original obligation that related to the eight
acres the Company sold to the City of Calabasas was defeased. The refinanced
bonds, which were sponsored by the City of Calabasas, currently have a
principal balance of $12.5 million. The bonds do not contain cross-
collateralization provisions and therefore if one property owner defaulted on
their special tax payments, the other property owners would not be obligated to
repay the defaulted taxes. Based on the planned development of the total site,
the Company's maximum obligation for its portion of the development site is
currently estimated at $5.5 million, but may decrease depending on the actual
size and number of buildings built. Because the assessment on each individual
property owner is dependent upon the rate of development of the entire
development site and therefore is not fixed and determinable, the Company did
not record the obligation. The periodic assessments are currently capitalized
as development costs and will be charged to operations upon the completion of
construction. The gain on sale of $0.1 million from the sale of the eight acres
of undeveloped land is included in other income in the consolidated statements
of operations. The Company used the proceeds to fund development expenditures.
In May 1999, the Company sold five acres of undeveloped land in San Diego,
California to an unaffiliated third party for a total sales price of $3.7
million in cash. The gain on sale of $0.4 million is included in other income
in the consolidated statements of operations. The Company used the sale
proceeds to repay outstanding borrowings under its revolving credit facility
and to fund development expenditures.
8
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KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
In August 1999, the Company sold, in two separate transactions with
unaffiliated third parties, two industrial properties totaling approximately
279,100 aggregate rentable square feet for an aggregate sales price of
$11.0 million. The properties are located in Ontario and Ventura, California.
The total gain on sale of $0.1 million from these two dispositions is reported
after income from operations on the consolidated statements of operations. The
Company used the sale proceeds to repay outstanding borrowings under its
revolving credit facility and to fund development expenditures.
3. Unsecured Line of Credit and Mortgage Debt
As of September 30, 1999, the Company had borrowings of $290 million
outstanding under its revolving unsecured line of credit (the "Credit
Facility") and availability of approximately $41.1 million. In November 1999,
the Company increased its borrowing capacity and obtained a new $400 million
unsecured revolving credit facility (the "$400 million Credit Facility") to
replace the existing $350 million Credit Facility which was scheduled to
mature in February 2000. The $400 million Credit Facility, which will bear
interest at a rate between LIBOR plus 1.13% and LIBOR plus 1.75% depending
upon the Company's leverage ratio at the time of borrowing and will mature in
November 2002, was syndicated to a group of 15 banks led by Morgan Guaranty
Trust Company of New York and The Chase Manhattan Bank. The Company expects to
use the $400 million Credit Facility to finance development expenditures, to
fund acquisitions and for general corporate uses.
In March 1999, the Company borrowed $95.0 million under a mortgage loan that
is secured by nine office and industrial properties, requires monthly
principal and interest payments based on a fixed annual interest rate of
7.20%, amortizes over 25 years and matures in April 2009. The Company used the
proceeds from the mortgage loan to repay outstanding borrowings under the
Credit Facility and to fund development expenditures.
In April 1999, the Company borrowed $30.0 million under a mortgage loan that
is secured by one office property and the related ground leases, requires
monthly principal and interest payments based on a fixed annual interest rate
of 7.15% and matures in May 2017. The Company used the proceeds from the loan
to repay an existing variable rate mortgage loan with an outstanding balance
of $19.0 million, to repay outstanding borrowings under the Credit Facility
and to fund development expenditures.
In October 1999, the Company borrowed $90.0 million under a debt facility
that is secured by 13 office properties, requires monthly interest-only
payments based on a floating interest rate of LIBOR plus 1.75% and matures in
October 2003. The Company used the proceeds from the secured debt facility to
repay outstanding borrowings under the Credit Facility and to fund development
expenditures.
Total interest capitalized for the three months ended September 30, 1999 and
1998 was $3.2 million and $2.2 million, respectively. Total interest
capitalized for the nine months ended September 30, 1999 and 1998 was $8.1
million and $6.2 million, respectively.
4. Minority Interests
Minority interests represent the preferred and common limited partnership
interests in the Operating Partnership and interests held by The Allen Group
in the Development LLCs.
During the nine months ended September 30, 1999, the Operating Partnership
issued 472,034 common limited partnership units of the Operating Partnership
in connection with operating property and undeveloped
9
<PAGE>
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
land acquisitions (see Note 2). In addition, 265,000 common limited partnership
units of the Operating Partnership were exchanged in September 1999 into shares
of the Company's common stock on a one-for-one basis (see Note 5). The Company
owned an 86.4% general partnership interest in the Operating Partnership as of
September 30, 1999.
During the first quarter of 1999, the Company became a 50% managing member in
each of the Development LLCs as a result of the acquisition of certain
undeveloped land and the contribution of such land to the Development LLCs (see
Note 2). The Development LLCs are consolidated for financial reporting purposes
because the Company holds a 50% ownership interest combined with the ability to
control all significant development decisions.
5. Stockholders Equity
During 1999, the Company filed two registration statements on Form S-3 with
the SEC which registered the potential issuance and resale of up to a total of
3,867,850 shares of the Company's common stock in exchange for 3,867,850 common
limited partnership units of the Operating Partnership previously issued in
connection with certain 1997 and 1998 property acquisitions. The SEC declared
the registration statements effective in September and October 1999. The common
limited partnership units may be exchanged at the Company's option into shares
of the Company's common stock on a one-for-one basis. Neither the Company nor
the Operating Partnership will receive any of the proceeds from the issuance of
the common stock to the identified common unitholders. In September 1999,
265,000 common limited partnership units of the Operating Partnership owned by
John B. Kilroy, Sr., the Chairman of the Company's Board of Directors, and
Kilroy Industries, an entity owned by John B. Kilroy, Sr. and John B. Kilroy,
Jr., the Company's President and Chief Executive Officer, were exchanged into
shares of the Company's common stock.
In September 1999, the SEC declared effective the Company's registration
statement on Form S-3 with respect to 1,000,000 shares of the Company's common
stock to be issued under the Company's Dividend Reinvestment and Direct
Purchase Plan (the "Plan"). The Plan, which is designed to provide the
Company's stockholders and other investors with a convenient and economical
method to purchase shares of the Company's common stock, consists of three
programs: the Dividend Reinvestment Program (the "DRIP"), the Cash Option
Purchase Plan (the "COPP") and the Waiver Discount Plan (the "WDP"). The DRIP
provides existing common stockholders with the opportunity to purchase
additional shares of the Company's common stock by automatically reinvesting
all or a portion of their cash dividends. The COPP provides existing common
stockholders and other investors with the opportunity to purchase additional
shares of the Company's common stock by making optional cash purchases, at no
discount to market, between $100 to $5,000 and $750 to $5,000, respectively, in
any calendar month. The WDP provides existing common stockholders and other
investors with the opportunity to purchase additional shares of the Company's
common stock by making optional cash purchases, at a discount to market of up
to 2.00% of the average per share price reported on the NYSE, of greater than
$5,000 in any calendar month. The Plan will acquire shares of the Company's
common stock from either new issuances directly from the Company or from the
open market or from privately negotiated transactions, except for transactions
executed under the WDP which will be purchased only from previously unissued
shares of common stock. Participation in the Plan is entirely voluntary, and
can be terminated at any time. As of September 30, 1999, there have been no
shares issued under the Plan.
In May 1999, the Company filed a registration statement on Form S-8 with the
SEC that registered the potential issuance and resale of up to 1,500,000 shares
of the Company's common stock issuable to the Company's employees and directors
under the 1997 Stock Option and Incentive Plan.
10
<PAGE>
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
6. Segment Disclosure
The Company evaluates the performance of its segments based upon net
operating income. Net operating income is defined as operating revenues
(rental income, tenant reimbursements and other property income) less property
and related expenses (property expenses, real estate taxes and ground leases)
and does not include interest income and expense, depreciation and
amortization and corporate general and administrative expenses. All operating
revenues are comprised of amounts received from external tenants.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------
1999 1998 1999 1998
--------- --------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Revenues and Expenses:
Office Properties:
Operating revenues.................. $ 27,270 $ 24,205 $ 80,039 $68,386
Property and related expenses....... 6,798 6,132 19,995 17,627
--------- --------- -------- -------
Net operating income, as defined.... 20,472 18,073 60,044 50,759
--------- --------- -------- -------
Industrial Properties:
Operating revenues.................. 12,693 10,006 36,154 28,217
Property and related expenses....... 1,695 1,702 5,493 4,397
--------- --------- -------- -------
Net operating income, as defined.... 10,998 8,304 30,661 23,820
--------- --------- -------- -------
Total Reportable Segments:
Operating revenues.................. 39,963 34,211 116,193 96,603
Property and related expenses....... 8,493 7,834 25,488 22,024
--------- --------- -------- -------
Net operating income, as defined.... 31,470 26,377 90,705 74,579
--------- --------- -------- -------
Reconciliation to Consolidated Net
Income:
Total net operating income, as
defined, for reportable segments... 31,470 26,377 90,705 74,579
Other unallocated revenues:
Interest income................... 239 308 860 1,191
Other unallocated expenses:
General and administrative
expenses......................... 2,266 1,797 6,781 5,499
Interest expense.................. 6,501 5,263 18,420 14,642
Depreciation and amortization..... 7,900 6,740 22,577 19,159
--------- --------- -------- -------
Net income from operations before
gain on sale of operating
properties, equity in (loss) income
of unconsolidated subsidiary and
minority interests................. 15,042 12,885 43,787 36,470
Gain on sale of industrial operating
properties......................... 75 75
Equity in (loss) income of
unconsolidated subsidiary.......... (8) 1 (22) (24)
Minority interests.................. (4,198) (2,901) (12,223) (7,797)
--------- --------- -------- -------
Net income.......................... $ 10,911 $ 9,985 $ 31,617 $28,649
========= ========= ======== =======
</TABLE>
11
<PAGE>
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
7. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-
average number of common shares outstanding for the period. Diluted earnings
per share is computed by dividing net income by the sum of the weighted-
average number of common shares outstanding for the period plus the number of
common shares issuable assuming the exercise of all dilutive securities. The
Company does not consider common units of the Operating Partnership to be
dilutive since the exchange of common units into common stock is on a one-for-
one basis and would not have any effect on diluted earnings per share. The
following table reconciles the numerator and denominator of the basic and
diluted per-share computations for net income.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------------------------ -----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic................... $10,911 27,658,014 $0.39 $ 9,985 27,647,688 $0.36
Effect of dilutive
securities:
Stock options granted. 18,498
------- ---------- ----- ------- ---------- -----
Diluted................. $10,911 27,676,512 $0.39 $ 9,985 27,647,688 $0.36
======= ========== ===== ======= ========== =====
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------------------------ -----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic................... $31,617 27,640,016 $1.14 $28,649 26,770,445 $1.07
Effect of dilutive
securities:
Stock options granted. 34,499 94,829
------- ---------- ----- ------- ---------- -----
Diluted................. $31,617 27,674,515 $1.14 $28,649 26,865,274 $1.07
======= ========== ===== ======= ========== =====
</TABLE>
At September 30, 1999, Company employees and directors held options to
purchase 1,343,000 shares of the Company's common stock that were antidilutive
to the diluted earnings per share computation. These options could become
dilutive in future periods if the average market price of the Company's common
stock exceeds the exercise price of the outstanding options.
8. Subsequent Events
On October 15, 1999, aggregate distributions of $13.6 million were paid to
common stockholders and common unitholders of record on September 30, 1999.
On October 22, 1999, the Company executed a $90.0 million secured debt
facility (see Note 3).
On November 8, 1999, the Company increased its borrowing capacity and
obtained a new $400 million unsecured revolving credit facility to replace the
existing $350 million Credit Facility which was scheduled to mature in
February 2000. (see Note 3).
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion relates to the consolidated financial statements of
the Company and should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report. Statements contained in
this "Management's Discussion and Analysis of Financial Condition and Results
of Operations" that are not historical facts may be forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those projected.
You are cautioned not to place undue reliance on these forward-looking
statements.
Overview and Background
Kilroy Realty Corporation (the "Company") develops, owns, and operates
office and industrial real estate, primarily in Southern California. The
Company, which operates as a self-administered real estate investment trust
("REIT"), commenced operations upon the completion of its initial public
offering in January 1997. The Company owns its interests in all of its
properties through Kilroy Realty, L.P. (the "Operating Partnership") and
Kilroy Realty Finance Partnership, L.P. and conducts substantially all of its
operations through the Operating Partnership. The Company owned an 86.4%
general partnership interest in the Operating Partnership as of September 30,
1999.
Results of Operations
During the nine months ended September 30, 1999, the Company acquired three
office buildings encompassing 176,900 rentable square feet, for a total
purchase price of $30.6 million. During 1998, the Company acquired 25 office
and 16 industrial buildings totaling 1.4 million and 674,000 aggregate
rentable square feet, respectively, for an aggregate acquisition cost of
approximately $254 million. Operating results for acquired properties are
included in the consolidated financial statements of the Company subsequent to
their respective acquisition dates.
During the nine months ended September 30, 1999, the Company completed the
development of four office and two industrial projects encompassing an
aggregate of 419,800 rentable square feet and 390,300 rentable square feet,
respectively. During the fourth quarter of 1998, the Company completed the
development of three industrial projects encompassing an aggregate of 723,800
rentable square feet. Of these development projects completed subsequent to
September 30, 1998, all but five industrial buildings encompassing an
aggregate of 558,100 rentable square feet were included in the Company's
portfolio of stabilized operating properties at September 30, 1999. The
Company's stabilized portfolio of operating properties consists of all of the
Company's office and industrial properties excluding properties recently
developed by the Company that have not yet reached 95% occupancy ("lease-up
properties") and projects currently under construction or in pre-development.
The five industrial buildings encompassing an aggregate of 558,100 rentable
square feet were in lease-up as of September 30, 1999.
As a result of the properties acquired and the projects developed by the
Company subsequent to September 30, 1998, rentable square footage in the
Company's portfolio of stabilized operating properties increased 1.5 million
rentable square feet, or 13.5% to 12.6 million rentable square feet at
September 30, 1999 compared to 11.1 million rentable square feet at September
30, 1998. As of September 30, 1999, the Company's stabilized portfolio was
comprised of 88 office properties (the "Office Properties") encompassing 6.2
million rentable square feet and 88 industrial properties (the "Industrial
Properties" and together with the Office Properties, the "Properties")
encompassing 6.4 million rentable square feet. The stabilized portfolio
occupancy rate at September 30, 1999 was 95.5%, with the Office and Industrial
Properties 93.2% and 97.6% occupied, respectively.
13
<PAGE>
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
<TABLE>
<CAPTION>
Three Months
Ended
September 30,
--------------- Dollar Percentage
1999 1998 Change Change
------- ------- ------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Rental income............................. $34,959 $30,369 $4,590 15.1%
Tenant reimbursements..................... 4,214 3,768 446 11.8
Interest income........................... 239 308 (69) (22.4)
Other income.............................. 790 74 716 967.6
------- ------- ------
Total revenues.......................... 40,202 34,519 5,683 16.5
------- ------- ------
Expenses:
Property expenses......................... 5,054 4,732 322 6.8
Real estate taxes......................... 3,108 2,800 308 11.0
General and administrative expenses....... 2,266 1,797 469 26.1
Ground leases............................. 331 302 29 9.6
Interest expense.......................... 6,501 5,263 1,238 23.5
Depreciation and amortization............. 7,900 6,740 1,160 17.2
------- ------- ------
Total expenses.......................... 25,160 21,634 3,526 16.3
------- ------- ------
Income from operations before gain on sale
of operating properties, equity in (loss)
income of unconsolidated subsidiary and
minority interests......................... $15,042 $12,885 $2,157 16.7%
======= ======= ======
</TABLE>
Rental Operations
Management evaluates the operations of its portfolio based on operating
property type. The following tables compare the net operating income, defined
as operating revenues less property and related expenses (property expenses,
real estate taxes and ground leases) before depreciation, for the Office and
Industrial Properties for the three months ended September 30, 1999 and 1998.
Office Properties
<TABLE>
<CAPTION>
Three Months
Ended
September 30,
--------------- Dollar Percentage
1999 1998 Change Change
------- ------- ------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Operating revenues:
Rental income.............................. $23,829 $21,316 $2,513 11.8%
Tenant reimbursements...................... 2,729 2,827 (98) (3.5)
Other income............................... 712 62 650 1048.4
------- ------- ------
Total.................................... 27,270 24,205 3,065 12.7
------- ------- ------
Property and related expenses:
Property expenses.......................... 4,502 4,097 405 9.9
Real estate taxes.......................... 1,965 1,733 232 13.4
Ground leases.............................. 331 302 29 9.6
------- ------- ------
Total.................................... 6,798 6,132 666 10.9
------- ------- ------
Net operating income, as defined............. $20,472 $18,073 $2,399 13.3%
======= ======= ======
</TABLE>
14
<PAGE>
Total revenues from Office Properties increased $3.1 million, or 12.7% to
$27.3 million for the three months ended September 30, 1999 compared to $24.2
million for the three months ended September 30, 1998. Rental income from
office properties increased $2.5 million, or 11.8% to $23.8 million for the
three months ended September 30, 1999 compared to $21.3 million for the three
months ended September 30, 1998. Of this increase, $1.5 million was generated
by the office properties acquired during 1999 and 1998 (the "Office
Acquisitions") and $1.0 million was generated by the office properties
developed by the Company in 1999 and in 1998 (the "Office Development
Properties"). Rental income generated by the stabilized office properties
owned at January 1, 1998 and still owned at September 30, 1999 (the "Core
Office Portfolio") remained consistent for the three months ended September
30, 1999 as compared to the same period in 1998. Average occupancy in the Core
Office Portfolio decreased 2.3% to 91.8% for the three months ended September
30, 1999 compared to 94.1% for the same period in 1998. The decrease in rental
income resulting from the decrease in occupancy was offset by an increase in
rental rates.
Tenant reimbursements from Office Properties decreased $0.1 million, or 3.5%
from $2.7 million for the three months ended September 30, 1999 compared to
$2.8 million for the three months ended September 30, 1998. An increase of
$0.1 million in tenant reimbursements generated by the Office Acquisitions and
the Office Development Properties was offset by a decrease of $0.2 million in
tenant reimbursements generated by the Core Office Portfolio. The decrease was
attributable to the decrease in occupancy in this portfolio. Other income from
Office Properties increased $0.6 million or 1048.4% to $0.7 million for the
three months ended September 30, 1999 compared to $0.1 million for the three
months ended September 30, 1998. For the three months ended September 30,
1999, other income from Office Properties included a $0.5 million lease
termination fee from one tenant at Kilroy Airport Center Long Beach, a Core
Office Portfolio property. The termination of this lease was initiated by the
Company in order to provide an additional 27,000 square feet of space to a
tenant that leased 100% of the recently completed 136,000 square foot office
project at Kilroy Airport Center, Long Beach. Both leases expire on October
31, 2009. The remaining amounts in other income from Office Properties for the
three months ended September 30, 1999 and total other income from Office
Properties for the three months ended September 30, 1998 consisted primarily
of additional lease termination fees, management fees and tenant late charges.
Total expenses from Office Properties increased $0.7 million, or 10.9% to
$6.8 million for the three months ended September 30, 1999 compared to $6.1
million for the three months ended September 30, 1998. Property expenses
increased $0.4 million, or 9.9% to $4.5 million for the three months ended
September 30, 1999 compared to $4.1 million for the same period in 1998. The
total increase of $0.4 million in property expenses from Office Properties was
attributable to the Office Acquisitions and the Office Development Properties.
Property expenses for the Core Office Portfolio remained consistent for the
three months ended September 30, 1999 compared to the comparable period in
1998 due to management's implementation of cost saving measures. Real estate
taxes increased $0.2 million, or 13.4% to $1.9 million for the three months
ended September 30, 1999 as compared to $1.7 million for the comparable period
in 1998. This increase was primarily attributable to real estate taxes on the
Office Acquisitions and Office Development Properties. Property taxes for the
Core Office Portfolio remained consistent for the three months ended September
30, 1999 as compared to the same period in 1998. Ground lease expense from
Office Properties remained consistent for the three months ended September 30,
1999 compared to the same period in 1998.
Net operating income, as defined, from Office Properties increased $2.4
million, or 13.3% to $20.5 million for the three months ended September 30,
1999 compared to $18.1 million for the three months ended September 30, 1998.
Of this increase, $2.1 million was generated by the Office Acquisitions and
the Office Development Properties. The remaining increase of $0.3 million was
generated by the Core Office Portfolio and represented a 2.4% increase in net
operating income for the Core Office Portfolio.
15
<PAGE>
Industrial Properties
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------- Dollar Percentage
1999 1998 Change Change
--------- --------- ------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Operating revenues:
Rental income.......................... $ 11,130 $ 9,053 $2,077 22.9%
Tenant reimbursements.................. 1,485 941 544 57.8
Other income........................... 78 12 66 550.0
--------- --------- ------
Total................................ 12,693 10,006 2,687 26.9
--------- --------- ------
Property and related expenses:
Property expenses...................... 552 635 (83) (13.1)
Real estate taxes...................... 1,143 1,067 76 7.1
--------- --------- ------
Total................................ 1,695 1,702 (7) (0.4)
--------- --------- ------
Net operating income, as defined......... $ 10,998 $ 8,304 $2,694 32.4%
========= ========= ======
</TABLE>
Total revenues from Industrial Properties increased $2.7 million, or 26.9%
to $12.7 million for the three months ended September 30, 1999 compared to
$10.0 million for the three months ended September 30, 1998. Rental income
from Industrial Properties increased $2.1 million, or 22.9% to $11.1 million
for the three months ended September 30, 1999 compared to $9.0 million for the
three months ended September 30, 1998. Of this increase, $0.7 million was
generated by the industrial properties acquired during 1999 and 1998 and two
industrial properties disposed of by the Company in August 1999 (the
"Industrial Acquisitions and Dispositions") and $1.1 million was generated by
the industrial properties developed by the Company in 1999 and 1998 (the
"Industrial Development Properties"). The remaining $0.3 million of the
increase was generated by the stabilized industrial properties owned at
January 1, 1998 and still owned at September 30, 1999 (the "Core Industrial
Portfolio") and represented a 3.4% increase in rental income for the Core
Industrial Portfolio. Average occupancy in the Core Industrial Portfolio
increased 1.9% to 98.4% for the three months ended September 30, 1999 as
compared to 96.5% for the same period in 1998 which contributed to the
increase in rental income. The remaining increase in rental income generated
by the Core Industrial Portfolio was attributable to increases in rental
rates.
Tenant reimbursements from Industrial Properties increased $0.5 million, or
57.8% to $1.5 million for the three months ended September 30, 1999 compared
to $1.0 million for three months ended September 30, 1998. Of this increase,
$0.3 million was attributable to the Industrial Acquisitions, net of
Industrial Dispositions, and the Industrial Development Properties. The
remaining $0.2 million was generated by the Core Industrial Portfolio and was
attributable to the increase in occupancy for this portfolio. Other income
from Industrial Properties increased by $0.1 million for the three months
ended September 30, 1999 compared to the same period in 1998 primarily due to
a $0.1 million lease termination fee from a Core Industrial Portfolio tenant.
Total expenses from Industrial Properties remained consistent for the three
months ended September 30, 1999 compared to the same period in 1998. Property
expenses from Industrial Properties decreased by $0.1 million, or 13.1% to
$0.5 million for the three months ended September 30, 1999 compared to $0.6
million for the three months ended September 30, 1998. The decrease in
property expenses from Industrial Properties was attributable to management's
implementation of cost saving measures portfolio wide. Real estate taxes from
Industrial properties increased by $0.1 million, or 7.1% to $1.2 million for
the three months ended September 30, 1999 compared to $1.1 million for the
same period in 1998. The increase was primarily due to real estate taxes at
the Industrial Development Properties. Real estate taxes for the Core
Industrial Portfolio remained consistent for the three months ended September
30, 1999 compared to the same period in 1998.
Net operating income, as defined, from Industrial Properties increased $2.7
million, or 32.4% to $11.0 million for the three months ended September 30,
1999 compared to $8.3 million for the three months
16
<PAGE>
ended September 30, 1998. Of this increase, $2.2 million was generated by the
Industrial Acquisitions and Dispositions and the Industrial Development
Properties. The remaining $0.5 million was generated by the Core Industrial
Portfolio and represented an 8.0% increase in net operating income for the
Core Industrial Portfolio.
Non-Property Related Income and Expenses
Interest income decreased $0.1 million, or 22.4% to $0.2 million for the
three months ended September 30, 1999 compared to $0.3 million for the three
months ended September 30, 1998. The decrease was due primarily to the receipt
of interest income on notes receivable from related parties during the three
months ended September 30, 1998.
General and administrative expenses increased $0.5 million, or 26.1% to $2.3
million for the three months ended September 30, 1999 compared to $1.8 million
for the three months ended September 30, 1998 due to increased management,
administrative and personnel costs associated with the Company's increased
portfolio size.
Interest expense increased $1.2 million, or 23.5% to $6.5 million for the
three months ended September 30, 1999 compared to $5.3 million for the
comparable period in 1998, primarily due to a net increase in aggregate
indebtedness. The Company's weighted average interest rate decreased 0.16% to
7.15% at September 30, 1999 as compared to 7.31% at September 30, 1998.
Depreciation and amortization increased $1.2 million, or 17.2% to $7.9
million for the three months ended September 30, 1999 compared to $6.7 million
for the comparable period in 1998. The increase was due primarily to a full
quarter of depreciation on properties acquired and developed by the Company
during 1998 and depreciation on properties acquired and developed by the
Company during 1999.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
---------------- Dollar Percentage
1999 1998 Change Change
-------- ------- ------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Rental income........................... $101,941 $84,817 $17,124 20.2%
Tenant reimbursements................... 12,530 10,845 1,685 15.5
Interest income......................... 860 1,191 (331) (27.8)
Other income............................ 1,722 941 781 83.0
-------- ------- -------
Total revenues........................ 117,053 97,794 19,259 19.7
-------- ------- -------
Expenses:
Property expenses....................... 15,517 13,769 1,748 12.7
Real estate taxes....................... 8,969 7,358 1,611 21.9
General and administrative expenses..... 6,781 5,499 1,282 23.3
Ground leases........................... 1,002 897 105 11.7
Interest expense........................ 18,420 14,642 3,778 25.8
Depreciation and amortization........... 22,577 19,159 3,418 17.8
-------- ------- -------
Total expenses........................ 73,266 61,324 11,942 19.5
-------- ------- -------
Income from operations before gain on sale
of operating properties, equity in (loss)
income of unconsolidated subsidiary and
minority interests....................... $ 43,787 $36,470 $ 7,317 20.1%
======== ======= =======
</TABLE>
17
<PAGE>
Rental Operations
Management evaluates the operations of its portfolio based on operating
property type. The following tables compare the net operating income, defined
as operating revenues less property and related expenses (property expenses,
real estate taxes and ground leases) before depreciation, for the Office and
Industrial Properties for the nine months ended September 30, 1999 and 1998.
Office Properties
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------- Dollar Percentage
1999 1998 Change Change
-------- -------- ------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Operating revenues:
Rental income............................ $ 69,931 $ 59,412 $10,519 17.7%
Tenant reimbursements.................... 8,513 8,137 376 4.6
Other income............................. 1,595 837 758 90.6
-------- -------- -------
Total.................................. 80,039 68,386 11,653 17.0
-------- -------- -------
Property and related expenses:
Property expenses........................ 13,538 12,027 1,511 12.6
Real estate taxes........................ 5,455 4,703 752 16.0
Ground leases............................ 1,002 897 105 11.7
-------- -------- -------
Total.................................. 19,995 17,627 2,368 13.4
-------- -------- -------
Net operating income, as defined........... $ 60,044 $ 50,759 $ 9,285 18.3%
======== ======== =======
</TABLE>
Total revenues from Office Properties increased $11.6 million, or 17.0% to
$80.0 million for the nine months ended September 30, 1999 compared to $68.4
million for the nine months ended September 30, 1998. Rental income from
Office Properties increased $10.5 million, or 17.7% to $69.9 million for the
nine months ended September 30, 1999 compared to $59.4 million for the nine
months ended September 30, 1998. Of this increase, $6.2 million was generated
by the office properties acquired during 1999 and 1998 (the "Office
Acquisitions") and $2.7 million was generated by the office properties
developed by the Company in 1999 and 1998 (the "Office Development
Properties"). The remaining $1.6 million of the increase was generated by the
stabilized office properties owned at January 1, 1998 and still owned at
September 30, 1999 (the "Core Office Portfolio"), and represented a 3.2%
increase in rental income for the Core Office Portfolio. Average occupancy in
the Core Office Portfolio decreased 0.8% to 93.3% for the nine months ended
September 30, 1999 compared to 94.1% for the same period in 1998. The increase
in rental income generated by the Core Office Portfolio was attributable to
increases in rental rates.
Tenant reimbursements from Office Properties increased $0.4 million, or 4.6%
to $8.5 million for the nine months ended September 30, 1999 compared to $8.1
million for the nine months ended September 30, 1998. An increase of $0.6
million in tenant reimbursements generated by the Office Acquisitions and the
Office Development Properties was offset by a decrease of $0.2 million in
tenant reimbursements generated by the Core Office Portfolio. This decrease in
tenant reimbursements for the Core Office Portfolio correlates with a decrease
in property expenses for this portfolio of properties. Other income from
Office Properties increased $0.8 million, or 90.6% to $1.6 million for the
nine months ended September 30, 1999 compared to $0.8 million for the same
period in 1998. For the nine months ended September 30, 1999, other income
from Office Properties included $0.5 million in gains from the sale of 13
acres of undeveloped land in Calabassas and San Diego, California and
$0.8 million in lease termination fees at Core Office Portfolio properties.
Other income from Office Properties for the nine months ended September 30,
1998 included a $0.5 million consulting fee for assisting an existing tenant
with potential expansion plans. The remaining amounts in other income from
Office Properties for both periods consisted primarily of management fees and
tenant late charges.
18
<PAGE>
Total expenses from Office Properties increased $2.4 million, or 13.4% to
$20.0 million for the nine months ended September 30, 1999 compared to $17.6
million for the nine months ended September 30, 1998. Property expenses from
Office Properties increased $1.5 million, or 12.6% to $13.5 million for the
nine months ended September 30, 1999 compared to $12.0 million for the nine
months ended September 30, 1998. Of this increase, $1.6 million was
attributable to the Office Acquisitions and the Office Development Properties.
This increase was offset by a $0.1 million decrease in property expenses for
the Core Office Portfolio, which was due primarily to management's
implementation of cost saving measures. Real estate taxes from Office
Properties increased $0.8 million, or 16.0% to $5.5 million for the nine
months ended September 30, 1999 compared to $4.7 million for the nine months
ended September 30, 1998. This increase was solely attributable to real estate
taxes at the Office Acquisitions and Office Development Properties. Real
estate taxes for the Core Office Portfolio remained consistent for the nine
months ended September 30, 1999 compared to the comparable period in 1998.
Ground lease expense from Office Properties increased $0.1 million, or 11.7%
for the nine months ended September 30, 1999 compared to the same period in
1998 primarily due to a full nine months of ground lease expense at one of the
1998 Office Acquisitions.
Net operating income, as defined, from Office Properties increased $9.3
million, or 18.3% to $60.0 million for the nine months ended September 30,
1999 compared to $50.7 million for the nine months ended September 30, 1998.
Of this increase, $7.2 million was generated by the Office Acquisitions and
the Office Development Properties. The remaining increase of $2.1 million was
generated by the Core Office Portfolio and represented a 4.9% increase in net
operating income for the Core Office Portfolio.
Industrial Properties
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------- Dollar Percentage
1999 1998 Change Change
-------- ------- ------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
Rental income............................... $32,010 $25,405 $6,605 26.0%
Tenant reimbursements....................... 4,017 2,708 1,309 48.3
Other income................................ 127 104 23 22.1
------- ------- ------
Total..................................... 36,154 28,217 7,937 28.1
------- ------- ------
Property and related expenses:
Property expenses........................... 1,979 1,742 237 13.6
Real estate taxes........................... 3,514 2,655 859 32.4
------- ------- ------
Total..................................... 5,493 4,397 1,096 24.9
------- ------- ------
Net operating income, as defined.............. $30,661 $23,820 $6,841 28.7%
======= ======= ======
</TABLE>
Total revenues from Industrial Properties increased $7.9 million, or 28.1%
to $36.1 million for the nine months ended September 30, 1999 compared to
$28.2 million for the nine months ended September 30, 1998. Rental income from
Industrial Properties increased $6.6 million, or 26.0% to $32.0 million for
the nine months ended September 30, 1999 compared to $25.4 million for the
nine months ended September 30, 1998. Of this increase, $2.8 million was
generated by the industrial properties acquired during 1999 and 1998 and the
two industrial properties disposed of by the Company in August 1999 (the
"Industrial Acquisitions and Dispositions") and $3.4 million was generated by
the industrial properties developed by the Company in 1999 and 1998 (the
"Industrial Development Properties"). The remaining $0.4 million increase was
generated by the stabilized industrial properties owned at January 1, 1998 and
still owned at September 30, 1999 (the "Core Industrial Portfolio") and
represented a 1.9% increase in rental income for the Core Industrial
Portfolio. Average occupancy in the Core Industrial Portfolio remained
consistent for the nine months ended September 30, 1999 compared to the same
period in 1998. The increase in rental income from the Core Industrial
Portfolio was primarily attributable to increases in rental rates.
19
<PAGE>
Tenant reimbursements from Industrial Properties increased $1.3 million, or
48.3% to $4.0 million for the nine months ended September 30, 1999 compared to
$2.7 million for the nine months ended September 30, 1998. Of this increase,
$0.9 million was attributable to the Industrial Acquisitions and the
Industrial Development Properties. The remaining $0.4 million was generated by
to the Core Industrial Portfolio and was primarily due to an increase in real
estate taxes reimbursable by tenants. Other income from Industrial Properties
remained consistent for the nine months ended September 30, 1999 compared to
the nine months ended September 30, 1998.
Total expenses from Industrial Properties increased $1.1 million, or 24.9%
to $5.5 million for the nine months ended September 30, 1999 compared to $4.4
million for the nine months ended September 30, 1998. Property expenses from
Industrial Properties increased $0.2 million, or 13.6% to $2.0 million for the
nine months ended September 30, 1999 compared to $1.8 million for the nine
months ended September 30, 1998. This increase was attributable solely to the
Industrial Acquisitions and Dispositions and the Industrial Development
Properties. Property expenses for the Core Industrial Portfolio remained
consistent for the nine months ended September 30, 1999 compared to the same
period in 1998. Real estate taxes from Industrial Properties increased $0.9
million, or 32.4% to $3.5 million for the nine months ended September 30, 1999
compared to $2.6 million for the nine months ended September 30, 1998. Of this
increase, $0.5 million was attributable to the Industrial Acquisitions and
Dispositions and the Industrial Development Properties. The remaining $0.4
million increase was generated by the Core Industrial Portfolio and was
primarily due to acquisition-related assessments on properties acquired by the
Company in 1997.
Net operating income, as defined, from Industrial Properties increased $6.8
million, or 28.7% to $30.6 million for the nine months ended September 30,
1999 compared to $23.8 million for the nine months ended September 30, 1998.
Of this increase, $6.4 million was generated by the Industrial Acquisitions
and Dispositions and the Industrial Development Properties. The remaining $0.4
million was generated by the Core Industrial Portfolio and represented a 2.3%
increase in net operating income for the Core Industrial Portfolio.
Non-Property Related Income and Expenses
Interest income decreased $0.3 million, or 27.8% to $0.9 million for the
nine months ended September 30, 1999 compared to $1.2 million for the nine
months ended September 30, 1998. The Company had higher outstanding cash
balances during 1998 due to proceeds received from equity offerings and
preferred unit transactions.
General and administrative expenses increased $1.3 million, or 23.3% to $6.8
million for the nine months ended September 30, 1999 compared to $5.5 million
for the nine months ended September 30, 1998 due to increased management,
administrative and personnel costs associated with the Company's increased
portfolio size.
Interest expense increased $3.8 million, or 25.8% to $18.4 million for the
nine months ended September 30, 1999 compared to $14.6 million for the
comparable period in 1998, primarily due to a net increase in aggregate
indebtedness. The Company's weighted average interest rate decreased 0.16% to
7.15% at September 30, 1999 as compared to 7.31% at September 30, 1998.
Depreciation and amortization increased $3.4 million, or 17.8% to $22.6
million for the nine months ended September 30, 1999 compared to $19.2 million
for the comparable period in 1998. The increase was due primarily to a full
nine months of depreciation on properties acquired during 1998, and
depreciation on properties developed by the Company during 1998 and 1999.
Liquidity and Capital Resources
As of September 30, 1999, the Company had borrowings of $290 million
outstanding under its revolving unsecured line of credit (the "Credit
Facility") and availability of approximately $41.1 million. In November 1999,
the Company increased its borrowing capacity and obtained a new $400 million
unsecured revolving credit
20
<PAGE>
facility (the "$400 million Credit Facility") to replace the existing $350
million Credit Facility which was scheduled to mature in February 2000. The
$400 million Credit Facility, which will bear interest at a rate between LIBOR
plus 1.13% and LIBOR plus 1.75% depending upon the Company's leverage ratio at
the time of borrowing, will mature in November 2002. The Company expects to
use the $400 million Credit Facility to finance development expenditures, to
fund acquisitions and for general corporate uses.
In March 1999, the Company borrowed $95.0 million under a mortgage loan that
is secured by nine office and industrial properties, requires monthly
principal and interest payments based on a fixed annual interest rate of
7.20%, amortizes over 25 years and matures in April 2009. The Company used the
proceeds from the mortgage loan to repay borrowings under the Credit Facility
and to fund development expenditures.
In April 1999, the Company borrowed $30.0 million under a mortgage loan that
is secured by one office property and the related ground leases, requires
monthly principal and interest payments based on a fixed annual interest rate
of 7.15% and matures in May 2017. The Company used the proceeds from the loan
to repay an existing variable rate mortgage loan with an outstanding balance
of $19.0 million, to repay outstanding borrowings under the Credit Facility
and to fund development expenditures.
In October 1999, the Company borrowed $90.0 million under a debt facility
that is secured by 13 office properties, requires monthly interest-only
payments based on a floating interest rate of LIBOR plus 1.75% and matures in
October 2003. The Company used the proceeds from the secured debt facility to
repay outstanding borrowings under the Credit Facility and to fund development
expenditures.
In September 1999, the SEC declared effective the Company's registration
statement on Form S-3 with respect to 1,000,000 shares of the Company's common
stock to be issued under the Company's Dividend Reinvestment and Direct
Purchase Plan (the "Plan"). The Plan, which is designed to provide the
Company's stockholders and other investors with a convenient and economical
method to purchase shares of the Company's common stock, consists of three
programs: the DRIP, the COPP and the WDP. The DRIP provides existing common
stockholders with the opportunity to purchase additional shares of the
Company's common stock by automatically reinvesting all or a portion of their
cash dividends. The COPP provides existing common stockholders and other
investors with the opportunity to purchase additional shares of the Company's
common stock by making optional cash purchases, at no discount to market,
between $100 to $5,000 and $750 to $5,000, respectively, in any calendar
month. The WDP provides existing common stockholders and other investors with
the opportunity to purchase additional shares of the Company's common stock by
making optional cash purchases, at a discount to market of up to 2.00% of the
average per share price reported on the NYSE, of greater than $5,000 in any
calendar month. The Plan will acquire shares of the Company's common stock
from either new issuances directly from the Company, from the open market or
from privately negotiated transactions, except for transactions executed under
the WDP which will be purchased only from previously unissued shares of common
stock. Participation in the Plan is entirely voluntary, and can be terminated
at any time. The Company intends to use the proceeds received from the Plan,
less transaction costs, for development and investment activities, repayment
of outstanding indebtedness and general corporate uses. As of September 30,
1999, there have been no shares issued under the Plan.
In February 1998, the SEC declared effective the Company's "shelf"
registration statement on Form S-3 with respect to $400 million of the
Company's equity securities. As of November 12, 1999, an aggregate of $313
million of equity securities were available for issuance under the
registration statement.
Capital Expenditures
As of September 30, 1999, the Company had approximately 1.1 million rentable
square feet of office space that was either under construction or committed
for construction at a total budgeted cost of approximately $219 million. The
Company has spent an aggregate of $78.9 million on these projects as of
September 30, 1999. The Company intends to finance the presently budgeted $140
million of remaining development costs with construction loan financing,
borrowings under the Credit Facility and working capital.
21
<PAGE>
In connection with an agreement signed with The Allen Group in October 1997,
the Company has agreed to purchase one office property encompassing 128,000
rentable square feet, subject to the property meeting certain occupancy
thresholds. The purchase price for this property will be determined at the
time of acquisition based on the property's net operating income at that time.
If the acquisition is completed, it would be financed with borrowings under
the Credit Facility and the issuance of common limited partnership units of
the Operating Partnership.
The agreement with The Allen Group also provides for the development of two
office projects in San Diego, California with approximately 1.1 million
aggregate rentable square feet for an estimated aggregate development cost of
approximately $150 million. During the first quarter of 1999, the Company
purchased a 50% managing interest in both of the development projects. The
Company has the option to purchase The Allen Group's remaining interest in
both projects for a purchase price to be determined upon completion of the
projects. Construction of phase I of the first office project was completed
during the second quarter of 1999. With respect to construction of the second
office project, phase I is scheduled to be completed during the fourth quarter
of 1999, phases II and III commenced during the second and third quarters of
1999, respectively, and phase IV is scheduled to begin during the second
quarter of 2000. The total presently budgeted investment of $87.0 million for
these four phases of the second office project is included in the total
budgeted cost of $219 million discussed above. The Company has spent an
aggregate of $32.3 million on these four phases as of September 30, 1999 which
is included in the total $78.9 million of expenditures discussed above. The
Company intends to finance the remaining development costs for these four
phases with construction loan financing and borrowing under the Credit
Facility.
The Company believes that it will have sufficient capital resources to
satisfy its obligations and planned capital expenditures for the next twelve
months. The Company expects to meet its long-term liquidity requirements
including possible future development and property acquisitions, through
retained cash flow, long-term secured and unsecured borrowings, the issuance
of debt or equity securities or the issuance of common or preferred units of
the Operating Partnership.
Building and Lease Information
The following tables set forth certain information regarding the Company's
Office and Industrial Properties at September 30, 1999:
Occupancy by Segment Type
<TABLE>
<CAPTION>
Square Feet
Number of -------------------------------
Region Buildings Total Leased Available Occupancy
- ------ --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Office Properties:
Los Angeles................. 28 2,554,365 2,362,882 191,483 92.5%
Orange County............... 27 1,021,882 823,990 197,892 80.6
San Diego................... 27 1,923,395 1,905,174 18,221 99.1
Other....................... 6 709,614 696,310 13,304 98.1
--- ---------- ---------- -------
88 6,209,256 5,788,356 420,900 93.2
--- ---------- ---------- -------
Industrial Properties:
Los Angeles................. 7 554,225 539,723 14,502 97.4
Orange County............... 66 4,423,353 4,307,719 115,634 97.4
San Diego................... 3 199,351 199,351 -- 100.0
Other....................... 12 1,173,925 1,153,986 19,939 98.3
--- ---------- ---------- -------
88 6,350,854 6,200,779 150,075 97.6
--- ---------- ---------- -------
Total Portfolio............. 176 12,560,110 11,989,135 570,975 95.5%
=== ========== ========== =======
</TABLE>
22
<PAGE>
Lease Expirations by Segment Type
<TABLE>
<CAPTION>
Percentage
of Total
Leased Annual Base
Total Square Square Feet Rent Under
Number of Footage of Represented Expiring
Expiring Expiring by Expiring Leases
Year of Lease Expiration Leases(1) Leases Leases(2) (in 000's)(3)
- ------------------------ --------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Office Properties:
Remaining 1999.................. 18 101,507 1.8% $ 1,647
2000............................ 104 433,901 7.7 7,644
2001............................ 98 1,079,395 19.1 15,221
2002............................ 66 608,176 10.7 9,063
2003............................ 36 219,551 3.9 3,827
2004............................ 41 736,421 13.0 16,448
--- --------- ---- -------
363 3,178,951 56.2 53,850
--- --------- -------
Industrial Properties:
Remaining 1999.................. 21 198,101 3.3 1,064
2000............................ 79 933,681 15.7 6,981
2001............................ 67 661,567 11.1 4,752
2002............................ 32 205,735 3.5 1,844
2003............................ 30 782,275 13.1 5,624
2004............................ 14 660,432 11.1 4,779
--- --------- ---- -------
243 3,441,791 57.8 25,044
--- --------- -------
Total Portfolio................. 606 6,620,742 57.0% $78,894
=== ========= =======
</TABLE>
- --------
(1) Represents the total number of tenants. Some tenants have multiple leases.
Excludes leases for amenity, retail, parking and month to month tenants.
(2) Based on total leased square footage for the respective portfolios as of
September 30, 1999.
(3) Determined based upon aggregate base rent to be received over the term,
divided by the term in months, multiplied by 12, including all leases
executed on or before October 1, 1999.
Leasing Activity by Segment Type
<TABLE>
<CAPTION>
Number of Weighted
Leases Square Feet Average
----------- --------------- Retention Lease Term
New Renewal New(1) Renewal Rate (in months)
--- ------- ------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
For the Three Months Ended
September 30, 1999:
Office Properties........... 26 17 157,842 56,833 34.3% 59
Industrial Properties....... 15 9 54,596 68,542 79.0 54
--- --- ------- ------- ---- ---
Total Portfolio............. 41 26 212,438 125,375 49.7% 57
=== === ======= ======= ==== ===
For the Nine Months Ended
September 30, 1999:
Office Properties........... 64 55 492,917 375,287 43.0% 68
Industrial Properties....... 58 38 442,787 305,774 55.5 53
--- --- ------- ------- ---- ---
Total Portfolio............. 122 93 935,704 681,061 47.8% 61
=== === ======= ======= ==== ===
</TABLE>
- --------
(1) The lease-up of 212,438 and 935,704 square feet to new tenants for the
three and nine months ended September 30, 1999, respectively, includes re-
leasing of 169,519 and 608,895 square feet, respectively, and first
generation leasing of 42,919 and 326,809 square feet, respectively.
23
<PAGE>
Historical Cash Flows
The Company's net cash provided by operating activities increased $3.8
million, or 6.8% to $58.3 million for the nine months ended September 30, 1999
compared to $54.5 million for the nine months ended September 30, 1998. The
increase was primarily due to the increase in net income resulting from the
1998 Office and Industrial Acquisitions and the Office and Industrial
Development Properties and an increase in net operating income, as defined,
generated by the Core Office and Industrial Portfolios. The increase was
partially offset by increased interest expense and general and administrative
expenses and a decrease in interest income.
Cash used in investing activities decreased $146 million, or 51.5% to $138
million for the nine months ended September 30, 1999 compared to $284 million
for the nine months ended September 30, 1998. Cash used in investing
activities for the nine months ended September 30, 1999 consisted primarily of
the purchase of two office properties for $24.7 million (net of $3.6 million
of contributed value in exchange for which the Company issued common limited
partnership units of the Operating Partnership and the satisfaction of an
existing $2.3 million note receivable), the purchase of the minority interest
in one office complex for $1.2 million, the purchase of 12 acres of
undeveloped land for $4.7 million (net of $2.5 million of contributed value in
exchange for which the Company issued common units of the Operating
Partnership), the acquisition of a 50% interest in 55 acres of undeveloped
land for $16.1 million (net of $3.8 million of contributed value in exchange
for which the Company issued common limited partnership units of the Operating
Partnership), expenditures for construction in progress of $94.8 million and
$11.4 million in additional tenant improvements and capital expenditures, net
of the sale of two industrial properties for $11.0 million and the sale of 13
acres of undeveloped land in two separate transactions for $5.1 million. Cash
used in investing activities for the nine months ended September 30, 1998
consisted primarily of the purchase of 38 office and industrial properties for
$208 million (net of $13.5 million of contributed value in exchange for which
the Company issued common units of the Operating Partnership), the purchase of
51 acres of undeveloped land for $21.9 million (net of $2.5 million of
contributed value in exchange for which the Company issued common units of the
Operating Partnership), disbursements for notes receivable from related
parties of $2.2 million, expenditures for construction in progress of $43.4
million and $8.2 million in additional tenant improvements and capital
expenditures.
Cash provided by financing activities decreased $168 million, or 67.8% to
$79.8 million for the nine months ended September 30, 1999 compared to $248
million for the nine months ended September 30, 1998. Cash provided by
financing activities for the nine months ended September 30, 1999 consisted
primarily of $121 million in net proceeds from the issuance of mortgage debt
and net borrowings under the Credit Facility partially offset by $40.0 million
in distributions paid to common stockholders and common unitholders. Cash
provided by financing activities for the nine months ended September 30, 1998
consisted of net proceeds of $82.1 million from common stock offerings, net
proceeds of $73.0 million from the issuance of 8.075% Series A Cumulative
Redeemable Preferred units, and $130 million in net proceeds from the issuance
of mortgage debt and borrowings under the Credit Facility, partially offset by
$36.0 million in distributions paid to common stockholders and common
unitholders.
Funds from Operations
Industry analysts generally consider Funds From Operations, as defined by
NAREIT, an alternative measure of performance for an equity REIT. Funds From
Operations is defined by NAREIT to mean net income (loss) before minority
interests of common unitholders (computed in accordance with GAAP), excluding
gains (or losses) from debt restructuring and sales of property, plus real
estate related depreciation and amortization (excluding amortization of
deferred financing costs and depreciation of non-real estate assets), and
after adjustment for unconsolidated partnerships and joint ventures. The
Company considers Funds From Operations an appropriate measure of performance
of an equity REIT because it is predicated on cash flow analyses. The Company
believes that in order to facilitate a clear understanding of the historical
operating results of the Company, Funds From Operations should be examined in
conjunction with net income as presented in the financial statements included
elsewhere in this report. The Company computes Funds From Operations in
24
<PAGE>
accordance with standards established by the Board of Governors of NAREIT in
its March 1995 White Paper, which may differ from the methodologies used by
other equity REITs and, accordingly, may not be comparable to Funds From
Operations published by such other REITs. Funds From Operations should not be
considered as an alternative to net income (loss) (computed in accordance with
GAAP) as an indicator of the properties' financial performance or to cash flow
from operating activities (computed in accordance with GAAP) as an indicator
of the properties' liquidity, nor is it indicative of funds available to fund
the properties' cash needs, including the Company's ability to pay dividends
or make distributions.
The following table presents the Company's Funds From Operations for the
three and nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C>
Net income................................... $10,911 $ 9,985 $31,617 $28,649
Adjustments:
Minority interest in earnings of
Operating Partnership................... 1,830 1,451 5,186 4,093
Depreciation and amortization............ 7,900 6,740 22,577 19,159
Gain on sale of operating properties..... (75) (75)
Other.................................... 127 175 381 405
------- ------- ------- -------
Funds From Operations........................ $20,693 $18,351 $59,686 $52,306
======= ======= ======= =======
</TABLE>
Inflation
The majority of the Company's tenant leases require tenants to pay most
operating expenses, including real estate taxes and insurance, and increases
in common area maintenance expenses, which reduce the Company's exposure to
increases in costs and operating expenses resulting from inflation.
Year 2000
The Year 2000 issue ("Y2K") refers to the inability of certain computer
systems, as well as certain hardware and equipment containing date sensitive
data, to recognize accurate dates commencing on or after January 1, 2000. This
has the potential to affect those systems adversely. In 1997, the Company's
Information Technology Committee, which is comprised of representatives from
senior management and various departments including accounting, property
management and information systems, identified three phases in the Company's
Y2K efforts: discovery and assessment, remediation and implementation, and
testing and verification. Although many of the phases were completed
simultaneously, the following sections describe the activities that the
Company has performed to meet its Y2K objectives, as well as management's
assessment of the Company's risk of non-compliance.
The Company's State of Readiness
The initial phase of discovery and assessment consists of evaluating and
identifying all of the Company's information technology and non-information
technology systems that contain date sensitive data. The following summary
describes the classifications of systems that were identified and the
Company's current state of readiness for each classification.
Information Technology Systems
The Company's information technology systems fall into three general
categories: accounting and property management systems, network operating
systems, and desktop software. The Company replaced its accounting and
property management system, acquired all new network hardware and software,
and updated all of its
25
<PAGE>
desktop systems and software after its IPO in early 1997. The new accounting
and property management system, which was tested upon its implementation in
1997, and all the Company's network hardware and software, desktop systems and
software packages are Y2K compliant as asserted by the software vendors. In
addition, management performed additional testing during 1999 by setting the
dates in the operating system and the accounting and property management
system ahead to the year 2000. Management believes there is no material Y2K
exposure with respect to its information technology systems.
Building Management Systems
The Company has identified five categories of building management systems
that could have potential Y2K exposure: building automation (e.g., HVAC),
security card access, fire and life safety, elevator, and office equipment.
During 1998, property management executives and personnel gathered data to
identify all of the Company's Y2K sensitive building management systems and to
assess whether such systems were Y2K compliant or would need to be modified or
replaced. Management completed the discovery and assessment phase and
determined the Company's state of readiness as to building management systems
in early 1999. During this process, management identified which building
systems needed system upgrades. In two cases, management determined that due
to the age of certain building automation systems, system replacement,
regardless of Y2K compliance, would be more appropriate. Management completed
the remediation and implementation phase and the testing and verification
phase in October 1999, except for the replacement and testing of the energy
management system at the Company's Kilroy Airport Center, El Segundo property,
where the Company's corporate headquarters are located. Management expects to
complete the replacement and testing of this building management system by the
end of November 1999.
Costs to Address the Company's Y2K Efforts
The replacement of the accounting and property management system, the
acquisition of new network hardware and software and the installation of
updated desktop systems and software was performed as a result of the Company
becoming a publicly traded REIT and not in response to Y2K compliance issues.
Phase 1 of the building management systems efforts were performed by 13
salaried Company employees who are not paid for overtime and who management
estimates spent approximately 10% of their annual working hours over a 2 to 3
year period focusing on Y2K compliance issues. Consequently, the Company's Y2K
costs incurred have been minimal to date and have not been material to the
Company's financial position or results of operations. In addition, management
believes that future Y2K expenses will also be minimal and will not have a
material effect on the Company's financial position or results of operations.
Further, management believes that a significant portion of the costs to
complete phases 2 and 3 for the building management systems will be treated as
operating expenses and reimbursed to the Company under most tenant leases.
Efforts to Identify the Y2K Issues of Significant Third Parties
Due to the Company's diverse tenant base, the success of the Company's
business is not closely tied to the success of any one particular tenant.
Accordingly, management believes that there would not be a material adverse
effect on the Company's financial condition and results of operations if any
one of its tenants ceased to conduct business and pay rent due to Y2K related
problems. This would not necessarily be the case, however, if Y2K problems
affected the financial condition of a number of the Company's tenants.
Consequently, the Company distributed surveys to all of its tenants to
investigate whether any of them had identified Y2K system exposure that would
result in the interruption of the Company's operations. Based on the responses
received, including those from the Company's ten largest office tenants and
ten largest industrial tenants, which covered approximately 28.8% of the
Company's aggregate annual base rental revenue, management is not aware of any
material Y2K issues with respect to its tenants. As part of its efforts to
keep its tenants advised as to the steps the Company is taking to address Y2K
problems, the Company has requested that tenants advise management of any
significant Y2K readiness issues as they become apparent. To date, no tenants
have advised the Company of any such problems.
26
<PAGE>
The success of the Company's business is not closely tied to the success of
any one particular vendor, supplier or manufacturer. Accordingly, if any of
the Company's vendors, suppliers or manufacturers ceased to conduct business
as a result of Y2K related issues, the Company expects it would be able to
contract with alternative providers without experiencing any material adverse
effect on the Company's financial condition and results of operations.
The Risks of Y2K Non-Compliance
Management does not believe that the impact of the Y2K issue will have a
material adverse effect on the Company's financial condition or results of
operations. This belief is based upon both the analysis of the Company's Y2K
issues and the Company's assessment of the Y2K exposure related to tenants,
vendors, and other significant third parties as discussed above. No assurance
can be given about facts and resultant effects of Y2K issues unknown to the
Company at this time.
The Company's worst case Y2K scenario would be that the Company's
information and building management systems fail. In the event that the
Company's information systems fail, the Company would be forced to manually
perform its accounting and property management record-keeping functions until
the information systems could be restored. In the event that the Company's
building management systems fail, the Company's tenants would not have access
to or be able to conduct their normal business activities at the Company's
properties until the building management systems could be restored or manually
overridden. These events could have a material adverse effect on the Company's
financial position and results of operations.
Developing Contingency Plans
The Company's contingency plan, which focuses on the potential failure of
building management systems, consists primarily of the strategic deployment of
teams consisting of property managers and facility engineers to monitor the
Company's properties. In the event of a Y2K building management systems
failure, these teams would be available to manually by-pass or override the
building management systems until such systems could be adequately repaired or
replaced. In addition, the Company has contacted each of its significant
building management systems vendors and security services vendors and has been
assured that they will commit additional support in the event it is necessary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Changes in Primary Risk Exposures
In March 1999, the Company entered into a fixed rate mortgage loan with a
principal balance of $95.0 million, monthly principal and interest payments
based upon a fixed interest rate of 7.20% and a 25-year amortization schedule,
and a maturity date of April 2009. The Company used a portion of the proceeds
from this fixed rate mortgage loan to repay borrowings under its existing
variable rate Credit Facility. In April 1999, the Company entered into a
second fixed rate mortgage loan with a principal balance of $30.0 million,
monthly principal and interest payments based upon a fixed annual interest
rate of 7.15% and a maturity date of May 2017. The Company used the proceeds
from this $30.0 million fixed rate mortgage loan to pay off an existing $19.0
million variable rate mortgage loan and to repay borrowings under its existing
variable rate Credit Facility. As a result of the execution of the two new
mortgage loans totaling $125 million and the simultaneous repayment of a
portion of borrowings outstanding under the Credit Facility and a $19.0
million variable rate mortgage loan, the Company's ratio of fixed rate debt to
total debt (excluding Cumulative Redeemable Preferred units) increased 16.7%
from 28.2% at December 31, 1998 to 44.9% at September 30, 1999.
In October 1999, the Company executed a floating rate secured debt facility
with a principal balance of $90.0 million, monthly interest-only payments
based upon a floating rate of LIBOR plus 1.75%, and a maturity date of October
2003. The Company used the proceeds from the new $90.0 million secured debt
facility to repay borrowings under its existing variable rate Credit Facility
and to fund development expenditures. In November 1999, the Company increased
its borrowing capacity and obtained a new $400 million variable rate unsecured
27
<PAGE>
revolving Credit Facility to replace the existing $350 million variable rate
Credit Facility which was scheduled to mature in February 2000. While the new
$400 million Credit Facility is also a LIBOR based variable rate facility and
therefore does not change the Company's interest rate risk profile, the
maturity date of the $400 million Credit Facility extends to November 2002. As
a result of the execution of the new $90.0 million secured debt facility, the
Company's ratio of fixed rate debt to total debt (excluding Cumulative
Redeemable Preferred units) decreased 2.0% from 44.9% at September 30, 1999 to
42.9% at October 31, 1999.
The tabular presentation below provides information about the Company's
interest rate sensitive financial and derivative instruments as of September
30, 1999. All of the Company's interest rate sensitive financial and
derivative instruments are designated as held for purposes other than trading.
For the Credit Facility, the table presents the assumption that the
outstanding principal balance at September 30, 1999 will be paid in November
2002, the maturity date under the Company's new $400 million Credit Facility.
The table also presents the related expected maximum interest rate index for
outstanding Credit Facility borrowings under the new $400 million Credit
Facility in 1999 through 2002.
For fixed rate mortgage debt, the table presents the assumption that the
outstanding principal balance at September 30, 1999 will be paid according to
scheduled contractual principal payments and that the Company will not prepay
any of the outstanding principal balance. The table also presents the related
weighted-average interest rate for outstanding fixed rate mortgage debt
borrowings from 1999 through 2003 and thereafter. The Company had no
outstanding variable rate mortgage debt at September 30, 1999.
For the Series A and Series C Cumulative Redeemable Preferred units (the
"Preferred units"), the table presents reflects the assumption that the
Company is not contractually obligated to repay the outstanding balance of the
Preferred units since the Preferred units will either remain outstanding or be
converted into shares of the Company's 8.075% Series A and 9.375% Series C
Cumulative Redeemable Preferred stock, respectively, in 2008 when the
Preferred units become exchangeable at the option of the majority of the
holders. The table also presents the related weighted-average interest rate
for outstanding Preferred units from 1999 through 2003 and thereafter.
28
<PAGE>
For interest rate caps, the table presents notional amounts, average cap
rates and the related interest rate index upon which cap rates are based, by
contractual maturity date. Notional amounts are used solely to calculate the
contractual cash flow to be received under the contract and do not reflect
outstanding principal balances at September 30, 1999.
Interest Rate Risk Analysis-Tabular Presentation
Financial Assets and Liabilities
Outstanding Principal by Expected Maturity Date
(dollars in millions)
<TABLE>
<CAPTION>
Maturity Date
------------------------------------------------------
Fair Value
There- at Sept. 30,
1999 2000 2001 2002 2003 after Total 1999
------ ------ ------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Line of credit:
Variable rate............... $290.0 $290.0 $290.0
Average interest rate index. LIBOR LIBOR LIBOR LIBOR
+1.50% +1.50% +1.50% +1.50%
Mortgage debt:
Fixed rate.................. $ 1.0 $ 4.8 $ 5.1 $ 5.6 $ 6.1 $214.1 $236.7 $232.4
Average interest rate....... 7.75% 7.75% 7.75% 7.75% 7.75% 7.75%
Series A and C Preferred
units:
Fixed rate..................
Average interest rate....... 8.49% 8.49% 8.49% 8.49% 8.49% 8.49% $ 98.3
</TABLE>
Interest Rate Risk Analysis-Tabular Presentation
Financial Derivative Instruments
Notional Amounts by Contractual Maturity
(dollars in millions)
<TABLE>
<CAPTION>
Maturity Date
-----------------------------------------
Fair Value at
There- Sept. 30,
1999 2000 2001 2002 2003 after Total 1999
----- ------ ---- ---- ---- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate
Derivatives Used to
Hedge the Line of Cred-
it:
Interest rate cap
agreements:
Notional amount....... $150.0 $150.0 $0.1
Cap rate.............. 6.50% 6.50%
Forward rate index.... LIBOR LIBOR
</TABLE>
29
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the three and nine months ended September 30, 1999, no legal
proceedings were initiated against or on behalf of the Company, which if
determined unfavorably to the Company, would have a material adverse effect
upon the financial condition, results of operations and cash flows of the
Company.
ITEM 2. CHANGES IN SECURITIES
During the third quarter of 1999, common limited partnership unitholders of
the Operating Partnership exchanged 25,000 common limited partnership units
into shares of the Company's common stock on a one-for-one basis. The 25,000
shares of common stock issued in exchange for the common limited partnership
units were issued in reliance upon an exemption from registration provided by
Regulation D under the Securities Act as a transaction by an issuer not
involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--None
ITEM 5. OTHER INFORMATION--None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*10.1 Second Amended and Restated Revolving Credit Agreement and Form of
Notes Aggregating $400 million.
*10.2 Second Amended and Restated Guaranty of Payment.
*10.3 Credit Agreement and Form of Promissory Notes Aggregating $90.0
million.
*10.4 Variable Interest Rate Deed of Trust, Leasehold Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing.
*10.5 Guaranty of Recourse Obligations of Borrowing.
*27.1 Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
(b) Reports on Form 8-K--None
30
<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 on November 12,
1999.
Kilroy Realty Corporation
/s/ John B. Kilroy, Jr
By: _________________________________
John B. Kilroy, Jr.
President and Chief
Executive Officer
(Principal Executive Officer)
/s/ Richard E. Moran Jr.
By: _________________________________
Richard E. Moran Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Ann Marie Whitney
By: _________________________________
Ann Marie Whitney
Vice President and Controller
(Principal Accounting Officer)
31
<PAGE>
EXHIBIT 10.1
_________________________________________________________
_________________________________________________________
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
dated as of November 8, 1999
among
KILROY REALTY, L.P.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Bank and as Administrative Agent for the Banks,
THE CHASE MANHATTAN BANK,
as Bank and as Documentation Agent,
J.P. MORGAN SECURITIES INC.,
as Syndication Agent, Lead Arranger and
Joint Bookmanager
CHASE SECURITIES INC.,
as Lead Arranger and Joint Bookmanager,
BANK ONE, N.A., PNC BANK, NATIONAL ASSOCIATION,
FIRST UNION BANK AND COMMERZBANK AKTIENGESELLSCHAFT,
NEW YORK AND GRAND CAYMAN BRANCHES,
each, as Managing Agent,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES
THE BANK OF NOVA SCOTIA, KEYBANK NATIONAL ASSOCIATION
and UNION BANK OF CALIFORNIA, each, as Co-Agent,
and
THE BANKS LISTED HEREIN
_________________________________________________________
_________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS.......................................................... 3
Section 1.1. Definitions............................................................. 3
Section 1.2. Accounting Terms and Determinations.....................................32
Section 1.3. Types of Borrowings.....................................................32
ARTICLE II THE CREDITS.........................................................33
Section 2.1. Commitments to Lend.....................................................33
Section 2.2. Notice of Committed Borrowing...........................................33
Section 2.3. Money Market Borrowings.................................................36
Section 2.4. Notice to Banks; Funding of Loans.......................................41
Section 2.5. Notes...................................................................43
Section 2.6. Maturity of Loans.......................................................44
Section 2.7. Interest Rates..........................................................44
Section 2.8. Fees....................................................................46
Section 2.9. Mandatory Termination...................................................48
Section 2.10. Mandatory Prepayment....................................................48
Section 2.11. Optional Prepayments....................................................50
Section 2.12. General Provisions as to Payments.......................................52
Section 2.13. Funding Losses..........................................................53
Section 2.14. Computation of Interest and Fees........................................53
Section 2.15. Method of Electing Interest Rates.......................................54
Section 2.16. Letters of Credit.......................................................55
Section 2.17. Letter of Credit Usage Absolute.........................................59
ARTICLE III CONDITIONS.........................................................61
Section 3.1. Closing.................................................................61
Section 3.2. Borrowings..............................................................63
Section 3.3. New Acquisitions and Additional Real Property Assets....................64
ARTICLE IV REPRESENTATIONS AND WARRANTIES......................................66
Section 4.1. Existence and Power.....................................................66
Section 4.2. Power and Authority.....................................................66
Section 4.3. No Violation............................................................67
Section 4.4. Financial Information...................................................67
Section 4.5. Litigation..............................................................68
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4.6. Compliance with ERISA...................................................68
Section 4.7. Environmental Compliance................................................69
Section 4.8. Taxes...................................................................71
Section 4.9. Full Disclosure.........................................................71
Section 4.10. Solvency................................................................71
Section 4.11. Use of Proceeds; Margin Regulations.....................................71
Section 4.12. Governmental Approvals..................................................72
Section 4.13. Investment Company Act; Public Utility Holding Company Act..............72
Section 4.14. Closing Date Transactions...............................................72
Section 4.15. Representations and Warranties in Loan Documents........................72
Section 4.16. Patents, Trademarks, etc................................................72
Section 4.17. No Default..............................................................73
Section 4.18. Licenses, etc...........................................................73
Section 4.19. Compliance With Law.....................................................73
Section 4.20. No Burdensome Restrictions..............................................73
Section 4.21. Brokers' Fees...........................................................74
Section 4.22. Labor Matters...........................................................74
Section 4.23. Organizational Documents................................................74
Section 4.24. Principal Offices.......................................................74
Section 4.25. REIT Status.............................................................74
Section 4.26. Ownership of Property...................................................75
Section 4.27. Insurance...............................................................75
ARTICLE V AFFIRMATIVE AND NEGATIVE COVENANTS...................................75
Section 5.1. Information.............................................................75
Section 5.2. Payment of Obligations..................................................79
Section 5.3. Maintenance of Property; Insurance......................................79
Section 5.4. Conduct of Business.....................................................80
Section 5.5. Compliance with Laws....................................................80
Section 5.6. Inspection of Property, Books and Records...............................80
Section 5.7. Existence...............................................................81
Section 5.8. Financial Covenants.....................................................81
Section 5.9. Restriction on Fundamental
Changes; Operation and Control..........................................83
Section 5.10. Changes in Business.....................................................83
Section 5.11. Sale of Unencumbered Asset
Pool Properties.........................................................83
Section 5.12. Fiscal Year; Fiscal Quarter.............................................84
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 5.13. Margin Stock...........................................................84
Section 5.14. Development Activities.................................................84
Section 5.15. Interest Rate Protection...............................................84
Section 5.16. Joint Ventures.........................................................85
Section 5.17. Investments in Unimproved Real Property................................85
Section 5.18. Use of Proceeds........................................................85
Section 5.19. General Partner Status.................................................85
Section 5.20. Certain Requirements for the Unencumbered Asset Pool...................85
ARTICLE VI DEFAULTS...........................................................86
Section 6.1. Events of Default......................................................86
Section 6.2. Rights and Remedies....................................................90
Section 6.3. Notice of Default......................................................91
Section 6.4. Actions in Respect of Letters of Credit................................91
ARTICLE VII THE LEAD AGENT....................................................94
Section 7.1. Appointment and Authorization..........................................94
Section 7.2. Lead Agent and Affiliates..............................................94
Section 7.3. Action by Lead Agent...................................................94
Section 7.4. Consultation with Experts..............................................95
Section 7.5. Liability of Lead Agent................................................95
Section 7.6. Indemnification........................................................95
Section 7.7. Credit Decision........................................................96
Section 7.8. Successor Lead Agent...................................................96
Section 7.9. Lead Agent's Fee.......................................................97
Section 7.10. Copies of Notices......................................................97
ARTICLE VIII CHANGE IN CIRCUMSTANCES..........................................97
Section 8.1. Basis for Determining Interest Rate Inadequate or Unfair...............97
Section 8.2. Illegality.............................................................98
Section 8.3. Increased Cost and Reduced Return......................................99
Section 8.4. Taxes.................................................................101
Section 8.5. Base Rate Loans Substituted for Affected Euro-Dollar Loans............104
ARTICLE IX MISCELLANEOUS.....................................................104
Section 9.1. Notices................................................................104
Section 9.2. No Waivers.............................................................105
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 9.3. Expenses; Indemnification..............................................105
Section 9.4. Sharing of Set-Offs....................................................107
Section 9.5. Amendments and Waivers.................................................108
Section 9.6. Successors and Assigns.................................................109
Section 9.7. Governing Law; Submission to Jurisdiction..............................112
Section 9.8. Marshaling; Recapture..................................................113
Section 9.9. Counterparts; Integration; Effectiveness...............................113
Section 9.10. WAIVER OF JURY TRIAL...................................................114
Section 9.11. Survival...............................................................114
Section 9.12. Domicile of Loans......................................................114
Section 9.13. Limitation of Liability................................................114
Section 9.14. No Bankruptcy Proceedings..............................................114
</TABLE>
iv
<PAGE>
Exhibit A - Form of Note
Exhibit A-1 - Form of Note
Exhibit B - Unencumbered Asset Pool Properties (Fee Interests)
Exhibit C - Unencumbered Asset Pool Properties (Leasehold Interests)
Exhibit D - Form of Assignment and Assumption Agreement
Exhibit E - Form of Money Market Quote Request
Exhibit F - Form of Invitation for Money Market Quotes
Exhibit G - Form of Money Market Quote
Exhibit H - Form of Designation Agreement
Schedule 4.22 - Labor Matters
v
<PAGE>
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as of
November 8, 1999, among KILROY REALTY, L.P. (the "Borrower"), MORGAN GUARANTY
--------
TRUST COMPANY OF NEW YORK, as Bank and as Administrative Agent for the Banks
("Lead Agent"), THE CHASE MANHATTAN BANK, as Bank and as Documentation Agent,
-----------
J.P. MORGAN SECURITIES INC., as Syndication Agent, Lead Arranger and Joint
Bookmanager, CHASE SECURITIES INC., as Lead Arranger and Joint Bookmanager, BANK
ONE, N.A., PNC BANK, NATIONAL ASSOCIATION, FIRST UNION BANK and COMMERZBANK
AKTIENGESELL-SCHAFT, NEW YORK AND GRAND CAYMAN BRANCHES, each, as Managing
Agent, DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, THE BANK OF NOVA
SCOTIA, KEYBANK NATIONAL ASSOCIATION and UNION BANK OF CALIFORNIA, each, as Co-
Agent and the BANKS listed on the signature pages hereof (the "Banks").
-----
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Lead Agent and the Banks entered into a
Revolving Credit Agreement, dated as of February 24, 1998, which was amended and
restated in its entirety by that certain Amended and Restated Revolving Credit
Agreement, dated as of October 9, 1998 (the "Existing Credit Agreement"); and
-------------------------
WHEREAS, the parties hereto have agreed to amend and restate the terms
and conditions contained in the Existing Credit Agreement in their entirety as
hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
I. The Existing Credit Agreement is hereby modified so that all of
the terms and conditions of the aforesaid Existing Credit Agreement shall be
restated in their entirety as set forth herein, and the Borrower agrees to
comply with and be subject to all of the terms, covenants and conditions of this
Agreement.
II. This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and assigns, and shall be
deemed to be effective as of the date hereof.
III. Any reference in the Notes, any other Loan Document or any other
document executed in connection with this Agreement to the Existing Credit
Agreement shall be deemed to refer to this Agreement.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section I.1. Definitions. The following terms, as used herein, have
-----------
the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes
---------------------
setting forth Money Market Absolute Rates pursuant to Section 2.3.
"Adjusted London Interbank Offered Rate" has the meaning set forth in
--------------------------------------
Section 2.7(b).
"Adjustment Date" shall mean the date that the Borrower receives an
---------------
Investment Grade Rating for its unsecured senior long term indebtedness from at
least two (2) Rating Agencies, at least one (1) of which shall be either S&P or
Moody's.
2
<PAGE>
"Administrative Questionnaire" means, with respect to each Bank, an
----------------------------
administrative questionnaire in the form prepared by the Lead Agent and
submitted to the Lead Agent (with a copy to the Borrower) duly completed by such
Bank.
"Agreement" means this Second Amended and Restated Revolving Credit
---------
Agreement as the same may from time to time hereafter be modified, supplemented
or amended.
"Annual EBITDA" means, measured as of the last day of each calendar
-------------
quarter, an amount derived from (i) total revenues relating to all Real Property
Assets of the Borrower, the General Partner and their Consolidated Subsidiaries
or to the Borrower's or the General Partner's interest in Minority Holdings for
the previous four consecutive calendar quarters including the quarter then
ended, on an accrual basis with adjustments for the straight-lining of rents,
plus (ii) interest and other income of the Borrower, the General Partner and
- ----
their Consolidated Subsidiaries, including, without limitation, real estate
service revenues, for such period, less (iii) total operating expenses and other
----
expenses relating to such Real Property Assets and to the Borrower's and the
General Partner's interest in Minority Holdings for such period (other than
interest, taxes, depreciation, amortization, and other non-cash items), less
----
(iv) total corporate operating expenses (including general overhead expenses)
and other expenses of the Borrower, the General Partner, their Consolidated
Subsidiaries and the Borrower's and the General Partner's interest in Minority
Holdings (other than interest, taxes, depreciation, amortization and other non-
cash items), for such period.
"Applicable Interest Rate" means the lesser of (x) the rate at which
------------------------
the interest rate applicable to any floating rate Debt could be fixed, at the
time of calcu-
3
<PAGE>
lation, by the Borrower entering into an unsecured interest rate swap agreement
(or, if such rate is incapable of being fixed by entering into an unsecured
interest rate swap agreement at the time of calculation, a reasonably determined
fixed rate equivalent), and (y) the rate at which the interest rate applicable
to such floating rate Debt is actually capped, at the time of calculation, if
the Borrower has entered into an interest rate cap agreement with respect
thereto or if the documentation for such Debt contains a cap.
"Applicable Lending Office" means, with respect to any Bank, (i) in
-------------------------
the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office, and (iii) in the case
of its Money Market Loans, its Money Market Lending Office.
"Applicable Margin" means, prior to the Adjustment Date, with respect
-----------------
to each Euro-Dollar Loan, the respective percentages per annum determined, at
any time, based on the range into which the Total Debt Ratio then falls, in
accordance with the table set forth below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Total Debt Ratio Applicable Margin for Euro-
Dollar Loans (% per annum)
- -----------------------------------------------------------------------------
<S> <C>
less than 25% 1.125%
- -----------------------------------------------------------------------------
equal to or greater than 25% 1.25%
but less than 35%
- -----------------------------------------------------------------------------
equal to or greater than 35% 1.375%
but less than 45%
- -----------------------------------------------------------------------------
equal to or greater than 45% 1.50%
but less than 50%
- -----------------------------------------------------------------------------
equal to or greater than 50% 1.75%
but less than 55%
- -----------------------------------------------------------------------------
</TABLE>
4
<PAGE>
From and after the Adjustment Date, the Applicable Margin with respect to each
Euro-Dollar Loan shall mean the respective percentages per annum determined, at
any time, based on the range into which the Borrower's Credit Rating (if any)
then falls, in accordance with the table set forth below. Any change in the
Borrower's Credit Rating shall be effective immediately as of the date on which
any of the Rating Agencies announces a change in the Borrower's Credit Rating or
the date on which the Borrower (or, as applicable, the General Partner) has no
credit rating, whichever is applicable. In the event that the Borrower (or, as
applicable, the General Partner) receives two (2) credit ratings that are not
equivalent, the Applicable Margin shall be determined by the lower of such two
(2) credit ratings. In the event that Borrower (or, as applicable, the General
Partner) receives more than two (2) credit ratings and such credit ratings are
not equivalent, the Applicable Margin shall be determined by the lower of the
two (2) highest ratings, provided that each of said two (2) highest ratings
shall be Investment Grade Ratings and at least one of which shall be an
Investment Grade Rating from S&P or Moody's.
5
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Borrower's Credit Rating Applicable Margin for Euro-Dollar
(S&P/Moody's Ratings) Loans (% per annum)
- -----------------------------------------------------------------------------
<S> <C>
BBB+/Baa1 1.00%
- -----------------------------------------------------------------------------
BBB/Baa2 (or better) 1.10%
- -----------------------------------------------------------------------------
BBB-/Baa3 1.20%
- -----------------------------------------------------------------------------
Less than Investment Grade Rating 1.675%
- -----------------------------------------------------------------------------
</TABLE>
"Assignee" has the meaning set forth in Section 9.6(c).
--------
"Bank" means each bank listed on the signature pages hereof, each
----
Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective
successors and each Designated Lender; provided, however, that the term "Bank"
----
shall exclude each Designated Lender when used in reference to a Committed Loan,
the Commitments or terms relating to the Committed Loans and the Commitments and
shall further exclude each Designated Lender for all other purposes hereunder
except that any Designated Lender which funds a Money Market Loan shall, subject
to Section 9.6(d), have the rights (including the rights given to a Bank
contained in Section 9.3 and otherwise in Article 9) and obligations of a Bank
associated with holding such Money Market Loan.
"Bank Due Diligence Package" has the meaning provided in Section 3.3.
--------------------------
"Bankruptcy Code" means Title 11 of the United States Code, entitled
---------------
"Bankruptcy", as amended from time to time, and any successor statute or
statutes.
6
<PAGE>
"Base Rate" means, for any day, a rate per annum equal to the higher
---------
of (i) the Prime Rate for such day and (ii) the sum of the Federal Funds Rate
plus .50%.
"Base Rate Borrowing" means a Borrowing comprised of Base Rate Loans.
-------------------
"Base Rate Loan" means a Committed Loan to be made by a Bank as a Base
--------------
Rate Loan in accordance with the applicable Notice of Borrowing or pursuant to
Article VIII.
"Benefit Arrangement" means at any time an employee benefit plan
-------------------
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means Kilroy Realty, L.P. and its successors.
--------
"Borrower's Credit Rating" means the rating assigned by the Rating
------------------------
Agencies to the General Partner's or the Borrower's senior unsecured long term
indebtedness.
"Borrowing" has the meaning set forth in Section 1.3.
---------
"Capital Expenditures" means, for any period, the sum of all
--------------------
expenditures (whether paid in cash or accrued as a liability) by the Borrower
which are capitalized on the consolidated balance sheet of the Borrower in
conformity with GAAP, but less (i) all expenditures made with respect to the
acquisition by the Borrower and its Consolidated Subsidiaries of any interest in
real property within nine months after the date such interest in real property
is acquired and (ii) capital expenditures made from the proceeds of insurance or
condemnation
7
<PAGE>
awards (or payments in lieu thereof) or indemnity payments received during such
period by Borrower or any of its Consolidated Subsidiaries from third parties.
"Cash or Cash Equivalents" means (i) cash, (ii) direct obligations of
------------------------
the United States Government, including, without limitation, treasury bills,
notes and bonds, (iii) interest bearing or discounted obligations of Federal
agencies and Government sponsored entities or pools of such instruments offered
by banks rated AA or better by S&P or Aa2 by Moody's and dealers, including,
without limitation, Federal Home Loan Mortgage Corporation participation sale
certificates, Government National Mortgage Association modified pass-through
certificates, Federal National Mortgage Association bonds and notes, Federal
Farm Credit System securities, (iv) time deposits, domestic and Eurodollar
certificates of deposit, bankers acceptances, commercial paper rated at least A-
1 by S&P and P-1 by Moody's, and/or guaranteed by an Aa rating by Moody's, an AA
rating by S&P, or better rated credit, floating rate notes, other money market
instruments and letters of credit each issued by banks which have a long-term
debt rating of at least AA by S&P or Aa2 by Moody's, (v) obligations of domestic
corporations, including, without limitation, commercial paper, bonds,
debentures, and loan participations, each of which is rated at least AA by S&P,
and/or Aa2 by Moody's, and/or unconditionally guaranteed by an AA rating by S&P,
an Aa2 rating by Moody's, or better rated credit, (vi) obligations issued by
states and local governments or their agencies, rated at least MIG-1 by Moody's
and/or SP-1 by S&P and/or guaranteed by an irrevocable letter of credit of a
bank with a long-term debt rating of at least AA by S&P or Aa2 by Moody's, (vii)
repurchase agreements with major banks and primary government securities dealers
fully secured by U.S. Government or agency collateral equal to or exceeding the
principal amount on a daily basis and held in safekeeping, (viii) real estate
loan pool participations, guaranteed by an entity with an AA
8
<PAGE>
rating given by S&P or an Aa2 rating given by Moody's, or better rated credit,
and (ix) shares of any mutual fund that has its assets primarily invested in the
types of investments referred to in clauses (i) through (v).
"Closing Date" means the date on which the Lead Agent shall have
------------
received the documents specified in or pursuant to Section 3.1.
"Commitment" means, with respect to each Bank, the amount committed by
----------
such Bank pursuant to this Agreement with respect to any Loans, as such amount
may be reduced from time to time pursuant to Sections 2.9 and 2.10.
"Committed Loan" means a Loan made by a Bank pursuant to Section 2.1;
--------------
provided that, if any such Loan or loans (or portions thereof) are combined or
- --------
subdivided pursuant to a Notice of Interest Rate Election, the term "Committed
Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"Completion of Construction" means the issuance of a temporary or
--------------------------
permanent certificate of occupancy for the improvements under construction,
permitting the use and occupancy thereof for their regular intended uses.
"Consolidated Subsidiary" means at any date any Subsidiary or other
-----------------------
entity which is consolidated with the Borrower in accordance with GAAP.
"Consolidated Tangible Net Worth" means at any date the consolidated
-------------------------------
stockholders' equity of the Borrower (determined on a book basis), less its
consolidated Intangible Assets, all determined as of such date. For purposes of
this definition "Intangible Assets" means with respect to any such intangible
-----------------
assets, the amount (to the extent reflected in determining such consolidated
stockholders' equity) of (i) all write-ups subsequent to December 31, 1997 in
the book value of any asset owned by the Borrower or a Consolidated Subsidiary
and (ii) goodwill, patents, trademarks, service marks, trade names,
9
<PAGE>
anticipated future benefit of tax loss carry forwards, copyrights, organization
or developmental expenses and other intangible assets.
"Contingent Obligation" as to any Person means, without duplication,
---------------------
(i) any contingent obligation of such Person required to be shown on such
Person's balance sheet in accordance with GAAP, and (ii) any obligation required
to be disclosed in the footnotes to such Person's financial statements,
guaranteeing partially or in whole any non-recourse Debt, lease, dividend or
other obligation, exclusive of contractual indemnities (including, without
limitation, any indemnity or price-adjustment provision relating to the purchase
or sale of securities or other assets) and guarantees of non-monetary
obligations (other than guarantees of completion) which have not yet been called
on or quantified, of such Person or of any other Person. The amount of any
Contingent Obligation described in clause (ii) shall be deemed to be (a) with
respect to a guaranty of interest or interest and principal, or operating income
guaranty, the sum of all payments required to be made thereunder (which in the
case of an operating income guaranty shall be deemed to be equal to the debt
service for the note secured thereby), calculated at the Applicable Interest
Rate, through (i) in the case of an interest or interest and principal guaranty,
the stated date of maturity of the obligation (and commencing on the date
interest could first be payable thereunder), or (ii) in the case of an operating
income guaranty, the date through which such guaranty will remain in effect, and
(b) with respect to all guarantees not covered by the preceding clause (a), an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such guaranty is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as recorded on the balance sheet and
on the footnotes to the most recent financial statements of the Borrower
required to be delivered pursuant to Section 4.4 hereof. Notwithstanding
anything contained herein to the contrary, guarantees of completion shall not be
deemed to be Contingent Obligations unless and until a claim for payment or
performance has been made thereunder, at which
10
<PAGE>
time any such guaranty of completion shall be deemed to be a Contingent
Obligation in an amount equal to any such claim. Subject to the preceding
sentence, (i) in the case of a joint and several guaranty given by such Person
and another Person (but only to the extent such guaranty is recourse, directly
or indirectly to the Borrower), the amount of the guaranty shall be deemed to be
100% thereof unless and only to the extent that such other Person has delivered
Cash or Cash Equivalents to secure all or any part of such Person's guaranteed
obligations, (ii) in the case of joint and several guarantees given by a Person
in whom the Borrower owns an interest (which guarantees are non-recourse to the
Borrower), to the extent the guarantees, in the aggregate, exceed 15% of total
real estate investments, the amount in excess of 15% shall be deemed to be a
Contingent Obligation of the Borrower, and (iii) in the case of a guaranty
(whether or not joint and several) of an obligation otherwise constituting Debt
of such Person, the amount of such guaranty shall be deemed to be only that
amount in excess of the amount of the obligation constituting Debt of such
Person. Notwithstanding anything contained herein to the contrary, "Contingent
Obligations" shall not be deemed to include guarantees of Unused Commitments or
of construction loans to the extent the same have not been drawn.
"Debt" of any Person (including Minority Holdings) means, without
----
duplication, (A) as shown on such Person's consolidated balance sheet (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or any asset and, (ii) all indebtedness of such Person
evidenced by a note, bond, debenture or similar instrument (whether or not
disbursed in full in the case of a construction loan), (B) the face amount of
all letters of credit issued for the account of such Person and, without
duplication, all unreimbursed amounts drawn thereunder, (C) all Contingent
Obligations of such Person, (D) all payment obligations of such Person under any
interest rate protection agreement
11
<PAGE>
(including, without limitation, any interest rate swaps, caps, floors, collars
and similar agreements) or other hedging agreements and currency swaps and
foreign exchange contracts or similar agreements which were not entered into
specifically in connection with Debt set forth in clauses (A), (B) or (C)
hereof. For purposes of this Agreement, Debt (other than Contingent Obligations)
of the Borrower shall be deemed to include only the Borrower's pro rata share
(such share being based upon the Borrower's percentage ownership interest as
shown on the Borrower's annual audited financial statements) of the Debt of any
Person in which the Borrower, directly or indirectly, owns an interest, provided
that such Debt is nonrecourse, both directly and indirectly, to the Borrower.
"Default" means any condition or event which constitutes an Event of
-------
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Designated Lender" means a special purpose corporation that (i) shall
-----------------
have become a party to this Agreement pursuant to Section 9.6(d), and (ii) is
not otherwise a Bank.
"Designated Lender Notes" means promissory notes of the Borrower,
-----------------------
substantially in the form of Exhibit A-1 hereto, evidencing the obligation of
the Borrower to repay Money Market Loans made by Designated Lenders, and
"Designated Lender Note" means any one of such promissory notes issued under
Section 9.6(d) hereof.
"Designating Lender" shall have the meaning set forth in Section
------------------
9.6(d) hereof.
"Designation Agreement" means a designation agreement in substantially
---------------------
the form of Exhibit H attached
12
<PAGE>
hereto, entered into by a Bank and a Designated Lender and accepted by the Lead
Agent.
"Domestic Business Day" means any day except a Saturday, Sunday or
---------------------
other day on which commercial banks in New York City and Los Angeles are
authorized by law to close.
"Domestic Lending Office" means, as to each Bank, its office located
-----------------------
within the United States at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Domestic
Lending Office) or such other office within the United States as such Bank may
hereafter designate as its Domestic Lending Office by notice to the Borrower and
the Lead Agent; provided that no Bank shall be permitted to change its Domestic
Lending Office if as a result of such change either (i) pursuant to the
provisions of Section 8.1 or Section 8.2, Borrower would be unable to maintain
any Loans as Euro-Dollar Loans; or (ii) Borrower would be required to make any
payment to such Bank pursuant to the provisions of Section 8.3 or Section 8.4.
"Due Diligence Package" has the meaning provided in Section 3.3.
---------------------
"Duff & Phelps" means Duff & Phelps Credit Rating Co. or any
-------------
successor thereto.
"Environmental Affiliate" means any partnership, or joint venture,
-----------------------
trust or corporation in which an equity interest is owned by the Borrower,
either directly or indirectly.
"Environmental Approvals" means any permit, license, approval, ruling,
-----------------------
variance, exemption or other authorization required under applicable
Environmental Laws.
13
<PAGE>
"Environmental Claim" means, with respect to any Person, any notice,
-------------------
claim, demand or similar communication (written or oral) by any other Person
alleging potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damage, property damage, personal
injuries, fines or penalties arising out of, based on or resulting from (i) the
presence, or release into the environment, of any Material of Environmental
Concern at any location, whether or not owned by such Person or (ii)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law, in each case as to which could reasonably be expected to have
a Material Adverse Effect.
"Environmental Laws" means any and all federal, state, local and
------------------
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Material of Environmental
Concern or hazardous wastes into the environment including, without limitation,
ambient air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Material of Environmental
Concern or hazardous wastes or the clean-up or other remediation thereof.
"Environmental Report" has the meaning set forth in Section 4.7.
--------------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, or any successor statute.
14
<PAGE>
"ERISA Group" means the Borrower, any Subsidiary and all members of a
-----------
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Euro-Dollar Borrowing" has the meaning set forth in Section 1.3.
---------------------
"Euro-Dollar Business Day" means any Domestic Business Day on which
------------------------
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
--------------------------
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or affiliate of such Bank as
it may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrower and the Lead Agent; provided that no Bank shall be permitted to change
its Euro-Dollar Lending Office if as a result of such change either (i) pursuant
to the provisions of Section 8.1 or Section 8.2, Borrower would be unable to
maintain any Loans as Euro-Dollar Loans; or (ii) Borrower would be required make
any payment to such Bank pursuant to the provisions of Sections 8.3 or Section
8.4.
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a
----------------
Loan bearing interest at the Adjusted London Interbank Offered Rate in
accordance with the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
------------------------------
2.7(b).
15
<PAGE>
"Event of Default" has the meaning set forth in Section 6.1.
----------------
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day; provided that (i) if such day is not a Domestic
--------
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan on such day on such transactions
as determined by the Lead Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
---------------------
Reserve System as constituted from time to time.
"Financeable Ground Lease" means either (x) a ground lease reasonably
------------------------
satisfactory to the Required Banks, or (y) a ground lease which provides (i) for
a remaining term of not less than 25 years (including options and renewals) from
the date that such Real Property Asset shall become an Unencumbered Asset Pool
Property, (ii) that the ground lease will not be terminated until any leasehold
mortgagee shall have received notice of a default and has had a reasonable
opportunity to cure the same or complete foreclosure, and has failed to do so,
(iii) for a new lease on substantially the same terms to any leasehold mortgagee
recognized under such ground lease as tenant if the ground lease is terminated
for any reason, (iv) for non-merger of the fee and leasehold estates,
16
<PAGE>
and (v) transferability of the tenant's interest under the ground lease, subject
only to the landlord's reasonable approval. Notwithstanding the foregoing, it is
hereby agreed that the ground lease with respect to the Real Property Asset
commonly known as "Kilroy Airport Center, Long Beach, California", shall be
deemed to be a "Financeable Ground Lease".
"FFO" means "funds from operations," defined to mean net income (or
---
loss) (computed in accordance with GAAP), excluding gains (or losses) from debt
restructurings and sales of properties, plus depreciation and amortization,
after adjustments for Minority Holdings. Adjustments for Minority Holdings will
be calculated to reflect FFO on the same basis as above.
"Fitch" means Fitch Investors Services, L.P. or any successor
-----
thereto.
"FMV Cap Rate" means 9%.
------------
"Fronting Bank" shall mean Morgan or such other Bank which Borrower is
-------------
notified by the Lead Agent may be a Fronting Bank and which is designated by
Borrower in its Notice of Borrowing as the Bank which shall issue a Letter of
Credit with respect to such Notice of Borrowing.
"GAAP" means generally accepted accounting principles recognized as
----
such in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and Board or in such
other statements by such other entity as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of determination.
"General Partner" means Kilroy Realty Corporation, a Maryland
---------------
corporation.
17
<PAGE>
"Governmental Authority" means any Federal, state or local government
----------------------
or any other political subdivision thereof or agency exercising executive,
legislative, judicial, regulatory or administrative functions having
jurisdiction over the Borrower or any Mortgaged Property.
"Group of Loans" means, at any time, a group of Loans consisting
--------------
of (i) all Committed Loans which are Base Rate Loans at such time, or (ii) all
Committed Loans which are Euro-Dollar Loans having the same Interest Period at
such time; provided that, if a Loan of any particular Bank is converted to or
--------
made as a Base Rate Loan pursuant to Section 8.2 or 8.4, such Loan shall be
included in the same Group or Groups of Loans from time to time as it would have
been in if it had not been so converted or made.
"Guaranty" means the Second Amended and Restated Guaranty of Payment,
--------
dated as of even date herewith, made by the General Partner.
"Indemnitee" has the meaning set forth in Section 9.3(b).
----------
"Interest Period" means: (i) with respect to each Euro-Dollar
---------------
Borrowing, the period commencing on the date of such Committed Borrowing or of
any Notice of Interest Election with respect to such Committed Borrowing and
ending one, two, three or six months thereafter, as the Borrower may elect in
the applicable Notice of Committed Borrowing or Notice of Interest Election;
provided that:
- --------
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
18
<PAGE>
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Euro-Dollar Business Day of a
calendar month.
(ii) with respect to each Base Rate Borrowing, the period commencing
on the date of such Committed Borrowing or Notice of Interest Rate Election and
ending 30 days thereafter; provided that any Interest Period which would
--------
otherwise end on a day which is not a Euro-Dollar Business Day shall be extended
to the next succeeding Euro-Dollar Business Day.
(iii) with respect to each Money Market LIBOR Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending one, two, three or six months thereafter, as the Borrower
may elect in the applicable Notice of Money Market Borrowing in accordance with
Section 2.3; provided that:
--------
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last Euro-
Dollar Business Day of a calendar month;
19
<PAGE>
(c) if any Interest Period includes a date on which a payment of
principal of Loans is required to be made under Section 2.10 but does not
end on such date, then (i) the principal amount (if any) of each Money
Market LIBOR Loan required to be repaid on such date and (ii) the remainder
(if any) of each such Money Market LIBOR Loan shall have an Interest Period
determined as set forth above; and
(d) any Interest Period which would otherwise end after the
Maturity Date shall end on the Maturity Date.
(iv) with respect to each Money Market Absolute Rate Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such number of days thereafter (but not less than 14 days)
as the Borrower may elect in accordance with Section 2.3; provided that:
--------
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) if any Interest Period includes a date on which a payment of
principal of Loans is required to be made under Section 2.10 but does not
end on such date, then (i) the principal amount (if any) of each Money
Market Absolute Rate Loan required to be repaid on such date and (ii) the
remainder (if any) of each such Money Market Absolute Rate Loan shall have
an Interest Period determined as set forth above; and
(c) any Interest Period which would otherwise end after the
Maturity Date shall end on the Maturity Date.
20
<PAGE>
"Internal Revenue Code" means the Internal Revenue Code of 1986,
---------------------
as amended, or any successor statute.
"Investment Grade Rating" means a rating for a Person's senior long-
-----------------------
term unsecured debt, or if no such rating has been issued, a "shadow" rating, of
BBB- or better from S&P, and a rating or "shadow" rating of Baa3 or better from
Moody's or a rating or "shadow" rating equivalent to the foregoing from either
Duff & Phelps or Fitch. Any such "shadow" rating shall be evidenced by a letter
from the applicable Rating Agency or by such other evidence as may be reasonably
acceptable to the Lead Agent (as to any such other evidence, the Lead Agent
shall present the same to, and discuss the same with, the Banks).
"Lead Agent" means Morgan Guaranty Trust Company of New York in its
----------
capacity as Lead Agent for the Banks hereunder, and its successors in such
capacity.
"Letter(s) of Credit" has the meaning provided in Section 2.2(b).
-------------------
"Letter of Credit Collateral" has the meaning provided in Section
---------------------------
6.4.
"Letter of Credit Collateral Account" has the meaning provided in
-----------------------------------
Section 6.4.
"Letter of Credit Documents" has the meaning provided in Section
--------------------------
2.17.
"Letter of Credit Usage" means at any time the sum of (i) the
----------------------
aggregate maximum amount available to be drawn under the Letters of Credit then
outstanding, assuming compliance with all requirements for drawing referred to
therein, and (ii) the aggregate amount of
21
<PAGE>
the Borrower's unpaid obligations under this Agreement in respect of the Letters
of Credit.
"LIBOR Auction" means a solicitation of Money Market Quotes setting
-------------
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.3.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, each of
the Borrower and any Subsidiary shall be deemed to own subject to a Lien any
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loan" means a Base Rate Loan, a Euro-Dollar Loan or a Money Market
----
Loan and "Loans" means Base Rate Loans, Euro-Dollar Loans or Money Market Loans
-----
or any combination of the foregoing.
"Loan Amount" has the meaning set forth in Section 2.1(a).
-----------
"Loan Documents" means this Agreement, the Notes, the Guaranty, the
--------------
Letter(s) of Credit, the Letter of Credit Documents and any related documents.
"London Interbank Offered Rate" has the meaning set forth in
-----------------------------
Section 2.8(b).
"Margin Stock" shall have the meaning provided such term in
------------
Regulation U and Regulation G of the Federal Reserve Board.
22
<PAGE>
"Material Adverse Effect" means a material adverse effect upon (i)
-----------------------
the business, operations, properties or assets of the Borrower or (ii) the
ability of the Borrower to perform its obligations hereunder in all material
respects, including to pay interest and principal.
"Material Lease" means, with respect to any Real Property Asset, any
--------------
lease, underletting, concession agreement or license affecting such Real
Property Asset, which represents more than 15% of the gross leasable area of
such Real Property Asset.
"Material of Environmental Concern" means and includes pollutants,
---------------------------------
contaminants, hazardous wastes, and toxic, radioactive, caustic or otherwise
hazardous substances, including petroleum, its derivatives, by-products and
other hydrocarbons, or any substance having any constituent elements displaying
any of the foregoing characteristics.
"Material Plan" means at any time a Plan having aggregate
-------------
Unfunded Liabilities in excess of $5,000,000.
"Maturity Date" has the meaning set forth in Section 2.9.
-------------
"Minority Holdings" means partnerships, limited liability companies
-----------------
and corporations held or owned by the Borrower which are not consolidated with
the Borrower on its financial statements.
"Money Market Absolute Rate" has the meaning set forth in Section
--------------------------
2.3(d)(ii)(4).
"Money Market Absolute Rate Loan" means a loan to be made by a
-------------------------------
Bank pursuant to an Absolute Rate Auction.
23
<PAGE>
"Money Market Lending Office" means, as to each Bank, its Domestic
---------------------------
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Lead Agent; provided that any Bank may from time to time by notice to
--------
the Borrower and the Lead Agent designate separate Money Market Lending Offices
for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute
Rate Loans, on the other hand, in which case all references herein to the Money
Market Lending Office of such Bank shall be deemed to refer to either or both of
such offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made by a Bank pursuant
-----------------------
to a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 2.3).
"Money Market Loan" means a Money Market LIBOR Loan or a Money
-----------------
Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section
-------------------
2.3(d)(ii)(3).
"Money Market Quote" means an offer by a Bank to make a Money Market
------------------
Loan in accordance with Section 2.3.
"Moody's" means Moody's Investors Service, Inc. or any successor
-------
thereto.
"Morgan" means Morgan Guaranty Trust Company of New York, in its
------
individual capacity.
"Multiemployer Plan" means at any time an employee pension benefit
------------------
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to
24
<PAGE>
make contributions or has within the preceding five plan years made
contributions, including for these purposes any Person which ceased to be a
member of the ERISA Group during such five year period.
"Net Offering Proceeds" means all cash received by the Borrower or the
---------------------
General Partner as a result of the sale of common shares of beneficial interest,
preferred shares of beneficial interest (including perpetual preferred),
partnership interests, limited liability company interests, or other ownership
or equity interests in the Borrower or the General Partner (or evidence of
indebtedness of the Borrower or the General Partner convertible into any of the
foregoing) less customary costs and discounts of issuance paid by the Borrower
----
or the General Partner, as the case may be.
"Net Operating Cash Flow" means, with respect to any Real Property
-----------------------
Asset, the Property Income, calculated on an annualized basis, for the period
during which such Real Property Asset shall have been owned by the Borrower, the
General Partner or any of their Subsidiaries, less Property Expenses, calculated
on an estimated, pro forma (i.e., the results for the period during which such
Real Property Asset shall have been owned shall be annualized, with appropriate
adjustments for items of income and expense which are not earned or incurred in
equal monthly amounts) basis.
"New Acquisitions" shall mean any Real Property Asset acquired
----------------
after the date hereof.
"Non-Recourse Debt" means Debt of the Borrower or the General Partner
-----------------
on a consolidated basis for which the right of recovery of the obligee thereof
is limited to recourse against the Real Property Assets securing such Debt
(subject to such limited exceptions to the non-recourse nature of such Debt such
as fraud, misappropriation, misapplication and environmental indemni-
25
<PAGE>
ties, as are usual and customary in like transactions at the time of the
incurrence of such Debt).
"Notes" means, collectively, the promissory notes of the Borrower,
-----
each substantially in the form of Exhibit A hereto, evidencing the obligation of
---------
the Borrower to repay the Loans, together with any Designated Lender Notes, and
"Note" means any one of such promissory notes issued hereunder.
----
"Notice of Borrowing" means a Notice of Committed Borrowing or a
-------------------
Notice of Money Market Borrowing.
"Notice of Committed Borrowing" has the meaning set forth in
-----------------------------
Section 2.2.
"Notice of Interest Election" has the meaning set forth in
---------------------------
Section 2.15(a).
"Notice of Money Market Borrowing" has the meaning set forth in
--------------------------------
Section 2.3(f).
"Obligations" means all obligations, liabilities and indebtedness of
-----------
every nature of the Borrower from time to time owing to any Bank under or in
connection with this Agreement or any other Loan Document, including, without
limitation, (i) the outstanding principal amount of the Committed Loans at such
time, plus (ii) the Letter of Credit Usage at such time, plus (iii) the
outstanding principal amount of any Money Market Loans at such time.
"Outstanding Balance" means the sum of (i) the aggregate outstanding
-------------------
and unpaid principal balance of all Loans and (ii) the Letter of Credit Usage.
"Parent" means, with respect to any Bank, any Person controlling
------
such Bank.
26
<PAGE>
"Participant" has the meaning set forth in Section 9.6(b).
-----------
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means (a) Liens in favor of the Borrower or the
---------------
General Partner on all or any part of the assets of Subsidiaries of the Borrower
or the General Partner, as applicable, provided that (i) the Debt to which such
Lien relates is held by the Borrower, (ii) such Debt is not otherwise pledged or
encumbered, and (iii) no more than 5% of the Unencumbered Asset Pool Properties
Value may be subject to any such Liens; (b) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds, completion
bonds, government contracts or other obligations of a like nature, including
Liens in connection with workers' compensation, unemployment insurance and other
types of statutory obligations or to secure the performance of tenders, bids,
leases, contracts (other than for the repayment of Debt) and other similar
obligations incurred in the ordinary course of business; (c) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided, that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (d) Liens on property of the Borrower, the General Partner
or any Subsidiary thereof in favor of the Federal or any state government to
secure certain payments pursuant to any contract, statute or regulation; (e)
easements (including, without limitation, reciprocal easement agreements and
utility agreements), rights of way, covenants, consents, reservations,
encroachments, variations and zoning and other restrictions, charges or
encumbrances (whether or not re-
27
<PAGE>
corded), which do not interfere materially with the ordinary conduct of the
business of the Borrower, the General Partner or any Subsidiary thereof and
which do not materially detract from the value of the property to which they
attach or materially impair the use thereof by the Borrower, the General Partner
or any Subsidiary thereof; (f) statutory Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other Liens imposed by law and
arising in the ordinary course of business, for sums due and payable which are
not then past due (or which, if past due, are being contested in good faith and
with respect to which adequate reserves are being maintained to the extent
required by GAAP); (g) Liens not otherwise permitted by this definition and
incurred in the ordinary course of business of any or all of the Borrower, the
General Partner or any Subsidiary thereof with respect to obligations which do
not exceed $500,000 in principal amount in the aggregate at any one time
outstanding; and (h) the interests of lessees and lessors under leases of real
or personal property made in the ordinary course of business which would not
have a Material Adverse Effect.
"Person" means an individual, a corporation, a partnership, a limited
------
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan (other than
----
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a
28
<PAGE>
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by
----------
Morgan in New York City from time to time as its Prime Rate.
"Pro-Forma Debt Service" means, for any calendar quarter, the greater
----------------------
of (x) the interest actually payable on the Loans, and (y) the amount of debt
service payments determined by applying a 30-year mortgage style amortization
schedule to the Loans outstanding as of the last day of such calendar quarter,
using an interest rate equal to the Treasury Rate plus 1.75%.
"Property Expenses" means, when used with respect to any Real Property
-----------------
Asset, the costs of operating and maintaining such Real Property Asset which are
the responsibility of the owner thereof and that are not paid directly by the
tenant thereof, including, without limitation, taxes, insurance, repairs and
maintenance, but provided that if such tenant is more than 60 days in arrears in
the payment of base or fixed rent, then such costs will also constitute
"Property Expenses", but excluding depreciation, amortization and interest
costs.
"Property Income" means, when used with respect to any Real Property
---------------
Asset, cash rents and other cash revenues received in the ordinary course
therefrom, including, without limitation, revenues from any parking leases and
lease termination fees amortized over the remaining term of the lease for which
such termination fee was received (other than pre-paid rents and revenues and
security deposits except to the extent applied in satisfaction of tenants'
obligations for rent).
"Qualified Development Properties" means any Real Property Assets
--------------------------------
which are 100% owned in fee (or leasehold pursuant to a Financeable Ground
Lease) by the
29
<PAGE>
Borrower, the General Partner or any of their Consolidated Subsidiaries and
which are not subject to any Lien (other than Permitted Liens), and which are
under construction and which, in accordance with GAAP, have not yet been placed
into service, provided, however, that if 66.67% or more of the net rentable area
of any Qualified Development Property has not been leased to tenants other than
tenants that are affiliates of the Borrower on or before the earlier to occur of
(x) the date which is six (6) months after the Completion of Construction
thereof, and (y) the eighteen month anniversary of the commencement of
construction thereof, then the same will cease to be a Qualified Development
Property.
"Qualified Leased Development Properties" means any Real Property
---------------------------------------
Assets which are 100% owned in fee (or leasehold pursuant to a Financeable
Ground Lease) by the Borrower, the General Partner or any of their Consolidated
Subsidiaries and which are not subject to any Lien (other than Permitted Liens),
and which are under construction and, in accordance with GAAP, have not yet been
placed into service, and of which, as of any date of determination, 66.67% or
more of the net rentable area of such Real Property Asset has been leased to
tenants other than tenants that are affiliates of the Borrower.
"Rating Agencies" means, collectively, S&P, Moody's, Duff &
---------------
Phelps and Fitch.
"Real Property Assets" means as of any time, the real property assets
--------------------
owned directly or indirectly by the Borrower at such time.
"Recourse Debt" shall mean Debt of the Borrower, the General Partner
-------------
or any Consolidated Subsidiary that is not Non-Recourse Debt.
30
<PAGE>
"Reference Bank" means the principal London offices of Morgan.
--------------
"Regulation U" means Regulation U of the Board of Governors of the
------------
Federal Reserve System, as in effect from time to time.
"Release" means any release, spill, emission, leaking, pumping,
-------
pouring, dumping, emptying, deposit, discharge, leaching or migration.
"Required Banks" means, at any time, Banks having at least two-thirds
--------------
of the aggregate amount of the Commitments or, if the Commitments shall have
been terminated, holding Notes evidencing at least two-thirds of the aggregate
unpaid principal amount of the Loans.
"Requirements" means all present and future laws, statutes, codes,
------------
ordinances, orders, judgments, decrees, injunctions, rules, regulations and
requirements of every Governmental Authority having jurisdiction over any
Mortgaged Property and all restrictive covenants applicable to any Mortgaged
Property.
"Secured Debt" means all Debt secured by a Lien on real property.
------------
"Separate Parcel" means a Real Estate Asset that is a single, legally
---------------
subdivided, separately zoned parcel that can be legally transferred or conveyed
separate and distinct from any other Real Estate Asset without benefit of any
other Real Estate Asset.
"Solvent" means, with respect to any Person, that the fair saleable
-------
value of such Person's assets exceeds the Debts of such Person.
"Subsidiary" means any corporation or other entity of which securities
----------
or other ownership interests
31
<PAGE>
representing either (i) ordinary voting power to elect a majority of the board
of directors or other persons performing similar functions or (ii) a majority of
the economic interest therein, are at the time directly or indirectly owned by
the Borrower.
"Term" has the meaning set forth in Section 2.9.
----
"Total Asset Value" means, the sum of (w) with respect to those Real
-----------------
Property Assets owned for at least the two previous consecutive quarters, the
quotient of (i) Annual EBITDA with respect thereto for the previous four (4)
consecutive quarters (or, if owned for only two or three quarters, the Annual
EBITDA for such period, annualized), including the quarter then ended, but less
reserves for Capital Expenditures of (A) $0.30 per square foot per annum for
each Real Property Asset that is an office property, and (B) $0.15 per square
foot per annum for each Real Property Asset that is an industrial property,
divided by (ii) the FMV Cap Rate, (x) with respect to those Real Property Assets
owned for less than the two previous consecutive quarters, the lesser of (i) the
quotient of Net Operating Cash Flow applicable to each such Real Property Asset,
calculated on an annualized basis, based upon (A) the actual amount of Net
Operating Cash Flow for the period of the Borrower's, the General Partner's or
their Subsidiary's ownership of such Real Property Asset, less replacement
reserves of (1) $.30 per square foot per annum for each such Unencumbered Asset
Pool Property which is an office building and (2) $.15 per square foot per annum
for each such Unencumbered Asset Pool Property which is an industrial building,
divided by (B) the FMV Cap Rate, and (ii) the purchase price actually paid by
the Borrower, the General Partner or any of their Subsidiaries (as applicable)
for such Real Property, (y) with respect to Qualified Development Properties,
40% of the book value thereof, and (z) Cash or Cash Equivalents of the Bor-
32
<PAGE>
rower, the General Partner and their Subsidiaries as of the date of
determination.
"Total Debt Ratio" means the ratio, as of the date of determination,
----------------
of (i) the sum of (x) the Total Liabilities of the Borrower, the General Partner
and their Consolidated Subsidiaries and (y) the Borrower's and the General
Partner's pro rata share of the Total Liabilities of any Minority Holdings of
the Borrower or the General Partner to (ii) Total Asset Value.
"Total Debt Service" means, as of the last day of each calendar
------------------
quarter, an amount equal to the sum of (i) interest (whether accrued, paid or
capitalized) payable by Borrower on its Debt for the previous four consecutive
quarters including the quarter then ended, plus (ii) scheduled payments of
principal on such Debt, whether or not paid by the Borrower (excluding balloon
payments) for the previous four consecutive quarters including the quarter then
ended.
"Total Liabilities" means the sum of the balance sheet amount of all
-----------------
Debt of the Borrower, the General Partner and their Consolidated Subsidiaries
and all accounts payable and all other liabilities of such Person, all as
determined in accordance with GAAP.
"Treasury Rate" means, as of any date, a rate equal to the annual
-------------
yield to maturity on the U.S. Treasury Constant Maturity Series with a ten-year
maturity, as such yield is reported in Federal Reserve Statistical Release H.15
- -- Selected Interest Rates, published most recently prior to the date the
applicable Treasury Rate is being determined. Such yield shall be determined by
straight line linear interpolation between the yields reported in Release H.15,
if necessary. In the event Release H.15 is no longer published, the Lead Agent
shall select, in its reasonable discretion, an alternate basis for the
determination of Treasury yield for U.S.
33
<PAGE>
Treasury Constant Maturity Series with ten-year maturities.
"Unencumbered Asset Pool Net Operating Cash Flow" means, as of any
-----------------------------------------------
date of determination with respect to the Unencumbered Asset Pool Properties,
Property Income with respect to the Unencumbered Asset Pool Properties for the
previous four (4) consecutive quarters (except as provided below), including the
quarter then ended, but less (x) Property Expenses with respect to the
Unencumbered Asset Pool Properties for the previous four (4) consecutive
quarters (except as provided below), including the quarter then ended, and (y)
the greater of (i) Capital Expenditures which are not related to new
construction for the previous four (4) consecutive quarters, including the
quarter then ended, and (ii) reserves for Capital Expenditures of $.70 per
square foot per annum for each Unencumbered Asset Pool Property that is an
office property, and $.40 per square foot per annum for each Unencumbered Asset
Pool Property that is an industrial property. Notwithstanding the foregoing,
with respect to any Unencumbered Asset Pool Property owned by the Borrower, the
General Partner or any of their Consolidated Subsidiaries for a period of less
four (4) fiscal quarters, but more than one (1) fiscal quarter, Unencumbered
Asset Pool Net Operating Cash Flow shall be determined in a manner consistent
with the foregoing calculation utilizing annualized Property Income, Property
Expenses and Capital Expenditures (or, if greater, reserves for Capital
Expenditures) for the relevant period of the Borrower's, the General Partner's
or any of their Consolidated Subsidiaries' ownership of such Unencumbered Asset
Pool Property, provided such period shall be at least one fiscal quarter.
"Unencumbered Asset Pool Properties" means, as of any date, the Real
----------------------------------
Property Assets listed in Exhibit B attached hereto and made a part hereof, each
---------
of which
34
<PAGE>
is 100% owned in fee (or leasehold pursuant to a Financeable Ground Lease in the
case of assets listed on Exhibit C as leaseholds) by the Borrower, the General
---------
Partner or any of their Consolidated Subsidiaries and each of which is not
subject to any Lien (other than Permitted Liens), subject to adjustment as set
forth herein, together with all Real Property Assets which have become part of
the Unencumbered Asset Pool Properties as of such date in accordance with
Section 3.3.
"Unencumbered Asset Pool Properties Value" means the sum of:
----------------------------------------
(i) with respect to the Unencumbered Asset Pool Properties
owned by the Borrower, the General Partner or any of their Consolidated
Subsidiaries for a period of at least six (6) calendar months, the quotient of
(x) the Unencumbered Asset Pool Net Operating Cash Flow less replacement
reserves of $.30 per square foot per annum for each such Unencumbered Asset Pool
Property which is an office building and $.15 per square foot per annum for each
such Unencumbered Asset Pool Property which is an industrial building, divided
by (y) the FMV Cap Rate, and
(ii) with respect to Unencumbered Asset Pool Properties
owned by the Borrower, the General Partner or any of their Consolidated
Subsidiaries for a period of less than six (6) calendar months, the lesser of
(A) the quotient of (x) the Unencumbered Asset Pool Net Operating Cash Flow on
an annualized basis based upon the Unencumbered Asset Pool Net Operating Cash
Flow for the period of such Person's ownership of the Unencumbered Asset Pool
Property in question less replacement reserves of $.30 per square foot per annum
for each such Unencumbered Asset Pool Property which is an office building and
$.15 per square foot per annum for each such Unencumbered Asset Pool Property
which is an industrial building, divided by (y) the FMV Cap Rate and (B)
35
<PAGE>
the purchase price actually paid by the Borrower, the General Partner or any of
their Consolidated Subsidiaries (as applicable) for such Unencumbered Asset Pool
Property (provided, however, that if any such Unencumbered Asset Pool Property
shall have been purchased as part of a portfolio of properties and no purchase
price shall have been specifically allocated thereto, then the purchase price
therefore shall be deemed to be equal to that percentage of the total purchase
price for such portfolio as is equal to the percentage of the total Net
Operating Cash Flow with respect to such portfolio that the Net Operating Cash
Flow attributable to the applicable Unencumbered Asset Pool Property bears, and
(iii) with respect to Qualified Leased Development Properties,
forty percent (40%) of the book value thereof, provided that availability under
the Commitments attributable to such Qualified Leased Development Properties
shall not in any event exceed 10% of Unencumbered Asset Pool Properties Value.
"Unfunded Liabilities" means, with respect to any Plan at any time,
--------------------
the amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the
-------------
States and the District of Columbia, but excluding its territories and
possessions.
36
<PAGE>
"Unsecured Debt" means Debt not secured by a Lien on real
--------------
property.
"Unsecured Debt Ratio" means, as of any date of determination, the
--------------------
ratio of the Unencumbered Asset Pool Properties Value as of the date of
determination to the aggregate amount of Unsecured Debt of the Borrower, the
General Partner and their Consolidated Subsidiaries outstanding as of such date
of determination.
"Unused Commitments" means an amount equal to all unadvanced funds
------------------
(other than unadvanced funds in connection with any construction loan) which any
third party is obligated to advance to the Borrower or otherwise, pursuant to
any Loan Document, written instrument or otherwise.
Section I.2. Accounting Terms and Determinations. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP,
applied on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower delivered to the Lead Agent and the Banks;
provided that, if the Borrower notifies the Lead Agent and the Banks that the
- --------
Borrower wishes to amend any covenant in Article V to eliminate the effect of
any change in GAAP on the operation of such covenant (or if the Lead Agent
notifies the Borrower that the Required Banks wish to amend Article V for such
purpose), then the Borrower's compliance with such covenant shall be determined
on the basis of GAAP in effect immediately before the relevant change in GAAP
became effective, until either such notice is withdrawn or such covenant is
amended in a manner satisfactory to the Borrower and the Required Banks.
37
<PAGE>
Section I.3. Types of Borrowings. The term "Borrowing" denotes the
------------------- ---------
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article II on the same date, all of which Loans are of the same type (subject to
Article VIII) and, except in the case of Base Rate Loans, have the same Interest
Period. Borrowings are classified for purposes of this Agreement either by
reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro-
----
Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference
to the provisions of Article II under which participation therein is determined
(i.e., a "Committed Borrowing" is a Borrowing under Section 2.1 in which all
----
Banks participate in proportion to their Commitments, while a "Money Market
Borrowing" is a Borrowing under Section 2.3).
ARTICLE II
THE CREDITS
Section II.1. Commitments to Lend.
-------------------
(a) Each Bank severally agrees, on the terms and conditions set forth
in this Agreement, to make Committed Loans to the Borrower and participate in
Letters of Credit issued by the Fronting Bank on behalf of the Borrower pursuant
to this Section from time to time during the Term in amounts such that the
aggregate principal amount of Committed Loans by such Bank at any one time
outstanding together with such Bank's pro rata share of the Letter of Credit
--- ----
Usage shall not exceed the amount of its Commitment. The aggregate amount of
Committed Loans to be made hereunder together with the Letter of Credit Usage
and outstanding Money Market Loans shall not exceed Four Hundred Million Dollars
($400,000,000) (the "Loan Amount"). Each Borrowing
-----------
38
<PAGE>
under this subsection (a) shall be in an aggregate principal amount of at least
$2,500,000, or an integral multiple of $500,000 in excess thereof and shall be
made from the several Banks ratably in proportion to their respective
Commitments. Subject to the limitations set forth herein, any amounts repaid may
be reborrowed. Notwithstanding anything to the contrary, the number of new
Borrowings shall be limited to ten (10) Borrowings per month.
(b) Notwithstanding anything in the preceding subparagraph (a) to the
contrary, the Loan Amount shall in no event exceed (and no Bank shall be deemed
to have committed to fund its pro rata share of an amount which exceeds) an
--- ----
amount that would cause (A) the ratio of (i) Unencumbered Asset Pool Net
Operating Cash Flow to (ii) Pro-Forma Debt Service to be less than 2.0:1.0 or
(B) the Unsecured Debt Ratio to be less than 2.0:1.0 or (C) an amount which
would result in the violation of any provision of Section 5.8.
Section II.2. Notice of Committed Borrowing. (a) The Borrower shall
-----------------------------
give the Lead Agent notice (a "Notice of Committed Borrowing") not later than
-----------------------------
2:00 p.m. (New York City time) (x) one Domestic Business Day before each Base
Rate Borrowing or (y) the third Euro-Dollar Business Day before each Euro-Dollar
Borrowing, specifying:
(1) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business
Day in the case of a Euro-Dollar Borrowing,
(2) the aggregate amount of such Borrowing,
39
<PAGE>
(3) whether the Loans comprising such Borrowing are to be Base
Rate Loans or Euro-Dollar Loans,
(4) in the case of a Euro-Dollar Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period,
(5) the intended use for the proceeds of such Borrowing,
and
(6) that no Default or Event of Default has occurred or is
continuing.
Notwithstanding the time frame set forth in clause (a)(x) above, in the event
that the Money Market Quotes submitted by the Banks pursuant to Section 2.3(c)
below are, in the aggregate, in an amount less than the principal amount
requested by the Borrower in the related Money Market Quote Request, then the
Borrower shall be permitted to give the Lead Agent notice of its intent to make
a Base Rate Borrowing, in the amount of the difference between accepted Money
Market Quotes and the principal amount requested by Borrower in the related
Money Market Quote Request, no later than 2:30 p.m. (New York City time) on the
date of such Borrowing.
(b) Borrower shall give the Lead Agent, and the designated Fronting
Bank, written notice in the event that it desires to have Letters of Credit
(each, a "Letter of Credit") issued hereunder no later than 2:00 p.m., New York
----------------
City time, at least four (4) Domestic Business Days prior to the date of such
issuance. Each such notice shall specify (i) the designated Fronting Bank, (ii)
the aggregate amount of the requested Letters of Credit, (iii) the individual
amount of each requested Letter of Credit and the number of Letters of Credit to
40
<PAGE>
be issued, (iv) the date of such issuance (which shall be a Domestic Business
Day), (v) the name and address of the beneficiary, (vi) the expiration date of
the Letter of Credit (which in no event shall be later than twelve (12) months
after the issuance of such Letter of Credit or the Maturity Date, whichever is
earlier), (vii) the purpose and circumstances for which such Letter of Credit is
being issued and (viii) the terms upon which each such Letter of Credit may be
drawn down (which terms shall not leave any discretion to Fronting Bank). Each
such notice may be revoked telephonically by the Borrower to the applicable
Fronting Bank and the Lead Agent any time prior to the date of issuance of the
Letter of Credit by the applicable Fronting Bank, provided such revocation is
confirmed in writing by the Borrower to the Fronting Bank and the Lead Agent
within one (1) Domestic Business Day by facsimile. No later than 2:00 p.m., New
York City time, on the date that is four (4) Domestic Business Days prior to the
date of issuance, the Borrower shall specify a precise description of the
documents and the verbatim text of any certificate to be presented by the
beneficiary of such Letter of Credit, which if presented by such beneficiary
prior to the expiration date of the Letter of Credit would require the Fronting
Bank to make a payment under the Letter of Credit; provided, that Fronting Bank
--------
may, in its reasonable judgment, require changes in any such documents and
certificates only in conformity with changes in customary and commercially
reasonable practice or law and, provided further, that no Letter of Credit shall
-------- -------
require payment against a conforming draft to be made thereunder on the
following Domestic Business Day that such draft is presented if such
presentation is made later than 10:00 A.M. New York City time (except that if
the beneficiary of any Letter of Credit requests at the time of the issuance of
its Letter of Credit that payment be made on the same Domestic Business Day
against a conforming draft, such beneficiary shall be entitled to such a same
day draw, provided such draft is
41
<PAGE>
presented to the applicable Fronting Bank no later than 10:00 A.M. New York City
time and provided further the Borrower shall have requested to the Fronting Bank
and the Lead Agent that such beneficiary shall be entitled to a same day draw).
In determining whether to pay on such Letter of Credit, the Fronting Bank shall
be responsible only to determine that the documents and certificates required to
be delivered under the Letter of Credit have been delivered and that they comply
on their face with the requirements of that Letter of Credit.
Section II.3. Money Market Borrowings.
-----------------------
(a) The Money Market Option. In addition to Committed Borrowings
-----------------------
pursuant to Section 2.1, at such time as the Borrower's Credit Rating is an
Investment Grade Rating from at least two Rating Agencies, one of which shall be
S&P or Moody's, the Borrower may, as set forth in this Section 2.3, request the
Banks during the Term to make offers to make Money Market Loans to the Borrower,
not to exceed, at such time, the lesser of (i) the Committed Loans and (ii)
$150,000,000. The Banks may, but shall have no obligation to, make such offers
and the Borrower may, but shall have no obligation to, accept any such offers in
the manner set forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request
--------------------------
offers to make Money Market Loans under this Section, it shall transmit to the
Lead Agent by telex or facsimile transmission a Money Market Quote Request
substantially in the form of Exhibit D hereto so as to be received not later
---------
than 2:00 p.m. (New York City time) on (x) the fourth Euro-Dollar Business Day
prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction,
or (y) the Domestic Business Day next preceding the date of Borrowing proposed
therein, in the case of an Absolute Rate Auction (or, in either case, such other
time or date as
42
<PAGE>
the Borrower and the Lead Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such change is to
be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-
Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $500,000,
(iii) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of Interest
Period, and
(iv) whether the Money Market Quotes requested are to set
forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within thirty days (or such other number of days as the
Borrower and the Lead Agent may agree) of any other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
----------------------------------
Money Market Quote Request, the Lead Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Money Market Quotes substantially in
the form of Exhibit F hereto, which shall constitute an invitation by the
---------
Borrower to each Bank to submit Money Market Quotes offering to make the Money
Market Loans to which such Money Market Quote Request relates in accordance with
this Section 2.3.
43
<PAGE>
(d) Submission and Contents of Money Market Quotes. (i) Each Bank
----------------------------------------------
may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Lead Agent by telex or facsimile transmission at its offices
specified in or pursuant to Section 9.1 not later than (x) 10:00 a.m. (New York
City time) on the third Euro-Dollar Business Day prior to the proposed date of
Borrowing, in the case of a LIBOR Auction, or (y) 10:00 a.m. (New York City
time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction
(or, in either case, such other time or date as the Borrower and the Lead Agent
shall have mutually agreed and shall have notified to the Banks not later than
the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective); provided that
--------
Money Market Quotes submitted by the Lead Agent (or any affiliate of the Lead
Agent) in the capacity of a Bank may be submitted, and may only be submitted, if
the Lead Agent or such affiliate notifies the Borrower of the terms of the offer
or offers contained therein not later than thirty (30) minutes prior to the
applicable deadline for the other Banks. Subject to Articles III and VI, any
Money Market Quote so made shall be irrevocable except with the written consent
of the Lead Agent given on the instructions of the Borrower. Such Money Market
Loans may be funded by such Bank's Designated Lender (if any) as provided in
Section 9.6(d); however such Bank shall not be required to specify in its Money
Market Quote whether such Money Market Loans will be funded by such Designated
Lender.
(ii) Each Money Market Quote shall be in substantially the form
of Exhibit E hereto and shall in any case specify:
---------
44
<PAGE>
(1) the proposed date of Borrowing,
(2) the principal amount of the Money Market Loan for which each
such offer is being made, which principal amount (w) may be greater than or
less than the Commitment of the quoting Bank, (x) must be $10,000,000 or a
larger multiple of $500,000, (y) may not exceed the principal amount of
Money Market Loans for which offers were requested and (z) may be subject
to an aggregate limitation as to the principal amount of Money Market Loans
for which offers being made by such quoting Bank may be accepted,
(3) in the case of a LIBOR Auction, the margin above or below
the applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000th of 1%) to be added to or subtracted
from such base rate,
(4) in the case of an Absolute Rate Auction, the rate of
interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money
Market Absolute Rate") offered for each such Money Market Loan, and
(5) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
45
<PAGE>
(1) is not substantially in conformity with Exhibit F hereto or
---------
does not specify all of the information required by subsection (d)(ii)
above;
(2) contains qualifying, conditional or similar language;
(3) proposes terms other than or in addition to those set forth
in the applicable Invitation for Money Market Quotes; or
(4) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. The Lead Agent shall promptly notify the
------------------
Borrower (x) with respect to each Money Market Quote submitted in accordance
with subsection (d), of the terms of such Money Market Quote and the identity of
the Bank submitting such Money Market Quote and (y) of any Money Market Quote
that amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
Lead Agent unless such subsequent Money Market Quote is submitted solely to
correct a manifest error in such former Money Market Quote. The Lead Agent's
notice to the Borrower shall specify (A) the aggregate principal amount of Money
Market Loans for which offers have been received for each Interest Period
specified in the related Money Market Quote Request, (B) the respective
principal amounts and Money Market Margins or Money Market Absolute Rates, as
the case may be, so offered and (C) if applicable, limitations on the aggregate
principal amount of Money Market Loans for which offers in any single Money
Market Quote may be accepted.
46
<PAGE>
(f) Acceptance and Notice by Borrower. Not later than 1:00 p.m. (New
---------------------------------
York City time) on (x) the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a LIBOR Auction, or (y) the proposed date of
Borrowing, in the case of an Absolute Rate Auction (or, in either case, such
other time or date as the Borrower and the Lead Agent shall have mutually agreed
and shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the Lead Agent of its
acceptance or non-acceptance of the offers so notified to it pursuant to
subsection (e). In the case of acceptance, such notice (a "Notice of Money
---------------
Market Borrowing") shall specify the aggregate principal amount of offers for
- ----------------
each Interest Period that are accepted. The Borrower may accept any Money
Market Quote in whole or in part; provided that:
--------
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the related
Money Market Quote Request;
(ii) the principal amount of each Money Market Borrowing must
be $10,000,000 or a larger multiple of $500,000;
(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the case
may be; and
(iv) the Borrower may not accept any offer that is described
in subsection (d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
47
<PAGE>
(g) Allocation by Lead Agent. If offers are made by two or more Banks
------------------------
with the same Money Market Margins or Money Market Absolute Rates, as the case
may be, for a greater aggregate principal amount than the amount in respect of
which such offers are accepted for the related Interest Period, the principal
amount of Money Market Loans in respect of which such offers are accepted shall
be allocated by the Lead Agent among such Banks as nearly as possible (in
multiples of $500,000, as the Lead Agent may deem appropriate) in proportion to
the aggregate principal amounts of such offers. Determinations by the Lead
Agent of the amounts of Money Market Loans shall be conclusive in the absence of
manifest error.
(h) Notification by Lead Agent. Upon receipt of the Borrower's Notice
--------------------------
of Money Market Borrowing in accordance with Section 2.3(f) hereof, the Lead
Agent shall, on the date such Notice of Money Market Borrowing is received by
the Lead Agent, notify each Bank of the principal amount of the Money Market
Borrowing accepted by the Borrower and of such Bank's share (if any) of such
Money Market Borrowing and such Notice of Money Market Borrowing shall not
thereafter be revocable by the Borrower. A Bank who is notified that it has been
selected to make a Money Market Loan may designate its Designated Lender (if
any) to fund such Money Market Loan on its behalf, as described in Section
9.6(d). Any Designated Lender which funds a Money Market Loan shall on and
after the time of such funding become the obligee under such Money Market Loan
and be entitled to receive payment thereof when due. No Bank shall be relieved
of its obligation to fund a Money Market Loan, and no Designated Lender shall
assume such obligation, prior to the time the applicable Money Market Loan is
funded.
Section II.4. Notice to Banks; Funding of Loans.
---------------------------------
48
<PAGE>
(a) Upon receipt of a Notice of Committed Borrowing, the Lead Agent
shall notify each Bank on the same day as it receives the Notice of Committed
Borrowing of the contents thereof and of such Bank's share of such Borrowing and
such Notice of Committed Borrowing shall not thereafter be revocable by the
Borrower.
(b) Not later than 2:00 P.M. (New York City time) on the date of each
Committed Borrowing, each Bank shall make available its share of such Committed
Borrowing, in Federal or other funds immediately available in New York City, to
the Lead Agent at its address referred to in Section 9.1. The Lead Agent will
make the funds so received from the Banks available to the Borrower at the Lead
Agent's aforesaid address. If the Borrower has requested the issuance of a
Letter of Credit, no later than 12:00 Noon (New York City time) on the date of
such issuance as indicated in the notice delivered pursuant to Section 2.2(b),
the Fronting Bank shall issue such Letter of Credit in the amount so requested
and deliver the same to the Borrower with a copy thereof to the Lead Agent. At
the request of any Bank, the Lead Agent promptly shall deliver copies thereof to
such Bank. Immediately upon the issuance of each Letter of Credit by the
Fronting Bank, such Fronting Bank shall be deemed to have sold and transferred
to each other Bank, and each such other Bank shall be deemed, and hereby agrees,
to have irrevocably and unconditionally purchased and received from the Fronting
Bank, without recourse or warranty, an undivided interest and a participation in
such Letter of Credit, any drawing thereunder, and the obligations of the
Borrower hereunder with respect thereto, and any security therefor or guaranty
pertaining thereto, in an amount equal to such Bank's ratable share thereof
(based upon the ratio its Commitment bears to the aggregate of all Commitments).
Upon any change in any of the Commitments in accordance herewith, there shall be
an automatic adjustment to such participations to reflect such changed shares.
The Fronting Bank shall
49
<PAGE>
have the primary obligation to fund any and all draws made with respect to such
Letter of Credit notwithstanding any failure of a participating Bank to fund its
ratable share of any such draw. The Lead Agent will instruct the Fronting Bank
to make such Letter of Credit available to the Borrower and the Fronting Bank
shall make such Letter of Credit available to the Borrower at the Borrower's
aforesaid address or at such address in the United States as Borrower shall
request on the date of the Borrowing.
(c) Unless the Lead Agent shall have received notice from a Bank prior
to the date of any Borrowing that such Bank will not make available to the Lead
Agent such Bank's share of such Borrowing, the Lead Agent may assume that such
Bank has made such share available to the Lead Agent on the date of such
Borrowing in accordance with subsection (b) of this Section 2.4 and the Lead
Agent may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such Bank shall not
have so made such share available to the Lead Agent, such Bank and the Borrower
severally agree to repay to the Lead Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Lead Agent, at (i) in the case of the Borrower, a rate per annum
equal to the higher of the Federal Funds Rate and the interest rate applicable
thereto pursuant to Section 2.7 and (ii) in the case of such Bank, the Federal
Funds Rate. If such Bank shall repay to the Lead Agent such corresponding
amount, such amount so repaid shall constitute such Bank's Loan included in such
Borrowing for purposes of this Agreement.
Section II.5. Notes.
-----
50
<PAGE>
(a) The Loans shall be evidenced by the Notes, each of which shall be
payable to the order of each Bank for the account of its Applicable Lending
Office in an amount equal to each such Bank's Commitment.
(b) Each Bank may, by notice to the Borrower and the Lead Agent,
request that its Loans of a particular type be evidenced by a separate Note in
an amount equal to the aggregate unpaid principal amount of such Loans. Each
such Note shall be in substantially the form of Exhibit A hereto, with
---------
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type. Each reference in this Agreement to the "Note" of such Bank
----
shall be deemed to refer to and include any or all of such Notes, as the context
may require.
(c) Upon receipt of each Bank's Note, the Lead Agent shall forward
such Note to such Bank. Each Bank shall record the date, amount, type and
maturity of each Loan made by it and the date and amount of each payment of
principal made by the Borrower with respect thereto, and may, if such Bank so
elects in connection with any transfer or enforcement of its Note, endorse on
the schedule forming a part thereof appropriate notations to evidence the
foregoing information with respect to each such Loan then outstanding; provided
--------
that the failure of any Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Notes. Each
Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and
to attach to and make a part of its Note a continuation of any such schedule as
and when required.
(d) There shall be no more than ten (10) Euro-Dollar Borrowings
outstanding at any one time pursuant to this Agreement.
51
<PAGE>
Section II.6. Maturity of Loans. The Loans shall mature, and the
-----------------
principal amount thereof shall be due and payable, on the Maturity Date.
Section II.7. Interest Rates.
--------------
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made until it
becomes due, at a rate per annum equal to the sum of twenty-five (25) basis
points plus the Base Rate for such day. Such interest shall be payable for each
Interest Period on the last day thereof.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the Applicable Margin plus the
Adjusted London Interbank Offered Rate for such day.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
"Adjusted London Interbank Offered Rate" applicable to any Interest
--------------------------------------
Period means a rate per annum equal to the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London
Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.
"Euro-Dollar Reserve Percentage" means for any day that percentage
------------------------------
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a
52
<PAGE>
member bank of the Federal Reserve System in New York City with deposits
exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Euro-Dollar Loans is determined or any
category of extensions of credit or other assets which includes loans by a non-
United States office of any Bank to United States residents). The Adjusted
London Interbank Offered Rate shall be adjusted automatically on and as of the
effective date of any change in the Euro-Dollar Reserve Percentage.
"London Interbank Offered Rate" applicable to any Interest Period
-----------------------------
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
the Reference Bank in the London interbank market at approximately 11:00 a.m.
(London time) two Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the principal amount of the
Euro-Dollar Loan of such Reference Bank to which such Interest Period is to
apply and for a period of time comparable to such Interest Period.
(c Subject to Section 8.1, each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.7(b) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.3. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate
53
<PAGE>
quoted by the Bank making such Loan in accordance with Section 2.3. Such
interest shall be payable for each Interest Period on the last day thereof and,
if such Interest Period is longer than ninety days, at intervals of ninety days
after the first day thereof.
(d In the event that, and for so long as, any Event of Default
shall have occurred and be continuing, the outstanding principal amount of the
Loans, and, to the extent permitted by law, overdue interest in respect of all
Loans, shall bear interest at the annual rate of the sum of the Base Rate and
four percent (4%).
(e The Lead Agent shall determine each interest rate applicable to
the Loans hereunder. The Lead Agent shall give prompt notice to the Borrower and
the Banks of each rate of interest so determined, and its determination thereof
shall be conclusive in the absence of manifest error.
(f The Reference Bank agrees to use its best efforts to furnish
quotations to the Lead Agent as contemplated by this Section. If the Reference
Bank does not furnish a timely quotation, the provisions of Section 8.1 shall
apply.
Section II.8. Fees.
----
(a Commitment/Facility Fee. During the Term, the Borrower
-----------------------
shall pay to the Lead Agent for the account of the Banks ratably in proportion
to their respective Commitments, a commitment fee on the daily average undrawn
and uncancelled Commitments in any given quarter determined as follows:
(i prior to the Adjustment Date, the Borrower shall pay to the Lead
Agent for the account of the Banks ratably in proportion to their respective
Commitments, a commitment fee on the daily average
54
<PAGE>
undrawn and uncancelled Commitments in any given quarter at the respective
percentages per annum based upon the range into which the Total Debt Ratio then
falls in accordance with the following table:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Total Debt Ratio Applicable Commitment Fee
(% per annum)
----------------------------------------------------------------------------
<S> <C>
less than 35% 0.20%
----------------------------------------------------------------------------
equal to or greater than 35% but less 0.25%
than 45%
----------------------------------------------------------------------------
equal to or greater than 45% but less 0.30%
than 50%
----------------------------------------------------------------------------
equal to or greater than 50% but less 0.35%
than 55%
----------------------------------------------------------------------------
</TABLE>
(i from and after the Adjustment Date, the Borrower shall pay to
the Lead Agent for the account of the Banks ratably in proportion to their
respective Commitments, a facility fee on the daily average Commitments in any
given quarter at the respective percentages per annum based upon the Borrower's
Credit Rating in accordance with the following table:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Borrower's Credit Rating Applicable Facility Fee
(% per annum)
-------------------------------------------------------------------------
<S> <C>
BBB+/Baa1 0.20%
-------------------------------------------------------------------------
BBB/Baa2 0.20%
-------------------------------------------------------------------------
BBB-/Baa3 0.25%
-------------------------------------------------------------------------
Below Investment Grade 0.325%
Rating or no rating
-------------------------------------------------------------------------
</TABLE>
55
<PAGE>
The commitment/facility fee shall be payable quarterly, in arrears, on each
January 1, April 1, July 1, and October 1 during the Term and any extensions
thereof. Any change in the Borrower's Credit Rating causing it to move into a
different range on the table shall effect an immediate change in the applicable
percentage per annum. In the event that the Borrower's (or the General
Partner's) Credit Rating is such that the Rating Agencies' ratings are split
between a higher and a lower rating, the applicable percentage per annum shall
be based upon the lower of such two (2) Credit Ratings. In the event that
Borrower (or, as applicable, the General Partner) receives more than two (2)
credit ratings and such credit ratings are not equivalent, the applicable fee
shall be determined by the lower of the two (2) highest ratings, provided that
each of said two (2) highest ratings shall be Investment Grade Ratings and at
least one of which shall be an Investment Grade Rating from S&P or Moody's.
(b Letter of Credit Fee. During the Term, the Borrower shall
--------------------
pay to the Lead Agent, for the account of the Banks in proportion to their
interests in respect of undrawn issued Letters of Credit, a fee (a "Letter of
---------
Credit Fee") in an amount, provided that no Event of Default shall have occurred
- ----------
and be continuing, equal to a rate per annum equal to the Applicable Margin with
respect to Euro-Dollar Loans on the daily average of such issued and undrawn
Letters of Credit, which fee shall be payable, in arrears, on each January 1,
April 1, July 1 and October 1 during the Term. From the occurrence, and during
the continuance, of an Event of Default, such fee shall be increased to be equal
to four percent (4%) per annum on the daily average of such issued and undrawn
Letters of Credit.
(c Fronting Bank Fee. The Borrower shall pay any Fronting
-----------------
Bank, for its own account, a fee (a "Fronting Bank Fee") at a rate per annum
-----------------
equal to .15%
56
<PAGE>
of the issued and undrawn amount of such Letter of Credit, which fee shall be in
addition to and not in lieu of, the Letter of Credit Fee. The Fronting Bank Fee
shall be payable in arrears on each January 1, April 1, July 1 and October 1
during the Term.
(d Intentionally omitted.
---------------------
(e Fees Non-Refundable. All fees set forth in this Section 2.8
-------------------
shall be deemed to have been earned on the date payment is due in accordance
with the provisions hereof and shall be non-refundable. The obligation of the
Borrower to pay such fees in accordance with the provisions hereof shall be
binding upon the Borrower and shall inure to the benefit of the Lead Agent and
the Banks regardless of whether any Loans are actually made.
Section II.9. Mandatory Termination. The term (the "Term") of the
--------------------- ----
Commitments shall terminate and expire, and the Borrower shall return or cause
to be returned all Letters of Credit to the Fronting Bank, on November 8, 2002
(the "Maturity Date").
-------------
Section II.10. Mandatory Prepayment.
--------------------
(a In the event that an Unencumbered Asset Pool Property (or
any Separate Parcel that originally formed a part of an Unencumbered Asset Pool
Property) is sold, transferred or released from the restrictions of Section 5.16
hereof, the Borrower shall, simultaneously with such sale, transfer or release,
prepay the Loans in an amount equal to 100% of the net proceeds of such sale or
transfer, in the event of a sale or transfer, or such lesser amount as shall be
required for the Borrower to remain in compliance with this Agreement, in the
event of such a sale, transfer or release. Notwithstanding the foregoing, a
simultaneous like-kind exchange under Section 1031 of the Internal Revenue Code
will not be subject to the provisions of this Section 2.10(a), pro-
57
<PAGE>
vided that the exchanged property has qualified as a New Acquisition and any
cash "boot" associated therewith shall be applied to prepayment of the Loans or
such lesser amount of such cash "boot" as shall be required for the Borrower to
remain in compliance with this Agreement. Sale of an Unencumbered Asset Pool
Property (or any Separate Parcel that originally formed a part of a Unencumbered
Asset Pool Property) in violation of this Section 2.10 shall constitute an Event
of Default.
(b Simultaneously with the closing of any sale of common shares
of beneficial interest, preferred shares of beneficial interest, partnership
interests, limited liability company interests, or other ownership or equity
interests in the Borrower or the General Partner, the Borrower shall,
simultaneously with such sale, prepay the Loans in an amount equal to 100% of
the Net Offering Proceeds. Notwithstanding the foregoing, however, in the event
that (i) the Net Offering Proceeds in connection with any individual offering
shall be less than $20,000,000, and the Borrower anticipates reinvesting the
same in Real Property Assets within fifteen (15) days after receipt thereof or
(ii) any Loans expire within thirty (30) days of the date thereof, the Borrower
may retain such funds, provided, however, that if the Borrower shall not in fact
so reinvest such funds in Real Property Assets within such fifteen (15) day
period or repay such Loans within such thirty (30) day period, as the case may
be, the Borrower shall immediately apply the same in repayment of the Loans.
(c in the event that the Unsecured Debt Ratio is not maintained
as of the last day of a calendar quarter, either (i) the Borrower will add a
Real Property Asset to the Unencumbered Asset Pool Properties in accordance with
this Agreement which, on a pro forma basis (i.e. the Unsecured Debt Ratio shall
--------- ---
be recalculated to include such Real Property Asset as though the same had been
an Unencumbered Asset Pool Property for
58
<PAGE>
the entire applicable period) would result in compliance with the Unsecured Debt
Ratio, or (ii) the Borrower shall prepay to the Lead Agent, for the account of
the Banks, an amount necessary to cause the Unsecured Debt Ratio to be in
compliance within ninety (90) days of the date on which the Unsecured Debt Ratio
failed to be maintained. Failure by the Borrower to comply with the Unsecured
Debt Ratio within ninety (90) days of the date of such non-compliance shall be
an Event of Default.
Section II.11. Optional Prepayments.
--------------------
(a The Borrower may, upon at least one Domestic Business Day's
notice to the Lead Agent, prepay to the Lead Agent, for the account of the
Banks, any Base Rate Borrowing in whole at any time, or from time to time in
part in amounts aggregating One Million Dollars ($1,000,000), or an integral
multiple of One Million Dollars ($1,000,000) in excess thereof or, if less, the
outstanding principal balance, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Borrowing.
(b Except as provided in Section 8.2, the Borrower may not prepay
all or any portion of the principal amount of any Euro-Dollar Loan prior to the
maturity thereof unless the Borrower shall also pay any applicable expenses
pursuant to Section 2.13. Any such prepayment shall be upon at least three (3)
Euro-Dollar Business Days' notice to the Lead Agent. Any notice of prepayment
delivered pursuant to this Section 2.11(b) shall set forth the amount of such
prepayment which is applicable to any Loan made for working capital purposes.
Each such optional prepayment shall be in the amounts set forth in Section
2.11(a) above and shall be applied to prepay ratably the Loans of the Banks
included.
59
<PAGE>
(c The Borrower may not prepay any Money Market Loan.
(d The Borrower may, upon at least one (1) Domestic Business
Day's notice to the Lead Agent (by 2:00 p.m New York time on such Domestic
Business Day), reimburse the Lead Agent for the benefit of the Fronting Bank for
the amount of any drawing under a Letter of Credit in whole or in part in any
amount.
(e The Borrower may at any time return any undrawn Letter of
Credit to the Fronting Bank in whole, but not in part, and the Fronting Bank
shall give the Lead Agent and each of the Banks notice of such return.
(f The Borrower may at any time and from time to time cancel
all or any part of the Commitments in amounts aggregating One Million Dollars
($1,000,000), or an integral multiple of One Million Dollars ($1,000,000) in
excess thereof, by the delivery to the Lead Agent and the Banks of a notice of
cancellation upon at least three (3) Domestic Business Days' notice to Lead
Agent and the Banks, whereupon, all or such portion of the Commitments shall
terminate as to the Banks, pro rata on the date set forth in such notice of
--------
cancellation, and, if there are any Loans then outstanding in an aggregate
amount which exceeds the aggregate Commitments (after giving effect to any such
reduction), the Borrower shall prepay to the Lead Agent, for the account of the
Banks, all or such portion of Loans outstanding on such date in accordance with
the requirements of Sections 2.11(a) and (b). In no event shall the Borrower be
permitted to cancel Commitments for which a Letter of Credit has been issued and
is outstanding unless the Borrower returns (or causes to be returned) such
Letter of Credit to the Fronting Bank. The Borrower shall be permitted to
designate in its
60
<PAGE>
notice of cancellation which Loans, if any, are to be prepaid.
(g Upon receipt of a notice of prepayment or cancellation or a
return of a Letter of Credit pursuant to this Section, the Lead Agent shall
promptly, and in any event within one (1) Domestic Business Day, notify each
Bank of the contents thereof and of such Bank's ratable share (if any) of such
prepayment or cancellation and such notice shall not thereafter be revocable by
the Borrower.
(h Any amounts so prepaid pursuant to this Section 2.11 may be
reborrowed subject to the other terms of this Agreement. In the event that the
Borrower elects to cancel all or any portion of the Commitments pursuant to
Section 2.11(c) hereof, such amounts may not be reborrowed.
Section II.12. General Provisions as to Payments.
---------------------------------
(a The Borrower shall make each payment of principal of, and
interest on, the Loans and of fees hereunder, not later than 3:00 p.m. (New York
City time) on the date when due, in Federal or other funds immediately available
in New York City, to the Lead Agent at its address referred to in Section 9.1.
The Lead Agent will distribute to each Bank its ratable share of each such
payment received by the Lead Agent for the account of the Banks on the same day
as received by the Lead Agent if received by the Lead Agent by 3:00 p.m. (New
York City time), or, if received by the Lead Agent after 3:00 p.m. (New York
City time), on the immediately following Domestic Business Day. If the Lead
Agent shall fail to distribute to a Bank its ratable share of a payment on the
same day it is received or the immediately following Domestic Business Day, as
applicable in accordance with the immediately preceding sentence, the
61
<PAGE>
Lead Agent shall pay to such Bank the interest accrued on such payment at the
Federal Funds Rate, commencing on the day the Lead Agent should have made the
payment to such Bank and ending on the day prior to the date payment is actually
made. Whenever any payment of principal of, or interest on, the Base Rate Loans
or of fees shall be due on a day which is not a Domestic Business Day, the date
for payment thereof shall be extended to the next succeeding Domestic Business
Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
(b Unless the Lead Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Lead Agent may assume
that the Borrower has made such payment in full to the Lead Agent on such date
and the Lead Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then due
such Bank. If and to the extent that the Borrower shall not have so made such
payment, each Bank shall repay to the Lead Agent forthwith on demand such amount
distributed to such Bank together with interest thereon, for each day from the
date such amount is distributed to such Bank until the date such Bank repays
such amount to the Lead Agent, at the Federal Funds Rate.
Section II.13. Funding Losses. If the Borrower makes any payment of
--------------
principal with respect to any
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Euro-Dollar Loan (pursuant to Article II, VI or VIII or otherwise, and
specifically including any payments made pursuant to Sections 2.10 or 2.11) on
any day other than the last day of the Interest Period applicable thereto, or if
the Borrower fails to borrow any Euro-Dollar Loans, after notice has been given
to any Bank in accordance with Section 2.4(a), the Borrower shall reimburse each
Bank within 15 days after demand for any resulting loss or expense incurred by
it (or by an existing Participant in the related Loan; provided that no
Participant shall be entitled to receive more than the Bank with respect to
which such Participant is a Participant would be entitled to receive under this
Section 2.13), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after any such payment or failure to borrow, provided that
--------
such Bank shall have delivered to the Borrower a certificate as to the amount of
such loss or expense and the calculation thereof, which certificate shall be
conclusive in the absence of manifest error.
Section II.14. Computation of Interest and Fees. Interest based on
--------------------------------
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
Section II.15. Method of Electing Interest Rates.
---------------------------------
(a The Loans included in each Borrowing shall bear interest
initially at the type of rate specified by the Borrower in the applicable Notice
of Committed Borrowing. Thereafter, the Borrower may from time
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to time elect to change or continue the type of interest rate borne by each
Group of Loans (subject in each case to the provisions of Article VIII), as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect
to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business
Day;
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect
to convert such Loans to Base Rate Loans or elect to continue such Loans as
Euro-Dollar Loans for an additional Interest Period, in each case effective
on the last day of the then current Interest Period applicable to such
Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
------------------
Rate Election") to the Lead Agent at least three (3) Euro-Dollar Business Days
- -------------
before the conversion or continuation selected in such notice is to be effective
(unless the relevant Loans are to be continued as Base Rate Loans, in which case
such notice shall be delivered to the Lead Agent no later than 2:00 p.m. (New
York City time) at least one (1) Domestic Business Day before such continuation
is to be effective). A Notice of Interest Rate Election may, if it so specifies,
apply to only a portion of the aggregate principal amount of the relevant Group
of Loans; provided that (i) such portion is allocated ratably among the Loans
--------
comprising such Group, (ii) the portion to which such notice applies, and the
remaining portion to which it does not apply, are each $1,000,000 or any larger
multiple of $1,000,000, (iii) there shall be no more than ten (10) Borrowings
comprised of Euro-Dollar Loans outstanding at any time under this Agreement,
(iv) no Loan may be continued as, or converted into, a Euro-Dollar Loan when any
Event of Default has occurred and
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is continuing, and (v) no Interest Period shall extend beyond the Maturity Date.
(b Each Notice of Interest Rate Election shall specify:
(i the Group of Loans (or portion thereof) to which such notice
applies;
(ii the date on which the conversion or continuation selected
in such notice is to be effective, which shall comply with the applicable
clause of subsection (a) above;
(iii if the Loans comprising such Group are to be converted,
the new type of Loans and, if such new Loans are Euro-Dollar Loans, the
duration of the initial Interest Period applicable thereto; and
(iv if such Loans are to be continued as Euro-Dollar Loans for
an additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Lead Agent shall notify each Bank
on the same day as it receives such Notice of Interest Rate Election of the
contents thereof and such notice shall not thereafter be revocable by the
Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate
Election to the Lead Agent for any Group of Euro-Dollar Loans, such Loans shall
be converted into Base Rate Loans on the last day of the then current Interest
Period applicable thereto.
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Section II.16. Letters of Credit. (a) Subject to the terms
-----------------
contained in this Agreement and the other Loan Documents, upon the receipt of a
notice in accordance with Section 2.2(b) requesting the issuance of a Letter of
Credit, the Fronting Bank shall issue a Letter of Credit or Letters of Credit in
such form as is reasonably acceptable to the Borrower in an amount or amounts
equal to the amount or amounts requested by the Borrower.
(b Each Letter of Credit shall be issued in the minimum amount
of One Million Dollars ($1,000,000).
(c The Letter of Credit Usage shall be no more than Twenty-Five
Million Dollars ($25,000,000) at any one time.
(d There shall be no more than three (3) Letters of Credit
outstanding at any one time.
(e In the event of any request for a drawing under any Letter
of Credit by the beneficiary thereunder, the Fronting Bank shall endeavor to
notify the Borrower and the Lead Agent (and the Lead Agent shall endeavor to
notify each Bank thereof) on or before the date on which the Fronting Bank
intends to honor such drawing, and, except as provided in this subsection (e),
the Borrower shall reimburse the Fronting Bank, in immediately available funds,
on the same day on which such drawing is honored in an amount equal to the
amount of such drawing. Notwithstanding anything contained herein to the
contrary, however, unless the Borrower shall have notified the Lead Agent and
the Fronting Bank prior to 2:00 p.m. (New York time) on the Domestic Business
Day immediately prior to the date of such drawing that the Borrower intends to
reimburse the Fronting Bank for the amount of such drawing with funds other than
the proceeds of the Loans, the Borrower shall be deemed to have timely given a
Notice of Committed Borrowing pursuant to
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Section 2.2 to the Lead Agent, requesting a Borrowing of Base Rate Loans on the
date on which such drawing is honored and in an amount equal to the amount of
such drawing. Each Bank (other than the Fronting Bank) shall, in accordance with
Section 2.4(b), make available its share of such Borrowing to the Lead Agent,
the proceeds of which shall be applied directly by the Lead Agent to reimburse
the Fronting Bank for the amount of such draw. In the event that any such Bank
fails to make available to the Fronting Bank the amount of such Bank's
participation on the date of a drawing, the Fronting Bank shall be entitled to
recover such amount on demand from such Bank together with interest at the
Federal Funds Rate commencing on the date such drawing is honored.
(f If, at the time a beneficiary under any Letter of Credit
requests a drawing thereunder, an Event of Default as described in Section
6.1(f) or Section 6.1(g) shall have occurred and is continuing, then on the date
on which the Fronting Bank shall have honored such drawing, the Borrower shall
have an unreimbursed obligation (the "Unreimbursed Obligation") to the Fronting
-----------------------
Bank in an amount equal to the amount of such drawing, which amount shall bear
interest at the annual rate of the sum of the Base Rate plus four percent (4%).
Each Bank shall purchase an undivided participating interest in the Unreimbursed
Obligation in an amount equal to its pro rata share of the Commitments, and upon
receipt thereof the Fronting Bank shall deliver to such Bank an Unreimbursed
Obligation participation certificate dated the date of the Fronting Bank's
receipt of such funds and in the amount of such Bank's pro rata share.
(g If, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof shall either (i)
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impose, modify or deem applicable any reserve, special deposit or similar
requirement against letters of credit issued by, or assets held by, or deposits
in or for the account of, or participations in any letter of credit, upon any
Bank (including the Fronting Bank) or (ii) impose on any Bank any other
condition regarding this Agreement or such Bank (including the Fronting Bank) as
it pertains to the Letters of Credit or any participation therein and the result
of any event referred to in the preceding clause (i) or (ii) shall be to
increase, by an amount deemed by the Fronting Bank or such Bank to be material,
the cost to the Fronting Bank or any Bank of issuing or maintaining any Letter
of Credit or participating therein then the Borrower shall pay to the Fronting
Bank or such Bank, within 15 days after written demand by such Bank (with a copy
to the Lead Agent), which demand shall be accompanied by a certificate showing,
in reasonable detail, the calculation of such amount or amounts, such additional
amounts as shall be required to compensate the Fronting Bank or such Bank for
such increased costs or reduction in amounts received or receivable hereunder.
(h The Borrower hereby agrees to protect, indemnify, pay and save
the Fronting Bank harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
attorneys' fees and disbursements) which the Fronting Bank may incur or be
subject to as a result of (i) the issuance of the Letters of Credit, other than
as a result of the gross negligence or wilful misconduct of the Fronting Bank or
(ii) the failure of the Fronting Bank to honor a drawing under any Letter of
Credit as a result of any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or Governmental Authority
-- ---- -- -----
(collectively, "Governmental Acts"), other than as a result of the gross
-----------------
negligence or wilful misconduct of the Fronting
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Bank. As between the Borrower and the Fronting Bank, the Borrower assumes all
risks of the acts and omissions of, or misuses of, the Letters of Credit issued
by the Fronting Bank, by the beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Fronting Bank shall not
be responsible (i) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection with the
application for and issuance of such Letters of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) for the validity or insufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) for
failure of the beneficiary of any such Letter of Credit to comply fully with
conditions required in order to draw upon such Letter of Credit; (iv) for
errors, omissions, interruptions or delays in transmission or delivery of any
message, by mail, cable, telegraph, telex, facsimile transmission, or otherwise;
(v) for errors in interpretation of any technical terms; (vi) for any loss or
delay in the transmission or otherwise of any documents required in order to
make a drawing under any such Letter of Credit or of the proceeds thereof; (vii)
for the misapplication by the beneficiary of any such Letter of Credit of the
proceeds of such Letter of Credit; and (viii) for any consequence arising from
causes beyond the control of the Fronting Bank, including any Government Acts,
in each case other than as a result of the gross negligence or willful
misconduct of the Fronting Bank. None of the above shall affect, impair or
prevent the vesting of the Fronting Bank's rights and powers hereunder. In
furtherance and extension and not in limitation of the specific provisions
hereinabove set forth, any action taken or omitted by the Fronting Bank under or
in connection with the
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Letters of Credit issued by it or the related certificates, if taken or omitted
in good faith, shall not put the Fronting Bank under any resulting liability to
the Borrower.
(i If the Fronting Bank or the Lead Agent is required at any time,
pursuant to any bankruptcy, insolvency, liquidation or reorganization law or
otherwise, to return to the Borrower any reimbursement by the Borrower of any
drawing under any Letter of Credit, each Bank shall pay to the Fronting Bank or
the Lead Agent, as the case may be, its share of such payment, but without
interest thereon unless the Fronting Bank or the Lead Agent is required to pay
interest on such amounts to the person recovering such payment, in which case
with interest thereon, computed at the same rate, and on the same basis, as the
interest that the Fronting Bank or the Lead Agent is required to pay.
Section II.17. Letter of Credit Usage Absolute. The obligations of
-------------------------------
the Borrower under this Agreement in respect of any Letter of Credit shall be
unconditional and irrevocable, and shall be paid strictly in accordance with the
terms of this Agreement (as the same may be amended from time to time) and any
Letter of Credit Documents (as hereinafter defined) under all circumstances,
including, without limitation, to the extent permitted by law, the following
circumstances:
(a any lack of validity or enforceability of any Letter of Credit or
any other agreement or instrument relating thereto (collectively, the "Letter of
---------
Credit Documents") or any Loan Document;
---------------
(b any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations of the Borrower in respect of
the Letters of Credit or any other amendment or waiver of or any consent by the
Borrower to departure from all or any
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of the Letter of Credit Documents or any Loan Document; provided, that the
--------
Fronting Bank shall not consent to any such change or amendment unless
previously consented to in writing by the Borrower;
(c any exchange, release or non-perfection of any collateral, or any
release or amendment or waiver of or consent to departure from any guaranty, for
all or any of the obligations of the Borrower in respect of the Letters of
Credit;
(d the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any transferee of a
Letter of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Lead Agent, the Fronting Bank or any Bank (other
than a defense based on the gross negligence or wilful misconduct of the Lead
Agent, the Fronting Bank or such Bank) or any other Person, whether in
connection with the Loan Documents, the transactions contemplated hereby or by
the Letters of Credit Documents or any unrelated transaction;
(e any draft or any other document presented under or in connection
with any Letter of Credit or other Loan Document proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; provided, that payment by the
--------
Fronting Bank under such Letter of Credit against presentation of such draft or
document shall not have constituted gross negligence or wilful misconduct of the
Fronting Bank;
(f payment by the Fronting Bank against presentation of a draft or
certificate that does not comply with the terms of the Letter of Credit;
provided, that such payment shall not have constituted gross negligence or
- --------
wilful misconduct of the Fronting Bank; and
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(g any other circumstance or happening whatsoever other than the
payment in full of all obligations hereunder in respect of any Letter of Credit
or any agreement or instrument relating to any Letter of Credit, whether or not
similar to any of the foregoing, that might otherwise constitute a defense
available to, or a discharge of, the Borrower; provided, that such other
--------
circumstance or happening shall not have been the result of gross negligence or
wilful misconduct of the Fronting Bank.
ARTICLE III
CONDITIONS
Section III.1. Closing. The closing hereunder shall occur on the
-------
date (the "Closing Date") when each of the following conditions is satisfied (or
------------
waived by the Lead Agent, such waiver to be evidenced by the continuation or
funding after the date hereof of Loans and notice of such waiver to be given to
the Banks by the Lead Agent), each document to be dated the Closing Date unless
otherwise indicated:
(a the Borrower shall have executed and delivered to the Lead Agent
a Note for the account of each Bank dated on or before the Closing Date
complying with the provisions of Section 2.5;
(b the Borrower shall have executed and delivered to the Lead Agent
a duly executed original of this Agreement;
(c the General Partner shall have executed and delivered to the Lead
Agent a duly executed original of the Guaranty;
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(d the Lead Agent shall have received an opinion of Latham &
Watkins, counsel for the Borrower and the General Partner, acceptable to the
Lead Agent, the Banks and their counsel;
(e the Lead Agent shall have received all documents the Lead Agent
may reasonably request relating to the existence of the Borrower, the General
Partner, the authority for and the validity of this Agreement and the other Loan
Documents, and any other matters relevant hereto, all in form and substance
reasonably satisfactory to the Lead Agent. Such documentation shall include,
without limitation, the articles of incorporation and by-laws or the partnership
agreement and limited partnership certificate, as applicable, of the Borrower
and the General Partner, as amended, modified or supplemented to the Closing
Date, each certified to be true, correct and complete by a senior officer of the
Borrower or the General Partner, as the case may be, as of the Closing Date,
together with a good standing certificate from the Secretary of State (or the
equivalent thereof) of the State of Delaware with respect to the Borrower and of
the State of Maryland with respect to the General Partner, and a good standing
certificate from the Secretary of State (or the equivalent thereof) of each
other State in which the Borrower and the General Partner is required to be
qualified to transact business, each to be dated not more than forty-five (45)
days prior to the Closing Date;
(f the Lead Agent shall have received all certificates, agreements
and other documents and papers referred to in this Section 3.1 and Section 3.2,
unless otherwise specified, in sufficient counterparts, satisfactory in form and
substance to the Lead Agent in its sole discretion;
(g the Borrower and the General Partner shall have taken all
actions required to authorize the
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execution and delivery of this Agreement and the other Loan Documents and the
performance thereof by the Borrower and the General Partner;
(h the Lead Agent and the Banks shall have received an unaudited
consolidated balance sheet and income statement of the Borrower for the fiscal
quarter ended June 30, 1999;
(i the Lead Agent shall be satisfied that neither the Borrower nor
the General Partner is subject to any present or contingent environmental
liability which could reasonably be expected to have a Material Adverse Effect;
(j the Lead Agent shall have received wire transfer instructions in
connection with the Loans to be made on the Closing Date;
(k the Lead Agent shall have received, for its and any other Bank's
account, all fees due and payable pursuant to Section 2.8 hereof on or before
the Closing Date, and the reasonable fees and expenses accrued through the
Closing Date of Skadden, Arps, Slate, Meagher & Flom LLP;
(l the Lead Agent shall have received copies of all consents,
licenses and approvals, if any, required in connection with the execution,
delivery and performance by the Borrower, and the validity and enforceability
against the Borrower, of the Loan Documents, or in connection with any of the
transactions contemplated thereby to occur on or prior to the Closing Date, and
such consents, licenses and approvals shall be in full force and effect;
(m the representations and warranties of the Borrower contained in
this Agreement shall be true and correct in all material respects on and as of
the Clos-
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ing Date both before and after giving effect to the making of any Loans;
(n receipt by the Lead Agent and the Banks of a certificate of the
chief financial officer or the chief accounting officer of the Borrower
certifying that the Borrower is in compliance with all covenants of the Borrower
contained in this Agreement, including, without limitation, the requirements of
Section 5.8, as of the Closing Date; and
(o the General Partner shall intend to continue to qualify as a real
estate investment trust under the Internal Revenue Code.
The Lead Agent shall promptly notify the Borrower and the Banks of the Closing
Date, and such notice shall be conclusive and binding on all parties hereto.
Section III.2. Borrowings. The obligation of any Bank to make a Loan
----------
on the occasion of any Borrowing or to participate in any Letter of Credit
issued by the Fronting Bank and the obligation of the Fronting Bank to issue a
Letter of Credit on the occasion of any Borrowing is subject to the satisfaction
of the following conditions:
(a the Closing Date shall have occurred on or prior to November 15,
1999;
(b receipt by the Lead Agent of a Notice of Borrowing as required by
Section 2.2 or 2.3;
(c immediately after such Borrowing, the Outstanding Balance
will not exceed the aggregate amount of the Commitments and with respect to each
Bank, such Bank's pro rata portion of the Committed Loans and Letter of Credit
--------
Usage will not exceed such Bank's Commitment;
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(d immediately before and after such Borrowing, no Default or Event
of Default shall have occurred and be continuing both before and after giving
effect to the making of such Loans;
(e the representations and warranties of the Borrower contained in
this Agreement (other than representations and warranties which speak as of a
specific date) shall be true and correct in all material respects on and as of
the date of such Borrowing both before and after giving effect to the making of
such Loans;
(f no law or regulation shall have been adopted, no order, judgment
or decree of any governmental authority shall have been issued, and no
litigation shall be pending or threatened, which does or, with respect to any
threatened litigation, seeks to enjoin, prohibit or restrain, the making or
repayment of the Loans, the issuance of any Letter of Credit or any
participations therein or the consummation of the transactions contemplated
hereby; and
(g no event, act or condition shall have occurred after the
Closing Date which, in the reasonable judgment of the Lead Agent or the Required
Banks, as the case may be, has had or is likely to have a Material Adverse
Effect.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(c) through (g) of this Section (except that with respect to clause (f), such
representation and warranty shall be deemed to be limited to laws, regulations,
orders, judgments, decrees and litigation affecting the Borrower and not solely
the Banks).
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Section III.3. New Acquisitions and Additional Real Property Assets.
----------------------------------------------------
(a Any New Acquisition or Real Property Asset desired by the
Borrower to be included as a Unencumbered Asset Pool Property after the date
hereof and prior to the date on which Borrower has received an Investment Grade
Rating from either S&P or Moody's, will require the approval of the Required
Banks. The Borrower shall submit to the Lead Agent the materials set forth
below (the "Due Diligence Package") relating to each New Acquisition or Real
---------------------
Property Asset that the Borrower desires to be added to the Unencumbered Asset
Pool Properties. The Due Diligence Package shall include (i) a description of
the Real Property Asset, (ii) two years of historical cash flow operating
statements, if available, (iii) five years of cash flow projections (including
capital expenditures), (iv) the credit history of each existing tenant which
occupies more than 15% of such Real Property Asset, (v) a map and site plan,
(vi) copies of all lease agreements and abstracts thereof with each existing
tenant which occupies more than 15% of such Real Property Asset, (vii) a
satisfactory environmental report indicating that (A) the Real Property Asset
complies with all Environmental Laws in all material respects, (B) is free of
all Material of Environmental Concern in all material respects and (C) is not
subject to any Environmental Claim, (viii) an engineer's inspection report
satisfactory to the Lead Agent (provided, however, the Lead Agent shall not deem
an engineer's inspection report satisfactory unless the Required Banks shall
find such engineer's inspection report satisfactory), (ix) a title report and an
existing survey of the property dated not more than twelve (12) months prior to
such submission, (x) tenant delinquency reports, if available, (xi) a rent roll
certified to be true, correct and complete by an authorized officer of Borrower,
(xii) a final investment memorandum prepared by the Borrower in connection with
the Real
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Property Asset, and (xiii) a statement with respect to the purchase price of
such Real Property Asset or, if such Real Property Asset was purchased as part
of a portfolio and there was no allocation of purchase price, of the purchase
price of the portfolio of Real Property Assets of which it formed a part. The
Borrower shall permit the Lead Agent at all reasonable times and upon reasonable
prior notice to make an inspection of such New Acquisition or Real Property
Asset.
(b The Borrower shall distribute a copy of the items listed in
clauses (i), (ii), (iii), (v) and (xii) of the Section 3.3(a) by overnight mail
to each of the Banks for their review and approval (the "Bank Due Diligence
------------------
Package"). In the event that a Bank desires additional materials which are
- -------
included in the Due Diligence Package delivered to the Lead Agent, such Bank(s)
shall notify the Borrower within two (2) Business Days of receipt of the Bank
Due Diligence Package and the Borrower shall deliver such requested materials to
the requesting Bank within one (1) Business Day of request therefor. To the
extent approval is required pursuant to Section 3.3(a) hereof, failure to
respond to the Lead Agent in writing by any Bank within ten (10) Domestic
Business Days after receipt of the Bank Due Diligence Package shall be deemed to
be an approval by such Bank of such New Acquisition or Real Property Asset for
inclusion as an Unencumbered Asset Pool Property.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lead Agent and each of the other Banks which
may become a party to this Agreement to make the Loans, the Borrower makes the
following representations and warranties as of the date hereof. Such
representations and warranties shall survive the
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effectiveness of this Agreement, the execution and delivery of the other Loan
Documents and the making of the Loans.
Section IV.1. Existence and Power. The Borrower is duly organized,
-------------------
validly existing and in good standing as a limited partnership under the laws of
the State of Delaware and has all powers and all material governmental licenses,
authorizations, consents and approvals required to own its property and assets
and carry on its business as now conducted or as it presently proposes to
conduct and has been duly qualified and is in good standing in every
jurisdiction in which the failure to be so qualified and/or in good standing is
likely to have a Material Adverse Effect.
Section IV.2. Power and Authority. The Borrower has the
-------------------
organizational power and authority to execute, deliver and carry out the terms
and provisions of each of the Loan Documents to which it is a party and has
taken all necessary action to authorize the execution and delivery on behalf of
the Borrower and the performance by the Borrower of such Loan Documents. The
Borrower has duly executed and delivered each Loan Document to which it is a
party, and each such Loan Document constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms, except as
enforceability may be limited by applicable insolvency, bankruptcy or other laws
affecting creditors rights generally, or general principles of equity, whether
such enforceability is considered in a proceeding in equity or at law.
Section IV.3. No Violation. Neither the execution, delivery or
------------
performance by or on behalf of the Borrower of the Loan Documents, nor
compliance by the Borrower with the terms and provisions thereof nor the
consummation of the transactions contemplated by the Loan Documents, (i) will
contravene any applicable pro-
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vision of any law, statute, rule, regulation, order, writ, injunction or decree
of any court or governmental instrumentality applicable to Borrower or (ii) will
conflict with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of the Borrower pursuant to the terms of any
material indenture, mortgage, deed of trust, or other agreement or other
instrument to which the Borrower (or of any partnership of which the Borrower is
a partner) is a party or by which it or any of its property or assets is bound
or to which it is subject or (iii) will cause a default by the Borrower under
any organizational document of any Subsidiary, or cause a default under the
General Partner's articles of incorporation or by-laws.
Section IV.4. Financial Information.
---------------------
(a) The unaudited consolidated balance sheets of the Borrower and the
General Partner as of June 30, 1999, when delivered to Lead Agent and to the
Banks shall fairly present, in conformity with GAAP, the consolidated financial
position of the Borrower and the General Partner as of such date and their
consolidated results of operations for such fiscal year.
(b) Since June 30, 1999, (i) there has been no material adverse change
in the business, financial position or results of operations of the Borrower or
the General Partner and (ii) except as previously disclosed to the Lead Agent
and to the Banks, neither the Borrower nor the General Partner has incurred any
material indebtedness or guaranty.
Section IV.5. Litigation.
----------
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(a) There is no action, suit or proceeding pending against, or to the
knowledge of the Borrower, threatened against or affecting, (i) the Borrower,
the General Partner or any of their Subsidiaries, (ii) the Loan Documents or any
of the transactions contemplated by the Loan Documents or (iii) any of their
assets, in any case before any court or arbitrator or any governmental body,
agency or official which could reasonably be expected to have a Material Adverse
Effect or which in any manner draws into question the validity of this Agreement
or the other Loan Documents.
(b) There are no final nonappealable judgments or decrees in an
aggregate amount of One Million Dollars ($1,000,000) or more entered by a court
or courts of competent jurisdiction against the Borrower or the General Partner
(other than any judgment as to which, and only to the extent, a reputable
insurance company has acknowledged coverage of such claim in writing).
Section IV.6. Compliance with ERISA.
---------------------
(a) Except as previously disclosed to the Lead Agent in writing, each
member of the ERISA Group has fulfilled its obligations under the minimum
funding standards of ERISA and the Internal Revenue Code with respect to each
Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Internal Revenue Code with respect to each Plan. No
member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Internal Revenue Code in respect of any Plan,
(ii) failed to make any contribution or payment to any Plan or Multiemployer
Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan
or Benefit Arrangement, which has resulted or could result in the imposition of
a Lien or the posting of a bond or other security under ERISA or the Internal
Revenue Code
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or (iii) incurred any liability under Title IV of ERISA other than a liability
to the PBGC for premiums under Section 4007 of ERISA.
(b) Except for each "employee benefit plan" (as such term is defined
in Section 3(3) of ERISA) that is maintained, or contributed to, by one or more
members of the ERISA Group, no member of the ERISA Group is a "party in
interest" (as such term is defined in Section 3(14) of ERISA or a "disqualified
person" (as such term is defined in Section 4975(e)(2) of the Code) with respect
to any funded employee benefit plan and none of the assets of any such plans
have been invested in a manner that would cause the transactions contemplated by
the Loan Documents to constitute a nonexempt prohibited transaction (as such
term is defined in Section 4975 of the Code or Section 406 of ERISA).
Section IV.7. Environmental Compliance. To the best of Borrower's
------------------------
knowledge, except as set forth in the Phase I environmental report(s) delivered
to and accepted by the Lead Agent with respect to each of the Unencumbered Asset
Pool Properties (as supplemented or amended, the "Environmental Reports"), (i)
---------------------
there are in effect all Environmental Approvals which are required to be
obtained under all Environmental Laws with respect to the Property, except for
such Environmental Approvals the absence of which would not have a Material
Adverse Effect, (ii) the Borrower is in compliance in all material respects with
the terms and conditions of all such Environmental Approvals, and is also in
compliance in all material respects with all other Environmental Laws or any
plan, order, decree, judgment, injunction, notice or demand letter issued,
entered or approved thereunder, except to the extent failure to comply would not
have a Material Adverse Effect.
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Except as set forth in the Environmental Reports or otherwise
disclosed to the Lead Agent as of the Closing Date, to Borrower's actual
knowledge:
(i) There are no Environmental Claims or investigations
pending or threatened by any Governmental Authority with respect to any
alleged failure by the Borrower to have any Environmental Approval required
in connection with the conduct of the business of the Borrower on any of
the Unencumbered Asset Pool Properties, or with respect to any generation,
treatment, storage, recycling, transportation, Release or disposal of any
Material of Environmental Concern generated by the Borrower or any lessee
on any of the Unencumbered Asset Pool Properties;
(ii) No Material of Environmental Concern has been Released at
the Property to an extent that it may reasonably be expected to have a
Material Adverse Effect;
(iii) No PCB (in amounts or concentrations which exceed those
set by applicable Environmental Laws) is present at any of the Unencumbered
Asset Pool Properties;
(iv) No friable asbestos is present at any of the
Unencumbered Asset Pool Properties;
(v) There are no underground storage tanks for Material of
Environmental Concern, active or abandoned, at any of the Unencumbered
Asset Pool Properties;
(vi) No Environmental Claims have been filed with a
Governmental Authority with respect to any of the Unencumbered Asset Pool
Properties, and none of the Unencumbered Asset Pool Properties is
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listed or proposed for listing on the National Priority List promulgated
pursuant to CERCLA, on CERCLIS or on any similar state list of sites
requiring investigation or clean-up;
(vii) There are no Liens arising under or pursuant to any
Environmental Laws on any of the Unencumbered Asset Pool Properties, and no
government actions have been taken or are in process which could subject
any of the Unencumbered Asset Pool Properties to such Liens; and
(viii) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or which are in the
possession of, the Borrower in relation to any of the Unencumbered Asset
Pool Properties which have not been made available to the Lead Agent.
Section IV.8. Taxes. The initial tax year of the Borrower for
-----
federal income tax purposes was 1996. The federal income tax returns of the
Borrower and its Consolidated Subsidiaries for the fiscal year ended December
31, 1996 have been filed. The Borrower and its Subsidiaries 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 the Borrower or any
Subsidiary except those being contested in good faith. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of taxes
or other governmental charges are, in the opinion of the Borrower, adequate.
Section IV.9. Full Disclosure. All information heretofore furnished
---------------
by the Borrower to the Lead Agent or any Bank for purposes of or in connection
with this Agreement or any transaction contemplated hereby is true and accurate
in all material respects on the date
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as of which such information is stated or certified. The Borrower has disclosed
to the Banks in writing any and all facts known to the Borrower which materially
and adversely affect or are likely to materially and adversely affect (to the
extent the Borrower can now reasonably foresee), the business, operations or
financial condition of the Borrower considered as one enterprise or the ability
of the Borrower to perform its obligations under this Agreement or the other
Loan Documents.
Section IV.10. Solvency. On the Closing Date and after giving effect
--------
to the transactions contemplated by the Loan Documents occurring on the Closing
Date, the Borrower is Solvent.
Section IV.11. Use of Proceeds; Margin Regulations. All proceeds of
-----------------------------------
the Loans will be used by the Borrower only in accordance with the provisions
hereof. No part of the proceeds of any Loan will be used by the Borrower to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock. Neither the making of any Loan nor
the use of the proceeds thereof will violate or be inconsistent with the
provisions of Regulations T, U or X of the Federal Reserve Board.
Section IV.12. Governmental Approvals. No order, consent, approval,
----------------------
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection with
the execution, delivery and performance of any Loan Document or the consummation
of any of the transactions contemplated thereby other than those that have
already been duly made or obtained and remain in full force and effect.
Section IV.13. Investment Company Act; Public Utility Holding Company
------------------------------------------------------
Act. The Borrower is not (x) an
- ---
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"investment company" or a company "controlled" by an "investment company",
------------------ ---------- ------------------
within the meaning of the Investment Company Act of 1940, as amended, (y) a
"holding company" or a "subsidiary company" of a "holding company" or an
--------------- ------------------ ---------------
"affiliate" of either a "holding company" or a "subsidiary company" within the
--------- --------------- ------------------
meaning of the Public Utility Holding Company Act of 1935, as amended, or (z)
subject to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.
Section IV.14. Closing Date Transactions. On the Closing Date and
-------------------------
immediately prior to or concurrently with the making of the Loans, the
transactions (other than the making of the Loans) intended to be consummated on
the Closing Date will have been consummated in accordance with all applicable
laws. On or prior to the Closing Date, all consents and approvals of, and
filings and registrations with, and all other actions by, any Person required in
order to make or consummate such transactions have been obtained, given, filed
or taken and are in full force and effect.
Section IV.15. Representations and Warranties in Loan Documents. All
------------------------------------------------
representations and warranties made by the Borrower in the Loan Documents are
true and correct in all material respects.
Section IV.16. Patents, Trademarks, etc. The Borrower has obtained
-------------------------
and holds in full force and effect all patents, trademarks, service marks, trade
names, copyrights and other such rights, free from burdensome restrictions,
which are necessary for the operation of its business as presently conducted,
the impairment of which is likely to have a Material Adverse Effect. To the
Borrower's knowledge, no material product, process, method, substance, part or
other material presently sold by or employed by the Borrower in connection with
such business infringes any patent, trademark, service mark,
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trade name, copyright, license or other such right owned by any other Person.
There is not pending or, to the Borrower's knowledge, threatened any claim or
litigation against or affecting the Borrower contesting its right to sell or use
any such product, process, method, substance, part or other material.
Section IV.17. No Default. No Default or Event of Default exists
----------
under or with respect to any Loan Document. The Borrower is not in default in
any material respect beyond any applicable grace period under or with respect to
any other material agreement, instrument or undertaking to which it is a party
or by which it or any of its property is bound in any respect, the existence of
which default is likely (to the extent that the Borrower can now reasonably
foresee) to result in a Material Adverse Effect.
Section IV.18. Licenses, etc. The Borrower has obtained and holds in
--------------
full force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way and
other consents and approvals which are necessary for the operation of its
businesses as presently conducted, the absence of which is likely (to the extent
that the Borrower can now reasonably foresee) to have a Material Adverse Effect.
Section IV.19. Compliance With Law. The Borrower is in compliance
-------------------
with all laws, rules, regulations, orders, judgments, writs and decrees,
including, without limitation, all building and zoning ordinances and codes, the
failure to comply with which is likely (to the extent that the Borrower can now
reasonably foresee) to have a Material Adverse Effect.
Section IV.20. No Burdensome Restrictions. The Borrower is not a
--------------------------
party to any agreement or instrument or subject to any other obligation or any
charter
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or corporate or partnership restriction, as the case may be, which, individually
or in the aggregate, is likely (to the extent that the Borrower can now
reasonably foresee) to have a Material Adverse Effect.
Section IV.21. Brokers' Fees. The Borrower has not dealt with any
-------------
broker or finder with respect to the transactions contemplated by the Loan
Documents (except with respect to the acquisition or disposition of Real
Property Assets) or otherwise in connection with this Agreement, and the
Borrower has not done any acts, had any negotiations or conversation, or made
any agreements or promises which will in any way create or give rise to any
obligation or liability for the payment by the Borrower of any brokerage fee,
charge, commission or other compensation to any party with respect to the
transactions contemplated by the Loan Documents (except with respect to the
acquisition or disposition of Real Property Assets), other than the fees payable
hereunder.
Section IV.22. Labor Matters. Except as set forth on Schedule 4.22
------------- -------------
attached hereto and made a part hereof, there are no collective bargaining
agreements or Multiemployer Plans covering the employees of the Borrower and the
Borrower has not suffered any strikes, walkouts, work stoppages or other
material labor difficulty within the last five (5) years.
Section IV.23. Organizational Documents. The documents delivered
------------------------
pursuant to Section 3.1(e) constitute, as of the Closing Date, all of the
organizational documents (together with all amendments and modifications
thereof) of the Borrower. The Borrower represents that it has delivered to the
Lead Agent true, correct and complete copies of each of the documents set forth
in this Section 4.23.
Section IV.24. Principal Offices. The principal office, chief
-----------------
executive office and principal
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place of business of the Borrower is 2250 East Imperial Highway, Suite 1200, El
Segundo, California 90245.
Section IV.25. REIT Status. For the fiscal year ended December 31,
-----------
1999, the General Partner will qualify, and the General Partner intends to
continue to qualify as a real estate investment trust under the Code.
Section IV.26. Ownership of Property. The Borrower owns fee simple
---------------------
title to or a ground leasehold interest in each of the Unencumbered Asset Pool
Properties.
Section IV.27. Insurance. The Borrower currently maintains insurance
---------
at 100% replacement cost insurance coverage in respect of each of the Real
Property Assets, as well as comprehensive general liability insurance (including
"builders' risk") against claims for personal, and bodily injury and/or death,
to one or more persons, or property damage, as well as workers' compensation
insurance, in each case with respect to the Real Property Assets with insurers
having an A.M. Best policyholders' rating of not less than A-VIII in amounts
that prudent owner of assets such as the Real Property Assets would maintain.
Section IV.28. Year 2000 Compliance. The Borrower has conducted a
--------------------
comprehensive review and assessment of its computer applications and has made
such inquiry as it determined to be advisable of its key suppliers, vendors and
customers or prospects with respect to the "year 2000 problem" (i.e., the risk
----
that computer applications may not be able to properly perform date-sensitive
functions after December 31, 1999) and, based on that review and inquiry,
Borrower believes that the year 2000 problem will not result in a Material
Adverse Effect.
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ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any Bank has any
Commitment hereunder or any Obligations remain unpaid:
Section V.1. Information. The Borrower will deliver to the Lead
-----------
Agent and to each of the Banks:
(a) as soon as available and in any event within 105 days after the
end of each fiscal year of the Borrower, an audited consolidated balance sheet
of the Borrower as of the end of such fiscal year and the related consolidated
statements of cash flow and operations for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, audited
by Delloite & Touche or other independent public accountants of similar
standing;
(b) as soon as available and in any event within sixty (60) days after
the end of each quarter of each fiscal year (other than the last quarter in any
fiscal year) of the Borrower, a statement of the Borrower, prepared in
accordance with GAAP, setting forth the operating income and operating expenses
of the Borrower, in sufficient detail so as to calculate Unencumbered Asset Pool
Net Operating Cash Flow of the Borrower for the immediately preceding quarter;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer or the chief accounting officer of the Borrower (i) setting
forth in reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Section 5.8 on the date
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of such financial statements;(ii) stating whether any Default exists on the date
of such certificate and, if any Default then exists, setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto; and (iii) certifying (x) that such financial statements fairly
present the financial condition and the results of operations of the Borrower as
of the dates and for the periods indicated, in accordance with GAAP, subject, in
the case of interim financial statements, to normal year-end adjustments, and
(y) that such officer has reviewed the terms of the Loan Documents and has made,
or caused to be made under his or her supervision, a review in reasonable detail
of the business and condition of the Borrower during the period beginning on the
date through which the last such review was made pursuant to this Section 5.1(c)
and ending on a date not more than ten (10) Domestic Business Days prior to the
date of such delivery and that on the basis of such review of the Loan Documents
and the business and condition of the Borrower, to the best knowledge of such
officer, no Default or Event of Default under any other provision of Section 6.1
occurred or, if any such Default or Event of Default has occurred, specifying
the nature and extent thereof and, if continuing, the action the Borrower
proposes to take in respect thereof;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of a firm of independent
public accountants confirming the calculations set forth in the officer's
certificate delivered simultaneously therewith pursuant to clause (c) above;
(e) (i) within five (5) days after the president, chief financial
officer, treasurer, controller or other executive officer of the Borrower
obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the
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president of the Borrower setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto; (ii) promptly
and in any event within ten (10) days after the Borrower obtains knowledge
thereof, notice of (x) any litigation or governmental proceeding pending or
threatened against the Borrower which is likely to individually or in the
aggregate, result in a Material Adverse Effect, and (y) any other event, act or
condition which is likely to result in a Material Adverse Effect;
(f) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section 4043
of ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of
such notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could re-
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sult in the imposition of a Lien or the posting of a bond or other security, a
certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth details as to such occurrence and action, if any,
which the Borrower or applicable member of the ERISA Group is required or
proposes to take;
(g) promptly and in any event within five (5) Domestic Business Days
after the Borrower obtains actual knowledge of any of the following events, a
certificate of the Borrower executed by an officer of the Borrower specifying
the nature of such condition and the Borrower's, and if the Borrower has actual
knowledge thereof, the Environmental Affiliate's proposed initial response
thereto: (i) the receipt by the Borrower, or, if the Borrower has actual
knowledge thereof, any of the Environmental Affiliates, of any communication
(written or oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Borrower, or, if the Borrower has
actual knowledge thereof, any of the Environmental Affiliates, is not in
compliance with applicable Environmental Laws, and such noncompliance is likely
to have a Material Adverse Effect, (ii) the Borrower shall obtain actual
knowledge that there exists any Environmental Claim which is likely to have a
Material Adverse Effect pending or threatened against the Borrower or any
Environmental Affiliate or (iii) the Borrower obtains actual knowledge of any
release, emission, discharge or disposal of any Material of Environmental
Concern that is likely to form the basis of any Environmental Claim against the
Borrower or any Environmental Affiliate;
(h) promptly and in any event within five (5) Domestic Business Days
after receipt of any material notices or correspondence from any company or
agent for any company providing insurance coverage to the Borrower relating to
any material loss or loss of the Borrower
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with respect to any of the Unencumbered Asset Pool Properties, copies of such
notices and correspondence; and
(i) promptly upon the mailing thereof to the shareholders or partners
of the Borrower, copies of all financial statements, reports and proxy statement
so mailed;
(j) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the Securities and
Exchange Commission;
(k) simultaneously with delivery of the information required by
Sections 5.1(a) and (b), a statement of Unencumbered Asset Pool Net Operating
Cash Flow with respect to each Mortgaged Property and a list of all Unencumbered
Asset Pool Properties; and
(l) from time to time such additional information regarding the
financial position or business of the Borrower as the Lead Agent, at the request
of any Bank, may reasonably request.
Section V.2. Payment of Obligations. The Borrower will pay and
----------------------
discharge, at or before maturity, all its material obligations and liabilities
including, without limitation, any obligation pursuant to any agreement by which
it or any of its properties is bound and any tax liabilities, in any case, where
failure to do so will likely result in a Material Adverse Effect except (i) such
tax liabilities may be contested in good faith by appropriate proceedings, and
will maintain in accordance with GAAP, appropriate reserves for the accrual of
any of the same; or (ii) such obligation or liability as may be contested in
good faith by appropriate proceedings.
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Section V.3. Maintenance of Property; Insurance.
----------------------------------
(a) The Borrower will keep each of the Unencumbered Asset Pool
Properties in good repair, working order and condition, subject to ordinary wear
and tear.
(b) The Borrower shall (a) maintain insurance as specified in Section
4.27 hereof with insurers meeting the qualifications described therein, which
insurance shall in any event not provide for materially less coverage than the
insurance in effect on the Closing Date, and (b) furnish to each Bank from time
to time, upon written request, copies of the policies under which such insurance
is issued, certificates of insurance and such other information relating to such
insurance as such Bank may reasonably request. The Borrower will deliver to the
Banks (i) upon request of any Bank through the Lead Agent from time to time,
full information as to the insurance carried, (ii) within five (5) days of
receipt of notice from any insurer, a copy of any notice of cancellation or
material change in coverage from that existing on the date of this Agreement and
(iii) forthwith, notice of any cancellation or nonrenewal of coverage by the
Borrower.
Section V.4. Conduct of Business. The Borrower's primary business
-------------------
will continue to be acquiring, owning, operating, managing, developing (to the
extent permitted in this Agreement), and leasing office and industrial
properties.
Section V.5. Compliance with Laws. The Borrower will comply in all
--------------------
material respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities (including, without limitation,
Environmental Laws, all zoning and building codes and ERISA and the rules and
regulations thereunder) except where the necessity of compliance
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therewith is contested in good faith by appropriate proceedings.
Section V.6. Inspection of Property, Books and Records. The Borrower
-----------------------------------------
will keep proper books of record and account in which full, true and correct
entries shall be made of all dealings and transactions in relation to its
business and activities; and will permit representatives of any Bank at such
Bank's expense to visit and inspect any of its properties to examine and make
abstracts from any of its books and records and to discuss its affairs, finances
and accounts with its officers and employees, all at such reasonable times, upon
reasonable notice, and as often as may reasonably be desired.
Section V.7. Existence.
---------
(a) The Borrower shall do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence or its
partnership existence, as applicable.
(b) The Borrower shall do or cause to be done all things necessary to
preserve and keep in full force and effect its patents, trademarks,
servicemarks, tradenames, copyrights, franchises, licenses, permits,
certificates, authorizations, qualifications, accreditations, easements, rights
of way and other rights, consents and approvals the nonexistence of which is
likely to have a Material Adverse Effect.
Section V.8. Financial Covenants.
-------------------
(a) Total Liabilities to Total Asset Value. As of the last day of
--------------------------------------
each calendar quarter, the Total Debt Ratio will not be greater than 55%.
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(b) EBITDA Debt Service Coverage. As of the last day of each calendar
----------------------------
quarter, the ratio of (i) Annual EBITDA to (ii) Total Debt Service, will not be
less than 2.0:1.0.
(c) Fixed Charge Coverage. As of the last day of each calendar
---------------------
quarter, the ratio of (x) Annual EBITDA, less reserves for Capital Expenditures
of $.70 per square foot per annum for each Real Property Asset that is an office
property and $.40 per square foot per annum for each Real Property Asset that is
an industrial property to (y) the sum of (i) Total Debt Service, and (ii)
dividends or other payments payable by the General Partner with respect to any
preferred stock issued by the General Partner and distributions or other
payments payable by the Borrower with respect to any preferred partnership units
of the Borrower, will not be less than 1.5:1.0.
(d) Limitation on Secured Debt. Secured Debt of the Borrower, the
--------------------------
General Partner and their Consolidated Subsidiaries shall at no time exceed
thirty-five percent (35%) of Total Asset Value.
(e) Unsecured Debt Ratio. As of each of (x) the last day of each
--------------------
calendar quarter, and (y) any Borrowing, the Unsecured Debt Ratio shall exceed
2.0:1.0.
(f) Unencumbered Asset Pool Debt Service Coverage. As of the last day
---------------------------------------------
of each calendar quarter and as of the date of any sale or secured financing of
any Unencumbered Asset Pool Property, the ratio of (i) Unencumbered Asset Pool
Net Operating Cash Flow to (ii) Pro-Forma Debt Service will not be less than
2.0:1.0.
(g) Dividends. The Borrower will not, as determined on an aggregate
---------
annual basis, pay any partnership distributions in excess of the greater of (i)
95% of its consolidated FFO for such year, and (ii) an
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amount which results in distributions to the General Partner in an amount
sufficient to permit the General Partner to pay dividends to its shareholders
which it reasonably believes are necessary for it to (A) maintain its
qualification as a real estate investment trust for federal and state income tax
purposes, and (B) avoid the payment of federal or state income or excise tax.
During the continuance of an Event of Default under Section 6.1(a), the Borrower
shall make only those partnership distributions necessary to make distributions
to the General Partner to pay dividends to its shareholders which it reasonably
believes are necessary to maintain its status as a real estate investment trust
for federal and state income tax purposes.
(h) Minimum Consolidated Tangible Net Worth. The Consolidated
---------------------------------------
Tangible Net Worth will at no time be less than the sum of (i) $575,000,000 plus
(ii) 90% of all Net Offering Proceeds.
(i) Debt. Prior to the date on which the Borrower receives an
----
Investment Grade Rating from either S&P or Moody's, neither the Borrower nor the
General Partner shall, at any time, create, incur, assume, guaranty, suffer to
exist or otherwise become or remain directly or indirectly liable with respect
to any Debt other than Non-Recourse Debt. Notwithstanding the provisions of the
sentence immediately foregoing, the Borrower shall have the right to incur
Recourse Debt (A) up to an aggregate maximum of $5,000,000 which is either (i)
unsecured or (ii) incurred with respect to assets which are not Unencumbered
Asset Pool Properties and is subject to a purchase money security interest or
security interest under a conditional sale agreement, and (B) up to an aggregate
maximum of $50,000,000, which is secured and which is incurred in connection
with the financing of construction costs.
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Section V.9. Restriction on Fundamental Changes; Operation and
-------------------------------------------------
Control. (a) The Borrower shall not enter into any merger or consolidation,
- -------
unless the Borrower is the surviving entity, or liquidate, wind-up or dissolve
(or suffer any liquidation or dissolution), discontinue its business or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, any substantial part of its business or property, whether now or
hereafter acquired, hold an interest in any subsidiary which is not controlled
by the Borrower or the General Partner or enter into other business lines,
without the prior written consent of the Lead Agent, which consent shall not be
given unless the Required Banks so consent.
(b) The Borrower shall not amend its articles of incorporation, by-
laws or agreement of limited partnership, as applicable, in any material respect
which is reasonably likely to have an adverse effect on the Banks, without the
Lead Agent's consent, which shall not be unreasonably withheld or delayed.
Section V.10. Changes in Business. The Borrower shall not enter into
-------------------
any business which is substantially different from that conducted by the
Borrower on the Closing Date after giving effect to the transactions
contemplated by the Loan Documents.
Section V.11. Sale of Unencumbered Asset Pool Properties. Prior to
------------------------------------------
the sale or transfer of any Unencumbered Asset Pool Property, the Borrower shall
(i) deliver prior written notice to the Lead Agent, (ii) deliver to the Lead
Agent a certificate from its chief financial officer or chief accounting officer
certifying that at the time of such sale or other disposal (based on pro-forma
calculations for the previous period assuming that such Unencumbered Asset Pool
Property was not a Unencumbered Asset Pool Property for the relevant period) all
of the covenants contained in Sections 5.8,
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5.14, 5.16, 5.17 and 5.20 are and after giving effect to the transaction shall
continue to be true and accurate in all respects, and (iii) pay to the Lead
Agent an amount equal to that required pursuant to Section 2.10(a). In the event
that a Separate Parcel that originally formed a part of a Unencumbered Asset
Pool Property is to be sold or transferred, the value of the remaining portion
of the Unencumbered Asset Pool Property will be determined by Lead Agent at the
time of sale or transfer in its sole discretion.
Section V.12. Fiscal Year; Fiscal Quarter. The Borrower shall not
---------------------------
change its fiscal year or any of its fiscal quarters without the Lead Agent's
consent, which shall not be unreasonably withheld or delayed.
Section V.13. Margin Stock. None of the proceeds of the Loan will be
------------
used, directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of buying or carrying any Margin Stock.
Section V.14. Development Activities. The Borrower shall not engage
----------------------
in any development activities except for development in connection with the
expansion and/or repositioning or restoration following a casualty or
condemnation of existing improvements on Real Property Assets. Notwithstanding
the foregoing, the Borrower may engage in all other development activities where
there is construction completion risk provided that in no event shall the value
(determined in accordance with the book value thereof, in accordance with GAAP)
of the Real Property Assets under such other type of development exceed twenty
percent (20%) of the Borrower's Total Asset Value.
Section V.15. Interest Rate Protection. On or before the date that
------------------------
is the six (6) month anniversary of the date hereof, the Borrower and the
General Partner shall maintain Interest Rate Hedges on a notional amount
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of the Debt under clause (A) of the definition of Debt of the Borrower, the
General Partner and their Subsidiaries which, when added to the aggregate
principal amount of the Debt under clause (A) of the definition of Debt of the
Borrower, the General Partner and their Subsidiaries which bears interest at a
fixed rate, equals or exceeds 50% of the aggregate principal amount of all Debt
under clause (A) of the definition of Debt of the Borrower, the General Partner
and their Subsidiaries. "Interest Rate Hedges" shall mean interest rate
--------------------
exchange, collar, cap, swap, adjustable strike cap, adjustable strike corridor
or similar agreements having terms, conditions and tenors reasonably acceptable
to the Lead Agent entered into by the Borrower, the General Partner and/or their
Subsidiaries in order to provide protection to, or minimize the impact upon, the
Borrower, the General Partner and/or their Subsidiaries of increasing floating
rates of interest applicable to Debt under clause (A) of the definition of Debt.
Section V.16. Joint Ventures. The value of the Borrower's and the
--------------
General Partner's interest in any joint venture, whether consolidated or
unconsolidated, shall at no time exceed 15% of Total Asset Value.
Section V.17. Investments in Unimproved Real Property. The aggregate
---------------------------------------
amount of the investments of the Borrower, the General Partner and their
Consolidated Subsidiaries in unimproved real property will at no time exceed
7.5% of Total Asset Value.
Section V.18. Use of Proceeds. The Borrower shall use the proceeds
---------------
of the Loans solely to finance the acquisition of additional Unencumbered Asset
Pool Properties or other Real Property Assets which are industrial or office
properties and for its general business purposes.
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Section V.19. General Partner Status. The General Partner shall at
----------------------
all times (i) maintain its status as a self-directed and self-administered real
estate investment trust under the Internal Revenue Code, and (ii) remain a
publicly traded company listed on the New York Stock Exchange.
Section V.20. Certain Requirements for the Unencumbered Asset Pool.
----------------------------------------------------
(a) At all times, (i) the Real Property Assets in the Unencumbered Asset Pool
shall be on average during any consecutive twelve-month period (tested
quarterly) at least 85% leased to tenants and (ii) any Real Property Asset that
is a part of the Unencumbered Asset Pool less than 85% leased to tenants for
more than twelve months shall not account for more than ten percent (10%) of the
Unencumbered Asset Pool Properties Value.
(b) Any Subsidiary which owns any of the Real Property Assets in the
Unencumbered Asset Pool shall not at any time incur any Debt, nor shall the
Borrower pledge its interest in such Subsidiary nor shall the Borrower or such
Subsidiary enter into any negative pledge with respect thereto.
ARTICLE VI
DEFAULTS
Section VI.1. Events of Default. Each of the following shall
-----------------
constitute an event of default under this Agreement (an "Event of Default"):
----------------
(a) the Borrower shall fail to pay when due any principal of any Loan,
or the Borrower shall fail to pay when due any interest on any Loan; provided,
--------
however, that the Borrower shall be entitled to a three (3) Domestic Business
- -------
Day grace period with respect thereto
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but only as to two (2) payments of interest during the Term, or the Borrower
shall fail to pay within three (3) Domestic Business Days after the same is due
any fees or other amounts payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.8 to 5.20, inclusive, subject to any applicable grace
periods set forth therein;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after written notice thereof has been given to the
Borrower by the Lead Agent;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or the General Partner shall default in the payment
when due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) of any amount owing in respect of any Recourse Debt or Debt
guaranteed by the Borrower or the General Partner (other than the Obligations)
in an aggregate principal amount of more than $1,000,000 and such default shall
continue beyond the giving of any required notice and the expiration of any
applicable grace period (as the same may be extended by the applicable lender)
and such default shall not be waived by the applicable lender (which waiver
shall serve to reinstate the applicable loan), or the Borrower or the General
Partner shall default in the performance or observance of any obligation or
condition with respect to any such Debt or any other event shall occur or
condition
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exist beyond the giving of any required notice and the expiration of any
applicable grace period (as the same may be extended by the applicable lender),
if in any such case as a result of such default, event or condition, the lender
thereof shall accelerate the maturity of any such Debt or to permit (without any
further requirement of notice or lapse of time) the holder or holders thereof,
or any trustee or agent for such holders, to accelerate the maturity of any such
Debt and such default shall not be waived by the applicable lender (which waiver
shall serve to reinstate the applicable loan), or any such Debt shall become or
be declared to be due and payable prior to its stated maturity other than as a
result of a regularly scheduled payment;
(f) the Borrower or the General Partner shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(g) an involuntary case or other proceeding shall be commenced against
the Borrower or the General Partner seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official
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of it or any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period of 60 days;
or an order for relief shall be entered against the Borrower or the General
Partner under the federal bankruptcy laws as now or hereafter in effect;
(h) the Borrower shall default in its obligations under any Loan
Document other than this Agreement beyond any applicable notice and grace
periods;
(i) the General Partner shall default in its obligations under the
Guaranty beyond any applicable notice and grace periods;
(j) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $1,000,000 which it shall have become liable
to pay under Title IV of ERISA, or notice of intent to terminate a Material Plan
shall be filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing, or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer any Material Plan, or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated, or there shall occur a
complete or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current payment
obligation in excess of $1,000,000;
(k) one or more final nonappealable judgments or decrees in an
aggregate amount of $10,000,000 as of such date shall be entered by a court or
courts of com-
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petent jurisdiction against the Borrower or the General Partner (other than any
judgment as to which, and only to the extent, a reputable insurance company has
acknowledged coverage of such claim in writing) and (i) any such judgments or
decrees shall not be stayed, discharged, paid, bonded or vacated within thirty
(30) days (or bonded, vacated or satisfied within thirty (30) after any stay is
lifted) or (ii) enforcement proceedings shall be commenced by any creditor on
any such judgments or decrees;
(l) (i) any Environmental Claim shall have been asserted against the
Borrower or any Environmental Affiliate, (ii) any release, emission, discharge
or disposal of any Material of Environmental Concern shall have occurred, and
such event is reasonably likely to form the basis of an Environmental Claim
against the Borrower or any Environmental Affiliate, or (iii) the Borrower or
the Environmental Affiliates shall have failed to obtain any Environmental
Approval necessary for the ownership, or operation of its business, property or
assets or any such Environmental Approval shall be revoked, terminated, or
otherwise cease to be in full force and effect, in the case of clauses (i), (ii)
or (iii) above, if the existence of such condition has had or is reasonably
likely to have a Material Adverse Effect;
(m) during any consecutive two year period commencing on or after the
date hereof, individuals who at the beginning of such period constituted the
Board of Directors of the General Partner of the Borrower (together with any new
directors whose election by the Board of Directors or whose nomination for
election by the General Partner stockholders was approved by a vote of at least
a majority of the members of the Board of Directors then in the office who
either were members of the Board of Directors at the beginning of such period or
whose election or nomination for election was previ-
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ously so approved) cease for any reason to constitute a majority of the members
of the Board of Directors then in office;
(n) the General Partner shall cease at any time to qualify as a real
estate investment trust under the Internal Revenue Code; and
(o) at any time, for any reason, the Borrower or the General Partner
seeks to repudiate its obligations under any Loan Document.
Section VI.2. Rights and Remedies. (a) Upon the occurrence of any
-------------------
Event of Default described in Sections 6.1(f) or (g), the unpaid principal
amount of, and any and all accrued interest on, the Loans and any and all
accrued fees and other Obligations hereunder shall automatically become
immediately due and payable, with all additional interest from time to time
accrued thereon and without presentation, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by the
Borrower; and upon the occurrence and during the continuance of any other Event
of Default, the Lead Agent may exercise any of its rights and remedies hereunder
and by written notice to the Borrower, declare the unpaid principal amount of
and any and all accrued and unpaid interest on the Loans and any and all accrued
fees and other Obligations hereunder to be, and the same shall thereupon be,
immediately due and payable with all additional interest from time to time
accrued thereon and without presentation, demand, or protest or other
requirements of any kind other than as provided in the Loan Documents
(including, without limitation, valuation and appraisement, diligence,
presentment, and notice of intent to demand or accelerate), all of which are
hereby expressly waived by the Borrower.
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(b) Notwithstanding the foregoing, upon the occurrence and during the
continuance of any Event of Default other than any Event of Default described in
Sections 6.1(f) or (g), the Lead Agent shall not exercise any of its rights and
remedies hereunder nor declare the unpaid principal amount of and any and all
accrued and unpaid interest on the Loans and any and all accrued fees and other
Obligations hereunder to be immediately due and payable, until such time as the
Lead Agent shall have delivered a notice to the Banks specifying the Event of
Default which has occurred and whether Lead Agent recommends the acceleration of
the Obligations due hereunder or the exercise of other remedies hereunder. The
Banks shall notify the Lead Agent if they approve or disapprove of the
acceleration of the Obligations due hereunder or the exercise of such other
remedy recommended by Lead Agent within five (5) Domestic Business Days after
receipt of such notice. If any Bank shall not respond within such five (5)
Domestic Business Day period, then such Bank shall be deemed to have accepted
Lead Agent's recommendation for acceleration of the Obligations due hereunder or
the exercise of such other remedy. If the Required Banks shall approve the
acceleration of the Obligations due hereunder or the exercise of such other
remedy, then Lead Agent shall declare the unpaid principal amount of and any and
all accrued and unpaid interest on the Loans and any and all accrued fees and
other Obligations hereunder to be immediately due and payable or exercise such
other remedy approved by the Required Banks. If the Required Banks shall
neither approve nor disapprove the acceleration of the Obligations due hereunder
or such other remedy recommended by Lead Agent, then Lead Agent may accelerate
the Obligations due hereunder or exercise any of its rights and remedies
hereunder in its sole discretion. If the Required Banks shall disapprove the
acceleration of the Obligations due hereunder or the exercise of such other
remedy recommended by Lead Agent, but approve of another remedy, then to the
extent permitted hereunder,
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Lead Agent shall exercise such remedy. In the event the Lead Agent exercises any
remedy provided in any of the Loan Documents, the Lead Agent shall act as a
collateral agent for the Banks.
Section VI.3. Notice of Default. If the Lead Agent shall not already
-----------------
have given any notice to the Borrower under Section 6.1, the Lead Agent shall
give notice to the Borrower under Section 6.1 promptly upon being requested to
do so by the Required Banks and shall thereupon notify all the Banks thereof.
Section VI.4. Actions in Respect of Letters of Credit. (a) If, at
---------------------------------------
any time and from time to time, any Letter of Credit shall have been issued
hereunder and an Event of Default shall have occurred and be continuing, then,
upon the occurrence and during the continuation thereof, the Lead Agent may,
whether in addition to the taking by the Lead Agent of any of the actions
described in this Article or otherwise, make a demand upon the Borrower to, and
forthwith upon such demand (but in any event within ten (10) days after such
demand) the Borrower shall, pay to the Lead Agent, on behalf of the Banks, in
same day funds at the Lead Agent's office designated in such demand, for deposit
in a special cash collateral account (the "Letter of Credit Collateral Account")
-----------------------------------
to be maintained in the name of the Lead Agent (on behalf of the Banks) and
under its sole dominion and control at such place as shall be designated by the
Lead Agent, an amount equal to the amount of the Letter of Credit Usage under
the Letters of Credit. Interest shall accrue on the Letter of Credit Collateral
Account at a rate equal to the rate on overnight funds.
(b) The Borrower hereby pledges, assigns and grants to the Lead Agent,
as administrative agent for its benefit and the ratable benefit of the Banks a
lien
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on and a security interest in, the following collateral (the "Letter of
---------
Credit Collateral"):
- -----------------
(i) the Letter of Credit Collateral Account, all cash deposited
therein and all certificates and instruments, if any, from time to time
representing or evidencing the Letter of Credit Collateral Account;
(ii) all notes, certificates of deposit and other instruments
from time to time hereafter delivered to or otherwise possessed by the Lead
Agent for or on behalf of the Borrower in substitution for or in respect of
any or all of the then existing Letter of Credit Collateral;
(iii) all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the then existing Letter of
Credit Collateral; and
(iv) to the extent not covered by the above clauses, all
proceeds of any or all of the foregoing Letter of Credit Collateral.
The lien and security interest granted hereby secures the payment of all
obligations of the Borrower now or hereafter existing hereunder and under any
other Loan Document.
(c) The Borrower hereby authorizes the Lead Agent for the ratable
benefit of the Banks to apply, from time to time after funds are deposited in
the Letter of Credit Collateral Account, funds then held in the Letter of Credit
Collateral Account to the payment of any amounts, in such order as the Lead
Agent may elect, as shall have become due and payable by the Borrower to the
Banks in respect of the Letters of Credit.
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(d) Neither the Borrower nor any Person claiming or acting on behalf
of or through the Borrower shall have any right to withdraw any of the funds
held in the Letter of Credit Collateral Account, except as provided in Section
6.4(h) hereof.
(e) The Borrower agrees that it will not (i) sell or otherwise dispose
of any interest in the Letter of Credit Collateral or (ii) create or permit to
exist any lien, security interest or other charge or encumbrance upon or with
respect to any of the Letter of Credit Collateral, except for the security
interest created by this Section 6.4.
(f) If any Event of Default shall have occurred and be continuing:
(i) The Lead Agent may, in its sole discretion, without
notice to the Borrower except as required by law and at any time from time
to time, charge, set off or otherwise apply all or any part of first, (x)
-----
amounts previously drawn on any Letter of Credit that have not been
reimbursed by the Borrower and (y) any Letter of Credit Usage described in
clause (ii) of the definition thereof that are then due and payable and
second, any other unpaid Obligations then due and payable against the
------
Letter of Credit Collateral Account or any part thereof, in such order as
the Lead Agent shall elect. The rights of the Lead Agent under this
Section 6.4 are in addition to any rights and remedies which any Bank may
have.
(ii) The Lead Agent may also exercise, in its sole discretion,
in respect of the Letter of Credit Collateral Account, in addition to the
other rights and remedies provided herein or otherwise available to it, all
the rights and remedies of a
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secured party upon default under the Uniform Commercial Code in effect in
the State of New York at that time.
(g) The Lead Agent shall be deemed to have exercised reasonable care
in the custody and preservation of the Letter of Credit Collateral if the Letter
of Credit Collateral is accorded treatment substantially equal to that which the
Lead Agent accords its own property, it being understood that, assuming such
treatment, the Lead Agent shall not have any responsibility or liability with
respect thereto.
(h) At such time as all Events of Default have been cured or waived in
writing, all amounts remaining in the Letter of Credit Collateral Account shall
be promptly returned to the Borrower. Absent such cure or written waiver, any
surplus of the funds held in the Letter of Credit Collateral Account and
remaining after payment in full of all of the Obligations of the Borrower
hereunder and under any other Loan Document after the Maturity Date shall be
paid to the Borrower or to whomsoever may be lawfully entitled to receive such
surplus.
ARTICLE VII
THE LEAD AGENT
Section VII.1. Appointment and Authorization. Each Bank irrevocably
-----------------------------
appoints and authorizes the Lead Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to the Lead Agent by the terms hereof or thereof,
together with all such powers as are reasonably incidental thereto.
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Section VII.2. Lead Agent and Affiliates. Morgan shall have the same
-------------------------
rights and powers under this Agreement as any other Bank and may exercise or
refrain from exercising the same as though it were not the Lead Agent, and
Morgan and its affiliates may accept deposits from, lend money to, and generally
engage in any kind of business with the Borrower or any subsidiary or affiliate
of the Borrower as if it were not the Lead Agent hereunder, and the term "Bank"
and "Banks" shall include Morgan in its individual capacity.
Section VII.3. Action by Lead Agent. The obligations of the Lead
--------------------
Agent hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Lead Agent shall not be required to take any
action with respect to any Default, except as expressly provided in Article VI.
Section VII.4. Consultation with Experts. The Lead Agent may consult
-------------------------
with legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
Section VII.5. Liability of Lead Agent. Neither the Lead Agent nor
-----------------------
any of its affiliates nor any of their respective directors, officers, agents or
employees shall be liable for any action taken or not taken by it in connection
herewith (i) with the consent or at the request of the Required Banks or, where
required by the terms of this Agreement, all of the Banks, or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Lead
Agent nor any of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with this Agreement or
any
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borrowing hereunder; (ii) the performance or observance of any of the covenants
or agreements of the Borrower; (iii) the satisfaction of any condition specified
in Article III, except receipt of items required to be delivered to the Lead
Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the
other Loan Documents or any other instrument or writing furnished in connection
herewith. The Lead Agent shall not incur any liability by acting in reliance
upon any notice, consent, certificate, statement, or other writing (which may be
a bank wire, telex or similar writing) believed by it in good faith to be
genuine or to be signed by the proper party or parties.
Section VII.6. Indemnification. Each Bank shall, ratably in
---------------
accordance with its Commitment, indemnify the Lead Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur as a result of, or in connection with, the Lead
Agent's capacity as Lead Agent in connection with this Agreement, the other Loan
Documents or any action taken or omitted by such indemnitees in accordance with
this Agreement.
Section VII.7. Credit Decision. Each Bank acknowledges that it has,
---------------
independently and without reliance upon the Lead Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Lead
Agent or any other Bank, 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 any action under this Agreement.
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Section VII.8. Successor Lead Agent. The Lead Agent may resign at
--------------------
any time by giving notice thereof to the Banks and the Borrower. In addition,
if the Lead Agent at any time shall have been finally determined to have
committed gross negligence or willful misconduct in connection with its
performance of its duties as Lead Agent hereunder, then, upon notice from the
Required Banks, the Lead Agent shall resign. Upon any such resignation, the
Required Banks shall have the right to appoint a successor Lead Agent with the
consent of the Borrower provided that no Event of Default shall have occurred
and be continuing. If no successor Lead Agent shall have been so appointed by
the Required Banks, and shall have accepted such appointment, within 30 days
after the retiring Lead Agent gives notice of resignation, then the retiring
Lead Agent may, on behalf of the Banks, appoint a successor Lead Agent, which
shall be a commercial bank organized or licensed under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of at least $50,000,000. Upon the acceptance of its appointment as the
Lead Agent hereunder by a successor Lead Agent, such successor Lead Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Lead Agent, and the retiring Lead Agent shall be discharged from its
duties and obligations hereunder first accruing or arising after the effective
date of such retirement. After any retiring Lead Agent's resignation hereunder
as Lead Agent, the provisions of this Article shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was the Lead Agent.
If, at any time during the Term, the Lead Agent shall no longer have
any Commitment under this Agreement, the Lead Agent shall give notice of its
offer to resign to the Banks and the Borrower. Upon any such offer of
resignation, the Required Banks shall have the
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right to appoint a successor Lead Agent or to retain the Lead Agent with the
consent of the Borrower, provided that no Event of Default shall be outstanding.
Section VII.9. Lead Agent's Fee. The Borrower shall pay to the Lead
----------------
Agent for its own account fees in the amounts and at the times previously agreed
upon between the Borrower and the Lead Agent.
Section VII.10. Copies of Notices. Lead Agent shall deliver to each
-----------------
Bank a copy of any notice sent to the Borrower by Lead Agent in connection with
the performance of its duties as Lead Agent hereunder; and Lead Agent shall
deliver to each Bank a copy of any notice sent to the Lead Agent by the Borrower
in connection with any Default or Event of Default hereunder.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
Section VIII.1. Basis for Determining Interest Rate Inadequate or
-------------------------------------------------
Unfair. If on or prior to the first day of any Interest Period for any Euro-
- ------
Dollar Borrowing or Money Market Borrowing:
(a) the Lead Agent is advised by the Reference Bank that deposits in
dollars (in the applicable amounts) are not being offered to the Reference Bank
in the relevant market for such Interest Period, or
(b) Banks having 50% or more of the aggregate amount of the affected
Loans advise the Lead Agent that the Adjusted London Interbank Offered Rate as
determined by the Lead Agent will not adequately and fairly reflect the cost to
such Banks of funding their Euro-Dollar Loans for such Interest Period, the Lead
Agent shall
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forthwith give notice thereof to the Borrower and the Banks, whereupon until the
Lead Agent notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, the obligations of the Banks to make Euro-Dollar
Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans,
as the case may be, shall be suspended, and each outstanding Euro-Dollar Loan
shall be converted into a Base Rate Loan on the last day of the then current
Interest Period applicable thereto. Unless the Borrower notifies the Lead Agent
at least two Domestic Business Days before the date of any Euro-Dollar Borrowing
or Money Market LIBOR Borrowing for which a Notice of Borrowing has previously
been given that it elects not to borrow on such date, (i) if such Borrowing is a
Committed Borrowing, such Borrowing shall instead be made as a Base Rate
Borrowing, and (ii) if such Borrowing is a Money Market LIBOR Borrowing, the
Money Market LIBOR Loans comprising such Borrowing shall bear interest for each
day from and including the first day to but excluding the last day of the
Interest Period applicable thereto at the Base Rate for such day.
Section VIII.2. Illegality. If, after the date of this Agreement,
----------
the adoption of any applicable law, rule or regulation, or any change in any
existing applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-
Dollar Loans or Money Market Loans or to participate in any Letter of Credit
issued by the Fronting Bank, or, with respect to the Fronting Bank, to issue any
Letter of Credit, and
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such Bank shall so notify the Lead Agent, the Lead Agent shall forthwith give
notice thereof to the other Banks and the Borrower, whereupon until such Bank
notifies the Borrower and the Lead Agent that the circumstances giving rise to
such suspension no longer exist, the obligation of such Bank to make or convert
Euro-Dollar Loans or Money Market Loans, or to participate in any Letter of
Credit issued by the Fronting Bank or, with respect to the Fronting Bank, to
issue any Letter of Credit, shall be suspended. Before giving any notice to the
Lead Agent pursuant to this Section, such Bank shall designate a different Euro-
Dollar Lending Office if such designation will avoid the need for giving such
notice and will not, in the judgment of such Bank, be otherwise disadvantageous
to such Bank. If such Bank shall determine that it may not lawfully continue to
maintain and fund any of its outstanding Euro-Dollar Loans or Money Market Loans
(as the case may be) to maturity and shall so specify in such notice, the
Borrower shall immediately prepay in full the then outstanding principal amount
of each such Euro-Dollar Loan or Money Market Loan, together with accrued
interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, the
Borrower shall borrow a Base Rate Loan in an equal principal amount from such
Bank (on which interest and principal shall be payable contemporaneously with
the related Euro-Dollar Loans or Money Market Loans of the other Banks), and
such Bank shall make such a Base Rate Loan.
Section VIII.3. Increased Cost and Reduced Return.
---------------------------------
(a) If, after (x) the date hereof, in the case of any Committed Loan
or any obligation to make Committed Loans or (y) the date of the related Money
Market Quote, in the case of any Money Market Loan, the adoption of any
applicable law, rule or regulation, or any change in any applicable law, rule or
regulation, or
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any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify or
deem applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System (but excluding
with respect to any Euro-Dollar Loan any such requirement reflected in an
applicable Euro-Dollar Reserve Percentage)), special deposit, insurance
assessment or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Bank (or its Applicable Lending Office)
or shall impose on any Bank (or its Applicable Lending Office) or on the London
interbank market any other condition affecting its Euro-Dollar Loans or Money
Market LIBOR Loans, its Note, or its obligation to make Euro-Dollar Loans, and
the result of any of the foregoing is to increase the cost to such Bank (or its
Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or to
reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Bank to be material, then, within 15 days
after demand by such Bank (with a copy to the Lead Agent), which demand shall be
accompanied by a certificate showing, in reasonable detail, the calculation of
such amount or amounts, the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any
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change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within 15 days after
demand by such Bank (with a copy to the Lead Agent), which demand shall be
accompanied by a certificate showing, in reasonable detail, the calculation of
such amount or amounts, the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its Parent) for such
reduction.
(c) Each Bank will promptly notify the Borrower and the Lead Agent of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.
Section VIII.4. Taxes.
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(a) Any and all payments by the Borrower to or for the account of any
Bank or the Lead Agent hereunder or under any other Loan Document shall be made
free and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
---------
Lead Agent, taxes imposed on its income, and franchise taxes imposed on it, by
the jurisdiction under the laws of which such Bank or the Lead Agent (as the
case may be) is organized or any political subdivision thereof and, in the case
of each Bank, taxes imposed on its income, and franchise or similar taxes
imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or
any political subdivision thereof (and, if different from the jurisdiction of
such Bank's Applicable Lending Office, the jurisdiction of the domicile of its
Loans either established by the Bank pursuant to Section 9.12 or determined by
the applicable taxing authorities)(all such non-excluded taxes, duties, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct any
-----
Taxes from or in respect of any sum payable hereunder or under any Note or
Letter of Credit or participation therein to any Bank or the Lead Agent, (i) the
sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 8.4) such Bank, the Fronting Bank or the Lead Agent (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower shall
furnish to the Lead Agent, at its address referred to in Section 9.1, the
original or a certified copy of a receipt evidencing payment thereof.
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(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, or charges or
similar levies which arise from any payment made hereunder or under any Note or
Letter of Credit or participation therein or from the execution or delivery of,
or otherwise with respect to, this Agreement or any Note or Letter of Credit or
participation therein (hereinafter referred to as "Other Taxes").
-----------
(c) The Borrower agrees to indemnify each Bank, the Fronting Bank and
the Lead Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.4) paid by such Bank, the Fronting Bank or
the Lead Agent (as the case may be) and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto. Any payment
required under this indemnification shall be made within 15 days from the date
such Bank, the Fronting Bank or the Lead Agent (as the case may be) makes demand
therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Bank is entitled to benefits under an income tax treaty to which the United
States is a party which reduces the rate of withholding tax on payments of
interest or certifying that the income receiv-
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able pursuant to this Agreement is effectively connected with the conduct of a
trade or business in the United States. If the form provided by a Bank at the
time such Bank first became a party to this Agreement or at any time thereafter
(other than solely by reason of a change in United States law or a change in the
terms of any treaty to which the United States is a party after the date hereof)
indicates a United States interest withholding tax rate in excess of zero (or
would have indicated such a withholding tax rate if such form had been submitted
and completed accurately and completely and either was not submitted or was not
completed accurately and completely), or if a Bank otherwise is subject to
United States interest withholding tax at a rate in excess of zero at any time
for any reason (other than solely by reason of a change in United States law or
regulation or a change in any treaty to which the United States is a party after
the date hereof), withholding tax at such rate shall be considered excluded from
"Taxes" as defined in Section 8.4(a). In addition, any amount that otherwise
would be considered "Taxes" or "Other Taxes" for purposes of this Section 8.4
shall be excluded therefrom if the Bank either has transferred the domicile of
its Loans pursuant to Section 9.12 or changed the Applicable Lending Office with
respect to such Loans and such amount would not have been incurred had such
transfer or change not been made.
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.4(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which a form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.4(a) with respect to
Taxes imposed by the United States; provided, however, that should a Bank, which
-------- -------
is otherwise exempt from or subject to a reduced rate of withholding tax, become
subject to Taxes because of its failure to de-
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liver a form required hereunder, the Borrower shall take such steps as such Bank
shall reasonably request to assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.4, then such Bank will change
the jurisdiction of its Applicable Lending Office so as to eliminate or reduce
any such additional payment which may thereafter accrue if such change, in the
judgment of such Bank, is not otherwise disadvantageous to such Bank.
Section VIII.5. Base Rate Loans Substituted for Affected Euro-Dollar
----------------------------------------------------
Loans. If (i) the obligation of any Bank to make, or convert outstanding Loans
- -----
to, Euro-Dollar Loans has been suspended pursuant to Sections 8.1 or 8.2 or (ii)
any Bank has demanded compensation under Section 8.3 or 8.4 with respect to its
Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business
Days' prior notice to such Bank through the Lead Agent, have elected that the
provisions of this Section shall apply to such Bank, then, unless and until such
Bank notifies the Borrower that the circumstances giving rise to such suspension
or demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such Bank as Euro-
Dollar Loans shall be made instead as Base Rate Loans (on which interest and
principal shall be payable contemporaneously with the related Euro-Dollar Loans
of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay such Euro-Dollar Loans
shall be applied to repay its Base Rate Loans instead.
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ARTICLE IX
MISCELLANEOUS
Section IX.1. Notices. All notices, requests and other
-------
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower or the Lead Agent, at its address or
telecopy number set forth on the signature pages hereof, together with copies
thereof, in the case of the Borrower, to Latham & Watkins, 633 West Fifth
Street, Suite 4000, Los Angeles, CA 90071, Attention: Glen B. Collyer, Esq.,
Telephone: (213) 485-1234, Telecopy: (213) 891-8763, and in the case of the Lead
Agent, if before January 15, 2000, to Skadden, Arps, Slate, Meagher & Flom LLP,
919 Third Avenue, New York, New York 10022, Attention: Martha Feltenstein, Esq.,
Telephone: (212) 735-2272, Telecopy: (212) 735-2000, and, if after January 15,
2000, to Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, New
York, Attention: Martha Feltenstein, Esq., (y) in the case of any Bank, at its
address or telecopy number set forth on the signature pages hereof or in its
Administrative Questionnaire or (z) in the case of any party, such other address
or telecopy number as such party may hereafter specify for the purpose by notice
to the Lead Agent, the Banks and the Borrower. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section, (ii)
if given by mail, 72 hours after such communication is deposited in the mails
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in this Section;
provided that notices to the Lead Agent under Article II or Article VIII shall
- --------
not be effective until received.
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Section IX.2. No Waivers. No failure or delay by the Lead Agent or
----------
any Bank in exercising any right, power or privilege hereunder or under any Note
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, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
Section IX.3. Expenses; Indemnification.
-------------------------
(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses
of the Lead Agent (including, without limitation, reasonable fees and
disbursements of special counsel Skadden, Arps, Slate, Meagher & Flom LLP, local
counsel for the Lead Agent, and travel, site visits, third party reports
(including Appraisals), mortgage recording taxes, environmental and engineering
expenses), in connection with the preparation and administration of this
Agreement, the Loan Documents and the documents and instruments referred to
therein, the syndication of the Loans, any waiver or consent hereunder or any
amendment or modification hereof or any Default or alleged Default hereunder and
(ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the
Lead Agent and each Bank, including, without limitation, reasonable fees and
disbursements of counsel for the Lead Agent, in connection with the enforcement
of the Loan Documents and the instruments referred to therein and such Event of
Default and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom.
(b) The Borrower agrees to indemnify the Lead Agent and each Bank,
their respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
----------
harmless from and against any and all liabil-
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ities, losses, damages, costs and expenses of any kind, including, without
limitation, the reasonable fees and disbursements of counsel and settlements and
settlement costs, which may be incurred by such Indemnitee in connection with
any investigative, administrative or judicial proceeding (whether or not such
Indemnitee shall be designated a party thereto) that may at any time (including,
without limitation, at any time following the payment of the Obligations) be
imposed on, asserted against or incurred by any Indemnitee as a result of, or
arising out of, or in any way related to or by reason of, (i) any of the
transactions contemplated by the Loan Documents or the execution, delivery or
performance of any Loan Document (including, without limitation, the Borrower's
actual or proposed use of proceeds of the Loans, whether or not in compliance
with the provisions hereof), (ii) any violation by the Borrower or the
Environmental Affiliates of any applicable Environmental Law, (iii) any
Environmental Claim arising out of the management, use, control, ownership or
operation of property or assets by the Borrower or any of the Environmental
Affiliates, including, without limitation, all on-site and off-site activities
involving Material of Environmental Concern, (iv) the breach of any
environmental representation or warranty set forth herein, (v) the grant to the
Lead Agent and the Banks of any Lien in any property or assets of the Borrower
or any stock or other equity interest in the Borrower, and (vi) the exercise by
the Lead Agent and the Banks of their rights and remedies (including, without
limitation, foreclosure) under any agreements creating any such Lien (but
excluding in each case, as to any Indemnitee, any such losses, liabilities,
claims, damages, expenses, obligations, penalties, actions, judgments, suits,
costs or disbursements incurred solely by reason of (i) the gross negligence or
willful misconduct of such Indemnitee as finally determined by a court of
competent jurisdiction or (ii) any investigative, administrative or judicial
proceeding imposed or asserted against any Indemnitee by
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any bank regulatory agency or by any equity holder of such Indemnitee). The
Borrower's obligations under this Section shall survive the termination of this
Agreement and the payment of the Obligations.
(c) The Borrower shall pay, and hold the Lead Agent and each of the
Banks harmless from and against, any and all present and future U.S. stamp,
recording, transfer and other similar foreclosure related taxes with respect to
the foregoing matters and hold the Lead Agent and each Bank harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to such Bank) to pay such taxes.
Section IX.4. Sharing of Set-Offs. In addition to any rights now or
-------------------
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default, each Bank is hereby authorized at any time or from time to
time, without presentment, demand, protest or other notice of any kind to the
Borrower or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), other than deposits held for the
benefit of third parties, and any other indebtedness at any time held or owing
by such Bank (including, without limitation, by branches and agencies of such
Bank wherever located) to or for the credit or the account of the Borrower
against and on account of the Obligations of the Borrower then due and payable
to such Bank under this Agreement or under any of the other Loan Documents,
including, without limitation, all interests in Obligations purchased by such
Bank. Each Bank agrees that if it shall, by exercising any right of set-off or
counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest due with respect to any Note held
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by it or Letter of Credit participated in by it, or, in the case of the Fronting
Bank, Letter of Credit issued by it, which is greater than the proportion
received by any other Bank or Letter of Credit issued or participated in by such
other Bank, in respect of the aggregate amount of principal and interest due
with respect to any Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Banks or Letter of Credit issued or participated in by such
other Bank, and such other adjustments shall be made, as may be required so that
all such payments of principal and interest with respect to the Notes held by
the Banks or Letter of Credit issued or participated in by such other Banks
shall be shared by the Banks pro rata; provided that nothing in this Section
--------
shall impair the right of any Bank to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of indebtedness of the Borrower other than its indebtedness under the
Notes or the Letters of Credit. The Borrower agrees, to the fullest extent that
it may effectively do so under applicable law, that any holder of a
participation in a Note, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of the Borrower in the amount of such participation.
Section IX.5. Amendments and Waivers. Any provision of this
----------------------
Agreement (including any of the financial covenants given by the Borrower
pursuant to Section 5.8), the Notes, the Letters of Credit or other Loan
Documents may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Lead Agent are affected thereby, by the Lead Agent);
provided that no such amendment or waiver
- --------
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shall, unless signed by all the Banks, (i) increase or decrease the Commitment
of any Bank (except for a ratable decrease in the Commitments of all Banks) or
subject any Bank to any additional obligation, (ii) reduce the principal of or
rate of interest on any Loan or any fees specified herein, (iii) postpone the
date fixed for any payment of principal of or interest on any Loan or any fees
hereunder or for any reduction or termination of any Commitment, (iv) release
the Guaranty or otherwise release any other collateral, (v) subordinate the
Loans to any other Debt, or (vi) change the percentage of the Commitments or of
the aggregate unpaid principal amount of the Notes, or the number of Banks,
which shall be required for the Banks or any of them to take any action under
this Section or any other provision of this Agreement. Notwithstanding the
foregoing, no amendment, waiver or consent shall, unless in writing and signed
by the Designating Lender on behalf of its Designated Lender affected thereby,
(a) subject such Designated Lender to any additional obligations, (b) reduce the
principal of, interest on, or other amounts due with respect to, the Designated
Lender Note made payable to such Designated Lender, or (c) postpone any date
fixed for any payment of principal of, or interest on, or other amounts due with
respect to the Designated Lender Note made payable to the Designated Lender.
Section IX.6. Successors and Assigns.
----------------------
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrower may not assign or otherwise transfer any of
its rights under this Agreement or the other Loan Documents without the prior
written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant")
-----------
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participating interests in its Commitment or any or all of its Loans. In the
event of any such grant by a Bank of a participating interest to a Participant,
whether or not upon notice to the Borrower and the Lead Agent, such Bank shall
remain responsible for the performance of its obligations hereunder, and the
Borrower and the Lead Agent shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations under this Agreement.
Any agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without limitation,
the right to approve any amendment, modification or waiver of any provision of
this Agreement; provided that such participation agreement may provide that such
--------
Bank will not agree to any modification, amendment or waiver of this Agreement
described in clause (i), (ii), (iii) or (iv) of Section 9.5 without the consent
of the Participant. The Borrower agrees that each Participant shall, to the
extent provided in its participation agreement, be entitled to the benefits of
Article VIII with respect to its participating interest. An assignment or other
transfer which is not permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
--------
rights and obligations under this Agreement, the Notes and the other Loan
Documents, and such Assignee shall assume such rights and obligations, pursuant
to an Assignment and Assumption Agreement in substantially the form of Exhibit D
---------
attached hereto executed by such Assignee and such transferor Bank, with (and
subject to) the subscribed consent of the Lead Agent, which consent shall not be
unreasonably withheld, and, provided no Event of
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Default shall have occurred and be continuing, the Borrower, which consent shall
not be unreasonably withheld or delayed. Upon execution and delivery of such
instrument and payment by such Assignee to such transferor Bank of an amount
equal to the purchase price agreed between such transferor Bank and such
Assignee, such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor Bank shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank, the Lead Agent and the
Borrower shall make appropriate arrangements so that, if required, a new Note or
Notes are issued to the Assignee. In connection with any such assignment (except
for an assignment by a Bank to its Affiliate), the transferor Bank shall pay to
the Lead Agent an administrative fee for processing such assignment in the
amount of $2,500. If the Assignee is not incorporated under the laws of the
United States of America or a state thereof, it shall deliver to the Borrower
and the Lead Agent certification as to exemption from deduction or withholding
of any United States federal income taxes in accordance with Section 8.4.
(d) Any Bank (each, a "Designating Lender") may at any time designate
------------------
one Designated Lender to fund Money Market Loans on behalf of such Designating
Lender subject to the terms of this Section 9.6(d) and the provisions in Section
9.6(b) and (c) shall not apply to such designation. No Bank may designate more
than one (1) Designated Lender. The parties to each such designation shall
execute and deliver to the Lead Agent for its acceptance a Designation
Agreement. Upon such receipt of an appropriately completed Designation
Agreement executed by a Designating Lender and a designee representing that it
is a Designated Lender, the Lead
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Agent will accept such Designation Agreement and will give prompt notice thereof
to the Borrower, whereupon, (i) the Borrower shall execute and deliver to the
Designating Bank a Designated Lender Note payable to the order of the Designated
Lender, (ii) from and after the effective date specified in the Designation
Agreement, the Designated Lender shall become a party to this Agreement with a
right (subject to the provisions of Section 2.3(b)) to make Money Market Loans
on behalf of its Designating Lender pursuant to Section 2.3 after the Borrower
has accepted a Money Market Loan (or portion thereof) of the Designating Lender,
and (iii) the Designated Lender shall not be required to make payments with
respect to any obligations in this Agreement except to the extent of excess cash
flow of such Designated Lender which is not otherwise required to repay
obligations of such Designated Lender which are then due and payable; provided,
however, that regardless of such designation and assumption by the Designated
Lender, the Designating Lender shall be and remain obligated to the Borrower and
the Banks for each and every of the obligations of the Designating Lender and
its related Designated Lender with respect to this Agreement, including, without
limitation, any indemnification obligations under Section 7.6 hereof and any
sums otherwise payable to the Borrower by the Designated Lender. Each
Designating Lender shall serve as the administrative agent of the Designated
Lender and shall on behalf of, and to the exclusion of, the Designated Lender:
(i) receive any and all payments made for the benefit of the Designated Lender
and (ii) give and receive all communications and notices and take all actions
hereunder, including, without limitation, votes, approvals, waivers, consents
and amendments under or relating to this Agreement and the other Loan Documents.
Any such notice, communication, vote, approval, waiver, consent or amendment
shall be signed by the Designating Lender as administrative agent for the
Designated Lender and shall not be signed by the Designated Lender on its own
behalf and shall be binding
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upon the Designated Lender to the same extent as if signed by the Designated
Lender on its own behalf. The Borrower, the Lead Agent, and the Banks may rely
thereon without any requirement that the Designated Lender sign or acknowledge
the same. No Designated Lender may assign or transfer all or any portion of its
interest hereunder or under any other Loan Document, other than assignments to
the Designating Lender which originally designated such Designated Lender or
otherwise in accordance with the provisions of Section 9.6(b) and (c).
(e) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note and the Letter(s) of Credit participated in by
such Bank or, in the case of the Fronting Bank, issued by it, to a Federal
Reserve Bank. No such assignment shall release the transferor Bank from its
obligations hereunder.
(f) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.3 or 8.4 than
such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such
Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
Section IX.7. Governing Law; Submission to Jurisdiction.
-----------------------------------------
(a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF
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NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS
OF LAW).
(b) Any legal action or proceeding with respect to this Agreement or
any other Loan Document and any action for enforcement of any judgment in
respect thereof may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York, and, by
execution and delivery of this Agreement, the Borrower hereby accepts for itself
and in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts and appellate courts from any thereof. The
Borrower irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the hand delivery, or
mailing of copies thereof by registered or certified mail, postage prepaid, to
the Borrower at its address set forth below. The Borrower hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Agreement or any other Loan Document brought in the courts referred to
above and hereby further irrevocably waives and agrees not to plead or claim in
any such court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum. Nothing herein shall affect the right of
the Lead Agent, any Bank or any holder of a Note to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against the Borrower in any other jurisdiction.
Section IX.8. Marshaling; Recapture. Neither the Lead Agent nor any
---------------------
Bank shall be under any obligation to marshal any assets in favor of the
Borrower or any other party or against or in payment of any or all of the
Obligations. To the extent any Bank receives any payment by or on behalf of the
Borrower,
135
<PAGE>
which payment or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to the Borrower
or its estate, trustee, receiver, custodian or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such payment or repayment, the Obligation or part thereof which has
been paid, reduced or satisfied by the amount so repaid shall be reinstated by
the amount so repaid and shall be included within the liabilities of the
Borrower to such Bank as of the date such initial payment, reduction or
satisfaction occurred.
Section IX.9. Counterparts; Integration; Effectiveness. This
----------------------------------------
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by the Lead Agent of
counterparts hereof signed by each of the parties hereto (or, in the case of any
party as to which an executed counterpart shall not have been received, receipt
by the Lead Agent in form satisfactory to it of telegraphic, telex or other
written confirmation from such party of execution of a counterpart hereof by
such party).
Section IX.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE LEAD
--------------------
AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section IX.11. Survival. All indemnities set forth herein shall
--------
survive the execution and delivery of
136
<PAGE>
this Agreement and the other Loan Documents and the making and repayment of the
Loans hereunder.
Section IX.12. Domicile of Loans. Subject to the provisions of
-----------------
Article VIII, each Bank may transfer and carry its Loans at, to or for the
account of any domestic or foreign branch office, subsidiary or affiliate of
such Bank.
Section IX.13. Limitation of Liability. No claim may be made by the
-----------------------
Borrower or any other Person against the Lead Agent or any Bank or the
affiliates, directors, officers, employees, attorneys or agent of any of them
for any consequential or punitive damages in respect of any claim for breach of
contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement or by the other Loan Documents, or
any act, omission or event occurring in connection therewith; and the Borrower
hereby waives, releases and agrees not to sue upon any claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.
Section IX.14. No Bankruptcy Proceedings. Each of the Borrower, the
-------------------------
Banks, and the Lead Agent hereby agrees that it will not institute against any
Designated Lender or join any other Person in instituting against any Designated
Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding under any federal or state bankruptcy or similar law, until the later
to occur of (i) one year and one day after the payment in full of the latest
maturing commercial paper note issued by such Designated Lender and (ii) the
Maturity Date.
137
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
BORROWER: KILROY REALTY, L.P., a Delaware
--------
limited partnership
By: Kilroy Realty Corporation,
a Maryland corporation,
its general partner
By: /s/ Tyler H. Rose
---------------------------------------
Name: Tyler H. Rose
Title: Senior Vice President and
Treasurer
138
<PAGE>
LEAD AGENT AND BANK: MORGAN GUARANTY TRUST COMPANY
- -------------------
OF NEW YORK
By: /s/ R. David Stone
-------------------------------------
Name: R. David Stone
Title: Associate
60 Wall Street
New York, New York 10260-0060
Attention:
Telephone number:
Telecopy number:
Domestic and Euro-Currency
Lending Office:
Nassau, Bahamas Office
c/o J.P. Morgan Services Inc.
500 Stanton Christiana Road
Newark, Delaware 19173-2107
Attention: Bill Lamb
Telecopy number: (302) 634-4222
Commitment: $35,000,000
DOCUMENTATION AGENT
- -------------------
AND BANK: THE CHASE MANHATTAN BANK
- --------
By: /s/ Alan Briendell
-------------------------------------
Name: Alan Briendell
Title: Managing Director
Commitment: $35,000,000
139
<PAGE>
MANAGING AGENT
- --------------
AND BANK: COMMERZBANK AKTIENGESELLSCHAFT,
- --------
NEW YORK AND GRAND CAYMAN BRANCHES
By: /s/ Lisa C. Miller
-----------------------------------
Name: Lisa C. Miller
Title: Assistant Vice President
By: /s/ David M. Schwartz
-----------------------------------
Name: David M. Schwartz
Title: Vice President
Commitment: $32,000,000
MANAGING AGENT
- --------------
AND BANK: BANK ONE, N.A.
- --------
By: /s/ Dell K. McCoy
-----------------------------------
Name: Dell K. McCoy
Title: Vice President
Commitment: $32,000,000
MANAGING AGENT
- --------------
AND BANK: PNC BANK, NATIONAL ASSOCIATION
- --------
By: /s/ Paul Jamiol Kowski
-----------------------------------
Name: Paul Jamiol Kowski
Title: Asst. Vice President
Commitment: $32,000,000
MANAGING AGENT
- --------------
140
<PAGE>
AND BANK: FIRST UNION BANK
- --------
By: /s/ Cynthia A. Bean
-----------------------------------
Name: Cynthia A. Bean
Title: Vice President
Commitment: $32,000,000
CO-AGENT AND BANK: DRESDNER BANK AG, NEW YORK
- -----------------
BRANCH AND GRAND CAYMAN BRANCH
By: /s/ John R. Morrison
-----------------------------------
Name: John R. Morrison
Title: Vice President
By: /s/ Beverly G. Cason
-----------------------------------
Name: Beverly G. Cason
Title: Vice President
Commitment: $28,000,000
CO-AGENT AND BANK: UNION BANK OF CALIFORNIA
- -----------------
By: /s/ Kandice K. Chappell
-----------------------------------
Name: Kandice K. Chappel
Title: Vice President
Commitment: $28,000,000
CO-AGENT AND BANK: KEYBANK NATIONAL ASSOCIATION
- -----------------
By: /s/ Vital Wiacek
-----------------------------------
Name: Vital Wiacek
Title: Vice President
141
<PAGE>
Commitment: $28,000,000
CO-AGENT AND BANK: THE BANK OF NOVA SCOTIA, ACTING
- -----------------
THROUGH ITS SAN FRANCISCO
AGENCY
By: /s/ B. Lorne Agmundson
-----------------------------------
Name: B. Lorne Agmundson
Title: Office Head, Real Estate
Banking
Commitment: $28,000,000
BANK: MELLON BANK, N.A.
- ----
By: /s/ Michael P. Gage
-----------------------------------
Name: Michael P. Gage
Title: Vice President
Commitment: $23,000,000
BANK: SUMMIT BANK
- ----
By: /s/ Amy L. Brown
-----------------------------------
Name: Amy L. Brown
Title: Regional Vice President
Commitment: $23,000,000
BANK: CITIZENS BANK OF RHODE ISLAND
- ----
142
<PAGE>
By: /s/ Craig E. Schermerhorn
-----------------------------------
Name: Craig E. Schermerhorn
Title: Vice President
Commitment: $19,000,000
BANK: KBC BANK N.V.
- ----
By: /s/ Robert Snauffer
-----------------------------------
Name: Robert Snauffer
Title: First Vice President
By: /s/ Raymond F. Murray
-----------------------------------
Name: Raymond F. Murray
Title: First Vice President
Commitment: $15,000,000
143
<PAGE>
BANK: CHANG HWA COMMERCIAL BANK,LTD.,
- ----
LOS ANGELES BRANCH
By: /s/ James Lin
-----------------------------------
Name: James Lin
Title: Vice President and General
Manager
Commitment: $10,000,000
144
<PAGE>
EXHIBIT A
---------
FORM OF NOTE
______________ New York, New York
__________ __, 1999
For value received, KILROY REALTY, L.P., a Delaware limited
partnership (the "Borrower") promises to pay to the order of _______________
--------
(the "Bank"), for the account of its Applicable Lending Office, the unpaid
----
principal amount of each Loan made by the Bank to the Borrower pursuant to the
Credit Agreement referred to below on the Maturity Date. The Borrower promises
to pay interest on the unpaid principal amount of each such Loan on the dates
and at the rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of Lead
Agent under the Credit Agreement (as defined below).
All Loans made by the Bank, the respective types and maturities
thereof and all repayments of the principal thereof shall be recorded by the
Bank and, if the Bank so elects in connection with any transfer or enforcement
hereof, appropriate notations to evidence the foregoing information with respect
to each such Loan then outstanding may be endorsed by the Bank on the schedule
attached hereto, or on a continuation of such schedule attached to and made a
part hereof; provided that the failure of the Bank to make any such recordation
--------
or endorsement shall not affect the obligations of the Borrower hereunder or
under the Credit Agreement.
This Note is one of the Notes referred to in the Second Amended and
Restated Revolving Credit Agreement, dated as of ________ __, 1999, among the
Borrower, the Banks party thereto, Morgan Guaranty Trust Company of New York, as
Bank and as Lead Agent for the Banks, The Chase Manhattan Bank, as Bank and as
Documentation Agent, J.P. Morgan Securities Inc., as Syndication Agent, Lead
Arranger and Joint Bookmanager, Chase Securities Inc., as Lead Arranger and
Joint Bookmanager, Bank One, N.A., PNC Bank, National Association, First Union
Bank and Commerzbank Aktiengesellschaft, New York and Grand Cayman
A-1
<PAGE>
Branches, each, as Managing Agent, and Dresdner Bank AG, New York and Grand
Cayman Branches, The Bank of Nova Scotia, Keybank National Association and Union
Bank of California, each, as Co-Agent (as the same may be amended from time to
time, the "Credit Agreement").
----------------
A-2
<PAGE>
Terms defined in the Credit Agreement are used herein with the same
meanings. Reference is made to the Credit Agreement for provisions for the
prepayment hereof and the acceleration of the maturity hereof.
KILROY REALTY, L.P., a Delaware
limited partnership
By: Kilroy Realty Corporation,
a Maryland corporation, its
general partner
By: _____________________
Name:
Title:
A-3
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
______________________________________________________________________________
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
A-4
<PAGE>
EXHIBIT A-1
-----------
FORM OF NOTE
$______________ New York, New York
________ __, 1999
For value received, KILROY REALTY, L.P., a Delaware limited
partnership (the "Borrower") promises to pay to the order of _______________
--------
(the "Bank"), for the account of its Applicable Lending Office, the unpaid
----
principal amount of each Loan made by the Bank to the Borrower pursuant to the
Credit Agreement referred to below on the Maturity Date. The Borrower promises
to pay interest on the unpaid principal amount of each such Loan on the dates
and at the rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of Lead
Agent under the Credit Agreement (as defined below).
All Loans made by the Bank, the respective types and maturities
thereof and all repayments of the principal thereof shall be recorded by the
Bank and, if the Bank so elects in connection with any transfer or enforcement
hereof, appropriate notations to evidence the foregoing information with respect
to each such Loan then outstanding may be endorsed by the Bank on the schedule
attached hereto, or on a continuation of such schedule attached to and made a
part hereof; provided that the failure of the Bank to make any such recordation
--------
or endorsement shall not affect the obligations of the Borrower hereunder or
under the Credit Agreement.
This Note is one of the Designated Lender Notes referred to in the
Second Amended and Restated Revolving Credit Agreement, dated as of ________ __,
1999, among the Borrower, the Banks party thereto, Morgan Guaranty Trust Company
of New York, as Bank and as Lead Agent for the Banks, The Chase Manhattan Bank,
as Bank and as Documentation Agent, J.P. Morgan Securities Inc., as Syndication
Agent, Lead Arranger and Joint Bookmanager, Chase Securities Inc., as Lead
Arranger and Joint Bookmanager, Bank One, N.A., PNC Bank, National Association,
First Union Bank and Commerzbank Aktiengesellschaft, New York and Grand Cayman
Branches, each, as Managing Agent, and Dresdner Bank AG, New York and Grand
Cayman Branches, The Bank of Nova Scotia, Keybank National Association and Union
Bank of California, each, as Co-Agent (as the same may be amended from time to
time, the "Credit Agreement").
----------------
A-1-1
<PAGE>
Terms defined in the Credit Agreement are used herein with the same
meanings. Reference is made to the Credit Agreement for provisions for the
prepayment hereof and the acceleration of the maturity hereof.
KILROY REALTY, L.P., a Delaware limited
partnership
By: Kilroy Realty Corporation, a
Maryland corporation, its
general partner
By: ________________________
Name:
Title:
A-1-2
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
______________________________________________________________________________
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
A-1-3
<PAGE>
EXHIBIT B
---------
Unencumbered Asset Pool Properties
(Fee Interests)
PROPERTY LOCATION
701 - 741 E. Ball Road Anaheim, CA
26541 Agoura Rd. Calabasas, CA
5325 Hunter Anaheim, CA
5151 - 5155 Camino Ruiz Camarillo, CA
23600 - 610 Telo Avenue Torrance, CA
Brea Industrial Properties Brea, CA
Garden Grove Industrial Properties Garden Grove, CA
Kilroy Tech Center Irvine Irvine, CA
2501 Pullman Santa Ana, CA
9401 & 9451 Toledo Way Irvine, CA
12400 Industry Garden Grove, CA
1675 MacArthur Costa Mesa, CA
1633 26th Street Santa Monica, CA
1961 Concourse San Jose, CA
2055 Main Street Irvine, CA
6828 Nancy Ridge San Diego, CA
1710 Fortune San Jose, CA
199 & 201 N. Sunrise Ave. Roseville, CA
14831 Franklin Tustin, CA
4361 Latham Riverside, CA
4351 Latham Riverside, CA
601 Valencia Brea, CA
3130 Mira Loma Anaheim, CA
3125 E. Coronado Anaheim, CA
1840 Aerojet Way Las Vegas, NV
1900 Aerojet Way Las Vegas, NV
41093 County Center Dr. Temecula, CA
1951 Carnegie Santa Ana, CA
3130 Wilshire Santa Monica, CA
12691 Monarch (Giltspur) Garden Grove, CA
525 N. Brand Glendale, CA
Walnut Business Center Diamond Bar, CA
Gothard Business Park Huntington Beach, CA
Dimension Business Park El Toro, CA
Pacific Park Plaza Aliso Viejo, CA
Anaheim Corp Center Anaheim, CA
Alton Business Center Irvine, CA
Fullerton Business Center Fullerton, CA
12100 Olympic Boulevard Los Angeles, CA
Fortune Park San Jose, CA
8101 Kaiser Anaheim, CA
795 Trademark Drive Reno, NV
1240 & 1250 N. Lakeview Ave. Anaheim, CA
4880 Santa Rosa Rd. Camarillo, CA
1250 N. Tustin Avenue Anaheim, CA
2911 Dow Avenue Tustin, CA
Foothill Ranch Foothill Ranch, CA
12312 Olympic Boulevard Los Angeles, CA
5115 E. La Palma Ave. Anaheim, CA
B-1
<PAGE>
5115 N. 27th Avenue Phoenix, AZ
Kilroy Tech Ctr, Anaheim - Ph I Anaheim, CA
Kilroy Tech Ctr, Anaheim - Ph II Anaheim, CA
Brea - Lambert Industrial Complex Brea, CA
B-2
<PAGE>
EXHIBIT C
---------
Unencumbered Asset Pool Properties
(Leasehold Interests)
Kilroy Airport Center,
(Long Beach) Long Beach, CA
C-1
<PAGE>
EXHIBIT D
---------
FORM OF ASSIGNMENT AND ASSUMPTION
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
-------------------------------------------
AGREEMENT dated as of __________, ____ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "Assignee"), KILROY REALTY, L.P. (the "Borrower")
and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Lead Agent (the "Agent").
W I T N E S S E T H
-------------------
WHEREAS, this Assignment and Assumption Agreement (the "Assignment")
relates to the Second Amended and Restated Revolving Credit Agreement, dated as
of ________ __, 1999 (the "Loan Agreement"), among the Borrower, the Banks party
thereto, the Agent, as Bank and as Lead Agent for the Banks, The Chase Manhattan
Bank, as Bank and as Documentation Agent, J.P. Morgan Securities Inc., as
Syndication Agent, Lead Arranger and Joint Bookmanager, Chase Securities Inc.,
as Lead Arranger and Joint Bookmanager, Bank One, N.A., PNC Bank, National
Association, First Union Bank and Commerzbank Aktiengesellschaft, New York and
Grand Cayman Branches, each, as Managing Agent, and Dresdner Bank AG, New York
and Grand Cayman Branches, The Bank of Nova Scotia, Keybank National Association
and Union Bank of California, each, as Co-Agent;
WHEREAS, as provided under the Loan Agreement, the Assignor has a
Commitment to make Loans to the Borrower in an aggregate principal amount at any
time outstanding not to exceed $__________;
WHEREAS, Loans made to the Borrower by the Assignor under the Loan
Agreement in the aggregate principal amount of $____________ are outstanding at
the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Loan Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"),
together with a
<PAGE>
corresponding portion of its outstanding Loans, and the Assignee proposes to
accept assignment of such rights and assume the corresponding obligations from
the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
-----------
herein shall have the respective meanings set forth in the Loan Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
----------
Assignee all of the rights of the Assignor under the Loan Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Loan Agreement to the extent of the Assigned Amount, including the purchase from
the Assignor of the corresponding portion of the principal amount of the Loans
made by the Assignor outstanding at the date hereof. Upon the execution and
delivery hereof by the Assignor, the Assignee, the Borrower and the Agent and
the payment of the amounts specified in Section 3 required to be paid on the
date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights
and be obligated to perform the obligations of a Bank under the Loan Agreement
with a Commitment in an amount equal to the Assigned Amount, and (ii) the
Commitment of the Assignor shall, as of the date hereof, be reduced by a like
amount and the Assignor released from its obligations under the Loan Agreement
to the extent such obligations have been assumed by the Assignee. The
assignment provided for herein shall be without recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
--------
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them./1/ It
is understood that
______________________
/1/ The amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any
portion of any upfront fee to be paid by the Assignor to the Assignee.
It may be pref-
D-2
<PAGE>
Commitment Fees accrued to the date hereof are for the account of the
Assignor and such fees accruing from and including the date hereof are
for the account of the Assignee. Each of the Assignor and the Assignee
hereby agrees that if it receives any amount under the Loan Agreement
which is for the account of the other party hereto, it shall receive
the same for the account of such other party to the extent of such
other party's interest therein and shall promptly pay the same to such
other party.
SECTION 4. Consent of the Borrower and the Agent. This Agreement is
-------------------------------------
conditioned upon the written consent of the Borrower and the consent of the
Agent pursuant to section 9.6(c) of the Loan Agreement. The execution of this
Agreement by the Borrower and the Agent is evidence of the required consents.
Pursuant to Section 9.6(c) the Borrower agrees to execute and deliver a Note
payable to the order of the Assignee to evidence the assignment and assumption
provided for herein.
SECTION 5. Non-Reliance on Assignor. The Assignor respresents and
------------------------
warrants that it is the legal and beneficial owner of the interest being
assigned by it hereunder, that it has not created any adverse claim upon such
interest and that such interest is free and clear of any adverse claim, and that
it is authorized to enter into this Agreement. The Assignor makes no other
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Loan Agreement or any Note. The Assignee acknowledges that it
has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial
D-3
<PAGE>
condition of the Borrower. The Assignee represents and warrants
that it is authorized to enter into this Agreement.
SECTION 6. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the external laws of the State of New York
D-4
<PAGE>
SECTION 7. Counterparts. This Agreement may be signed in any number
------------
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By:_______________________
Name:
Title:
[ASSIGNEE]
By:________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:________________________
Name:
Title:
CONSENTED TO:
KILROY REALTY, L.P.
By: Kilroy Realty Corporation,
its general partner
By: ____________________
Name: Tyler H. Rose
Title: Senior Vice President and Treasurer
D-5
<PAGE>
EXHIBIT E
Form of Money Market Quote Request
----------------------------------
[Date]
To: Morgan Guaranty Trust Company of New York (the "Lead Agent")
From: Kilroy Realty, L.P.
Re: Second Amended and Restated Revolving Credit Agreement, dated as of
________ __, 1999, among the Borrower, the Banks party thereto, the
Lead Agent, The Chase Manhattan Bank, as Bank and as Documentation
Agent and J.P. Morgan Securities Inc., as Syndication Agent, Lead
Arranger and Joint Bookmanager, Chase Securities Inc., as Lead Arranger
and Joint Bookmanager, Bank One, N.A., PNC Bank, National Association,
First Union Bank and Commerzbank Aktiengesellschaft, New York and Grand
Cayman Branches, each, as Managing Agent, and Dresdner Bank AG, New
York and Grand Cayman Branches, The Bank of Nova Scotia, Keybank
National Association and Union Bank of California, each, as Co-Agent
We hereby give notice pursuant to Section 2.3 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing: __________________
Principal Amount/2/ Interest Period/3/
- ---------------- ---------------
/2/ Amount must be $10,000,000 or a larger multiple of $500,000.
/3/ Not less than one month (LIBOR Auction) or not less than 30 days (Absolute
Rate Auction), subject to the provisions of the definition of the Interest
Period.
E-1
<PAGE>
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
The funding of Money Market Loans made in connection with this Money
Market Quote Request [may/may not] be made by Designated Lenders.
Terms used herein have the meanings assigned to them in the Credit
Agreement.
Kilroy Realty, L.P.
By: Kilroy Realty Corporation
By:________________________
Name:
Title:
E-2
<PAGE>
EXHIBIT F
Form of Invitation for Money Market Quotes
------------------------------------------
To: [Name of Bank]
Re: Invitation for Money Market Quotes to Kilroy Realty, L.P. (the "Borrower")
Pursuant to Section 2.3 of Second Amended and Restated Revolving
Credit Agreement, dated as of ________ __, 1999, among the Borrower, the Banks
party thereto, the Lead Agent, The Chase Manhattan Bank, as Bank and as
Documentation Agent, J.P. Morgan Securities Inc., as Syndication Agent, Lead
Arranger and Joint Bookmanager, Chase Securities Inc., as Lead Arranger and
Joint Bookmanager, Bank One, N.A., PNC Bank, National Association, First Union
Bank and Commerzbank Aktiengesellschaft, New York and Grand Cayman Branches,
each, as Managing Agent, and Dresdner Bank AG, New York and Grand Cayman
Branches, The Bank of Nova Scotia, Keybank National Association and Union Bank
of California, each, as Co-Agent, we are pleased on behalf of the Borrower to
invite you to submit Money Market Quotes to the Borrower for the following
proposed Money Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Please respond to this invitation by no later than 10:00 A.M. (New
York City time) on [date].
F-1
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Lead Agent
By______________________
Authorized Officer
F-2
<PAGE>
EXHIBIT G
Form of Money Market Quote
--------------------------
To: Morgan Guaranty Trust Company of New York, as Lead Agent
Re: Money Market Quote to Kilroy Realty, L.P. (the "Borrower")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market
Amount** Period*** [Margin****] [Absolute Rate*****]
- -------- --------- ---------------------------------
$
$
[Provided, that the aggregate principal amount of Money Market Loans for
which the above offers may be accepted shall not exceed $____________.]**
We understand and agree that the offer(s) set forth above,
subject to the satisfaction of the applicable conditions set forth in the
Second Amended and Restated
G-1
<PAGE>
Revolving Credit Agreement, dated as of ________ __, 1999, among the
Borrower, the Banks party thereto, The Chase Manhattan Bank, as Bank and as
Documentation Agent, J.P. Morgan Securities Inc., as Syndication Agent, Lead
Arranger and Joint Bookmanager, Chase Securities Inc., as Lead Arranger and
Joint Bookmanager, Bank One, N.A., PNC Bank, National Association, First
Union Bank and Commerzbank Aktiengesellschaft, New York and Grand Cayman
Branches, each, as Managing Agent, Dresdner Bank AG, New York and Grand
Cayman Branches, The Bank of Nova Scotia, Keybank National Association and
Union Bank of California, each, as Co-Agent, and yourselves, as Lead Agent
and Bank, irrevocably obligates us to make the Money Market Loan(s) for which
any offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated:_______________ By:__________________________
Authorized Officer
G-2
<PAGE>
EXHIBIT H
FORM OF DESIGNATION AGREEMENT
-----------------------------
Dated _____________, 199___
Reference is made to that certain Second Amended and Restated Revolving
Credit Agreement, dated as of ________ __, 1999 (the "Credit Agreement"), among
the Borrower, the Banks party thereto, Morgan Guaranty Trust Company of New
York, as Bank and as Lead Agent for the Banks ("Lead Agent"), The Chase
Manhattan Bank, as Bank and as Documentation Agent, J.P. Morgan Securities Inc.,
as Syndication Agent, Lead Arranger and Joint Bookmanager, Chase Securities
Inc., as Lead Arranger and Joint Bookmanager, Bank One, N.A., PNC Bank, National
Association, First Union Bank and Commerzbank Aktiengesellschaft, New York and
Grand Cayman Branches, each, as Managing Agent, and Dresdner Bank AG, New York
and Grand Cayman Branches, The Bank of Nova Scotia, Keybank National Association
and Union Bank of California, each, as Co-Agent. Terms defined in the Credit
Agreement are used herein with the same meaning.
[NAME OF DESIGNOR] (the "Designor"), [NAME OF DESIGNEE] (the
"Designee") and the Lead Agent agree as follows:
1. The Designor hereby designates the Designee, and the Designee
hereby accepts such designation, to have a right to make Money Market Loans
pursuant to Article III of the Credit Agreement. Any assignment by Designor to
Designee of its rights to make a Money Market Loan pursuant to such Article III
shall be effective at the time of the funding of such Money Market Loan and not
before such time.
2. Except as set forth in Section 7 below, the Designor makes no
representation or warranty and assumes no responsibility pursuant to this
Designation Agreement with respect to (a) any statements, warranties or
representations made in or in connection with any Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of any Loan Document or any other instrument and document furnished pursuant
thereto and (b) the financial condition of the Borrower or the performance or
observance by the Borrower of any of its obli-
H-1
<PAGE>
gations under any Loan Document or any other instrument or document furnished
pursuant thereto.
3. The Designee (a) confirms that it has received a copy of each Loan
Document, together with copies of the financial statements referred to in
Articles IV and V of the Credit Agreement and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Designation Agreement; (b) agrees that it will
independently and without reliance upon the Lead Agent, the Designor or any
other Bank 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 action under any Loan Document; (c) confirms that it is a Designated
Lender; (d) appoints and authorizes the Lead Agent to take such action as agent
on its behalf and to exercise such powers and discretion under any Loan Document
as are delegated to the Lead Agent by the terms thereof, together with such
powers and discretion as are reasonably incidental thereto; and (e) agrees to be
bound by each and every provision of each Loan Document and further agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of any Loan Document are required to be performed by it as a Bank.
4. The Designee hereby appoints Designor as Designee's agent and attorney
in fact, and grants to Designor an irrevocable power of attorney, to receive
payments made for the benefit of Designee under the Credit Agreement, to deliver
and receive all communications and notices under the Credit Agreement and other
Loan Documents and to exercise on Designee's behalf all rights to vote and to
grant and make approvals, waivers, consents of amendments to or under the Credit
Agreement or other Loan Documents. Any document executed by the Designor on the
Designee's behalf in connection with the Credit Agreement or other Loan
Documents shall be binding on the Designee. The Borrower, the Lead Agent and
each of the Banks may rely on and are beneficiaries of the preceding provisions.
5. Following the execution of this Designation Agreement by the Designor
and its Designee, it will be delivered to the Lead Agent for acceptance and
recording by the Lead Agent. The effective date for this Designation Agreement
(the "Effective Date") shall be the date of acceptance hereof by the Lead Agent,
unless otherwise specified on the signature page thereto.
H-2
<PAGE>
6. The Lead Agent hereby agrees that it will not institute against any
Designated Lender or join any other Person in instituting against any Designated
Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding under any federal or state bankruptcy or similar law, until the later
to occur of (i) one year and one day after the payment in full of the latest
maturing commercial paper note issued by such Designated Lender and (ii) the
Maturity Date.
7. The Designor unconditionally agrees to pay or reimburse the Designee
and save the Designee harmless against all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed or asserted by any of the
parties to the Loan Documents against the Designee, in its capacity as such, in
any way relating to or arising out of this Agreement or any other Loan Documents
or any action taken or omitted by the Designee hereunder or thereunder, provided
--------
that the Designor shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements if the same results from the Designee's gross
negligence or willful misconduct.
8. Upon such acceptance and recording by the Lead Agent, as of the
Effective Date, the Designee shall be a party to the Credit Agreement with a
right (subject to the provisions of Section 2.3(b)) to make Money Market Loans
as a Bank pursuant to Section 2.3 of the Credit Agreement and the rights and
obligations of a Bank related thereto; provided, however, that the Designee
-----------------
shall not be required to make payments with respect to such obligations except
to the extent of excess cash flow of such Designee which is not otherwise
required to repay obligations of such Designated Lender which are then due and
payable. Notwithstanding the foregoing, the Designor, as administrative agent
for the Designee, shall be and remain obligated to the Borrower, the Co-Agents
and the Banks for each and every of the obligations of the Designee and its
Designor with respect to the Credit Agreement, including, without limitation,
any indemnification obligations under Section 7.6 of the Credit Agreement and
any sums otherwise payable to the Borrower by the Designee.
9. This Designation Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
H-3
<PAGE>
10. This Designation Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Designation Agreement by facsimile
transmission shall be effective as delivery of a manually executed counterpart
of this Designation Agreement.
H-4
<PAGE>
IN WITNESS WHEREOF, the Designor and the Designee, intending to be legally
bound, have caused this Designation Agreement to be executed by their officers
thereunto duly authorized as of the date first above written.
Effective Date: ________________________, 199__
[NAME OF DESIGNOR], as
Designor
By:
Title:
[NAME OF DESIGNEE] as
Designee
By:
Title:
Applicable Lending Office
(and address for notices):
[ADDRESS]
Accepted this _____ day
of ________, 19__
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Lead Agent
By:
Title:
H-5
<PAGE>
SCHEDULE 4.22
-------------
LABOR MATTERS
Agreement between Building Owners and Managers Association of Greater Los
Angeles, Inc., and International Union of Operating Engineers, Local No. 501,
AFL-CIO (November 1, 1996-October 31, 2001)
<PAGE>
EXHIBIT 10.2
SECOND AMENDED AND RESTATED GUARANTY OF PAYMENT
-----------------------------------------------
SECOND AMENDED AND RESTATED GUARANTY OF PAYMENT (this "Guaranty"),
--------
made as of November 8, 1999, between KILROY REALTY CORPORATION, a Maryland
corporation, having an address at 2250 East Imperial Highway, Suite 1200, El
Segundo, California 90245 ("Guarantor"), and MORGAN GUARANTY TRUST COMPANY OF
---------
NEW YORK, a New York banking corporation, having an office at 60 Wall Street,
New York, New York 10260, as lead agent (the "Lead Agent") for the banks (the
----------
"Banks") listed on the signature pages of the Second Amended and Restated
-----
Revolving Credit Agreement (as the same may be amended, modified, supplemented
or restated, the "Credit Agreement"), dated as of the date hereof, among Kilroy
----------------
Realty, L.P. ("Borrower"), the Banks, the Lead Agent, in its capacity as Lead
--------
Agent and Bank, The Chase Manhattan Bank, as Bank and as Documentation Agent,
J.P. Morgan Securities Inc., as Syndication Agent, Co-Lead Arranger and Joint
Bookmanager, and Chase Securities Inc., as Co-Lead Arranger and Joint
Bookmanager.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Lead Agent and the Banks entered into the
Revolving Credit Agreement, dated as of February 24, 1998, which was amended and
restated in its entirety by that certain Amended and Restated Revolving Credit
Agreement, dated as of October 9, 1998 (the "Existing Credit Agreement"); and
-------------------------
WHEREAS, the parties hereto have agreed to amend and restate the terms
and conditions contained in the Existing Credit Agreement in their entirety in
that Credit Agreement as hereinafter set forth; and
WHEREAS, as a condition to the execution and delivery of the Credit
Agreement, the Banks have required
<PAGE>
that Guarantor amend and restate the Guaranty of Payment, dated as February 24,
1998, which was amended and restated in its entirety by that certain Amended and
Restated Guaranty of Payment, dated as of October 9, 1998 (the "Existing
--------
Guaranty"); and
- --------
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meanings ascribed there-to in the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. The Existing Guaranty is hereby modified so that all of the terms
and conditions of the aforesaid Existing Guaranty shall be restated in their
entirety as set forth herein, and Guarantor agrees to comply with and be subject
to all of the terms, covenants and conditions of this Guaranty.
II. This Guaranty shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and assigns, and shall be
deemed to be effective as of the date hereof.
III. Any reference in the Notes, any other Loan Document or any other
document executed in connection with this Agreement to the Existing Guaranty
shall be deemed to refer to this Guaranty.
1. Guarantor, on behalf of itself and its successors and assigns,
hereby irrevocably, absolutely and unconditionally guarantees the full and
punctual payment when due, whether at stated maturity or otherwise, of all
Obligations of Borrower now or hereafter existing under the Notes and the Credit
Agreement, for principal and/or interest as well as any and all other amounts
due thereunder, including, without limitation, all indemnity obligations of
Borrower thereunder, and any and all rea-
2
<PAGE>
sonable costs and expenses (including, without limitation, reasonable attorneys'
fees and disbursements) incurred by the Lead Agent or the Banks in enforcing its
rights under this Guaranty (all of the foregoing obligations being the
"Guaranteed Obligations").
----------------------
2. It is agreed that the Guaranteed Obligations of Guarantor
hereunder are primary and this Guaranty shall be enforceable against Guarantor
and its successors and assigns without the necessity for any suit or proceeding
of any kind or nature whatsoever brought by the Lead Agent against Borrower or
its respective successors or assigns or any other party or against any security
for the payment and performance of the Guaranteed Obligations and without the
necessity of any notice of non-payment or non-observance or of any notice of
acceptance of this Guaranty or of any notice or demand to which Guarantor might
otherwise be entitled (including, without limitation, diligence, presentment,
notice of maturity, extension of time, change in nature or form of the
Guaranteed Obligations, acceptance of further security, release of further
security, imposition or agreement arrived at as to the amount of or the terms of
the Guaranteed Obligations, notice of adverse change in Borrower's financial
condition and any other fact which might materially increase the risk to
Guarantor), all of which Guarantor hereby expressly waives; and Guarantor hereby
expressly agrees that the validity of this Guaranty and the obligations of
Guarantor hereunder shall in no way be terminated, affected, diminished,
modified or impaired by reason of the assertion of or the failure to assert by
the Lead Agent against Borrower or its respective successors or assigns, any of
the rights or remedies reserved to the Lead Agent pursuant to the provisions of
the Loan Documents. Guarantor agrees that any notice or directive given at any
time to the Lead Agent which is inconsistent with the waiver in the immediately
preceding sentence shall be void and may be ignored by the Lead Agent, and, in
addition, may not be pleaded or introduced
3
<PAGE>
as evidence in any litigation relating to this Guaranty for the reason that such
pleading or introduction would be at variance with the written terms of this
Guaranty, unless the Lead Agent has specifically agreed otherwise in a writing,
signed by a duly authorized officer of the Lead Agent. Guarantor specifically
acknowledges and agrees that the foregoing waivers are of the essence of this
transaction and that, but for this Guaranty and such waivers, the Lead Agent
would decline to execute the Loan Documents.
3. Guarantor waives, and covenants and agrees that it will not at
any time insist upon, plead or in any manner whatsoever claim or take the
benefit or advantage of, any and all appraisal, valuation, stay, extension,
marshalling-of-assets or redemption laws, or right of homestead or exemption,
whether now or at any time hereafter in force, which may delay, prevent or
otherwise affect the performance by Guarantor of its obligations under, or the
enforcement by the Lead Agent of, this Guaranty. Guarantor further covenants and
agrees not to set up or claim any defense, counterclaim, offset, set-off or
other objection of any kind to any action, suit or proceeding in law, equity or
otherwise, or to any demand or claim that may be instituted or made by the Lead
Agent other than the defense of the actual timely payment and performance by
Borrower of the Guaranteed Obligations hereunder; provided, however, that the
foregoing shall not be deemed a waiver of Guarantor's right to assert any
compulsory counterclaim, if such counterclaim is compelled under local law or
rule of procedure, nor shall the foregoing be deemed a waiver of Guarantor's
right to assert any claim which would constitute a defense, setoff, counterclaim
or crossclaim of any nature whatsoever against Lead Agent or any Bank in any
separate action or proceeding. Guarantor represents, warrants and agrees that,
as of the date hereof, its obligations under this Guaranty are not subject to
any counterclaims,
4
<PAGE>
offsets or defenses against the Lead Agent or any of the Banks of any kind.
4. The provisions of this Guaranty are for the benefit of the Lead
Agent and the Banks and their successors and permitted assigns, and nothing
herein contained shall impair as between Borrower and the Lead Agent and the
Banks the obligations of Borrower under the Loan Documents.
5. This Guaranty shall be a continuing, unconditional and absolute
guaranty and the liability of Guarantor hereunder shall in no way be terminated,
affected, modified, impaired or diminished by reason of the happening, from time
to time, of any of the following, although without notice or the further consent
of Guarantor:
(a) any assignment, amendment, modification or waiver of or change in
any of the terms, covenants, conditions or provisions of any of the
Guaranteed Obligations or the Loan Documents or the invalidity or
unenforceability of any of the foregoing; or
(b) any extension of time that may be granted by the Lead Agent
and/or any Bank to Borrower, any guarantor, or their respective successors
or assigns, heirs, executors, administrators or personal representatives;
or
(c) any action which the Lead Agent may take or fail to take under or
in respect of any of the Loan Documents or by reason of any waiver or, or
failure to enforce any of the rights, remedies, powers or privileges
available to the Lead Agent under this Guaranty or available to the Lead
Agent at law, equity or otherwise, or any action on the part of the Lead
Agent granting indulgence or extension in any form whatsoever; or
5
<PAGE>
(d) any sale, exchange, release, or other disposition of any property
pledged, mortgaged or conveyed, or any property in which the Lead Agent
and/or the Banks have been granted a lien or security interest to secure
any indebtedness of Borrower to the Lead Agent and/or the Banks; or
(e) any release of any person or entity who may be liable in any
manner for the payment and collection of any amounts owed by Borrower to
the Lead Agent and/or the Banks; or
(f) the application of any sums by whomsoever paid or however
realized to any amounts owing by Borrower to the Lead Agent and/or the
Banks under the Loan Documents in such manner as the Lead Agent shall
determine in its sole discretion; or
(g) Borrower's or any guarantor's voluntary or involuntary
liquidation, dissolution, sale of all or substantially all of their
respective assets and liabilities, appointment of a trustee, receiver,
liquidator, sequestrator or conservator for all or any part of Borrower's
or Guarantor's assets, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment, or
the commencement of other similar proceedings affecting Borrower or any
guarantor or any of the assets of any of them, including, without
limitation, (i) the release or discharge of Borrower or any guarantor from
the payment and performance of their respective obligations under any of
the Loan Documents by operation of law, or (ii) the impairment, limitation
or modification of the liability of Borrower or any guarantor in
bankruptcy, or of any remedy for the enforcement of the Guaranteed
Obligations under any of the Loan Documents, or Guarantor's liability under
this Guaranty,
6
<PAGE>
resulting from the operation of any present or future provisions of the
Bankruptcy Code or other present or future federal, state or applicable
statute or law or from the decision in any court; or
(h) any improper disposition by Borrower of the proceeds of the
Loans, it being acknowledged by Guarantor that the Lead Agent or any Bank
shall be entitled to honor any request made by Borrower for a disbursement
of such proceeds and that neither the Lead Agent nor any Bank shall have
any obligation to see the proper disposition by Borrower of such proceeds.
6. Guarantor agrees that if at any time all or any part of any
payment at any time received by the Lead Agent and/or any Bank from Borrower or
Guarantor under or with respect to this Guaranty is or must be rescinded or
returned by the Lead Agent or any Bank for any reason whatsoever (including,
without limitation, the insolvency, bankruptcy or reorganization of Borrower or
Guarantor), then Guarantor's obligations hereunder shall, to the extent of the
payment rescinded or returned, be deemed to have continued in existence
notwithstanding such previous receipt by such party, and Guarantor's obligations
hereunder shall continue to be effective or reinstated, as the case may be, as
to such payment, as though such previous payment had never been made.
7. Until this Guaranty is terminated pursuant to the terms hereof,
Guarantor (i) shall have no right of subrogation against Borrower or any entity
comprising same by reason of any payments or acts of performance by Guarantor in
compliance with the obligations of Guarantor hereunder; (ii) waives any right to
enforce any remedy which Guarantor now or hereafter shall have against Borrower
or any entity comprising same by reason of any one or more payment or acts of
performance in compliance with the obligations of Guarantor hereunder and (iii)
subor-
7
<PAGE>
dinates any liability or indebtedness of Borrower or any entity comprising same
now or hereafter held by Guarantor or any affiliate of Guarantor to the
obligations of Borrower under the Loan Documents, provided, however, until an
-------- -------
Event of Default has occurred and is continuing, Borrower or any entity
comprising same shall not be prohibited from making payments to Guarantor or any
affiliate thereof on such subordinated liability or indebtedness in accordance
with the terms thereof. The foregoing, however, shall not be deemed in any way
to limit any rights that Guarantor may have pursuant to the Agreement of Limited
Partnership of Borrower or which it may have at law or in equity with respect to
any other partners of Borrower.
8. Guarantor represents and warrants to the Lead Agent and the Banks
(with the knowledge that the Lead Agent and the Banks are relying upon the same)
as of the date hereof, as follows:
(a) as of the date hereof, Guarantor is the sole general partner of
Borrower;
(b) based upon such relationship, Guarantor has determined that it is
in its best interests to enter into this Guaranty;
(c) in the good faith judgement of Guarantor, the benefits to be
derived by Guarantor from Borrower's access to funds made possible by the
Loan Documents are at least equal to the obligations undertaken pursuant to
this Guaranty;
(d) Guarantor is solvent and has corporate power and authority to
enter into this Guaranty and to perform its obligations under the term
hereof and (i) Guarantor is organized and validly existing under the laws
of the State of Maryland, (ii) Guarantor has complied with all provisions
of applicable
8
<PAGE>
law in connection with all aspects of this Guaranty, and (iii) the person
executing this Guaranty has all the requisite power and authority to
execute and deliver this Guaranty;
(e) to the best of Guarantor's knowledge, there is no action, suit,
proceeding, or investigation pending or threatened against or affecting
Guarantor at law, in equity, in admiralty or before any arbitrator or any
governmental department, commission, board, bureau, agency or
instrumentality (domestic or foreign) which is reasonably likely to
materially and adversely impair the ability of Guarantor to perform its
obligations under this Guaranty;
(f) the execution and delivery of and the performance by Guarantor of
its obligations under this Guaranty have been duly authorized by all
necessary action on the part of Guarantor and do not (i) violate any
provision of any law, rule, regulation (including, without limitation,
Regulation U or X of the Board of Governors of the Federal Reserve System
of the United States), order, writ, judgment, decree, determination or
award presently in effect having applicability to Guarantor or the
organizational documents of Guarantor the consequences of which violation
is likely to materially and adversely impair the ability of Guarantor to
perform its obligations under this Guaranty or (ii) violate or conflict
with, result in a breach of or constitute a default under any material
indenture, agreement or other instrument to which Guarantor is a party, or
by which Guarantor or any of its property is bound the consequences of
which violation, conflict, breach or default is reasonably likely to
materially and adversely impair the ability of Guarantor to perform its
obligations under this Guaranty;
9
<PAGE>
(g) this Guaranty has been duly executed by Guarantor and constitutes
the legal, valid and binding obligation of Guarantor, enforceable against
it in accordance with its terms except as enforceability may be limited by
applicable insolvency, bankruptcy or other laws affecting creditors' rights
generally or general principles of equity, whether such enforceability is
considered in a proceeding in equity or at law;
(h) no authorization, consent, approval, license or formal exemption
from, nor any filing, declaration or registration with, any Federal, state,
local or foreign court, governmental agency or regulatory authority is
required in connection with the execution, delivery and performance by
Guarantor of this Guaranty, except those which have already been obtained;
and
(i) Guarantor is not an "investment company" as that term is defined
in, nor is it otherwise subject to regulation under, the Investment Company
Act of 1940, as amended.
9. Guarantor and the Lead Agent each acknowledge and agree that this
Guaranty is a guarantee of payment and performance and not of collection and
enforcement in respect of any obligations which may accrue to the Lead Agent
and/or the Banks from Borrower under the provisions of any Loan Document.
10. Subject to the terms and conditions of the Credit Agreement, and
in conjunction therewith, the Lead Agent or any Bank may assign any or all of
its rights under this Guaranty. In the event of any such assignment, the Lead
Agent shall give Guarantor prompt written notice of same. If the Lead Agent
and/or any Bank elects to sell all the Loans or participations in the Loans and
the Loan Documents, including this Guaranty, the Lead
10
<PAGE>
Agent or any Bank may forward to each purchaser and prospective purchaser all
documents and information relating to this Guaranty or to Guarantor, whether
furnished by Borrower or Guarantor or otherwise, subject to the terms and
conditions of the Credit Agreement.
11. Guarantor agrees, upon the written request of the Lead Agent, to
execute and deliver to the Lead Agent, from time to time, any modification or
amendment hereto or any additional instruments or documents reasonably
considered necessary by the Lead Agent or its counsel to cause this Guaranty to
be, become or remain valid and effective in accordance with its terms, provided,
that, any such modification, amendment, additional instrument or document shall
not increase Guarantor's obligation's or diminish its rights hereunder and shall
be reasonably satisfactory as to form to Guarantor and to Guarantor's counsel.
12. The representations and warranties of Guarantor set forth in this
Guaranty shall survive until this Guaranty shall terminate in accordance with
the terms hereof.
13. This Guaranty contains the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements
relating to such subject matter and may not be modified, amended, supplemented
or discharged except by a written agreement signed by Guarantor and the Lead
Agent.
14. If all or any portion of any provision contained in this Guaranty
shall be determined to be invalid, illegal or unenforceable in any respect for
any reason, such provision or portion thereof shall be deemed stricken and
severed from this Guaranty and the remaining provisions and portions thereof
shall continue in full force and effect.
11
<PAGE>
15. This Guaranty may be executed in counterparts which together
shall constitute the same instrument.
16. All notices, requests and other communications to any party
hereunder shall be in writing (including bank wire, telex, facsimile
transmission followed by telephonic confirmation or similar writing) and shall
be, addressed to such party at the address set forth below or to such other
address as may be identified by any party in a written notice to the others:
If to Guarantor: Kilroy Realty Corporation
2250 East Imperial Highway
Suite 1200
El Segundo, California 90245
Attn: Chief Financial Officer
Telecopy: (310) 322-5981
With Copies of
Notices to
Guarantor to: Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
Attn: Glen B. Collyer, Esq.
Telecopy: (213) 891-8763
If to the Lead
Agent: Morgan Guaranty
Trust Company of New York
60 Wall Street
New York, New York 10260
Attn: David Stone
Telecopy: 212-648-5018
12
<PAGE>
With Copies of
Notices to the
Lead Agent to: if, prior to January 15, 2000, to:
Skadden, Arps, Slate,
Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: Martha Feltenstein, Esq.
Telecopy: (212) 735-2000
if, after January 15, 2000, to:
Skadden, Arps, Slate,
Meagher & Flom LLP
4 Times Square
New York, New York
Attn: Martha Feltenstein, Esq.
Telecopy: (212) 735-2000
Each such notice, request or other communication shall be effective
(i) if given by telex or facsimile transmission, when such telex or facsimile is
transmitted to the telex number or facsimile number specified in this Section
and the appropriate answerback or facsimile confirmation is received, (ii) if
given by certified registered mail, return receipt requested, with first class
postage prepaid, addressed as aforesaid, upon receipt or refusal to accept
delivery, (iii) if given by a nationally recognized overnight carrier, 24 hours
after such communication is deposited with such carrier with postage prepaid for
next day delivery, or (iv) if given by any other means, when delivered at the
address specified in this Section.
17. Any acknowledgment or new promise, whether by payment of
principal or interest or otherwise by
13
<PAGE>
Borrower or Guarantor, with respect to the Guaranteed Obligations shall, if the
statute of limitations in favor of Guarantor against the Lead Agent shall have
commenced to run, toll the running of such statute of limitations, and if the
period of such statute of limitations shall have expired, prevent the operation
of such statute of limitations.
18. This Guaranty shall be binding upon Guarantor and its successors
and assigns and shall inure to the benefit of the Lead Agent and the Banks and
their successors and permitted assigns.
19. The failure of the Lead Agent to enforce any right or remedy
hereunder, or promptly to enforce any such right or remedy, shall not constitute
a waiver thereof, nor give rise to any estoppel against the Lead Agent, nor
excuse Guarantor from its obligations hereunder. Any waiver of any such right or
remedy to be enforceable against the Lead Agent must be expressly set forth in a
writing signed by the Lead Agent.
20. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK.
(b) Any legal action or proceeding with respect to this Guaranty
and any action for enforcement of any judgment in respect thereof may be brought
in the courts of the State of New York or of the United States of America for
the Southern District of New York, and, by execution and delivery of this
Guaranty, the Guarantor hereby accepts for itself and in respect of its
property, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts and appellate courts from any thereof. The Guarantor
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of
14
<PAGE>
copies thereof by registered or certified mail, postage prepaid, to the
Guarantor at its address for notices set forth herein. The Guarantor hereby
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Guaranty
brought in the courts referred to above and hereby further irrevocably waives,
to the fullest extent permitted by law, and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum. Nothing herein shall affect the right of the
Lead Agent to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against the Guarantor in any other
jurisdiction.
(c) GUARANTOR HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
AND ALL CLAIMS OR CAUSES OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY.
IT IS HEREBY ACKNOWLEDGED BY GUARANTOR THAT THE WAIVER OF A JURY TRIAL IS A
MATERIAL INDUCEMENT FOR THE LEAD AGENT TO ACCEPT THIS GUARANTY AND THAT THE
LOANS MADE BY THE BANKS ARE MADE IN RELIANCE UPON SUCH WAIVER. GUARANTOR FURTHER
WARRANTS AND REPRESENTS THAT SUCH WAIVER HAS BEEN KNOWINGLY AND VOLUNTARILY
MADE, FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
THIS GUARANTY MAY BE FILED BY THE LEAD AGENT IN COURT AS A WRITTEN CONSENT TO A
NON-JURY TRIAL.
(d) Guarantor does hereby further covenant and agree to and with
the Lead Agent that Guarantor may be joined in any action against Borrower in
connection with the Loan Documents and that recovery may be had against
Guarantor in such action or in any independent action against Guarantor (with
respect to the Guaranteed Obligations), without the Lead Agent first pursuing or
exhausting any remedy or claim against Borrower or its successors or assigns.
Guarantor also agrees that, in an action brought with respect to the Guaranteed
Obligations
15
<PAGE>
in any jurisdiction, it shall be conclusively bound by the judgment in any such
action by the Lead Agent (wherever brought) against Borrower or its successors
or assigns, as if Guarantor were a party to such action, even though Guarantor
was not joined as parties in such action.
(e) Guarantor agrees to pay all reasonable expenses (including,
without limitation, attorneys' fees and disbursements) which may be incurred by
the Lead Agent or the Banks in connection with the enforcement of their rights
under this Guaranty, whether or not suit is initiated.
21. Notwithstanding anything to the contrary contained herein, this
Guaranty shall terminate and be of no further force or effect upon the full
performance and payment of the Guaranteed Obligations hereunder. Upon
termination of this Guaranty in accordance with the terms of this Guaranty, the
Lead Agent promptly shall deliver to Guarantor such documents as Guarantor or
Guarantor's counsel reasonably may request in order to evidence such
termination.
22. All of the Lead Agent's rights and remedies under each of the
Loan Documents or under this Guaranty are intended to be distinct, separate and
cumulative and no such right or remedy therein or herein mentioned is intended
to be in exclusion of or a waiver of any other right or remedy available to the
Lead Agent.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Guaranty of Payment as of the date and year first above written.
GUARANTOR:
KILROY REALTY CORPORATION
By: /s/ Tyler H. Rose
________________________________________
Name: Tyler H. Rose
Title: Senior Vice President & Treasurer
<PAGE>
EXHIBIT 10.3
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
among
KILROY REALTY, L.P.,
as Borrower
The Banks Listed Herein
and
COMMERZBANK AKTIENGESELLSCHAFT
acting through its
NEW YORK BRANCH, as Administrative Agent and
Lead Arranger and Bank
and
DRESDNER BANK AG, NEW YORK and GRAND CAYMAN BRANCHES,
as Syndication Agent and Arranger and Bank
Dated as of October 20, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS.......................................................................................... 1
1.1 Defined Terms................................................................................ 1
ARTICLE 2 LOAN FACILITY........................................................................................ 11
2.1 Loan......................................................................................... 11
2.2 Note......................................................................................... 11
2.3 Repayment of Loans........................................................................... 12
2.4 Use of Proceeds.............................................................................. 12
ARTICLE 3 [INTENTIONALLY DELETED].............................................................................. 12
ARTICLE 4 GENERAL PROVISIONS APPLICABLE TO LOAN................................................................ 12
4.1 Election and Continuation of Eurodollar Loans; Floating Rate Loans; Election Procedure....... 12
4.2 Optional Prepayment.......................................................................... 13
4.3 Interest Rates and Payment Dates............................................................. 15
4.4 Computation of Interest and Fees............................................................. 15
4.5 Commitment Fee............................................................................... 15
4.6 Yield Protection............................................................................. 15
4.7 Pro Rata Treatment and Payments.............................................................. 17
4.8 Legal Details................................................................................ 18
4.9 Method and Place of Payment.................................................................. 18
4.10 Taxes........................................................................................ 18
4.11 Booking Loans................................................................................ 21
4.12 Sharing of Setoffs........................................................................... 21
4.13 Interest Rate Protection..................................................................... 22
ARTICLE 5 CONDITIONS PRECEDENT................................................................................. 22
5.1 Closing Conditions........................................................................... 22
ARTICLE 6 AFFIRMATIVE COVENANTS................................................................................ 26
6.1 General...................................................................................... 26
6.2 Financial Covenants.......................................................................... 27
6.3 Reporting Requirements....................................................................... 27
6.4 Property Covenants........................................................................... 29
ARTICLE 7 NEGATIVE COVENANTS................................................................................... 30
7.1 Mergers, Sales of Assets, Etc................................................................ 30
7.2 Limitation on Liens.......................................................................... 30
7.3 No Change in Fiscal Year..................................................................... 30
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE 8 REPRESENTATIONS AND WARRANTIES....................................................................... 31
8.1 Organization and Qualification............................................................... 31
8.2 Power and Authority.......................................................................... 31
8.3 Authorization................................................................................ 31
8.4 No Conflicts................................................................................. 31
8.5 Enforceable Obligations...................................................................... 31
8.6 Governmental Approvals....................................................................... 32
8.7 Taxes........................................................................................ 32
8.8 Margin Stock, Etc............................................................................ 32
8.9 Possession of Franchises, Licenses, Etc...................................................... 32
8.10 Disclosure................................................................................... 32
8.11 Employee Matters............................................................................. 32
8.12 Certain Fees................................................................................. 33
8.13 Litigation................................................................................... 33
8.14 Real Property................................................................................ 34
8.15 Deed of Trust................................................................................ 34
8.16 Construction Performed....................................................................... 34
8.17 Use of Proceeds: Margin Regulations.......................................................... 34
8.18 Subsidiaries................................................................................. 35
8.19 Building Compliance.......................................................................... 35
8.20 Annual Budget................................................................................ 35
8.21 Ground Lease................................................................................. 35
8.22 Year 2000 Representations and Covenants...................................................... 35
ARTICLE 9 EVENTS OF DEFAULT; REMEDIES.......................................................................... 36
9.1 Events of Default............................................................................ 36
9.2 Remedies Upon Default........................................................................ 38
9.3 Remedies in General.......................................................................... 38
ARTICLE 10 LIMITED RECOURSE OBLIGATIONS........................................................................ 38
10.1 Limited Recourse............................................................................. 38
ARTICLE 11 THE AGENT........................................................................................... 39
11.1 Appointment; Powers and Immunities........................................................... 39
11.2 Reliance by Agent............................................................................ 40
11.3 Defaults..................................................................................... 40
11.4 Rights of Agent as a Bank.................................................................... 40
11.5 Indemnification.............................................................................. 40
11.6 CONSEQUENTIAL DAMAGES........................................................................ 41
11.7 Payee of Note Treated as Owner............................................................... 41
11.8 Nonreliance on Agent and Other Banks......................................................... 41
11.9 Failure to Act............................................................................... 41
</TABLE>
ii
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<TABLE>
<S> <C>
11.10 Resignation or Removal of Agent.............................................................. 41
11.11 Reliance by Borrower......................................................................... 42
11.12 Syndication Agent............................................................................ 43
ARTICLE 12 MISCELLANEOUS....................................................................................... 43
12.1 Notices...................................................................................... 43
12.2 Survival of Agreements....................................................................... 44
12.3 Parties in Interest.......................................................................... 44
12.4 Expenses..................................................................................... 44
12.5 Governing Law; Jurisdiction; Venue; Jury Trial............................................... 44
12.6 Right of Setoff.............................................................................. 45
12.7 Severability................................................................................. 45
12.8 Indemnity.................................................................................... 45
12.9 Headings..................................................................................... 46
12.10 Exceptions to Covenants...................................................................... 46
12.11 Amendments and Waivers....................................................................... 46
12.12 Entire Agreement............................................................................. 46
12.13 No Waiver; Remedies.......................................................................... 47
12.14 Binding Effect............................................................................... 47
12.15 Counterparts................................................................................. 47
12.16 Assignment and Participations................................................................ 47
</TABLE>
iii
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of the 20th day of October, 1999,
among KILROY REALTY, L.P., a Delaware limited partnership ("Borrower"),
--------
COMMERZBANK AKTIENGESELLSCHAFT, acting through its NEW YORK BRANCH
("Commerzbank"), as Administrative Agent on behalf of the Banks, as described
-----------
below (in such capacity, the "Agent") and Lead Arranger, DRESDNER BANK AG, NEW
-----
YORK and GRAND CAYMAN BRANCHES ("Dresdner"), as Syndication Agent and Arranger,
--------
and the financial institutions listed in Annex I, including Commerzbank, and
each other financial institution which has been assigned an interest herein
pursuant to Section 12.16(b), as evidenced by an Assignment and Acceptance
Agreement (each, a "Bank" and, collectively, the "Banks").
---- -----
PRELIMINARY STATEMENT
---------------------
In consideration of the mutual covenants herein contained and for
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. The terms defined in this Article 1 (except as
-------------
otherwise expressly provided in this Agreement) for all purposes shall have the
following meanings, and the singular shall include the plural, and vice versa,
unless otherwise specifically required by the context:
"Adjusted LIBOR Rate" shall mean, with respect to any Eurodollar Loan for
-------------------
any Interest Period, the per annum rate equal to the product obtained (rounded
upward, if necessary, to the next higher 1/16 of 1%) by multiplying (a) the
applicable LIBOR Rate in effect for such Interest Period by (b) the Statutory
Reserves.
"Affiliate" shall mean a Person that directly, or indirectly through one or
---------
more intermediaries, Controls or is Controlled by or is under common Control
with another Person.
"Agent" shall mean Commerzbank, in its capacity as Administrative Agent
-----
hereunder, and shall include any successor to the Agent appointed pursuant to
Section 11.10.
"Agreement" shall mean this Agreement and any amendments hereto duly made
---------
in accordance with this Agreement.
-1-
<PAGE>
"Alternate Base Rate" shall mean a rate per annum (rounded upwards, if
-------------------
necessary, to the nest 1/16 of 1%) equal to the greater of (a) the Prime Rate in
effect on such day and (b) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1%. If for any reason the Agent shall have determined (which
determination shall be conclusive absent manifest error) that it is unable to
ascertain the Federal Funds Effective Rate for any reason, including the
inability or failure of the Agent to obtain sufficient quotations in accordance
with the terms thereof, the Alternate Base Rate shall be determined without
regard to clause (b) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively. The Agent will give notice promptly to Borrower and the Banks of
changes in the Alternate Base Rate, provided, however, that the Agent's failure
to give any such notice will not affect Borrower's obligation to pay interest to
the Banks on any Floating Rate Loan at the then effective Alternate Base Rate.
"Applicable Margin" shall mean 175 basis points (i.e., 1.75%).
----------------- ----
"Assignment and Acceptance Agreement" shall mean an Assignment and
-----------------------------------
Acceptance Agreement entered into by a Bank and an Assignee (as defined in
Section 12.16(b)), and accepted by the Agent, pursuant to which the Assignee
shall acquire all or a portion of the assigning Bank's Commitments and shall
become a Bank party to this Agreement, and which shall include such terms and
conditions as shall be reasonably acceptable to the Agent, the assigning Bank
and the Assignee.
"Auditors" shall mean independent certified public accountants selected by
--------
Borrower and acceptable to the Agent.
"Authorized Officer" shall mean, with respect to Borrower, the General
------------------
Partner or the General Partner's president, any senior or executive vice
president, chief financial officer, chief accounting officer or treasurer.
"Business Day" shall mean a day other than a Saturday or Sunday on which
------------
(a) commercial banks in New York, New York and in London, England are open for
business and (b) on which dealings in Dollars are carried out on the Interbank
Market.
"Capitalization Documents" shall mean the Partnership Agreement and each of
------------------------
the documents governing the issuance of or setting forth the terms of any
partnership interests issued or to be issued by Borrower.
"Closing Checklist" shall mean the list of closing items required to be
-----------------
satisfied by Borrower on or prior to the Closing Date, which list is attached
hereto as Annex II.
"Closing Date" shall mean the date hereof.
------------
-2-
<PAGE>
"Commitment Percentage" shall mean, as to any Bank, the percentage of the
---------------------
aggregate Commitments constituted by such Bank's Commitment;
"Commitment" shall mean, as to any Bank, the amount committed by such Bank
----------
pursuant to this Agreement with respect to the Loan, as such amount may be
reduced from time to time pursuant to this Agreement.
"Control" (and "Controlled By" with correlative meaning) shall mean, with
------- -------------
respect to any Person, the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Debt Service Coverage Ratio" shall mean, with respect to any six (6) month
---------------------------
period, the ratio of (a) Net Operating Income for such period, to (b) the
greater of (i) the actual Interest Expense due for such period, or (ii) the
Interest Expense and projected amortization payments for such period applicable
to the principal balance of the Loan outstanding on the last day of such period
assuming an interest rate for such period of 2% per annum plus the yield rate on
10-year United States Treasury Notes most recently issued prior to the end of
such period, as quoted in The Wall Street Journal (or, if The Wall Street
Journal shall cease publication, such other publication as Agent may select in
its reasonable discretion), and further assuming a 25-year amortization
schedule.
"Debt Yield Calculation" shall mean, with respect to any six (6) month
----------------------
period, the quotient of (i) annualized Net Operating Income, divided by (ii) the
------- --
outstanding principal balance of the Loan.
"Deed of Trust" shall mean the Variable Interest Rate Deed of Trust,
-------------
Leasehold Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing dated the date thereof given by Borrower to First American Title
Insurance Company, as trustee for the use and benefit of the Agent on behalf of
the Banks, in the maximum principal amount of $90,000,000.
"Default" shall mean any event specified in Section 9.1, whether or not any
-------
requirement in connection with such event for the giving of notice, lapse of
time, or happening of any further condition, event or act has been satisfied;
provided, however, that it is understood that the characterization of such event
- -------- -------
as a "Default" shall not affect Borrower's right to cure, if any, or entitlement
to any applicable grace period, as may be provided herein or in any of the other
Loan Documents.
"Default Rate" shall have the meaning specified in Section 4.3(b).
------------
"Dollars" and the symbol "$" shall mean lawful money of the United States
------- -
of America.
-3-
<PAGE>
"Domestic Lending Office" shall mean, as to each Bank which is a party to
-----------------------
this Agreement on the Closing Date, such Bank's office located at its address
set forth on Annex I hereto identified as its Domestic Lending Office, and as to
each other Bank, such Bank's office located at its address set forth in the
Assignment and Acceptance Agreement pursuant to which such Bank became a party
hereto identified as its Domestic Lending Office, or such other office of any
Bank which such Bank may hereafter designate as its Domestic Lending Office by
notice to Borrower and the Agent.
"Environmental Complaint" shall mean any complaint, order, citation, notice
-----------------------
or other written communication from any Person with respect to the existence or
alleged existence of a violation of an environmental Law or legal liability
resulting from the occurrence of any, or alleged occurrence of any, release,
spill or discharge of any Pollutant from, under, into or on an Individual
Property, or any other environmental matter at, upon, under or within an
Individual Property or otherwise relating to an Individual Property or the
ownership, use, operation or occupancy thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended, and the rules and regulations issued thereunder, as from time to time
in effect.
"Eurocurrency Liabilities" shall have the meaning specified in the
------------------------
definition of "Statutory Reserves".
"Eurodollar Lending Office" shall mean, as to each Bank which is a party to
-------------------------
this Agreement on the Closing Date, such Bank's office, branch or Affiliate
located at its address set forth on Annex I hereto identified as its Eurodollar
Lending Office, and as to each other Bank, such Bank's office, branch or
Affiliate located at its address set forth in the Assignment and Acceptance
Agreement pursuant to which such Bank become a party hereto identified as its
Eurodollar Lending Office, or such other office, branch or Affiliate of any Bank
which such Bank may hereafter designate as its Eurodollar Lending Office by
notice to Borrower and the Agent.
"Eurodollar Loan" shall mean the Loan, or any portion thereof, bearing
---------------
interest at a rate determined by reference to the Adjusted LIBOR Rate.
"Event of Default" shall mean any of the events specified in Section 9.1,
----------------
after the expiration of any period of grace or right to cure provided therein,
provided there has been satisfied any requirement in connection therewith for
the giving of notice, lapse of time, or happening of any further condition,
event or act.
"Federal Funds Effective Rate" shall mean for any day, the weighted average
----------------------------
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the
-4-
<PAGE>
average of the quotations for the day of such transactions received by the Agent
from three federal funds brokers of recognized standing selected by it.
"Financial Covenants" shall mean the covenants set forth in Section 6.2.
-------------------
"Floating Rate Loan" shall mean the Loan, or any portion thereof, bearing
------------------
interest at a rate determined by reference to the Alternate Base Rate.
"Full-Fledged Appraisal" shall mean an M.A.I. appraisal of the Property
----------------------
acceptable to the Agent, prepared by an appraiser selected by Borrower and
acceptable to the Agent. In the event that at the time of such appraisal there
exists a casualty to the Property, the appraisal shall assume that the Property
has been restored if (a) it is reasonable to do so and (b) there are available
to Borrower insurance proceeds or other funds in an amount sufficient to finance
such restoration within the time required by the lease of each principal tenant
of the Property.
"GAAP" shall mean generally accepted accounting principles applied on a
----
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or in such other statement by
such other entity as the Agent may reasonably approve, which are applicable as
of the date in question, or such other accounting principles as may be mutually
agreed by the Agent and Borrower. Subject to the preceding sentence, the
requirement that accounting principles be applied on a consistent basis shall
mean that once such principles become applicable to any matter set forth in or
contemplated by this Agreement in respect of any accounting period, then in any
subsequent accounting period accounting principles must be applied which are
comparable in all material respects to those which were applicable in the
earlier period. Unless otherwise indicated herein, all accounting terms shall
be defined according to GAAP.
"General Partner" shall mean Kilroy Realty Corporation, a Maryland
---------------
corporation, in its capacity as general partner of Borrower.
"Ground Lease" shall mean that certain Agreement for Ground Lease
------------
Development and Use of Real Property dated September 22, 1988 executed by and
between The City of San Diego, as lessor, and JOSP Partners, as lessee, and
recorded on April 21, 1989 as Instrument No. 89-209941 of the Official Records
of San Diego County, California (the "Official Records"), as amended by First
-------- -------
Amendment dated March 31, 1989 between such parties and recorded on April 21,
1989 as File No. 1989-209942 of the Official Records, as further amended by
Second Amendment dated March 26, 1990 between such parties and recorded on May
17, 1990 as File No. 90-270833 of the Official Records as further amended by
that Consent and Estoppel Certificate executed as of June 18, 1998 by such
parties and Borrower, and as assigned by JOSP Partners to Borrower pursuant to
Assignment dated ____________ and recorded on June 18, 1998 as File No. 98-
0375194 of the Official Records.
-5-
<PAGE>
"Guaranteed Indebtedness" shall mean all indebtedness of a Person other
-----------------------
than Borrower of a type described in clauses (a), (b), (c) and (e) of the
definition of "Indebtedness" which is guaranteed directly or indirectly in any
manner by Borrower, or in effect guaranteed directly or indirectly in any manner
by Borrower.
"Increased Cost" shall have the meaning set forth in Section 4.6(a)(ii).
--------------
"Indebtedness" shall mean, as at any date, (a) all indebtedness of Borrower
------------
for borrowed money or for the deferred purchase price of property or services
(except such indebtedness the existence of which is being contested by Borrower
in good faith and by appropriate action), (b) all obligations of Borrower
evidenced by bonds, debentures, notes or other similar instruments, (c) all
obligations under leases which shall have been or should be, in accordance with
GAAP, recorded as capital leases in respect of which Borrower is liable as
lessee (except such obligations the existence of which is being contested by
Borrower in good faith and by appropriate actions), (d) any Guaranteed
Indebtedness, and (e) any other indebtedness required to be recorded as
indebtedness on the financial statements of Borrower in accordance with GAAP.
"Indemnifiable Taxes" shall have the meaning specified in Section 4.10(a).
-------------------
"Individual Property" shall mean each discrete parcel of land included in
-------------------
the Property, as identified in each separate sub-exhibit to Exhibit A attached
to the Deed of Trust.
"Initial Date" shall have the meaning specified in Section 4.10(a).
------------
"Interbank Market" shall mean any market for the buying and selling of
----------------
Dollar deposits payable outside the United States of America between the Agent
and other financial institutions in the ordinary course of the Agent's business.
"Interest Coverage Ratio" shall mean, with respect to any six (6) month
-----------------------
period, the ratio of (a) Net Operating Income for such period to (b) the actual
Interest Expense for such period.
"Interest Expense" shall mean, with respect to any period, all interest
----------------
paid or payable by Borrower during such period on the Loan.
"Interest Payment Date" shall mean, (a) with respect to any Eurodollar
---------------------
Loan, the last day of each Interest Period therefor and, in the case of an
Interest Period of six months, the day numerically corresponding to such date
(or if there is no such day, then the last day) in the third calendar month
during such Interest Period and (b) with respect to any portion of the Loan
which is not a Eurodollar Loan, on the Quarterly Payment Date.
"Interest Period" shall mean, with respect to any Eurodollar Loan, a period
---------------
of one, two, three or six months, as selected by Borrower, beginning (i) on the
date such Loan is made and (ii)
-6-
<PAGE>
thereafter, on the last day of the immediately preceding Interest Period,
provided that (x) no Interest Period for any Loan shall extend beyond the
- --------
Maturity Date, (y) any Interest Period which begins on a day for which there is
no numerically corresponding day in the calendar month at the end of such
Interest Period shall end on the last Business Day of such calendar month and
(z) any Interest Period which would otherwise end on a day that is not a
Business Day shall end on the next succeeding Business Day unless such Interest
Period would thereby end in a different calendar month, in which case such
Interest Period shall end on the next preceding Business Day. There may be no
more than five (5) Interest Periods in effect at any one time. If any portion of
the Loan is not a Eurodollar Loan, there may be no more than four (4) Interest
Periods in effect at any one time.
"Laws" shall mean all statutes, laws, ordinances, rules, regulations,
----
orders, writs, injunctions or decrees of any Tribunal.
"Leased Land" shall mean the property demised to Borrower pursuant to the
------------
Ground Lease.
"Lending Branch" shall mean Commerzbank's New York Office or any other
--------------
office or Affiliate of Commerzbank hereafter selected and notified to Borrower
from time to time by Commerzbank.
"LIBOR Rate" shall mean the rate (rounded upward, if necessary, to the next
----------
higher 1/16 of 1%) at which Dollar deposits approximately equal in principal
amount to the Agent's portion of such Eurodollar Loan and for a maturity
comparable to such Interest Period that appears on Telerate (as defined below)
Page 3750 as of 11:00 am., London time, on the date which is two (2) Business
Days prior to the beginning of the subsequent Interest Period (an "Interest
--------
Determination Date"). If such rate does not appear on Telerate Page 3750 as of
- ------------------
11:00 a.m., London time, on such Interest Determination Date, LIBOR will be
determined on the basis of the rate (rounded upward, if necessary, to the next
higher 1/16 of 1%) at which deposits in U.S. Dollars approximately equal in
principal amount to the Agent's portion of such Eurodollar Loan and for a
maturity comparable to such Interest Period are offered to the Lending Branch in
immediately available funds in the Interbank Market at approximately 10:00 a.m.,
New York City time, two (2) Business Days prior to the commencement of such
Interest Period.
"Lien" shall mean any deed of trust, mortgage, pledge, security interest,
----
encumbrance, lien or charge of any kind, including without limitation, any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature of a conditional sale or title
retention agreement, the filing of or agreement to give any financing statement
or other similar form of public notice under the Laws of any jurisdiction.
"Litigation" shall mean any pending or, to the best knowledge of Borrower,
----------
threatened proceeding, claim, lawsuit, arbitration or investigation conducted or
threatened by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits and investigations under or
-7-
<PAGE>
pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax or other Law, or under or pursuant to any
contract, agreement or other instrument; provided, however, that "Litigation"
-------- -------
shall not include any of the foregoing that is covered by adequate insurance.
"Loan" shall mean the loan in the maximum principal sum of $90,000,000 made
----
to Borrower pursuant to this Agreement (or, as the context requires, any portion
thereof).
"Loan Documents" shall mean this Agreement, the Note, the Deed of Trust and
--------------
all other documents, instruments and certificates to be executed by Borrower or
the General Partner in connection with this Agreement or as security for the
Loans.
"Majority Banks" shall mean Banks collectively having outstanding
--------------
Commitments in excess of 50% of the total aggregate outstanding Commitments.
"Margin Security" and "Margin Stock" shall have the meanings given to those
--------------- ------------
terms in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. Parts 221 and 224.
"Material Adverse Change" or "Material Adverse Effect" shall mean any act,
----------------------- -----------------------
circumstance or event that might be material and adverse to (a) the financial
condition or business operations of Borrower, (b) the Property or Borrower's
interest in the Property or (c) the Agent's and the Banks' interests in the
Property.
"Maturity Date" shall mean October 20, 2003.
-------------
"Net Operating Income" shall mean, with respect to any period, (a) the
--------------------
total income received by Borrower for such period from the operation of the
Property in the ordinary course of business (including, but not limited to,
fixed rent, percentage rent, escalation payments, parking income, tenant work
order income, cost recoveries and similar operating income items) less (b) all
----
ordinary operating expenses incurred and paid (or payable in the ordinary course
of business) in connection with the operation of the Property, including, but
not limited to, utility charges, insurance premiums, salaries and payroll costs,
maintenance and repair costs, real estate taxes, and all other general operating
expenses attributable to the Property. Net Operating Income shall be determined
on a cash basis of accounting.
"New York Office" shall mean Commerzbank's principal office in New York
---------------
City located, on the date hereof, at 2 World Financial Center, New York, New
York 10281-1050 or any other office of Commerzbank hereafter selected and
notified to Borrower from time to time by Commerzbank.
"Note" shall have the meaning specified in Section 2.2 hereof.
----
-8-
<PAGE>
"Obligations" shall mean the aggregate principal, interest, fees and other
-----------
amounts payable by Borrower to the Agent or any Bank under the Loan Documents.
"Other Taxes" shall have the meaning specified in Section 4.10.
-----------
"Partnership Agreement" shall mean the Fourth Amended and Restated
---------------------
Partnership Agreement of Borrower dated as of November 24, 1998.
"Permitted Encumbrances" shall mean:
----------------------
(a) the Deed of Trust and other Liens in favor of the Agent on behalf
of the Banks under the Loan Documents;
(b) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or being
contested in good faith, provided that appropriate provision is made for the
--------
payment thereof when due as provided in the Deed of Trust;
(c) exceptions to title listed on the marked title insurance
commitments delivered to the Agent at Closing pursuant to Section 5.1(l)(ii) and
approved in writing by the Agent; and
(d) Liens incidental to the conduct of the business of Borrower which
are not incurred in connection with any Indebtedness of Borrower described in
clauses (a) or (b) of the definition of "Indebtedness" in Section 1.1 and which
do not materially detract from the value of the Property or materially impair
the use thereof in the operation of the Property, provided that appropriate
--------
provision is made for the payment thereof when due in the event it is found that
any obligation secured by any such Lien is payable by Borrower.
"Person" shall mean and include an individual, partnership, joint venture,
------
corporation, limited liability company, trust, Tribunal, unincorporated
organization or government, or any department, agency or political subdivision
thereof.
"Plan" shall mean any plan subject to Title IV of ERISA and maintained for
----
employees of Borrower, or of any member of a controlled group of corporations as
defined in Section 1563 of the Internal Revenue Code of 1986, as amended, of
which Borrower is a part.
"Pollutant" shall mean any reportable quantity of any hazardous waste or
---------
substance as defined in any applicable federal, state or local law, regulation,
ordinance or directive, including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act, 42 U.S.C. (S) 9601, et seq.;
-- ---
the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801, et seq.; the
-- ---
Toxic Substances Control Act, 15 U.S.C. (S) 2601, et seq.; the Resource
-- ---
Conservation and Recovery Act, as amended (42 U.S.C. (S)(S) 9601, et seq.); the
-- ---
-9-
<PAGE>
Clean Water Act, 33 U.S.C. (S) 1251 et seq.; and the Clean Air Act, 42 U.S.C.
-- ---
(S) 7401 et seq. the Emergency Planning and Community-Right-to-Know Act (42
-- ---
U.S.C. (S) 11001 et seq.), the Endangered Species Act (16 U.S.C. (S) 1531 et
-- --- --
seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the
- --- -- ---
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.) or the Hazardous
-- ---
Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), Sections 25115,
-- ---
25117, 25122.7, 25140, 25249.8, 25281, 25501 and 25316 of the California Health
and Safety Code, Section 2782.6(d) of the California Civil Code and Title 22 of
the California Code of Regulations and the regulations adopted pursuant to the
above listed laws, as any such acts or regulations may be amended, modified or
supplemented. The term "Pollutant" shall include any reportable quantity of
airborne asbestos. The term "Pollutant" shall specifically not include the
emission, discharge, generation, processing, storage or transportation of any
hazardous waste or substance pursuant to, and in accordance with, a valid
federal or state permit, license or order.
"Prime Rate" shall mean the rate of interest per annum publicly announced
----------
from time to time by Commerzbank as its prime lending rate or reference rate in
effect at its principal office in New York City. The Prime Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. Commerzbank may make commercial loans or other loans at rates
of interest at, above or below the Prime Rate. Any change in the Prime Rate
announced by Commerzbank shall take effect at the opening of business on the day
specified in the public announcement of such change.
"Property" shall have the meaning ascribed thereto in the Deed of Trust.
--------
"Quarterly Payment Date" shall mean March 31, June 30, September 30 and
----------------------
December 31 of each year. The first Quarterly Payment Date shall be December
31, 1999.
"Regulatory Change" shall mean any change after the Closing Date in
-----------------
federal, state or foreign Laws (including the introduction of any new Law), or
the adoption or making after such date of any interpretations, directives or
requests applying to a class of banks including the Banks of or under any
federal, state or foreign Laws (whether or not having the force of Law) by any
Tribunal charged with the interpretation or administration thereof.
"Reuters" shall mean Reuters Monitor Money Rates Service.
-------
"Revolving Credit Agreement" shall mean the Amended and Restated Revolving
---------------------------
Credit Agreement dated as of October 9, 1998 among Borrower, Morgan Guaranty
Trust Company of New York, as Bank and as Lead Agent for the Banks, Bank of
Montreal, as Bank and as Co-Agent, Commerzbank Aktiengesellschaft, Los Angeles
Branch, as Bank and Co-Agent, Dresdner Bank AG, New York Branch and Grand Cayman
Branch, as Bank and as Co-Agent, PNC Bank, National Association, as Bank and as
Co-Agent, Union Bank of California, as Bank and as Co-Agent, and the other banks
listed therein, as in effect on the date hereof.
"Rights" shall mean rights, remedies, powers and privileges.
------
-10-
<PAGE>
"Special Counsel" shall mean Robinson Silverman Pearce Aronsohn & Berman
---------------
LLP, or such other counsel as the Agent may designate from time to time.
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
------------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum applicable reserve percentages, including
any marginal, special, emergency or supplemental reserves (expressed as a
decimal) established by the Board of Governors of the Federal Reserve System and
any other banking authority to which any Bank is subject with respect to the
Adjusted LIBOR Rate, for Eurocurrency Liabilities (as defined in Regulation D of
the Board, "Eurocurrency Liabilities"). Such reserve percentages shall include
------------------------
those imposed pursuant to Regulation D of the Board of Governors of the Federal
Reserve System. Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Bank under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Subsidiary" shall mean any corporation at least a majority of whose
----------
securities having ordinary voting power for the election of directors (other
than securities having such power only by reason of happening of a contingency)
are owned by Borrower, or one or more Subsidiaries of Borrower, or a combination
thereof.
"Taxes" shall mean all taxes, assessments, fees or other charges at any
-----
time imposed by any Laws or Tribunal.
"Telerate" means the display page so designated on the Dow Jones Markets
--------
(formerly known as Telerate) Service (or such other page as may replace such
page on that service, or such other service as may be nominated by the Agent, in
its discretion, as the information vendor, for the purpose of displaying rates
or prices comparable thereto).
"Tribunal" shall mean any municipal, state, commonwealth, federal, foreign,
--------
territorial or other court, legislature or governmental body, subdivision,
agency, department, commission, board, bureau or instrumentality, in each case
with applicable regulatory authority.
"Value" shall mean, as at any date of determination thereof, the fair
-----
market value of the Property.
-11-
<PAGE>
ARTICLE 2
LOAN FACILITY
2.1 Loan. (a) Subject to the terms and conditions hereof, each Bank,
----
severally, and not jointly, agrees to make the Loan to Borrower on the Closing
Date in a principal amount not to exceed the amount set forth under the heading
"Loan Commitments" opposite the name of such Bank on Annex I.
(b) The Loan shall be fully secured by the Deed of Trust and the Property
described therein and in the other Loan Documents. The Loan or any portion
thereof may either be, from time to time, a (i) Eurodollar Loan or (ii) a
Floating Rate Loan. Eurodollar Loans shall be made by each Bank at its
respective Eurodollar Lending Office. Floating Rate Loans shall be made by each
Bank at its respective Domestic Lending Office.
2.2 Note. The Loan made by each Bank pursuant to Section 2.1(b) shall be
----
evidenced by a promissory note (or notes) of Borrower substantially in the form
of Exhibit A (individually and collectively, a "Note"), payable to the order of
----
each such Bank. Each Note shall (i) be dated the Closing Date, and (ii) bear
interest, payable as specified in Section 4.3, for the period from the date
thereof on the unpaid principal amount thereof at the applicable interest rate
per annum specified in Section 4.3 until paid in full. Borrower agrees, from
time to time, upon the request of the Agent or any affected Bank, to reissue new
Notes, in accordance with the terms and in the form herein provided, to any Bank
and/or any assignee of such Bank pursuant to Section 12.16 hereof, in renewal of
and substitution for the Note previously issued by Borrower to the affected
Bank.
2.3 Repayment of Loans. Interest on the outstanding principal balance of
------------------
the Loan shall be due and payable on each Interest Payment Date. The entire
unpaid principal amount of the Loan, together with interest accrued and unpaid
on such amount and all other sums due and payable pursuant to the Loan
Documents, shall be paid in full on the Maturity Date.
2.4 Use of Proceeds. The proceeds of the Loan shall be used by Borrower
---------------
solely to repay Indebtedness incurred pursuant to the Revolving Credit
Agreement, and for working capital in connection with the operation of the
Property.
-12-
<PAGE>
ARTICLE 3
[INTENTIONALLY DELETED]
ARTICLE 4
GENERAL PROVISIONS APPLICABLE TO LOAN
4.1 Election and Continuation of Eurodollar Loans; Floating Rate Loans;
-------------------------------------------------------------------
Election Procedure. (a) Borrower may elect from time to time in the manner
- ------------------
hereinafter described to have all or a portion of the entire principal balance
of the Loan to be either a Eurodollar Loan or an Floating Rate Loan.
(b) Borrower shall give the Agent written (including telecopy) notice (or
telephonic notice promptly confirmed in writing) specifying whether the Loan
shall initially be a Eurodollar Loan or a Floating Rate Loan or a combination
thereof, and the length of the Interest Period(s) for the Eurodollar Loan. If
all or any portion of the Loan is to be a Eurodollar Loan, such notice shall be
given prior to 10:00 a.m., New York City time, at least three Business Days
prior to the Closing Date; if the entire Loan is to be a Floating Rate Loan,
such notice shall be given prior to 10:00 a.m., New York City time, at least one
Business Day prior to the Closing Date. Upon receipt of such notice from
Borrower, the Agent shall promptly notify each Bank thereof. On the Closing
Date, (A) each Bank shall make available to the Agent an amount in immediately
available funds equal to the sum of such Bank's Commitment on such date and (B)
the Agent shall make available to Borrower, the proceeds of the Loan by
crediting the account of Borrower on the books of the Agent with the aggregate
amount of the Loan made available to the Agent by the Banks and in like funds
received by the Agent for transmittal by the Agent upon Borrower's request. Any
borrowing of, or conversion to, Eurodollar Loans under this Article 4 shall be
in such amounts and be made pursuant to such elections so that, after giving
effect thereto, the aggregate principal amount of each such borrowing of
Eurodollar Loans shall not be less than $5,000,000 or a whole multiple of
$1,000,000 in excess thereof.
(c) Borrower shall have the right at any time upon prior written
(including telecopy) notice (or telephonic notice promptly confirmed in writing)
to the Agent not later than 10:00 a.m., New York City time, three Business Days
prior to the end of an Interest Period with respect to a Eurodollar Loan, or
three Business Days prior to the end of a calendar month with respect to a
Floating Rate Loan, (i) to convert a Floating Rate Loan to a Eurodollar Loan,
(ii) to continue a Eurodollar Loan as a Eurodollar Loan for an additional
Interest Period, (iii) to convert a Eurodollar Loan to a Floating Rate Loan and
(iv) to convert the Interest Period with respect to any Eurodollar Loan to
another permissible Interest Period, subject in each case to the following:
(i) each conversion or continuation shall be made pro rata
--- ----
among the Banks in accordance with their respective principal amounts of
the portion of the Loan comprising the converted or continued portion;
(ii) the Eurodollar Loan may not be continued as a Eurodollar
Loan with the same or different Interest Period at a time other than the
end of the Interest Period applicable thereto; and
(iii) the Eurodollar Loan may not be continued as a Eurodollar
Loan at a time when an Event of Default has occurred and is continuing.
Each notice pursuant to this Section 4.1(c) shall be irrevocable and shall
specify the Interest Period for the Eurodollar Loan resulting from such
continuation or conversion. If no
-13-
<PAGE>
Interest Period is specified in any such notice with respect to any continuation
as or conversion into the Eurodollar Loan, or if Borrower shall not have given
notice in accordance with this Section 4.1(c) to continue the Eurodollar Loan
into a subsequent Interest Period (and shall not otherwise have given notice in
accordance with this Section 4.1(c) to convert such Eurodollar Loan), Borrower
shall be deemed to have selected an Interest Period of one month's duration. The
Agent shall advise the other Banks of any notice given pursuant to this Section
4.1(c) and of each Bank's portion of any continued or converted Borrowing.
(d) It is understood that the entire principal balance of the Loan shall
be advanced on the Closing Date. If any portion of the principal balance of the
Loan shall be repaid or prepaid, Borrower shall not be entitled to any advances
or readvances thereof.
4.2 Optional Prepayment. (a) The Loans may not be prepaid in whole or
-------------------
in part at the option of the Borrower except as provided in this Article 4.
(b) (i) Notwithstanding any provision of this Agreement to the contrary,
Borrower may prepay the principal balance of the Note, in whole or in part, upon
not less than ten (10) days' prior written notice to the Agent specifying the
date on which prepayment is to be made (the "Tender Date") and the amount of any
-----------
such prepayment, and upon payment of (a) interest accrued and unpaid on the
principal balance of the Note to and including the Tender Date, (b) all other
sums then due under the Note, the Deed of Trust and the other Loan Documents,
and (c) if all or any portion of the Loan being prepaid is a Eurodollar Loan,
amounts as set forth in Section 4.2(d) hereof. The Agent shall not be obligated
to accept any prepayment of the principal balance of the Note unless (1) the
payment is accompanied by all sums required under this Section 4.2, (2) if a
partial prepayment, the partial prepayment, if any, shall not be in an amount
less than the lesser of (i) Five Million and 00/100 Dollars ($5,000,000) and
(ii) the unpaid principal amount of the Loan and (3) the prepayment is made on
the applicable Tender Date.
(c) If, following the occurrence of any Event of Default, Borrower shall
tender payment of an amount sufficient to repay the Loan and all other sums due
hereunder or under the Loan Documents in full at any time prior to a sale of the
Property, either through foreclosure or the exercise of the other remedies
available to the Agent under the Deed of Trust or under the other Loan
Documents, such tender by Borrower shall be deemed to be a voluntary prepayment
in the amount tendered and Borrower shall, in addition, also pay to the Agent
the Prepayment Compensation (as defined in Section 4.2(e) hereof). It is agreed
and understood that the Prepayment Compensation shall be due, to the extent
permitted by applicable law, under any and all circumstances where all or any
portion of the Note is paid prior to the Maturity Date, whether such prepayment
is voluntary or involuntary, even if such prepayment results from the Agent's
exercise of its rights upon Borrower's default and acceleration of the maturity
date of the Note (irrespective of whether foreclosure proceedings have been
commenced), and shall be in addition to any other sums due hereunder, under the
Deed of Trust or under any of the other Loan Documents. Notwithstanding the
previous sentence, however, if the Agent elects to apply condemnation proceeds
or casualty proceeds as a full or partial prepayment of the outstanding
-14-
<PAGE>
principal amount of the Note, such application shall be without payment of any
Prepayment Compensation, unless, however, an Event of Default has occurred and
is continuing, in which event the Prepayment Compensation shall be due and
payable based upon the amount of the prepayment.
(d) The Borrower shall compensate each Bank, upon such Bank's written
request to the Agent and the Agent's delivery thereof to the Borrower (which
request shall set forth in reasonable detail the basis for requesting such
amounts), for all losses, expenses, and liabilities (including, without
limitation, any interest paid by such Bank to lenders of funds borrowed by it to
make or carry its Commitment to the extent not recovered by such Bank in
connection with the re-employment of such funds but excluding loss of
anticipated profits), which such Bank may sustain if any prepayment occurs on a
date which is not the Maturity Date or the last day of an Interest Period. With
respect to losses, expenses and liabilities which a Lender may sustain as
described in this Section 4.2(d) relating to any period in which the Commitment
is in effect, the provisions of this Section 4.2(d) shall survive the
termination of this Agreement and the payment of the Note and all other amounts
payable hereunder.
(e) Borrower acknowledges and agrees that the sums payable pursuant to
Section 4.2(d) hereof (the "Prepayment Compensation") represent a reasonable and
-----------------------
fair estimate of compensation for the loss that the Banks may sustain from the
prepayment of the Note or any portion of the Loan on a date other than the
Maturity Date or the last day of an Interest Period. Borrower acknowledges and
agrees that it has no right to prepay the Note without paying the Prepayment
Compensation except as specifically provided hereinafter and Borrower
specifically acknowledges and agrees that it shall be liable for the Prepayment
Consideration upon any acceleration of the Note in accordance with its terms at
any time, in addition to the principal amount and all outstanding interest,
fees, penalties and other sums due hereunder, under the Deed of Trust or under
any of the other Loan Documents.
4.3 Interest Rates and Payment Dates. (a) If the Loan is a Eurodollar
--------------------------------
Loan, the Loan shall bear interest for each Interest Period applicable thereto
on the unpaid principal amount thereof at a rate per annum equal to the Adjusted
LIBOR Rate determined for such Interest Period plus the Applicable Margin. If
the Loan is a Floating Rate Loan, the Loan shall bear interest for each Interest
Period applicable thereto on the unpaid principal amount thereof at a rate per
annum equal to the Alternate Base Rate determined for such Interest Period plus
the Applicable Margin.
(b) Notwithstanding the foregoing, if any Event of Default occurs, then,
while such Event of Default continues, the Loan shall bear interest at a rate
per annum equal to the Alternate Base Rate plus 6.00% (the "Default Rate").
------------
(c) Interest on the Loan shall be payable in arrears on each Interest
Payment Date, except that interest which is accruing at the Default Rate shall
be payable on demand of the Agent.
-15-
<PAGE>
4.4 Computation of Interest and Fees. Interest and fees shall be
--------------------------------
calculated on the basis of the actual number of days elapsed over a 360-day
year. The Agent shall as soon as practicable notify Borrower and the Banks of
each determination of the Eurodollar Rate.
4.5 Commitment Fee. On the Closing Date, Borrower shall pay to the
--------------
Agent its upfront commitment fee, and such other fees as provided in the
separate fee letter agreement between Borrower and the Agent dated as of the
date hereof.
4.6 Yield Protection.
----------------
(a) Events Relating to Loans.
------------------------
(i) Interbank Market Conditions or Regulatory Changes. Notwithstanding
-------------------------------------------------
anything in this Agreement to the contrary, if (A) by reason of changes
affecting the Interbank Market generally, adequate and fair means do not exist
for ascertaining the LIBOR Rate or the continuation of Eurodollar Loans has been
made impracticable by the occurrence of a contingency which materially and
adversely affects the Interbank Market, or (B) any Regulatory Change shall make
it unlawful for any Bank to make or maintain any Eurodollar Loans or to match
Eurocurrency Liabilities thereto (which Bank shall deliver prompt notice thereof
to the Agent and Borrower), then, at Borrower's option set forth in a notice to
the Agent, either (1) Borrower shall request that the outstanding Eurodollar
Loans be converted into Loans bearing interest at an alternate rate of interest
offered by the Banks to Borrower (the Banks shall use their best efforts to
provide Borrower with a rate of interest commensurate with loans and borrowers
of a similar type), or (2) Borrower shall promptly prepay in full all
outstanding Eurodollar Loans, with accrued interest thereon and all other
amounts payable by Borrower hereunder and upon such prepayment the Banks'
obligation to make or maintain Eurodollar Loans shall terminate.
(ii) Increased Costs. If, as a result of any Regulatory Change,
---------------
(A) the basis of taxation of payments to any Bank of the principal
of or interest on the Loan, or any other amounts payable under this Agreement in
respect thereof (other than Taxes imposed on the overall net income of any Bank
and Indemnifiable Taxes and Other Taxes which are covered by the indemnification
provisions set forth in Section 4.10) is changed; or
(B) any reserve, special deposit or similar requirements relating
to any extensions of credit or other assets of, or any deposits with or other
liabilities of, any Bank are imposed, modified or deemed applicable with respect
to the Loan; or
(C) any other condition affecting the Loan or any Bank's Commitment
is imposed on such Bank;
and such Bank reasonably determines that, solely by reason thereof, the cost to
such Bank of making or maintaining the Loan is increased by an amount deemed by
such Bank to be material,
-16-
<PAGE>
or any amount receivable by such Bank hereunder in respect of the Loans is
reduced by an amount deemed by such Bank to be material (such increases in cost
and reductions in amounts receivable being "Increased Costs"), then Borrower
---------------
shall pay to such Bank, on the later of the date on which any such Increased
Cost is due by such Bank or a date within ten Business Days after demand by such
Bank therefor, such additional amounts as such Bank reasonably determines will
compensate such Bank for such Increased Costs (such demand to be accompanied by
a certificate setting forth the basis for the calculation thereof). Upon the
request of Borrower, after notification by any Bank of a Regulatory Change that
may result in any Increased Cost or a demand for compensation by such Bank
pursuant to this Section 4.6(a)(ii), such Bank shall use reasonable efforts to
reduce or eliminate the Increased Costs by transferring any Loan or any
depository account giving rise to such Increased Costs to another branch of such
Bank, provided, that such transfer will not have an adverse effect on such Bank
--------
or its Rights hereunder or under the Note. Except to the extent required by any
Regulatory Change, no Bank shall discriminate against Borrower in charging
Borrower for Increased Costs pursuant to this Section 4.6(a)(ii).
(iii) Capital Adequacy. If the adoption of or any change in the substance
----------------
or interpretation of any Law generally applicable to banking institutions
including the Banks, or the compliance by any Bank with any guideline or request
from any central bank or other Tribunal (whether or not having the force of
Law), affects or would affect the amount of capital required or expected to be
maintained by such Bank as a consequence of such Bank's obligations hereunder,
and such Bank reasonably determines that the amount of such capital, based upon
the existence of its Commitments or its portion of the Loan, would have to be
increased, then Borrower shall pay to such Bank, upon demand from time to time
(each such demand to be accompanied by a certificate setting forth the basis for
the calculation thereof), additional amounts sufficient to compensate such Bank
for the necessity of such increase to the extent that such Bank reasonably
determines that such necessity is allocable to the existence of its Commitments
or its portion of the Loan.
(b) Indemnity. Without prejudice to any other provision of this Section
---------
4.6, Borrower hereby agrees to indemnify each Bank against any loss or expense
which such Bank may actually sustain or incur as reasonably determined by such
Bank as a result (before or after an Event of Default) of (i) any payment or
prepayment of principal of, or any conversion of, the Loan, on any date other
than the last day of the Interest Period applicable thereto, (ii) any failure by
Borrower to convert or continue the Loan after irrevocable notice of such
conversion or continuation has been given pursuant to Section 4.1, or (iii) any
default in payment or prepayment of the principal amount of the Loan or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, whether by scheduled maturity, acceleration, notice of prepayment
pursuant to Section 4.2 or otherwise); provided, however, that each Bank will
-------- -------
use its reasonable efforts to mitigate to the greatest extent possible such
losses and expenses by investing any funds so paid, prepaid or redeposited, or
not so converted, continued or withdrawn by Borrower, in a manner so as to
reduce the amount of any such loss or expense and, provided, further, that any
-------- -------
funding loss of any Bank for which Borrower is required to indemnify such Bank
hereunder shall
-17-
<PAGE>
be deemed to equal, in the case of a Eurodollar Loan, the difference between (x)
such Bank's cost of obtaining the funds for the Loan being paid, prepaid or not
converted or continued, or the proceeds so redeposited (assumed to be the
Adjusted LIBOR Rate applicable thereto), for the period from the date of such
payment, prepayment, redeposit or failure to convert or continue, as the case
may be, until the end of the applicable Interest Period (or, in the case of a
failure to borrow, convert or continue, the Interest Period for the Loan that
would have commenced on the date of such failure) minus (y) the amount of
-----
interest (as reasonably determined by such Bank) that would be realized by such
Bank in reemploying the funds so paid, prepaid, redeposited or not converted or
continued, in the Interbank Market for a period comparable to the period from
the date of such payment, prepayment, redeposit or failure to convert, continue
or withdraw, as the case may be, until the end of the applicable Interest Period
(or, in the case of a failure to borrow, convert or continue, the Interest
Period for such Loan that would have commenced on the date of such failure),
which amount of interest shall be calculated by interpolation from the relevant
LIBOR Rates then prevailing in the Interbank Market. If Borrower shall give
notice of prepayment pursuant to Section 4.2 but shall fail to prepay the Loan
in accordance with such notice as provided in Section 4.2, or if Borrower shall
give notice of a rate election pursuant to Section 4.1 but shall fail to
withdraw, convert or continue in accordance with such notice as provided in
Section 4.1, Borrower shall indemnify each Bank for the actual losses incurred
by such Bank as a result of such failure to prepay, withdraw, convert or
continue, as determined by such Bank. Each Bank claiming compensation pursuant
to this paragraph (b) shall make a written demand to Borrower therefor (such
demand to be accompanied by a certificate setting forth the basis for the
calculation thereof), and Borrower shall pay such amount to such Bank within ten
(10) Business Days after such demand.
(c) Conclusive Determination. Provided that notice shall have been given
------------------------
to Borrower of the reasons and basis therefor (including evidence in reasonable
detail documenting the applicability of this Section and the respective Bank's
calculations in connection therewith), determinations by any Bank for purposes
of this Section 4.6 shall be conclusive and binding absent manifest error.
4.7 Pro Rata Treatment and Payments . (a) Each payment (including each
-------------------------------
prepayment) by Borrower on account of principal of and interest on the Loans
(other than as set forth in Sections 4.6(a)(ii), 4.6(a)(iii) and 4.6(b)) shall,
except as may otherwise be provided pursuant to any Assignment and Acceptance
Agreement, be made pro rata according to the respective Commitment Percentages
--- ----
by each Bank. All payments (including prepayments) to be made by Borrower on
account of principal and interest on the Loan shall be made without set-off or
counterclaim and shall be made to the Agent, for the account of the Banks at the
Agent's New York Office, in Dollars and in immediately available funds. The
Agent shall distribute such payments to the Banks promptly upon receipt in like
funds as received.
(b) If any payment hereunder (other than payments of a Eurodollar Loan)
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day and, with respect to payments of
principal, interest thereon shall be
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<PAGE>
payable at the then applicable rate during such extension. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day (and
interest shall accrue and be payable at the then applicable rate during such
extension), unless the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day.
4.8 Legal Details. All documents executed or submitted pursuant hereto
-------------
by Borrower shall be reasonably satisfactory in form and substance to the Agent
and Special Counsel. All legal matters incident to the transactions
contemplated by this Agreement (including without limitation matters arising
from time to time as a result of changes occurring with respect to any Laws)
shall be reasonably satisfactory to the Banks.
4.9 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement and the Note shall be made to
the Agent (for the account of the Agent or the Banks, as the case may be) not
later than 12:00 noon, New York City time, on the date when due and shall be
made in Dollars and in immediately available funds, or by New York Clearing
House Interbank Payment System transfer, at the New York Office. The Agent
shall promptly remit in Dollars and in immediately available funds to each Bank
its pro rata share of such payments received by the Agent. Any payment under
--- ----
this Agreement and the Note made later than 12:00 noon, New York City time,
shall be deemed to have been made on the next succeeding Business Day.
Whenever any payment to be made hereunder or under the Note shall be stated
to be due on a day which is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest shall accrue on such principal at the applicable rate during
such extension and be payable on the extended due date.
4.10 Taxes. (a) Any and all payments by Borrower to the Agent or the
-----
Banks hereunder or under the other Loan Documents shall be made free and clear
of and without deduction for any and all present or future Taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding (i) in the case of each Bank and the Agent, Taxes that would
---------
not be imposed but for a connection between such Bank or the Agent (as the case
may be) and the jurisdiction imposing such Tax, other than a connection arising
solely by virtue of the activities of such Bank or the Agent (as the case may
be) pursuant to or in respect of this Agreement or under any other Loan
Document, including, without limitation, entering into, lending money or
extending credit pursuant to, receiving payments under, or enforcing, this
Agreement or any other Loan Document, and (ii) in the case of each Bank and the
Agent, any United States withholding Taxes payable with respect to payments
hereunder or under the other Loan Documents under Laws (including, without
limitation, any statute, treaty, ruling, determination or regulation) in effect
on the Initial Date (as hereinafter defined) for such Bank or the Agent, as the
case may be, but not excluding any United States withholding Taxes payable
solely as a result of any change in such Laws occurring after the
-19-
<PAGE>
Initial Date (all such non-excluded Taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Indemnifiable
-------------
Taxes"). For purposes of this Section 4.10, the term "Initial Date" shall mean
- ----- ------- ----
(i) in the case of the Agent or any Bank, the date on which such Person became a
party to this Agreement and (ii) in the case of any assignment, including any
assignment by a Bank or to a new Eurodollar Lending Office, the date of such
assignment. If any Indemnifiable Taxes shall be required by law to be deducted
from or in respect of any sum payable hereunder or under any other Loan Document
to any Bank or the Agent (i) the sum payable by Borrower shall be increased as
may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 4.10) such
Bank or the Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) Borrower shall make
such deductions and (iii) Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
Law. Borrower shall not, however, be required to pay any amounts pursuant to
clause (i) of the preceding sentence to any Bank or the Agent not organized
under the laws of the United States of America or a state thereof if such Bank
or the Agent fails to comply with the requirements of paragraphs (f) and (g) of
this Section 4.10.
(b) In addition, Borrower agrees to pay any present or future stamp or
documentary Taxes or any other excise or property Taxes, deed of trust recording
or intangible Taxes, charges or similar levies which arise from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Document (hereinafter referred to as "Other Taxes").
-----------
(c) Borrower will indemnify each Bank and the Agent for the full amount of
Indemnifiable Taxes and Other Taxes (including any Indemnifiable Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this Section 4.10)
paid by such Bank or the Agent, as the case may be, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto
whether or not such Indemnifiable Taxes or Other Taxes were correctly or legally
asserted. Such indemnification shall be made within ten (10) Business Days
after the date any Bank or the Agent, as the case may be, makes written demand
therefor. If a Bank or the Agent shall become aware that it is entitled to
receive a refund or is reasonably requested by Borrower to pursue a claim for a
refund in respect of Indemnifiable Taxes or Other Taxes, it shall promptly
notify Borrower of the availability of such refund (unless instructed to pursue
a claim by Borrower) and shall, within thirty (30) days after receipt of a
request by Borrower, pursue or timely claim such refund at Borrower's expense.
If any Bank or the Agent receives a refund in respect of any Indemnifiable Taxes
or Other Taxes for which such Bank or the Agent has received payment from
Borrower hereunder, it shall promptly notify Borrower of such refund and shall,
within 30 days after receipt of a request by Borrower (or promptly upon receipt,
if Borrower has requested application for such refund pursuant hereto), repay
such refund (plus any interest received) to Borrower, provided that Borrower,
upon the request of such Bank or the Agent, agrees to return such refund (plus
any penalties, interest or other charges required
-20-
<PAGE>
to be paid) to such Bank or the Agent in the event the Bank or the Agent is
required to repay such refund.
(d) Within thirty (30) days after the date of any payment of Indemnifiable
Taxes or Other Taxes withheld by Borrower in respect of any payment to any Bank
or the Agent, Borrower will furnish to the Agent the original or a certified
copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 4.10 shall
survive the payment in full of the Obligations.
(f) Each Bank that is not organized under the laws of the United States of
America or a state thereof agrees that not later than ten (10) Business Days
prior to the first Interest Payment Date following the Initial Date in respect
of such Bank, it will deliver to Borrower and the Agent two duly completed
copies of either (i) United States Internal Revenue Service Form 1001 or 4224 or
successor applicable form, as the case may be, certifying in each case that such
Bank is entitled to receive payments under this Agreement and the Note payable
to it without deduction or withholding of any United States federal income Taxes
and backup withholding Taxes or is entitled to receive such payments at a
reduced rate pursuant to a treaty provision or (ii) in the case of a Bank that
is not a "bank" within the meaning of Section 881 (c)(3) of the Internal Revenue
Code of 1986, as amended (the "Code"), United States Internal Revenue Service
----
Form W-8 or successor applicable form and a statement from such Bank certifying
to the fact that interest payable to it hereunder (A) will not be described in
Section 871(h)(3)(A) or Section 881(c)(3)(A), (B) or (C) of the Code and (B)
will not be effectively connected with a trade or business carried on in the
United States by such Bank. Each Bank required to deliver to Borrower and the
Agent a Form 1001, 4224 or W-8 pursuant to the preceding sentence further
undertakes to deliver to Borrower and the Agent (if appropriate) two further
copies of Form 1001, 4224 or W-8, or successor forms, or other similar manner of
certification and such extensions or renewals thereof as may reasonably be
requested by Borrower and, in the case where a Form W-8 has been delivered, a
further statement certifying to the fact set forth in clause (B) of the
preceding sentence (i) at the times reasonably requested by Borrower, (ii) after
the occurrence of an event requiring a change in the most recent form or
statement previously delivered by it to Borrower or (iii) in the case of Form
1001, 4224 or W-8, on or before the date that any such form expires or becomes
obsolete, and, in the case of Form 1001 or 4224, certifying that such Bank is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income Taxes and backup withholding
Taxes or is entitled to receive such payments at a reduced rate pursuant to a
treaty provision, unless such Bank advises Borrower that it is unable lawfully
to provide such forms and other certifications and notifies Borrower to such
effect. Unless Borrower and the Agent have received forms, certificates and
other documents satisfactory to them indicating that payments hereunder or under
or in respect of the Note to or for a Bank not incorporated under the laws of
the United States or a state thereof are not subject to United States
withholding Tax or are subject to such Tax at a
-21-
<PAGE>
rate reduced by an applicable Tax treaty, Borrower or the Agent shall withhold
such Taxes from such payments at the applicable statutory rate.
(g) Any Bank claiming any additional amounts payable pursuant to this
Section 4.10 shall use reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document requested by Borrower to
change the jurisdiction of its applicable Eurodollar Lending Office or Domestic
Lending Office if the making of such a filing or change would avoid the need for
or reduce the amount of any such additional amounts which may thereafter accrue
and would not, in the sole determination of such Bank, be otherwise
disadvantageous to such Bank.
4.11 Booking Loans. Each Bank may, upon prior written notice to Borrower,
-------------
make, carry or transfer the Loan or any portion thereof at, to or for the
account of any Eurodollar Lending Office of such Bank, so long as (a) such
making, carrying or transfer does not have a material adverse effect on Borrower
or its indemnification obligations hereunder or (b) any Increased Cost resulting
from the change of the Eurodollar Lending Office is borne by the applicable
Bank.
4.12 Sharing of Setoffs. Each Bank agrees that if it shall, through the
------------------
exercise of a right of banker's lien, setoff or counterclaim against Borrower,
or pursuant to a secured claim under Section 506 of Title 11 of the United
States Code or other security or interest arising from, or in lieu of, such
secured claim, received by such Bank under any applicable bankruptcy, insolvency
or other similar law or otherwise, obtain payment (voluntary or involuntary) in
respect of the Loan as a result of which its unpaid pro rata share of the
--- ----
outstanding principal balance of the Loan shall be less than its Commitment
Percentage, such Bank shall be deemed simultaneously to have purchased from the
other Banks at face value, and shall promptly pay to the other Banks the
purchase price for, a participation in the Loan of such other Bank, so that the
aggregate unpaid principal amount of the Loan and participations in the Loan
held by each Bank shall be in the same proportion as prior to such exercise of
banker's lien, setoff or counterclaim or other event; provided, however, that if
-------- -------
any such purchase or purchases or adjustments shall be made pursuant to this
Section 4.12 and the payment giving rise thereto shall thereafter be recovered,
such purchase or purchases or adjustments shall be rescinded to the extent of
such recovery and the purchase price or prices or adjustment restored without
interest (unless the Bank from which such payment is recovered is required to
pay interest thereon, in which case each Bank returning funds to such Bank shall
pay its pro rata share of such interest). Borrower expressly consents to the
foregoing arrangements and agrees that any Bank holding a participation in a
Loan deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by Borrower to such Bank by reason thereof as fully as if such Bank had made a
Loan directly to Borrower in the amount of such participation.
4.13 Interest Rate Protection. At Borrower's request, and at Borrower's
------------------------
sole expense, the Agent, or such other financial institution as is designated by
Borrower and is satisfactory to
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<PAGE>
the Agent, will enter into one or more interest rate protection agreements with
Borrower having the effect of fixing Borrower's cost of borrowing all or a
portion of the Loans hereunder, which agreements shall be in such form and have
such terms as may be usual and customary for the Agent and consistent with the
Agent's then-existing requirements. Borrower will be responsible for and shall
indemnify the Agent against all breakage costs, if any, which result from
Borrower's early termination of any such interest rate protection agreements.
All liabilities of Borrower to the Agent under and in respect of any such
interest rate protection agreements with the Agent, including all obligations of
Borrower under Section 4.6, shall be fully secured by the Deed of Trust in all
respects acceptable to the Agent in its sole discretion.
ARTICLE 5
CONDITIONS PRECEDENT
5.1 Closing Conditions. The obligation of the Banks to make the Loan is
------------------
subject to satisfaction (or waiver by the Agent) on the Closing Date of the
following conditions:
(a) Officer's Certificate. The Agent shall have received a certificate,
---------------------
executed by an Authorized Officer of Borrower, dated as of the Closing Date,
certifying (i) that at the time of and immediately after giving effect to the
borrowing to be made hereunder on the Closing Date, no Default or Event of
Default has occurred and is continuing, (ii) that all the representations and
warranties contained in Article 8 hereof are true and correct in all material
respects on and as of such date, and (iii) that Borrower has complied with all
covenants and conditions required to be complied with by it hereunder by such
date.
(b) Partnership Proceedings. The Agent shall have received a copy of (i)
-----------------------
the resolutions of the Board of Directors of the General Partner confirming that
the General Partner is authorized under the Partnership Agreement to take all
actions on behalf of Borrower contemplated by this Agreement and authorizing (A)
the execution, delivery and performance by Borrower of each of the Loan
Documents and the making of the borrowings provided for herein and (B) the
granting by Borrower of the Lien provided for in the Deed of Trust, certified by
the Secretary or an Assistant Secretary of the General Partner as of the Closing
Date, which certificate shall state that the resolutions thereby certified have
not been amended, modified, revoked or rescinded as of the Closing Date and (ii)
any other document evidencing partnership action required by the Partnership
Agreement to authorize or approve the aforementioned transactions.
(c) Incumbency Certificate. The Agent shall have received a certificate
----------------------
signed by the Secretary or an Assistant Secretary of the General Partner, dated
as of the Closing Date, which shall certify the names of the officers of the
General Partner authorized to sign each Loan Document on behalf of Borrower and
each other document, certificate or instrument to be delivered by Borrower
pursuant to the Loan Documents, together with the true signatures of each
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<PAGE>
such officer. The Agent may conclusively rely on such certificate until it shall
receive a further certificate cancelling or amending the prior certificate and
submitting the signatures of the officers named in such further certificate.
(d) Note. The Agent shall have received a duly executed Note for each
----
Bank substantially in the form of Exhibit A, and with all blanks appropriately
---------
completed.
(e) Opinion of Counsel. The Agent shall have received opinions of counsel
------------------
to Borrower in substantially the form of Exhibit B and as to such other matters,
---------
and otherwise in form and substance, reasonably satisfactory to the Agent and
Special Counsel.
(f) Fees. The Agent shall have received the fees referred to in Section
----
4.5 and the fees and expenses of Special Counsel through the date hereof shall
have been paid as provided in Section 12.4.
(g) Partnership Agreement. The Agent shall have received a copy of the
---------------------
Partnership Agreement and of the Certificate of Limited Partnership of Borrower,
in each case certified by the Secretary or an Assistant Secretary of the General
Partner as being true and complete.
(h) Certificate of Incorporation and By-Laws. The Agent shall have
----------------------------------------
received a copy of the Certificate of Incorporation and By-Laws of the General
Partner, in each case certified by the Secretary or an Assistant Secretary of
the General Partner as being true and complete.
(i) Good Standing Certificates. The Agent shall have received, in form
--------------------------
and substance satisfactory to it, (a) a certificate from the Secretary of State
of Delaware certifying that Borrower is a limited partnership duly formed and in
good standing in said state and (b) a certificate from the Secretary of State of
Maryland certifying that the General Partner is a corporation duly organized and
in good standing in said state.
(j) Consents, Licenses and Approvals, etc. The Agent shall have received
-------------------------------------
copies of all consents, licenses and approvals, if any, required in connection
with the execution, delivery and performance by Borrower, and the validity and
enforceability against Borrower, of this Agreement and the other Loan Documents,
and such consents, licenses and approvals shall be in full force and effect.
(k) Leases. The Agent shall have received copies of each existing lease
------
pertaining to the Property, certified to be true, correct and complete by an
Authorized Officer, which Leases shall be consistent with the underwriting
assumptions of the Agent.
(l) Deed of Trust. The Agent shall have received from Borrower a fully
-------------
executed Deed of Trust, together with the following documents in respect of the
property and interests to be encumbered by the Deed of Trust, each of which
shall be satisfactory in form and substance to the Agent:
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<PAGE>
(i) Uniform Commercial Code financing statements covering all
furnishings, fixtures, equipment and other personal or other property of
Borrower located or to be located on the Property and used in the operation
or management thereof, and any other portion of the Property (as defined in
the Deed of Trust) the Lien on which may be perfected by the filing of a
Uniform Commercial Code financing statement, which financing statements
shall be filed promptly hereafter with the appropriate Tribunals;
(ii) an ALTA Lender's title insurance policy, or a final,
marked fully-paid commitment of title insurance (which must have the same
force and effect as a title insurance policy), containing such coverages
and endorsements as the Agent deems necessary (including without limitation
full coverage over mechanic's liens and mortgage or intangible taxes), with
all general survey exceptions deleted (and subject to no other exceptions
other than those reasonably approved in writing by Agent), on forms of, and
issued by, First American Title Insurance Company (the "Title Company"),
-------------
insuring the first lien priority of the Deed of Trust and in all other
respects reasonably acceptable to Agent;
(iii) a certified rent roll with respect to the Property;
(iv) [Reserved];
(v) an ALTA/ACSM as-built survey of the Land (as defined in
the Deed of Trust), certified to the Title Company and the Agent;
(vi) an assignment of contracts pertaining to the Property;
(vii) proof that Borrower has delivered to Title Company all
sums necessary to pay all mortgage and/or intangible taxes, title and
recording fees and other charges relative to the Deed of Trust, it being
understood that all such taxes and charges, whenever incurred, due or
payable are Borrower's responsibility hereunder;
(viii) an environmental indemnity agreement pertaining to the
Property, executed by Borrower and the General Partner; and
(ix) such other instruments, documents and certificates as the
Agent shall require.
(m) Appraisal. The Agent shall have received a Full-Fledged Appraisal of
---------
the Property, satisfactory in form and substance to the Agent, showing the Value
of the Property to be not less than $138,462,000.00.
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<PAGE>
(n) Engineer's Report. The Agent shall have received a copy of a report
-----------------
of a qualified engineering or other firm satisfactory to the Agent concerning
such firm's engineering survey of the Property, and such report shall be
satisfactory to the Agent in all respects.
(o) Phase I Environmental Audit/Engineering Survey. The Agent shall have
----------------------------------------------
received a copy of a Phase I environmental audit relating to the Property, and
such report shall be satisfactory to the Agent in all respects.
(p) Insurance. Insurance complying with this Agreement and the Deed of
---------
Trust shall be in full force and effect and the Agent shall have received
certified copies of all policies evidencing such insurance (or certificates
therefor signed by the insurer or an agent authorized to bind the insurer).
(q) Subordination, Non-Disturbance and Attornment Agreements; Tenant
----------------------------------------------------------------
Estoppels. The Agent and each existing tenant of the Property whose lease is
- ---------
not subordinate to the Deed of Trust, or which subordination is contingent upon
the granting of non-disturbance to the tenant, or whose lease does not contain a
provision requiring tenant to attorn to the beneficiary of the Deed of Trust in
the event of foreclosure thereof, shall have executed a subordination,
nondisturbance and attornment agreement; and the Agent shall have received an
appropriate estoppel letter from each tenant of the Property. All of such
subordination, non-disturbance and attornment agreements and estoppel letters
shall be reasonably satisfactory in form and substance to the Agent.
(r) Ground Lease. The Agent shall have received a true and correct copy
------------
of the Ground Lease, together with an estoppel certificate executed and
delivered by the lessor under the Ground Lease, which Ground Lease and estoppel
certificate shall be satisfactory to the Agent.
(s) Operating Statements. The Agent shall have received annual operating
--------------------
statements for each Individual Property for calendar years 1996, 1997 and 1998,
to the extent such Individual Property was owned by Borrower during such years,
and quarterly operating statements for calendar year 1999, which shall be in
form satisfactory to the Agent and in substance consistent with the underwriting
assumptions of the Agent.
(t) Further Documents. The Agent shall have received (or shall have
waived the requirement of delivery), in form and substance reasonably
satisfactory to it, (i) each item listed on the Closing Checklist and (ii) such
other documents, information and certificates as the Agent shall reasonably
require.
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<PAGE>
ARTICLE 6
AFFIRMATIVE COVENANTS
From the date hereof until payment in full of the Obligations and
termination of this Agreement, Borrower shall:
6.1 General.
-------
(a) Compliance with Laws.
--------------------
(i) Comply in all respects with all applicable Laws.
(ii) Take whatever steps are reasonably necessary to procure and
maintain valid and accurate certificates of occupancy for the Property, and keep
and maintain the Property in good condition and repair (subject to ordinary wear
and tear) in record compliance with all applicable rules and regulations, except
to the extent non-compliance would not have a Material Adverse Effect on an
Individual Property or the Borrower, and further provided that non-compliance
would not result in the placing of a Lien on an Individual Property (other than
Permitted Encumbrances).
(b) Maintenance of Existence; Licenses and Franchises. Except as permitted
-------------------------------------------------
by Section 7.1 hereof, maintain its existence as a Delaware limited partnership,
preserve and maintain all material licenses, privileges, franchises,
certificates, authorizations and other permits and agreements necessary for the
operation of its business. Borrower's Partnership Agreement may not be
materially amended in a manner adverse to the interests of the Agent or the
Banks without the Agent's prior consent, which consent shall not be unreasonably
withheld or delayed.
(c) Maintaining Records; Inspection. Keep proper books of record and
-------------------------------
account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities relating to the Property
which permit financial statements to be prepared in conformity with GAAP and all
applicable Laws; and permit any employees and other representatives of the
Agent, upon reasonable notice and during regular business hours, to visit and
inspect the Property, to reasonably examine books of account, records, reports
and other papers applicable to the Property, and to discuss their affairs,
finances and accounts with their officers, employees and Auditors (and by this
provision such Auditors are authorized to discuss with the Agent the finances
and affairs of Borrower), at such times and as often as may be reasonably
requested; provided, however, that all such visits, inspections and examinations
-------- -------
shall be scheduled so as to cause minimal disruption to the business and
operations of Borrower and the Property, and provided, further, that the Agent
-------- -------
and the Banks shall cause their respective employees and representatives to hold
in strict confidence all information acquired pursuant to the Agent's rights
under this Section, except (i) as provided in Section 12.16 hereof, or (ii) for
necessary disclosure required in litigation proceedings relating to the Loan
Documents, or (iii) disclosure compelled by judicial or administrative process
or by other requirements of Law.
-27-
<PAGE>
6.2 Financial Covenants.
-------------------
(a) Interest Coverage Ratio. Maintain an Interest Coverage Ratio of not
-----------------------
less than 1.50 to 1.00 at all times.
(b) Debt Service Coverage Ratio. Maintain a Debt Service Coverage Ratio
---------------------------
of not less than 1.25 to 1.00 at all times.
(c) Debt Yield Requirement. Maintain a Debt Yield Calculation of not less
----------------------
than 0.13 at all times.
(d) Revolving Credit Covenants. Comply with each and every of the
--------------------------
covenants set forth in Section 5.8 of the Revolving Credit Agreement, as in
effect on the date hereof.
Compliance with each of the financial covenants set forth in Section
6.2(a), Section 6.2(b) and Section 6.2(c) shall be calculated on a rolling semi-
annual basis.
6.3 Reporting Requirements. Maintain a standard system of accounting in
----------------------
accordance with GAAP and shall furnish to the Agent:
(a) Quarterly Operating Statements. Quarterly operating statements of
------------------------------
each Individual Property, together with a property balance sheet for such
quarter, prepared and certified by Borrower in form satisfactory to Agent,
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 quarter and containing appropriate year to date
information, and containing a comparison for such quarter with the annual budget
delivered pursuant to Section 6.3(e) hereof, within forty-five (45) days after
the end of each fiscal quarter;
(b) Quarterly Rent Rolls. Quarterly certified rent rolls certified by
---------------------
Borrower, detailing the names of all tenants of the Property, the portion of
each Individual Property 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, an accounting of all security deposits held in connection with
any Lease of any part of the Property, including the name and identification
number of the accounts in which such security deposits are held and any other
information as is reasonably required by Lender, within forty-five (45) days
after the end of each fiscal quarter;
(c) Audited Annual Financial Statements. Audited annual financial
------------------------------------
statements for Borrower and General Partner, prepared by the Auditors, within
ninety (90) days after the close of each calendar year;
(d) Quarterly Financial Statements. Quarterly consolidated financial
-------------------------------
statements of Borrower and General Partner, containing a balance sheet, income
statement funds statement, and such other information as is reasonably required
by Agent, which statements shall either be audited by the Auditors or certified
to be true and correct by an Authorized Officer.
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<PAGE>
(e) Budgets. An annual operating budget presented on a quarterly basis
-------
consistent with the quarterly 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; and
(f) Tax Returns. Copies of Borrower's federal income tax returns within
-----------
fifteen (15) Business Days of the date such returns are filed.
(g) Miscellaneous. Such other additional financial or management
--------------
information concerning Borrower, General Partner or the Property as may, from
time to time, be reasonably required by Agent in form and substance satisfactory
to Agent.
(h) Officer's Certificate. Each set of financial statements delivered to
---------------------
the Agent pursuant to Section 6.3(a) shall be accompanied by a certificate of an
Authorized Officer of Borrower (i) certifying that Borrower is in compliance
with the Financial Covenants set forth in Section 6.2, and (ii) setting forth
calculations, in form and detail reasonably satisfactory to the Agent,
demonstrating compliance with such Financial Covenants, and (iii) stating that
no Default or Event of Default has occurred and is continuing.
(i) Notice of Default. Within three (3) Business Days after becoming
-----------------
aware of the happening of any condition or event that constitutes a Default or
Event of Default, a written notice to the Agent specifying the details of such
Default or Event of Default and the action proposed to be taken with respect
thereto.
(j) Notice of Litigation. Within thirty (30) days after becoming aware of
--------------------
the existence of any Litigation involving Borrower or the Property that could
have a Material Adverse Effect, a written notice specifying the nature and
status thereof and the action being taken and proposed to be taken with respect
thereto.
(k) Notice of Environmental Complaints. Promptly and, in any case, within
----------------------------------
ten (10) Business Days after becoming aware thereof, a written notice describing
any Environmental Complaint affecting or relating to Borrower or the Property or
the ownership, use, operation or occupancy thereof or any business or activity
of Borrower or any other Person on or in connection with the Property and any
notice from any Person of (i) any violation or alleged violation of any
environmental Law relating to any of the foregoing, (ii) the occurrence of any
release, spill or discharge of any Pollutant from, under, into or on the
Property in a quantity or of a nature that is reportable under any environmental
law or (iii) the commencement of any clean-up pursuant to or in accordance with
any environmental Law of any Pollutants on or about the Property.
(l) Requested Information. With reasonable promptness, such other data
---------------------
and information as from time to time may be reasonably requested by the Agent.
The Agent agrees,
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<PAGE>
for itself and its attorneys, that it will maintain as confidential all
information relating to Borrower furnished to it by Borrower, and will not
disclose such information to any Persons other than the Banks and any
participant or prospective participant in the Loans (and, solely in connection
with the modification and/or enforcement of any Loan Document, their respective
attorneys) unless and until such information is or becomes publicly known other
than as a result of disclosure by the Agent, except as such information may be
required to be disclosed by the Agent under any Law or by any Tribunal. The
Banks and any prospective or actual Loan participants (as to Loan information
only) and Borrower shall also be bound by this confidentiality provision
6.4 Property Covenants.
------------------
(a) Insurance. Maintain property damage, third-party liability and other
---------
insurance policies with respect to the Property and Borrower`s business in such
amounts and against such casualties and contingencies as is required pursuant to
the Deed of Trust. Each policy shall be in form, for a term, and issued by an
insurer, satisfactory to the Agent, and provide that no cancellation thereof
shall be effective against the Agent until at least 30 days after the Agent
receives written notice thereof. Borrower shall notify the Agent of all
material changes of all policies of insurance promptly after Borrower receives
notice of same. At least 15 days prior to the expiration of any policy,
Borrower shall furnish the Agent with evidence reasonably satisfactory to the
Agent of the renewal or reissuance of a policy continuing insurance in force as
required by this Agreement and the other Loan Documents. All policies of
property damage insurance shall have attached thereto a standard mortgagee
clause in favor of the Agent and the Banks, not subject to contribution or co-
insurance, and a lender's loss payable endorsement for the benefit of the Agent.
All policies of liability insurance shall name the Agent as an additional
insured and shall have a combined single limit of not less than Twenty-Five
Million and 00/100 Dollars ($25,000,000) per occurrence.
(b) Notices by Tribunal; Fire and Casualty Losses; Etc. Timely comply
---------------------------------------------------
with, and promptly furnish to the Agent, true, correct and complete copies of,
any official notice or claim by any Tribunal pertaining to the Property which
could have a Material Adverse Effect. Borrower shall promptly notify the Agent
of any fire or other casualty to the Property involving (i) a loss in an amount
in excess of five percent (5%) of the Value of any Individual Property, or (ii)
notice of any taking or eminent domain action or proceeding affecting the
Property.
(c) Tenant Notices. Promptly furnish to the Agent true, correct and
--------------
complete copies of any notice or claim from any tenant of the Property or any
creditor of Borrower alleging any material violation of or default by Borrower
under any Lease or other material contractual obligation of Borrower relating to
the Property.
(d) Maintenance of Property. Maintain or cause to be maintained the
-----------------------
Property in good repair and safe condition at all times, subject to ordinary
wear and tear.
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<PAGE>
(e) Inspection. Permit the Agent and its representatives, and/or an
----------
architect or engineer representing the Agent, upon reasonable prior notice
during regular business hours (unless an emergency is reasonably deemed to
exist, in which event (i) inspection shall not require notice other than as is
commercially practicable under the circumstances, and (ii) Borrower shall use
its best efforts to afford access to Lender during other hours, if requested by
Lender) to enter upon the Property and inspect the improvements thereon and
permit examination of all plans and specifications therefor, provided that all
---------
such inspections and examinations shall be scheduled so as to cause minimal
disruption to the business and operations of Borrower and the Property.
ARTICLE 7
NEGATIVE COVENANTS
From the date hereof until payment in full of the Obligations and
termination of this Agreement:
7.1 Mergers, Sales of Assets, Etc. (a) Borrower shall not merge with or
-----------------------------
into, or consolidate with or into, or sell, convey, transfer, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
any portion of any Individual Property (together with the Improvements thereon)
to, any Person, except:
(i) one or more space leases, licenses or other occupancy agreements
in the ordinary course of its business (but subject to the provisions of the
Deed of Trust); or
(ii) a transfer or sale of the Property to a Person (A) that is
wholly owned by Borrower and (B) that assumes all of the obligations of Borrower
under the Loan Documents (subject to the provisions of Article 10).
(b) If Borrower desires to sell an Individual Property (each a "Release
-------
Parcel"), Borrower shall deliver to the Agent all information in connection with
- ------
the proposed sale as the Agent may require. The Agent and the Banks agree to
consider in good faith any request by Borrower to permit a sale of a Release
Parcel and to accept substitute collateral therefor of equal or greater value
than the Release Parcel. It is explicitly understood, however, that any
agreement to release a Release Parcel and accept either substitute collateral
therefor or a prepayment of the outstanding principal balance of the Loan shall
be in the sole discretion, and require the unanimous approval, of the Banks.
7.2 Limitation on Liens. Borrower shall not create, assume or permit to
-------------------
exist any Lien upon the Property other than Permitted Encumbrances.
7.3 No Change in Fiscal Year. Borrower shall not change its fiscal
------------------------
year.
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<PAGE>
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Agreement and to make the
Loan provided hereunder, Borrower makes the following representations and
warranties, which shall survive the execution and delivery of this Agreement and
the Note and the making of the Loan:
8.1 Organization and Qualification. Borrower is duly organized, validly
------------------------------
existing and in good standing as a limited partnership under the Laws of the
State of Delaware, and is duly qualified or licensed and in good standing in
California and in each other state in which the nature of its business or
location of its property is such as to require qualification or licensing,
except where the failure to obtain such qualification or licensing in such other
state would not have a Material Adverse Effect on the Borrower. The General
Partner is duly organized, validly existing and in good standing as a
corporation under the Laws of the State of Maryland and is duly qualified or
licensed and in good standing in California and in each other state in which the
nature of its business or location of its property is such as to require
qualification or licensing, except where the failure to obtain such
qualification or licensing in such other state would not have a Material Adverse
Effect on the Borrower or the General Partner.
8.2 Power and Authority. Borrower has the partnership power, authority
-------------------
and legal right to (a) own and operate the Property and to carry on its business
and (b) execute, deliver and perform its obligations under each of the Loan
Documents and to borrow hereunder.
8.3 Authorization. Borrower has taken all necessary partnership action
-------------
to authorize the execution and delivery of, and the performance of its
obligations under, the Loan Documents and the borrowing provided for hereunder.
General Partner has taken all necessary corporate action to authorize the
execution and delivery of the Loan Documents on behalf of, and as the general
partner of Borrower.
8.4 No Conflicts. Borrower is not party to or otherwise subject to any
------------
contract or agreement which restricts or otherwise affects its right or ability
to execute, deliver and perform its obligations under the Loan Documents or to
borrow hereunder. Neither the execution and delivery of the Loan Documents, nor
compliance therewith, will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien upon the Property under, or
require any consent, approval or other action by, notice to or filing with any
Tribunal pursuant to, the Partnership Agreement, any award of any arbitrator or
any judgment, order or decree of any Tribunal, or any material agreement,
mortgage, deed of trust, lease agreement, promissory note, credit agreement or
other instrument to which Borrower is a party or by which it or the Property may
be bound, subject or affected.
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<PAGE>
8.5 Enforceable Obligations. This Agreement and the other Loan Documents
-----------------------
are, or when executed and delivered will be, the legal, valid and binding
obligation of Borrower, enforceable in accordance with their respective terms
(subject as to enforcement of remedies to any applicable bankruptcy,
reorganization, moratorium or other Laws or principles of equity affecting the
enforcement of creditors' rights generally).
8.6 Governmental Approvals. No order, consent, license, authorization
----------------------
or approval of or exemption or other action by, and no notice to or filing with,
any Tribunal is required for the due execution, delivery and performance by
Borrower of this Agreement and the other Loan Documents.
8.7 Taxes. Borrower has filed all federal, state and other income Tax
-----
returns which are required to be filed, and has paid all Taxes as shown on said
returns, as well as all other material Taxes to the extent that they have become
due (subject to properly filed extensions thereof ). All Tax liabilities of
Borrower are adequately provided for on its books, including interest and
penalties. No income Tax liability of a material nature has been asserted by
taxing authorities for Taxes in excess of those already paid, and no taxing
authority has notified Borrower of any deficiency of a material nature in any of
its federal, state and other income Tax returns.
8.8 Margin Stock, Etc. 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 Margin Securities or Margin Stock. Borrower is not
(a) an "investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended,
(b) a "holding company" or a subsidiary company" of a "holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended, or
(c) subject to any other Law that purports to restrict its ability to borrow
money.
8.9 Possession of Franchises, Licenses, Etc. Borrower possesses all
---------------------------------------
franchises, certificates, licenses, permits and other authorizations from
Tribunals that are necessary for the ownership, maintenance and operation of the
Property, and is not in violation thereof.
8.10 Disclosure. (a) Neither this Agreement nor any other document,
----------
certificate or statement furnished to the Agent or any Bank by or on behalf of
Borrower, its General Partner, its principals, officers and/or employees
(collectively "Borrower Parties") in connection herewith or in connection with
----------------
the transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact known to Borrower which is necessary in
order to make the statements contained herein and therein not misleading.
(b) To the best of Borrower's knowledge, no document, certificate or
statement furnished to the Agent or any Bank by a Person other than Borrower
Parties in connection herewith or in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact known to Borrower which is necessary in order to make the
statements contained herein and therein not misleading.
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<PAGE>
8.11 Employee Matters. Borrower participates in no Plans, collective
----------------
bargaining agreement or similar agreement or any employee benefit plan, except
as disclosed in Schedule 8.11 attached hereto.
8.12 Certain Fees. No broker's, finder's or other fee or commission was
------------
or will be payable with respect to the making of the Commitment or Loan
hereunder.
8.13 Litigation. There is no Litigation against or affecting Borrower,
----------
the Property or Borrower's interest in the Property, at law or in equity, before
or by any Tribunal which would have a Material Adverse Effect on Borrower, the
Property or Borrower's interest in the Property. Borrower is not operating
under or subject to any order, writ, injunction, decree or demand of any
Tribunal the non-compliance with which could have a Material Adverse Effect.
8.14 Real Property.
-------------
(a) Ownership. Borrower is (and covenants that at all times after the
---------
date hereof Borrower will be), the actual, record and beneficial owner and
holder of the fee estate in the Fee Land (as defined in the Deed of Trust) and
the leasehold estate in the Leased Land (as defined in the Deed of Trust)
demised pursuant to the Ground Lease, subject to no Liens except for Permitted
Encumbrances.
(b) Eminent Domain. There exists no actual or, to the best knowledge of
--------------
Borrower, proposed or threatened exercise of the power of eminent domain or
other taking by any governmental or quasi-governmental body or agency of all or
any portion of the Property or any interest therein.
(c) Casualty. No part of the Property has been damaged or destroyed by
--------
fire or other casualty that has not been restored prior to the date hereof.
(d) Pollutants. Except as disclosed to the Agent and each of the Banks in
----------
writing in the environmental reports described in Exhibit C attached hereto, the
Property has never been used by Borrower nor, to the knowledge of Borrower, by
any previous owners and/or operators, to generate, store, treat or dispose of
any Pollutants and, to the best knowledge of Borrower, no lessee and no owner
has used in the past, and none of the aforementioned parties intends to use, or
permit to be used, in the future, the Property, or any portion thereof, for the
purpose of generating, storing, treating or disposing of any Pollutant, except
as required in the normal operations of its business and not in any manner which
would violate any environmental Law. Borrower has not allowed, and to the
actual knowledge of Borrower, no lessee or prior owner has allowed, any
Pollutant to spill, leak, escape, be discharged, dumped, emptied or otherwise
disposed of, incorporated into or dealt with on the Property or allowed to be
discharged or drained into or on any property adjacent to the Property. The
Property is (i) not included or proposed to be included on the National
Priorities List issued pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), by the United States
------
Department of Environmental Protection Agency (the "EPA") or on the inventory of
---
other potential "problem" sites issued by the EPA or (ii) to the best of
Borrower's knowledge,
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<PAGE>
otherwise identified by the EPA as a potential CERCLA site or included or
proposed for inclusion on any list or inventory issued pursuant to any state
environmental statute or issued by any other Tribunal. Borrower has not received
any notice of, nor does Borrower have any actual knowledge of, any occurrence or
circumstance which with notice or passage of time or both would reasonably be
expected to give rise to an Environmental Complaint.
(e) Violations. Borrower has not received any notices of any violations,
----------
nor does Borrower otherwise have actual knowledge of any violations, of (i) any
Law applicable to the Property or (ii) the Partnership Agreement or any other
agreement or instrument to which Borrower is a party or by which the Property is
bound, the effect of which in either case would reasonably be likely to be a
Material Adverse Change.
(f) Default. Except as disclosed in Schedule 8.14 hereto, no declared
-------
defaults by any party have occurred and are continuing under any lease or
sublease of any portion of the Property.
(g) Insurance. Borrower and the Property are fully insured with the
---------
coverages required by Section 6.4(a) and the Deed of Trust.
8.15 Deed of Trust. The Deed of Trust is effective (i) to grant to the
-------------
Agent and the Banks a legal, valid and enforceable Lien on all right, title and
interest of Borrower in the Property and fixtures thereon and (ii) to create in
favor of the Banks and the Agent a legal, valid and enforceable security
interest in the Personal Property (as defined and described therein). When the
Deed of Trust is duly recorded in the Official Records of San Diego County,
California and when the fixture filings are made in such Office and all
recording fees and taxes (if any) in respect thereof are paid and compliance is
otherwise had with the formal requirements of state law applicable to the
recordings of real estate deeds of trust generally, the Deed of Trust will
constitute a fully perfected first Lien on and security interest in such
encumbered real property and fixtures, subject only to the Permitted
Encumbrances. When financing statements have been filed in the offices of the
Secretary of State of California and of the Official Records of San Diego
County, California, the Deed of Trust will constitute a fully perfected first
priority Lien on and security interest in the Personal Property (except for
Permitted Encumbrances).
8.16 Construction Performed. All construction hereafter performed on the
----------------------
Property shall comply with all applicable Laws and shall not result in any
mechanics, materialmen's or other liens being placed against the Property for
more than thirty (30) days after Borrower receives notice thereof, except for
those that are within such thirty (30) day period fully bonded and insured over
by the Title Company in a manner that is in all respects acceptable to the
Agent; all improvements located on the Property will be constructed within the
perimeter of the Property; to the best of Borrower's knowledge, there are no
structural defects in the existing improvements located on the Property; no
violation of any applicable Law exists with respect thereto and the anticipated
use thereof complies with all applicable Laws and restrictive covenants
affecting the Property and all requirements for such use have been satisfied to
the extent possible as of the Closing Date.
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<PAGE>
8.17 Use of Proceeds: Margin Regulations. All proceeds of the Loan shall
-----------------------------------
be used by Borrower solely for the purposes specified in Section 2.4. No part
of the proceeds of the Loan shall be used by Borrower to purchase or carry any
Margin Security or Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Security or Margin Stock. Neither the making
of the Loan nor the use of the proceeds thereof will violate or be inconsistent
with the provisions of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
8.18 Subsidiaries. As of the date hereof, Borrower has no Subsidiaries
------------
other than Kilroy Services, Inc., a Maryland corporation.
8.19 Building Compliance. No zoning, building or environmental claims or
-------------------
actions are pending or, to Borrower's knowledge, threatened against Borrower
(with respect to the Property) or the Property. The Property (including the
improvements located thereon (the "Improvements")) and the use and occupancy
------------
thereof, complies with all applicable Laws, including, without limitation all
zoning, building and environmental laws.
8.20 Annual Budget. The preliminary budget delivered at Closing and the
-------------
annual budget most recently delivered pursuant to Section 6.3(e) is complete and
correct in all material respects and represents Borrower's good faith
expectation of all costs, expenses and fees, and Borrower's then current leasing
projections, related to the Property for the fiscal year covered thereby.
8.21 Ground Lease. As of the date hereof: (i) the Ground Lease has not
------------
been further modified or amended, and is in full force and effect, (ii) Borrower
is the owner and holder of the lessee's interest in and to the Ground Lease,
(iii) neither Borrower nor, to the best of Borrower's knowledge, the lessor
under the Ground Lease, is in default under the Ground Lease, nor does any state
of fact exist which with the passage of time or the giving of notice, or both,
could constitute a default under the Ground Lease, (iv) Borrower is in
possession of the Leased Land and is fully obligated to pay and is paying the
rent and other charges due under the Ground Lease and is fully obligated to
perform and is performing all of the other obligations of the tenant under the
Ground Lease, (v) the termination date of the current term of the Ground Lease
is October 31, 2043, (vi) the base rent being paid under the Ground Lease is
$14,246.00 per month ($170,952.00 per annum), (vii) all rents due and payable
pursuant to the Ground Lease have been paid in full, and no such rents have been
paid more than one month in advance of the due date thereof, and (viii) there
are no offsets or defenses to any portion of the rents payable pursuant to the
Ground Lease.
8.22 Year 2000 Representations and Covenants. Borrower represents and
---------------------------------------
warrants that it has reviewed its operations with a view to assessing whether
its businesses will be vulnerable to a Year 2000 Problem (hereafter defined) or
will be vulnerable to the effects of a Year 2000 Problem suffered by any of
Borrower's major commercial counter-parties. Borrower shall take all actions
reasonably necessary, and commit adequate resources to reasonably assure, that
its computer-based and other systems necessary for Borrower to carry on its
business in all material respects as presently conducted and as contemplated to
be conducted in the future are able (or will be able) to effectively process
data, including dates before, on and after January 1, 2000,
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<PAGE>
without experiencing any Year 2000 Problem that could cause a Material Adverse
Effect. At the request of the Agent, Borrower shall provide the Agent with
assurances and substantiations (including, but not limited to, the results of
internal or external audit reports prepared in the ordinary course of business)
reasonably acceptable to the Agent as to the capability of the Borrower to
conduct its businesses and operations before, on and after January 1, 2000
without experiencing a Year 2000 Problem causing a Material Adverse Effect.
Borrower represents and warrants that it has a reasonable basis to believe that
no Year 2000 Problem will cause a Material Adverse Effect. As used herein, the
term "Year 2000 Problem" means any significant risk that computer hardware,
-----------------
software or equipment containing embedded microchips essential to the business
or operations of Borrower will not, in the case of dates or time periods
occurring after December 31, 1999, function substantially as effectively and
reliably as in the case of dates or time periods occurring before January 1,
2000, including the making of accurate leap year calculations.
ARTICLE 9
EVENTS OF DEFAULT; REMEDIES
9.1 Events of Default. Any one or more of the following events shall be
-----------------
an "Event of Default" hereunder (which shall include by definition the
----------------
expiration of any grace period with respect thereto), whether the same shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
Law or otherwise):
(a) Borrower shall fail to pay principal, interest, fees or other amounts
payable with respect to the Obligations within three (3) Business Days after the
date any such payment is due, or Borrower shall fail to pay the entire principal
balance and all other sums due hereunder or under the Loan Documents on the
Maturity Date; or
(b) Any representation or warranty made by Borrower in this Agreement or
in any certificate or other document furnished by Borrower in connection with or
pursuant to this Agreement shall be incorrect in any material respect on the
date as of which made or deemed made; or
(c) Borrower shall default in the performance or observance of any
agreement, term, covenant or condition contained in any Loan Document, other
than any default described in the other paragraphs of this Section 9.1, which
default shall continue for more than fifteen (15) days after Borrower receives
notice of such default, unless such default is capable of being cured but cannot
be cured within such fifteen (15) day period and Borrower is diligently
proceeding, to the satisfaction of the Agent, to cure such default; or
(d) Borrower shall fail to be in compliance with any of the covenants set
forth in Section 6.2 hereof; or
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<PAGE>
(e) Borrower shall default in the performance or observance of any
agreement, term, covenant or condition beyond any applicable cure period
contained in the Deed of Trust or any other agreement or instrument evidencing a
deed of trust or security interest in favor of the Agent and the Banks in
respect of the Property; or
(f) Borrower shall default (beyond any applicable grace period) in the
payment of any amount of any Indebtedness (other than the Obligations) with an
outstanding principal amount in excess of $2,500,000 in the aggregate, or shall
default (beyond any applicable grace period) in the performance of any agreement
under which such Indebtedness is created or evidenced, if the effect of such
default is to cause, or to permit the holder (or a trustee on behalf of such
holder) of such Indebtedness to cause, such Indebtedness to become due prior to
its stated maturity; or
(g) Any of the following shall occur: (i) Borrower or the General Partner
shall make an assignment for the benefit of creditors or be unable to pay its
debts generally as they become due; (ii) Borrower or the General Partner shall
petition or apply to any Tribunal for the appointment of a trustee, receiver or
liquidator of it, or of any substantial part of its assets, or shall commence
any proceedings relating to Borrower under any bankruptcy, reorganization,
compromise, arrangement, insolvency, conservatorship, moratorium, dissolution,
liquidation or similar debtor relief Laws of any jurisdiction, whether now or
hereafter in effect; (iii) any such petition or application shall be filed, or
any such proceedings shall be commenced, against Borrower or the General Partner
and the same is not dismissed or otherwise discharged within sixty (60) days, or
an order, judgment or decree shall be entered appointing any such trustee,
receiver or liquidator, or approving the petition in any such proceedings; (iv)
any final order, judgment or decree shall be entered in any proceedings against
Borrower or the General Partner decreeing its dissolution; or (v) any final
order, judgment or decree shall be entered in any proceedings against Borrower
decreeing a split-up of Borrower or the General Partner which requires the
divestiture of a substantial part of its assets; or
(h) Final judgment(s) on the merits (not affecting or docketed against the
Property) for the payment of Ten Million and 00/100 Dollars ($10,000,000.00) or
more in the aggregate shall be outstanding against Borrower, and such
judgment(s) shall remain unstayed or unbonded and in effect and unpaid for more
than thirty (30) days, unless a reputable insurance company has acknowledged
coverage of 75% or more of the amount of such judgment in a manner satisfactory
to the Agent; or
(i) Any Loan Document or material provision thereof shall, for any reason,
not be valid and binding on Borrower or in full force and effect, or shall be
declared to be null and void; or the validity or enforceability of any Loan
Document shall be contested by Borrower; or Borrower shall deny that it has any
or further liability or obligation under any Loan Document; or the Deed of Trust
shall not constitute, or shall cease to constitute, a valid, perfected first
priority (except for Permitted Encumbrances) Lien on the Property and the other
Collateral described therein; or
(j) Any easement (other than any Permitted Encumbrance) over, across,
under or otherwise affecting the Property or any portion thereof shall be
granted or released without the
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<PAGE>
Agent's prior written consent, which shall not be unreasonably withheld,
conditioned or delayed; or
(k) Borrower shall fail to maintain insurance in accordance with the terms
of Section 6.4 or the Deed of Trust; or
(l) The Agent shall not be afforded the inspection rights provided in
Section 6.1(c) and Section 6.4(e); or
(m) An Event of Default under and as defined in the Revolving Credit
Agreement, as the same may hereafter be amended, replaced or supplemented from
time to time, shall occur and be continuing.
9.2 Remedies Upon Default. If an Event of Default specified in Section
---------------------
9.1(g) occurs, the aggregate unpaid principal balance of and accrued interest on
the Obligations shall thereupon become due and payable concurrently therewith,
without any action by the Agent or any Bank and without diligence, presentment,
demand, protest, notice of protest or intent to accelerate, or notice of any
other kind, all of which are hereby expressly waived. Except as set forth in
the preceding sentence, should any Event of Default occur and be continuing, the
Agent may, at its option, do any one or more of the following:
(a) Acceleration. Declare (by written notice to Borrower) the entire
------------
unpaid balance of the Obligations, or any part thereof, immediately due and
payable, whereupon such Obligations shall be due and payable, without diligence,
presentment, demand, protest, notice of protest or other notice of any kind, all
of which are hereby expressly waived.
(b) Termination. Terminate the Commitments by written notice to Borrower.
-----------
(c) Judgment. Reduce any claim to judgment.
--------
(d) Rights. Exercise any and all Rights afforded by the Laws or
------
principles of equity of the State of California or any other jurisdiction, or by
any Loan Documents, or otherwise.
9.3 Remedies in General. If any Event of Default shall occur and be
-------------------
continuing, the Agent may immediately proceed to protect and enforce all or any
Rights with respect thereto contained in this Agreement or any other Loan
Documents, or may enforce any other legal or equitable Rights. All Rights
conferred upon the Agent shall be cumulative and not exclusive of any other
Rights available. No delay or omission to exercise any Right shall impair any
such Right or shall be construed to be a waiver of any Event of Default or an
acquiescence therein. Any Right may be exercised from time to time,
independently or concurrently, and as often as shall be deemed expedient. No
waiver of any Event of Default shall extend to any subsequent Event of Default.
No single or partial exercise of any Right shall preclude other or further
exercise of any Right. Borrower agrees that if an Event of Default shall happen
and be continuing, it will pay reasonable attorneys' fees and court costs
incurred in collecting the amounts due and in exercising Rights hereunder.
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<PAGE>
ARTICLE 10
LIMITED RECOURSE OBLIGATIONS
10.1 Limited Recourse. (a) Notwithstanding anything in this Agreement or
----------------
the other Loan Documents to the contrary, neither Borrower nor any partner,
officer or Affiliate of Borrower shall have any personal liability for the
payment of any Loan, the performance of any Obligation or liability of Borrower
hereunder or under any other Loan Document, or for any deficiency judgment that
the Agent or any Bank may obtain after foreclosure on or sale of the Property,
and the Agent and the Banks will look solely to the Property as security for the
Obligations and will not commence any action or enter any deficiency judgment
against Borrower or any partner, officer or Affiliate of Borrower personally;
provided, however, that Borrower shall not be exonerated or exculpated from, and
- -------- -------
Borrower shall remain personally liable for (i) payment to the Agent and the
Banks to the extent provided in Article 15 of the Deed of Trust, and (ii) its
obligations and liabilities as set forth in the Environmental Indemnity
Agreement and the Guaranty of Payment of Recourse Obligations, each dated the
date hereof given by Borrower and General Partner to the Agent.
(b) The foregoing limitations on personal liability shall not impair the
validity of the obligations hereunder and under the other Loan Documents, or the
Lien of the Deed of Trust upon the Property, or the right of the Agent and the
Banks to foreclose and/or enforce the Lien of, or cause the power of sale to be
exercised pursuant to, the Deed of Trust or any other Loan Document.
(c) Nothing herein shall be deemed to be a waiver of any right which the
Agent and the Banks may have under any bankruptcy law of the United States or
any state to file a claim for the full amount of the Obligations or to require
that all of the Property shall continue to secure all of the Obligations in
accordance with this Agreement and the other Loan Documents.
ARTICLE 11
THE AGENT
11.1 Appointment; Powers and Immunities. Each Bank hereby irrevocably
----------------------------------
appoints and authorizes the Agent to act as its agent hereunder and under the
other Loan Documents with such powers as are specifically delegated to the Agent
by the terms hereof and thereof, together with such other powers as are
reasonably incidental thereto. The Agent: (a) shall have no duties or
responsibilities except as expressly set forth in this Agreement and the other
Loan Documents, and shall not by reason of this Agreement or any other Loan
Document be a trustee for any Bank; (b) shall not be responsible to the Banks
for any recitals, statements, representations or warranties contained in this
Agreement or any other Loan Document, or in any certificate or other document
referred to or provided for in, or received by any Bank under, this Agreement or
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any other Loan Document, or for the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
any other document referred to or provided for herein or therein or for any
failure by Borrower to perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Loan Document except to the extent
requested by the Majority Banks, and then only on terms and conditions
satisfactory to the Agent; and (d) shall not be responsible for any action taken
or omitted to be taken by it hereunder or under any other Loan Document or any
other document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross negligence or wilful
misconduct. The Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or attorneys-in-
fact selected by it with reasonable care. Except as expressly provided herein,
the provisions of this Article 11 are solely for the benefit of the Agent and
the Banks, and Borrower shall not have any rights as a third party beneficiary
of any of the provisions hereof. In performing its functions and duties under
this Agreement and under the other Loan Documents, the Agent shall act solely as
agent of the Banks and does not assume and shall not be deemed to have assumed
any obligation towards or relationship of agency or trust with or for Borrower.
The duties of the Agent shall be ministerial and administrative in nature, and
the Agent shall not have by reason of this Agreement or any other Loan Document
a fiduciary relationship in respect of any Bank.
11.2 Reliance by Agent. The Agent shall be entitled to rely upon any
-----------------
certification, notice or other communication (including any thereof by
telephone, telecopy, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants or
other experts selected by the Agent. As to any matters not expressly provided
for by this Agreement or any other Loan Document, the Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and
thereunder in accordance with instructions signed by the Majority Banks, and
such instructions of the Majority Banks in any action taken or failure to act
pursuant thereto shall be binding on all of the Banks.
11.3 Defaults. The Agent shall not be deemed to have knowledge of the
--------
occurrence of a Default or an Event of Default (other than the nonpayment of
principal of or interest on the Loans) unless the Agent has received notice from
a Bank or Borrower specifying such Default or Event of Default and stating that
such notice is a "Notice of Default". In the event that the Agent receives such
a notice of the occurrence of a Default or an Event of Default, the Agent shall
give prompt notice thereof to the Banks. The Agent shall give each Bank prompt
notice of each nonpayment of principal of or interest on the Loan whether or not
it has received any notice of the occurrence of such nonpayment. The Agent
shall take such action hereunder with respect to such Default or Event of
Default as shall be directed by the Majority Banks, provided that, unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Banks.
11.4 Rights of Agent as a Bank. With respect to the Loans made by it,
-------------------------
Commerzbank in its capacity as a Bank hereunder shall have the same rights and
powers hereunder as any other
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Bank and may exercise the same as though it were not acting as the Agent, and
the term "Bank" or "Banks" shall, unless the context otherwise indicates,
include Commerzbank in its individual capacity. The Agent may (without having to
account therefor to any Bank) accept deposits from, lend money to and generally
engage in any kind of banking, trust or other business with Borrower (and any of
its Affiliates) as if it were not acting as the Agent, and the Agent may accept
fees and other consideration from Borrower for services in connection with this
Agreement or any other Loan Document or otherwise without having to account for
the same to the Banks.
11.5 Indemnification. Each Bank severally agrees to indemnify the Agent,
---------------
to the extent the Agent shall not have been reimbursed by Borrower, ratably in
accordance with its Commitment, for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, reasonable counsel fees and disbursements) or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of this Agreement or any other Loan Document or any other documents contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby (excluding, unless an Event of Default has occurred and is continuing,
the normal administrative costs and expenses incident to the performance of its
agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or any such other documents; provided, however, that no Bank shall be
-------- -------
liable for any of the foregoing to the extent they arise from the gross
negligence or wilful misconduct of the Agent. If any indemnity furnished to the
Agent for any purpose shall, in the opinion of the Agent, be insufficient or
become impaired, the Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished.
11.6 CONSEQUENTIAL DAMAGES. THE AGENT SHALL NOT BE RESPONSIBLE OR LIABLE
---------------------
TO ANY BANK, BORROWER OR ANY OTHER PERSON OR ENTITY FOR ANY PUNITIVE, EXEMPLARY
OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
11.7 Payee of Note Treated as Owner. The Agent may deem and treat the
------------------------------
payee of any Note as the owner thereof for all purposes hereof unless and until
a written notice of the assignment or transfer thereof shall have been filed
with the Agent and the provisions of Section 12.16 have been satisfied. Any
requests, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of that
Note or of any Note or Note issued in exchange therefor or replacement thereof.
11.8 Nonreliance on Agent and Other Banks. Each Bank agrees that it has,
------------------------------------
independently and without reliance on the Agent or any other Bank, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of Borrower and decision to enter into this Agreement and that it will,
independently and without
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reliance upon the Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Loan Documents. The Agent shall not be required to keep itself
informed as to the performance or observance by Borrower of this Agreement or
any of the other Loan Documents or any other document referred to or provided
for herein or therein or to inspect the properties or books of Borrower or any
other Person. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder or under
the other Loan Documents, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition or business of Borrower or any other Person (or any of their
Affiliates) which may come into the possession of the Agent.
11.9 Failure to Act. Except for action expressly required of the Agent
--------------
hereunder or under the other Loan Documents, the Agent shall in all cases be
fully justified in failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction by the Banks of their
indemnification obligations under Section 11.5 against any and all liability and
expense which may be incurred by the Agent by reason of taking, continuing to
take, or failing to take any such action.
11.10 Resignation or Removal of Agent. Subject to the appointment and
-------------------------------
acceptance of a successor Agent as provided below, the Agent may, for good cause
with the consent of Borrower, which consent will be granted provided that
Borrower, in its reasonable discretion, agrees with the cause given, resign at
any time by giving notice thereof to the Banks and Borrower. The Banks shall not
have the right to remove the Agent under any circumstances. Upon any such
resignation, the Majority Banks shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Banks and
shall have accepted such appointment within 30 days after the retiring Agent's
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent. Any successor Agent shall be a bank which is
reasonably acceptable to Borrower and which has a combined capital and surplus
of at least $500,000,000. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article 11 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent hereunder.
11.11 Reliance by Borrower. (a) Notwithstanding anything to the contrary
--------------------
in this Agreement or in any Assignment and Acceptance Agreement, the Banks and
the Agent hereby agree that throughout the term of the Loan:
(i) Borrower may assume conclusively and without the need of any
inquiry or investigation on its part that any communication received from,
any agreement entered into by, any waiver given by, or any other action
taken on the part of, the Agent has been authorized by the Banks and shall
bind the Banks, including, without limitation,
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the execution and delivery of (A) subordination, non-disturbance and
attornment agreements with tenants under leases relating to the Property,
(B) satisfaction of the Loan Documents, and (C) the amendment or
modification of any of the Loan Documents; and
(ii) Borrower may assume that all decisions and actions of the
Banks shall be implemented by the Agent.
(b) Borrower shall have the right without the need of any inquiry or
investigation to rely on the appointment of the Agent as agent for all of the
Banks for the purposes and with the powers specifically set forth herein and the
continuance of that appointment throughout the term of the Loan unless Borrower
has received notice pursuant to Section 11.10 of the resignation of the Agent
and designation of a replacement Agent.
(c) The right of Borrower hereunder to rely upon and look to the Agent
shall continue during the term of the Loan and no dispute, complaint or claim
between any Bank and the Agent shall impair or negate such right of Borrower to
rely upon and look exclusively to the Agent as set forth in this Article 11;
provided, however, that if and at such time as a replacement Agent or co-Agent
- -------- -------
has been duly appointed in the place of the Agent originally named herein (or in
the place of any earlier replacement Agent or co-Agent(s) appointed in
accordance with the terms hereof), Borrower shall rely on such replacement Agent
or co-Agent(s) and shall no longer rely on any prior Agent.
11.12 Syndication Agent. Dresdner Bank AG, New York and Grand Cayman
-----------------
Branches, shall have no obligations hereunder in its capacity as Syndication
Agent, but shall, in its capacity as a Bank, have the obligations of a Bank
hereunder.
ARTICLE 12
MISCELLANEOUS
12.1 Notices. Unless otherwise provided herein, all notices, requests,
-------
consents and demands shall be in writing and shall be personally delivered, sent
by telecopy (answerback received), or mailed, by certified mail, postage
prepaid, to the following addresses:
(a) If to the Agent:
Commerzbank Aktiengesellschaft
New York Branch
2 World Financial Center
New York, New York 10281-1050
Telecopier No.: (212) 266-7565
Attention: Mr. David Schwarz, Vice President
with a copy to:
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<PAGE>
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Avenue
New York, New York 10104
Telecopier No.: (212) 541-4630
Attention: Michael B. Levy, Esq.
(b) If to a Bank, to such Bank at its address or telecopier number set
forth on Annex III hereto or in the Assignment and Acceptance
Agreement pursuant to which it became a party hereto
(c) If to Borrower:
Kilroy Realty, L.P.
2250 East Imperial Highway
El Segundo, California 90245
Telecopier No.: (310) 322-5981
Attention: Mr. Tyler Rose, Treasurer
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Telecopier No.: (213) 891-8763
Attention: Jennifer Upham Saunders, Esq.
or to such other address as any party may designate by written notice to the
other parties. All notices, requests, consents and demands hereunder will be
effective when so personally delivered or sent by telecopy, or three days after
being so mailed.
12.2 Survival of Agreements. All covenants, agreements, representations
----------------------
and warranties made or incorporated by reference herein shall survive the
execution and delivery of this Agreement and the other Loan Documents. All
statements contained in any certificate or instrument delivered by Borrower
hereunder shall be deemed to constitute representations and warranties made by
Borrower.
12.3 Parties in Interest. All covenants and agreements contained in this
-------------------
Agreement and all other Loan Documents shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto.
12.4 Expenses. Borrower shall pay the reasonable out-of-pocket expenses
--------
of the Agent (including, without limitation, reasonable attorneys' fees and
expenses) in connection with the preparation and negotiation of this Agreement
and all other Loan Documents, the closing of the Loans, the performance of
routine post-closing services rendered to the Agent and post-closing
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<PAGE>
services rendered to the Agent in connection with matters that the parties agree
to resolve after the Closing Date, the Agent's administration of the Loan, the
release of any security, the consideration, preparation and negotiation of any
amendments, consents and waivers relating to any Loan Documents, review of
leases or lease renewals and any subordination, non-disturbance and attornment
agreements or estoppel letters. Borrower also agrees to pay the reasonable out-
of-pocket expenses of the Agent and the Banks (including, without limitation,
reasonable attorneys' fees and expenses) in connection with the enforcement of
this Agreement or any other Loan Document after the occurrence of an Event of
Default.
12.5 Governing Law; Jurisdiction; Venue; Jury Trial. (a) THIS AGREEMENT
----------------------------------------------
AND THE LOAN DOCUMENTS, EXCEPT AS OTHERWISE PROVIDED IN SUCH DOCUMENTS, SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES THEREOF. BORROWER
HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE COURTS OF THE STATE
OF NEW YORK SITTING IN NEW YORK COUNTY IN ANY ACTION OR PROCEEDINGS ARISING OUT
OF OR RELATING TO THIS AGREEMENT, AND BORROWER HEREBY IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN ANY SUCH COURT. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(b) EACH OF BORROWER, THE AGENT AND EACH BANK HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
(c) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION.
12.6 Right of Setoff. If an Event of Default shall have occurred and be
---------------
continuing, each Bank is hereby authorized at any time and from time to time, to
the extent permitted by applicable Law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Bank to or for the credit
or the account of Borrower against any of and all the obligations of Borrower
now or hereafter existing under this Agreement, the Note and the other Loan
Documents held by such Bank, irrespective of whether such Bank shall have made
any demand under this Agreement, the Note or such other Loan Documents and
although such obligations may be
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unmatured. Each Bank agrees to promptly notify Borrower after any such set off
and application by such Bank. The rights of each Bank under this Section 12.6
are in addition to other rights and remedies (including other rights of setoff)
that such Bank may have.
12.7 Severability. If any provision of any Loan Document is determined to
------------
be illegal, invalid or unenforceable under present or future Laws during the
term thereof, such provision shall be fully severable, the appropriate Loan
Document shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom.
12.8 Indemnity. Borrower agrees to indemnify and hold harmless the Agent
---------
and each of the Banks against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the Agent or any Bank or any of its respective employees,
officers, directors or other representatives in any way relating to or arising
out of the Loan Documents, any transaction related hereto or thereto, or any
act, omission or transaction of Borrower or its Affiliates, or any of their
employees, officers, directors or other representatives relating hereto or
thereto, to the extent that any of the same results, directly or indirectly,
from any claims made or actions, suits or proceedings commenced by or on behalf
of any Person other than the Agent or any Bank, including without limitation,
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements relating to or arising out of (a) any
Pollutant(s), or (b) possible non-compliance with any building or zoning
regulations affecting the Property; in all cases excepting any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements resulting from or arising out of the gross
negligence or willful misconduct of the Agent or any Bank or any of its
respective employees, officers, directors or representatives. If an Event of
Default has occurred and is continuing and either Borrower shall fail to do any
act or thing which it has covenanted to do hereunder or any representation or
warranty on the part of Borrower contained herein or in any Loan Document shall
be breached, the Agent may (but shall not be obligated to) do the same or cause
it to be done or remedy any such breach, and may expend its funds for such
purpose; provided, however, that no such action by the Agent shall relieve
-------- -------
Borrower of any liability in connection with such failure or breach or be deemed
to constitute a waiver of any default under such Loan Document. Any and all
amounts so expended by the Agent shall be repayable to it by Borrower,
immediately upon the Agent's demand therefor, with interest at the rate set
forth in Section 4.3(b). The obligations of Borrower under this Section 12.8
shall continue after payment of the Obligations and termination of any or all
Loan Documents, but shall not in any event apply to (i) any act, event or
omission related to the Property occurring after the Agent shall foreclose the
Lien of the Deed of Trust, or accept a deed-in-lieu-of-foreclosure, and become
the owner of the Property or (ii) any act, or failure to act where there was a
duty to act, related to the Property by the Agent occurring after the Agent
becomes a mortgagee-in-possession or by a receiver appointed during any
proceeding to foreclose the Lien of the Deed of Trust.
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12.9 Headings. The headings and captions used in any 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.
12.10 Exceptions to Covenants. Borrower shall not be deemed to be
-----------------------
permitted to take any action or fail to take any action which is permitted as an
exception to any of the covenants contained herein or which is within the
permissible limits of any of the covenants contained herein if such action or
omission would result in the breach of any other covenant contained herein.
12.11 Amendments and Waivers. Any provision of this Agreement, the Note or
----------------------
any other Loan Document may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by Borrower and the Majority Banks;
provided that no such amendment or waiver shall, unless signed by each Bank
- --------
whose Commitment is affected by the change, (i) change the amount of the
Commitment of any Bank or subject any Bank to any additional obligation, (ii)
change the principal of or rate of interest on the Loan or any fees hereunder,
(iii) change the date fixed for any payment of principal of or interest on the
Loan or any fees hereunder, (iv) change the amount of principal, interest or
fees due on any date fixed for the payment thereof, (v) change the manner of
application of any payments made under this Agreement or the Note, (vi) release
or substitute all or any substantial part of the Collateral, or (vii)
affirmatively subordinate the Loan to other Indebtedness.
12.12 Entire Agreement. This Agreement, together with the other Loan
----------------
Documents, embodies the entire agreement among Borrower, the Banks and the
Agent, and supersedes all prior proposals, agreements and understandings
relating to the subject matter hereof. Borrower certifies that it is relying on
no representation, warranty, covenant or agreement except for those set forth
herein and in the other Loan Documents.
12.13 No Waiver; Remedies. No failure on the part of the Agent or any Bank
-------------------
to exercise, and no delay in exercising, any right under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
12.14 Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of Borrower, the Banks and the Agent and their respective successors
and assigns, except that Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the Agent
and each Bank.
12.15 Counterparts. This Agreement and the other Loan Documents may be
------------
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, but in making proof of any such Loan
Document, it shall not be necessary to produce or account for more than one such
counterpart.
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12.16 Assignment and Participations. (a) Each Bank may at any time,
-----------------------------
without the consent of Borrower, sell to one or more Persons (each a
"Participant") participating interests in the outstanding portion of the Loan
-----------
made by such Bank or the Commitments of such Bank or any other interest of Such
Bank hereunder relating thereto, all on such terms as such Bank may deem
acceptable. In the event of any such sale by a Bank of a participating interest
to a Participant, such Bank's obligations under this Agreement shall remain
unchanged, and such Bank shall remain solely responsible for the performance
thereof.
(b) Each Bank may at any time, with the consent of the Borrower (which
consent of Borrower shall not be required if either (i) an Event of Default has
occurred and is continuing, or (ii) the assignment described in this paragraph
below is to an Affiliate of such Bank) and the consent of the Agent (each of
which consents shall not be unreasonably withheld or delayed) assign to one or
more banks or financial institutions (each an "Assignee") all or any of its
--------
rights and obligations under this Agreement, its Note and the other Loan
Documents, and such Assignee shall assume all such rights and obligations,
pursuant to an Assignment and Acceptance Agreement executed by such Assignee,
all on such terms as the Agent may deem acceptable, provided, however, that (i)
-------- -------
Commerzbank shall at all times hold at least 20% of the outstanding Loan and
continue to be the Agent or a co-Agent hereunder, and (ii) if the assignment is
of less than the entire portion of the Loan and Commitment held by the assigning
Bank, then, after giving effect to the Assignment, the assigning Bank shall hold
at least a $10,000,000 Commitment, and the Assignee shall hold at least a
$5,000,000 Commitment. Borrower shall assist Commerzbank in the process of
syndicating the Loan and Commitments to the extent reasonably requested by
Commerzbank.
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(c) Borrower authorizes Commerzbank to disclose to any Participant,
Assignee or other transferee (each a "Transferee") and any prospective
----------
Transferee any and all financial information in such Bank's possession
concerning Borrower which has been delivered to such Bank by Borrower pursuant
to this Agreement or which has been delivered to such Bank by Borrower in
connection with such Bank's credit evaluation prior to entering into this
Agreement, provided such Transferee agrees to maintain the confidentiality of
such information in accordance with Section 6.3(l) hereof.
(d) Anything in this Section 12.16 to the contrary notwithstanding, any
Bank may assign and pledge all or any portion of its interest in the Loan and/or
obligations owing to it to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank, provided that any payment in respect of such interest
--------
in the assigned Loan and/or obligations made by Borrower to the assigning and/or
pledging Bank in accordance with the terms of this Agreement shall satisfy
Borrower's obligations hereunder in respect of such assigned interest in the
Loan and/or obligations to the extent of such payment. No such assignment shall
release the assigning and/or pledging Bank from its obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
KILROY REALTY, L.P.,
a Delaware limited partnership
By: Kilroy Realty Corporation,.
a Maryland corporation, general partner
By: /s/ Tyler H. Rose
______________________________________
Name: Tyler H. Rose
Title: Senior Vice President and
Treasurer
COMMERZBANK AKTIENGESELLSCHAFT,
NEW YORK BRANCH, as Administrative Agent and Lead
Arranger and Bank
By: /s/ Lisa C. Miller
_______________________________
Name: Lisa C. Miller
Title: Asst. Vice President
By: /s/ David M. Schwartz
_______________________________
Name: David M. Schwartz
Title: Vice President
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DRESDNER BANK AG,
NEW YORK and GRAND CAYMAN BRANCHES, as
Syndication Agent and Arranger and Bank
By: /s/ Andrew Dubin
_______________________________
Name: Andrew Dubin
Title: Vice President
By: /s/ Craig P. Meisner
_______________________________
Name: Craig P. Meisner
Title: Vice President
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ANNEXES
- -------
ANNEX I - Commitments
ANNEX II - Notice Adresses of Banks
EXHIBITS
- --------
EXHIBIT A - Form of Note
SCHEDULES
- ---------
SCHEDULE 8.11 Collective Bargaining Agreement
SCHEDULE 8.14 Lease Defaults
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ANNEX I
-------
Commitments
<TABLE>
<CAPTION>
Name of Bank Commitment Amount Domestic Lending Ofc. Eurodlr. Lending Ofc.
- ------------ ----------------- ---------------------- ---------------------
<S> <C> <C> <C>
Commerzbank 2 World Financial Ctr. 2 World Financial Ctr.
Aktiengesellschaft, New York, NY 10281 New York, NY 10281
New York Branch $45,000,000.00 Att: David Schwarz Att: David Schwarz
Tel: 212-266-7632 Tel:212-266-7632
Fax: 212-266-7565 Fax: 212-266-7565
Dresdner Bank, AG, Dresdner Bank AG, Dresdner Bank AG,
New York and Grand New York Branch Grand Cayman Branch
Cayman Branches $45,000,000.00 75 Wall Street c/o Dresdner Bank AG
New York, NY 10005 New York Branch
Att:______________ 75 Wall Street
Tel:______________ New York, NY 10005
Fax:______________ Att:_______________
Tel:_______________
Fax:_______________
</TABLE>
<PAGE>
ANNEX II
Notice Addresses of Banks
1. Commerzbank: As set forth in Section 12.1(a)
2. Dresdner Bank AG: c/o Dresdner Kleinwort Benson
Global Finance - Real Estate - Los Angeles
333 S. Grand Street, Suite 1700
Los Angeles, CA 90071
Telecopier No.: 213-473-5450
Attn: Aden Kun
<PAGE>
EXHIBIT A
---------
Form of Note
PROMISSORY NOTE
---------------
$______________ New York, New York
October ___, 1999
FOR VALUE RECEIVED, KILROY REALTY, L.P., a Delaware limited partnership
("Borrower"), promises to pay to the order of ____________________________ (the
"Bank"), at the office of the Agent (as defined in and as more particularly set
forth in Section 4.7 and Section 4.9 of the Credit Agreement hereinafter
referred to), in lawful money of the United States of America and in immediately
available funds, the principal amount of ________________________ DOLLARS
($____________), which sum shall be due and payable in installments in such
amounts and on such dates as are set forth in Section 2.3 of the Credit
Agreement. The undersigned further agrees to pay interest at said office, in
like money, from the date hereof on the unpaid principal amount hereof from time
to time outstanding at the rates and on the dates specified in Section 4.3 of
the Credit Agreement.
This Note is one of the notes referred to in Section 2.2 of the Credit
Agreement dated as of the date hereof (as the same may from time to time be
amended, modified or supplemented, the "Credit Agreement" ) among Borrower, the
Bank, the other Banks parties thereto, Dresdner Bank AG, New York and Grand
Cayman Branches, as Syndication Agent and Arranger and Commerzbank
Aktiengesellechaft, acting through its New York Branch, as Administrative Agent
on behalf of the Banks and Lead Arranger, to which reference is made for a
statement of the rights, obligations and security of the Agent and the Banks and
the duties and obligations of Borrower in relation thereto; but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of Borrower to pay the
principal sum of and interest on this Note when due.
All defined terms used but not specifically defined herein shall have the
meanings set forth in the Credit Agreement.
The unpaid principal balance of this Note, together with accrued interest
thereon and any Prepayment Premium due with respect thereto, unless earlier
paid, shall be due and payable in full on the Final Maturity Date (as defined
herein). All payments shall be applied to the payment of accrued interest hereon
and thereafter to the payment of principal, and shall otherwise be applied as
set forth in the Credit Agreement.
As used in this Note, the term "Final Maturity Date" shall mean the earlier
to occur of (a) the acceleration of the maturity of the Loan pursuant to the
terms of the Credit Agreement or (b) the Maturity Date.
A-1
<PAGE>
If an Event of Default under the Credit Agreement shall occur and be
continuing, the unpaid principal of and interest on this Note may be declared
due and payable in the manner and with the effect provided therein.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceeding, Borrower and all endorsers, sureties
and guarantors of this Note, if any, jointly and severally agree to pay
reasonable attorneys' fees and collection costs to the holder hereof in addition
to the principal and interest payable hereunder.
To the extent that a person signs or endorses this Note in the capacity of
an officer on behalf of the general partner of Borrower, such person will not
incur personal liability thereby.
Borrower and all endorsers, sureties and guarantors of this Note, if any,
hereby severally waive demand, presentment for payment, protest, notice of
protest, notice of intention to accelerate the maturity of this Note, 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 (provided that,
with respect to the foregoing notices, such waiver shall be limited to notices
other than as expressly provided in the Loan Documents). Borrower hereby waives,
to the fullest extent permitted by law, all rights and benefits which might be
otherwise available to Borrower under California Civil Code Section 2822(a).
Payment of this Note is secured by certain Property pursuant to the terms
of the Deed of Trust and certain of the other Loan Documents referred to in the
Credit Agreement, and the holder of this Note is entitled to the benefits of the
Deed of Trust and such other Loan Documents.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the State of New York, without reference to the conflict of laws
principles thereof, and for all purposes shall be construed in accordance with
such laws.
The provisions of Article 15 of the Deed of Trust are hereby incorporated
herein by reference as if fully set forth herein.
Nothing herein shall be deemed to be a waiver of any right which the Agent
and the Banks may have under any bankruptcy law of the United States or any
state to file a claim for the full amount of the Loan, including interest
thereon and any Prepayment Compensation payable with respect thereto, or to
require that all of the Property shall continue to secure all of the
[TEXT CONTINUED ON NEXT PAGE]
A-2
<PAGE>
principal amount of the Loan and interest, Prepayment Compensation, fees and
other amounts payable by Borrower with respect thereto in accordance with this
Note and the other Loan Documents.
IN WITNESS WHEREOF, Borrower has caused this instrument to be executed by
its duly Authorized Officer as of the date above written.
KILROY REALTY, L.P.,
a Delaware limited partnership
By: Kilroy Realty Corporation, a Maryland
corporation, its general partner
By____________________________________
Name:
Title:
A-3
<PAGE>
SCHEDULE 8.11
-------------
Collective Bargaining Agreement
Agreement between Building Owners and Managers Association of Greater Los
Angeles, Inc., and International Union of Operating Engineers, Local No. 501,
AFL-CIO (November 1, 1996-October 31, 2001).
<PAGE>
SCHEDULE 8.14
-------------
Lease Defaults
None
<PAGE>
EXHIBIT 10.4
================================================================================
KILROY REALTY, L.P., as trustor
(Borrower)
to
FIRST AMERICAN TITLE INSURANCE COMPANY, as trustee
(Trustee)
for the benefit of
COMMERZBANK AKTIENGESELLSCHAFT
(New York Branch), as Administrative Agent on behalf
of the Banks, as beneficiary
(Lender)
================================================================================
VARIABLE INTEREST RATE DEED OF TRUST, LEASEHOLD DEED OF TRUST, ASSIGNMENT OF
RENTS, SECURITY AGREEMENT AND FIXTURE FILING
================================================================================
Dated: October 20, 1999
Location: San Diego County, California
PREPARED BY AND UPON
RECORDATION RETURN TO:
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael B. Levy, Esq.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article 1 - GRANTS OF SECURITY...................................................................... -1-
Section 1.1 Property Mortgaged....................................................... -1-
Section 1.2 Assignment of Rents...................................................... -4-
Section 1.3 Security Agreement....................................................... -4-
Section 1.4 Pledge of Moneys Held.................................................... -4-
Article 2 - DEBT AND OBLIGATIONS SECURED............................................................ -4-
Section 2.1 Debt..................................................................... -4-
Section 2.2 Other Obligations........................................................ -5-
Section 2.3 Debt and Other Obligations............................................... -5-
Article 3 - BORROWER COVENANTS...................................................................... -5-
Section 3.1 Payment of Debt.......................................................... -5-
Section 3.2 Incorporation by Reference............................................... -5-
Section 3.3 Insurance................................................................ -6-
Section 3.4 Payment of Taxes, etc.................................................... -9-
Section 3.5 Escrow Fund.............................................................. -10-
Section 3.6 Condemnation............................................................. -10-
Section 3.7 Leases and Rents......................................................... -11-
Section 3.8 Maintenance of Property.................................................. -12-
Section 3.9 Waste.................................................................... -12-
Section 3.10 Compliance With Laws..................................................... -13-
Section 3.11 Books and Records........................................................ -13-
Section 3.12 Payment For Labor and Materials.......................................... -13-
Section 3.13 Performance of Other Agreements.......................................... -14-
Section 3.14 Change of Name, Identity or Structure.................................... -14-
Section 3.15 Existence................................................................ -14-
Article 4 - SPECIAL COVENANTS....................................................................... -14-
Section 4.1 Property Use............................................................. -14-
Section 4.2 ERISA.................................................................... -14-
Section 4.3 Intentionally Deleted.................................................... -15-
Section 4.4 Restoration.............................................................. -15-
Article 5 - REPRESENTATIONS AND WARRANTIES.......................................................... -22-
Section 5.1 Warranty of Title........................................................ -22-
Section 5.2 Authority................................................................ -22-
Section 5.3 Legal Status and Authority............................................... -22-
Section 5.4 Validity of Documents.................................................... -22-
Section 5.5 Litigation............................................................... -23-
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 5.6 Status of Property....................................................... -23-
Section 5.7 No Foreign Person........................................................ -24-
Section 5.8 Separate Tax Lot......................................................... -24-
Section 5.9 ERISA Compliance......................................................... -24-
Section 5.10 Leases................................................................... -24-
Section 5.11 Financial Condition...................................................... -25-
Section 5.12 Business Purposes........................................................ -25-
Section 5.13 Taxes.................................................................... -25-
Section 5.14 Mailing Address.......................................................... -25-
Section 5.15 No Change in Facts or Circumstances...................................... -25-
Section 5.16 Disclosure............................................................... -25-
Section 5.17 Third Party Representations.............................................. -25-
Section 5.18 Illegal Activity......................................................... -25-
Article 6 - OBLIGATIONS AND RELIANCES............................................................... -25-
Section 6.1 Relationship of Borrower and Lender...................................... -25-
Section 6.2 No Reliance on Lender.................................................... -26-
Section 6.3 No Lender Obligations.................................................... -26-
Section 6.4 Reliance................................................................. -26-
Article 7 - FURTHER ASSURANCES...................................................................... -26-
Section 7.1 Recording of Security Instrument, etc.................................... -26-
Section 7.2 Further Acts, etc........................................................ -27-
Section 7.3 Changes in Tax, Debt, Credit and Documentary Stamp Laws.................. -27-
Section 7.4 Estoppel Certificates.................................................... -28-
Section 7.5 Splitting of Security Instrument......................................... -28-
Section 7.6 Replacement Documents.................................................... -28-
Article 8 - DUE ON SALE/ENCUMBRANCE................................................................. -29-
Section 8.1 Lender Reliance.......................................................... -29-
Section 8.2 No Sale/Encumbrance...................................................... -29-
Section 8.3 Sale/Encumbrance Defined................................................. -29-
Section 8.4 Lender's Rights.......................................................... -29-
Article 9 - PREPAYMENT.............................................................................. -30-
Section 9.1 Prepayment Before Event of Default....................................... -30-
Section 9.2 Prepayment on Casualty and Condemnation.................................. -30-
Section 9.3 Prepayment After Event of Default........................................ -30-
Article 10 - DEFAULT................................................................................ -31-
Section 10.1 Events of Default........................................................ -31-
Section 10.2 Late Payment Charge...................................................... -32-
Section 10.3 Default Interest......................................................... -32-
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Article 11 - RIGHTS AND REMEDIES.................................................................... -33-
Section 11.1 Remedies................................................................. -33-
Section 11.3 Right to Cure Defaults................................................... -35-
Section 11.4 Actions and Proceedings.................................................. -35-
Section 11.5 Recovery of Sums Required To Be Paid..................................... -36-
Section 11.6 Examination of Books and Records......................................... -36-
Section 11.7 Other Rights, etc........................................................ -36-
Section 11.8 Right to Release Any Portion of the Property............................. -37-
Section 11.9 Recourse and Choice of Remedies.......................................... -37-
Section 11.10 Right of Entry........................................................... -37-
Article 12 - ENVIRONMENTAL HAZARDS.................................................................. -37-
Section 12.1 Environmental Representations and Warranties............................. -37-
Section 12.2 Environmental Covenants.................................................. -39-
Section 12.3 Lender's Rights.......................................................... -40-
Article 13 - INDEMNIFICATION........................................................................ -40-
Section 13.1 General Indemnification.................................................. -40-
Section 13.2 Mortgage and/or Intangible Tax........................................... -40-
Section 13.3 ERISA Indemnification.................................................... -41-
Section 13.4 Environmental Indemnification............................................ -41-
Section 13.5 Duty to Defend; Attorneys'Fees and Other Fees and Expenses............... -42-
Article 14 - WAIVERS................................................................................ -42-
Section 14.1 Waiver of Counterclaim................................................... -42-
Section 14.2 Marshalling and Other Matters............................................ -42-
Section 14.3 Waiver of Notice......................................................... -42-
Section 14.4 Waiver of Statute of Limitations......................................... -43-
Section 14.5 Sole Discretion of Lender................................................ -43-
Section 14.6 Survival................................................................. -43-
Section 14.7 WAIVER OF TRIAL BY JURY.................................................. -43-
Article 15 - EXCULPATION ......................................................................... -43-
Section 15.1 Exculpation.............................................................. -43-
Section 15.2 Reservation of Certain Rights............................................ -44-
Section 15.3 Exceptions to Exculpation................................................ -44-
Section 15.4 Recourse................................................................. -44-
Section 15.5 Bankruptcy Claims........................................................ -45-
Article 16 - NOTICES................................................................................ -45-
Section 16.1 Notices.................................................................. -45-
Article 17 - SERVICE OF PROCESS..................................................................... -46-
Section 17.1 Consent to Service....................................................... -46-
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
Section 17.2 Submission to Jurisdiction............................................... -46-
Section 17.3 Jurisdiction Not Exclusive............................................... -46-
Article 18 - APPLICABLE LAW......................................................................... -46-
Section 18.1 Choice of Law............................................................ -46-
Section 18.2 Usury Laws............................................................... -46-
Section 18.3 Provisions Subject to Applicable Law..................................... -47-
Article 19 - Intentionally Deleted.................................................................. -47-
Article 20 - COSTS.................................................................................. -47-
Section 20.1 Performance at Borrower's Expense........................................ -47-
Section 20.2 Attorney's Fees for Enforcement.......................................... -47-
Article 21 - DEFINITIONS............................................................................ -47-
Section 21.1 General Definitions...................................................... -47-
Article 22 - MISCELLANEOUS PROVISIONS............................................................... -48-
Section 22.1 No Oral Change........................................................... -48-
Section 22.2 Liability................................................................ -48-
Section 22.3 Inapplicable Provisions.................................................. -48-
Section 22.4 Headings, etc............................................................ -48-
Section 22.5 Duplicate Originals; Counterparts........................................ -48-
Section 22.6 Number and Gender........................................................ -48-
Section 22.7 Subrogation.............................................................. -49-
Section 22.8 Entire Agreement......................................................... -49-
Section 22.9 Trustee.................................................................. -49-
Article 23 - CERTAIN MATTERS RELATING TO THE STATE OF CALIFORNIA.................................... -50-
</TABLE>
-iv-
<PAGE>
This VARIABLE INTEREST RATE DEED OF TRUST, LEASEHOLD DEED OF TRUST,
ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this "Security
Instrument") is made as of the 20th day of October, 1999, by KILROY REALTY,
L.P., a Delaware limited partnership, having its principal place of business at
2250 East Imperial Highway, El Segundo, California 90245, as trustor
("Borrower") to FIRST AMERICAN TITLE INSURANCE COMPANY, a California
corporation, as trustee, having an address of 411 Ivy Street, San Diego,
California 92101 ("Trustee") for the benefit of COMMERZBANK AKTIENGESELLSCHAFT,
New York Branch), a branch duly licensed under the laws of the State of New
York, having an address at 2 World Financial Center, New York, New York 10251-
1050, as Administrative Agent on behalf of the Banks (as defined below), as
beneficiary ("Lender").
R E C I T A L S :
---------------
WHEREAS, pursuant to the Credit Agreement dated October 20, 1999 (the
"Credit Agreement") among Borrower, Lender, as Administrative Agent and
Arranger, Dresdner Bank AG, acting through its New York Branch and Grand Cayman
Branch, as Syndication Agent, and the other banks party thereto (collectively,
the "Banks"), the Banks have loaned to Borrower up to $90,000,000, which loan is
evidenced by, inter alia, the Note of Borrower obligating Borrower to pay said
loan (the "Note"), together with all interest accrued thereon, and all other
amounts due or payable, in accordance with the terms of the Note, the Credit
Agreement and the other Security Documents (as hereinafter defined);
WHEREAS, Borrower is the owner of the Property (as defined below) and
Borrower, in order to secure the payment of the indebtedness evidenced by
Promissory Note, has duly authorized the execution and delivery of this Security
Instrument; and
WHEREAS, Borrower and Lender intend these recitals to be a material part of
this Security Instrument.
NOW, THEREFORE, in consideration of the loan to Borrower evidenced by the
Note (the "Loan") and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be bound hereby,
Borrower hereby agrees as follows:
Article 1 - GRANTS OF SECURITY
Section 1.1 Property Mortgaged. Borrower does hereby irrevocably
------------------
mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to
Trustee and grant a security interest to Trustee in, for the benefit of Lender
and Lender's successors, substitutes and assigns, the following property,
rights, interests and estates now owned, or hereafter acquired by Borrower
(collectively, the "Property"), IN TRUST WITH POWER OF SALE AND RIGHT OF ENTRY
AND POSSESSION TO HAVE AND TO HOLD the same, together with all and singular the
rights, hereditaments, and appurtenances in any way appertaining or belonging
thereto forever:
-1-
<PAGE>
(a) Fee Land. The real property described in Exhibit A attached hereto and
--------
made a part hereof (the "Fee Land");
(b) Ground Lease. The leasehold estate in the real property described in
------------
Exhibit A-13 attached hereto and leased pursuant to the ground lease described
in Exhibit B attached hereto (the "Ground Lease"). The land conveyed pursuant to
the Ground Lease (the "Leased Land"), together with the Fee Land, is referred to
as the "Land".
(c) Additional Land. All additional lands, estates and development rights
---------------
hereafter acquired by Borrower for use in connection with the Land and the
development of the Land and all additional lands and estates therein which may,
from time to time, by supplemental mortgage or otherwise, be expressly made
subject to the lien of this Security Instrument;
(d) Improvements. The buildings, structures, fixtures, additions,
------------
enlargements, extensions, modifications, repairs, replacements and improvements
now or hereafter erected or located on the Land (the "Improvements");
(e) Easements. All easements, rights-of-way or use, rights, strips and
---------
gores of land, streets, ways, alleys, passages, sewer rights, water, water
courses, water rights and powers, air rights and development rights, and all
estates, rights, titles, interests, privileges, liberties, servitudes,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
now or hereafter belonging, relating or pertaining to the Land and the
Improvements and the reversion and reversions, remainder and remainders, and all
land lying in the bed of any street, road or avenue, opened or proposed, in
front of or adjoining the Land, to the center line thereof and all the estates,
rights, titles, interests, dower and rights of dower, curtesy and rights of
curtesy, property, possession, claim and demand whatsoever, both at law and in
equity, of Borrower of, in and to the Land and the Improvements and every part
and parcel thereof, with the appurtenances thereto;
(f) Fixtures and Personal Property. All machinery, equipment, fixtures
------------------------------
(including all heating, air conditioning, plumbing, lighting, communications
and elevator fixtures) and other property of every kind and nature whatsoever
owned by Borrower, or in which Borrower has or shall have an interest, now or
hereafter located upon the Land and the Improvements, or appurtenant thereto,
and used or contemplated to be used in connection with the present or future
operation and occupancy of the Land and the Improvements and all building
equipment, materials and supplies of any nature whatsoever owned by Borrower, or
in which Borrower has or shall have an interest, now or hereafter located upon
the Land and the Improvements, or appurtenant thereto, and used or contemplated
to be used in connection with the present or future operation and occupancy of
the Land and the Improvements (collectively, the "Personal Property"), and the
right, title and interest of Borrower in and to any of the Personal Property
which may be subject to any security interests, as defined in the Uniform
Commercial Code, as adopted and enacted by the state or states where any of the
Property is located (the "Uniform Commercial Code"), superior in lien to the
lien of this Security Instrument and all proceeds and products of the above;
-2-
<PAGE>
(g) Leases and Rents. All leases and other agreements affecting the use,
----------------
enjoyment or occupancy of the Land and the Improvements heretofore or hereafter
entered into, whether before or after the filing by or against Borrower of any
petition for relief under 11 U.S.C. (S)101 et seq., as the same may be amended
from time to time (the "Bankruptcy Code") (the "Leases") and all right, title
and interest of Borrower, its successors and assigns therein and thereunder,
including cash or securities deposited thereunder to secure the performance by
the lessees of their obligations thereunder and all rents, additional rents,
revenues, issues and profits (including all oil and gas or other mineral
royalties and bonuses) from the Land and the Improvements whether paid or
accruing before or after the filing by or against Borrower of any petition for
relief under the Bankruptcy Code (the "Rents") and all proceeds from the sale or
other disposition of the Leases and the right to receive and apply the Rents to
the payment of the Debt (as defined in Article 2);
(h) Condemnation Awards. All awards or payments, including interest
-------------------
thereon, which may hereafter be made with respect to the Property to the extent
actually received or receivable by Borrower, whether from the exercise of the
right of eminent domain (including any transfer made in lieu of or in
anticipation of the exercise of the right), or for a change of grade, or for any
other injury to or decrease in the value of the Property;
(i) Insurance Proceeds. All proceeds of and any unearned premiums on any
------------------
insurance policies covering the Property, including the right to receive and
apply the proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Property;
(j) Tax Certiorari. All refunds, rebates or credits in connection with a
--------------
reduction in real estate taxes and assessments charged against the Property as a
result of tax certiorari or any applications or proceedings for reduction;
(k) Conversion. All proceeds of the conversion, voluntary or involuntary,
----------
of any of the foregoing including proceeds of insurance and condemnation awards,
into cash or liquidation claims;
(l) Rights. The right, in the name and on behalf of Borrower, to appear in
------
and defend any action or proceeding brought with respect to the Property and to
commence any action or proceeding to protect the interest of Lender in the
Property;
(m) Agreements. All agreements, contracts, certificates, instruments,
----------
franchises, permits, licenses, plans, specifications and other documents, now or
hereafter entered into, and all rights therein and thereto, respecting or
pertaining to the use, occupation, construction, management or operation of the
Land and any part thereof and any Improvements or respecting any business or
activity conducted on the Land and any part thereof and all right, title and
interest of Borrower therein and thereunder, including the right, upon the
happening of any default hereunder, to receive and collect any sums payable to
Borrower thereunder;
-3-
<PAGE>
(n) Trademarks. All tradenames, trademarks, servicemarks, logos,
----------
copyrights, goodwill, books and records and all other general intangibles
relating to or used in connection with the operation of the Property; and
(o) Rights Under Ground Lease. All modifications, extensions and renewals
-------------------------
of the Ground Lease and all credits, deposits, options, privileges and rights of
Borrower, as tenant under the Ground Lease, including the right, if any, to
renew or extend the Ground Lease for a succeeding term or terms;
(p) Additional Interests in Property. All the estate, right, title, claim
--------------------------------
or demand of any notice whatsoever of Borrower, either in law or in equity, in
possession or expectancy in and to the Property or any part thereof; and
(q) Other Rights. Any and all other rights of Borrower in and to the items
------------
set forth in Subsections (a) through (p) above.
Section 1.2 Assignment of Rents. Borrower hereby absolutely and
-------------------
unconditionally assigns to Trustee, for the benefit of Lender, Borrower's right,
title and interest in and to all current and future Leases and Rents; it being
intended by Borrower that this assignment constitutes a present, absolute
assignment and not an assignment for additional security only. Nevertheless,
subject to the terms of this Section 1.2 and Section 3.7, each of Trustee and
Lender grants to Borrower a revocable license to collect and receive the Rents.
Borrower shall hold the Rents, or a portion thereof sufficient to discharge all
current sums due on the Debt, for use in the payment of such sums.
Section 1.3 Security Agreement. (a) This Security Instrument is both a
------------------
real property deed of trust and a "security agreement" within the meaning of the
Uniform Commercial Code. The Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Borrower in the Property. By executing and delivering this Security Instrument,
Borrower hereby grants to Lender, as security for the Obligations (defined in
Section 2.3), a security interest in the Personal Property to the full extent
that the Personal Property may be subject to the Uniform Commercial Code.
(b) This Security Instrument shall be effective from the date of its
recording as a financing statement filed as a fixture filing in accordance with
Section 9313 of the Uniform Commercial Code with respect to all goods
constituting part of the Property which are or are to become fixtures. This
Security Instrument shall also be effective as a financing statement covering
minerals or the like (including oil and gas) and is to be filed for record in
the real estate records of the county where the Land is situated.
Section 1.4 Pledge of Moneys Held. Borrower hereby pledges to Lender any
---------------------
and all moneys now or hereafter held by Lender, including any sums deposited in
the Escrow Fund (as defined in Section 3.5), Net Proceeds (as defined in Section
4.4), and condemnation awards or
-4-
<PAGE>
payments described in Section 4.4, as additional security for the Obligations
until expended or applied as provided in this Security Instrument.
Article 2 - DEBT AND OBLIGATIONS SECURED
Section 2.1 Debt. This Security Instrument and the grants, assignments
----
and transfers made in Article 1 are given for the purpose of securing the
following, in such order of priority as Lender may determine in its sole
discretion (the "Debt"):
(a) the payment of the indebtedness evidenced by the Note in lawful money
of the United States of America;
(b) the payment of interest, default interest, late charges and other sums,
as provided in the Note, the Credit Agreement, this Security Instrument or the
Other Security Documents (defined below);
(c) the payment of all other moneys agreed or provided to be paid by
Borrower in the Note, the Credit Agreement, this Security Instrument or the
Other Security Documents;
(d) the payment of all sums advanced by Lender pursuant to and in
accordance with this Security Instrument to protect and preserve the Property
and the lien and the security interest created hereby; and
(e) the payment of all sums advanced and costs and expenses incurred by
Lender in connection with the Debt or any part thereof, any renewal, extension,
or change of or substitution for the Debt or any part thereof, or the
acquisition or perfection of the security therefor, whether made or incurred at
the request of Borrower or Lender.
Section 2.2 Other Obligations. This Security Instrument and the grants,
-----------------
assignments and transfers made in Article 1 are also given for the purpose of
securing the following (the "Other Obligations"):
(a) the performance of all other obligations of Borrower contained herein;
(b) the performance of each obligation of Borrower contained in any other
agreement given by Borrower to Lender which is for the purpose of further
securing the obligations secured hereby, and any amendments, modifications and
changes thereto; and
(c) the performance of each obligation of Borrower contained in any
renewal, extension, amendment, modification, consolidation, change of, or
substitution or replacement for, all or any part of the Note, this Security
Instrument or the Other Security Documents.
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<PAGE>
Section 2.3 Debt and Other Obligations. Borrower's obligations for the
--------------------------
payment of the Debt and the performance of the Other Obligations shall be
referred to collectively below as the "Obligations."
Article 3 - BORROWER COVENANTS
Borrower covenants and agrees that:
Section 3.1 Payment of Debt. Borrower will pay the Debt at the time and
---------------
in the manner provided in the Note and in this Security Instrument.
Section 3.2 Incorporation by Reference. All the covenants, conditions
--------------------------
and agreements contained in (a) the Note and (b) all and any of the documents
other than the Note or this Security Instrument now or hereafter executed by
Borrower and/or others and by or in favor of Lender, which wholly or partially
secure or guaranty payment of the Note including the Loan Agreement (the "Other
Security Documents"), are hereby made a part of this Security Instrument to the
same extent and with the same force as if fully set forth herein.
Section 3.3 Insurance.
---------
(a) Borrower shall obtain and maintain, or cause to be maintained,
insurance for Borrower and the Property providing at least the following
coverages:
(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 100% of the "Full Replacement Cost," which for
purposes of this Security Instrument shall mean actual replacement value
(exclusive of costs of excavations, foundations, underground utilities and
footings) with a waiver of depreciation; (B) containing an agreed amount
endorsement with respect to the Improvements and Personal Property waiving all
co-insurance provisions; and (C) providing for no deductible in excess of the
lesser of $25,000.00 and one percent (1%) of the face value of such policy. In
addition, Borrower shall obtain (y) 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 (a) the outstanding principal balance of the Note or (b) 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 reasonably require; and (z) earthquake insurance in amounts and in form
and substance satisfactory to Lender, 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 3.3(a)(i) except that
the deductible on such insurance shall not be in excess of five percent (5%) of
the appraised value of the Property, or such greater deductible as may generally
be available from reputable insurers issuing such insurance and is in accordance
with customary
-6-
<PAGE>
requirements of institutional lenders with respect to similar loans secured by
deeds of trust on similar buildings in similar localities;
(ii) commercial general liability insurance against claims for
personal injury, bodily injury, death or property damage occurring upon, in or
about the Property, such insurance (A) to be on the so-called "occurrence" form
with a combined single limit of not less than $1,000,000.00; (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; (4) blanket contractual liability for all written and
oral contracts; and (5) contractual liability covering the indemnities contained
in Article 13 hereof to the extent the same is available;
(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 3.3(a)(i); (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 of the loss, whichever first
occurs, and notwithstanding that the policy may expire prior to the end of such
period; and (D) in an amount equal to 100% of the projected gross income from
the Property for a period of twelve (12) months. 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 twelve (12) month period. All insurance
proceeds payable to Lender pursuant to this Subsection 3.3(a)(iii) shall be held
by Lender and shall be applied to the obligations secured hereunder 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 hereunder on the respective dates of payment
provided for in the Note 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 (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
3.3(a)(i) 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 3.3(a)(i), (3) including permission to occupy the 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 Property is located, and employer's liability insurance with
a limit of at least $1,000,000.00 per accident and per disease per employee, and
$1,000,000.00 for disease aggregate in respect of any
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<PAGE>
work or operations on or about the Property, or in connection with the Property
or its operation (if applicable);
(vi) comprehensive boiler and machinery insurance with respect to
the Property, if applicable, in amounts as shall be reasonably required by
Lender on terms consistent with the commercial general liability insurance
policy required under Subsection 3.3(a)(ii);
(vii) umbrella liability insurance in an amount not less than
$25,000,000.00 per occurrence on terms consistent with the commercial general
liability insurance policy required under Subsection 3.3(a)(ii);
(viii) motor vehicle liability coverage for all owned and non-owned
vehicles used in the operation of the Property, including rented and leased
vehicles containing minimum limits per occurrence of $1,000,000.00; and
(ix) such other insurance and in such amounts as Lender from time
to time may reasonably request against such other insurable hazards which at the
time are commonly insured against for property similar to the Property located
in or around the region in which the Property is located.
(b) All insurance provided for in Subsection 3.3(a) hereof shall be
obtained under valid and enforceable policies (the "Policies" or in the
singular, the "Policy"), and shall be subject to the approval of Lender as to
insurance companies, amounts, forms, deductibles, loss payees and insureds. 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 approved by Lender. The insurance companies must have an investment
grade rating for claims paying ability assigned by Moody's Investors Service,
Inc. and Standard & Poor's Corporation and/or an A.M. Best Rating of A:IX or
better for claims paying ability (each such insurer shall be referred to below
as a "Qualified Insurer"). The Policies described in Subsections 3.3(a)(i),
(iii), (iv)(B) and (vi) shall designate Lender as loss payee. Not less than
fifteen (15) days prior to the expiration dates of the Policies theretofore
furnished to Lender pursuant to Subsection 3.3(a), certificates of insurance
marked "premium paid" or accompanied by evidence satisfactory to Lender of
payment of the premiums due thereunder (the "Insurance Premiums"), shall be
delivered by Borrower to Lender; provided, however, that if an insurer permits
payment of the Insurance Premium on a Policy in installments, Borrower may elect
to pay in installments, in which event Borrower will timely pay each such
installment when due and will deliver to Lender, not more than thirty (30) days
after payment of the first such installment, a copy of the insurer's written
acknowledgement of receipt of payment of such installment together with a
schedule of all installment amounts and due dates.
(c) In the event Borrower obtains an umbrella or a blanket Policy, Borrower
shall notify Lender of the same and shall cause certified copies of each Policy
to be delivered as required in Subsection 3.3(a). Any blanket insurance Policy
shall specifically allocate to the Property the amount of coverage from time to
time required hereunder and shall otherwise
-8-
<PAGE>
provide the same protection as would a separate Policy insuring only the
Property in compliance with the provisions of Subsection 3.3(a).
(d) All Policies of insurance provided for or contemplated by Subsection
3.3(a), except for the Policy referenced in Subsection (a)(v), shall name Lender
and Borrower as the insured or additional insured, as their respective 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 as and to the extent set forth in Section 4.4 hereof shall be payable
to Lender.
(e) All Policies of insurance provided for in Subsection 3.3(a) 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 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 insured;
(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) Borrower shall furnish to Lender, on or before thirty (30) days after
the close of each of Borrower's fiscal years, a statement certified by Borrower
or a duly authorized officer of Borrower of the amounts of insurance maintained
in compliance herewith, of the risks covered by such insurance and of the
insurance company or companies which carry such insurance.
(g) 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 the obtaining of such
insurance coverage as Lender in its sole discretion deems appropriate, and all
expenses 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 this Security Instrument and shall
bear interest in accordance with Section 10.3 hereof.
(h) If the Property shall be damaged or destroyed, in whole or in part, by
fire or other casualty, and if in part, the cost of restoration is estimated to
exceed $50,000, Borrower shall
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<PAGE>
give prompt notice of such damage to Lender and shall promptly commence and
diligently prosecute the completion of the repair and restoration of the
Property as nearly as possible to the condition the Property was in immediately
prior to such fire or other casualty, with such alterations as may be reasonably
approved by Lender (the "Restoration") and otherwise in accordance with Section
4.4 of this Security Instrument. 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;
(i) In the event of foreclosure of this Security Instrument, or other
transfer of title to the Property in extinguishment in whole or in part of the
Debt, all right, title and interest of Borrower in and to such policies then in
force concerning the 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 3.4 Payment of Taxes, etc. Borrower shall promptly pay all
---------------------
taxes, assessments, water rates, sewer rents, governmental impositions, and
other charges, including vault charges and license fees for the use of vaults,
chutes and similar areas adjoining the Land, now or hereafter levied or assessed
or imposed against the Property or any part thereof (the "Taxes"), all ground
rents, maintenance charges and similar charges, now or hereafter levied or
assessed or imposed against the Property or any part thereof (the "Other
Charges"), and all charges for utility services provided to the Property as same
become due and payable, in each case to the extent payable by Borrower directly.
Borrower will deliver to Lender, promptly upon Lender's request, evidence
satisfactory to Lender that the Taxes, Other Charges and such utility service
charges have been so paid or are not then delinquent. 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 the Property (other than a
Permitted Encumbrance). After prior notice to Lender, in the case of any
material item, 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 of
the Taxes, provided that (i) no Event of Default exists under this Security
Instrument or the Credit Agreement, (ii) Borrower is permitted to do so under
the provisions of the Ground Lease, if applicable, (iii) such proceeding shall
suspend the collection of the Taxes from Borrower and from the Property, (iv)
such proceeding shall be permitted under and be conducted in accordance with the
provisions of any other instrument to which Borrower or the Property is subject
and shall not constitute a default thereunder, (v) neither the Property nor any
part thereof or interest therein will be in danger of being sold, forfeited,
terminated, cancelled or lost as a result of such proceeding, (vi) Borrower
shall have set aside adequate reserves for the payment of the Taxes, together
with all interest and penalties thereon, and (vii) Borrower shall have furnished
such security as may be required in the proceeding to insure the payment of any
such Taxes, together with all interest and penalties thereon.
Section 3.5 Escrow Fund. If an Event of Default (hereinafter defined)
-----------
shall have occurred and be continuing, at the option of Lender, evidenced by a
written notice thereof to Borrower, Borrower shall thereafter pay to Lender on
the first day of each calendar month (a)
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<PAGE>
one-twelfth of an amount which would be sufficient to pay the Taxes payable, or
estimated by Lender to be payable, during the next ensuing twelve (12) months
and (b) one-twelfth of an amount which would be sufficient to pay the Insurance
Premiums due for the renewal of the coverage afforded by the Policies upon the
expiration thereof (the amounts in (a) and (b) above shall be called the "Escrow
Fund"). So long as the Escrow Fund is in effect, Borrower agrees to notify
Lender immediately of any changes to the amounts, schedules and instructions for
payment of any Taxes and Insurance Premiums of which it has obtained knowledge
and authorizes Lender or its agent to obtain the bills for Taxes and Other
Charges directly from the appropriate taxing authority. The 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.
So long as the Escrow Fund is in effect, Lender will apply the Escrow Fund to
payments of Taxes and Insurance Premiums required to be made by Borrower
pursuant to Sections 3.3 and 3.4 hereof, and if the amount of the Escrow Fund
shall exceed the amounts due for Taxes and Insurance Premiums pursuant to
Sections 3.3 and 3.4 hereof, Lender shall, in its discretion, return any excess
to Borrower or credit such excess against future payments to be made to the
Escrow Fund. If the Escrow Fund is not sufficient to pay the items set forth in
clauses (a) and (b) of this Section 3.5 above, Borrower shall promptly pay to
Lender, upon demand, an amount which Lender shall estimate as sufficient to make
up the deficiency. The Escrow Fund shall not constitute a trust fund and may be
commingled with other moneys held by Lender. No earnings or interest on the
Escrow Fund shall be payable to Borrower.
Section 3.6 Condemnation. Borrower shall promptly give Lender notice of
------------
the actual or threatened commencement of any condemnation or eminent domain
proceeding 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 reasonably 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 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 Security Instrument and
the Debt shall not be reduced as a result of such condemnation or eminent domain
proceeding until any award or payment therefor shall have been actually received
and applied by Lender, after the deduction of 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 4.4 of this
Security Instrument. If the Property is sold, through foreclosure or otherwise,
prior to the receipt by Lender of the award or payment, 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 payment, or a portion thereof
sufficient to pay the Debt.
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<PAGE>
Section 3.7 Leases and Rents. (a) Except as otherwise consented to by
----------------
Lender, all Leases shall be written on the standard form of lease which shall
have been approved by Lender. 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 and shall be arms-length transactions with bona fide, independent third-
party tenants (except for approximately 8,000 square feet of space in the
property located at 12348 High Bluff Drive, which is occupied by Borrower or its
affiliate (the "Related Party Space")). All proposed leases and renewals of
existing Leases other than Minor Leases (hereinafter defined) shall be subject
to the prior approval of Lender and its counsel, at Borrower's expense. All
Leases hereafter entered into shall provide that they are subordinate to this
Security Instrument and that the lessee agrees to attorn to Lender, or the
tenant shall execute a subordination, nondisturbance and attornment agreement
satisfactory to Lender. Borrower (i) shall observe and perform all the
obligations imposed upon the lessor under the Leases and shall not do or permit
to be done anything to materially impair 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 in a
commercially prudent manner all of the terms, covenants and conditions contained
in the Leases upon the part of the lessee thereunder to be observed or
performed; (iv) shall not collect any of the Rents more than one (1) month in
advance; (v) shall not execute any other assignment of the lessor's interest in
the Leases or the Rents other than in favor of Lender; (vi) shall not alter,
modify or change the material terms of the Leases in a material adverse manner
without the prior written consent of Lender, or cancel or terminate the Leases
except in accordance with their respective terms or accept a surrender thereof
(except in the event of a default by the tenant under the Lease) or convey or
transfer or suffer or permit a conveyance or transfer of the Land or of any
interest therein so as to effect a merger of the estates and rights of, or a
termination or diminution of the obligations of, lessees thereunder; (vii) shall
not alter, modify or change the terms of any guaranty, letter of credit or other
credit support with respect to the Leases (the "Lease Guaranty") in a manner
adverse to Lender's interests or cancel or terminate such Lease Guaranty except
in accordance with its terms without the prior written consent of Lender; and
(viii) shall not consent to any assignment of or subletting under the Leases not
in accordance with their terms, without the prior written consent of Lender.
(b) Notwithstanding the provisions of Subsection (a) above, renewals of
existing Leases and proposed Leases shall not be subject to the prior approval
of Lender provided: (i) the renewal Lease or proposed lease covers less than
15,000 rentable square feet of space ("Minor Leases"), (ii) no rent credits,
free rents or concessions have been granted under the renewal Lease or proposed
lease in excess of then current market terms, (iii) the renewal Lease or
proposed lease shall provide for rental rates and terms comparable to existing
local market rates and terms, but in no event less than the previous lease for
such space, and (iv) the renewal Lease or proposed lease shall be an arms-length
transaction with a bona fide, independent third party tenant (except with
respect to the Related Party Space). Borrower shall deliver to Lender copies of
all Leases which are entered into pursuant to the preceding sentence together
with Borrower's certification that it has satisfied all of the conditions of the
preceding sentence within thirty (30) days after the execution of the Lease.
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<PAGE>
(c) Upon and during the continuance of an Event of Default, to the extent
permitted by law, Borrower shall promptly deposit with Lender any and all moneys
actually received by Borrower representing security deposits under the Leases
(the "Security Deposits"). Lender shall hold the Security Deposits (i) in
accordance with the terms of the respective Lease, and shall only release the
Security Deposits in order to return a tenant's Security Deposit to such tenant
if such tenant is entitled to the return of the Security Deposit under the terms
of the Lease and is not otherwise in default under the Lease, or (ii) to
Borrower, if Borrower is entitled thereto pursuant to the provisions of the
Lease. To the extent required by Applicable Laws (defined below), Lender shall
hold the Security Deposits in an interest bearing account selected by Lender in
its sole discretion.
Section 3.8 Maintenance of Property. Borrower shall cause the Property
-----------------------
to be maintained in a good and safe condition and repair, subject to ordinary
wear and tear. The Improvements and the Personal Property shall not be removed,
demolished or materially altered (except for normal replacement of the Personal
Property) without the consent of Lender. Borrower shall promptly repair, replace
or rebuild any part of the Property which may be destroyed by any casualty, or
become damaged, worn or dilapidated or which may be affected by any proceeding
of the character referred to in Section 3.6 hereof and shall complete and pay
for any structure at any time in the process of construction or repair on the
Land. Borrower shall not initiate, join in, acquiesce in, or consent to any
change in any private restrictive covenant, zoning law or other public or
private restriction, limiting or defining the uses which may be made of the
Property or any part thereof. If under applicable zoning provisions the use of
all or any portion of the Property is or shall become a nonconforming use,
Borrower will not cause or permit the nonconforming use to be discontinued or
abandoned without the express written consent of Lender, which consent shall not
be unreasonably withheld or delayed.
Section 3.9 Waste. Borrower shall not commit or suffer any waste of the
-----
Property or make any change in the use of the Property which will in any way
materially increase the risk of fire or other hazard arising out of the
operation of the Property, or take any action that could reasonably be expected
to result in the invalidation or cancellation of any Policy, or do or permit to
be done thereon anything that may in any way materially impair the value of the
Property or the security of this Security Instrument. Borrower will not, without
the prior written consent of Lender, permit any drilling or exploration for or
extraction, removal, or production of any minerals from the surface or the
subsurface of the Land, regardless of the depth thereof or the method of mining
or extraction thereof.
Section 3.10 Compliance With Laws. (a) Borrower shall promptly comply
--------------------
with all existing and future federal, state and local laws, orders, ordinances,
governmental rules and regulations or court orders affecting the Property, or
the use thereof including the Americans with Disabilities Act ("ADA")
(collectively, the "Applicable Laws"), to the extent provided in Section 6.1(a)
of the Credit Agreement.
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<PAGE>
(b) Borrower shall from time to time, upon Lender's request, provide Lender
with evidence satisfactory to Lender that the Property complies with all
Applicable Laws or is exempt from compliance with Applicable Laws.
(c) Notwithstanding any provisions set forth herein or in any document
regarding Lender's approval of alterations of the Property, Borrower shall not
alter the Property in any manner which would materially increase Borrower's
responsibilities for compliance with Applicable Laws without the prior written
approval of Lender. Lender's approval of the plans, specifications, or working
drawings for alterations of the Property shall create no responsibility or
liability on behalf of Lender for their completeness, design, sufficiency or
their compliance with Applicable Laws. The foregoing shall apply to tenant
improvements constructed by Borrower or by any of its tenants. Lender may
condition any such approval upon receipt of a certificate of compliance with
specific Applicable Laws from an independent architect, engineer, or other
person acceptable to Lender.
(d) Borrower shall give prompt notice to Lender of the receipt by Borrower
of any notice related to a violation of any Applicable Laws and of the
commencement of any proceedings or investigations which relate to compliance
with Applicable Laws.
(e) Borrower will take commercially reasonable measures to prevent, and
will not engage in or knowingly permit, any illegal activities at the Property.
Section 3.11 Books and Records. Borrower and any Guarantors (defined in
-----------------
Subsection 10.1(e)) and Indemnitors (defined in Subsection 10.1(k)), if any,
shall keep adequate books and records of account as provided in the Credit
Agreement.
Section 3.12 Payment For Labor and Materials. Borrower will promptly pay
-------------------------------
when due all bills and costs for labor, materials, and specifically fabricated
materials incurred in connection with the Property and never permit to exist
beyond the due date thereof in respect of the Property or any part thereof any
lien or security interest, even though inferior to the liens and the security
interests hereof, and in any event never permit to be created or exist in
respect of the Property or any part thereof any other or additional lien or
security interest other than the liens or security interests hereof, except for
the Permitted Exceptions (defined below).
Section 3.13 Performance of Other Agreements. Borrower shall observe and
-------------------------------
perform each and every term to be observed or performed by Borrower pursuant to
the terms of any agreement or recorded instrument affecting or pertaining to the
Property, or given by Borrower to Lender for the purpose of further securing an
obligation secured hereby and any amendments, modifications or changes thereto.
Section 3.14 Change of Name, Identity or Structure. Borrower will not
-------------------------------------
change Borrower's name, identity (including its trade name or names) or, if not
an individual, Borrower's corporate, partnership or other structure without
notifying Lender of such change in writing at least thirty (30) days prior to
the effective date of such change and, in the case of a change in Borrower's
structure, without first obtaining the prior written consent of Lender.
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<PAGE>
Borrower will execute and deliver to Lender, prior to or contemporaneously with
the effective date of any such change, any financing statement or financing
statement change required by Lender to establish or maintain the validity,
perfection and priority of the security interest granted herein. At the request
of Lender, Borrower shall execute a certificate in form satisfactory to Lender
listing the trade names under which Borrower intends to operate the Property,
and representing and warranting that Borrower does business under no other trade
name with respect to the Property.
Section 3.15 Existence. Borrower will continuously maintain its
---------
existence and its rights to do business in the state where the Property is
located together with its franchises and trade names.
Article 4 - SPECIAL COVENANTS
Borrower covenants and agrees that:
Section 4.1 Property Use. The Property shall be used only as commercial
------------
buildings and for no other use without the prior written consent of Lender,
which consent may be withheld in Lender's sole and absolute discretion.
Section 4.2 ERISA. (a) 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 Security
Instrument and the Other Security 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").
(b) Borrower further covenants and agrees to deliver to Lender such
certifications or other evidence from time to time throughout the term of the
Security Instrument, as requested by Lender in its sole discretion, that (i)
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(32) of ERISA; (ii) Borrower is not subject to state
statutes regulating investments and fiduciary obligations with respect to
governmental plans; and (iii) one or more of the following circumstances is
true:
(A) Equity interests in Borrower are publicly offered securities,
within the meaning of 29 C.F.R. (S) 2510.3-101(b)(2);
(B) Less than 25 percent 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
(C) 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.
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Section 4.3 Intentionally Deleted.
---------------------
Section 4.4 Restoration. As used herein, an "Individual Premises" shall
-----------
mean each of (x) the Land conveyed pursuant to the Ground Lease and the
Improvements now or hereafter erected or located thereon and (y) each parcel of
Land described in Exhibit A and the Improvements now or hereafter erected or
located thereon. The following provisions shall apply in connection with the
Restoration of each Individual Premises:
(a) If the Net Proceeds (as defined below) shall be less than $1,000,000.00
and the costs of completing the Restoration shall be less than $1,000,000.00,
the Net Proceeds will be disbursed by Lender to Borrower upon receipt, provided
that all of the conditions set forth in Subsection 4.4(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 Security Instrument.
(b) If the Net Proceeds are equal to or greater than $1,000,000.00 or the
costs of completing the Restoration is equal to or greater than $1,000,000.00
Lender shall make the Net Proceeds available for the Restoration in accordance
with the provisions of this Subsection (b). The term "Net Proceeds" for purposes
of this Section 4.4 shall mean: (i) the net amount of all insurance proceeds
received by Lender pursuant to Subsections 3.3(a) of this Security Instrument as
a result of such damage or destruction, after deduction of its reasonable costs
and expenses (including reasonable counsel fees), if any, in collecting same
("Insurance Proceeds"), or (ii) the net amount of all awards and payments
received by Lender with respect to a taking referenced in Section 3.6 of this
Security Instrument, after deduction of its reasonable costs and expenses
(including 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 the
Restoration provided that each of the following conditions are met:
(A) no Event of Default shall have occurred and be
continuing under the Note, this Security Instrument or any of the Other Security
Documents;
(B) Borrower shall commence the Restoration as soon as
reasonably practicable (but in no event later than thirty (30) days after such
damage or destruction or taking, whichever the case may be, occurs) and shall
diligently pursue the same to satisfactory completion;
(C) Lender shall be satisfied that any operating deficits,
including all scheduled payments of principal and interest under the Note which
will be incurred with respect to the 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
Subsection 3.3(a)(iii), if applicable, or (3) by other funds of Borrower;
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(D) Lender shall be satisfied that, upon the completion of
the Restoration, the Debt Service Coverage Ratio (as defined in the Credit
Agreement) shall be at least 1.25 to 1.0, as determined by Lender in its sole
and absolute discretion;
(E) Lender shall be satisfied that the Restoration will be
completed on or before the earliest to occur of (1) twelve (12) months prior to
the Maturity Date (as defined in the Credit Agreement), (2) twelve (12) months
after the occurrence of such fire or other casualty or taking, whichever the
case may be, or (3) such time as may be required under applicable zoning law,
ordinance, rule or regulation in order to repair and restore the Individual
Premises 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;
(F) the Individual Premises and the use thereof after the
Restoration will be in compliance with and permitted under all applicable zoning
laws, ordinances, rules and regulations;
(G) the Restoration shall be done and completed by Borrower
in an expeditious and diligent fashion and in compliance with all applicable
governmental laws, rules and regulations (including all applicable Environmental
Laws) defined below;
(H) such fire or other casualty or taking, as applicable,
does not result in the loss of access to the Individual Premises, including the
Improvements thereof; and
(I) no default shall have occurred and be continuing
pursuant to the Ground Lease.
(ii) The Net Proceeds not otherwise disbursed to Borrower in
accordance herewith shall be held by Lender and, until disbursed in accordance
with the provisions of this Subsection 4.4(b), shall constitute additional
security for the Obligations. 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 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
Property arising out of the Restoration which have not either been fully bonded
to the satisfaction of Lender and discharged of record or in the alternative
fully insured to the satisfaction of Lender by the title company insuring the
lien of this Security Instrument.
(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"). Lender shall have the use of the plans and
specifications and all permits, licenses and approvals required or obtained in
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connection with the Restoration. All costs and expenses incurred by Lender in
connection with making the Net Proceeds available for the Restoration, including
reasonable counsel fees and disbursements and the Casualty Consultant's fees,
shall be paid by Borrower.
(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" as used in this Subsection (b) shall mean an amount equal to 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 Subsection (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 Subsection (b) and that all
approvals necessary for the re-occupancy and use of the 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, and 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 insuring the lien of this Security Instrument. 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 opinion of Lender, 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 disbursement of the Net Proceeds, and until so
disbursed pursuant to this Subsection 4.4(b) shall constitute additional
security for the Obligations.
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<PAGE>
(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 Subsection 4.4(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 Subsection 4.4(b)(vii) may be retained and applied by Lender toward the
payment of the Debt whether or not then due and payable in such order, priority
and proportions as Lender in its discretion shall deem proper 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. If
Lender shall receive and retain Net Proceeds, the lien of this Security
Instrument shall be reduced only by the amount thereof received and retained by
Lender and actually applied by Lender in reduction of the Debt.
Section 4.5 The Ground Lease. (a) Borrower shall (i) pay all rents,
----------------
additional rents and other sums required to be paid by Borrower, as tenant under
and pursuant to the provisions of the Ground Lease, (ii) diligently perform and
observe all of the terms, covenants and conditions of the Ground Lease on the
part of Borrower, as tenant thereunder, to be performed and observed, unless
such performance or observance shall be waived or not required by the landlord
under the Ground Lease ("Ground Lessor"), to the end that all things shall be
done which are necessary to keep unimpaired the rights of Borrower, as tenant,
under the Ground Lease, and (iii) promptly notify Lender of the giving of any
notice by the Ground Lessor to Borrower of any of the terms, covenants or
conditions of the Ground Lease on the part of Borrower, as tenant thereunder, to
be performed or observed and deliver to Borrower a true copy of each such
notice.
(b) Borrower shall not, without the prior consent of Lender, surrender the
leasehold estate created by the Ground Lease or terminate or cancel the Ground
Lease or modify, change, supplement, alter or amend the Ground Lease, in any
respect, either orally or in writing, and Borrower hereby assigns to Lender, as
further security for the payment of the Debt and for the performance and
observance of the terms, covenants and conditions of this Security Instrument,
all of the rights, privileges and prerogatives of Borrower, as tenant under the
Ground Lease, to surrender the leasehold estate created by the Ground Lease or
to terminate, cancel, modify, change, supplement, alter or amend the Ground
Lease, and any such surrender of the leasehold estate created by the Ground
Lease without the prior consent of Lender shall be void and of no force and
effect.
(c) If Borrower shall default in the performance or observance of any term,
covenant or condition of the Ground Lease on the part of Borrower, as tenant
thereunder, to be performance or observed, then, without limiting the generality
of the other provisions of this Security Instrument, and without waiving or
releasing Borrower from any of its obligations
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<PAGE>
hereunder, Lender shall have the right, but shall be under no obligation, to pay
any sums and to perform any act or take any action as may be appropriate to
cause all of the terms, covenants and conditions of the Ground Lease on the part
of Borrower, as tenant thereunder, to be performed or observed to be promptly
performed or observed on behalf of Borrower, to the end that the rights of
Borrower in, to and under the Ground Lease shall be kept unimpaired and free
from default. If Lender shall make any payment or perform any act or take action
in accordance with the preceding sentence, Lender will notify Borrower of the
making of any such payment, the performance of any such act, or taking of any
such action. In any such event, subject to the rights of lessees, sublessees and
other occupants under the Leases, Lender and any person designated by Lender
shall have, and are hereby granted, the right to enter upon the Leased Land
(such term being used herein as defined in the Credit Agreement) and at any time
and from time to time for the purpose of taking any such action.
(d) If Ground Lessor shall deliver to Lender a copy of any notice of
default sent by Ground Lessor to Borrower, as tenant under the Ground Lease,
such notice shall constitute full protection to Lender for any action taken or
omitted to be taken by Lender, in good faith, in reliance thereon.
(e) Borrower shall, from time to time, use its best efforts to obtain from
Ground Lessor such certificates of estoppel with respect to compliance by
Borrower with the terms of the Ground Lease as may reasonably be requested by
Lender in substantially the form delivered to Lender on or prior to the date
hereof.
(f) Borrower shall exercise each individual option, if any, to extend or
renew the term of the Ground Lease upon demand by Lender made any time within
one (1) year of the last day upon which any such option may be exercised, and
Borrower hereby expressly authorizes and appoints Lender its attorney-in-fact to
exercise any such option in the name of and upon behalf of Borrower, which power
of attorney shall be irrevocable and shall be deemed to be coupled with an
interest.
(g) So long as any portion of the Debt shall remain unpaid, unless Lender
shall otherwise consent, the fee title to the Land, and the leasehold estate
therein created pursuant to the provisions of the Ground Lease shall not merge
but shall always be kept separate and distinct, notwithstanding the union of
such estates in Borrower, or in any other person by purchase, option of law or
otherwise. If Lender shall acquire the fee title to the Land and the leasehold
estate therein created pursuant to the provisions of the Ground Lease, by
foreclosure of this Secured Instrument or otherwise, such estates shall not
merge as a result of such acquisition and shall remain separate and distinct for
all purposes after such acquisition unless and until Lender shall elect to merge
such estates.
(h) To the extent permitted by law, the price payable by Borrower or any
other person or entity in the exercise of any right of redemption following
foreclosure of the Property demised pursuant to the Ground Lease shall include
all rents paid and other sums advanced by Lender,
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together with interest thereon at the Default Rate, as ground lessee under the
Ground Lease, on behalf of Borrower on account of such Property.
(i) Upon acquisition of the fee title or any other estate, title or
interest in the Leased Land, this Security Instrument shall, automatically and
without the necessity of execution of any other documents, attach to and cover
and be a lien upon such other estate so acquired, and such other estate shall be
considered as mortgaged, assigned and conveyed to Lender and the lien hereof
spread to cover such estate with the same force and effect as though
specifically herein mortgaged, assigned and conveyed. Borrower shall execute
such instruments as Lender may require to confirm any such spreads. The
provisions of this subsection (i) shall not apply if Lender acquires title to
the Leased Land unless Lender shall so elect.
(j) Each Lease hereafter made for space in the improvements located on the
Leased Property (each, a "Leased Property Space Lease") and each renewal of any
existing Leased Property Space Lease shall provide that, (i) in the event of the
termination of the Ground Lease, the Leased Property Space Lease shall not
terminate or be terminable by the tenant thereunder; (ii) in the event of any
action for the foreclosure of this Security Instrument, the Leased Property
Space Lease shall not terminate or be terminable by the tenant thereunder by
reason of the termination of the Ground Lease unless such tenant is specifically
named and joined in any such action and unless a judgment is obtained therein
against such tenant; and (iii) in the event that the Ground Lease is terminated
as aforesaid, the tenant under the Leased Property Space Lease shall attorn to
the tenant under the Ground Lease or to the purchaser at the sale of the Leased
Property on such foreclosure, as the case may be.
(k) Borrower hereby assigns, transfers and sets over to Lender all of
Borrower's claims and rights to the payment of damages arising from any
rejection by the Ground Lessor of the Ground Lease under the Bankruptcy Code.
Borrower shall notify Lender promptly (and in any event within ten (10) days) of
any claim, suit action or proceeding relating to the rejection of the Ground
Lease. Lender is hereby irrevocably appointed as Borrower's attorney-in-fact,
coupled with an interest, with exclusive power to file and prosecute, to the
exclusion of Borrower during the continuance of an Event of Default, any proofs
of claim, complaints, motions, applications, notices and other documents, in any
case in respect of the Ground Lessor under the Bankruptcy Code. Borrower may
make any compromise or settlement in connection with such proceedings (subject
to Lender's reasonable approval); provided, however, that Lender shall be
authorized and entitled to compromise or settle any such proceeding if such
compromise or settlement is made after the occurrence and during the continuance
of an Event of Default. Borrower shall promptly execute and deliver to Lender
any and all instruments reasonably required in connection with any such
proceeding after request therefor by Lender. Except as set forth above, Borrower
shall not adjust, compromise, settle or enter into any agreement with respect to
such proceedings without the prior written consent of Lender.
(l) Borrower shall not, without Lender's prior written consent, elect to
treat the Ground Lease as terminated under Section 365(h)(l) of the Bankruptcy
Code. Any such election made without Lender's prior written consent shall be
void.
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(m) If pursuant to Section 365(h)(2) of the Bankruptcy Code, Borrower seeks
to offset against the rent reserved in the Ground Lease the amount of any
damages caused by the non-performance by the Ground Lessor of any of the Ground
Lessor's obligations under the Ground Lease after the rejection by the Ground
Lessor of the Ground Lease under the Bankruptcy Code, Borrower shall, prior to
effecting such offset, notify Lender of its intention to do so, setting forth
the amounts proposed to be so offset and the basis therefor. If Lender has
failed to object as aforesaid within ten (10) days after notice from Borrower in
accordance with the first sentence of this subsection (m), Borrower may proceed
to effect such offset in the amounts set forth in Borrower's notice. Neither
Lender's failure to object as aforesaid nor any objection or other communication
between Lender and Borrower relating to such offset shall constitute an approval
of any such offset by Lender. Borrower shall indemnify and save Lender harmless
from and against any and all claims, demands, actions, suits, proceedings,
damages, losses, costs and expenses of every nature whatsoever (including
reasonable attorneys' fees and disbursements) arising from or relating to any
such offset by Borrower against the rent reserved in the Ground Lease, other
than to the extent arising from Lender's gross negligence or willful misconduct.
(n) If any action, proceeding, motion or notice shall be commenced or filed
in respect of Borrower or, after the occurrence and during the continuance of an
Event of Default, the Property in connection with any case under the Bankruptcy
Code, Lender shall have the option, to the exclusion of Borrower, exercisable
upon notice from Lender to Borrower, to conduct and control any such litigation
with respect to the Ground Lease with counsel of Lender's choice. Lender may
proceed in its own name or in the name of Borrower in connection with any such
litigation, and Borrower agrees to execute any and all powers, authorizations,
consents and other documents required by Lender in connection therewith.
Borrower shall pay to Lender all costs and expenses (including reasonable
attorneys' fees and disbursements) paid or incurred by Lender in connection with
the prosecution or conduct of any such proceedings within ten (10) days after
notice from Lender setting forth such costs and expenses in reasonable detail.
Any such costs or expenses not paid by Borrower as aforesaid shall be secured by
the lien of this Security Instrument, shall be added to the principal amount of
the Debt and shall bear interest at the Default Interest Rate. Borrower shall
not commence any action, suit, proceeding or case, or file any application or
make any motion, in respect of the Ground Lease in any such case under the
Bankruptcy Code without the prior written consent of Lender.
(o) Borrower shall immediately, after obtaining knowledge thereof, notify
Lender of any filing by or against the Ground Lessor of a petition under the
Bankruptcy Code. Borrower shall thereafter forthwith give written notice of such
filing to Lender, setting forth any information available to Borrower as to the
date of such filing, the court in which such petition was filed, and the relief
sought therein. Borrower shall promptly deliver to Lender following receipt any
and all notices, summonses, pleadings, applications and other documents received
by Borrower in connection with any such petition and any proceedings relating
thereto.
(p) If there shall be filed by or against Borrower a petition under the
Bankruptcy Code, and Borrower, as the tenant under the Ground Lease, shall
determine to reject the Ground
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Lease pursuant to Section 365(a) of the Bankruptcy Code, then Borrower shall
give Lender not less than ten (10) days' prior notice of the date on which
Borrower shall apply to the bankruptcy court for authority to reject the Ground
Lease. Lender shall have the right, but not the obligation, to serve upon
Borrower within such 10-day period a notice stating that (i) Lender demands that
Borrower assume and assign the Ground Lease to Lender pursuant to Section 365 of
the Bankruptcy Code and (ii) Lender covenants to cure or provide adequate
assurance of prompt cure of all defaults and provide adequate assurance of
future performance under the Ground Lease. If Lender serves upon Borrower the
notice described in the preceding sentence, Borrower shall not seek to reject
the Ground Lease and shall comply with the demand provided for in clause (i) of
the preceding sentence within thirty (30) days after the notice shall have been
given, subject to the performance by Lender of the covenant provided for in
clause (ii) of the preceding sentence.
(q) Effective upon the entry of an order for relief in respect of Borrower
under the Bankruptcy Code, Borrower hereby assigns and transfers to Lender a
non-exclusive right to apply to the Bankruptcy Code under Section 365(d)(4) of
the Bankruptcy Code for an order extending the period during which the Ground
Lease may be rejected or assumed.
Article 5 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
Section 5.1 Warranty of Title. Borrower warrants the title to the Land,
-----------------
the Improvements, the Personal Property and the Ground Lease, subject to
Permitted Encumbrances.
Section 5.2 Authority. Borrower (and the undersigned representative of
---------
Borrower, if any) has full power, authority and legal right to execute this
Security Instrument, and to mortgage, grant, bargain, sell, pledge, assign,
warrant, transfer and convey the Property pursuant to the terms hereof and to
keep and observe all of the terms of this Security Instrument on Borrower's part
to be performed.
Section 5.3 Legal Status and Authority. Borrower (a) is duly organized,
--------------------------
validly existing and in good standing under the laws of its state of
organization; (b) is duly qualified to transact business and is in good standing
in the State where the Property is located; and (c) has all necessary approvals,
governmental and otherwise, and full power and authority to own the Property and
carry on its business as now conducted and proposed to be conducted. Borrower
now has and shall continue to have the full right, power and authority to
operate and lease the Property, to encumber the Property as provided herein and
to perform all of the other obligations to be performed by Borrower under the
Note, this Security Instrument and the Other Security Documents.
Section 5.4 Validity of Documents. (a) The execution, delivery and
---------------------
performance of the Note, this Security Instrument and the Other Security
Documents and the borrowing evidenced by the Note (i) are within the partnership
power of Borrower; (ii) have been authorized by all requisite partnership
action; (iii) have received all necessary approvals and consents,
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corporate, governmental or otherwise; (iv) will not violate, conflict with,
result in a breach of or constitute (with notice or lapse of time, or both) a
default under any provision of law, any order or judgment of any court or
governmental authority, the partnership agreement or other governing instruments
of Borrower, or any indenture, agreement or other instrument to which Borrower
is a party or by which it or any of its assets or the Property is or may be
bound or affected; (v) will not result in the creation or imposition of any
lien, charge or encumbrance whatsoever upon any of its assets, except the lien
and security interest created hereby; and (vi) will not require any
authorization or license from, or any filing with, any governmental or other
body (except for the recordation of this instrument and an Assignment of Leases
and Rents being given contemporaneously herewith by Borrower to Lender in
appropriate land records in the State where the Property is located and except
for Uniform Commercial Code filings relating to the security interest created
hereby); and (b) the Note, this Security Instrument and the Other Security
Documents constitute the legal, valid and binding obligations of Borrower.
Section 5.5 Litigation. There is no action, suit or proceeding,
----------
judicial, administrative or otherwise (including any condemnation or similar
proceeding), pending or, to the best of Borrower's knowledge, threatened or
contemplated against, or affecting, Borrower, a Guarantor, if any, an
Indemnitor, if any, or the Property that would be reasonably expected to have a
Material Adverse Effect (said term being used herein as defined in the Credit
Agreement) that has not been disclosed to Lender or is not adequately covered by
insurance, as determined by Lender in its sole and absolute discretion.
Section 5.6 Status of Property. (a) To Borrower's knowledge, no portion
------------------
of the Improvements is located in an area identified by the Secretary of Housing
and Urban Development or any successor thereto as an area having special flood
hazards pursuant to the National Flood Insurance Act of 1968 or the Flood
Disaster Protection Act of 1973, as amended, or any successor law, or, if
located within any such area, Borrower has obtained and will maintain the
insurance prescribed in Section 3.3(a)(i)(y) hereof.
(b) Borrower has obtained all necessary certificates, licenses and other
approvals, governmental and otherwise, necessary for the operation of the
Property and the conduct of its business with respect to the Property and all
required zoning, building code, land use, environmental and other similar
permits or approvals relating to the foregoing, all of which are in full force
and effect as of the date hereof and not subject to revocation, suspension,
forfeiture or modification.
(c) To the best of Borrower's knowledge, the Property and the present and
contemplated use and occupancy thereof are in full compliance with all
Applicable Laws, including zoning ordinances, building codes, land use and
environmental laws, laws relating to the disabled (including the ADA) and other
similar laws.
(d) The Property is served by all utilities required for the current or
contemplated use thereof. All utility service is provided by public utilities
and the Property has accepted or is equipped to accept such utility service.
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(e) All public roads and streets necessary for service of and access to the
Property for the current or contemplated use thereof have been completed, are
serviceable and all-weather and are physically and legally open for use by the
public.
(f) The Property is served by public water and sewer systems.
(g) The Property is presently free from damage caused by fire or other
casualty.
(h) All costs and expenses of any and all labor, materials, supplies and
equipment used in the construction of the Improvements (i) have been paid in
full, or have been bonded, or adequate reserves therefor have been established,
or (ii) are not delinquent in payment.
(i) Borrower has paid in full for, and is the owner of, all furnishings,
fixtures and equipment (other than tenants' property) used in connection with
the operation of the Property, free and clear of any and all security interests,
liens or encumbrances, except the lien and security interest created hereby and
the other Permitted Encumbrances.
(j) All liquid and solid waste disposal, septic and sewer systems located
on the Property are in a good and safe condition and repair and in compliance
with all Applicable Laws.
(k) All Improvements lie within the boundary of the Land.
Section 5.7 No Foreign Person. Borrower is not a "foreign person"
-----------------
within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986,
as amended and the related Treasury Department regulations, including temporary
regulations.
Section 5.8 Separate Tax Lot. The Property is assessed for real estate
----------------
tax purposes as one or more wholly independent tax lot or lots, separate from
any adjoining land or improvements not constituting a part of such lot or lots,
and no other land or improvements is assessed and taxed together with the
Property or any portion thereof.
Section 5.9 ERISA Compliance. (a) As of the date hereof and throughout
----------------
the term of this Security Instrument, (i) Borrower is not and will not be an
"employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to
Title I of ERISA, and (ii) the assets of Borrower do not and will not constitute
"plan assets" of one or more such plans for purposes of Title I of ERISA; and
(b) As of the date hereof and throughout the term of this Security
Instrument (i) Borrower is not and will not be a "governmental plan" within the
meaning of Section 3(32) of ERISA and (ii) transactions by or with Borrower are
not and will not be subject to state statutes applicable to Borrower regulating
investments of and fiduciary obligations with respect to governmental plans.
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Section 5.10 Leases. (a) Borrower is the sole owner of the entire
------
lessor's interest in the Leases; (b) the Leases are valid and enforceable in
accordance with their terms; (c) the terms of all alterations, modifications and
amendments to the Leases are reflected in the certified rent roll delivered to
and approved by Lender contemporaneously herewith; (d) none of the Rents
reserved in the Leases have been assigned or otherwise pledged or hypothecated;
(e) none of the Rents have been collected for more than one (1) month in
advance; (f) 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 a rent-paying basis, except as disclosed in the tenant estoppel letters
delivered by Borrower to Lender on the date hereof; (g) there exist no offsets
or defenses to the payment of any portion of the Rents; (h) no Lease contains an
option to purchase, right of first refusal to purchase, or any other similar
provision; and (i) no person or entity has any possessory interest in, or right
to occupy, the Property except under and pursuant to a Lease.
Section 5.11 Financial Condition. (a) Borrower is solvent, and no
-------------------
bankruptcy, reorganization, insolvency or similar proceeding under any state or
federal law with respect to Borrower has been initiated, and (b) Borrower has
received reasonably equivalent value for the granting of this Security
Instrument.
Section 5.12 Business Purposes. The Loan is solely for the business
-----------------
purpose of Borrower, and is not for personal, family, household, or agricultural
purposes.
Section 5.13 Taxes. Borrower, any Guarantor and any Indemnitor have
-----
filed all federal, state, county, municipal, and city income and other tax
returns relating to Taxes required to have been filed by them and have paid all
Taxes and related liabilities which have become due pursuant to such returns or
pursuant to any assessments received by them, except such material items as are
being contested in good faith, and with respect to which Borrower, Guarantor or
Indemnitor, as the case may be, has advised Lender. Neither Borrower, any
Guarantor nor any Indemnitor knows of any basis for any additional assessment in
respect of any such taxes and related liabilities for prior years.
Section 5.14 Mailing Address. Borrower's mailing address, as set forth
---------------
in the opening paragraph hereof or as changed in accordance with the provisions
hereof, is true and correct.
Section 5.15 No Change in Facts or Circumstances. All information
-----------------------------------
submitted by or on behalf of Borrower in all rent rolls, reports, certificates,
financial statements and other documents submitted in connection with the Loan
or in satisfaction of the terms thereof, are accurate, complete and correct in
all material respects. There has been no adverse change in any condition, fact,
circumstance or event that would make any such information materially
inaccurate, incomplete or otherwise misleading.
Section 5.16 Disclosure. 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.
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Section 5.17 Third Party Representations. To the best of Borrower's
---------------------------
knowledge, each of the representations and the warranties made by each Guarantor
and Indemnitor herein or in any Other Security Document(s) is true and correct
in all material respects.
Section 5.18 Illegal Activity. No portion of the Property has been or
----------------
will be purchased with proceeds of any illegal activity.
Article 6 - OBLIGATIONS AND RELIANCES
Section 6.1 Relationship of Borrower and Lender. The relationship
-----------------------------------
between Borrower and Lender is solely that of debtor and creditor, and Lender
has no fiduciary or other special relationship with Borrower, and no term or
condition of any of the Note, this Security Instrument and the Other Security
Documents shall be construed so as to deem the relationship between Borrower and
Lender to be other than that of debtor and creditor.
Section 6.2 No Reliance on Lender. The Borrower is experienced in the
---------------------
ownership and operation of properties similar to the Property. Borrower is not
relying on Lender's expertise, business acumen or advice in connection with the
Property.
Section 6.3 No Lender Obligations. (a) Notwithstanding the provisions of
---------------------
Subsections 1.1(g) and 1.1(l) or Section 3.7, Lender is not undertaking the
performance of (i) any obligations under the Leases; or (ii) any obligations
with respect to such agreements, contracts, certificates, instruments,
franchises, permits, trademarks, licenses and other documents.
(b) By accepting or approving anything required to be observed, performed
or fulfilled or to be given to Lender pursuant to this Security Instrument, the
Note or the Other Security Documents, including any officer's certificate,
balance sheet, statement of profit and loss or other financial statement,
survey, appraisal, or insurance policy, Lender shall not be deemed to have
warranted, consented to, or affirmed the sufficiency, the legality or
effectiveness of same, and such acceptance or approval thereof shall not
constitute any warranty or affirmation with respect thereto by Lender.
Section 6.4 Reliance. Borrower recognizes and acknowledges that in
--------
accepting the Note, this Security Instrument and the Other Security Documents,
Lender is expressly and primarily relying on the truth and accuracy of the
warranties and representations set forth in Article 5 and in the Credit
Agreement without any obligation to investigate the Property and notwithstanding
any investigation of the Property by Lender; that such reliance existed on the
part of Lender prior to the date hereof; that the warranties and representations
are a material inducement to Lender in accepting the Note, this Security
Instrument and the Other Security Documents; and that Lender would not be
willing to make the Loan, this Security Instrument and the Other Security
Documents and accept this Security Instrument in the absence of the warranties
and representations as set forth in Article 5 and in the Credit Agreement.
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Article 7 - FURTHER ASSURANCES
Section 7.1 Recording of Security Instrument, etc. Borrower forthwith
-------------------------------------
upon the execution and delivery of this Security Instrument and thereafter, from
time to time, will cause this Security Instrument and any of the Other Security
Documents creating a lien or security interest or evidencing the lien hereof
upon the Property and each instrument of further assurance to be filed,
registered or recorded in such manner and in such places as may be required by
any present or future law in order to publish notice of and fully to protect and
perfect the lien or security interest hereof upon, and the interest of Lender
in, the Property. Borrower will pay all taxes, filing, registration or recording
fees, and all expenses incident to the preparation, execution, acknowledgment
and/or recording of the Note, this Security Instrument, the Other Security
Documents, any note or mortgage supplemental hereto, any security instrument
with respect to the Property and any instrument of further assurance, and any
modification or amendment of the foregoing documents, and all federal, state,
county and municipal taxes, duties, imposts, assessments and charges arising out
of or in connection with the execution and delivery of this Security Instrument,
any mortgage supplemental hereto, any security instrument with respect to the
Property or any instrument of further assurance, and any modification or
amendment of the foregoing documents, except where prohibited by law so to do.
Section 7.2 Further Acts, etc. Borrower will, at the cost of Borrower,
-----------------
and without expense to Lender, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
require, for the better assuring, conveying, assigning, transferring, and
confirming unto Lender the property and rights hereby mortgaged, granted,
bargained, sold, conveyed, confirmed, pledged, assigned, warranted and
transferred or intended now or hereafter so to be, or which Borrower may be or
may hereafter become bound to convey or assign to Lender, or for carrying out
the intention or facilitating the performance of the terms of this Security
Instrument or for filing, registering or recording this Security Instrument, or
for complying with all Applicable Laws. Borrower, on demand, will execute and
deliver and hereby authorizes Lender to execute in the name of Borrower should
Borrower fail to so execute and deliver, or without the signature of Borrower to
the extent Lender may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Lender in the Property. Borrower grants to Lender an irrevocable
power of attorney coupled with an interest for the purpose of exercising and
perfecting any and all rights and remedies available to Lender at law and in
equity, including such rights and remedies available to Lender pursuant to this
Section 7.2.
Section 7.3 Changes in Tax, Debt, Credit and Documentary Stamp Laws. (a)
-------------------------------------------------------
If any law is enacted or adopted or amended after the date of this Security
Instrument which deducts the Debt from the value of the Property for the purpose
of taxation or which imposes a tax, either directly or indirectly, on the Debt
or Lender's interest in the Property, Borrower shall assume the payment of such
tax as an Obligation hereunder, to the extent permitted by law, and will pay the
tax, with interest and penalties thereon, if any, in each case within thirty
(30) days of demand by Lender. If Lender is advised based upon an opinion of
counsel chosen by it that the
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payment of tax by Borrower would be unlawful, or taxable to Lender in a material
amount, or unenforceable or provide the basis for a defense of usury, then
Lender shall have the option by written notice of not less than ninety (90) days
to declare the Debt immediately due and payable.
(b) Borrower will not claim or demand or be entitled to any credit or
credits on account of the Debt for any part of the Taxes or Other Charges
assessed against the Property, or any part thereof, and no deduction shall
otherwise be made or claimed from the assessed value of the Property, or any
part thereof, for real estate tax purposes by reason of this Security Instrument
or the Debt. If such claim, credit or deduction shall be required by law, Lender
shall have the option, by written notice of not less than ninety (90) days, to
declare the Debt immediately due and payable.
(c) If at any time the United States of America, any State thereof or any
subdivision of any such State shall require revenue or other stamps to be
affixed to the Note, this Security Instrument, or any of the Other Security
Documents or impose any other tax or charge on the same, Borrower will pay for
the same, with interest and penalties thereon, if any.
Section 7.4 Estoppel Certificates. (a) After request by Lender,
---------------------
Borrower, within ten (10) days (but no more frequently than semi-annually),
shall furnish Lender or any proposed assignee with a statement, duly
acknowledged and certified, setting forth (i) the amount of the original
principal amount of the Note, (ii) the unpaid principal amount of the Note,
(iii) the then-current rate of interest of the Note, (iv) the terms of payment
and maturity date of the Note, (v) the date installments of interest and/or
principal were last paid, (v) that, except as provided in such statement, there
are no defaults or events which with the passage of time or the giving of notice
or both, would constitute an event of default under the Note, the Security
Instrument or the Ground Lease, (vi) that the Note and this Security Instrument
are valid, legal and binding obligations and have not been modified or if
modified, giving particulars of such modification, (vii) whether any offsets or
defenses exist against the obligations secured hereby and, if any are alleged to
exist, a detailed description thereof, (viii) that all Leases are in full force
and effect and have not been modified (or if modified, setting forth all
modifications), (ix) the date to which the Rents thereunder have been paid
pursuant to the Leases, (x) whether or not, to the best knowledge of Borrower,
any of the lessees under the Leases are in default under the Leases, and, if any
of the lessees are in default, setting forth the specific nature of all such
defaults, (xi) the amount of security deposits held by Borrower under each Lease
and that such amounts are consistent with the amounts required under each Lease,
and (xii) as to any other matters reasonably requested by Lender and reasonably
related to the Leases, the obligations secured hereby, the Property or this
Security Instrument.
(b) Borrower shall use commercially reasonable efforts to deliver to
Lender, promptly upon request, duly executed estoppel certificates from any one
or more lessees as reasonably required by Lender attesting to such facts
regarding the Lease as Lender may reasonably require, including attestations
that each Lease covered thereby is in full force and effect with no defaults
thereunder on the part of any party, that none of the Rents have been paid more
than one month in advance, and that the lessee claims no defense or offset
against the full and timely
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<PAGE>
performance of its obligations under the Lease except as may be disclosed in
said estoppel certificate.
Section 7.5 Splitting of Security Instrument. This Security Instrument
--------------------------------
and the Note shall, at any time until the same shall be fully paid and
satisfied, at the sole election of Lender, be split or divided into two or more
notes and two or more security instruments, each of which shall cover all or a
portion of the Property to be more particularly described therein. To that end,
Borrower, upon written request of Lender, shall execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered by the then owner
of the Property, to Lender and/or its designee or designees substitute notes and
security instruments in such principal amounts, aggregating not more than the
then unpaid principal amount of this Security Instrument, and containing terms,
provisions and clauses similar to those contained herein and in the Note, and
such other documents and instruments as may be required by Lender.
Section 7.6 Replacement Documents. Upon receipt of an affidavit of an
---------------------
officer of Lender as to the loss, theft, destruction or mutilation of the Note
or any Other Security Document which is not of public record, and, in the case
of any such mutilation, upon surrender and cancellation of such Note or Other
Security Document, Borrower will issue, in lieu thereof, a replacement Note or
Other Security Document, dated the date of such lost, stolen, destroyed or
mutilated Note or Other Security Document in the same principal amount thereof
and otherwise of like tenor.
Article 8 - DUE ON SALE/ENCUMBRANCE
Section 8.1 Lender Reliance. Borrower acknowledges that Lender has
---------------
examined and relied on the experience of Borrower in owning and operating
properties such as the Property in agreeing to make the Loan, and will continue
to rely on Borrower's ownership of the Property as a means of maintaining the
value of the Property as security for repayment of the Debt and the performance
of the Other Obligations. Borrower acknowledges that Lender has a valid interest
in maintaining the value of the Property so as to ensure that, should Borrower
default in the repayment of the Debt or the performance of the Other
Obligations, Lender can recover the Debt by a sale of the Property.
Section 8.2 No Sale/Encumbrance. Borrower agrees that it shall not merge
-------------------
with or into, or consolidate with or into, or sell, convey, transfer, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or any portion of the Property, except as permitted by Section 7.1 of the
Credit Agreement or Section 3.7 of this Deed of Trust. Borrower shall not,
without the prior written consent of Lender, create, assume or permit to exist
any encumbrance upon all or any portion of the Property except for Permitted
Encumbrances.
Section 8.3 Sale/Encumbrance Defined. A sale, conveyance, mortgage,
------------------------
encumbrance or transfer within the meaning of this Article 8 shall be deemed to
include (a) an installment sales agreement wherein Borrower agrees to sell the
Property or any substantial part thereof for a price to be paid in installments;
(b) an agreement by Borrower leasing all or a substantial part of the
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Property for other than actual occupancy by a space tenant thereunder or a sale,
assignment or other transfer of, or the grant of a security interest in,
Borrower's right, title and interest in and to any Leases or any Rents; (c) the
change, removal or resignation of the general partner of Borrower, or the
transfer or pledge of the partnership interest of the general partner to less
than 50% of all partnership interests of Borrower.
Section 8.4 Lender's Rights. Lender reserves the right to condition the
---------------
consent required under Section 8.2 of this Security Instrument to a modification
of the terms hereof and on assumption of the Note, the Credit Agreement, this
Security Instrument and the Other Security Documents as so modified by the
proposed transferee, payment of a transfer fee and all of Lender's expenses
incurred in connection with such transfer, the proposed transferee's continued
compliance with the covenants set forth in Sections 4.2 hereof, or such other
conditions as Lender shall determine in its sole discretion to be in the
interest of Lender. Lender shall not be required to demonstrate any actual
impairment of its security or any increased risk of default hereunder in order
to declare the Debt immediately due and payable upon Borrower's sale,
conveyance, mortgage, encumbrance or transfer of the Property in violation of
the Loan Documents. This provision shall apply to every sale, conveyance,
mortgage, grant, bargain, encumbrance or transfer of the Property regardless of
whether voluntary or not, or whether or not Lender has consented to any previous
sale, conveyance, mortgage, encumbrance or transfer of the Property.
Article 9 - PREPAYMENT
Section 9.1 Prepayment Before Event of Default. The Debt may be prepaid
----------------------------------
only in strict accordance with the express terms and conditions of the Credit
Agreement, including the payment of any prepayment consideration as may be set
forth therein.
Section 9.2 Prepayment on Casualty and Condemnation. Provided no Event
---------------------------------------
of Default exists and is continuing under the Note, this Security Instrument or
the Other Security Documents, in the event of any prepayment of the Debt
pursuant to the terms of Section 4.4 hereof, no prepayment premium shall be due
in connection therewith, but Borrower shall be responsible for all other amounts
due under the Note, this Security Instrument and the Other Security Documents.
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Section 9.3 Prepayment After Event of Default. If a Default Prepayment
---------------------------------
(defined below) occurs, Borrower shall pay to Lender the entire Debt, including
the Prepayment Compensation (as defined in the Credit Agreement), if any,
payable pursuant to the provisions of the Note and the Credit Agreement. For
purposes of this Section 9.3, the term "Default Prepayment" shall mean a
prepayment of the principal amount of the Note made after the occurrence and
during the continuance of any Event of Default or an acceleration of the
Maturity Date (as defined in the Note) under any circumstances, including a
prepayment occurring in connection with reinstatement of this Security
Instrument provided by statute under foreclosure proceedings or exercise of a
power of sale, any statutory right of redemption exercised by Borrower or any
other party having a statutory right to redeem or prevent foreclosure, any sale
in foreclosure or under exercise of a power of sale or otherwise. Borrower
agrees that if, at any time prior to the Maturity Date an Event of Default
shall occur and be continuing, then a tender of payment by Borrower, or by
anyone on behalf of Borrower, of the amount necessary to satisfy all sums due
hereunder made at any time prior to judicial, public or private sale of the
property encumbered by this Security Instrument or under any other instrument
given as collateral security for the obligation evidenced by the Note shall
constitute an evasion of the payment terms thereof and shall be deemed to be a
voluntary prepayment hereunder, and any such payment, to the extent permitted by
law, therefore must include the Prepayment Compensation, if any, required under
the Credit Agreement. Borrower hereby expressly (a) waives any rights it may
have under California Civil Code 2954.10 to prepay the Debt, in whole or in
part, without penalty, upon acceleration of the maturity of the Debt, and (b)
agrees that if a prepayment of any or all of the Debt is made, following any
acceleration of the Maturity Date by the holder hereof on account of any
transfer or disposition as prohibited or restricted by Section 8.2 of this
Security Instrument, then Borrower shall be obligated to pay, concurrently
therewith, as a prepayment fee, the applicable sum specified in this paragraph.
By initialing this provision in the space provided below, the undersigned hereby
declares that Borrower's agreement to make the Loan at the interest rate and for
the term set forth in the Credit Agreement constitutes adequate consideration,
given individual weight by the undersigned, for this waiver and agreement.
INITIALS: ___________
Article 10 - DEFAULT
Section 10.1 Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an "Event of Default":
(a) if any portion of the Debt is not paid prior to the third (3rd)
Business Day after the same is due or if the entire Debt is not paid on or
before the Maturity Date;
(b) if any of the Taxes or Other Charges is not paid when the same is due
and payable except to the extent such Taxes and Other Charges have been
deposited with Lender in accordance with the terms of this Security Instrument;
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(c) if the Policies are not kept in full force and effect, or if the
Policies are not delivered to Lender upon request or Borrower has not delivered
evidence of the renewal of the Policies fifteen (15) days prior to their
expiration as provided in Section 3.3(b);
(d) if Borrower violates or does not comply with any of the provisions of
Sections 3.7 or Article 8;
(e) if any representation or warranty of Borrower, Indemnitor or any
person guaranteeing payment of the Debt or any portion thereof or performance by
Borrower of any of the terms of this Security Instrument (a "Guarantor"), or any
general partner, principal or beneficial owner of any of the foregoing, made
herein or in the Environmental Indemnity (defined below) or any guaranty, or in
any certificate, report, financial statement or other instrument or document
furnished to Lender shall have been false or misleading in any material respect
when made;
(f) if an Event of Default shall occur under Section 9.1(g) of the Credit
Agreement;
(g) if Borrower shall be in default beyond any applicable grace period
under any other mortgage, deed of trust, deed to secure debt or other security
agreement covering any part of the Property whether it be superior or junior in
lien to this Security Instrument;
(h) if the Property becomes subject to any mechanic's, materialman's or
other lien other than a lien for Taxes not then due and payable, and the lien
shall remain undischarged of record (by payment, bonding or otherwise) for a
period of forty-five (45) days;
(i) if any federal tax lien is filed against the Property and same is not
discharged of record (by payment, bonding or otherwise) for a period of forty-
five (45) days;
(j) if (i) Borrower fails to timely provide Lender with the written
certification and evidence referred to in Section 4.2(b) hereof, or (ii)
Borrower consummates a transaction which would cause this Security Instrument or
Lender's exercise of its rights under this Security Instrument, the Note or the
Other Security Documents to constitute a nonexempt prohibited transaction under
ERISA or result in a violation of a state statute regulating governmental plans,
subjecting Lender to liability for a violation of ERISA or a state statute;
(k) if Borrower shall default beyond any applicable grace period in the
observance or performance of any term, covenant or condition of the Ground Lease
on the part of Borrower, as tenant thereunder, to be observed or performed,
unless any such observance or performance shall have been waived or not required
by the landlord under the Ground Lease, or if any one or more of the events
referred to in the Ground Lease shall occur which would cause the Ground Lease
to terminate without notice or action by the landlord thereunder or which would
entitle the landlord under the Ground Lease to terminate the Ground Lease and
the term thereof by giving notice to Borrower, as tenant thereunder, or if the
leasehold estate created by the Ground Lease shall be surrendered or the Ground
Lease shall be terminated or canceled for any reason or under any circumstance
whatsoever, or if any of the terms, covenants or conditions of the Ground Lease
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shall in any manner be modified, changed, supplemented, altered or amended in
any material manner or in any manner adverse to Lender without the consent of
Lender;
(l) if any default occurs under that certain environmental indemnity
agreement dated the date hereof given by Borrower and Kilroy Realty Corporation
("Indemnitor") to Lender (the "Environmental Indemnity") and such default
continues after the expiration of applicable notice and grace periods, if any;
(m) if any default occurs under any guaranty or indemnity executed in
connection herewith and such default continues after the expiration of
applicable grace periods, if any; or
(n) if Borrower shall continue to be in default beyond the expiration of
any applicable grace periods under any other term, covenant or condition of the
Note, the Credit Agreement, this Security Instrument or the Other Security
Documents.
Section 10.2 Late Payment Charge. If any monthly installment of
-------------------
principal and interest is not paid on or before the third (3rd) Business Day
after the date on which it is due, Borrower shall pay to Lender upon demand an
amount equal to the lesser of five percent (5%) of such unpaid portion of the
outstanding monthly installment of principal and interest then due or the
maximum amount permitted by applicable law, to defray the expense incurred by
Lender in handling and processing such delinquent payment and to compensate
Lender for the loss of the use of such delinquent payment, and such amount shall
be secured by this Security Instrument and the Other Security Documents.
Section 10.3 Default Interest. Borrower does hereby agree that Lender
----------------
shall be entitled to receive interest on the entire principal amount of the Note
at the "Default Rate" (as defined in the Credit Agreement) as provided in
Section 4.3(b) of the Credit Agreement, or the maximum interest rate that
Borrower may by law pay, whichever is lower. Interest calculated at the Default
Rate shall be added to the Debt, and shall be deemed secured by this Security
Instrument. This clause, 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.
Article 11 - RIGHTS AND REMEDIES
Section 11.1 Remedies. Upon the occurrence and during the continuance of
--------
any Event of Default, Borrower agrees that Lender may take such action, without
notice or demand, as it deems advisable to protect and enforce its rights
against Borrower and in and to the Property, including the following actions,
each of which may be pursued concurrently or otherwise, at such time and in such
order as Lender may determine, in its sole discretion, without impairing or
otherwise affecting the other rights and remedies of Lender:
(a) declare the entire unpaid Debt to be immediately due and payable;
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(b) institute proceedings, judicial or otherwise, for the complete
foreclosure of this Security Instrument under any applicable provision of law in
which case the Property or any interest therein may be sold for cash or upon
credit in one or more parcels or in several interests or portions and in any
order or manner;
(c) with or without entry, to the extent permitted and pursuant to the
procedures provided by applicable law, institute proceedings for the partial
foreclosure of this Security Instrument for the portion of the Debt then due and
payable, subject to the continuing lien and security interest of this Security
Instrument for the balance of the Debt not then due, unimpaired and without loss
of priority;
(d) sell for cash or upon credit the Property or any part thereof and all
estate, claim, demand, right, title and interest of Borrower therein and rights
of redemption thereof, pursuant to power of sale or otherwise, at one or more
sales, as an entity or in parcels, at such time and place, upon such terms and
after such notice thereof as may be required or permitted by law;
(e) institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein, in the
Note or in the Other Security Documents;
(f) subject to the provisions of Section 15.1 of this Security Instrument,
recover judgment on the Note and the Credit Agreement either before, during or
after any proceedings for the enforcement of this Security Instrument or the
Other Security Documents;
(g) apply for the appointment of a receiver, trustee, liquidator or
conservator of the Property, without notice and without regard for the adequacy
of the security for the Debt and without regard for the solvency of Borrower,
any Guarantor, Indemnitor or of any person, firm or other entity liable for the
payment of the Debt;
(h) subject to any applicable law, the license granted to Borrower under
Section 1.2 shall automatically be revoked and Lender may enter into or upon the
Property, either personally or by its agents, nominees or attorneys and
dispossess Borrower and its agents and servants therefrom, without liability for
trespass, damages or otherwise and exclude Borrower and its agents or servants
wholly therefrom, and take possession of all books, records and accounts
relating thereto and Borrower agrees to surrender possession of the Property and
of such books, records and accounts to Lender upon demand, and thereupon Lender
may (i) use, operate, manage, control, insure, maintain, repair, restore and
otherwise deal with all and every part of the Property and conduct the business
thereat; (ii) complete any construction on the Property in such manner and form
as Lender deems advisable; (iii) make alterations, additions, renewals,
replacements and improvements to or on the Property; (iv) exercise all rights
and powers of Borrower with respect to the Property, whether in the name of
Borrower or otherwise, including, the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and receive all
Rents of the Property and every part thereof; (v) require Borrower to pay
monthly in advance to Lender, or any receiver appointed to collect the Rents,
the fair and
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reasonable rental value for the use and occupation of such part of the Property
as may be occupied by Borrower; (vi) require Borrower to vacate and surrender
possession of the Property to Lender or to such receiver and, in default
thereof, Borrower may be evicted by summary proceedings or otherwise; and (vii)
apply the receipts from the Property to the payment of the Debt, in such order,
priority and proportions as Lender shall deem appropriate in its sole discretion
after deducting therefrom all expenses (including reasonable attorneys' fees)
incurred in connection with the aforesaid operations and all amounts necessary
to pay the Taxes, Other Charges, insurance and other expenses in connection with
the Property, as well as just and reasonable compensation for the services of
Lender, its counsel, agents and employees;
(i) exercise any and all rights and remedies granted to a secured party
upon default under the Uniform Commercial Code, including, without limiting the
generality of the foregoing: (i) the right to take possession of the Personal
Property or any part thereof, and to take such other measures as Lender may deem
necessary for the care, protection and preservation of the Personal Property,
and (ii) request Borrower at its expense to assemble the Personal Property and
make it available to Lender at a convenient place acceptable to Lender. Any
notice of sale, disposition or other intended action by Lender with respect to
the Personal Property sent to Borrower in accordance with the provisions hereof
at least ten (10) days prior to such action, shall constitute commercially
reasonable notice to Borrower;
(j) apply any sums then deposited in the Escrow Fund and any other sums
held in escrow or otherwise by Lender in accordance with the terms of this
Security Instrument or any Other Security Document to the payment of the
following items in any order in its uncontrolled discretion:
(i) Taxes and Other Charges;
(ii) Insurance Premiums;
(iii) Interest on the unpaid principal balance of the Note;
(iv) All other sums payable pursuant to the Note, this Security
Instrument and the Other Security Documents, including advances made by
Lender pursuant to the terms of this Security Instrument;
(k) surrender the Policies maintained pursuant to Article 3 hereof,
collect the unearned Insurance Premiums and apply such sums as a credit on the
Debt in such priority and proportion as Lender in its discretion shall deem
proper, and in connection therewith, Borrower hereby appoints Lender as agent
and attorney-in-fact (which is coupled with an interest and is therefore
irrevocable) for Borrower to collect such Insurance Premiums;
(l) pursue such other remedies as Lender may have under applicable law; or
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(m) apply the undisbursed balance of any Net Proceeds Deficiency deposit,
together with interest thereon, to the payment of the Debt in such order,
priority and proportions as Lender shall deem to be appropriate in its
discretion.
In the event of a sale, by foreclosure, power of sale, or otherwise, of less
than all of the Property, this Security Instrument shall continue as a lien and
security interest on the remaining portion of the Property unimpaired and
without loss of priority. Notwithstanding the provisions of this Section 11.1 to
the contrary, if any Event of Default as described in clauses (i) or (ii) of
Subsection 9.1(g) of the Credit Agreement shall occur, the entire unpaid Debt
shall be automatically due and payable, without any further notice, demand or
other action by Lender.
Section 11.2 Application of Proceeds. The purchase money, proceeds and
-----------------------
avails of any disposition of the Property, or any part thereof, or any other
sums collected by Lender pursuant to the Note, this Security Instrument or the
Other Security Documents, may be applied by Lender to the payment of the Debt in
such priority and proportions as Lender in its discretion shall deem proper.
Section 11.3 Right to Cure Defaults. Upon the occurrence and during the
----------------------
continuance of any Event of Default or if Borrower fails to make any payment or
to do any act as herein provided, Lender may, but without any obligation to do
so and without notice to or demand on Borrower and without releasing Borrower
from any obligation hereunder, make or do the same in such manner and to such
extent as Lender may deem necessary to protect the security hereof. Lender is
authorized to enter upon the Property for such purposes, or appear in, defend,
or bring any action or proceeding to protect its interest in the Property or to
foreclose this Security Instrument or collect the Debt, and the cost and expense
thereof (including reasonable attorneys' fees to the extent permitted by law),
with interest as provided in this Section 11.3, shall constitute a portion of
the Debt and shall be due and payable to Lender upon demand. All such costs and
expenses incurred by Lender in remedying such Event of Default or such failed
payment or act or in appearing in, defending, or bringing any such action or
proceeding shall bear interest at the Default Rate, for the period after notice
from Lender that such cost or expense was incurred to the date of payment to
Lender. All such costs and expenses incurred by Lender together with interest
thereon calculated at the Default Rate shall be deemed to constitute a portion
of the Debt and be secured by this Security Instrument and the Other Security
Documents and shall be immediately due and payable upon demand by Lender
therefor.
Section 11.4 Actions and Proceedings. Lender has the right to appear in
-----------------------
and defend any action or proceeding brought with respect to the Property and to
bring any action or proceeding, in the name and on behalf of Borrower, which
Lender, in its discretion, decides should be brought to protect its interest in
the Property.
Section 11.5 Recovery of Sums Required To Be Paid. Lender shall have the
------------------------------------
right from time to time to take action to recover any sum or sums which
constitute a part of the Debt as the same become due, without regard to whether
or not the balance of the Debt shall be due, and without prejudice to the right
of Lender thereafter to bring an action of foreclosure, or any
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other action, for a default or defaults by Borrower existing at the time such
earlier action was commenced.
Section 11.6 Examination of Books and Records. Lender, its agents,
--------------------------------
accountants and attorneys shall have the right as provided in the Credit
Agreement to examine the records, books, management and other papers of Borrower
and its affiliates or of any Guarantor or Indemnitor, and to make copies and
extracts from the foregoing records and other papers, and to examine and audit
the books and records of Borrower and its affiliates or of any Guarantor or
Indemnitor pertaining to the income, expenses and operation of the Property.
This Section 11.6 shall apply throughout the term of the Loan and without regard
to whether an Event of Default has occurred or is continuing.
Section 11.7 Other Rights, etc. (a) The failure of Lender to insist upon
-----------------
strict performance of any term hereof shall not be deemed to be a waiver of any
term of this Security Instrument. Borrower shall not be relieved of Borrower's
obligations hereunder by reason of (i) the failure of Lender to comply with any
request of Borrower, any Guarantor or any Indemnitor to take any action to
foreclose this Security Instrument or otherwise enforce any of the provisions
hereof or of the Note or the Other Security Documents, (ii) the release,
regardless of consideration, of the whole or any part of the Property, or of any
person liable for the Debt or any portion thereof, or (iii) any agreement or
stipulation by Lender extending the time of payment or otherwise modifying or
supplementing the terms of the Note, this Security Instrument or the Other
Security Documents.
(b) It is agreed that the risk of loss or damage to the Property is on
Borrower, and Lender shall have no liability whatsoever for decline in value of
the Property, for failure to maintain the Policies, or for failure to determine
whether insurance in force is adequate as to the amount of risks insured.
Possession by Lender shall not be deemed an election of judicial relief, if any
such possession is requested or obtained, with respect to any Property or
collateral not in Lender's possession.
(c) Upon the occurrence of an Event of Default, Lender may resort for the
payment of the Debt to any other security held by Lender in such order and
manner as Lender, in its discretion, may elect. Lender may take action to
recover the Debt, or any portion thereof, or to enforce any covenant hereof
without prejudice to the right of Lender thereafter to foreclose this Security
Instrument. The rights of Lender under this Security Instrument shall be
separate, distinct and cumulative and none shall be given effect to the
exclusion of the others. No act of Lender shall be construed as an election to
proceed under any one provision herein to the exclusion of any other provision.
Lender shall not be limited exclusively to the rights and remedies herein stated
but shall be entitled to every right and remedy now or hereafter afforded at law
or in equity.
Section 11.8 Right to Release Any Portion of the Property. Lender may
--------------------------------------------
release any portion of the Property for such consideration as Lender may require
without, as to the remainder of the Property, in any way impairing or affecting
the lien or priority of this Security Instrument,
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or improving the position of any subordinate lienholder with respect thereto,
except to the extent that the obligations hereunder shall have been reduced by
the actual monetary consideration, if any, received by Lender for such release,
and may accept by assignment, pledge or otherwise any other property in place
thereof as Lender may require without being accountable for so doing to any
other lienholder. This Security Instrument shall continue as a lien and security
interest in the remaining portion of the Property.
Section 11.9 Recourse and Choice of Remedies. Notwithstanding any other
-------------------------------
provision of this Security Instrument, including Article 15 hereof, Lender and
other Indemnified Parties (defined in Section 13.1 below) are entitled to
enforce the obligations of Borrower, Guarantor and Indemnitor contained in
Sections 13.2,13.3 and 13.4 without first resorting to or exhausting any
security or collateral and without first having recourse to the Note or any of
the Property, through foreclosure or acceptance of a deed in lieu of foreclosure
or otherwise, and in the event Lender commences a foreclosure action against the
Property, Lender is entitled to pursue a deficiency judgment with respect to
such obligations against Borrower, Guarantor and Indemnitor. The provisions of
Sections 13.2, 13.3, 13.4, 15.3 and 15.4 are exceptions to any non-recourse or
exculpation provisions in the Note, this Security Instrument or the Other
Security Documents, and Borrower, Guarantor and Indemnitor are fully and
personally liable for the obligations to the extent provided pursuant to
Sections 13.2, 13.3, 13.4, 15.3 and 15.4. The liability of Borrower, Guarantor
and Indemnitor are not limited to the original principal amount of the Note.
Notwithstanding the foregoing, nothing herein shall inhibit or prevent Lender
from foreclosing pursuant to this Security Instrument or exercising any other
rights and remedies pursuant to the Note, this Security Instrument and the Other
Security Documents, whether simultaneously with foreclosure proceedings or in
any other sequence. A separate action or actions may be brought and prosecuted
against Borrower, whether or not action is brought against any other person or
entity or whether or not any other person or entity is joined in the action or
actions. In addition, Lender shall have the right but not the obligation to join
and participate in, as a party if it so elects, any administrative or judicial
proceedings or actions initiated in connection with any matter addressed in
Article 12 or Section 13.4.
Section 11.10 Right of Entry. Lender and its agents shall have the right
--------------
to enter and inspect the Property at all reasonable times, upon reasonable prior
notice except (i) in the event of an emergency, and (ii) if an Event of Default
has occurred and is continuing.
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Article 12 - ENVIRONMENTAL HAZARDS
Section 12.1 Environmental Representations and Warranties. To Borrower's
--------------------------------------------
knowledge: (a) there are no Hazardous Substances (defined below) or underground
storage tanks in, on, or under the Property, except those that are both (i) in
compliance with Environmental Laws (defined below) and with permits issued
pursuant thereto and (ii) fully disclosed to Lender in writing pursuant to the
written reports resulting from the environmental assessments of the Property
delivered to Lender (collectively, the "Environmental Report"); (b) there are no
past, present or threatened Releases (defined below) of Hazardous Substances in,
on, under or from the Property except as described in the Environmental Report;
(c) there is no threat of any Release of Hazardous Substances migrating to the
Property except as described in the Environmental Report; (d) there is no past
or present non-compliance with Environmental Laws, or with permits issued
pursuant thereto, in connection with the Property except as described in the
Environmental Report; (e) Borrower does not know of, and has not received, any
written or oral notice or other communication from any person or entity
(including a governmental entity) relating to Hazardous Substances or
Remediation (defined below) thereof, of possible liability of any person or
entity pursuant to any Environmental Law, other environmental conditions in
connection with the Property, or any actual or potential administrative or
judicial proceedings in connection with any of the foregoing that has not
otherwise been disclosed to Lender; and (f) Borrower has truthfully and fully
provided to Lender, in writing, any and all material information relating to
conditions in, on, under or from the Property that is known to Borrower and that
is contained in Borrower's files and records, including any reports relating to
Hazardous Substances in, on, under or from the Property and/or to the
environmental condition of the Property, that is not otherwise set forth in the
Environmental Report.
"Environmental Law" means any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law, relating to protection of human health or the environment, relating to
Hazardous Substances, relating to liability for or costs of Remediation or
prevention of Releases of Hazardous Substances or relating to liability for or
costs of other actual or threatened danger of Hazardous Substances to human
health or the environment. "Environmental Law" includes, but is not limited to,
the following statutes, as amended, any successor thereto, and any regulations
promulgated pursuant thereto, and any state or local statutes, ordinances,
rules, regulations and the like addressing similar issues: the Comprehensive
Environmental Response, Compensation and Liability Act; the Emergency Planning
and Community Right-to-Know Act; the Hazardous Substances Transportation Act;
the Resource Conservation and Recovery Act (including, but not limited to
Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act;
the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the
Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal
Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide
Act; the Endangered Species Act; the National Environmental Policy Act; and the
River and Harbors Appropriation Act, Sections 25115, 25117, 25122.7, 25140,
25249.8, 25281, 25501 and 25316 of the California Health and Safety Code,
Section 2782.6(d) of the California Civil Code and Title 22 of the California
Code of Regulations. "Environmental Law" also includes, but is not limited to,
any present and future federal, state and local laws, statutes, ordinances,
rules, regulations and the like, as well as common law: conditioning transfer of
property upon a negative declaration or other approval of a governmental
authority of the
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environmental condition of the property; and requiring notification or
disclosure of Releases of Hazardous Substances or other environmental condition
of the Property to any governmental authority or other person or entity, whether
or not in connection with transfer of title to or interest in property.
"Hazardous Substances" include but are not limited to any and all
substances (whether solid, liquid or gas) defined, listed, or otherwise
classified as pollutants, hazardous wastes, hazardous substances, hazardous
materials, extremely hazardous wastes, or words of similar meaning or regulatory
effect under any present or future Environmental Laws or that may have a
negative impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives.
"Release" of any Hazardous Substance includes but is not limited to any
release, deposit, discharge, emission, leaking, spilling, seeping, migrating,
injecting, pumping, pouring, emptying, escaping, dumping, disposing or other
movement of Hazardous Substances.
"Remediation" includes but is not limited to any response, remedial,
removal, or corrective action, any activity to cleanup, detoxify, decontaminate,
contain or otherwise remediate any Hazardous Substance, any actions to prevent,
cure or mitigate any Release of any Hazardous Substance, any action to comply
with any Environmental Laws or with any permits issued pursuant thereto, any
inspection, investigation, study, monitoring, assessment, audit, sampling and
testing, laboratory or other analysis, or evaluation relating to any Hazardous
Substances or to anything referred to in Article 12.
Section 12.2 Environmental Covenants. Borrower covenants and agrees
-----------------------
that: (a) all uses and operations on or of the Property, whether by Borrower or
any other person or entity, shall be in compliance with all Environmental Laws
and permits issued pursuant thereto (if necessary pursuant to Environmental
Laws); (b) there shall be no Releases of Hazardous Substances in, on, under or
from the Property; (c) there shall be no Hazardous Substances in, on, or under
the Property, except those that are both (i) in compliance with all
Environmental Laws and with permits issued pursuant thereto and (ii) used in the
ordinary course of the respective tenant's business or otherwise fully disclosed
to Lender in writing; (d) Borrower shall keep the Property free and clear of all
liens and other encumbrances imposed pursuant to any Environmental Law, whether
due to any act or omission of Borrower or any other person or entity (the
"Environmental Liens"); (e) Borrower shall, at its sole cost and expense, fully
and expeditiously cooperate in all activities pursuant to Section 12.3 below,
including but not limited to providing all relevant information and making
knowledgeable persons available for interviews; (f) Borrower shall, at its sole
cost and expense, perform any environmental site assessment or other
investigation of environmental conditions in connection with the Property,
pursuant to any reasonable written request of Lender (including but not limited
to sampling, testing and analysis of soil, water, air, building materials and
other materials and substances whether solid, liquid or gas), and share with
Lender the reports and other results thereof, and Lender and other Indemnified
Parties shall be entitled to rely on such reports and other results
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thereof; (g) Borrower shall, at its sole cost and expense, comply with all
reasonable written requests of Lender to (i) reasonably effectuate Remediation
of any condition (including but not limited to a Release of a Hazardous
Substance) in, on, under or from the Property; (ii) comply with any
Environmental Law; (iii) comply with any directive from any governmental
authority; and (iv) take any other reasonable action with respect to the
Property necessary or appropriate for protection of human health or the
environment; (h) Borrower shall not do or allow any tenant or other user of the
Property to do any act that materially increases the dangers to human health or
the environment, poses an unreasonable risk of harm to any person or entity
(whether on or off the Property), impairs or may impair the value of the
Property, is contrary to any requirement of any insurer, constitutes a public or
private nuisance, constitutes waste, or violates any covenant, condition,
agreement or easement applicable to the Property; and (i) Borrower shall
immediately notify Lender in writing of (A) any presence or Releases or
threatened Releases of Hazardous Substances in, on, under, from or migrating
towards the Property; (B) any non-compliance with any Environmental Laws related
in any way to the Property; (C) any actual or potential Environmental Lien; (D)
any required or proposed Remediation of environmental conditions relating to the
Property; and (E) any notice or other communication which Borrower receives from
any source whatsoever (including but not limited to a governmental entity)
relating in any way to Hazardous Substances or Remediation thereof, possible
liability of any person or entity pursuant to any Environmental Law, other
environmental conditions in connection with the Property, or any actual or
potential administrative or judicial proceedings in connection with anything
referred to in this Article 12.
Section 12.3 Lender's Rights. Lender and any other person or entity
---------------
designated by Lender, including but not limited to any receiver, any
representative of a governmental entity, and any environmental consultant, shall
have the right, but not the obligation, to enter upon the Property at all
reasonable times upon reasonable prior notice to assess any and all aspects of
the environmental condition of the Property and its use, including but not
limited to conducting any environmental assessment or audit (the scope of which
shall be determined in Lender's sole and absolute discretion) and taking samples
of soil, groundwater or other water, air, or building materials, and conducting
other invasive testing. Borrower shall cooperate with and provide access to
Lender and any such person or entity designated by Lender.
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Article 13 - INDEMNIFICATION
Section 13.1 General Indemnification. Borrower shall, at its sole cost
-----------------------
and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all claims, suits, liabilities
(including strict liabilities), actions, proceedings, obligations, debts,
damages, losses, costs, expenses, diminutions in value, fines, penalties,
charges, fees, expenses, judgments, awards, amounts paid in settlement, punitive
damages, foreseeable and unforeseeable consequential damages, of whatever kind
or nature (including reasonable attorneys' fees and other costs of defense) (the
"Losses") as provided, and subject to the limitations contained, in Section 12.8
of the Credit Agreement. For purposes of this Article 13, the term "Indemnified
Parties" means Lender, the Banks and any person or entity who is or will have
been involved in the origination of the Loan, any person or entity who is or
will have been involved in the servicing of the Loan, any person or entity in
whose name the encumbrance created by this Security Instrument is or will have
been recorded, persons and entities who may hold or acquire or will have held a
full or partial interest in the Loan as well as the respective directors,
officers, shareholders, partners, employees, agents, servants, representatives,
contractors, subcontractors, affiliates, subsidiaries, participants, successors
and assigns of any and all of the foregoing (including any other person or
entity who holds or acquires or will have held a participation or other full or
partial interest in the Loan or the Property, whether during the term of the
Loan or as a part of or following a foreclosure of the Loan and including any
successors by merger, consolidation or acquisition of all or a substantial
portion of Lender's assets and business).
Section 13.2 Mortgage and/or Intangible Tax. Borrower shall, at its sole
------------------------------
cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all Losses imposed upon or incurred
by or asserted against any Indemnified Parties and directly or indirectly
arising out of or in any way relating to any tax on the making and/or recording
of this Security Instrument, the Note or any of the Other Security Documents.
Section 13.3 ERISA Indemnification. Borrower shall, at its sole cost and
---------------------
expense, protect, defend, indemnify, release and hold harmless the Indemnified
Parties from and against any and all Losses (including reasonable attorneys'
fees and costs incurred in the investigation, defense, and settlement of Losses
incurred in correcting any prohibited transaction or in the sale of a prohibited
loan, and in obtaining any individual prohibited transaction exemption under
ERISA that may be required, in Lender's sole discretion) that Lender may incur,
directly or indirectly, as a result of a default under Sections 4.2 or 5.9
hereof.
Section 13.4 Environmental Indemnification. Borrower shall, at its sole
-----------------------------
cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all Losses and costs of Remediation
(whether or not performed voluntarily), engineers' fees, environmental
consultants' fees, and costs of investigation (including sampling, testing, and
analysis of soil, water, air, building materials and other materials and
substances whether solid, liquid or gas) imposed upon or incurred by or asserted
against any Indemnified Parties, and directly or indirectly arising out of or in
any way relating to any one or more of the
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following: (a) any presence of any Hazardous Substances in, on, above, or under
the Property; (b) any past, present or threatened Release of Hazardous
Substances in, on, above, under or from the Property; (c) any activity by
Borrower, any person or entity affiliated with Borrower or any tenant or other
user of the Property in connection with any actual, proposed or threatened use,
treatment, storage, holding, existence, disposition or other Release,
generation, production, manufacturing, processing, refining, control,
management, abatement, removal, handling, transfer or transportation to or from
the Property of any Hazardous Substances at any time located in, under, on or
above the Property; (d) any activity by Borrower, any person or entity
affiliated with Borrower or any tenant or other user of the Property in
connection with any actual or proposed Remediation of any Hazardous Substances
at any time located in, under, on or above the Property, whether or not such
Remediation is voluntary or pursuant to court or administrative order, including
any removal, remedial or corrective action; (e) any past or present non-
compliance or violations of any Environmental Laws (or permits issued pursuant
to any Environmental Law) in connection with the Property or operations thereon,
including any failure by Borrower, any person or entity affiliated with Borrower
or any tenant or other user of the Property to comply with any order of any
governmental authority in connection with any Environmental Laws; (f) the
imposition, recording or filing of any Environmental Lien encumbering the
Property; (g) any administrative processes or proceedings or judicial
proceedings in any way connected with any matter addressed in Article 12 and
this Section 13.4; (h) any past, present or threatened injury to, destruction of
or loss of natural resources in any way connected with the Property, including
costs to investigate and assess such injury, destruction or loss; (i) any acts
of Borrower or other users of the Property in arranging for disposal or
treatment, or arranging with a transporter for transport for disposal or
treatment, of Hazardous Substances owned or possessed by such Borrower or other
users, at any facility or incineration vessel owned or operated by another
person or entity and containing such or any similar Hazardous Substance; (j) any
acts of Borrower or other users of the Property, in accepting any Hazardous
Substances for transport to disposal or treatment facilities, incineration
vessels or sites selected by Borrower or such other users, from which there is a
Release, or a threatened Release of any Hazardous Substance which causes the
incurrence of costs for Remediation; (k) any personal injury, wrongful death, or
property damage arising under any statutory or common law or tort law theory,
including damages assessed for the maintenance of a private or public nuisance
or for the conducting of an abnormally dangerous activity on or near the
Property; and (l) any misrepresentation or inaccuracy in any representation or
warranty or material breach or failure to perform any covenants or other
obligations pursuant to Article 12. This indemnity shall survive any
termination, satisfaction or foreclosure of this Security Instrument.
Notwithstanding the foregoing, however, the indemnity under this Section 13.4
shall not apply for Losses and costs of Remediation, the underlying causes of
which (i) did not directly or indirectly result from the acts or omissions of
Borrower and (ii) arose after Borrower has been divested of title to the
relevant Individual Property by reason of foreclosure, deed in lieu of
foreclosure, or assignment of lease in lieu of foreclosure.
Section 13.5 Duty to Defend; Attorneys' Fees and Other Fees and Expenses.
-----------------------------------------------------------
Upon written request by any Indemnified Party, Borrower shall defend such
Indemnified Party (if requested by any Indemnified Party, in the name of the
Indemnified Party) by attorneys and other
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professionals reasonably approved by the Indemnified Parties. Notwithstanding
the foregoing, any Indemnified Parties may, in their sole and absolute
discretion, engage their own attorneys and other professionals to defend or
assist them, and, at the option of Indemnified Parties, upon and during the
continuance of an Event of Default, their attorneys shall control the resolution
of claim or proceeding. Upon demand, Borrower shall pay or, in the sole and
absolute discretion of the Indemnified Parties, reimburse, the Indemnified
Parties for the payment of reasonable fees and disbursements of attorneys,
engineers, environmental consultants, laboratories and other professionals in
connection therewith.
Article 14 - WAIVERS
Section 14.1 Waiver of Counterclaim. Borrower hereby waives the right to
----------------------
assert a counterclaim, other than a mandatory or compulsory counterclaim, in any
action or proceeding brought against it by Lender arising out of or in any way
connected with this Security Instrument, the Note, any of the Other Security
Documents, or the Obligations.
Section 14.2 Marshalling and Other Matters. Borrower hereby waives, to
-----------------------------
the extent permitted by law, the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein. Further, Borrower hereby expressly waives
any and all rights of redemption from sale under any order or decree of
foreclosure of this Security Instrument on behalf of Borrower, and on behalf of
each and every person acquiring any interest in or title to the Property
subsequent to the date of this Security Instrument and on behalf of all persons
to the extent permitted by applicable law.
Section 14.3 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 Security Instrument or any other Loan Document specifically and
expressly provides for the giving of notice by Lender to Borrower and except
with respect to matters for which Lender is required by applicable law to give
notice, and Borrower hereby expressly waives the right to receive any notice
from Lender with respect to any matter for which this Security Instrument or any
other Loan Document does not specifically and expressly provide for the giving
of notice by Lender to Borrower.
Section 14.4 Waiver of Statute of Limitations. Borrower hereby expressly
--------------------------------
waives and releases to the fullest extent permitted by law, the pleading of any
statute of limitations as a defense to payment of the Debt or performance of its
Other Obligations.
Section 14.5 Sole Discretion of Lender. Wherever pursuant to this
-------------------------
Security Instrument (a) Lender exercises any right given to it to approve or
disapprove, (b) any arrangement or term is to be satisfactory to Lender, or (c)
any other decision or determination is to be made by Lender, the decision of
Lender to approve or disapprove, all decisions that arrangements or terms are
satisfactory or not satisfactory and all other decisions and determinations made
by Lender,
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shall be in the sole and absolute discretion of Lender and shall be final and
conclusive, except as may be otherwise expressly and specifically provided
herein.
Section 14.6 Survival. The indemnifications made pursuant to Sections
--------
13.2, 13.3 and 13.4 and the representations and warranties, covenants, and other
obligations arising under Article 12, shall continue indefinitely in full force
and effect and shall survive and shall in no way be impaired by: any
satisfaction or other termination of this Security Instrument; any assignment or
other transfer of all or any portion of this Security Instrument or Lender's
interest in the Property (but, in such case, shall benefit both Indemnified
Parties and any assignee or transferee); any exercise of Lender's rights and
remedies pursuant hereto including foreclosure or acceptance of a deed in lieu
of foreclosure; any exercise of any rights and remedies pursuant to the Note,
the Credit Agreement or any of the Other Security Documents; any transfer of all
or any portion of the Property (whether by Borrower or by Lender following
foreclosure or acceptance of a deed in lieu of foreclosure or at any other
time); any amendment to this Security Instrument, the Note, the Credit Agreement
or the Other Security Documents; and any act or omission that might otherwise be
construed as a release or discharge of Borrower from the obligations pursuant
hereto.
SECTION 14.7 WAIVER OF TRIAL BY JURY. BORROWER HEREBY WAIVES, TO THE
-----------------------
FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING
DIRECTLY OR INDIRECTLY TO THE LOAN, THE NOTE, THE CREDIT AGREEMENT, THIS
SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF
LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
Article 15 - EXCULPATION
Section 15.1 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 or this Security Instrument 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 this Security Instrument, the Other Security Documents, and the interest in
the Property, the Rents and any other collateral given to Lender created by this
Security Instrument and the Other Security 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 Property, in the Rents and in
any other collateral given to Lender. Lender, by accepting the Note and this
Security Instrument, agrees that it shall not, except as otherwise provided in
Section 15.3 or Section 15.4, sue for, seek or demand any deficiency judgment
against Borrower in any action or proceeding, under or by reason of or under or
in connection with the Note, the Other Security Documents or this Security
Instrument.
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<PAGE>
Section 15.2 Reservation of Certain Rights. The provisions of Section 15.1
-----------------------------
shall not (a) constitute a waiver, release or impairment of any obligation
evidenced or secured by the Note, the Other Security Documents or this Security
Instrument; (b) impair the right of Lender to name Borrower as a party defendant
in any action or suit for judicial foreclosure and sale under this Security
Instrument; (c) affect the validity or enforceability of any indemnity,
guaranty, master lease or similar instrument made in connection with the Note,
this Security Instrument, or the Other Security 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 Security
Instrument, provided, however, Lender shall only enforce such judgment against
the insurance proceeds and/or condemnation awards; or (g) impair the right of
Lender to enforce the provisions of Sections 11.9, 13.1, 13.2, 13.3 and 13.4 of
this Security Instrument.
Section 15.3 Exceptions to Exculpation. Notwithstanding the provisions of
-------------------------
this Article 15 to the contrary, Borrower shall be personally liable to Lender
for the Losses it incurs due to: (i) fraud or intentional misrepresentation by
Borrower, Guarantor or any other person or entity affiliated with either
Borrower or Guarantor in connection with the execution and the delivery of the
Note, this Security Instrument, the Credit Agreement or the Other Security
Documents; (ii) Borrower's misapplication or misappropriation of Rents received
by Borrower after the occurrence and during the continuance of an Event of
Default; (iii) Borrower's misappropriation of tenant security deposits or Rents
collected in advance; (iv) the misapplication or the misappropriation of
insurance proceeds or condemnation awards; (v) Borrower's failure to pay Taxes
or Insurance Premiums except in accordance with the terms and provisions of the
Loan Documents; (vi) Borrower's failure to carry the insurance coverages
required pursuant to Section 3.3(a) of this Security Instrument; or (vii)
Borrower's failure to comply with the provisions of Sections 3.9, 12.1 or 12.2
of this Security Instrument.
Section 15.4 Recourse. Notwithstanding the foregoing, the agreement of
--------
Lender not to pursue recourse liability as set forth in Section 15.1 above SHALL
BECOME NULL AND VOID and shall be of no further force and effect if Borrower
shall contest any judicial or non-judicial enforcement action by Lender for the
sole purpose of delaying Lender's realization on its collateral for the Loan.
Section 15.5 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 secured by this Security Instrument or to require that all
collateral shall continue to secure all of the Debt owing to Lender in
accordance with the Note, this Security Instrument and the Other Security
Documents.
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<PAGE>
Article 16 - NOTICES
Section 16.1 Notices. All notices or other written communications
-------
hereunder shall be deemed to have been properly given (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: Kilroy Realty, L.P.
2250 East Imperial Highway
El Segundo, California 90245
Attention: Mr. Tyler Rose, Treasurer
Facsimile No.: (310) 322-5981
With a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Jennifer Upham Saunders, Esq.
Facsimile No.: (213) 891-8763
If to Lender: Commerzbank Aktiengesellschaft, New York Branch
2 World Financial Center
New York, New York 10251-1050
Attention: David Schwarz
Facsimile No. (212) 266-7632
With a copy to: Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael B. Levy, Esq.
Facsimile No. (212) 541-4630
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.
For purposes of this Subsection 16.1, "Business Day" shall mean a day on
which commercial banks are not authorized or required by law to close in New
York, New York.
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<PAGE>
Article 17 - SERVICE OF PROCESS
Section 17.1 Consent to Service. Borrower irrevocably consents to
------------------
service of process by registered or certified mail, postage prepaid, to it at
its address given in or pursuant to the first paragraph hereof.
Section 17.2 Submission to Jurisdiction. With respect to any claim or
--------------------------
action arising hereunder or under the Note or the Other Security Documents,
Borrower (a) irrevocably submits to the nonexclusive jurisdiction of the courts
of the State of New York and the State where the Property is located and the
United States District Court located in the Borough of Manhattan in New York,
New York and the county in which the Property is located, and appellate courts
from any thereof, and (b) irrevocably waives any objection which it may have at
any time to the laying on venue of any suit, action or proceeding arising out of
or relating to this Security Instrument brought in any such court, irrevocably
waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.
Section 17.3 Jurisdiction Not Exclusive. Nothing in this Security
--------------------------
Instrument will be deemed to preclude Lender from bringing an action or
proceeding with respect hereto in any other jurisdiction.
Article 18 - APPLICABLE LAW
Section 18.1 Choice of Law. This Security Instrument shall be governed,
-------------
construed, applied and enforced in accordance with the laws of the state in
which the Property is located and the applicable laws of the United States of
America.
Section 18.2 Usury Laws. This Security Instrument and the Note are
----------
subject to the express condition that at no time shall Borrower be obligated or
required to pay interest on the Debt at a rate which could subject the holder of
the Note to either civil or criminal liability as a result of being in excess of
the maximum interest rate which Borrower is permitted by applicable law to
contract or agree to pay. If by the terms of this Security Instrument or the
Note, Borrower is at any time required or obligated to pay interest on the Debt
at a rate in excess of such maximum rate, the rate of interest under the
Security Instrument and the Note shall be deemed to be immediately reduced to
such maximum rate and the interest payable shall be computed at such maximum
rate and all prior interest payments in excess of such maximum rate shall be
applied and shall be deemed to have been payments in reduction of the principal
balance of the Note. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.
Section 18.3 Provisions Subject to Applicable Law. All rights, powers and
------------------------------------
remedies provided in this Security Instrument may be exercised only to the
extent that the exercise thereof
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<PAGE>
does not violate any applicable provisions of law and are intended to be limited
to the extent necessary so that they will not render this Security Instrument
invalid, unenforceable or not entitled to be recorded, registered or filed under
the provisions of any applicable law. If any term of this Security Instrument or
any application thereof shall be invalid or unenforceable, the remainder of this
Security Instrument and any other application of the term shall not be affected
thereby.
Article 19 - Intentionally Deleted
Article 20 - COSTS
Section 20.1 Performance at Borrower's Expense. Borrower acknowledges and
---------------------------------
confirms that Lender shall impose certain administrative processing and/or
commitment fees in connection with (a) the extension, renewal, modification,
amendment and termination of its loans, (b) the release or substitution of
collateral therefor, (c) obtaining certain consents, waivers and approvals with
respect to the Property, or (d) the review of any Lease or proposed lease or the
preparation or review of any subordination, non-disturbance agreement (the
occurrence of any of the above shall be called an "Event"). Borrower further
acknowledges and confirms that it shall be responsible for the payment of all
costs of reappraisal of the Property or any part thereof, whether required by
law, regulation, Lender or any governmental or quasi-governmental authority.
Borrower hereby acknowledges and agrees to pay, upon demand, all such fees (as
the same may be increased or decreased from time to time), and any additional
fees of a similar type or nature which may be imposed by Lender from time to
time, upon the occurrence of any Event or otherwise. Wherever it is provided for
herein that Borrower pay any costs and expenses, such costs and expenses shall
include all reasonable legal fees and disbursements of Lender, whether of
retained firms, the reimbursement for the expenses of in-house staff or
otherwise.
Section 20.2 Attorney's Fees for Enforcement. (a) Borrower shall pay all
-------------------------------
reasonable legal fees incurred by Lender in connection with (i) the preparation
of the Note, this Security Instrument and the Other Security Documents and (ii)
the items set forth in Section 20.1 above, and (b) Borrower shall pay to Lender
on demand any and all expenses, including legal expenses and reasonable
attorneys' fees, incurred or paid by Lender in protecting its interest in the
Property or Personal Property or in collecting any amount payable hereunder or
in enforcing its rights hereunder with respect to the Property or Personal
Property, whether or not any legal proceeding is commenced hereunder or
thereunder and whether or not any default or Event of Default shall have
occurred and is continuing, together with interest thereon at the Default Rate
from the date paid or incurred by Lender until such expenses are paid by
Borrower.
Article 21 - DEFINITIONS
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<PAGE>
Section 21.1 General Definitions. Unless the context clearly indicates a
-------------------
contrary intent or unless otherwise specifically provided herein, words used in
this Security Instrument may be used interchangeably in singular or plural form
and the word "Borrower" shall mean "each Borrower and any subsequent owner or
owners of the Property or any part thereof or any interest therein," the word
"Lender" shall mean "Lender and any subsequent holder of the Note," the word
"Note" shall mean "the Note and any other evidence of indebtedness secured by
this Security Instrument," the word "person" shall include an individual,
corporation, partnership, trust, unincorporated association, government,
governmental authority, and any other entity, the word "Property" shall include
any portion of the Property and any interest therein, and the phrases
"attorneys' fees", "legal fees" and "counsel fees" shall include any and all
attorneys', paralegal and law clerk fees and disbursements, including, but not
limited to, fees and disbursements at the pre-trial, trial and appellate levels
incurred or paid by Lender in protecting its interest in the Property, the
Leases and the Rents and enforcing its rights hereunder. The terms "including,"
"include" and similar terms shall be construed as if followed by the phrase
"without being limited to."
Article 22 - MISCELLANEOUS PROVISIONS
Section 22.1 No Oral Change. This Security Instrument, and any provisions
--------------
hereof, may not be modified, amended, waived, extended, changed, discharged or
terminated orally or by any act or failure to act on the part of Borrower or
Lender, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.
Section 22.2 Liability. If Borrower consists of more than one person, the
---------
obligations and liabilities of each such person hereunder shall be joint and
several. This Security Instrument shall be binding upon and inure to the benefit
of Borrower and Lender and their respective successors and assigns forever.
Section 22.3 Inapplicable Provisions. If any term, covenant or condition
-----------------------
of the Note, the Credit Agreement or this Security Instrument is held to be
invalid, illegal or unenforceable in any respect, the Note, the Credit Agreement
and this Security Instrument shall be construed without such provision.
Section 22.4 Headings, etc. The headings and captions of various Sections
-------------
of this Security Instrument are for convenience of reference only and are not to
be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
Section 22.5 Duplicate Originals; Counterparts. This Security Instrument
---------------------------------
may be executed in any number of duplicate originals and each duplicate original
shall be deemed to be an original. This Security Instrument may be executed in
several counterparts, each of which counterparts shall be deemed an original
instrument and all of which together shall constitute a single Security
Instrument. The failure of any party hereto to execute this Security Instrument,
or any counterpart hereof, shall not relieve the other signatories from their
obligations hereunder.
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<PAGE>
Section 22.6 Number and Gender. Whenever the context may require, any
-----------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa
Section 22.7 Subrogation. If any or all of the proceeds of the Note have
-----------
been used to extinguish, extend or renew any indebtedness heretofore existing
against the Property, then, to the extent of the funds so used, Lender shall be
subrogated to all of the rights, claims, liens, titles, and interests existing
against the Property heretofore held by, or in favor of, the holder of such
indebtedness and such former rights, claims, liens, titles, and interests, if
any, are not waived but rather are continued in full force and effect in favor
of Lender and are merged with the lien and security interest created herein as
cumulative security for the repayment of the Debt, the performance and discharge
of Borrower's obligations hereunder, under the Note, the Credit Agreement and
the Other Security Documents and the performance and discharge of the Other
Obligations.
Section 22.8 Entire Agreement. The Note, the Credit Agreement, this
----------------
Security Instrument and the Other Security Documents constitute the entire
understanding and agreement between Borrower and Lender with respect to the
transactions arising in connection with the Debt and supersede all prior written
or oral understandings and agreements between Borrower and Lender with respect
thereto. Borrower hereby acknowledges that, except as incorporated in writing in
the Note, the Credit Agreement, this Security Instrument and the Other Security
Documents, there are not, and were not, and no persons are or were authorized by
Lender to make, any representations, understandings, stipulations, agreements or
promises, oral or written, with respect to the transaction which is the subject
of the Note, the Credit Agreement, this Security Instrument and the Other
Security Documents.
Section 22.9 Trustee. (a) Trustee, by its acceptance hereof, covenants
-------
faithfully to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by it in accordance with the terms hereof.
(b) Trustee, upon presentation to it of an affidavit signed by or on
behalf of Lender, setting forth any fact or facts showing a default by Borrower
under any of the terms or conditions of this Security Instrument, is authorized
to accept as true and conclusive all facts and statements in such affidavit and
to act hereunder in complete reliance thereon.
(c) Trustee may resign at any time upon giving thirty (30) days' notice in
writing to Borrower and to Lender.
(d) In the event of Trustee's death, removal, resignation, refusal to act,
or inability to act or, in the sole discretion of Lender for any reason
whatsoever, Lender may, at any time or from time to time without notice and
without specifying any reason therefor and without applying to any court, select
and appoint a successor trustee and all powers, rights, duties and
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authority of Trustee, as aforesaid, shall thereupon become vested in such
successor without conveyance from the predecessor trustee. Such substitute
trustee shall not be required to give bond for the faithful performance of his
duties unless required by Lender. Such substitute trustee shall be appointed by
written instrument duly recorded in the county where the Premises are located,
which appointment may be executed by any authorized agent of Lender and if
Lender is a business trust or corporation, such appointment be executed on its
behalf by any officer of such business trust or corporation, such appointment
shall be conclusively presumed to have been executed with authority and shall be
valid and sufficient without proof of any action by the Board of Trustees or
Board of Directors or any superior officer of the business trust or corporation.
Borrower hereby ratifies and confirms any and all acts which the herein-named
trustee, or its successor or successors in this trust, shall do lawfully by
virtue hereof. Borrower hereby agrees, on behalf of itself and of its heirs,
executors, administrators and assigns, that the recitals contained in any deed
or deeds executed in due form by Trustee or any substitute trustee, acting under
the provisions of this Security Instrument, shall be prima facie evidence of the
facts recited, and that it shall not be necessary to prove in any court,
otherwise than by such recitals, the existence of the facts essential to
authorize the execution and delivery of such deed or deeds and the passing of
title thereby.
(e) At any time and from time to time, without liability therefor and
without notice, upon written request of Lender, Trustee shall (i) consent in
writing to the making of any map or plat of the Property, (ii) join in granting
any easement thereon, (iii) join in any extension agreement or any agreement
subordinating the lien or charge hereof, or (iv) upon presentation of this
Security Instrument and the Note or notes secured hereby for endorsement, and
without affecting the personal liability of any person for the payment of the
Obligations or the effect of this Security Instrument upon the remainder of the
Property, reconvey any part of the Property.
(f) The trust created hereby is irrevocable by Borrower.
Article 23 - CERTAIN MATTERS RELATING TO THE STATE OF CALIFORNIA
Notwithstanding anything contained herein to the contrary:
Section 23.1 Full Reconveyance. Upon written request of Lender stating
-----------------
that all sums secured hereby have been paid, upon surrender to Trustee of the
Note and the original or a certified copy of this Security Instrument for
cancellation and retention, and upon payment of its fees, Trustee shall fully
reconvey, without warranty, the entire remaining Property then held hereunder.
The recitals in such reconveyance of any matters of facts shall be conclusive
proof of the truthfulness thereof. The grantee in such reconveyance may be
described as "the person or persons legally entitled thereto."
Section 23.2 Dwellings. No portion of the proceeds of the Loan shall be
---------
used by Borrower to finance the purchase or construction of real property
containing four (4) or fewer residential units or on which four (4) or fewer
residential units are to be constructed. No portion
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<PAGE>
of the Property is or will be a "dwelling" within the meaning of Section 10240.1
or Section 10240.2 of the California Business and Professions Code.
Section 23.4 Indemnity; Expenses. Borrower will pay or reimburse Trustee
-------------------
and Lender for all reasonable attorneys' fees, costs and expenses incurred by
either of them in any suit, action, legal proceeding or dispute of any kind in
which either of them is made a party or appears as party plaintiff or defendant,
affecting the Debt, this Security Instrument or the interest created herein, or
the Property, or any appeal thereof, including activities related to enforcement
of the remedies of Lender, activities related to protection of Lender's
collateral, any foreclosure action or exercise of the power of sale, any
condemnation action involving the Property or any action to protect the security
hereof, any bankruptcy or other insolvency proceeding commenced by or against
Borrower, and any such amounts paid or incurred by Trustee or Lender shall be
added to the Debt and shall be secured by this Security Instrument. The
agreements of this subsection shall expressly survive in perpetuity satisfaction
of this Security Instrument and repayment of the Debt, any release,
reconveyance, discharge of foreclosure of this Security Instrument, conveyance
by deed in lieu of foreclosure, sale, and any subsequent transfer by trustee's
conveyance of the Property.
Section 23.5 Supplemental Environmental Provisions. In the event that any
-------------------------------------
portion of the Property is determined to be "environmentally impaired" (as
"environmentally impaired" is defined in California Code of Civil Procedure
Section 726.5(e)(3)) or to be an "affected parcel" (as "affected parcel" is
defined in California Code of Civil Procedure Section 726.5(e)(1)), then,
without otherwise limiting or in any way affecting Lender's or Trustee's rights
and remedies under this Security Instrument, Lender may elect to exercise its
right under California Code of Civil Procedure Section 726.5(a) to (i) waive its
lien on such environmentally impaired or affected portion of the Property, and
(ii) exercise the rights and remedies of an unsecured creditor, including
reduction of its claim against Borrower to judgment and any other rights and
remedies permitted by law. For purposes of determining Lender's right to proceed
as an unsecured creditor under California Code of Civil Procedure Section
726.5(a), Borrower shall be deemed to have willfully permitted or acquiesced in
a release or threatened release of hazardous materials, within the meaning of
California Code of Civil Procedure Section 726.5(d)(1), if (i) the release or
threatened release of Hazardous Substances was knowingly or negligently caused
or contributed to by any lessee, occupant or user of any portion of the Property
and (ii) Borrower had prior knowledge of the activity by such lessee, occupant
or user which caused or contributed to the release or threatened release but
failed to take commercially reasonable action to prevent such release or
threatened release.
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<PAGE>
IN WITNESS WHEREOF, this Security Instrument has been executed by Borrower
as of the day and year first above written.
KILROY REALTY, L.P.,
a Delaware limited partnership
By Kilroy Realty Corporation,
a Maryland corporation, its
general partner
By: /s/ Tyler H. Rose
_________________________________
Name: Tyler H. Rose
Title: Senior Vice President and
Treasurer
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<PAGE>
Exhibits
- --------
Exhibit A Description of Land
Exhibit B Ground Lease
-ii-
<PAGE>
EXHIBIT A
---------
(Description of Land)
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being as described in Exhibits A-1
through A-13 attached hereto. The parcel described in Exhibit A-13 constitutes
the Leased Land, as defined in the Deed of Trust. The parcels described in
Exhibits A-1 through A-12 collectively constitute the Fee Land, as defined in
the Deed of Trust.
-1-
<PAGE>
EXHIBIT A-1
-----------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
Parcel 4 of Parcel Map No. 15064, in the City of San Diego, County of San Diego,
State of California, filed in the Office of the County Recorder of San Diego
County, December 17, 1987 as File No. 87-694386 of Official Records.
-2-
<PAGE>
EXHIBIT A-2
-----------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
Parcel 1 of Parcel Map No. 17755, in the City of San Diego, County of San Diego,
State of California, filed in the Office of the County Recorder of San Diego
County, September 17, 1996 as File No. 1996-474607 of Official Records.
------------------
-3-
<PAGE>
EXHIBIT A-3
-----------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
Parcel 2 of Parcel Map No. 17755, in the City of San Diego, County of San Diego,
State of California, filed in the Office of the County Recorder of San Diego
County, September 17, 1996 as File No. 1996-474607 of Official Records.
------------------
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<PAGE>
EXHIBIT A-4
-----------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
Parcel 2 of Parcel Map No. 13090, in the City of San Diego, County of San Diego,
State of California, according to the map thereof filed in the Office of the
County Recorder of San Diego County, December 29, 1983 as File No. 83-474919 of
Official Records.
-5-
<PAGE>
EXHIBIT A-5
-----------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
Lot 7 of Collins Business Park, in the City of San Diego, County of San Diego,
State of California, according to map thereof No. 9245, filed in the Office of
the County Recorder of San Diego County, June 8, 1979.
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<PAGE>
EXHIBIT A-6
-----------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
Parcels 2 and 3 of Parcel Map No. 17965, in the City of San Diego, County of San
Diego, State of California, recorded in the Office of the County Recorder of San
Diego County on December 19, 1997 as File No. 1997-0646743 of Official Records.
-7-
<PAGE>
EXHIBIT A-7
-----------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
PARCEL A:
Parcel 2 of Parcel Map No. 15605, in the City of San Diego, County of San Diego,
State of California filed in the Office of the County Recorder of San Diego
County, March 16, 1989 as File No. 89-134442 of Official Records.
PARCEL B:
An easement for ingress and egress over and along the southeasterly 28 feet of
the northeasterly 83 feet of Parcel 1 of Said Parcel Map No. 15605, as set forth
in Article VI, Section 6.02 in the Declaration of Covenants, Conditions and
Restrictions recorded April 7, 1989 as File No. 89-181579, Official Records.
-8-
<PAGE>
EXHIBIT A-8
-----------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
PARCEL A:
Parcel 1 of Parcel Map No. 18159, in the City of San Diego, County of San Diego,
State Of California, according to map thereof filed in the Office of the County
Recorder of San Diego County, on December 4, 1998.
PARCEL B:
An easement for access over Parcel 2 of Parcel Map No. 18159, in the City of San
Diego, County of San Diego, State Of California, according to map thereof filed
in the Office of the County Recorder of San Diego County, on December 4, 1998 as
described in the Reciprocal Grant of Easements recorded July 23, 1999 as File
No. 1999-0511150 of Official Records.
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<PAGE>
EXHIBIT A-9
-----------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
PARCEL A:
Parcel 1 of Parcel Map No. 17927 in the City of San Diego , County of San Diego,
State of California, recorded in the Office of the County Recorder for San Diego
County on October 29, 1997 as File No. 1997-0541874 of Official Records.
PARCEL B:
A non-exclusive easement for vehicular and pedestrian access, ingress and egress
and installation, operation, use, maintenance, repair, improvement, replacement
and removal of underground utilities over, under and across the private driveway
located within Parcels 1 and 2 of Parcel Map No. 14590, as more particularly set
out in that certain Reciprocal Easement Agreement recorded October 9, 1997 as
File No. 1997-0503692, Official Records of San Diego County, and that certain
Amended and Restated Easement Agreement recorded January 12, 1998 as File No.
1998-0015638, Official Records of San Diego County.
-10-
<PAGE>
EXHIBIT A-10
------------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
PARCEL A:
LOT 6 OF CARLSBAD TRACT NO. 94-09, CARLSBAD RANCH, UNIT NO. 1, IN THE CITY OF
CARLSBAD, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO.
13357, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER
11, 1996 AS FILE NO. 1996-0463214 OF OFFICIAL RECORDS.
TOGETHER WITH ALL THAT PORTION OF LOT 7 OF CARLSBAD TRACT NO. 94-09, CARLSBAD
- -------------
RANCH, UNIT NO. 1, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ACCORDING TO MAP THEREOF NO. 13357, FILED IN THE OFFICE OF THE
COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER 11, 1996 AS FILE NO. 1996-0463214
OF OFFICIAL RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWESTERLY CORNER OF SAID LOT 7; THENCE ALONG THE NORTHERLY
LINE OF SAID LOT 7, NORTH 67(degrees) 30' 48" EAST, 434.00 FEET TO THE
NORTHEASTERLY CORNER OF SAID LOT 7; THENCE ALONG THE EASTERLY LINE OF SAID LOT
7, SOUTH 22(degrees) 29' 12" EAST, 25.13 FEET THENCE LEAVING SAID EASTERLY LINE,
SOUTH 67(degrees) 30' 48" WEST, 434.00 FEET TO A POINT ON THE WESTERLY LINE OF
SAID LOT 7; THENCE ALONG SAID WESTERLY LINE, NORTH 22(degrees) 29' 12" WEST,
25.13 FEET TO THE POINT OF BEGINNING.
(SAID PROPERTY BEING DESCRIBED AS PARCEL A (ADJUSTED LOT 6), IN CERTIFICATE OF
COMPLIANCE RECORDED ON JULY 1, 1997 AS FILE NO. 1997-0311133 OF OFFICIAL
RECORDS.)
PARCEL B:
AN EASEMENT FOR DRIVEWAY ACCESS OVER, ALONG AND ACROSS A PORTION OF LOT 7 OF
CARLSBAD TRACT NO. 94-09, CARLSBAD RANCH, UNIT NO. 1, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 13357,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER 11,
1996 AS FILE NO. 1996-0463214, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
-11-
<PAGE>
BEGINNING AT THE NORTHWESTERLY CORNER OF SAID LOT 7; THENCE ALONG THE WESTERLY
LINE OF SAID LOT 7, SOUTH 22(degrees) 29' 12" EAST, 25.13 FEET TO THE TRUE POINT
OF BEGINNING; THENCE LEAVING SAID WESTERLY LINE, NORTH 67(degrees) 30' 48" EAST,
40.00 FEET; THENCE SOUTH 22(degrees) 29' 12" EAST, 18.00 FEET; THENCE SOUTH
67(degrees) 30' 48" WEST, 40.00 FEET TO A POINT ON THE WESTERLY LINE OF SAID LOT
7; THENCE ALONG SAID WESTERLY LINE, NORTH 22(degrees) 29' 12" WEST, 18.00 FEET
TO THE TRUE POINT OF BEGINNING.
-12-
<PAGE>
EXHIBIT A-11
------------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
PARCEL A:
LOT 7 OF CARLSBAD TRACT NO. 94-09, CARLSBAD RANCH, UNIT NO. 1, IN THE CITY OF
CARLSBAD, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO.
13357, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER
11, 1996 EXCEPTING THEREFROM ALL THAT PORTION OF SAID LOT 7, MORE PARTICULARLY
DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWESTERLY CORNER OF SAID LOT 7; THENCE ALONG THE NORTHERLY
LINE OF SAID LOT 7, NORTH 67(degrees) 30' 48" EAST, 434.00 FEET TO THE
NORTHEASTERLY CORNER OF SAID LOT 7; THENCE ALONG THE EASTERLY LINE OF SAID LOT
7, SOUTH 22(degrees) 29' 12" EAST, 25.13 FEET THENCE LEAVING SAID EASTERLY LINE,
SOUTH 67(degrees) 30' 48" WEST, 434.00 FEET TO A POINT ON THE WESTERLY LINE OF
SAID LOT 7; THENCE ALONG SAID WESTERLY LINE, NORTH 22(degrees) 29' 12" WEST,
25.13 FEET TO THE POINT OF BEGINNING.
PARCEL B:
AN EASEMENT FOR DRIVEWAY ACCESS OVER, ALONG AND ACROSS A PORTION OF LOT 8 OF
CARLSBAD TRACT NO. 94-09, CARLSBAD RANCH, UNIT NO. 1, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 13357,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER 11,
1996, BEING DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST WESTERLY CORNER OF SAID LOT 8, THENCE ALONG THE
NORTHWESTERLY LINE THEREOF, NORTH 67(degrees) 30' 48" EAST 80.00 FEET, THENCE
SOUTH 22(degrees) 29' 12" EAST 17.50 FEET; THENCE SOUTH 67(degrees) 30' 48" WEST
80.00 FEET TO THE SOUTHWESTERLY LINE OF SAID LOT 8, SAID LINE BEING ALSO THE
NORTHEASTERLY LINE OF ARMADA DRIVE; THENCE ALONG THE SOUTHWESTERLY LINE OF SAID
LOT 8, NORTH 22(degrees) 29' 12" WEST 17.50 FEET TO THE POINT OF BEGINNING.
PARCEL C:
-13-
<PAGE>
AN EASEMENT FOR DRIVEWAY ACCESS OVER, ALONG AND ACROSS A PORTION OF LOT 7 OF
CARLSBAD TRACT NO. 94-09, CARLSBAD RANCH, UNIT NO. 1, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 13357,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER 11,
1996 AS FILE NO. 1996-0463214, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWESTERLY CORNER OF SAID LOT 7; THENCE ALONG THE WESTERLY
- ---------
LINE OF SAID LOT 7, SOUTH 22(degrees) 29' 12" EAST, 7.13 FEET TO THE TRUE POINT
----------
OF BEGINNING; THENCE LEAVING SAID WESTERLY LINE, NORTH 67(degrees) 30' 48" EAST,
- ------------
40.00 FEET; THENCE SOUTH 22(degrees) 29' 12" EAST, 18.00 FEET; THENCE SOUTH
67(degrees) 30' 48" WEST, 40.00 FEET TO A POINT ON THE WESTERLY LINE OF SAID LOT
7; THENCE ALONG SAID WESTERLY LINE, NORTH 22(degrees) 29' 12" WEST, 18.00 FEET
TO THE TRUE POINT OF BEGINNING.
-----------------------
PARCEL D:
AN NON-EXCLUSIVE EASEMENT FOR GENERAL ACCESS AND UTILITY, TOGETHER WITH THE
RIGHT TO CONVEY TO OTHERS, OVER, ALONG AND ACROSS A PORTION OF LOT 7 OF CARLSBAD
TRACT NO. 94-09, CARLSBAD RANCH, UNIT NO. 1, IN THE CITY OF CARLSBAD, COUNTY OF
SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 13357, FILED IN THE
OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER 11, 1996 AS FILE
NO. 1996-0463214, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWESTERLY CORNER OF SAID LOT 7; THENCE ALONG THE NORTHERLY
LINE OF SAID LOT 7, NORTH 67(degrees) 30' 48" EAST, 27.00 FEET; THENCE LEAVING
SAID NORTHERLY LINE, SOUTH 22(degrees) 29' 12" EAST, 25.13 FEET; THENCE SOUTH
67(degrees) 30' 48" WEST, 27.00 FEET TO A POINT ON THE WESTERLY LINE OF SAID LOT
7; THENCE ALONG SAID WESTERLY LINE NORTH 22(degrees) 29' 12" WEST, 25.13 FEET TO
THE POINT OF BEGINNING.
-14-
<PAGE>
EXHIBIT A-12
------------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
Lot 25 of Carlsbad Tract 81-10 Unit No. 2A, in the City of Carlsbad, County of
San Diego, State of California, according to map thereof No. 11134, filed in the
Office of the County Recorder of San Diego County, January 31, 1985.
-15-
<PAGE>
EXHIBIT A-13
------------
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in the State of California,
County of San Diego, and described as follows:
Parcel 3 of Parcel Map No. 16265, in the City of San Diego, County of San Diego,
State of California, according to map thereof filed in the Office of the County
Recorder of said San Diego County, October 18, 1990, as File No. 90-0567278 of
Official Records.
-16-
<PAGE>
EXHIBIT B
(Description of Ground Lease)
Agreement for Ground Lease Development and Use of Real Property dated September
22, 1988 executed by and between The City of San Diego, as lessor, and JOSP
Partners, as lessee, and recorded on April 21, 1989 as Instrument No. 89-209941
of the Official Records of San Diego County, California (the "Official
--------
Records"), as amended by First Amendment dated March 31, 1989 between such
- -------
parties and recorded on April 21, 1989 as File No. 1989-209942 of the Official
Records, as further amended by Second Amendment dated March 26, 1990 between
such parties and recorded on May 17, 1990 as File No. 90-270833 of the Official
Records as further amended by that Consent and Estoppel Certificate executed as
of June 18, 1998 by such parties and Borrower, and as assigned by JOSP Partners
to Borrower pursuant to Assignment dated ____________ and recorded on June 18,
1998 as File No. 98-0375194 of the Official Records.
-xvii-
<PAGE>
EXHIBIT 10.5
New York, New York
October 20, 1999
GUARANTY OF RECOURSE OBLIGATIONS OF BORROWER
--------------------------------------------
FOR VALUE RECEIVED, and to induce COMMERZBANK AKTIENGESELLSCHAFT, New York
branch, having an address at 2 World Financial Center, New York, New York 10281-
1050, as Agent ("Lender"), to lend to KILROY REALTY, L.P., a Delaware limited
partnership, having its principal place of business at 2250 East Imperial
Highway, El Segundo, California 90245 ("Borrower"), the principal sum of Ninety
Million Dollars ($90,000,000) (the "Loan"), evidenced by the Note (as defined in
the Credit Agreement hereinafter referred to) and secured by a certain deed of
trust (the "Security Instrument") and loaned to Borrower pursuant to a credit
agreement (the "Credit Agreement"), each as described in Exhibit A attached
hereto and made a part hereof, and by other documents executed in connection
therewith (the "Other Security Documents"),
The undersigned, KILROY REALTY CORPORATION, a Maryland corporation, having
an address at 2250 East Imperial Highway, El Segundo, California 90245
(hereinafter referred to as "Guarantor") hereby absolutely and unconditionally
guarantees to Lender the prompt and unconditional payment of the Guaranteed
Recourse Obligations of Borrower (hereinafter defined) and the due and prompt
performance of all of the terms, agreements, covenants and conditions of the
Note, the Security Instrument, and the Other Security Documents.
It is expressly understood and agreed that this is a continuing guaranty
and that the obligations of Guarantor hereunder are and shall be absolute under
any and all circumstances, without regard to the validity, regularity or
enforceability of the Note, the Security Instrument, or the Other Security
Documents, a true copy of each of said documents Guarantor hereby acknowledges
having received and reviewed.
The term "Debt" as used in this Guaranty shall mean the principal sum
evidenced by the Note and the Credit Agreement and secured by the Security
Instrument, or so much thereof as may be outstanding from time to time, together
with interest thereon at the rate of interest specified in the Note and the
Credit Agreement and all other sums other than principal or interest which may
or shall become due and payable pursuant to the provisions of the Note, the
Credit Agreement, the Security Instrument or the Other Security Documents.
The term "Guaranteed Recourse Obligations of Borrower" as used in this
Guaranty shall mean all obligations and liabilities of Borrower for which
Borrower shall be personally liable pursuant to the Note, the Credit Agreement,
the Security Instrument or the Other Security Documents, as set forth in Section
15.3 and Section 15.4 of the Deed of Trust and Article 10 of the Credit
Agreement.
Upon and during the continuance of an Event of Default, any indebtedness of
Borrower to Guarantor now or hereafter existing (including, but not limited to,
any rights to subrogation
1
<PAGE>
Guarantor may have as a result of any payment by Guarantor under this Guaranty),
together with any interest thereon, shall be, and such indebtedness is, hereby
deferred, postponed and subordinated to the prior payment in full of the Debt.
Until payment in full of the Debt (and including interest accruing on the Note
after the commencement of a proceeding by or against Borrower under the
Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. Sections 101 et seq., and
-- ---
the regulations adopted and promulgated pursuant thereto (collectively, the
"Bankruptcy Code") which interest the parties agree shall remain a claim that is
prior and superior to any claim of Guarantor notwithstanding any contrary
practice, custom or ruling in cases under the Bankruptcy Code generally), after
an Event of Default shall have occurred and is continuing under the Credit
Agreement, Guarantor agrees not to accept any payment or satisfaction of any
kind of indebtedness of Borrower to Guarantor and hereby assigns such
indebtedness to Lender (such assignment to be effective upon and during the
occurrence of an Event of Default), including the right to file proof of claim
and to vote thereon in connection with any such proceeding under the Bankruptcy
Code, including the right to vote on any plan of reorganization.
Guarantor agrees that, upon demand, Guarantor will reimburse Lender, to the
extent that such reimbursement is not made by Borrower, for all expenses
(including reasonable counsel fees) incurred by Lender in connection with the
collection of the Guaranteed Recourse Obligations of Borrower or any portion
thereof or with the enforcement of this Guaranty.
All moneys available to Lender for application in payment or reduction of
the Debt may be applied by Lender in such manner and in such amounts and at such
time or times and in such order and priority as Lender may see fit to the
payment or reduction of such portion of the Debt as Lender may elect.
Guarantor hereby waives notice of the acceptance hereof, presentment,
demand for payment, protest, notice of protest, or any and all notice of non-
payment, non-performance or non-observance, or other proof, or notice or demand,
whereby to charge Guarantor therefor.
Guarantor further agrees that the validity of this Guaranty and the
obligations of Guarantor hereunder shall in no way be terminated, affected or
impaired (a) by reason of the assertion by Lender of any rights or remedies
which it may have under or with respect to either the Note, the Security
Instrument, or the Other Security Documents, against any person obligated
thereunder or against the owner of the Property, or (b) by reason of any failure
to file or record any of such instruments or to take or perfect any security
intended to be provided thereby, or (c) by reason of the release or exchange of
any property covered by the Security Instrument or other collateral for the
Loan, or (d) by reason of Lender's failure to exercise, or delay in exercising,
any such right or remedy or any right or remedy Lender may have hereunder or in
respect to this Guaranty, or (e) by reason of the commencement of a case under
the Bankruptcy Code by or against any person obligated under the Note, the
Credit Agreement, the Security Instrument or the Other Security Documents or (f)
by reason of any payment made on the Debt or any other indebtedness arising
under the Note, the Credit Agreement, the Security Instrument or the Other
Security Documents, whether made by Borrower or Guarantor or any other person,
which is required to be refunded
2
<PAGE>
pursuant to any bankruptcy or insolvency law; it being understood that no
payment so refunded shall be considered as a payment of any portion of the Debt,
nor shall it have the effect of reducing the liability of Guarantor hereunder.
It is further understood that, if Borrower shall have taken advantage of, or be
subject to the protection of, any provision in the Bankruptcy Code, the effect
of which is to prevent or delay Lender from taking any remedial action against
Borrower, including the exercise of any option Lender has to declare the Debt
due and payable on the happening of any default or event by which under the
terms of the Note, the Credit Agreement, the Security Instrument or the Other
Security Documents, the Debt shall become due and payable, Lender may, as
against Guarantor, nevertheless, declare the Debt due and payable and enforce
any or all of its rights and remedies against Guarantor provided for herein.
Guarantor further covenants that this Guaranty shall remain and continue in
full force and effect as to any modification, extension or renewal of the Note,
the Credit Agreement, the Security Instrument, or any of the Other Security
Documents, that Lender shall not be under a duty to protect, secure or insure
any security or lien provided by the Security Instrument or other such
collateral, and that other indulgences or forbearance may be granted under any
or all of such documents, all of which may be made, done or suffered without
notice to, or further consent of, Guarantor.
As a further inducement to Lender to make the Loan and in consideration
thereof, Guarantor further covenants and agrees (a) that in any action or
proceeding brought by Lender against Guarantor on this Guaranty, Guarantor shall
and does hereby waive trial by jury, (b) Guarantor (i) irrevocably submits to
the nonexclusive jurisdiction of the courts of the State of New York and the
State where the Property is located and the United States District Court located
in the Borough of Manhattan in New York, New York and the county in which the
Property is located, and appellate courts from any thereof, and (ii) irrevocably
waives any objection which it may have at any time to the laying on venue of any
suit, action or proceeding arising out of or relating to this Security
Instrument brought in any such court, irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum, and (c) nothing in this Guaranty will be deemed to preclude
Lender from bringing an action or proceeding with respect hereto in any other
jurisdiction. Guarantor hereby irrevocably consents to service of process by
registered or certified mail, postage prepaid, to it at its address given in the
second paragraph of this Guaranty.
This is a guaranty of payment and not of collection and upon and during the
continuance of any Default of Borrower under the Note, the Credit Agreement, the
Security Instrument or the Other Security Documents, Lender may, at its option,
proceed directly and at once, without notice, against Guarantor to collect and
recover the full amount of the liability hereunder or any portion thereof,
without proceeding against Borrower or any other person, or foreclosing upon,
selling, or otherwise disposing of or collecting or applying against any of the
mortgaged property or other collateral for the Loan. Guarantor hereby waives
the pleading of any statute of limitations as a defense to the obligation
hereunder.
3
<PAGE>
Each reference herein to Lender shall be deemed to include its successors
and assigns, to whose favor the provisions of this Guaranty shall also inure.
Each reference herein to Guarantor shall be deemed to include the heirs,
executors, administrators, legal representatives, successors and assigns of
Guarantor, all of whom shall be bound by the provisions of this Guaranty.
Guarantor (and its representative, executing below, if any) has full power,
authority and legal right to execute this Guaranty and to perform all its
obligations under this Guaranty.
All understandings, representations and agreements heretofore had with
respect to this Guaranty are merged into this Guaranty which alone fully and
completely expresses the agreement of Guarantor and Lender.
This Guaranty may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Lender or Borrower, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
This Guaranty shall be deemed to be a contract entered into pursuant to the
laws of the State of New York and shall in all respects be governed, construed,
applied and enforced in accordance with applicable federal law and the laws of
the State of New York, without reference or giving effect to any choice of law
doctrine.
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the
date first above set forth.
KILROY REALTY CORPORATION,
a Maryland corporation
By: /s/ Tyler H. Rose
____________________________________
Name: Tyler H. Rose
Title: Senior Vice President and
Treasurer
4
<PAGE>
EXHIBIT A
---------
(Description of Credit Agreement and Security Instrument)
Credit Agreement: CREDIT AGREEMENT made as of the 20th day of October, 1999,
- -----------------
among KILROY REALTY, L.P., a Delaware limited partnership, COMMERZBANK
AKTIENGESELLSCHAFT, acting through its NEW YORK BRANCH, as Administrative Agent
on behalf of the Banks listed in Annex I to the Credit Agreement and Lead
Arranger, DRESDNER BANK AG, NEW YORK and GRAND CAYMAN BRANCHES, as Syndication
Agent and Arranger, and the financial institutions listed in Annex I to the
Credit Agreement.
Security Instrument: VARIABLE INTEREST RATE DEED OF TRUST, LEASEHOLD DEED OF
- --------------------
TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING made as of the
20th day of October, 1999, by KILROY REALTY, L.P., a Delaware limited
partnership, as trustor, to FIRST AMERICAN TITLE INSURANCE COMPANY, a California
corporation, as trustee for the benefit of COMMERZBANK AKTIENGESELLSCHAFT, New
York Branch, a branch duly licensed under the laws of the State of New York,
having an address at 2 World Financial Center, New York, New York 10251-1050, as
Administrative Agent on behalf of the Banks listed in Annex I to the Credit
Agreement, as beneficiary.
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM F0RM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 6,857 27,311
<SECURITIES> 0 0
<RECEIVABLES> 18,354 19,951
<ALLOWANCES> (1,348) (494)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 1,354,043 1,132,158
<DEPRECIATION> 165,000 (139,170)
<TOTAL-ASSETS> 1,244,920 1,063,670
<CURRENT-LIABILITIES> 0 0
<BONDS> 526,667 403,920
0 0
0 0
<COMMON> 279 276
<OTHER-SE> 478,259 476,122
<TOTAL-LIABILITY-AND-EQUITY> 1,244,920 1,063,670
<SALES> 0 0
<TOTAL-REVENUES> 118,797 98,853
<CGS> 0 0
<TOTAL-COSTS> 54,846 46,682
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,744 1,059
<INTEREST-EXPENSE> 18,420 14,642
<INCOME-PRETAX> 43,787 36,470
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 43,787 36,470
<DISCONTINUED> 75 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 31,617<F1> 28,649
<EPS-BASIC> 1.14 1.07
<EPS-DILUTED> 1.14 1.07
<FN>
<F1>Net income is shown net of equity in loss of unconsolidated subsidiary of <$22>
and minority interests of <$12,223>
</FN>
</TABLE>
