<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
----------------
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
251 SOUTH LAKE AVENUE, SUITE 700
PASADENA, CALIFORNIA 91101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
JOEL S. MARCUS
CHIEF EXECUTIVE OFFICER
ALEXANDRIA REAL ESTATE EQUITIES, INC.
251 SOUTH LAKE AVENUE, SUITE 700
PASADENA, CALIFORNIA 91101
TELEPHONE: 818-578-0777
FACSIMILE: 818-578-0770
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
MICHAEL A. WORONOFF, ESQ. DAVID W. WATSON, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM GOODWIN, PROCTER & HOAR LLP
LLP EXCHANGE PLACE
300 SOUTH GRAND AVENUE BOSTON, MASSACHUSETTS 02109
LOS ANGELES, CALIFORNIA 90071 TELEPHONE: (617) 570-1000
TELEPHONE: (213) 687-5000 FACSIMILE: (617) 523-1231
FACSIMILE: (213) 687-5600
----------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BEING REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 7,854,500 $ 22.00 $172,799,000 $52,364
</TABLE>
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(1) Includes 1,024,500 shares of Common Stock that the Underwriters have the
option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH , 1997
6,830,000 SHARES
[LOGO OF ALEXANDRIA REAL ESTATE EQUITIES, INC.
ALEXANDRIA COMMON STOCK
REAL ESTATE
EQUITIES] -----------
Alexandria Real Estate Equities, Inc. (the "Company") is a real estate
investment trust ("REIT") engaged in the acquisition, management, expansion and
selective development of high quality, strategically located office properties
containing office and laboratory space designed and improved for lease
principally to pharmaceutical, biotechnology, diagnostic and personal care
products companies, major scientific research institutions and related
government agencies (collectively, the "Life Science Industry"). Upon
consummation of the Offering and the Formation Transactions (each as defined
below), the Company will own 15 properties (the "Properties") containing
approximately 1.5 million rentable square feet of office and laboratory space.
The Properties are located in California (in the San Diego and San Francisco
Bay areas), Seattle, Washington and suburban Washington, D.C. (including
Maryland and Virginia), each of which is a leading market for the Life Science
Industry. The Company's investment strategy is to focus on properties serving
Life Science Industry tenants in these and other targeted markets. The Company
believes that it will be the first publicly traded entity focusing primarily on
this property type.
All of the shares (the "Shares") of Common Stock, par value $.01 per share
(the "Common Stock"), of the Company offered hereby (the "Offering") are being
sold by the Company. It is currently anticipated that the initial public
offering price will be between $20.00 and $22.00 per Share. See "Underwriting"
for a discussion of factors relating to the determination of the initial public
offering price. The Shares will represent approximately 63.1% of all
outstanding shares of Common Stock. Prior to this Offering, there has been no
public market for the Common Stock.
Upon consummation of the Offering and the transactions described in
"Formation and Structure" (the "Formation Transactions"), Health Science
Properties Holding Corporation ("Holdings"), which is owned principally by
founding stockholders (including officers and directors) of the Company, will
own % of the outstanding shares of Common Stock. The Company's continuing
investors (the "Continuing Investors"), consisting of officers and directors of
the Company, Holdings and AEW Partners II, L.P., will own an aggregate of
approximately % of the outstanding shares of Common Stock. See "Formation and
Structure" and "Share Ownership."
To ensure that the Company maintains its qualification as a REIT, the
Company's charter (the "Charter") provides, with exceptions for certain
Continuing Investors, that no person may own more than 9.8% of the outstanding
shares of any class or series of capital stock of the Company. See "Description
of Capital Stock--Restrictions on Transfer." The Company intends to pay regular
quarterly dividends beginning with the partial calendar quarter ending June 30,
1997. See "Distributions." The Company will apply to list the Common Stock on
the New York Stock Exchange ("NYSE") under the symbol "ARE."
SEE "RISK FACTORS" STARTING ON PAGE 14 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE SHARES, INCLUDING:
. Risks relating to the lack of industry diversification and the Company's
reliance on the Life Science Industry;
. Reliance on a limited number of major tenants and on the ability of such
tenants to make rental payments, and related property management risks,
including nonrenewal of space or inability to relet space;
. Risks associated with the concentration of the Properties in a limited number
of markets;
. Risks relating to the rapid growth of the Company and its limited operating
history, including the limited experience of current management in REIT
operations;
. Risks associated with real estate financing, including the risks that the
Company's cash flows may be insufficient to meet required payments of
principal and interest on outstanding indebtedness and that interest rates
could increase on variable rate indebtedness;
. Risks affecting the real estate market generally, including economic and
other conditions affecting the value of the Company's properties, the
relative illiquidity of real estate, increases in taxes and potential
liabilities for unknown or future environmental problems;
. Tax risks, including taxation of the Company as a corporation if the Company
fails to qualify as a REIT and the resulting decrease in amounts available
for distribution to stockholders; and
. Conflicts of interest in connection with the Offering and the Formation
Transactions, including material benefits to the Continuing Investors.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
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Total............................. $ $ $
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Total Assuming Full Exercise of
Over-Allotment Option(3)......... $ $ $
</TABLE>
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(1) See "Underwriting."
(2) Before deducting expenses estimated at $ , which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 1,024,500 additional shares of Common
Stock on the same terms and conditions, solely to cover over-allotments.
See "Underwriting."
-----------
The Shares are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Shares will be made in New York City on or about , 1997.
-----------
PAINEWEBBER INCORPORATED
LEHMAN BROTHERS
SMITH BARNEY INC.
EVEREN SECURITIES, INC.
-----------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[ARTWORK TO FOLLOW]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE
ITS MARKET PRICE, THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY........................................................ 1
The Company............................................................. 1
Risk Factors............................................................ 2
Growth Strategies....................................................... 3
The Properties.......................................................... 7
Structure of the Company................................................ 9
The Offering............................................................ 11
Distributions........................................................... 11
Tax Status Of The Company............................................... 11
Summary Financial Information........................................... 12
RISK FACTORS.............................................................. 14
Lack of Industry Diversification; Reliance on Life Science Industry
Tenants................................................................ 14
Dependence on Tenants................................................... 15
Geographic Concentration; Dependence on Certain Markets................. 15
Rapid Growth; Limited Operating History; Experience of Management....... 15
Real Estate Financing Risks............................................. 16
Risks of Acquisition and Renovation..................................... 17
Real Estate Investment Risks............................................ 17
Adverse Consequences of Failure to Qualify as a REIT.................... 18
Conflicts of Interest................................................... 19
Benefits to Managing Underwriter........................................ 19
Influence of Certain Stockholders....................................... 20
Anti-takeover Effect of Ownership Limit and Power to Issue Additional
Stock.................................................................. 20
Uninsured Loss.......................................................... 21
Possible Environmental Liabilities...................................... 21
Costs of Compliance with Americans with Disabilities Act................ 22
Changes in Laws......................................................... 22
Reliance on Key Personnel............................................... 23
Change in Policies Without Stockholder Approval......................... 23
No Limitation on Debt................................................... 23
Inability to Sustain Distributions...................................... 23
Absence of Prior Market for Shares...................................... 24
Effect of Market Interest Rates on Price of Shares...................... 24
Effect of Future Offerings on Price of Shares........................... 24
Immediate and Substantial Dilution...................................... 24
Shares Eligible for Future Sale......................................... 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE COMPANY.............................................................. 26
Growth Strategies...................................................... 27
Tenant Demand.......................................................... 30
TARGET MARKETS........................................................... 32
Existing Markets.......................................................
Target Markets.........................................................
DISTRIBUTIONS............................................................ 35
USE OF PROCEEDS.......................................................... 38
CAPITALIZATION........................................................... 39
DILUTION................................................................. 40
SELECTED FINANCIAL DATA.................................................. 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 43
Overview............................................................... 43
Results of Operations.................................................. 43
Pro Forma Results of Operations........................................ 44
Liquidity and Capital Resources........................................ 45
Historical Cash Flows.................................................. 46
Funds from Operations.................................................. 47
Inflation.............................................................. 47
THE PROPERTIES........................................................... 48
General................................................................ 48
Location and Type of Space............................................. 50
Lease Expirations...................................................... 51
Tenants................................................................ 52
Property Descriptions.................................................. 53
Competition............................................................ 55
Insurance.............................................................. 55
Environmental Matters.................................................. 56
Legal Proceedings...................................................... 57
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES.............................. 57
Investment Policies.................................................... 57
Disposition Policy..................................................... 58
Financing Policies..................................................... 58
Conflict of Interest Policies.......................................... 59
Policies with Respect to Other Activities.............................. 59
FORMATION AND STRUCTURE.................................................. 60
Formation and Related Transactions..................................... 60
Benefits to Related Parties............................................ 61
MANAGEMENT............................................................... 63
Directors, Executive Officers and Senior Management.................... 63
Election of Directors and Director Compensation........................ 65
Committees of the Board of Directors................................... 65
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Executive Compensation................................................. 66
Benefit Plans.......................................................... 67
Employment Agreements.................................................. 68
Compensation Committee Interlocks and Insider Participation............ 69
Limitation of Liability and Indemnification............................ 70
CERTAIN TRANSACTIONS..................................................... 71
SHARE OWNERSHIP.......................................................... 72
Principal Stockholders of Alexandria................................... 72
Certain Beneficial Ownership in Holdings............................... 73
DESCRIPTION OF CAPITAL STOCK............................................. 74
General................................................................ 74
Common Stock........................................................... 74
Preferred Stock........................................................ 74
Power to Issue Additional Shares of Common Stock and Preferred Stock... 75
Restrictions on Transfer............................................... 75
Transfer Agent and Registrar........................................... 77
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S CHARTER AND
BYLAWS.................................................................. 77
Board of Directors..................................................... 77
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Business Combinations................................................... 78
Control Share Acquisitions.............................................. 78
Advance Notice of Director Nominations and New Business ................ 79
Amendment to the Charter or Bylaws...................................... 79
Dissolution of the Company.............................................. 79
Anti-takeover Effect of Certain Provisions of Maryland Law and of the
Charter and Bylaws..................................................... 79
SHARES ELIGIBLE FOR FUTURE SALE........................................... 79
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 81
Taxation of the Company................................................. 81
Taxation of Taxable Domestic Stockholders............................... 85
Taxation of Tax-Exempt Stockholders..................................... 86
Taxation of Non-U.S. Holders............................................ 86
Other Tax Consequences.................................................. 88
UNDERWRITING.............................................................. 89
LEGAL MATTERS............................................................. 91
EXPERTS................................................................... 91
ADDITIONAL INFORMATION.................................................... 92
GLOSSARY.................................................................. 93
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Capitalized and certain
other terms used herein shall have the meanings assigned to them in the
Glossary. Unless the context otherwise requires, references in this Prospectus
to the "Company" mean, collectively, Alexandria Real Estate Equities, Inc.
("Alexandria"), ARE-QRS Corp. ("QRS"), a wholly owned subsidiary of Alexandria,
and PW Acquisitions I, LLC (the "Acquisition LLC"). See "Formation and
Structure." Unless otherwise indicated, the information in this Prospectus
assumes that: (i) the Underwriters' over-allotment option is not exercised;
(ii) the Formation Transactions have occurred; (iii) AEW Partners II, L.P. and
certain of its affiliates (collectively, "AEW") convert all of the outstanding
shares of Series V Preferred Stock into shares of Common Stock prior to the
Offering; and (iv) the initial public offering price is $21.00 per Share (the
midpoint of the price range set forth on the cover page of this Prospectus).
THE COMPANY
Alexandria was formed in October 1994 to acquire, manage, expand and
selectively develop high quality, strategically located office properties
containing office and laboratory space designed and improved for lease
principally to pharmaceutical, biotechnology, diagnostic and personal care
products companies, major scientific research institutions and related
government agencies (collectively, the "Life Science Industry"). The Company's
tenant base is broad and diverse within the Life Science Industry and reflects
the Company's focus on regional, national and international tenants with
substantial financial and operational resources. Significant tenants include
affiliates of major pharmaceutical companies (e.g., Johnson & Johnson and
Novartis AG, the company resulting from the merger of Ciba-Geigy AG and Sandoz
AG); biotechnology companies and their affiliates (e.g., Chiron Corporation,
Agouron Pharmaceuticals, Inc. and MedImmune, Inc.); affiliates of personal care
products companies (The Gillette Company); major scientific research
institutions (e.g., the Fred Hutchinson Cancer Research Center and The Scripps
Research Institute); clinical laboratories (e.g., American Medical
Laboratories, Inc.); and government agencies (the U.S. Food and Drug
Administration and the U.S. Army Corps of Engineers).
Upon consummation of the Offering and the Formation Transactions, the Company
will own 15 Properties containing approximately 1.5 million rentable square
feet of office and laboratory space located in California (in the San Diego and
San Francisco Bay areas), Seattle, Washington and suburban Washington, D.C.
(including Maryland and Virginia), each of which is a leading market in the
United States for the Life Science Industry. To facilitate research and
development, technology transfer and recruitment of scientific professionals,
Life Science Industry companies generally cluster near major scientific
research institutions, universities and government agencies, all of which drive
demand for properties combining office and laboratory space suitable for such
tenants. As a result, the Company focuses its operations and acquisition
activities principally in a limited number of target markets, including all of
the Company's existing markets and certain other markets where Life Science
Industry tenants are concentrated, including Boston/Cambridge and the New
York/New Jersey and suburban Philadelphia areas. As of March 1, 1997, the
Properties were approximately 98% leased, at an average Annualized Net
Effective Rent per leased square foot of $18.11.
The multibillion dollar Life Science Industry comprises some of the fastest
growing segments of the U.S. economy and includes thousands of public and
private companies and scientific research institutes engaged principally in the
research, development, testing, manufacture, sale and regulation of
pharmaceuticals, diagnostics, personal care products, medical devices,
laboratory instrumentation and other related applications. Properties leased to
tenants in the Life Science Industry typically consist of suburban office
buildings containing scientific research and development laboratories, enhanced
infrastructure and other improvements that are generic to tenants operating in
the Life Science Industry (such properties, "Life Science Facilities"). Unlike
traditional
1
<PAGE>
office space, the location of and improvements to Life Science Facilities are
generally considered essential to a tenant's business. The Company believes
that, as a result of these factors, occupancy levels in Life Science Facilities
within its markets have been higher and tenant turnover has been significantly
lower than in traditional office properties.
Despite increasing competition for the acquisition of traditional office
properties, the Company believes that, subject to market conditions, it can
continue to purchase high quality Life Science Facilities at initial
Capitalization Rates generally ranging from 10.0% to 12.5% and at prices
significantly below replacement cost. The initial Capitalization Rate is the
initial annual projected property earnings, before interest, taxes,
depreciation and amortization ("EBITDA"), for the 12 months following
acquisition, based upon leases in effect at the time of acquisition, divided by
the consideration paid by the Company for the property, including closing costs
and budgeted capital improvements. In 1996, the Company completed the
acquisition of eight Life Science Facilities (the "1996 Acquired Properties")
for an aggregate purchase price (including closing costs and budgeted capital
improvements) of approximately $95.2 million and an average initial
Capitalization Rate of over 12%. In addition, the Company believes that
opportunities exist for internal growth through contractual rental rate
escalations (included in approximately 65% of the Company's leases on a square
footage basis), the retenanting and releasing of space at higher rental rates
upon the expiration of existing leases, the expansion of existing Properties
and the conversion of existing office space to higher rent generic laboratory
space.
The Company is led by a senior management team with extensive experience in
both the real estate and Life Science industries and is supported by a highly
experienced board of directors. Management believes that it has achieved
favorable returns on its Properties and should continue to achieve favorable
returns on newly acquired properties as a result of: (i) the strong and growing
demand by tenants for Life Science Facilities; (ii) the constrained supply and
lack of speculative development of Life Science Facilities due to the expertise
generally required to develop and manage this property type; (iii) the highly
fragmented and inefficient market for ownership of Life Science Facilities;
(iv) the Company's adherence to strict evaluation criteria and due diligence
review when assessing prospective properties and tenants; and (v) the Company's
knowledge and understanding of Life Science Industry tenants and their real
estate needs. Additionally, the relationships that management has developed
over time within the real estate and Life Science industries have contributed
significantly to the Company's ability to identify and consummate favorable
acquisitions and to lease space to high quality Life Science Industry tenants.
Management believes that the Company will be the first publicly traded entity
focusing primarily on the acquisition, management, expansion and selective
development of Life Science Facilities and that it will be one of the nation's
largest real estate companies specializing in this property type.
RISK FACTORS
An investment in the Shares involves various risks, and prospective investors
should carefully consider the matters discussed under "Risk Factors" prior to
an investment in the Company. Such risks include, among others:
. Risks relating to the lack of industry diversification and the Company's
reliance on the Life Science Industry, including the extensive
government regulation of Life Science Industry tenants and certain
related environmental concerns, and the risk that the Company may be
unable to identify suitable Life Science Industry tenants. See "Risk
Factors--Lack of Industry Diversification; Reliance on Life Science
Industry Tenants."
. Reliance on a limited number of major tenants, of which the three
largest (American Medical Laboratories, Inc., the Fred Hutchinson Cancer
Research Center and Agouron Pharmaceuticals, Inc.) account for
approximately 37% of the Company's Annualized Base Rent from the
Properties, and on the ability of such tenants to make rental payments,
and related property management risks, including nonrenewal of space or
inability to relet space. See "Risk Factors--Dependence on Tenants."
2
<PAGE>
. Risks associated with the concentration of the Properties in a limited
number of markets and the resulting dependence of the Company on
economic conditions in such markets. See "Risk Factors--Geographic
Concentration; Dependence on Certain Markets."
. Risks relating to the rapid growth of the Company and its limited
operating history, including the risks that the Company may not be able
to effectively integrate new acquisitions into its operations and that
the Properties may have characteristics or deficiencies unknown to the
Company that could adversely affect such Properties, and the limited
experience of current management in REIT operations. See "Risk Factors--
Rapid Growth; Limited Operating History; Experience of Management."
. Risks associated with real estate financing, including the risks that
the Company's cash flows may be insufficient to meet required payments
of principal and interest on outstanding indebtedness and that interest
rates could increase on variable rate indebtedness. See "Risk Factors--
Real Estate Financing Risks."
. Risks that acquired properties will fail to perform in accordance with
expectations, that the Company may have overpaid for such properties,
that the Company may have underestimated costs of improvements, or that
the Company may not be able to acquire desired properties. See "Risk
Factors--Risks of Acquisition and Renovation."
. Risks affecting the real estate market generally, including economic and
other conditions affecting the value of the Company's properties,
competition, the relative illiquidity of real estate, increases in taxes
and other operating expenses and potential liabilities for unknown or
future environmental problems. See "Risk Factors--Real Estate Investment
Risks."
. Tax risks, including taxation of the Company as a corporation if the
Company fails to qualify as a REIT and the resulting decrease in the
amounts available for distribution to stockholders. See "Risk Factors--
Adverse Consequences of Failure to Qualify as a REIT."
. Conflicts of interest in connection with the Offering and the Formation
Transactions, including material benefits to certain officers, directors
and affiliates of the Company (including the increase in the net
tangible book value of the shares of Common Stock held by them) and to
certain affiliates of the lead managing Underwriter of the Offering. See
"Risk Factors--Conflicts of Interest" and "--Benefits to Managing
Underwriter."
. Significant stock ownership by Holdings and AEW after the Offering and
limitations on ownership of the capital stock by other stockholders of
the Company, which may delay, defer or prevent third parties from
seeking to control or acquire the Company in transactions that may
otherwise be beneficial to the stockholders. See "Risk Factors--
Influence of Certain Stockholders" and "--Anti-takeover Effect of
Ownership Limit and Power to Issue Additional Stock."
. Risks that certain types of losses, such as from earthquakes, could
exceed the Company's insurance coverage. See "Risk Factors--Uninsured
Loss."
GROWTH STRATEGIES
The Company seeks to maximize growth in funds from operations ("FFO") and
cash available for distribution to stockholders through effective management,
operation, acquisition, expansion and selective development of Life Science
Facilities. The Company believes that opportunities exist to increase FFO and
cash available for distribution per share by (i) acquiring high quality Life
Science Facilities at attractive returns in its target markets, (ii) realizing
contractual rental rate escalations (which are included in 65% of the Company's
leases on a square footage basis), (iii) retenanting and releasing space within
its portfolio at higher rental rates and with minimal tenant improvement costs,
(iv) expanding existing Properties or converting existing office space to
generic laboratory space that can be leased at higher rental rates, (v)
selectively developing properties on a retrofit or build-to-suit basis, where
the Company can secure leases prior to construction and where such development
is expected to result in returns on investment that the Company believes will
exceed returns on
3
<PAGE>
comparable acquisitions, and (vi) continuing to implement effective cost
control measures, including expense pass-through provisions in tenant leases.
In pursuing its growth strategy, the Company intends to maintain significant
financial flexibility, enabling it to take advantage of growth opportunities as
they arise.
The Company believes that its focus on Life Science Facilities presents an
attractive investment opportunity, given the strong and growing demand for Life
Science Facilities coupled with constraints on new supply. The Company believes
that these factors, combined with management's expertise and knowledge of Life
Science Industry tenants and their facility needs, present opportunities for
the Company to achieve returns on its property investments that are often
higher than returns available on other types of commercial real estate. There
can be no assurance, however, that the Company will be able to achieve such
higher returns.
Tenant demand for Life Science Facilities in the Company's target markets is
driven largely by the size and growth of the Life Science Industry and its
various segments and particularly by the Life Science Industry's expenditures
on research and development. Growth in the Life Science Industry creates demand
for Life Science Facilities because traditional office space is generally
inadequate to meet the needs of Life Science Industry tenants. The Life Science
Industry has experienced significant growth over the past 25 years, and
management believes that such growth should continue. For example, according to
the Pharmaceutical Research Manufacturers Association ("PhRMA"), the principal
industry trade group for major pharmaceutical research companies, U.S.
pharmaceutical industry sales and exports by PhRMA member firms have grown at a
compound annual rate of 10.5% since 1985, totaling over $70 billion in 1996.
Further, domestic research and development expenditures by PhRMA member firms
have increased at a compound annual rate of over 13% since 1985, and totaled
nearly $16 billion in 1996. According to PhRMA, research and development
expenditures as a percentage of U.S. sales and exports for PhRMA member firms
was 20% in 1996 versus approximately 3.5% for U.S. industries generally. The
PhRMA data is based on information compiled principally from the nation's
largest pharmaceutical companies, although the Company believes that this data
is reflective of growth in the pharmaceutical industry generally. In addition,
private sector spending in the Life Science Industry augments extensive public
sector funding for scientific research. For example, the estimated fiscal 1997
budget for the National Institutes of Health ("NIH") is approximately $12.7
billion, which represents an increase of 6.8% over the fiscal 1996 budget.
The Company believes that several factors should continue to drive increases
in research and development expenditures, and thus increase the demand for Life
Science Facilities. These factors include (i) the aging of the U.S. population
resulting from the transition of baby boomers to senior citizens, which has
increased demand for new drugs, (ii) increased competition resulting from
generic drug penetration and the loss of patent protection on billions of
dollars worth of drugs, each of which has increased the need for proprietary
drug manufacturers to develop new products, (iii) the desire of companies to
reduce research and development lead times to bring new products to market
faster, (iv) modifications to the U.S. Food and Drug Administration (the "FDA")
approval process, which have reduced the effective cost of new drug development
and (v) increased collaborative efforts among major pharmaceutical and
biotechnology companies, which have increased capital availability to Life
Science Industry participants.
Acquisitions. The Company seeks to identify and acquire high quality Life
Science Facilities in its target markets. Management believes that it has been
able to maximize returns on acquisitions as a result of its expertise in
understanding the real estate needs of Life Science Industry tenants, its
ability to identify and acquire those properties with generic laboratory
infrastructure that appeal to a wide range of Life Science Industry tenants and
its expertise in identifying and evaluating Life Science Industry tenants. The
Company also seeks to use its extensive relationships with owners of Life
Science Facilities and with major Life Science Industry participants to
identify prospective acquisition opportunities and to consummate favorable
acquisitions prior to the active marketing of the subject properties.
The Company believes that the ownership of Life Science Facilities is highly
fragmented and that such fragmentation often creates pricing inefficiencies in
the sale of such properties. Life Science Facilities are owned
4
<PAGE>
by numerous local developers and institutions, many of whom own or operate a
single facility. Additionally, management believes that many Life Science
Facilities are occupied by owners who desire to focus their investments on and
attention to their respective core businesses, and not on ownership of real
estate. As a result of these factors, as well as the favorable demand and
supply characteristics for Life Science Facilities in the Company's target
markets, management believes that the Company should be able to continue to
acquire properties at favorable initial Capitalization Rates and at prices
below replacement cost.
Critical evaluation of prospective property acquisitions is an essential
component of the Company's acquisition strategy. When evaluating acquisition
opportunities, the Company assesses a full range of matters relating to the
properties, including the quality of the tenants, the condition and capacity of
building infrastructure, the quality and generic characteristics of laboratory
facilities and the physical condition of the shell structure and common area
improvements. Management also considers opportunities available for leasing
vacant space and retenanting occupied space. In addition, the Company is
developing a proprietary database that will contain information on Life Science
Facilities and Life Science Industry tenants located in each of the Company's
target markets. The database will enhance the Company's ability to identify and
evaluate prospective acquisitions in such markets.
The Company acquired the 1996 Acquired Properties for an aggregate purchase
price (including closing costs and budgeted capital improvements) of
approximately $95.2 million and a weighted average initial Capitalization Rate
of over 12.0%. The 1996 Acquired Properties are:
<TABLE>
<CAPTION>
PROPERTY DATE OF ACQUISITION TOTAL ACQUISITION COSTS
-------- ------------------- -----------------------
<S> <C> <C>
1102/1124 Columbia Street May 1996 $31,755,000
Seattle, Washington
1413 Research Boulevard July 1996 11,966,000
Rockville, Maryland
300/401 Professional Drive September 1996 14,342,000
Gaithersburg, Maryland
25/35/45 West Watkins Mill Road October 1996 17,746,000
Gaithersburg, Maryland
1311/1401/1431 Harbor Bay Parkway December 1996 19,353,000
Alameda, California
-----------
Total $95,162,000
===========
</TABLE>
Internal Growth. The Company's strategy is to achieve internal growth from
several sources. Approximately 65% of the Company's leases (on a square footage
basis) contain either fixed contractual rent escalations ranging from 2.5% to
5% annually or indexed escalations based on a CPI or other index. The Company
will seek to include similar escalation provisions in its future leases.
Although most of the Company's recent acquisitions have been fully leased, the
Company also seeks to acquire undervalued or underperforming properties where
it can improve investment returns through releasing of vacant space and
replacement of existing tenants with new tenants at higher rental rates.
Further, the Company believes that a significant percentage of its existing
leases contain below-market rental rates and that opportunities should exist to
achieve higher rental rates as these leases expire. The Company believes that
retenanting and releasing costs for existing improved space at its Properties
should be relatively low, as a result of the favorable demand and supply
characteristics for Life Science Facilities in the Company's target markets and
the generic infrastructure improvements that are already in place at the
Properties. Since 1994, the Company has retenanted approximately 236,000 square
feet of space at a weighted average cost for non-revenue enhancing tenant
improvements and leasing commissions of $7.73 per square foot.
5
<PAGE>
The Company also intends to pursue internal growth through the expansion of
existing facilities that are fully leased and the conversion of existing office
space to higher rent generic laboratory space. The Company is currently
evaluating expansion opportunities at several of its Properties, including 1413
Research Boulevard in Rockville, Maryland, which is designed to accommodate an
additional 60,000 square feet of office and laboratory space, and 14225
Newbrook Drive in Chantilly, Virginia, which can accommodate three additional
floors or up to approximately 50,000 square feet of additional office and
laboratory space. The Company is also currently considering the conversion of
office space into higher rent generic laboratory space at 300 Professional
Drive in Gaithersburg, Maryland, 25, 35 and 45 West Watkins Mill Road in
Gaithersburg, Maryland, and 1311 Harbor Bay Parkway in Alameda, California. The
Company intends to pursue expansion and conversion projects only where the
Company can secure signed leases for a significant portion of such space prior
to construction and where it expects to achieve investment returns that equal
or exceed its returns on acquisitions.
The Company believes that its internal growth strategy will be enhanced by
effective cost control measures, including expense pass-through provisions that
are included in a significant percentage of the Company's leases. Approximately
80% of the Company's leases (on a square footage basis) are triple net leases,
requiring tenants to pay substantially all real estate taxes and insurance,
common area and other operating expenses (including increases thereto).
Further, approximately 82% of the Company's leases (on a square footage basis)
provide for the recapture of certain non-revenue enhancing capital expenditures
(including roof replacements, parking lot resurfacing and heating, ventilation
and air conditioning ("HVAC") maintenance expenditures), which the Company
believes would typically be borne by the landlord in traditional office leases.
Development. Given the current favorable acquisition environment for Life
Science Facilities, the Company intends to emphasize acquisitions over
development in pursuing its growth objectives. However, the Company intends to
pursue selective build-to-suit and retrofit development projects where it
expects to achieve investment returns that will equal or exceed its returns on
acquisitions. Build-to-suit projects involve the construction of new Life
Science Facilities for specified tenants. Retrofit projects involve the
conversion of existing office space for use by Life Science Industry tenants,
generally through the addition of laboratory space and other generic
infrastructure improvements. The Company intends to undertake build-to-suit and
retrofit projects only if it can secure long-term leases (generally 10 years or
more) with high quality Life Science Industry tenants prior to construction and
the Company's investment in infrastructure will be generic in nature and not
tenant specific.
The Company's 10933 North Torrey Pines Road Property in San Diego,
California, is situated on approximately 16 acres of land. The Company has
rights to construct up to an additional 163,000 square feet of office and
laboratory space on this parcel. The Company also has entered into a purchase
agreement to acquire two parcels of land, aggregating approximately 4.2 acres,
adjacent to the Company's 3535 and 3565 General Atomics Court Properties, also
in the Torrey Pines area of San Diego, California. The purchase price for the
land is approximately $2.7 million, of which the Company has paid a deposit of
$100,000. The Company will have the ability (subject to receipt of necessary
governmental approvals and licenses) to develop and construct two buildings on
the land, containing an aggregate of approximately 90,000 square feet of office
and laboratory space. There can be no assurance, however, that the Company will
acquire the land or will be able to enter into desirable build-to-suit
arrangements.
Financing. Upon consummation of the Offering and the Formation Transactions,
the Company will have a debt to total market capitalization ratio (i.e., total
consolidated debt of the Company as a percentage of the market value of
outstanding shares of capital stock of the Company and total consolidated debt)
of approximately 19.6%. The Company is currently negotiating with institutional
lenders for an unsecured revolving credit facility (the "Credit Facility") of
approximately $100 million, which will be used primarily for the acquisition of
additional properties. The Company has adopted a policy of incurring debt in
the future only if, upon such incurrence, its debt to total market
capitalization ratio will not exceed 50%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Policies With Respect to Certain Activities."
6
<PAGE>
The Company expects to finance future acquisitions initially through the
Credit Facility and then to refinance such indebtedness with permanent debt or
equity capital. The Company may also issue Common Stock or interests in the
Acquisition LLC as consideration for acquisitions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." The Company believes that its access to capital through
credit facilities and other sources of private financing, as well as its access
to the public capital markets, should provide it with a competitive advantage
in acquisitions over other bidders that qualify their bids with financing or
other contingencies.
THE PROPERTIES
Upon consummation of the Offering and the Formation Transactions, the Company
will own the 15 Properties containing approximately 1.5 million rentable square
feet of office and laboratory space. The buildings are generally one or two
stories and are built primarily of concrete tilt-up or block and steel frame
construction. Building exteriors resemble traditional suburban office
properties, but interior infrastructures are enhanced with generic improvements
designed to meet the needs of Life Science Industry tenants. These improvements
include, for each Property, reinforced concrete floors, upgraded roof loading
capacity and increased floor to ceiling heights; heavy duty HVAC systems and
advanced environmental control technology; significantly upgraded electrical,
gas and plumbing infrastructure; and laboratory benches and workstations.
The following table summarizes the Properties by geographic region:
<TABLE>
<CAPTION>
ANNUALIZED
YEAR APPROXIMATE ANNUALIZED BASE NET EFFECTIVE
BUILT/ RENTABLE PERCENTAGE PERCENTAGE RENT PER LEASED RENT PER LEASED
PROPERTIES RENOVATED(1) SQUARE FEET LAB SPACE LEASED(2) SQUARE FOOT(3) SQUARE FOOT(4) MAJOR TENANTS
- ---------- ------------ ----------- ----------- ---------- --------------- --------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
San Diego
- ---------
10933 North 1971/1994 108,133 71% 100% $21.35 $15.25 The Scripps Research
Torrey Pines Institute
Road Advanced Tissue
San Diego, CA Sciences, Inc.
11099 North 1986/1996 86,962 71 100 25.47 23.62 Agouron Pharmaceuticals, Inc.
Torrey Pines Sidney Kimmel
Road Cancer Center
San Diego, CA Sequana Therapeutics, Inc.
3535 General 1991 76,084 77 100 33.57 32.70 The Scripps Research
Atomics Court Institute
San Diego, CA R.W. Johnson
Research Institute(5)
Syntro Corporation(6)
3565 General 1991 43,600 80 100 35.02 35.02 Agouron Pharmaceuticals, Inc.
Atomics Court
San Diego, CA
San Francisco
Bay Area
- -------------
1311 Harbor Bay 1984 30,000 17 30(7) 16.48 16.48 Chiron Corporation
Parkway
Alameda, CA
1401 Harbor Bay 1986/1994 47,777 50 100 10.87 10.87 Chiron Diagnostics
Parkway
Alameda, CA
1431 Harbor Bay 1985/1994 70,000 50 100 20.20 12.86 FDA
Parkway
Alameda, CA
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
ANNUALIZED
YEAR APPROXIMATE ANNUALIZED BASE NET EFFECTIVE
BUILT/ RENTABLE PERCENTAGE PERCENTAGE RENT PER LEASED RENT PER LEASED
PROPERTIES RENOVATED(1) SQUARE FEET LAB SPACE LEASED(2) SQUARE FOOT(3) SQUARE FOOT(4) MAJOR TENANTS
---------- ------------ ----------- ----------- ---------- --------------- --------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Seattle,
Washington
-----------
1102/1124 Columbia 1975/1997 213,397 64 100 22.71 22.53 Fred Hutchinson Cancer
Street Research Center
Seattle, WA Corixa Corporation
Swedish Medical
Center
Suburban
Washington, D.C.
-----------------
300 Professional 1989 48,440 23 100 13.83 13.83 Mobile Telesystems,
Drive Inc.
Gaithersburg, MD Antex Biologics Inc.
401 Professional 1987 62,739 75 100 16.55 16.55 Gillette Capital
Drive Corporation(8)
Gaithersburg, MD
25/35/45 West 1989 138,938 39 93 13.51 13.51 Genetic Therapy,
Watkins Mill Road Inc.(9)
Gaithersburg, MD MedImmune, Inc.
1413 Research 1967/1996 105,000 75 100 14.89 13.29 U.S. Army Corps of
Boulevard Engineers
Rockville, MD
1550 East Gude 1981/1995 44,500 40 100 13.72 13.72 Quest Diagnostics,
Drive Inc.(11)
Rockville, MD(10)
1330 Piccard Drive 1978/1995 131,511 75 100 14.48 14.48 PerImmune, Inc.
Rockville, MD(10)
14225 Newbrook 1992 248,186 60 100 17.49 17.49 American Medical
Drive Laboratories, Inc.
Chantilly, VA(10)
--------- --- --- ------ ------
Total/Weighted 1,455,267 61% 98% $19.24 $18.11
Average(12):
========= === === ====== ======
</TABLE>
- -------
(1) Includes year in which construction was completed and, where applicable,
year of most recent major renovation.
(2) Based on all leases at the respective Property in effect as of March 1,
1997.
(3) Annualized Base Rent means the annualized fixed base rental amount
(determined in accordance with generally accepted accounting principles
("GAAP")) in effect as of March 1, 1997. In the case of triple net leases,
Annualized Base Rent does not include real estate taxes and insurance,
common area and other operating expenses, substantially all of which are
borne by the tenants. This amount, divided by the rentable square feet
leased at the Property as of March 1, 1997, is the Annualized Base Rent per
Leased Square Foot.
(4) Annualized Net Effective Rent is the Annualized Base Rent in effect as of
March 1, 1997, less (for gross leases) real estate taxes and insurance,
common area and other operating expenses and (for all leases) amortized
tenant improvements and leasing commissions. This amount, divided by the
rentable square feet leased at the Property as of March 1, 1997, is the
Annualized Net Effective Rent per Leased Square Foot.
(5) The R.W. Johnson Research Institute is a wholly owned subsidiary of Johnson
& Johnson.
(6) Syntro Corporation is a wholly owned subsidiary of Mallinckrodt, Inc.
(7) Vacancy represents 20,973 square feet that was vacant at the time of
acquisition in December 1996. The Company is in lease negotiations with
respect to all of the vacant space.
(8) Gillette Capital Corporation is a wholly owned subsidiary of The Gillette
Company.
(9) Genetic Therapy, Inc. is a wholly owned subsidiary of Novartis AG.
(10) These Properties (the "Acquisition LLC Properties") are to be acquired in
connection with the acquisition of the Acquisition LLC upon consummation
of the Offering and the Formation Transactions. See "Formation and
Structure."
(11) Quest Diagnostics, Inc. subleases its space to Shire Laboratory, Inc., a
wholly owned subsidiary of Shire Pharmaceuticals Group p.l.c.
(12) Weighted Average based on a percentage of aggregate leased square feet.
8
<PAGE>
STRUCTURE OF THE COMPANY
STRUCTURE
The following diagram illustrates the structure of the Company and the
beneficial ownership of Alexandria and its subsidiaries upon consummation of
the Offering and the Formation Transactions.
[FLOW CHART ILLUSTRATING STRUCTURE OF
COMPANY UPON CONSUMMATION OF THE OFFERING]
9
<PAGE>
BENEFITS TO RELATED PARTIES
As a result of the Offering and the Formation Transactions, Holdings, the
officers and directors of the Company directly, and AEW will realize an
immediate accretion in the net tangible book value of their investment in
Alexandria of $ , $ and $ per share of Common Stock, respectively,
representing an aggregate accretion of $6.01 per share of Common Stock for the
Continuing Investors as a group.
In connection with the Offering, officers and directors of the Company will
be issued an aggregate of shares of Common Stock. In addition, in connection
with the Offering, such officers and directors will be granted options to
purchase shares of Common Stock pursuant to the Company's existing stock
option plan in substitution for previously granted Holdings Stock Options. Such
stock options will be exercised in connection with the Offering at a nominal
exercise price, and thereafter no further stock options will be issued under
this plan. In connection with the Offering, the Company intends to grant
options to officers and directors of the Company under the Company's 1997 Stock
Option Plan (as defined in "Management--Benefit Plans") to purchase an
aggregate of 650,000 shares of Common Stock at the initial public offering
price.
The Company will use approximately $2.5 million from the proceeds of the
Offering to repay an advance from Holdings, the proceeds of which will be used
to repay certain loans from stockholders of Holdings. See "Use of Proceeds" and
"Formation and Structure--Benefits to Related Parties."
Upon consummation of the Offering and the Formation Transactions, Bernardo
Capital, Inc. (a corporation of which Messrs. Gold, Kreitzer and Stone are
stockholders) will receive from Holdings approximately $517,000 as
reimbursement for certain expenses, including accrued salaries and benefits
paid to each of Messrs. Gold, Kreitzer and Stone, incurred in connection with
the formation of Holdings in 1993.
PaineWebber Incorporated ("PaineWebber"), the lead managing Underwriter of
the Offering, and certain of its affiliates, will receive material benefits
from the Offering and the Formation Transactions, in addition to underwriting
discounts and commissions, and a fee for structural and advisory services.
Certain affiliates of PaineWebber are expected to receive approximately $62.9
million of the net proceeds as consideration for the sale of such affiliates'
membership interests in the Acquisition LLC to the Company, and will receive
$44.4 million of the net proceeds as repayment of outstanding indebtedness
under the Company's acquisition facility (the "PaineWebber Facility"). See "Use
of Proceeds," "Formation and Structure" and "Underwriting."
10
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.. 6,830,000 shares
Common Stock to be Outstanding after
the Offering(1)..................... 10,829,634 shares
Use of Proceeds...................... The net proceeds of the Offering will be
used to repay a portion of the Company's
outstanding indebtedness, to acquire the
Acquisition LLC, and for general working
capital purposes. See "Use of Proceeds."
Proposed New York Stock Exchange
Symbol.............................. "ARE"
</TABLE>
- --------
(1) Excludes 1,030,000 shares reserved for issuance pursuant to the Company's
1997 Stock Option Plan, of which options to purchase 650,000 shares will be
issued in connection with the Offering.
DISTRIBUTIONS
Distributions by the Company will be determined by the Board of Directors and
will be dependent upon a number of factors, including the federal income tax
requirement that a REIT must distribute annually at least 95% of its taxable
income. The Company intends to make regular quarterly distributions to the
holders of the Common Stock and initially to distribute annually approximately
83.1% of estimated cash available for distribution. The Company expects to pay
a pro rata distribution with respect to the period commencing upon consummation
of the Offering and ending on June 30, 1997.
Based on its estimated cash available for distribution, the Company initially
expects to make distributions of $1.52 per share on an annualized basis, or an
annual distribution rate of approximately 7.24%, based on an assumed initial
public offering price of $21.00 per share. The Company currently intends to
maintain its initial distribution rate for the 12-month period following
consummation of the Offering, unless actual results of operations, economic
conditions or other factors differ materially from the assumptions used in its
estimate. The Company does not intend to reduce the expected distribution rate
if the Underwriters' over-allotment option is exercised. See "Risk Factors--
Inability to Sustain Distributions." Approximately 22.4% of the distributions
anticipated to be paid by the Company for the 12 months following the Offering
are expected to represent a return of capital for federal income tax purposes.
The Company's estimate of cash available for distribution after the Offering
is based upon pro forma FFO for the 12 months ended December 31, 1996. See
"Distributions" for information as to how this estimate was derived. FFO does
not represent cash generated from operating activities in accordance with GAAP
and should not be considered as an alternative to net income as an indication
of the Company's financial performance or to cash flows from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's cash
needs, including its ability to make distributions. The Company believes that
its estimate of cash available for distribution constitutes a reasonable basis
for setting the initial distribution; however, no assurance can be given that
the estimate will prove accurate or that actual distributions will not vary
significantly from the expected distributions. See "Distributions."
TAX STATUS OF THE COMPANY
The Company intends to make an election to be taxed as a REIT under sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1996. For each taxable year
that the Company qualifies as a REIT, it will generally not be subject to
federal income
11
<PAGE>
tax to the extent it distributes in such year 95% of its net taxable income to
its stockholders. Notwithstanding the Company's qualification as a REIT, the
Company may be subject to certain federal, state and local taxes on its income
and property. See "Risk Factors--Adverse Consequences of Failure to Qualify as
a REIT" and "Certain Federal Income Tax Considerations."
SUMMARY FINANCIAL INFORMATION
The following pro forma and historical information should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements and notes thereto of the Company included
elsewhere in this Prospectus. The selected historical financial information of
the Company at December 31, 1996 and 1995, for the years ended December 31,
1996 and 1995, and for the period October 27, 1994 (inception) through December
31, 1994, has been derived from the historical consolidated financial
statements of the Company audited by Ernst & Young LLP, independent auditors,
whose report with respect thereto is included elsewhere in this Prospectus.
The unaudited pro forma information as of and for the year ended December 31,
1996 is presented as if the Offering, the application of the net proceeds
thereof as set forth in "Use of Proceeds," the Formation Transactions and the
acquisition of the 1996 Acquired Properties all had occurred at December 31,
1996 for the pro forma balance sheet and at January 1, 1996 for the pro forma
statement of operations. The pro forma information is not necessarily
indicative of what the actual financial position or results of the Company
would have been as of and for the period indicated, nor does it purport to
represent the Company's future financial position or results of operations.
<TABLE>
<CAPTION>
HISTORICAL
FOR THE PERIOD
YEAR ENDED DECEMBER 31, OCTOBER 27, 1994
-------------------------------- (INCEPTION) THROUGH
PRO FORMA HISTORICAL HISTORICAL DECEMBER 31,
1996 1996 1995 1994
---------- ---------- ---------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental.................. $ 27,121 $ 12,941 $ 8,020 $ 834
Tenant recoveries....... 6,669 4,169 1,699 87
Other................... 658 563 204 90
---------- -------- ------- -------
Total revenue............ 34,448 17,673 9,923 1,011
Expenses:
Rental operations....... 7,196 4,356 2,228 252
General and
administrative......... 2,850 2,410 1,608 1,016
Stock grant compensation
expense................ 3,515 -- -- --
Interest................ 4,835 6,327 3,553 328
Depreciation and
amortization........... 4,996 2,405 1,668 63
---------- -------- ------- -------
Total expenses........... 23,392 15,498 9,057 1,659
Income (loss) from
operations.............. 11,056 2,175 866 (648)
Charge in lieu of taxes.. -- -- 105 --
---------- -------- ------- -------
Net income (loss)........ $ 11,056 $ 2,175 $ 761 $ (648)
========== ======== ======= =======
Net income allocated to
preferred stockholders.. -- $ 1,256 -- --
========== ======== ======= =======
Net income (loss)
allocated to common
stockholders............ $ 11,056 $ 919 $ 761 $ (648)
========== ======== ======= =======
Net income per share of
Common Stock............ $ 1.02 $ 919 $ 761 $ (648)
========== ======== ======= =======
Weighted average shares
of Common Stock
outstanding............. 10,829,634 1,000 1,000 1,000
========== ======== ======= =======
BALANCE SHEET DATA (AT
PERIOD END):
Rental properties--net of
accumulated
depreciation............ $209,854 $146,960 $54,353 $54,366
Total assets............. 227,001 160,392 58,702 56,600
Mortgage loans payable
and unsecured lines of
credit.................. 55,305 113,182 40,894 39,164
Total liabilities........ 60,086 120,819 42,369 40,119
Mandatorily redeemable
Series V Preferred
Stock................... -- 24,707 -- --
Stockholders' equity..... 166,915 14,866 16,333 16,481
</TABLE>
12
<PAGE>
SUMMARY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
HISTORICAL
FOR THE PERIOD
YEAR ENDED DECEMBER 31, OCTOBER 27, 1994
-------------------------------- (INCEPTION) THROUGH
PRO FORMA HISTORICAL HISTORICAL DECEMBER 31,
1996 1996 1995 1994
--------- ---------- ---------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER DATA:
Funds from
Operations(1)........... $ 19,567 $ 5,018 $ 2,429 $ (585)
Cash flows from operating
activities.............. -- (1,646) 355 (1,024)
Cash flows from investing
activities.............. -- (94,900) (1,554) (29,924)
Cash flows from financing
activities.............. -- 97,323 927 32,139
Number of properties
owned at period end..... 15 12 4 4
Rentable square feet of
properties owned at
period end.............. 1,455,267 1,031,070 313,042 313,042
Occupancy at period end
of properties owned at
period end.............. -- 97% 96% 88%
</TABLE>
- --------
(1) The White Paper on FFO approved by the Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT") in March 1995 (the
"White Paper") defines FFO as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales
of property, plus real estate related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures.
Management considers FFO an appropriate measure of performance of an equity
REIT because it is predicated on cash flow analyses. The Company computes
FFO in accordance with standards established by the White Paper, which may
differ from the methodology for calculating FFO utilized by other equity
REITs, and, accordingly, may not be comparable to such other REITs. FFO
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flows from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions.
13
<PAGE>
RISK FACTORS
An investment in the Shares involves various risks. Prospective investors
should carefully consider the following information in conjunction with the
other information contained in this Prospectus before making a decision to
purchase the Shares.
LACK OF INDUSTRY DIVERSIFICATION; RELIANCE ON LIFE SCIENCE INDUSTRY TENANTS
The Company's strategy is to invest in Life Science Facilities.
Consequently, the Company is subject to the risks associated with an
investment in real estate in the Life Science Industry, and is subject to the
risks generally associated with investment in a single industry. Accordingly,
the effects on cash available for distribution to the Company's stockholders
may be more pronounced than if the Company had diversified investments.
Although laboratory facilities typically are generic in nature, certain
facilities may be better suited for particular Life Science Industry tenants
and could require modification prior to or at the commencement of a lease term
if the property has to be released to another Life Science Industry tenant.
Further, such facilities may not be suitable for lease to traditional office
tenants.
Environmental Matters. Life Science Industry tenants, including certain of
the Company's tenants, engage in various research and development activities
involving the controlled use of hazardous materials, chemicals, biological and
radioactive compounds. The Company and such tenants are subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. Although
the Company believes that the tenants' activities involving such materials
comply in all material respects with applicable laws and regulations, the risk
of contamination or injury from these materials cannot be completely
eliminated. In the event of such contamination or injury, the Company could be
held liable for any damages that result, and any such liability could exceed
the Company's resources and its environmental remediation coverage. See "--
Possible Environmental Liabilities" and "The Properties--Environmental
Matters."
Uncertainty of Government Regulatory Requirements and Funding. The products
of certain Life Science Industry tenants, including certain of the Company's
tenants, typically require regulatory approval by domestic or foreign
governmental agencies before they can be marketed and sold. The process of
obtaining such approvals is costly and time-consuming and is subject to
unanticipated delays. There can be no assurance that required approvals for
any of such products will be granted. Any failure to obtain or any delay in
obtaining such approvals could adversely affect the ability of a tenant to
market and sell its products successfully, thereby adversely affecting its
ability to generate revenues and to make lease payments to the Company. In
addition, many approved products are subject to continuing regulation.
Regulation could result in limitations or restrictions on a tenant's ability
to utilize its technology, thereby adversely affecting such tenant's ability
to generate revenues and to make lease payments to the Company. Certain of the
Company's tenants are also subject to regulation under the Occupational Safety
and Health Act, federal restrictions on technology transfer, import, export
and customs regulations, and other federal, state and local regulations. In
addition, certain of the Company's tenants receive significant funding from
federal, state and local governments. If any of such funding were decreased or
discontinued, the affected tenant may experience difficulty meeting its
obligations under its lease. See "--Dependence on Tenants."
Dependence on Reimbursement. The healthcare industry in the United States is
undergoing significant changes, resulting from political, economic and
regulatory influences. Successful commercial sales of the products of certain
of the Company's tenants may depend in part on the availability of
reimbursement to consumers from third-party payors, such as government and
private insurance plans, that may be affected by changes in the healthcare
industry. There can be no assurance that adequate third-party reimbursement
will be available for the products of the Company's tenants. If adequate
reimbursement is not provided by government and third-party payors for the
products or services of the Company's tenants, such tenants' business and
ability to generate revenues and make lease payments to the Company could be
adversely affected. Consequently, the Company's ability to make distributions
to its stockholders could similarly be adversely affected.
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DEPENDENCE ON TENANTS
The Company's revenues are derived primarily from rental payments under its
leases. Therefore, if a significant tenant failed to make rental payments
under its lease, the Company's financial condition and its ability to make
distributions to stockholders could be adversely affected. While the Company
evaluates the creditworthiness of its tenants based upon a due diligence
review of available financial and other pertinent information, there can be no
assurances that any such tenant will not default in the payment of rent under
its lease. In addition, U.S. government tenants are subject to annual
appropriations, and defaults under leases with such tenants are governed by
federal statute and not state eviction or rent deficiency laws.
To the extent the Company is dependent on rental payments from a limited
number of tenants, the inability of any single tenant to make its lease
payments could adversely affect the Company and its ability to make
distributions to stockholders. The Company currently has approximately 32
leases with a total of approximately 27 tenants, and eight of the Properties
are single-tenant Properties. At March 1, 1997, three of the Company's
tenants, American Medical Laboratories, Inc., the Fred Hutchinson Cancer
Research Center and Agouron Pharmaceuticals, Inc., accounted for approximately
37% of the Company's aggregate Annualized Base Rent, or approximately 15.8%,
13.0% and 8.2% , respectively.
No assurance can be given that a lessee will exercise any option to renew
its lease upon the expiration of the initial term or that upon expiration or
termination of a lease the Company will be able to locate a qualified
replacement tenant. Consequently, the Company could lose the cash flow from
such property and, in order to prevent a foreclosure, the Company might be
required to divert cash flow generated by other properties to meet mortgage
payments, if any, and pay other expenses associated with owning the property
with respect to which the expiration or termination occurred. Leases at the
Properties representing 0.2%, 9.4% and 13.6% of Annualized Base Rent will
expire in the years 1997, 1998 and 1999, respectively. See "The Properties--
Lease Expirations." In addition, the Company may enter into or acquire leases
for properties that are specially suited to the needs of a particular tenant.
Such properties may require renovations, tenant improvements or other
concessions in order to lease it to another tenant if the initial lease is
terminated or not renewed. See "--Lack of Industry Diversification; Reliance
on Life Science Industry Tenants."
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON CERTAIN MARKETS
The Properties are located in California (in the San Diego and San Francisco
Bay areas), Seattle, Washington and suburban Washington D.C. The Company also
has identified Boston/Cambridge and the New York/New Jersey and suburban
Philadelphia areas as target markets, consistent with its growth strategy. As
a result of this geographic concentration, the Company's performance, its
ability to make distributions to stockholders and the value of its properties
are dependent upon the performance of the Life Science Industry and on
economic conditions in these markets, including local real estate conditions
and competition. There can be no assurance that these markets will continue to
grow or will remain favorable to the Life Science Industry. The performance of
the Life Science Industry and the economy in general in each geographic market
in which the Company owns or acquires properties may affect occupancy, market
rental rates and expenses and, consequently, may affect the Company's
performance and the value of its properties.
RAPID GROWTH; LIMITED OPERATING HISTORY; EXPERIENCE OF MANAGEMENT
The Company is currently experiencing a period of rapid growth. As the
Company acquires additional properties, it will be subject to risks associated
with managing new properties, including lease-up and tenant retention. In
addition, the Company's ability to manage its growth effectively will require
it to successfully integrate new acquisitions into its existing management
structure. No assurances can be given that the Company will be able to succeed
with such integration or effectively manage additional properties or that
newly acquired properties will perform as expected. Additionally, there can be
no assurance that the Company will be able to maintain its current rate of
growth in the future.
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Upon consummation of the Offering and the Formation Transactions, the
Company will own 15 Properties, consisting of approximately 1.5 million
rentable square feet of office and laboratory space. All of the Properties
have been under the Company's management for less than three years, and a
substantial majority of the Properties have been owned for less than one year.
The Properties may have characteristics or deficiencies unknown to the Company
that could affect such Properties' valuation or revenue potential. There can
be no assurance that the operating performance of the Properties will not
decline under the Company's management.
Although certain of the Company's officers and directors have extensive
experience in the acquisition, leasing, operation, financing and development
of real properties, prior to commencement of the Company's operations, no
officer had significant experience in operating a business in accordance with
the requirements for maintaining qualification as a REIT under the Code. See
"--Adverse Consequences of Failure to Qualify as a REIT."
REAL ESTATE FINANCING RISKS
Requirement of Additional Financing. The Company's ability to acquire or
develop properties is subject to the Company's ability to obtain debt or
equity financing. The Company could be delayed or prevented from acquiring,
structuring and closing desirable investments by an inability to obtain
financing on acceptable terms. In addition, the issuance of additional shares
of capital stock to obtain financing for the acquisition of additional
properties could result in a dilution of ownership for the then existing
stockholders.
Debt Financing and Existing Debt Maturities. The Company is subject to the
risks normally associated with debt financing, including the risk that the
Company's cash flow from operations will be insufficient to meet required
payments of principal and interest, that existing indebtedness will not be
able to be refinanced or extended, and that the terms of any such refinancing
will not be as favorable as the terms of existing indebtedness. Upon
consummation of the Offering and the Formation Transactions, four of the 15
Properties will be encumbered by mortgage debt. In the event of a default by
the Company, the lender may be able to foreclose on or otherwise transfer such
Properties to the mortgagee, resulting in a loss of income and asset value to
the Company. As a result, the Company's financial condition and its ability to
make distributions to stockholders may be adversely affected.
The Company has financed the acquisition of the Properties in part, and may
finance future investments, with debt obligations that provide for the
repayment of principal in a lump-sum or "balloon" payment at maturity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." In addition, certain of the
Company's lenders may insist on the right to demand repayment prior to the
maturity date of a loan if certain events of default occur. The ability to
repay indebtedness at maturity or otherwise may depend upon the ability of the
Company either to refinance or extend such indebtedness, to repay such
indebtedness with proceeds of other capital transactions, such as the issuance
of equity capital, or to sell properties. There can be no assurance that such
refinancing or extension will be available on reasonable terms or at all, that
additional capital will be issued, or that a sale of property will occur. The
inability to repay such indebtedness could adversely affect the financial
condition of the Company and its ability to make distributions to
stockholders.
Risk of Rising Interest Rates. Upon consummation of the Offering and the
Formation Transactions, the Company will have no variable rate indebtedness
outstanding. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources." The Credit
Facility will bear interest at a variable rate, as may other indebtedness
incurred by the Company in the future. Accordingly, increases in market
interest rates could increase the Company's debt service requirements, which
could adversely affect the financial position of the Company and its ability
to make distributions to stockholders. In addition, the Company may enter into
swap agreements or other hedging transactions to further limit its exposure to
rising interest rates as appropriate and cost effective, although there can be
no assurance that it will be able to do so on terms acceptable to the Company.
Swap agreements or other hedging transactions also may expose the Company to
the risk that the counterparty may not perform, which could cause the Company
to lose the benefits of the hedging transactions.
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RISKS OF ACQUISITION AND RENOVATION
The success of the Company is dependent in part upon its ability to acquire
additional properties on satisfactory terms. If debt or equity financing were
not available on acceptable terms, further acquisitions or development
activities may be curtailed, and the Company's ability to make distributions
to its stockholders may be adversely affected. There is also a risk that the
Company will not be able to acquire properties that meet the Company's
acquisition criteria.
In addition, the acquisition of real estate entails risks that investments
may fail to perform in accordance with expectations (including projected
occupancy and rental rates), that the Company may overpay for its properties,
or that the Company may underestimate the cost of improvements required to
bring an acquired property up to standards established for the market position
intended for that property. To the extent that the Company might otherwise
benefit from the conversion of a single tenant facility into a multi-tenant
facility, the cost of such conversion may be substantial and the Company may
deem such conversion to be impracticable. Moreover, although the costs
associated with tenant-specific improvements are generally borne by the
tenant, such improvements to Life Science Facilities typically involve higher
costs per square foot than similar improvements to office space, and there can
be no assurance that all such costs will be borne by tenants in the future. In
addition, there are general investment risks associated with any new real
estate investment. See "--Real Estate Investment Risks."
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of income generated and expenses incurred.
Approximately 80% of the Company's leases (on a square footage basis) are
triple net leases. To the extent that the Company's lease for a property is
not a triple net lease, the Company will have greater expenses associated with
that property and will bear some or all of the risk of any increase in such
expenses, unless the lease provides for a rent adjustment based on escalations
in operating expenses. If the Company's properties do not generate revenues
sufficient to meet operating expenses, including debt service and other
capital expenditures, the Company may have to borrow additional amounts to
cover fixed costs and cash flow needs, and the Company's ability to make
distributions to its stockholders could be adversely affected.
A commercial property's revenues and value may be adversely affected by a
number of factors, including the national and local economic climate; local
real estate conditions; the ability of the owner to provide adequate
management, maintenance and insurance; and increased operating costs
(including real estate taxes and utilities). Certain significant expenditures
associated with each equity investment (such as mortgage payments, if any,
real estate taxes, insurance and maintenance costs) are generally not reduced
when circumstances cause a reduction in income from the investment. If a
property is mortgaged to secure payment of indebtedness, and if the Company is
unable to meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the property or the exercise of other remedies by the
mortgagee. In addition, real estate revenues and values are also affected by
the cost of compliance with government regulation, including zoning and tax
laws, interest rate levels and the availability of financing.
Operating Risks. The Company's properties will be subject to operating risks
common to commercial properties in general, any or all of which may adversely
affect occupancy or rental rates. In addition, the Company's properties
generally contain enhanced infrastructure that is more capital intensive than
other property types. To the extent that leases are not triple net leases,
increases in operating costs due to inflation and other factors may not
necessarily be offset by increased rental rates.
Bankruptcy Risks. The financial failure of one of the Company's tenants
could cause the tenant to become subject to a case under Title 11 of the U.S.
Code (the "Bankruptcy Code"). Under the Bankruptcy Code, a tenant has the
option of assuming (continuing) or rejecting (terminating) an unexpired lease.
If the tenant assumes its lease with the Company, the tenant must cure all
defaults under the lease and provide the Company with adequate assurance of
its future performance under the lease. If the tenant rejects the lease, the
Company may experience
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a reduction in cash flow, and the Company's claim for breach of the lease
would (absent collateral securing the claim) be treated as a general unsecured
claim. The amount of the claim would be capped at the amount owed for unpaid
pre-petition lease payments unrelated to the rejection, plus the greater of
one year's lease payments or 15% of the remaining lease payments payable under
the lease (but not to exceed the amount of three years' lease payments).
Although the Company has not experienced material losses from tenant
bankruptcies, no assurance can be given that tenants will not file for
bankruptcy protection in the future or, if any tenants file, that they will
assume their leases and continue to make rental payments in a timely manner.
If tenant leases are not assumed following bankruptcy, the Company's financial
condition and its ability to make distributions to its stockholders may be
adversely affected.
Development Risk. The Company may engage in expansion of existing Properties
and development activities through build-to-suit and retrofit projects. Such
activities subject the Company to risks related to development and
redevelopment projects, possible delays in construction, the cost of
materials, financing availability, volatility in interest rates, labor
availability, the timing of the commencement of rental payments and other
property development uncertainties. In addition, such activities, regardless
of whether they are ultimately successful, typically require a substantial
portion of management's time and attention and are subject to risks relating
to the inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy and other required governmental permits and
authorizations.
Market Illiquidity. Equity real estate investments are relatively illiquid.
Such illiquidity will limit the ability of the Company to vary its portfolio
promptly in response to changes in economic or other conditions. There can be
no assurance that the Company will be able to dispose of an investment when it
finds disposition advantageous or necessary or that the sale price of any
disposition will recoup or exceed the amount of the Company's investment. In
addition, the Code limits the Company's ability to sell properties held for
fewer than four years, which may affect the Company's ability to sell
properties without adversely affecting distributions to stockholders.
Competition. The Company competes for investment opportunities with various
entities, including insurance companies, pension and investment funds,
partnerships, developers, investment companies and other REITs. Many of these
entities have substantially greater financial resources than the Company.
These entities generally may be able to accept more risk than the Company can
prudently manage, including risks with respect to the creditworthiness of a
tenant or the geographic proximity of its investments. Competition generally
may reduce the number of suitable investment opportunities offered to the
Company or increase the bargaining power of property owners seeking to sell.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Qualification as a REIT involves the application of highly technical and
complex provisions of the Code, for which there are only limited judicial or
administrative interpretations, and the determination of various factual
matters and circumstances not entirely within the Company's control. Although
the Company believes that it has operated since January 1, 1996 in a manner so
as to qualify as a REIT, no assurance can be given that the Company is or will
remain so qualified. For example, under the REIT provisions of the Code, if
rent attributable to personal property, leased in connection with real
property, is greater than 15% of the total rent received under any particular
lease, then all of the rent attributable to such personal property will
constitute non-qualifying income for purposes of the 75% and 95% gross income
tests. The determination of whether an item of property constitutes real
property or personal property under the REIT provisions of the Code is
inherently factual and is subject to differing interpretations. The Company
has represented to counsel (and counsel is relying on such representation in
rendering its REIT opinion) that it has reviewed its properties and that rents
attributable to personal property do not exceed 15% of the total rent with
respect to any particular lease. Due to the specialized nature of the
Company's properties, there can be no assurance that the Internal Revenue
Service (the "IRS") will not assert that the rent attributable to personal
property with respect to a particular lease is greater than 15% of the total
rent with respect to such lease. If the amount of any such non-qualifying
income, together with other non-qualifying income, exceeds 5% of the Company's
taxable income, the Company may fail to qualify as a
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REIT. See "Certain Federal Income Tax Considerations--Taxation of the Company--
Income Tests." In addition, although the Company is not aware of any pending
tax legislation that would adversely affect the Company's ability to operate as
a REIT, no assurance can be given that new legislation, regulations,
administrative interpretations or court decisions will not change the tax laws
or interpretations thereof with respect to qualification as a REIT or the
federal income tax consequences of such qualification.
In connection with the Offering, the Company will receive an opinion of
Skadden, Arps, Slate, Meagher and Flom LLP, tax counsel to the Company,
concerning the qualification of the Company as a REIT. In rendering this
opinion, Skadden, Arps, Slate, Meagher & Flom LLP will rely on certain
assumptions and representations by the Company as to factual matters (including
representations of the Company concerning, among other things, its business and
properties, the amounts of rents attributable to personal property and other
items regarding the Company's ability to meet the various requirements for
qualification as a REIT) and on opinions of local counsel with respect to
matters of local law. The opinion will be expressed based upon facts,
representations and assumptions as of its date and Skadden, Arps, Slate,
Meagher & Flom LLP will have no obligation to advise holders of Common Stock of
any subsequent change in the matters stated, represented or assumed or any
subsequent change in applicable law. No assurance can be given that the Company
has met or will continue to meet these requirements in the future, and a legal
opinion is not binding on the IRS.
If in any taxable year the Company fails to qualify as a REIT, the Company
would not be allowed a deduction for dividends to stockholders in computing
taxable income and would be subject to federal income tax on its taxable income
at regular corporate rates. Unless entitled to relief under certain statutory
provisions, the Company would also be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification is lost.
As a result of the additional tax liability, the Company might need to borrow
funds or liquidate certain investments in order to pay the applicable tax and
the funds available for investment or distribution to the Company's
stockholders would be reduced for each of the years involved. In addition, the
Company would no longer be required by the Code to make any distributions.
Although the Company currently intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Company to fail to qualify as a REIT or may
cause the Board of Directors to revoke the REIT election. See "Certain Federal
Income Tax Considerations."
CONFLICTS OF INTEREST
In connection with the Formation Transactions, certain officers, directors
and affiliates of the Company will realize certain benefits that will not be
received by other persons. See "Formation and Structure--Benefits to Related
Parties." In connection with the Offering, officers and directors of the
Company will be issued an aggregate of shares of Common Stock. In addition,
in connection with the Offering, such officers and directors will be granted
options to purchase shares of Common Stock under the 1996 Plan in
substitution for previously granted Holdings Stock Options. Such stock options
will be exercised in connection with the Offering at a nominal exercise price,
and thereafter no further stock options will be issued under the 1996 Plan. In
connection with the Offering, the Company intends to grant options to officers
and directors of the Company under the 1997 Stock Option Plan to purchase an
aggregate of 650,000 shares of Common Stock at the initial public offering
price.
In connection with the conversion of Series U Preferred Stock, par value $.01
per share (the "Series U Preferred Stock"), into shares of Common Stock,
certain officers, directors and affiliates of the Company (and members of their
immediate families) will receive an aggregate of 7,071 shares of Common Stock.
In connection with the conversion of the Series V Preferred Stock, par value
$.01 per share (the "Series V Preferred Stock"), AEW will receive an aggregate
of shares of Common Stock.
Because certain officers, directors and affiliates of the Company were
involved in structuring the terms of these transactions, they had the ability
to influence the type and level of benefits they received. As a result, the
type and level of benefits these persons received may have been different if
they had not participated in structuring the terms. These persons may have
interests that conflict with the interests of persons acquiring Shares in the
Offering. The net tangible book value of officers' and directors', Holdings'
and AEW's initial investment in the Company upon consummation of the Offering
and the Formation Transactions will increase by approximately $ million,
$ million and $ million, respectively.
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BENEFITS TO MANAGING UNDERWRITER
PaineWebber and certain of its affiliates will receive material benefits from
the Offering and certain of the Formation Transactions, in addition to
underwriting discounts and commissions, and a fee for structural and advisory
services. Certain affiliates of PaineWebber are expected to receive
approximately $62.9 million of the net proceeds as consideration for the sale
of such affiliates' membership interests in the Acquisition LLC to the Company
and will receive $44.4 million of the net proceeds as repayment of outstanding
indebtedness under the PaineWebber Facility. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Formation and Structure" and
"Underwriting." Lehman Brothers Inc. is acting as a "qualified independent
underwriter" in the Offering and will recommend the maximum initial public
offering price for the Shares. See "Underwriting."
INFLUENCE OF CERTAIN STOCKHOLDERS
Upon consummation of the Offering and the Formation Transactions, Holdings
and AEW will beneficially own approximately % and %, respectively, of the
outstanding shares of Common Stock of the Company. These stockholders will have
significant influence over the election of directors of the Company and other
matters to be voted on by the stockholders of the Company. Pursuant to an
agreement with the Company, AEW has the right to include two nominees on the
ballot for the election of directors of the Company, and one nominee on the
ballot for the election of directors of QRS, so long as AEW owns Common Stock
representing more than 15% of the voting securities of the Company, and the
right to include one director on the ballot for the election of directors of
the Company so long as AEW owns Common Stock representing more than 7% of such
securities. Holdings has agreed to vote its shares of Common Stock for the AEW
nominees included on the ballot for the election of directors of the Company.
No directors currently serve on the board of directors of the Company or QRS
pursuant to such arrangement, although AEW may, at its discretion, exercise its
right to include nominees on the ballot in the future. See "Management--
Election of Directors and Director Compensation." Additionally, the
concentration of ownership by Holdings and AEW may have the effect of delaying,
deferring or preventing a change in control of the Company and may result in
significant influence and control over the Board of Directors and various
corporate actions. See "Management" and "Share Ownership--Principal
Stockholders of Alexandria."
ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMIT AND POWER TO ISSUE ADDITIONAL STOCK
In order for the Company to maintain its qualification as a REIT, not more
than 50% of the value of its outstanding capital stock may be owned, directly
or constructively, by five or fewer individuals or entities (as defined in the
Code). The Company's Charter prohibits, with exceptions for certain Continuing
Investors, direct or constructive ownership of shares of stock representing
more than 9.8% of the combined total value of outstanding shares of the
Company's stock by any person (the "Ownership Limit"). The constructive
ownership rules are complex and may cause shares of the Common Stock owned
directly or constructively by a group of related individuals or entities to be
constructively owned by one individual or entity. A transfer of shares to a
person who, as a result of the transfer, violates the Ownership Limit may be
void or may be transferred to a trust, for the benefit of one or more qualified
charitable organizations designated by the Company, with the intended
transferee losing its right to receive dividends and having only a right to
share (to the extent of the transferee's original purchase price for such
shares) in proceeds from the trust's sale of such shares. See "Description of
Capital Stock--Restrictions on Transfer."
The Ownership Limit may have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a
premium price for the Common Stock or otherwise be in the best interest of the
stockholders. See "Description of Capital Stock--Restrictions on Transfer."
The Company's Charter authorizes the Board of Directors to cause the Company
to issue additional authorized but unissued shares of Common Stock or preferred
stock, par value $.01 per share (the "Preferred
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Stock"), and to classify or reclassify any unissued shares of Common Stock or
Preferred Stock and to set the preferences, rights and other terms of such
classified or reclassified shares. See "Description of Capital Stock--Common
Stock" and "--Preferred Stock." Preferred Stock would be available for
possible future financing of, or acquisitions by, the Company and for general
corporate purposes without any legal requirement that further stockholder
authorization for issuance be obtained. The issuance of Preferred Stock could
make more difficult any attempt to gain control of the Company by means of a
merger, tender offer, proxy contest or otherwise. Although the Board of
Directors has no present intention to do so, it could establish a series of
Preferred Stock that could, depending on the terms of such series, delay,
defer or prevent a transaction or a change in control of the Company that
might involve a premium price for the Common Stock or otherwise be in the best
interest of the stockholders. Preferred Stock could also be issued with a
preference on dividend payments, which could affect the ability of the Company
to pay dividends or make other distributions to the holders of Common Stock.
The Charter and the Amended and Restated Bylaws of the Company (the "Bylaws")
also contain other provisions that may delay, defer or prevent a transaction
or a change in control of the Company that involves a premium price for the
Common Stock or may otherwise be in the best interest of the stockholders. See
"Certain Provisions of Maryland Law and of the Company's Charter and Bylaws,"
"--Control Share Acquisitions" and "--Advance Notice of Director Nominations
and New Business."
UNINSURED LOSS
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to the Properties, with policy
specifications, insured limits and deductibles that the Company believes are
consistent with those customarily carried for similar properties. The Company
also has obtained environmental remediation insurance for its Properties. The
insurance, subject to certain exclusions and deductibles, covers the cost to
remediate environmental damage caused by unintentional future spills or the
historic presence of previously undiscovered hazardous substances. The Company
intends to carry similar insurance with respect to future acquisitions, as
appropriate. In addition, the Company requires its tenants to maintain
comprehensive insurance, including liability and casualty insurance, that is
customarily obtained for similar properties. There are, however, certain types
of losses that are not generally insured because they are either uninsurable
or not economically insurable. In addition, certain disaster-type insurance
(covering catastrophic events, such as earthquakes) may not be available or
may only be available at rates that, in the opinion of management of the
Company, are prohibitive. Many of the Properties are located in the vicinity
of potentially active earthquake faults. The Company has obtained earthquake
insurance for all of the Properties. Should an uninsured disaster or a loss in
excess of insured limits occur, including losses resulting from earthquake or
other seismic activity, the Company could lose its capital invested in the
affected properties, as well as the anticipated future revenues from such
properties, and would continue to be obligated on any mortgage indebtedness or
other obligations related to the properties. Any such loss could adversely
affect the Company and its ability to make distributions to stockholders.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws and regulations, a
current or previous owner or operator of real estate, as well as certain other
parties, may be required to investigate and remediate the effects of hazardous
or toxic substances or petroleum product releases on, under, in or from such
property, and may be held liable to a governmental entity or to third parties
for investigation and cleanup costs and certain damages resulting from such
releases. Such laws and regulations typically impose responsibility and
liability without regard to whether such person knew of or caused the
releases, and the liability under such laws and regulations has been
interpreted to be joint and several unless the harm is divisible and there is
a reasonable basis for allocation of responsibility. The cost of investigating
and remediating such contamination may be substantial, and the presence of
such contamination, or the failure to properly remediate it, may adversely
affect the owner's ability to sell or rent such property or to borrow using
such property as collateral. In addition, the owner of a site may be subject
to governmental fines and common law claims by third parties seeking to
recover damages and costs resulting from such contamination.
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Certain other federal, state and local laws and regulations govern the
management and disposal of asbestos-containing materials ("ACMs"). Such laws
and regulations may impose liability for the release of ACMs and may provide
for third parties to seek recovery from owners or operators of such property
for personal injury associated with ACMs. In connection with the ownership and
operation of its properties, the Company may be potentially liable for such
costs. ACMs have been detected at certain of the Properties, but are not
expected to result in material environmental costs or liabilities to the
Company. Federal, state and local laws and regulations also require the
removal or upgrading of certain underground storage tanks and regulate the
discharge of storm water, wastewater and any water pollutants, the emission of
air pollutants, the generation, management and disposal of hazardous or toxic
chemicals, substances or wastes, and workplace health and safety.
The Company's leases generally provide that (i) the tenant is responsible
for all environmental liabilities relating to the tenant's operations, (ii)
the Company is indemnified for such liabilities and (iii) the tenant must
comply with all environmental laws and regulations. Such a contractual
arrangement, however, does not eliminate the Company's statutory liability or
preclude claims against the Company by governmental authorities or persons who
are not parties to such an arrangement. Noncompliance with environmental or
health and safety requirements may also result in the need to cease or alter
operations at a property, which could affect the financial health of a tenant
and its ability to make lease payments. In addition, if there is a violation
of such a requirement in connection with a tenant's operations, it is possible
that the Company, as the owner of the property, could be held accountable by
governmental authorities for such violation and could be required to correct
the violation and pay related fines.
All of the Properties have been, and it is contemplated that all future
acquisitions will be, subjected to a Phase I or similar environmental
assessment (which generally includes a site inspection, interviews and a
records review, but no subsurface sampling). These assessments and certain
follow-up investigations of the Properties have not revealed any environmental
liability that the Company believes would have a material adverse effect on
the Company's business or results of operations. Nevertheless, it is possible
that the assessments on the Properties have not revealed, or that the
assessments on future acquisitions will not reveal, all environmental
liabilities and that there may be material environmental liabilities of which
the Company is unaware. No assurances can be given that (i) the Company will
not incur material liability under current or future laws and regulations or
(ii) the current environmental condition of the Properties will not be
adversely affected by tenant operations or by environmental conditions in the
vicinity of such properties. See "The Properties--Environmental Matters."
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990 (the "ADA"), places of
public accommodation and/or commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Although
management of the Company believes that the Properties are substantially in
compliance with the present requirements of the ADA, the Company may incur
additional costs in connection with such compliance in the future. In
addition, a number of additional federal, state and local laws and regulations
exist that may require modifications to the Company's properties, or affect
certain future renovations thereof, with respect to access by disabled
persons. Non-compliance with the ADA could result in the imposition of fines
or an award of damages to private litigants, and also could result in an order
to correct any non-complying feature. Under certain of the Company's leases,
the tenant is responsible for ensuring that the property complies with all
laws and regulations, including the ADA. Notwithstanding the foregoing, the
Company may be required to make substantial capital expenditures to comply
with this law. In addition, provisions of the ADA may impose limitations or
restrictions on the completion of certain renovations and thus may limit the
overall returns on the Company's investments.
CHANGES IN LAWS
Because increases in taxes (including income, service and transfer taxes)
are generally not passed through to tenants under leases, such increases may
adversely affect the Company and its ability to make distributions to
stockholders. The Properties are also subject to various federal, state and
local regulatory requirements and to state and local fire and life-safety
requirements. Failure to comply with these requirements could result in the
22
<PAGE>
imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company and its
distributions to stockholders.
RELIANCE ON KEY PERSONNEL
The Company will depend upon the services of its executive officers,
particularly Messrs. Marcus, Gold and Nelson. The loss of the services of any
one of these officers could have an adverse effect on the Company's business
and financial condition. The Company has entered into employment agreements
with each of Messrs. Marcus and Gold and will enter into an employment
agreement with Mr. Nelson. See "Management--Employment Agreements."
CHANGE IN POLICIES WITHOUT STOCKHOLDER APPROVAL
The Company's policies with respect to all activities, including
qualification as a REIT, its investment, growth, debt, financing,
capitalization, distribution and operating policies, will be determined by the
Board of Directors upon the recommendations of management. See "Policies with
Respect to Certain Activities." These policies may be amended or revised at
any time and from time to time without a vote of the stockholders of the
Company. A change in these policies could adversely affect the Company and its
ability to make distributions to stockholders. In addition, the Company
expects to acquire additional real estate assets in the future. The
stockholders of the Company will not be entitled to consider historical
financial statements regarding, or to vote upon, these acquisitions and,
instead, will be required to rely entirely on the decisions of management.
NO LIMITATION ON DEBT
Upon consummation of the Offering and the Formation Transactions, the
Company's debt to total market capitalization ratio will be approximately
19.6%. Although the Company has adopted a policy to incur debt only if upon
such incurrence the debt to total market capitalization ratio would not exceed
50%, the Charter does not contain any limitation on the amount of indebtedness
the Company may incur. Accordingly, the Board of Directors could alter or
eliminate this policy. If this policy were changed, the Company could become
more highly leveraged, resulting in an increase in debt service obligations
that could adversely affect the Company's cash flow and, consequently, the
amount available for distribution to stockholders, and could increase the risk
of default on the Company's indebtedness. See "The Company--Growth
Strategies."
The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets because it believes that the book value of its assets (which to a large
extent is the depreciated original cost of real property, the Company's
primary tangible assets) does not accurately reflect its ability to borrow and
to meet debt service requirements. The market capitalization of the Company,
however, is more variable than book value, and does not necessarily reflect
the fair market value of the underlying assets of the Company at all times.
The Company also will consider factors other than market capitalization in
making decisions regarding the incurrence of indebtedness, such as the
purchase price of properties to be acquired with debt financing, the estimated
market value of its properties upon refinancing and the ability of particular
properties and the Company as a whole to generate cash flow to cover expected
debt service.
INABILITY TO SUSTAIN DISTRIBUTIONS
Distributions will be determined by the Board of Directors and will be
dependent on a number of factors, including the amount of the Company's cash
available for distribution, the Company's financial condition, any decision by
the Board of Directors to reinvest funds rather than to distribute such funds,
the Company's capital expenditures, the annual distribution requirements under
the REIT provisions of the Code and such other factors as the Board of
Directors deems relevant. See "Distributions."
23
<PAGE>
The Company's initial distribution level is based on a number of
assumptions, including assumptions relating to the future operations of the
Company. These assumptions concern, among other matters, occupancy levels,
capital expenditures and other costs relating to the Properties, the level of
rental activity and decisions by the Company to reinvest rather than
distribute cash available for distribution. The Company expects to maintain
its distribution level for at least the 12-month period following consummation
of the Offering. However, certain of the assumptions described above are
beyond the control of the Company, and a significant change in any such
assumption could cause a reduction in cash available for distributions, which
could affect the Company's ability to sustain the initial distribution level.
See "Distributions." Moreover, the Company has not attempted to estimate the
sustainability of its distribution level past the first anniversary of the
Offering. As a result, no assurance can be given that the Company will be able
to maintain its initial distribution level. Any such failure to do so could
result in a decrease in the market price of the Common Stock.
ABSENCE OF PRIOR MARKET FOR SHARES
Prior to the Offering, there has been no public market for shares of the
Common Stock. The Company will apply for listing of the Common Stock on the
NYSE. There can be no assurance that, upon listing, the Company will continue
to meet the criteria for continued listing of the Common Stock on the NYSE.
See "Underwriting." The initial public offering price may not be indicative of
the market price for the Common Stock after the Offering, and there can be no
assurance that an active public market for the Common Stock will develop or
continue after the Offering. The market value of the Common Stock could be
substantially affected by general market conditions, including changes in
interest rates. Moreover, numerous other factors, such as governmental
regulatory action and changes in tax laws, could have significant effects on
the future market price of the Common Stock. See "Underwriting" for a
discussion of factors considered in establishing the initial public offering
price.
EFFECT OF MARKET INTEREST RATES ON PRICE OF SHARES
One of the factors that may influence the market price of the Common Stock
in public trading markets will be the annual yield on the Common Stock
compared to yields on other financial instruments. Thus, an increase in market
interest rates will result in higher yields on other financial instruments,
which may lead prospective purchasers of the Common Stock to demand a higher
annual distribution rate from the Company. The requirement for a higher
distribution rate may have an adverse affect on the market price of the Common
Stock.
EFFECT OF FUTURE OFFERINGS ON PRICE OF SHARES
The Company in the future may increase its capital resources by making
additional private or public offerings of its Common Stock, securities
convertible into its Common Stock, Preferred Stock or debt securities. See
"Description of Capital Stock--Power to Issue Additional Shares of Common
Stock and Preferred Stock." The actual or perceived effect of such offerings,
the timing of which cannot be predicted, may be the dilution of the book value
or earnings per share of the Common Stock outstanding, which may result in a
reduction of the market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
As set forth more fully under "Dilution," the pro forma net tangible book
value per share after the Offering will be substantially less than the
expected initial public offering price per Share in the Offering. Accordingly,
stockholders acquiring Shares in the Offering will experience immediate and
substantial dilution of $5.59 per Share in the net tangible book value of the
Shares. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, of future sales of
shares of Common Stock, or the availability of shares of Common Stock for
future sale, on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of capital stock (including Common Stock
issued upon the exercise of stock options), or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock. Upon consummation of the Offering and the Formation Transactions,
3,999,634 shares of Common Stock will be owned by the Continuing Investors.
The Company and the Continuing Investors
24
<PAGE>
have agreed with the Underwriters, subject to certain limited exceptions, not
to offer, sell, contract to sell, pledge, grant any option to purchase or
otherwise dispose of any shares of Common Stock (or any securities convertible
into, or exercisable, exchangeable or redeemable for, shares of Common Stock)
for a period of one year after the effective date of the Registration Statement
of which this Prospectus forms a part (the "Registration Statement"), without
the prior written consent of PaineWebber. Management of the Company, including
Messrs. Sudarsky, Marcus, Gold, Nelson, Kreitzer, Stone and Ciruzzi, have
agreed with the Underwriters, subject to certain limited exceptions, not to
offer, sell, contract to sell, pledge, or otherwise dispose of any shares of
Common Stock (or any securities convertible into, or exercisable, exchangeable
or redeemable for, shares of Common Stock), including any shares of Common
Stock that any such persons may have the right to receive by virtue of their
ownership interest in Holdings, for a period of two years after the effective
date of the Registration Statement, without the prior written consent of
PaineWebber. After such time, such shares of Common Stock may be sold in the
public market, subject to applicable securities law restrictions or exemptions
from registration, if available. The Company has agreed to prepare and file a
shelf registration statement or such other registration statement as may then
be available within a specified time period after the Offering, and the
expiration of the applicable lock-up period, with respect to the resale from
time to time of shares of Common Stock issued to AEW in connection with the
Offering and the Formation Transactions. Accordingly, AEW will have the ability
to sell its shares of Common Stock at such time pursuant to such registration
statement or any applicable exemption then available under the Securities Act
of 1933, as amended (the "Securities Act"), including Rule 144 promulgated
thereunder. The Company also expects to grant to Holdings customary
transferable registration rights with respect to the shares of Common Stock
held by it. See "Shares Available for Future Sale" and "Underwriting." In
addition, the Company has reserved 1,030,000 shares of Common Stock for
issuance to employees and directors of the Company pursuant to the Company's
1997 Stock Option Plan, of which options for 650,000 shares will be issued in
connection with the Offering. These shares of Common Stock will be available
for sale in the public markets from time to time pursuant to exemptions from
registration requirements or upon registration. See "Management--Executive
Compensation."
25
<PAGE>
THE COMPANY
Alexandria was formed in October 1994 to acquire, manage, expand and
selectively develop high quality, strategically located office properties
containing office and laboratory space designed and improved for lease
principally to pharmaceutical, biotechnology, diagnostic and personal care
products companies, major scientific research institutions and related
government agencies. The Company's tenant base is broad and diverse within the
Life Science Industry and reflects the Company's focus on regional, national
and international tenants with substantial financial and operational
resources. Significant tenants include affiliates of major pharmaceutical
companies (e.g., Johnson & Johnson and Novartis AG, the company resulting from
the merger of Ciba-Geigy AG and Sandoz AG); biotechnology companies and their
affiliates (e.g., Chiron Corporation, Agouron Pharmaceuticals, Inc. and
MedImmune, Inc.); affiliates of personal care products companies (The Gillette
Company); major scientific research institutions (e.g., the Fred Hutchinson
Cancer Research Center and The Scripps Research Institute); clinical
laboratories (e.g., American Medical Laboratories, Inc.); and government
agencies (the FDA and the U.S. Army Corps of Engineers).
Upon consummation of the Offering and the Formation Transactions, the
Company will own 15 Properties containing approximately 1.5 million rentable
square feet of office and laboratory space located in California (in the San
Diego and San Francisco Bay areas), Seattle, Washington and suburban
Washington, D.C. (including Maryland and Virginia), each of which is a leading
market in the United States for the Life Science Industry. To facilitate
research and development, technology transfer and recruitment of scientific
professionals, Life Science Industry companies generally cluster near major
scientific research institutions, universities and government agencies, all of
which drive demand for properties combining office and laboratory space
suitable for such tenants. As a result, the Company focuses its operations and
acquisition activities principally in a limited number of target markets,
including all of the Company's existing markets and certain other markets
where Life Science Industry tenants are concentrated, including
Boston/Cambridge and the New York/New Jersey and suburban Philadelphia areas.
As of March 1, 1997, the Properties were approximately 98% leased, at an
average Annualized Net Effective Rent per leased square foot of $18.11.
The multibillion dollar Life Science Industry comprises some of the fastest
growing segments of the U.S. economy and includes thousands of public and
private companies and scientific research institutes engaged principally in
the research, development, testing, manufacture, sale and regulation of
pharmaceuticals, diagnostics, personal care products, medical devices,
laboratory instrumentation and other related applications. Properties leased
to tenants in the Life Science Industry typically consist of suburban office
buildings containing scientific research and development laboratories,
enhanced infrastructure and other improvements that are generic to tenants
operating in the Life Science Industry. Unlike traditional office space, the
location of and improvements to Life Science Facilities are generally
considered essential to a tenant's business. The Company believes that, as a
result of these factors, occupancy levels in Life Science Facilities within
its markets have been higher and tenant turnover has been significantly lower
than in traditional office properties.
Despite increasing competition for the acquisition of traditional office
properties, the Company believes that, subject to market conditions, it can
continue to purchase high quality Life Science Facilities at initial
Capitalization Rates generally ranging from 10.0% to 12.5% and at prices
significantly below replacement cost. In 1996, the Company completed the
acquisition of the 1996 Acquired Properties for an aggregate purchase price
(including closing costs and budgeted capital improvements) of approximately
$95.2 million and an average initial Capitalization Rate of over 12%. In
addition, the Company believes that opportunities exist for internal growth
through contractual rental rate escalations (included in approximately 65% of
the Company's leases on a square footage basis), the retenanting and releasing
of space at higher rental rates upon the expiration of existing leases, the
expansion of existing Properties and the conversion of existing office space
to higher rent generic laboratory space.
26
<PAGE>
The Company is led by a senior management team with extensive experience in
both the real estate and Life Science industries and is supported by a highly
experienced board of directors. Management believes that it has achieved
favorable returns on its Properties and should continue to achieve favorable
returns on newly acquired properties as a result of: (i) the strong and
growing demand by tenants for Life Science Facilities; (ii) the constrained
supply and lack of speculative development of Life Science Facilities due to
the expertise generally required to develop and manage this property type;
(iii) the highly fragmented and inefficient market for ownership of Life
Science Facilities; (iv) the Company's adherence to strict evaluation criteria
and due diligence review when assessing prospective properties and tenants;
and (v) the Company's knowledge and understanding of Life Science Industry
tenants and their real estate needs. Additionally, the relationships that
management has developed over time within the real estate and Life Science
industries have contributed significantly to the Company's ability to identify
and consummate favorable acquisitions and to lease space to high quality Life
Science Industry tenants. Management believes that the Company will be the
first publicly traded entity focusing primarily on the acquisition,
management, expansion and selective development of Life Science Facilities and
that it will be one of the nation's largest real estate companies specializing
in this property type.
The Company's principal executive office is located at 251 South Lake
Avenue, Suite 700, Pasadena, California 91101, and its telephone number is
(818) 578-0777.
GROWTH STRATEGIES
The Company seeks to maximize growth in FFO and cash available for
distribution to stockholders through effective management, operation,
acquisition, expansion and selective development of Life Science Facilities.
The Company believes that opportunities exist to increase FFO and cash
available for distribution per share by (i) acquiring high quality Life
Science Facilities at attractive returns in its target markets, (ii) realizing
contractual rental rate escalations (which are included in 65% of the
Company's leases on a square footage basis), (iii) retenanting and releasing
space within its portfolio at higher rental rates, and with minimal tenant
improvement costs, (iv) expanding existing Properties or converting existing
office space to generic laboratory space that can be leased at higher rental
rates, (v) selectively developing properties on a retrofit or build-to-suit
basis, where the Company can secure leases prior to construction and where
such development is expected to result in returns on investment that the
Company believes will exceed returns on comparable acquisitions, and (vi)
continuing to implement effective cost control measures, including expense
pass-through provisions in tenant leases. In pursuing its growth strategy, the
Company intends to maintain significant financial flexibility, enabling it to
take advantage of growth opportunities as they arise.
The Company believes that its focus on Life Science Facilities presents an
attractive investment opportunity, given the strong and growing demand for
Life Science Facilities coupled with constraints on new supply. The Company
believes that these factors, combined with management's expertise and
knowledge of Life Science Industry tenants and their facility needs, present
opportunities for the Company to achieve returns on its property investments
that are often higher than returns available on other types of commercial real
estate. There can be no assurance, however, that the Company will be able to
achieve such higher returns.
Acquisitions. The Company seeks to identify and acquire high quality Life
Science Facilities in its target markets. Management believes that it has been
able to maximize returns on acquisitions as a result of its expertise in
understanding the real estate needs of Life Science Industry tenants, its
ability to identify and acquire those properties with generic laboratory
infrastructure that appeal to a wide range of Life Science Industry tenants
and its expertise in identifying and evaluating Life Science Industry tenants.
The Company also seeks to use its extensive relationships with owners of Life
Science Facilities and with major Life Science Industry participants to
identify prospective acquisition opportunities and to consummate favorable
acquisitions prior to the active marketing of the subject properties.
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<PAGE>
The Company believes that the ownership of Life Science Facilities is highly
fragmented and that such fragmentation often creates pricing inefficiencies in
the sale of such properties. Life Science Facilities are generally owned by
numerous local developers and institutions, many of whom own or operate a
single facility. Additionally, management believes that many Life Science
Facilities are occupied by owners who desire to focus their investments on and
attention to their respective core businesses, and not on ownership of real
estate. As a result of these factors, as well as the favorable demand and
supply characteristics for Life Science Facilities in the Company's target
markets, management believes that the Company should be able to continue to
acquire properties at favorable initial Capitalization Rates and at prices
below replacement cost.
Critical evaluation of prospective property acquisitions is an essential
component of the Company's acquisition strategy. When evaluating acquisition
opportunities, the Company assesses a full range of matters relating to the
properties, including the quality of the tenants, the condition and capacity
of building infrastructure, the quality and generic characteristics of
laboratory facilities and the physical condition of the shell structure and
common area improvements. Management also considers opportunities available
for leasing vacant space and retenanting occupied space. In addition, the
Company is developing a proprietary database that will contain information on
Life Science Facilities and Life Science Industry tenants located in each of
the Company's target markets. The database will enhance the Company's ability
to identify and evaluate prospective acquisitions in such markets.
The Company acquired the 1996 Acquired Properties for an aggregate purchase
price (including closing costs and budgeted capital improvements) of
approximately $95.2 million and a weighted average initial Capitalization Rate
of over 12.0%. The 1996 Acquired Properties are:
<TABLE>
<CAPTION>
PROPERTY DATE OF ACQUISITION TOTAL ACQUISITION COSTS
-------- ------------------- -----------------------
<S> <C> <C>
1102/1124 Columbia Street May 1996 $31,755,000
Seattle, Washington
1413 Research Boulevard July 1996 11,966,000
Rockville, Maryland
300/401 Professional Drive September 1996 14,342,000
Gaithersburg, Maryland
25/35/45 West Watkins Mill Road October 1996 17,746,000
Gaithersburg, Maryland
1311/1401/1431 Harbor Bay Parkway December 1996 19,353,000
Alameda, California
-----------
Total $95,162,000
===========
</TABLE>
Internal Growth. The Company's strategy is to achieve internal growth from
several sources. Approximately 65% of the Company's leases (on a square
footage basis) contain either fixed contractual rent escalations ranging from
2.5% to 5% annually or indexed escalations based on a CPI or other index. The
Company will seek to include similar escalation provisions in its future
leases. Although most of the Company's recent acquisitions have been fully
leased, the Company also seeks to acquire undervalued or underperforming
properties where it can improve investment returns through releasing of vacant
space and replacement of existing tenants with new tenants at higher rental
rates. Further, the Company believes that a significant percentage of its
existing leases contain below-market rental rates and that opportunities
should exist to achieve higher rental rates as these leases expire. The
Company believes that retenanting and releasing costs for existing improved
space at its Properties should be relatively low, as a result of the favorable
demand and supply characteristics for Life Science Facilities in the Company's
target markets and the generic infrastructure improvements that are already in
place at the Properties. Since 1994, the Company has retenanted approximately
236,000 square feet of space at a weighted average cost for non-revenue
enhancing tenant improvements and leasing commissions of $7.73 per square
foot.
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<PAGE>
The Company also intends to pursue internal growth through the expansion of
existing facilities that are fully leased and the conversion of existing office
space to higher rent generic laboratory space. The Company is currently
evaluating expansion opportunities at several of its Properties, including 1413
Research Boulevard in Rockville, Maryland, which is designed to accommodate an
additional 60,000 square feet of office and laboratory space, and 14225
Newbrook Drive in Chantilly, Virginia, which can accommodate three additional
floors or up to approximately 50,000 square feet of additional office and
laboratory space. The Company is also currently considering the conversion of
office space into higher rent generic laboratory space at 300 Professional
Drive in Gaithersburg, Maryland, 25, 35 and 45 West Watkins Mill Road in
Gaithersburg, Maryland, and 1311 Harbor Bay Parkway in Alameda, California. The
Company intends to pursue expansion and conversion projects only where the
Company can secure signed leases for a significant portion of such space prior
to construction and where it expects to achieve investment returns that equal
or exceed its returns on acquisitions.
The Company believes that its internal growth strategy will be enhanced by
effective cost control measures, including expense pass-through provisions that
are included in a significant percentage of the Company's leases. Approximately
80% of the Company's leases (on a square footage basis) are triple net leases,
requiring tenants to pay substantially all real estate taxes and insurance,
common area and other operating expenses (including increases thereto).
Further, approximately 82% of the Company's leases (on a square footage basis)
provide for the recapture of certain non-revenue enhancing capital expenditures
(including roof replacements, parking lot resurfacing and HVAC maintenance
expenditures), which the Company believes would typically be borne by the
landlord in traditional office leases.
Development. Given the current favorable acquisition environment for Life
Science Facilities, the Company intends to emphasize acquisitions over
development in pursuing its growth objectives. However, the Company intends to
pursue selective build-to-suit and retrofit development projects where it
expects to achieve investment returns that will equal or exceed its returns on
acquisitions. Build-to-suit projects involve the construction of new Life
Science Facilities for specified tenants. Retrofit projects involve the
conversion of existing office space for use by Life Science Industry tenants,
generally through the addition of laboratory space and other generic
infrastructure improvements. The Company intends to undertake build-to-suit and
retrofit projects only if it can secure long-term leases (generally 10 years or
more) with high quality Life Science Industry tenants prior to construction and
the Company's investment in infrastructure will be generic in nature and not
tenant specific.
The Company's 10933 North Torrey Pines Road Property in San Diego,
California, is situated on approximately 16 acres of land. The Company has
rights to construct up to an additional 163,000 square feet of office and
laboratory space on this parcel. The Company also has entered into a purchase
agreement to acquire two parcels of land, aggregating approximately 4.2 acres,
adjacent to the Company's 3535 and 3565 General Atomics Court Properties, also
in the Torrey Pines area of San Diego, California. The purchase price for the
land is approximately $2.7 million, of which the Company has paid a deposit of
$100,000. The Company will have the ability (subject to receipt of necessary
governmental approvals and licenses) to develop and construct two buildings on
the land, containing an aggregate of approximately 90,000 square feet of office
and laboratory space. There can be no assurance, however, that the Company will
acquire the land or will be able to enter into desirable build-to-suit
arrangements.
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<PAGE>
Financing. Upon consummation of the Offering and the Formation Transactions,
the Company will have a debt to total market capitalization ratio of
approximately 19.6%. The Company is currently negotiating with institutional
lenders for the Credit Facility of approximately $100 million, which will be
used primarily for the acquisition of additional properties. The Company has
adopted a policy of incurring debt in the future only if, upon such
incurrence, its debt to total market capitalization ratio will not exceed 50%.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" and "Policies With Respect to
Certain Activities."
The Company expects to finance future acquisitions initially through the
Credit Facility and then to refinance such indebtedness with permanent debt or
equity capital. The Company may also issue Common Stock or interests in the
Acquisition LLC as consideration for acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." The Company believes that its access to
capital through credit facilities and other sources of private financing, as
well as its access to the public capital markets, should provide it with a
competitive advantage in acquisitions over other bidders that qualify their
bids with financing or other contingencies.
TENANT DEMAND
Life Science Industry participants are engaged principally in the research,
development, testing, manufacture, sale and regulation of pharmaceuticals,
diagnostics, personal care products, medical devices, laboratory
instrumentation and other related applications. Tenant demand for Life Science
Facilities in the Company's target markets is driven largely by the size and
growth of the Life Science Industry and its various segments and particularly
by the Life Science Industry's expenditures on research and development.
Growth in the Life Science Industry creates demand for Life Science Facilities
because traditional office space is generally inadequate to meet the needs of
Life Science Industry tenants.
Research and development expenditures within the pharmaceutical industry,
the largest segment of the Life Science Industry, have grown dramatically
since 1985, and the Company believes that this growth should continue.
According to PhRMA, the principal industry trade group for major
pharmaceutical research companies, domestic research and development
expenditures by PhRMA member firms have increased at a compound annual rate of
over 13% since 1985, and are expected to grow by approximately 12.5% in 1997.
The following graph indicates the growth of domestic research and development
expenditures by PhRMA member firms since 1985.
(BAR GRAPH)
(IN BILLIONS OF DOLLARS)
1985 3.4
1986 3.9
1987 4.5
1988 5.2
1989 6.0
1990 6.8
1991 7.9
1992 9.3
1993 10.5
1994 11.1
1995 11.9
1996 13.4
1997 15.0
--------
SOURCE: 1996 PHRMA MEMBER SURVEY
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According to PhRMA, research and development expenditures also have
increased as a percentage of U.S. sales and exports of PhRMA member firms. In
1985, research and development expenditures totaled approximately 15.1% of
U.S. sales and exports. Based on estimated 1997 expenditures (and as
illustrated in the following chart), this percentage is expected to increase
to 21.3% of U.S. sales and exports. By comparison, according to PhRMA,
research and development expenditures across all U.S. industries averaged only
3.5% of sales in 1996. The PhRMA data is based on information compiled
principally from the nation's largest pharmaceutical companies, although the
Company believes that this data is reflective of growth in the pharmaceutical
industry generally.
RESEARCH AND DEVELOPMENT AS A PERCENTAGE OF U.S. SALES (INCLUDING U.S.
EXPORTS)
BY PHRMA MEMBER FIRMS
(BAR GRAPH)
(PERCENTAGE OF SALES)
1985 15.1
1986 15.1
1987 16.1
1988 16.7
1989 16.8
1990 16.2
1991 16.6
1992 17.9
1993 19.9
1994 20.4
1995 19.4
1996 20.0
1997 21.3
The Company believes that several factors should continue to drive increases
in research and development expenditures, and thus increase the demand for
Life Science Facilities. These factors include (i) the aging of the U.S.
population resulting from the transition of baby boomers to senior citizens,
which has increased demand for new drugs, (ii) increased competition resulting
from generic drug penetration and the loss of patent protection on billions of
dollars worth of drugs, each of which has increased the need for proprietary
drug manufacturers to develop new products, (iii) the desire of companies to
reduce research and development lead times to bring new products to market
faster, (iv) modifications to the FDA approval process, which have reduced the
effective cost of new drug development and (v) increased collaborative efforts
among major pharmaceutical and biotechnology companies, which have increased
capital availability to Life Science Industry participants.
31
<PAGE>
TARGET MARKETS
The Company owns Life Science Facilities in four primary markets and has
targeted these markets, and two additional markets, within which to focus its
activities. The Company has selected its target markets as a result of the
concentration of Life Science Industry participants. The concentration of Life
Science Industry participants is largely a result of the need of such
participants to be in close proximity to regulatory agencies and funding
sources, such as the FDA and the NIH, trade and manufacturing groups and major
scientific research universities and non-profit research centers. These groups
provide funding, research and administrative assistance and product approvals
to the Life Science Industry, as well as opportunities for the recruitment of
scientific professionals. The Company believes that its target markets have
been and will continue to be attractive markets for the Life Science Industry
because of the established presence of the scientific community and the
opportunities for the commercialization of Life Science Industry research and
development in these areas. The Company believes that the concentration of
Life Science Industry participants in its markets is a significant factor
contributing to increased demand for available space and higher overall
occupancy rates for Life Science Facilities and thus to reducing the risks
associated with tenant turnover. See "Risk Factors--Geographic Concentration;
Dependence on Certain Markets." Market studies were prepared for each of the
Company's existing markets at the request of the Company. Statistical and
other information contained herein with respect to these markets is derived
principally from the findings contained in these studies. There can be no
assurance, however, that the data provided in such studies is correct or that
trends referred to therein will continue.
EXISTING MARKETS
San Diego. Life Science Industry participants have established a significant
presence in the San Diego area primarily due to the presence of four
internationally renowned research institutions: The University of California
at San Diego; The Scripps Clinic and Research Foundation; the Burnham
Institute (formerly, the La Jolla Cancer Research Foundation); and The Salk
Institute for Biological Studies. Additionally, the Company believes that Life
Science Industry participants are attracted to San Diego due, in part, to a
supportive local government and a favorable quality of life that attracts
scientific research professionals. The University of California at San Diego,
is one of the leading research universities in the nation and the 15th largest
recipient of NIH awards in 1996, with over $133 million of total awards. The
University's faculty includes Nobel laureates and members of the National
Academy of the Sciences. The Scripps Clinic and Research Foundation includes
the largest non-profit biotechnology research facility in the world, with over
700 scientists. Specializing in cancer research, the Burnham Institute is the
fourth largest research institution in the San Diego area. The Salk Institute,
with more than 500 employees, conducts a wide range of Life Science Industry
research.
San Francisco Bay Area. The San Francisco Bay area is the birthplace of the
biotechnology industry and continues to be the largest market for
biotechnology companies and related research and development activities in the
United States. Local universities and non-profit and government scientific
research institutions, including the University of California at San
Francisco, the University of California at Berkeley, Stanford University and
the Lawrence Livermore Laboratories, have also provided advanced technologies
and scientific discoveries and have fostered the growth of the Life Science
Industry in the region. The University of California at San Francisco and
Stanford University ranked second and tenth, respectively, in NIH grants in
1996, with $213 million and $151 million of total awards, respectively.
Several of the largest and most successful biotechnology companies were
founded in and remain based in the San Francisco Bay area, including
Genentech, Inc. and Chiron Corporation. As a result of the large concentration
of major research universities, teaching hospitals, scientific research
institutions and Life Science Industry companies, the Company believes that
the San Francisco Bay area is also a strong market for the recruitment of
scientific research professionals.
Seattle. The University of Washington and the Fred Hutchinson Cancer
Research Center, founded in 1861 and 1972, respectively, have influenced the
growth of the Life Science Industry in the Seattle/Puget Sound region. For
over 20 years, the University of Washington has consistently ranked among the
top five federally
32
<PAGE>
funded research institutions. In fiscal 1996, the University received
approximately $482 million in such funds, representing an increase of nearly
five-fold from fiscal 1976. The University also serves as a major source of
technology transfer and commercialization of products. In addition, the Fred
Hutchinson Cancer Research Center, established by a Nobel prize winner in
medicine, is a comprehensive research center emphasizing basic cancer research
and clinical testing. With over 2,000 employees and revenues of nearly $131
million in fiscal 1994, the Fred Hutchinson Cancer Research Center continues
to serve as a driver for Life Science Facility demand in the area.
Suburban Washington, D.C. Washington, D.C. and its suburbs (including
Maryland and Virginia) have one of the highest concentrations of federal
laboratories, scientists and engineers per capita in the United States. The
NIH and the National Institute of Standards and Technology are significant
drivers of demand for Life Science Facilities in this market. The area's
colleges and universities, including major research universities and two
renowned medical schools, Johns Hopkins University and the University of
Maryland at Baltimore, also generate demand for Life Science Facilities.
Scientific research institutes involved in Life Science Industry research,
including the Institute for Genomic Research, are located nearby. Proximity to
the nation's capital also provides access to major trade associations
supporting the Life Science Industry, key federal agencies, such as the FDA,
the U.S. Patent and Trademark Office and the U.S. Department of Agriculture,
as well as a cooperative network of governmental, industrial and academic
leaders and organizations.
ADDITIONAL TARGET MARKETS
Boston/Cambridge. With the Massachusetts Institute of Technology and Harvard
University as anchors, scientific research in the Boston/Cambridge area is one
of the principal drivers of demand for Life Science Facilities in the area.
The Company believes that these institutions, as well as other major research
universities, teaching hospitals and scientific research institutions, produce
a favorable environment for the recruitment of scientific professionals and
the development of new technologies and products, all of which contribute to
demand for Life Science Facilities. The Boston/Cambridge area has historically
produced several of the largest and most successful biotechnology companies,
including Genetics Institute, Inc., Biogen, Inc., and Genzyme Corp. The
Company believes that the factors supporting the growth of these companies,
including the cooperative network of academic and industrial organizations
within the Boston/Cambridge area, continue to attract Life Science Industry
participants to the area.
New York/New Jersey and Suburban Philadelphia Areas. The New York/New Jersey
and suburban Philadelphia areas are centers of the Life Science Industry on
the East Coast. New Jersey is home to the largest concentration of
pharmaceutical companies in the United States, including Merck & Co. Inc.,
Johnson & Johnson, Bristol-Myers Squibb Company and American Home Products
Corp. Smithkline Beecham p.l.c., Rhone-Poulenc Rorer, Inc. and Wyeth
Laboratories Inc., all based in the Philadelphia area, and Pfizer, Inc., based
in New York, further enhance this region's importance in the research and
development of pharmaceutical products. In addition to the presence of major
pharmaceutical companies, the University of Pennsylvania, Princeton
University, the Sloan-Kettering Cancer Research Center and numerous other
major research universities, teaching hospitals and scientific research
institutions play a significant role in the continuing development of the Life
Science Industry in this region.
33
<PAGE>
DISTRIBUTIONS
Distributions by the Company will be determined by the Board of Directors and
will be dependent upon a number of factors, including the federal income tax
requirement that a REIT must distribute annually at least 95% of its taxable
income. The Company intends to make regular quarterly distributions to the
holders of the Common Stock and initially to distribute annually approximately
83.1% of estimated cash available for distribution. The Company expects to pay
a pro rata distribution with respect to the period commencing upon consummation
of the Offering and ending on June 30, 1997.
Based on its estimated cash available for distribution, the Company initially
expects to make distributions of $1.52 per share on an annualized basis, or an
annual distribution rate of 7.24%, based on an assumed initial public offering
price of $21.00 per share. The Company currently intends to maintain its
initial distribution rate for the 12-month period following consummation of the
Offering, unless actual results of operations, economic conditions or other
factors differ materially from the assumptions used in its estimate. The
Company does not intend to reduce the expected distribution rate if the
Underwriters' over-allotment option is exercised. See "Risk Factors--Inability
to Sustain Distributions." The following discussion and the information set
forth in the table and footnotes below should be read in connection with the
historical consolidated financial statements and the pro forma financial
information of the Company and notes thereto contained herein and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
The Company's estimate of cash available for distribution after the Offering
is based upon pro forma FFO for the year ended December 31, 1996, with certain
adjustments based on the items described below. To estimate cash available for
distribution for the 12 months ended March 31, 1998, pro forma FFO for the year
ended December 31, 1996 was adjusted for certain known events and/or
contractual commitments that either occurred subsequent to December 31, 1996 or
during the 12 months ended December 31, 1996 but were not effective for the
full 12 months, and for certain non-GAAP adjustments consisting of (i) revising
historical rent estimates from a GAAP basis to amounts currently being paid or
due from tenants and (ii) an estimate of amounts anticipated for recurring
tenant improvements, leasing commissions and capital expenditures. Pro forma
FFO was not adjusted for changes in working capital resulting from changes in
current assets and current liabilities, for investing activities (other than a
reserve for capital expenditures and tenant improvements for renewing or
reletting space) or for financing activities. The estimate of cash available
for distribution is being made solely for the purpose of setting the initial
distribution and is not intended to be a projection or forecast of the
Company's results of operations or its liquidity, nor is the methodology upon
which such adjustments were made necessarily intended to be a basis for
determining future distributions. There can be no assurance that any
distributions will be made or that the estimated level of distributions will be
maintained by the Company.
The Company anticipates that its distributions will exceed earnings and
profits for federal income tax purposes due to non-cash expenses, primarily
depreciation and amortization, and the difference between rents reported for
tax purposes as compared to rents reported in accordance with GAAP. Therefore,
approximately 22.4% (or $0.34 per share) of the distributions anticipated to be
paid by the Company for the 12 months following the Offering are expected to
represent a return of capital for federal income tax purposes and in such event
will not be subject to federal income tax under current law to the extent such
distributions do not exceed a stockholder's basis in the Common Stock. The
nontaxable distributions will reduce the stockholder's tax basis in the Common
Stock and, therefore, the gain (or loss) recognized on the sale of such Common
Stock or upon liquidation of the Company will be increased (or decreased)
accordingly. See "Certain Federal Income Tax Considerations--Taxation of
Taxable Domestic Stockholders." The percentage of a stockholder's distributions
that represents a nontaxable return of capital may vary substantially from year
to year.
Federal income tax law requires that a REIT distribute annually at least 95%
of its REIT taxable income. See "Certain Federal Income Tax Considerations--
Taxation of the Company." The amount of distributions on
34
<PAGE>
an annual basis necessary to maintain the Company's REIT status based on pro
forma taxable income of the Company for the 12 months ended December 31, 1996,
as adjusted for certain items in the following table, would have been
approximately $12.8 million or $1.18 per share. The estimated cash available
for distribution is anticipated to be in excess of the annual distribution
requirements applicable to REITs. Under certain circumstances, the Company may
be required to make distributions in excess of cash available for distribution
in order to meet such distribution requirements. For a discussion of the tax
treatment of distributions to holders of Common Stock, see "Certain Federal
Income Tax Considerations."
The Company believes that its estimate of cash available for distribution
constitutes a reasonable basis for setting the initial distribution; however,
no assurance can be given that the estimate will prove accurate or that actual
distributions will not vary significantly from the expected distributions.
Actual results of operations, economic conditions or other factors may differ
materially from the assumptions used in the estimate. The Company's actual
results of operations will be affected by a number of factors, including the
revenue received from the Properties, the operating expenses of the Company,
interest expense, the ability of tenants of the Properties to meet their
obligations and unanticipated capital expenditures. Variations in the net
proceeds from the Offering as a result of a change in the initial public
offering price or the exercise of the Underwriters' overallotment option may
affect the cash available for distribution and the payout ratio of cash
available for distribution and available reserves.
The following table describes the calculation of pro forma FFO for the year
ended December 31, 1996, and the adjustments thereto used in estimating the
initial cash available for distribution for the 12 months ended March 31,
1998:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS,
EXCEPT
PER SHARE
AMOUNTS)
-----------
<S> <C>
Pro forma 1996 net income....................................... $11,056
Plus: pro forma 1996 real estate depreciation................... 4,911
pro forma 1996 real estate amortization....................... 85
Stock grant compensation expense (1) ......................... 3,515
-------
Pro forma 1996 FFO ............................................. 19,567
Adjustments:
Provision for assumed expiring leases, assuming no renewals
(2).......................................................... (17)
Incremental pro forma lease adjustment (3).................... 277
Net increase in tenant recoveries (4)......................... 514
Decrease in other income (5).................................. (35)
-------
Estimated pro forma FFO for the 12 months ended March 31, 1998.. 20,306
Net effect of straight-lining of rents (6).................... 629
Estimated stabilized capital expenditures (7)................. (1,124)
-------
Total estimated cash available for distribution for the 12
months ended March 31, 1998.................................... $19,811
=======
Total estimated cash distributions.............................. $16,461
=======
Estimated initial cash distribution per share (8)............... $ 1.52
=======
Estimated cash available for distribution payout ratio (9)...... 83.1%
=======
</TABLE>
- --------
(1) Reflects the elimination of non-cash compensation expense relating to
stock grants made to officers and directors of the Company in connection
with the Offering.
(2) The provision for assumed expiring leases above assumes no lease renewals
for the period from January 1, 1997 to March 31, 1998.
(3) Reflects increases and decreases resulting from the annualization of
leasing transactions occurring in 1996 and 1997. The net amount of
$277,000 includes the effect from (i) eliminating the rental revenue
relating to leases expiring and not renewed during 1996 and (ii) adding
rental revenue from leases signed through March 1, 1997.
(4) Consists of (i) $498,000 of recovery payments from existing tenants in
accordance with their lease agreements and (ii) a $16,000 net increase in
tenant recoveries resulting from the net increase in occupancy for the 12
months ended December 31, 1996.
(5) Reflects the decrease in other income-storage relating to space vacated by
a tenant during 1996. This space was converted to additional office space
and released. See note (2).
35
<PAGE>
(6) Represents the effect of adjusting straight-line rental revenue included in
pro forma net income for the 12 months ended March 31, 1998 from the
straight-line accrual basis to amounts currently being paid or due from
tenants. This adjustment is positive due to one significant lease (with the
FDA at 1431 Harbor Bay Parkway in Alameda, California) that was in place at
the time of the Company's purchase that contains rent step-down provisions
beginning on January 1, 1999. As a result, cash rents currently received by
the Company exceed rents calculated on a straight-line basis in accordance
with GAAP. The lower, straight-lined amount is reflected in FFO. If the
Company did not include the cash to be received pursuant to this lease in
excess of the straight-lined amount, total estimated cash available for
distribution for the 12 months ended March 31, 1998 would be $18,308,000
and the estimated cash available for distribution payout ratio would be
89.9%.
(7) Reflects projected non-incremental revenue-generating tenant improvements
("TI"), leasing commissions ("LC") and non-reimbursable building
improvements for the 12-month period ending March 31, 1998. Non-
reimbursable building improvements are calculated at a rate of $0.35 per
square foot for the Company's portfolio (or a total of $509,343) based on
the Company's historical experience. TI and LC expenditures are based on
the weighted average TI and LC expenditures for all space renewed and
retenanted by the Company during 1994, 1995 and 1996, multiplied by the
highest annual net rentable square feet of leased space expiring during
1997, 1998 and 1999.
<TABLE>
<CAPTION>
WEIGHTED
1994 1995 1996 AVERAGE
----- ----- ----- ----------
<S> <C> <C> <C> <C>
Retenanted
TI per net rentable square foot.............. $0.32 $7.30 $5.90 $ 6.07
LC per net rentable square foot.............. $4.56 $4.23 $0.87 $ 1.66
----------
Total weighted average TI and LC........... $ 7.73
Highest annual net rentable square feet of
leased space
expiring during 1997, 1998 and 1999....... 195,837
----------
$1,513,820
Estimated rate of retenant................. 30%
----------
Total cost of retenants.................... $ 454,146
Renewals
TI per net rentable square foot.............. -- -- -- $ 0.00
LC per net rentable square foot.............. -- $3.00 -- $ 1.17
----------
Total weighted average TI and LC........... 1.17
Highest annual net rentable square feet of
leases expiring during
1997, 1998 and 1999....................... 195,837
----------
$ 229,129
Estimated rate of renewal.................. 70%
----------
Total cost of renewals................... $ 160,391
----------
Total estimated TI and LC Cost............... $ 614,537
----------
Non-reimbursable building improvements
(1,455,267 square feet times $0.35 per
square foot)................................ $ 509,343
----------
Total TI, LC and building improvement
costs....................................... $1,123,880
==========
</TABLE>
(8) Based on a total of 10,829,634 shares to be outstanding upon consummation
of the Offering and the Formation Transactions.
(9) Calculated as the total estimated cash distributions divided by the total
estimated cash available for distribution for the 12 months ended March 31,
1998. The payout ratio of estimated pro forma FFO equals 81.1%.
36
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting
underwriting discounts and commissions and estimated expenses of the Offering,
will equal approximately $129.3 million (approximately $149.1 million if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $21.00 per Share. The Company intends to apply the
net proceeds of the Offering, along with net proceeds of approximately $15.4
million from new mortgage debt on two of the Properties to be incurred in
connection with the Offering, as follows: approximately $77.8 million for
repayment of mortgage indebtedness on the Properties and certain other
outstanding indebtedness (including the repayment of approximately $2.5
million of indebtedness advanced to the Company from Holdings), approximately
$62.9 million for the purchase of the Acquisition LLC, as more fully described
in "Formation and Structure," and the remaining net proceeds (approximately
$4.0 million) for general corporate purposes (approximately $1.0 million of
which will be placed in a restricted cash account pursuant to the terms of
certain indebtedness). If the initial public offering price is less than
$21.00 per Share, the Company may reduce the amount of the offering proceeds
applied to general corporate purposes or draw on the Credit Facility, as
necessary, to make the foregoing payments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
If the Underwriters' over-allotment option to purchase additional Shares is
exercised in full, the Company expects to use the additional net proceeds for
general corporate purposes, including the acquisition of additional
properties. Pending the uses described above, the Company intends to invest
the net proceeds in interest-bearing accounts and other short-term, interest-
bearing securities that are consistent with the Company's qualification for
taxation as a REIT. Such investments may include, for example, government and
government agency securities, certificates of deposit and interest-bearing
bank deposits.
The following table sets forth certain information with respect to the
indebtedness to be repaid upon consummation of the Offering and the Formation
Transactions. The indebtedness to be repaid at such time had a weighted
average interest rate of approximately 8.25% and a weighted average remaining
term to maturity of approximately 1.7 years (excluding the balance due to
Holdings, which is due on demand) as of March 1, 1997.
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
TO BE REPAID
PROPERTY ($000)(1)
-------- -----------------
<S> <C>
3535/3565 General Atomics Court............................ $ 4,703
1413 Research Boulevard(2)................................. 8,600
300/401 Professional Drive(2).............................. 10,800
25/35/45 West Watkins Mill Road(2)......................... 11,700
1311/1401/1431 Harbor Bay Parkway(2)....................... 13,300
10933/11099 North Torrey Pines Road........................ 17,797
1102/1124 Columbia Street.................................. 5,860
Working Capital Line of Credit............................. 2,500
Advanced/Due to Holdings(3)................................ 2,500
-------
Total.................................................... $77,760
=======
</TABLE>
- --------
(1) Amounts reflect principal amortization through April 30, 1997.
(2) Represents aggregate borrowings under the PaineWebber Facility of $44.4
million. Such indebtedness was incurred on various dates in 1996 and bears
interest at a rate equal to LIBOR plus 2.5%. See "Risk Factors--Benefits
to Managing Underwriter."
(3) Holdings will use the proceeds to repay outstanding loans from certain of
its stockholders. See "Formation and Structure--Benefits to Related
Parties."
37
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of December 31, 1996, and the pro forma capitalization as adjusted to give
effect to the Formation Transactions, the Offering and the use of the net
proceeds from the Offering as described under "Use of Proceeds." The
information set forth in the table should be read in conjunction with the
historical consolidated financial statements and the pro forma financial
information of the Company and notes thereto contained herein, "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Debt(1):
Secured notes payable................................ $113,182 $ 55,305
Unsecured line of credit............................. -- --
Due to Holdings........................................ 2,300 --
Advances from Holdings................................. 225 --
Mandatorily redeemable Series V Preferred Stock,
$.01 par value per share, $1,000 stated value per
share; 50,000 shares authorized; 27,500 issued and
outstanding; no shares issued and outstanding pro
forma............................................... 24,707 --
Stockholders' equity:
Preferred Stock, $.01 par value per share:
Series T Preferred Stock, $100 stated value per
share; 125 shares authorized; 12 shares issued and
outstanding; no shares issued and outstanding pro
forma............................................. 1 --
Series U Preferred Stock, $500 stated value per
share; 250 shares authorized; 220 issued and
outstanding; no shares issued and outstanding pro
forma............................................. 110 --
Common Stock, $0.01 par value per share; 65,000
shares authorized; 1,000 issued and outstanding;
100,000,000 shares authorized; 10,829,634 shares
issued and outstanding pro forma(2)................. -- 108
Additional paid-in capital............................. 16,530 172,097
Accumulated deficit.................................... (1,775) (5,290)
-------- --------
Total stockholders' equity............................. 14,866 166,915
-------- --------
Total capitalization................................... $155,280 $222,220
======== ========
</TABLE>
- --------
(1) See note 4 of the notes to the historical consolidated financial
statements of the Company for information relating to the indebtedness.
(2) Excludes 1,030,000 shares reserved for issuance pursuant to the Company's
1997 Stock Option Plan of which options to acquire 650,000 shares of
Common Stock will be outstanding upon consummation of the Offering and the
Formation Transactions.
38
<PAGE>
DILUTION
At December 31, 1996, the Company had a net tangible book value of
approximately $37.6 million or $9.40 per share. After giving effect to (i) the
sale of the Shares (at an assumed initial public offering price of $21.00 per
Share) and the receipt by the Company of approximately $129.3 million in net
proceeds from the Offering, after deducting underwriting discounts and
commissions and estimated Offering expenses, and (ii) the repayment of
approximately $77.8 million of debt, the pro forma net tangible book value at
December 31, 1996 would have been $166.9 million, or $15.41 per share of
Common Stock. This amount represents an immediate increase in net tangible
book value of $6.01 per share to the existing stockholders and an immediate
dilution in pro forma net tangible book value of $5.59 per share of Common
Stock to new investors. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $21.00
Net tangible book value per share prior to the Offering (1).. 9.40
Increase in net tangible book value per share attributable to
the Offering (2)............................................ 6.01
----
Pro forma net tangible book value after the Offering (3)....... 15.41
------
Dilution in net tangible book value per share of Common Stock
(4)........................................................... $ 5.59
======
</TABLE>
- --------
(1) Net tangible book value per share prior to the Offering is determined by
dividing net tangible book value of the Company (based on the December 31,
1996 net book value of the assets less net book value of prepaid financing
and leasing costs to be expensed in connection with the mortgage
indebtedness repaid in connection with the Offering), by the number of
shares of Common Stock issuable to existing stockholders in connection
with the Formation Transactions.
(2) Based on the assumed initial public offering price of $21.00 per share of
Common Stock and after deducting underwriting discounts and commissions
and estimated Offering expenses.
(3) Based on total pro forma net tangible book value of $166.9 million divided
by the total number of shares of Common Stock to be outstanding upon
consummation of the Offering and the Formation Transactions.
(4) Dilution is determined by subtracting pro forma net tangible book value
per share of Common Stock after the Offering from the assumed initial
public offering price of $21.00 per share of Common Stock.
The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of shares of Common Stock
to be sold by the Company in the Offering and the number of shares of Common
Stock to be issued in connection with the Formation Transactions, and the net
tangible book value as of December 31, 1996.
<TABLE>
<CAPTION>
SHARES ISSUED BY THE COMPANY
-----------------------------------------
BOOK VALUE
OF AVERAGE
CONTRIBUTION CONTRIBUTION
SHARES VALUE PERCENT PER SHARE
------ ------------ ------- ------------
(IN THOUSANDS, EXCEPT PERCENTAGES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Shares sold to public investors..... 6,830 $143,430 63.1% $21.00(1)
Shares issued in connection with the
Formation Transactions............. 4,000 37,585(2) 36.9% $ 9.40
------ -------- -----
Total............................. 10,830 $181,015 100.0%
====== ======== =====
</TABLE>
- --------
(1) Before deducting underwriting discounts and commissions and estimated
expenses of the Offering.
(2) Based on the December 31, 1996 net book value of the assets less net book
value of prepaid financing and leasing costs to be expensed in connection
with the mortgage indebtedness repaid in connection with the Offering.
39
<PAGE>
SELECTED FINANCIAL DATA
The following selected historical and pro forma financial information should
be read in conjunction with, and is qualified in its entirety by, the
historical consolidated financial statements and notes thereto of the Company
included elsewhere in this Prospectus. The selected historical financial
information of the Company at December 31, 1996 and 1995, and for the years
ended December 31, 1996 and 1995, and for the period October 27, 1994
(inception) through December 31, 1994, has been derived from the historical
consolidated financial statements of the Company audited by Ernst & Young LLP,
independent auditors, whose report with respect thereto is included elsewhere
in this Prospectus.
The unaudited pro forma information as of and for the year ended December
31, 1996 is presented as if the Offering, the application of the net proceeds
thereof as set forth in "Use of Proceeds," the Formation Transactions and the
acquisition of the 1996 Acquired Properties all had occurred at December 31,
1996 for the pro forma balance sheet and at January 1, 1996 for the pro forma
statements of operations. The pro forma information is not necessarily
indicative of what the actual financial position or results of the Company
would have been as of and for the period indicated, nor does it purport to
represent the Company's future financial position or results of operations.
<TABLE>
<CAPTION>
HISTORICAL
FOR THE PERIOD
YEAR ENDED DECEMBER 31, OCTOBER 27, 1994
-------------------------------- (INCEPTION) THROUGH
PRO FORMA HISTORICAL HISTORICAL DECEMBER 31,
1996 1996 1995 1994
---------- ---------- ---------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental.................. $ 27,121 $ 12,941 $ 8,020 $ 834
Tenant recoveries....... 6,669 4,169 1,699 87
Other................... 658 563 204 90
---------- -------- ------- -------
Total revenue............ 34,448 17,673 9,923 1,011
Expenses:
Rental operations....... 7,196 4,356 2,228 252
General and
administrative......... 2,850 2,410 1,608 1,016
Stock grant compensation
expense................ 3,515 -- -- --
Interest................ 4,835 6,327 3,553 328
Depreciation and
amortization........... 4,996 2,405 1,668 63
---------- -------- ------- -------
Total expenses........... 23,392 15,498 9,057 1,659
Income (loss) from
operations.............. 11,056 2,175 866 (648)
Charge in lieu of taxes.. -- -- 105 --
---------- -------- ------- -------
Net income (loss)........ $ 11,056 $ 2,175 $ 761 $ (648)
========== ======== ======= =======
Net income allocated to
preferred stockholders.. -- $ 1,256 -- --
========== ======== ======= =======
Net income (loss)
allocated to common
stockholders............ $ 11,056 $ 919 $ 761 $ (648)
========== ======== ======= =======
Net income per share of
Common Stock............ $ 1.02 $ 919 $ 761 $ (648)
========== ======== ======= =======
Weighted average shares
of Common Stock
outstanding............. 10,829,634 1,000 1,000 1,000
========== ======== ======= =======
BALANCE SHEET DATA (AT
PERIOD END):
Rental properties--net of
accumulated
depreciation............ $209,854 $146,960 $54,353 $54,366
Total assets............. 227,001 160,392 58,702 56,600
Mortgage loans payable
and unsecured lines of
credit.................. 55,305 113,182 40,894 39,164
Total liabilities........ 60,086 120,819 42,369 40,119
Mandatorily redeemable
Series V Preferred
Stock................... -- 24,707 -- --
Stockholders' equity..... 166,915 14,866 16,333 16,481
</TABLE>
40
<PAGE>
SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
HISTORICAL
FOR THE PERIOD
YEAR ENDED DECEMBER 31, OCTOBER 27, 1994
-------------------------------- (INCEPTION) THROUGH
PRO FORMA HISTORICAL HISTORICAL DECEMBER 31,
1996 1996 1995 1994
--------- ---------- ---------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations
(1)..................... $ 19,567 $ 5,018 $ 2,429 $ (585)
Cash flows from operating
activities.............. -- (1,646) 355 (1,024)
Cash flows from investing
activities.............. -- (94,900) (1,554) (29,924)
Cash flows from financing
activities.............. -- 97,323 927 32,139
Number of properties
owned at period end..... 15 12 4 4
Rentable square feet of
properties owned at
period end.............. 1,455,267 1,031,070 313,042 313,042
Occupancy at period end
of properties owned at
period end.............. -- 97% 96% 88%
</TABLE>
- --------
(1) The White Paper defines FFO as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales
of property, plus real estate related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures.
Management considers FFO an appropriate measure of performance of an
equity REIT because it is predicated on cash flow analyses. The Company
computes FFO in accordance with standards established by the White Paper,
which may differ from the methodology for calculating FFO utilized by
other equity REITs, and, accordingly, may not be comparable to such other
REITs. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make distributions.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the information contained in "Selected Financial
Data" and the more detailed historical consolidated financial statements and
notes thereto included elsewhere herein.
Since its formation in October 1994, the Company has devoted substantially
all of its resources to the acquisition and management of high quality,
strategically located Life Science Facilities leased principally to Life
Science Industry tenants in its target markets. Upon consummation of the
Offering and the Formation Transactions, the Company will have total assets
with a book value of approximately $227 million, including real estate assets
with a book value of approximately $210 million.
The Company receives income from rental revenue (including tenant
recoveries) from its Properties. The Company acquired its current portfolio
over the last three years, with four of the Properties acquired in calendar
year 1994 (the "1994 Acquired Properties"), eight in 1996 and three to be
acquired from the Acquisition LLC upon consummation of the Offering and the
Formation Transactions. As a result of the Company's acquisition strategy, the
financial data shows significant increases in total revenue from year to year,
largely attributable to the acquisitions over the years and the benefit of a
full period of effective rental and other revenue for Properties acquired in
the preceding year. For the foregoing reasons, the Company does not believe
its year-to-year financial data are comparable.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Rental revenue increased by $4.9 million, or 61%, to $12.9 million for the
year ended December 31, 1996 compared to $8.0 million for the year ended
December 31, 1995. The increase resulted primarily from the 1996 Acquired
Properties, which added $4.6 million of rental revenue in 1996. Rental revenue
from the Properties owned since January 1, 1995 ("Same Properties") increased
by $370,000, or 5%. Of this increase, $320,000 resulted from a full year of
rental income in 1996 resulting from the increase in occupancy at 11099 North
Torrey Pines Road during 1995.
Tenant recoveries increased by $2.5 million, or 147%, to $4.2 million for
1996 compared to $1.7 million for 1995. The increase resulted primarily from
the 1996 Acquired Properties, which added $2.1 million of tenant recoveries.
Tenant recoveries from the Same Properties increased by $395,000, or 19%. Of
this increase, $300,000 resulted from a new lease at 11099 North Torrey Pines
Road. The remaining increase resulted primarily from a new energy management
system at 10933 North Torrey Pines Road that allows the Company to more
accurately measure and recover from its tenants certain costs of utility
usage.
Other income increased by $359,000, or 176%, to $563,000 for 1996 compared
to $204,000 for 1995. The increase resulted primarily from the 1996 Acquired
Properties, which added $337,000 of other income.
Rental operating expenses increased by $2.2 million, or 100%, to $4.4
million for 1996 compared to $2.2 million for 1995. The increase resulted
primarily from the 1996 Acquired Properties, which added $2.0 million of
rental operating expenses. Rental operating expenses from the Same Properties
increased by $162,000, or 6.7%, primarily as a result of an increase in
expenses at 10933 North Torrey Pines Road.
General and administrative expenses increased by $802,000, or 50%, to $2.4
million for 1996 compared to $1.6 million for 1995. Of this increase,
approximately $438,000 resulted from a one time compensation accrual relating
to a post retirement benefit. The remaining increase resulted primarily from
additional professional fees incurred during 1996.
42
<PAGE>
Interest expense increased by $2.8 million, or 80%, to $6.3 million for 1996
compared to $3.5 million for 1995. The increase resulted primarily from
indebtedness incurred to acquire the 1996 Acquired Properties, which added
$2.3 million of interest expense, and debt outstanding under the Company's
unsecured line of credit, which was repaid in July 1996.
Depreciation and amortization increased by $737,000, or 44%, to $2.4 million
for 1996 compared to $1.7 million for 1995. The increase resulted primarily
from depreciation associated with the 1996 Acquired Properties.
As a result of the foregoing, net income increased by $1.4 million, or 184%,
to $2.2 million for 1996 compared to $761,000 for 1995.
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
Rental revenue increased by $7.2 million, or 862%, to $8.0 million for the
year ended December 31, 1995 compared to $834,000 for the year ended December
31, 1994. The increase resulted primarily from a full year of rental revenue
from the 1994 Acquired Properties.
Tenant recoveries increased by $1.6 million, or 1,853%, to $1.7 million for
1995 compared to $87,000 for 1994. The increase resulted primarily from a full
year of tenant recoveries from the 1994 Acquired Properties.
Other income increased by $114,000, or 127%, to $204,000 for 1995 compared
to $90,000 for 1994. The increase resulted primarily from $56,500 of
additional storage income from the 1994 Acquired Properties and interest
income of $57,000 earned on the Company's cash balances for 1995 not earned
during 1994.
Rental operating expenses increased by $2.0 million, or 784%, to $2.2
million for 1995 compared to $252,000 for 1994. The increase resulted
primarily from a full year of rental operating expenses for the 1994 Acquired
Properties.
General and administrative expenses increased by $592,000, or 58%, to $1.6
million for 1995 compared to $1,016,000 for 1994. The increase resulted
primarily from a full year of general and administrative expenses in 1995
compared to 1994.
Interest expenses increased by $3.2 million, or 983%, to $3.6 million for
1995 compared to $328,000 for 1994. The increase resulted primarily from a
full year of interest expense on outstanding debt in 1995 compared to 1994.
Depreciation and amortization increased by $1.6 million, or 2,548%, to $1.7
million for 1995 compared to $63,000 for 1994. The increase resulted primarily
from a full year of depreciation and amortization from the 1994 Acquired
Properties.
As a result of the foregoing, net income increased by $1.4 million to
$761,000 for 1995 compared to a net loss of $648,000 for 1994.
PRO FORMA RESULTS OF OPERATIONS
Comparison of Pro Forma Year Ended December 31, 1996 to Historical Year Ended
December 31, 1996
For the year ended December 31, 1996, pro forma rental income, rental
operating expenses and depreciation and amortization were higher than the
historical amounts as a result of the Company's ownership in the pro forma
period of the 1996 Acquired Properties and the Acquisition LLC Properties, the
pre-acquisition results of which are not included in the historical financial
data. Additionally, pro forma interest expense was lower by $1,492,000, or
24%, primarily as a result of the elimination of interest on certain mortgage
loans to be repaid with a portion of the proceeds of the Offering. The
increase in general and administrative expenses of $440,000, or 18%, for the
pro forma period, primarily reflects increased costs expected to be incurred
as a result of being a public company, offset by the elimination of costs
associated with the one-time accrual of a post-retirement benefit.
43
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Upon consummation of the Offering and the Formation Transactions, the
Company will repay approximately $77.8 million of its existing mortgage debt
and will replace a portion of this debt with an $8.5 million, 17-year, self-
amortizing mortgage on 1431 Harbor Bay Parkway and a $6.9 million mortgage on
1102 and 1124 Columbia Street. As a result, total secured debt will be reduced
by approximately $62.4 million to $55.3 million, and 11 of the 15 Properties
will be unencumbered. In addition, the Company will have established working
capital reserves of approximately $4.0 million (of which approximately $1
million will be placed in a restricted cash account pursuant to the terms of
certain indebtedness) and capital expenditure cash reserves of approximately
$6.4 million.
Upon consummation of the Offering and the Formation Transactions, the
Company will have outstanding mortgage indebtedness as follows:
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY PLEDGED AS COLLATERAL PRINCIPAL BALANCE INTEREST RATE MATURITY DATE
------------------------------ ----------------- ------------- -------------
<S> <C> <C> <C>
3535/3565 General Atomics
Court
San Diego, CA $18,341,371 9.00% December 2014
1431 Harbor Bay Parkway
Alameda, CA 8,500,000 7.20% May 2014
1102/1124 Columbia Street
Seattle, WA 21,603,352 7.75% May 2011
1102/1124 Columbia Street
Seattle, WA 6,860,000 7.60% July 2016
-----------
Total $55,304,723
===========
</TABLE>
The expected principal payments due on the outstanding indebtedness in 1997
and 1998 are $979,000 and $1,507,000, respectively.
The Company believes that the substantial reduction in its overall debt, and
the corresponding reduction in required debt service payments, should provide
the Company with increased financial flexibility to take advantage of
acquisition opportunities as well as to provide working capital for
retenanting and releasing costs and for payment of leasing commissions
associated with new leasing activity.
Although cash from operations required to fund interest expense will
decrease substantially as a result of the Company's reduction in overall debt,
such reduction will be offset by an increased use of cash from operations to
meet annual REIT distribution requirements. The Company expects to make
distributions and to pay amortization of principal and interest on its debt
from cash available for distribution, which is expected to exceed cash
historically available for distribution as a result of the reduction in
overall debt described above. Amounts accumulated for distribution will be
invested by the Company primarily in interest-bearing accounts and other
short-term, interest-bearing securities that are consistent with the Company's
qualification for taxation as a REIT.
The Company expects to meet its short-term liquidity requirements generally
through its initial working capital and net cash provided by operations. The
Company believes that its net cash provided by operations will be sufficient
to allow the Company to make distributions necessary to enable the Company to
continue to qualify as a REIT. The Company also believes that the foregoing
sources of liquidity will be sufficient to fund its short-term liquidity needs
for the foreseeable future, including recurring non-revenue enhancing capital
expenditures, tenant improvements, leasing commissions, and principal
amortization on existing indebtedness.
The Company expects to meet certain long-term liquidity requirements, such
as property acquisitions, scheduled debt maturities, renovations, expansions
and other non-recurring capital improvements, through long-
44
<PAGE>
term secured and unsecured indebtedness and the issuance of additional equity
securities. The Company anticipates that only a portion of the principal
outstanding under its outstanding indebtedness will be amortized prior to
maturity and that the Company will not have sufficient funds on hand to repay
such indebtedness at maturity. As a result, it will be necessary for the
Company to refinance such debt either through additional debt financing
secured by individual properties or groups of properties, by unsecured private
or public debt offerings or by additional equity offerings. See "Risk
Factors--Real Estate Financing Risks." The Company's debt will mature at
various dates through 2017.
The Company is currently negotiating the $100 million unsecured Credit
Facility, which the Company expects to enter into upon consummation of the
Offering and the Formation Transactions. It is expected that loans outstanding
under the Credit Facility will bear interest based on the LIBOR rate or the
bank's base rate, at the Company's option, plus an applicable margin. The
Credit Facility will also be subject to customary conditions to closing and to
borrowing, and will contain representations and warranties and defaults
customary in REIT financings. The Credit Facility is expected to contain
financial covenants, including requirements for a minimum tangible net worth,
maximum liabilities to asset values, and minimum interest, unsecured interest
and fixed charge coverage ratios (all as to be defined in the Credit
Facility), as well as requirements to maintain a pool of unencumbered
properties approved by the lenders and meeting certain defined
characteristics. The Credit Facility is also expected to contain restrictions
on, among other things, indebtedness, investments, distributions, liens and
mergers. There can be no assurance that the Company will be able to enter into
the Credit Facility on terms satisfactory to it. The Credit Facility is
expected to be used primarily to finance acquisitions and capital improvements
on an interim basis.
The Phase I environmental assessments of the Properties have not revealed
any environmental liabilities that the Company believes would have a material
adverse effect on the Company's financial condition or results of operations
taken as a whole, nor is the Company aware of any such material environmental
liabilities. See "Risk Factors--Possible Environmental Liabilities" and "The
Properties--Environmental Matters."
HISTORICAL CASH FLOWS
The Company's principal sources of funding for operations and capital
expenditures have been cash flows from operating activities, private stock
offerings and secured debt financings. The Company had net income for the
years ended December 31, 1996 and 1995, and had a net loss for the year ended
December 31, 1994.
Net cash provided by operating activities decreased by $2.0 million to a
deficit of $1.6 million for 1996 compared to net cash of $355,000 for 1995.
The decrease resulted primarily from loan fees associated with additional
financing and additional restricted cash reserves required by a tenant of one
of the 1996 Acquired Properties. Net cash provided by operating activities
increased by $1.4 million to $355,000 for 1995 compared to a deficit of $1.0
million for 1994. The increase resulted from a full year of operations for the
1994 Acquired Properties.
Net cash used in investing activities increased by $93.3 million to $94.9
million for 1996 compared to net cash used in investing activities of $1.6
million for 1995. The increase resulted primarily from the 1996 Acquired
Properties. Net cash used in investing activities decreased by $28.4 million
to $1.6 million for 1995 compared to $29.9 million for 1994. The decrease
resulted from the fact that no properties were acquired in 1995.
Cash provided by financing activities increased by $96.4 million to $97.3
million for 1996 compared to $927,000 for 1995. The increase resulted
primarily from net borrowings of $80 million during 1996 compared to $2.3
million in 1995. In addition, the Company received net proceeds of $24.1
million from the issuance of mandatorily redeemable preferred stock in 1996.
Cash provided by financing activities decreased $31.2 million to $927,000 for
1995 compared to $32.1 million for 1994. This decrease resulted primarily from
borrowings incurred in 1994 in connection with the 1994 Acquired Properties.
45
<PAGE>
FUNDS FROM OPERATIONS
FFO increased by $2.6 million, or 106.6%, to $5.0 million for 1996 compared
to $2.4 million for 1995. Pro forma FFO was $19.6 million for 1996. The
following reconciliation of net income to FFO illustrates the difference
between the two measures of operating performance:
<TABLE>
<CAPTION>
PRO FORMA FOR HISTORICAL
THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31,
(UNAUDITED) 1996 1995
----------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income............................ $11,056 $ 2,175 $ 761
Add:
One-time accrual of a post-retire-
ment benefit....................... -- 438 --
Stock grant compensation expense as-
sociated with stock grants to offi-
cers and directors in connection
with the Offering.................. 3,515 -- --
Depreciation and amortization of
Properties, improvements and
leasing costs...................... 4,996 2,405 1,668
------- --------- ---------
FFO................................... $19,567 $ 5,018 $ 2,429
======= ========= =========
</TABLE>
INFLATION
Approximately 80% of the Company's leases (on a square footage basis) are
triple net leases, requiring the tenants to pay substantially all real estate
taxes and insurance, common area and other operating expenses (including
increases thereto). In addition, 65% of the Company's leases (on a square
footage basis) provide for fixed base rent escalations ranging from 2.5% to 5%
annually or indexed escalations based on a CPI or other index. Accordingly,
the Company does not believe that its earnings or cash flow are subject to any
significant risk of inflation. An increase in inflation, however, could result
in an increase in the Company's variable rate borrowing cost on existing
borrowings and on future financing. See "Risk Factors--Real Estate Financing
Risks." The Credit Facility is expected to bear interest at a variable rate.
46
<PAGE>
THE PROPERTIES
GENERAL
The Properties range in size from approximately 30,000 to 250,000 square
feet, are built to accommodate single or multiple tenants and are generally
one or two story concrete tilt-up or block and steel frame structures. The
exteriors typically resemble traditional suburban office properties, but
interior infrastructures are enhanced to accommodate the needs of Life Science
Industry tenants. Such improvements typically are generic to Life Science
Industry tenants rather than specific to a particular tenant. As a result,
management believes that the improvements have long-term value and utility and
are readily usable by a wide range of Life Science Industry tenants. Generic
infrastructure improvements for each Property include: reinforced concrete
floors, upgraded roof loading capacity and increased floor to ceiling heights;
heavy duty HVAC systems and advanced environmental control technology;
significantly upgraded electrical, gas and plumbing infrastructure; and
laboratory benches and workstations.
Upon consummation of the Offering and the Formation Transactions, the
Company will own 15 high quality, strategically located Life Science
Facilities containing approximately 1.5 million rentable square feet of office
and laboratory space in four markets: the San Diego area, the San Francisco
Bay area, Seattle and suburban Washington, D.C. The average age of the
Properties is six years, and all have been built or substantially renovated
since 1984. As of March 1, 1997, the Properties were approximately 98% leased.
Leases in the Company's multi-tenant buildings typically have terms of three
to seven years, while the single-tenant building leases typically have terms
of 10-20 years. Approximately 80% of the Company's leases (on a square footage
basis) are triple net leases, requiring the tenant to pay substantially all
real estate taxes and insurance, common area and other operating expenses
(including increases thereto) in addition to base rent. The remaining leases
are gross leases, pursuant to which tenants generally pay for substantially
all real estate taxes and insurance, common area and other operating expenses
above those for an established base year. Approximately 65% of the Company's
leases (on a square footage basis) contain escalations that are typically
either fixed contractual rent escalations ranging from 2.5% to 5% annually or
indexed escalations based on a CPI or other index. In addition, approximately
82% of the Company's leases (on a square footage basis) provide for the
recapture of certain non-revenue enhancing capital expenditures (including
roof replacements, parking lot resurfacing and HVAC systems maintenance
expenditures), which the Company believes would typically be borne by the
landlord under traditional office leases. The leases also typically give the
Company the right to review and approve tenant alterations to the property.
Generally, tenant-installed improvements remain the property of the Company
after termination of the lease. However, the Company is permitted under the
terms of most of its leases to require that the tenant remove such
improvements and restore the premises to their original condition.
The Company manages 11 of its Properties, and the balance are managed by the
tenant or by property management firms. All material decisions with respect to
the Properties, however, are made by the Company.
47
<PAGE>
The following table sets forth certain information with respect to the
Properties:
<TABLE>
<CAPTION>
ANNUALIZED ANNUALIZED
PERCENTAGE OF BASE NET EFFECTIVE
AGGREGATE RENT PER RENT PER
RENTABLE APPROXIMATE ANNUALIZED PORTFOLIO LEASED LEASED
YEAR BUILT/ SQUARE PERCENTAGE PERCENTAGE BASE RENT ANNUALIZED SQUARE SQUARE
PROPERTIES RENOVATED (1) FEET LAB SPACE LEASED (2) (3) BASE RENT FOOT (3) FOOT (4)
- ---------- ------------- --------- ----------- ---------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
San Diego
- ---------
10933 North Torrey 1971/1994 108,133 71% 100% $ 2,309,136 8.4% $21.35 $15.25
Pines Road
San Diego, CA
11099 North Torrey 1986/1996 86,962 71 100 2,214,804 8.1 25.47 23.62
Pines Road
San Diego, CA
3535 General Atomics 1991 76,084 77 100 2,554,464 9.3 33.57 32.70
Court
San Diego, CA
3565 General Atomics 1991 43,600 80 100 1,526,952 5.6 35.02 35.02
Court
San Diego, CA
San Francisco Bay Area
- ----------------------
1311 Harbor Bay 1984 30,000 17 30(7) 148,752 0.5 16.48 16.48
Parkway
Alameda, CA
1401 Harbor Bay 1986/1994 47,777 50 100 519,144 1.9 10.87 10.87
Parkway
Alameda, CA
1431 Harbor Bay 1985/1994 70,000 50 100 1,414,116 5.2 20.20 12.86
Parkway
Alameda, CA
Seattle, Washington
- -------------------
1102/1124 Columbia 1975/1997 213,397 64 100 4,846,872 17.7 22.71 22.53
Street
Seattle, WA
Suburban Washington,
- --------------------
D.C.
----
300 Professional Drive 1989 48,440 23 100 669,732 2.4 13.83 13.83
Gaithersburg, MD
401 Professional Drive 1987 62,739 75 100 1,038,588 3.8 16.55 16.55
Gaithersburg, MD
25/35/45 West Watkins 1989 138,938 39 93 1,740,996 6.4 13.51 13.51
Mill Road
Gaithersburg, MD
1413 Research 1967/1996 105,000 75 100 1,563,456 5.7 14.89 13.29
Boulevard
Rockville, MD
1550 East Gude Drive 1981/1995 44,500 40 100 610,548 2.2 13.72 13.72
Rockville, MD (10)
1330 Piccard Drive 1978/1995 131,511 75 100 1,903,656 6.9 14.48 14.48
Rockville, MD (10)
14225 Newbrook Drive 1992 248,186 60 100 4,340,256 15.8 17.49 17.49
Chantilly, VA (10)
--------- --- --- ----------- ----- ------ ------
Total/Weighted Average 1,455,267 61% 98% $27,401,472 100.0% $19.24 $18.11
(12):
========= === === =========== ===== ====== ======
<CAPTION>
PROPERTIES MAJOR TENANTS
- ---------- -------------------------
<S> <C>
San Diego
- ---------
10933 North Torrey The Scripps Research
Pines Road Institute
San Diego, CA
Advanced Tissue
Sciences, Inc.
11099 North Torrey Agouron
Pines Road Pharmaceuticals, Inc.
San Diego, CA
Sidney Kimmel
Cancer Center
Sequana Therapeutics,
Inc.
3535 General Atomics The Scripps Research
Court Institute
San Diego, CA
R.W. Johnson
Research Institute (5)
Syntro Corporation (6)
3565 General Atomics Agouron
Court Pharmaceuticals, Inc.
San Diego, CA
San Francisco Bay Area
- ----------------------
1311 Harbor Bay Chiron Corporation
Parkway
Alameda, CA
1401 Harbor Bay Chiron Diagnostics
Parkway
Alameda, CA
1431 Harbor Bay FDA
Parkway
Alameda, CA
Seattle, Washington
- -------------------
1102/1124 Columbia Fred Hutchinson Cancer
Street Research Center
Seattle, WA
Corixa Corporation
Swedish Medical
Center
Suburban Washington,
- --------------------
D.C.
----
300 Professional Drive Mobile Telesystems,
Gaithersburg, MD Inc.
Antex Biologics Inc.
401 Professional Drive Gillette Capital
Gaithersburg, MD Corporation (8)
25/35/45 West Watkins Genetic Therapy, Inc. (9)
Mill Road MedImmune, Inc.
Gaithersburg, MD
1413 Research U.S. Army Corps of
Boulevard Engineers
Rockville, MD
1550 East Gude Drive Quest Diagnostics,
Rockville, MD (10) Inc. (11)
1330 Piccard Drive PerImmune, Inc.
Rockville, MD (10)
14225 Newbrook Drive American Medical
Chantilly, VA (10) Laboratories, Inc.
Total/Weighted Average
(12):
</TABLE>
48
<PAGE>
- --------
(1) Includes year in which construction was completed and, where applicable,
year of most recent major renovation.
(2) Based on all leases at the respective Property in effect as of March 1,
1997.
(3) Annualized Base Rent means the annualized fixed base rental amount
(determined in accordance with GAAP) in effect as of March 1, 1997. In
the case of triple net leases, Annualized Base Rent does not include real
estate taxes and insurance, common area and other operating expenses,
substantially all of which are borne by the tenants. This amount, divided
by the rentable square feet leased at the Property as of March 1, 1997,
is the Annualized Base Rent per Leased Square Foot.
(4) Annualized Net Effective Rent is the Annualized Base Rent in effect as of
March 1, 1997, less (for gross leases) real estate taxes and insurance,
common area and other operating expenses and (for all leases) amortized
tenant improvements and leasing commissions. This amount, divided by the
rentable square feet leased at the Property as of March 1, 1997, is the
Annualized Net Effective Rent per Leased Square Foot.
(5) The R.W. Johnson Research Institute is a wholly owned subsidiary of
Johnson & Johnson.
(6) Syntro Corporation is a wholly owned subsidiary of Mallinckrodt, Inc.
(7) Vacancy represents 20,973 square feet that was vacant at the time of
acquisition in December 1996. The Company is in lease negotiations with
respect to all of the vacant space.
(8) Gillette Capital Corporation is a wholly owned subsidiary of The Gillette
Company.
(9) Genetic Therapy, Inc. is a wholly owned subsidiary of Novartis AG.
(10) These Properties are to be acquired in connection with the acquisition of
the Acquisition LLC upon consummation of the Offering and the Formation
Transactions. See "Formation and Structure."
(11) Quest Diagnostics, Inc. subleases its space to Shire Laboratory, Inc., a
wholly owned subsidiary of Shire Pharmaceuticals Group p.l.c.
(12) Weighted Average based on a percentage of aggregate leased square feet.
LOCATION AND TYPE OF SPACE
The following table sets forth, as of March 1, 1997, the space within the
Properties by rentable square footage in each of the Company's existing
markets.
LOCATION AND TYPE OF SPACE OF PROPERTIES
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE PERCENTAGE
LABORATORY OFFICE TOTAL OF TOTAL
RENTABLE RENTABLE RENTABLE RENTABLE
SQUARE SQUARE SQUARE SQUARE
GEOGRAPHIC AREA FOOTAGE FOOTAGE FOOTAGE FOOTAGE
--------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
San Diego.................... 231,825 82,954 314,779 21.6%
San Francisco Bay Area....... 63,958 83,819 147,777 10.2%
Seattle...................... 136,588 76,809 213,397 14.7%
Suburban Washington, D.C..... 457,130 322,184 779,314 53.5%
------- ------- --------- -----
Total...................... 889,501 565,766 1,455,267 100.0%
======= ======= ========= =====
Percentage of Total
Rentable Square Footage... 61.1% 38.9% 100.0%
======= ======= =========
</TABLE>
49
<PAGE>
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for leases in
effect at the Properties as of March 1, 1997, through the year 2016. The table
assumes that no tenants exercise renewal options or termination rights.
SCHEDULED LEASE EXPIRATIONS
<TABLE>
<CAPTION>
APPROXIMATE
RENTABLE SQUARE PERCENTAGE OF TOTAL ANNUALIZED BASE PERCENTAGE OF
NUMBER FOOTAGE SUBJECT RENTABLE SQUARE FOOTAGE RENT UNDER TOTAL ANNUALIZED BASE
YEAR OF OF LEASES TO EXPIRING REPRESENTED EXPIRING RENT REPRESENTED
LEASE EXPIRATION EXPIRING LEASES(1) BY EXPIRING LEASES LEASES ($000)(2) BY EXPIRING LEASES(3)
- ---------------- --------- --------------- ----------------------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
1997(4)................. 1 2,200 0.2% $ 47 0.2%
1998.................... 4 105,700 7.3 2,585 9.4
1999.................... 7 195,800 13.5 3,724 13.6
2000.................... 5 171,800 11.8 3,805 13.9
2001.................... 5 195,500 13.4 4,222 15.4
2002.................... 0 -- -- -- --
2003.................... 2 35,300 2.4 410 1.5
2004(5)................. 2 70,000 4.8 1,584 5.8
2005.................... 1 64,000 4.4 1,187 4.3
2006.................... 2 134,000 9.2 2,179 8.0
2007.................... 1 131,500 9.0 1,904 6.9
2014(6)................. 1 70,000 4.8 1,414 5.2
2015.................... 0 -- -- -- --
2016.................... 1 248,200 17.1 4,340 15.8
--- --------- ---- ------- -----
Total................. 32 1,424,000(7) 97.9% $27,401 100.0%
=== ========= ==== ======= =====
</TABLE>
- --------
(1) Excludes rentable square footage for expiring lease where the space has
been re-leased to new tenants. Such space is included in the year of the
new lease's expiration.
(2) Annualized Base Rent means the annualized fixed base rental amount
(determined in accordance with GAAP) in effect as of March 1, 1997. In the
case of triple net leases, Annualized Base Rent does not include real
estate taxes and insurance, common area and other operating expenses,
substantially all of which are borne by the tenants.
(3) Calculated by dividing Annualized Base Rent for the respective year of
lease expiration by the total Annualized Base Rent.
(4) The Company's lease with E. Heller & Company is the only lease
contractually expiring in 1997. The Company is negotiating with E. Heller
& Company to extend its lease to 2002 and to expand its space from 2,200
square feet to approximately 8,000 square feet.
(5) The Company's leases with the Fred Hutchinson Cancer Research Center,
covering 70,089 square feet at 1102/1124 Columbia Street, were recently
extended to 2004. The Fred Hutchinson Cancer Research Center, however, has
the right to terminate the leases at any time after November 30, 1999 upon
12 months prior written notice.
(6) No leases are subject to expiration in the years 2008 to 2013, inclusive.
(7) Excludes 31,046 square feet of vacant space, as of March 1, 1997.
50
<PAGE>
TENANTS
The Properties are leased to tenants engaged in a variety of activities in
the Life Science Industry. The following table sets forth information regarding
the Company's leases with its 20 largest tenants based upon Annualized Base
Rent as of March 1, 1997.
20 LARGEST TENANTS
<TABLE>
<CAPTION>
REMAINING PERCENTAGE OF PERCENTAGE OF
INITIAL APPROXIMATE AGGREGATE AGGREGATE PERCENTAGE OF
NUMBER LEASE TERM AGGREGATE LEASED ANNUALIZED PORTFOLIO ANNUALIZED NET AGGREGATE
OF IN RENTABLE SQUARE BASE RENT ANNUALIZED EFFECTIVE RENT PORTFOLIO NET
TENANT LEASES YEARS SQUARE FEET FEET (IN THOUSANDS)(1) BASE RENT (IN THOUSANDS)(2) EFFECTIVE RENT
------ ------ ---------- ----------- ------------- ----------------- ------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American
Medical
Laboratories,
Inc. ........... 1 19.9 248,200 17.4% $ 4,340 15.8% $ 4,340 16.8%
Fred Hutchinson
Cancer
Research
Center(3)....... 2 2.8 159,200 11.2 3,552 13.0 3,552 13.8
7.8
Agouron
Pharmaceuticals,
Inc............. 2 4.7 68,100 4.8 2,254 8.2 2,195 8.5
3.7
PerImmune, Inc... 1 9.9 131,500 9.2 1,904 6.9 1,904 7.4
Advanced Tissue
Sciences, Inc. . 2 3.6 84,500 5.9 1,721 6.3 1,222 4.7
U.S. Army Corps
of Engineers(4). 1 2.3 105,000 7.4 1,563 5.7 1,396 5.4
4.7
FDA.............. 1 16.9 70,000 4.9 1,414 5.2 900 3.5
R.W. Johnson
Pharmaceutical
Research
Institute....... 1 2.0 45,000 3.2 1,379 5.0 1,312 5.1
The Scripps
Research
Institute....... 3 3.4 41,900 2.9 1,334 4.9 1,173 4.5
2.7
Sequana
Therapeutics,
Inc............. 1 4.9 52,600 3.7 1,193 4.4 1,136 4.4
Corixa
Corporation..... 2 1.7 37,600 2.6 1,187 4.3 1,148 4.5
7.9
MedImmune, Inc... 1 9.6 71,200 5.0 1,140 4.2 1,140 4.4
Gillette Capital
Corporation..... 1 9.2 62,700 4.4 1,039 3.8 1,039 4.0
Quest
Diagnostics,
Inc............. 1 3.2 44,500 3.1 611 2.2 611 2.4
Chiron
Diagnostics..... 1 2.9 47,800 3.4 519 1.9 519 2.0
Syntro
Corporation..... 1 2.9 12,800 0.9 430 1.6 430 1.7
Mobile
Telesystems,
Inc............. 1 1.9 33,400 2.3 410 1.5 410 1.6
Antex Biologics,
Inc............. 1 2.0 15,100 1.1 259 0.9 259 1.0
Genetic Therapy,
Inc............. 1 6.5 20,600 1.4 229 0.8 229 0.9
Photo Science,
Inc............. 1 6.4 14,800 1.0 182 0.7 182 0.7
--- ---- --------- ---- ------- ---- ------- ----
Total/Weighted
Average(5)..... 25 9.9 1,366,500 95.8% $26,660 97.3% $25,097 97.3%
=== ==== ========= ==== ======= ==== ======= ====
</TABLE>
- -------
(1) Annualized Base Rent means the annualized fixed base rental amount
(determined in accordance with GAAP) in effect as of March 1, 1997 paid by
tenants under the terms of their leases. In the case of triple net leases,
Annualized Base Rent does not include real estate taxes and insurance,
common area and other operating expenses, substantially all of which are
borne by the tenants.
(2) Annualized Net Effective Rent is the Annualized Base Rent in effect as of
March 1, 1997, less (for gross leases) real estate taxes and insurance,
common area and other operating expenses and (for all leases) amortized
tenant improvements and leasing commissions.
(3) The Company's leases with the Fred Hutchinson Cancer Research Center,
covering 70,089 square feet at 1102/1124 Columbia Street, were recently
extended to 2004. The Fred Hutchinson Cancer Research Center, however, has
the right to terminate the leases at any time after November 30, 1999 upon
12 months prior written notice.
(4) Of the 105,000 rentable square feet at 1413 Research Boulevard, leases with
respect to 30,000 square feet are subject to expiration in 1999 and leases
with respect to 75,000 rentable square feet are subject to expiration in
2001.
(5) Weighted Average based on percentage of aggregate leased square feet.
51
<PAGE>
PROPERTY DESCRIPTIONS
CALIFORNIA
San Diego
10933 North Torrey Pines Road is located in the Torrey Pines Science Park in
San Diego, California. The Property consists of approximately 108,000 rentable
square feet of office and laboratory space, with extended frontage along North
Torrey Pines Road. The Property, built in 1971 and substantially renovated in
1989 and 1994, is fully leased to two tenants: The Scripps Research Institute,
one of the nation's largest non-profit biomedical research institutes, and
Advanced Tissue Sciences, Inc., a publicly traded company focusing on the
development and sale of artificial tissue products. The Company acquired this
Property in October 1994 and installed new HVAC and computerized energy
management systems in May 1995. These upgrades have enabled the Company to
measure more accurately and recover from each tenant certain costs of utility
usage that previously were not recoverable.
The Property is situated on approximately 16 acres of land. The Company has
the right to develop and construct up to an additional 163,000 square feet of
office and laboratory space on this parcel. The Company has applied for
extension of conditional approvals from the City of San Diego and the
California Coastal Commission for such development. The approvals are
conditioned upon, among other things, the completion of certain off-site
roadway and utility improvements and the submission of acceptable grading and
building plans. The Company intends to maximize the site's value by developing
build-to-suit facilities for specific tenants and to enter into long-term
triple net leases with such tenants prior to construction. The Company
believes that it has a competitive advantage in completing a build-to-suit
project because of its low cost basis in the land and the superior North
Torrey Pines Road location.
11099 North Torrey Pines Road is located in the Torrey Pines Science Park in
San Diego, California. This two-story "L"-shaped Property, consisting of
approximately 87,000 rentable square feet of office and laboratory space, has
three levels of subterranean parking, garage storage, a 5,000 square foot
central enclosed atrium and exterior patio terraces. The project was completed
in 1986 and acquired by the Company in October 1994. The Property has
benefitted from over $4.0 million of tenant-financed generic infrastructure
improvements and is fully leased to the following tenants: Agouron
Pharmaceuticals, Inc., a publicly traded company focusing on the development
and sale of synthetic drugs for viral, cancer and immuno-inflammatory
diseases; Sequana Therapeutics, Inc., a publicly traded company focusing on
the development of diagnostic and therapeutic products utilizing gene
discovery technology; and Cytel Corporation, a publicly traded company
focusing on therapeutics to treat acute and inflammatory diseases.
3535 General Atomics Court is a two-story facility with approximately 76,000
rentable square feet of office and laboratory space. The Property was built in
1991 and is located in the Torrey Pines area of San Diego, California. The
exterior consists of reflective glass and concrete and is situated over a
single level of subterranean parking. The building has a direct fiber-optic
linkup with the supercomputer center located at the University of California
at San Diego. The Property is fully leased to three tenants: The Scripps
Research Institute, The R.W. Johnson Pharmaceutical Research Institute (a
wholly owned research subsidiary of Johnson & Johnson) and Syntro Corporation
(a wholly owned subsidiary of Mallinckrodt, Inc.). The Company acquired this
property in December 1994.
3565 General Atomics Court contains approximately 44,000 rentable square
feet of office and laboratory space and is located in the Torrey Pines area of
San Diego, California. The two-story reflective glass and concrete building is
situated over a single level of subterranean parking. The building has a
direct fiber-optic linkup with the supercomputer center located at the
University of California at San Diego. This single tenant Property is the
principal research facility of Agouron Pharmaceuticals, Inc. The Property was
built in 1991 and acquired by the Company in December 1994.
52
<PAGE>
San Francisco Bay Area
1311 Harbor Bay Parkway, located in Alameda, California, was developed in
1984 and 1985 and contains approximately 30,000 rentable square feet of office
and laboratory space. The building's exterior is finished with clay tile
veneer over concrete tilt-up shear walls, with gray solar glass windows. The
Company has a lease with Chiron Corporation covering approximately 6,800
square feet, and a lease with E. Heller & Company covering approximately 2,200
square feet. The Company is negotiating with E. Heller & Company to lease
approximately 6,000 square feet of additional space and is negotiating with
other potential tenants with respect to the remaining available space. The
Company acquired this Property in December 1996.
1401 Harbor Bay Parkway, located in Alameda, California, was developed in
1986 and acquired by the Company in December 1996. The Property consists of
approximately 48,000 rentable square feet of office and laboratory space. The
Property is constructed of concrete tilt-up shear walls with structural steel
framework and is fully leased to Chiron Diagnostics, a wholly owned subsidiary
of Chiron Corporation.
1431 Harbor Bay Parkway, located in Alameda, California, was developed in
1985 with significant renovations completed in 1989 and 1994. The building
consists of approximately 70,000 rentable square feet of office and laboratory
space. The Property is constructed of concrete tilt-up shear walls with
structural steel framework and is fully leased to the FDA under a lease with
the General Services Administration. The Company acquired the Property in
December 1996.
SEATTLE, WASHINGTON
1102 and 1124 Columbia Street, located in Seattle, Washington, consists of
two inter-connecting buildings with an aggregate of approximately 214,000
rentable square feet. Built in 1975, the seven story Columbia Building (1124
Columbia Street) is a main research facility of the Fred Hutchinson Cancer
Research Center, a leading non-profit cancer research institute. The Property
also includes a three-level subterranean annex that serves as a research
facility and the six-story Eklind Hall Building (1102 Columbia Street) that
contains additional office and laboratory space. In addition to the Fred
Hutchinson Cancer Research Center, the Property is leased to Corixa
Corporation, a privately held company focusing on the development of cancer
vaccines, and Swedish Medical Center. The Company acquired the Property in May
1996.
SUBURBAN WASHINGTON, D.C.
300 Professional Drive contains approximately 48,000 rentable square feet of
office and laboratory space in a master-planned business park in Gaithersburg,
Maryland. This two-story brick veneer building with solar-reflective glass
windows was built in 1989. The building's design allows for ground-level
access to both floors and contains a split-level lobby. The Property is fully
leased to Mobile Telesystems, Inc., a privately held portable satellite
communications company, and Antex Biologics Inc., a publicly traded company
focusing on research of vaccines for infectious diseases. The Company acquired
the Property in September 1996.
401 Professional Drive is a two-story building containing approximately
63,000 rentable square feet of office and laboratory space in Gaithersburg,
Maryland. The Property is fully leased to The Gillette Capital Corporation, a
wholly owned subsidiary of The Gillette Company, and houses Gillette's
principal personal care products testing facility. The Company acquired this
Property in September 1996.
25, 35 and 45 West Watkins Mill Road is a three-building, single-story
office and laboratory complex located in a master-planned business park known
as the Bennington Corporate Center in Gaithersburg, Maryland. Consisting of
approximately 139,000 rentable square feet, the Property was completed in
January 1989 and acquired by the Company in October 1996. The brick veneer
buildings with black reflective glass windows are constructed of structural
steel framework with concrete slab flooring. The facility is leased to five
tenants, including Genetic Therapy, Inc., a wholly owned subsidiary of
Novartis AG, a multi-national Swiss
53
<PAGE>
pharmaceutical company, and MedImmune, Inc., a publicly traded company
specializing in vaccines for infectious diseases.
1413 Research Boulevard consists of 105,000 rentable square feet of office
and laboratory office. This two-building complex was built in two phases in
1967 and 1973, and is located in Rockville, Maryland. The Company acquired
this Property in July 1996. The Property is fully leased to the U.S. Army
Corps of Engineers for the Walter Reed Army Institute of Research and the
Armed Forces Institute of Pathology. A $2.6 million renovation project
recently was completed in 1996 with funds provided by the U.S. Army Corps of
Engineers to renovate 45,000 square feet of the complex.
1550 East Gude Drive, consisting of 44,500 rentable square feet, is located
in Rockville Maryland. The two-story brick and masonry building was built in
1981 and underwent a complete interior renovation in 1995. The first floor
contains primarily laboratory space designed within an open space
configuration, and the entire second floor is devoted to office space. The
Property is fully leased to Quest Diagnostics, Inc., a subsidiary of Corning,
Inc. that has subleased the Property to Shire Laboratory, Inc., a wholly owned
subsidiary of Shire Pharmaceuticals Group p.l.c., focusing on the development
of advanced drug delivery systems. The Acquisition LLC acquired this property
in January 1997.
1330 Piccard Drive, located in Rockville, Maryland, consists of
approximately 131,000 rentable square feet of office and laboratory space. The
Property was built in two phases in 1978 and 1984, and was acquired by the
Acquisition LLC in January 1997. PerImmune, Inc., a privately held company
focusing on diagnostic and therapeutic applications for cancer and other
diseases, leases the Property.
14225 Newbrook Drive, located in Chantilly, Virginia, was developed by
American Medical Laboratories, Inc. ("AML"), a regional clinical laboratory,
in 1992. The Acquisition LLC acquired the Property from AML through a sale-
leaseback transaction in January 1997 pursuant to which AML will continue to
occupy the Property under a 20-year lease. The approximately 248,000 rentable
square foot complex consists of two buildings connected by a 10,000 square
foot, two-story open atrium lobby. Building 1, consisting of approximately
162,000 rentable square feet of office and laboratory space, also contains a
fully licensed day care center and a 24,288 square foot central plant housing
the Property's utility distribution system. Building 2 currently consists of
approximately 50,000 rentable square feet of office space and is designed to
accommodate three additional floors or up to approximately 50,000 square feet
of additional office and laboratory space.
COMPETITION
The Company competes for investment opportunities with various entities,
including insurance companies, pension and investment funds, partnerships,
developers and other REITs. Many of these entities have substantially greater
financial resources than the Company. These entities generally may be able to
accept more risk than the Company can prudently manage, including risks with
respect to the creditworthiness of a tenant or the geographic proximity of its
investments. Competition generally may reduce the number of suitable
investment opportunities offered to the Company or increase the bargaining
power of property owners seeking to sell. Management believes, however, that
the Company will be the first publicly traded entity focusing primarily on the
acquisition, management, expansion and selective development of Life Science
Facilities and that it will be one of the nation's largest real estate
companies specializing in this property type.
INSURANCE
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to the Properties, with policy
specifications, insured limits and deductibles that the Company believes are
consistent with those customarily carried for similar properties. The Company
has also obtained environmental remediation insurance for its Properties. The
insurance, subject to certain exclusions and deductibles, covers the cost to
remediate environmental damage caused by unintentional future spills or the
historic presence of previously undiscovered hazardous substances. The Company
intends to carry similar insurance with respect to
54
<PAGE>
future acquisitions as appropriate. In addition, the Company requires its
tenants to maintain comprehensive insurance, including liability and casualty
insurance, that is customarily obtained for similar properties. There are,
however, certain types of losses that are not generally insured because they
are either uninsurable or not economically insurable. In addition, certain
disaster-type insurance (covering catastrophic events, such as earthquakes)
may not be available or may only be available at rates that, in the opinion of
management of the Company, are prohibitive. Many of the Properties are located
in the vicinity of potentially active earthquake faults. The Company has
obtained earthquake insurance for all of the Properties. Should an uninsured
disaster or a loss in excess of insured limits occur, including a loss
resulting from earthquake or other seismic activity, the Company could lose
its capital invested in the affected properties, as well as the anticipated
future revenues from such properties, and would continue to be obligated on
any mortgage indebtedness or other obligations related to the properties. Any
such loss could adversely affect the Company and its ability to make
distributions to stockholders. See "Risk Factors--Uninsured Loss." Management
believes that the Properties are currently adequately insured.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws and regulations, a
current or previous owner or operator of real estate, as well as certain other
parties, may be required to investigate and remediate the effects of hazardous
or toxic substances or petroleum product releases on, under, in or from such
property, and may be held liable to a governmental entity or to third parties
for investigation and cleanup costs and certain damages resulting from such
releases. Such laws and regulations typically impose responsibility and
liability without regard to whether such person knew of or caused the
releases, and the liability under such laws and regulations has been
interpreted to be joint and several, unless the harm is divisible and there is
a reasonable basis for allocation of responsibility. The cost of investigating
and remediating such contamination may be substantial, and the presence of
such contamination, or the failure to properly remediate it, may adversely
affect the owner's ability to sell or rent such property or to borrow using
such property as collateral. In addition, the owner of a site may be subject
to governmental fines and common law claims by third parties seeking to
recover damages and costs resulting from such contamination.
Certain other federal, state and local laws and regulations govern the
management and disposal of ACMs. Such laws and regulations may impose
liability for the release of ACMs and may provide for third parties to seek
recovery from owners or operators of such property for personal injury
associated with ACMs. In connection with the ownership and operation of its
properties, the Company may be potentially liable for such costs. ACMs have
been detected at certain of the Properties, but are not expected to result in
material environmental costs or liabilities to the Company.
Federal, state and local laws and regulations also require the removal or
upgrading of certain underground storage tanks and regulate the discharge of
storm water, wastewater and any water pollutants, the emission of air
pollutants, the generation, management and disposal of hazardous or toxic
chemicals, substances or wastes, and workplace health and safety. Life Science
Industry tenants, including certain of the Company's tenants, engage in
various research and development activities involving the controlled use of
hazardous materials, chemicals, biological and radioactive compounds. Although
the Company believes that the tenants' activities involving such materials
comply in all material respects with applicable laws and regulations, the risk
of contamination or injury from these materials cannot be completely
eliminated. In the event of such contamination or injury, the Company could be
held liable for any damages that result, and any such liability could exceed
the Company's resources and its environmental remediation coverage. See "Risk
Factors--Lack of Industry Diversification; Reliance on Life Science Industry
Tenants."
The Company's leases generally provide that (i) the tenant is responsible
for all environmental liabilities relating to the tenant's operations, (ii)
the Company is indemnified for such liabilities and (iii) the tenant must
comply with all environmental laws and regulations. Such a contractual
arrangement, however, does not eliminate the Company's statutory liability or
preclude claims against the Company by governmental authorities or persons who
are not parties to such an arrangement. Noncompliance with environmental or
health and safety
55
<PAGE>
requirements may also result in the need to cease or alter operations at a
property, which could affect the financial health of a tenant and its ability
to make lease payments. In addition, if there is a violation of such a
requirement in connection with a tenant's operations, it is possible that the
Company, as the owner of the property, could be held accountable by
governmental authorities for such violation and could be required to correct
the violation and pay related fines.
All of the Properties have been, and it is contemplated that all future
acquisitions will be, subjected to a Phase I or similar environmental
assessment (which generally includes a site inspection, interviews and a
records review, but no subsurface sampling). These assessments and certain
follow-up investigations of the Properties have not revealed any environmental
liability that the Company believes would have a material adverse effect on
the Company's business. Nevertheless, it is possible that the assessments on
the Properties have not revealed, or that the assessments on future
acquisitions will not reveal, all environmental liabilities and that there may
be material environmental liabilities of which the Company is unaware.
The Company believes that the Properties are in compliance in all material
respects with applicable environmental laws. No assurances can be given,
however, that (i) the Company will not incur material liability under current
or future environmental laws and regulations, or (ii) the current
environmental condition of the Properties will not be adversely affected by
tenant operations or by environmental conditions in the vicinity of such
Properties. See "Risk Factors--Possible Environmental Liabilities."
LEGAL PROCEEDINGS
To the Company's knowledge, no litigation is pending against the Company,
other than routine actions and administrative proceedings, substantially all
of which are expected to be covered by liability insurance or which, in the
aggregate, are not expected to have a material adverse effect on the business
or financial condition of the Company.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Board of
Directors and generally may be amended or revised from time to time by the
Board of Directors without a vote of the stockholders, except that (i) the
Company may not enter into certain extraordinary transactions without the
approval of a majority of the stockholders (see "Risk Factors--Influence of
Certain Stockholders" and "Description of Capital Stock--Common Stock") and
(ii) changes in certain policies with respect to conflicts of interest must be
consistent with legal requirements.
INVESTMENT POLICIES
Investment in Real Estate or Interests in Real Estate. The Company's
investment objectives are to provide quarterly cash distributions and to
achieve long-term capital appreciation through increases in cash flows and the
value of the Properties and future acquisitions. For a discussion of the
Properties and the Company's acquisition and other strategic objectives, see
"The Company" and "The Properties."
The Company intends to pursue its investment objectives primarily through
the ownership of the Properties and other Life Science Facilities. The Company
also may expand and improve the Properties and future acquisitions or sell
such properties, in whole or in part, when circumstances warrant. Under
circumstances in which the investment returns to the Company justify the
expense, the Company also may undertake selective development of Life Science
Facilities. Although the Company intends to focus its activities on Life
Science Facilities in its target markets, future activity is not limited to
any geographic area or product type or to a specified percentage of the
Company's assets. There is no limit on the amount or percentage of the
Company's assets that may be invested in any one property or any one
geographic area. The Company intends to engage in such activities in a manner
consistent with the maintenance of its status as a REIT for federal income tax
purposes.
56
<PAGE>
The Company also may participate with third parties in property ownership
through joint ventures or other types of co-ownership. Such investments may
permit the Company to own interests in larger assets without unduly
restricting diversification and, therefore, add flexibility in structuring its
portfolio. Equity investments may be subject to existing mortgage financing
and other indebtedness or such financing or indebtedness as may be incurred in
connection with acquiring or refinancing these investments. Debt service with
respect to such financing or indebtedness will have priority over any
distributions with respect to capital stock. The Company intends to make
investments in such a way that it will not be treated as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act").
Investments in Real Estate Mortgages. Although the Company's current
portfolio consists of, and the Company's business objectives emphasize, equity
investments in Life Science Facilities, the Company may, in the discretion of
the Board of Directors, invest in mortgages and other types of equity real
estate interests consistent with the Company's qualification as a REIT.
Investments in real estate mortgages run the risk that one or more borrowers
may default under such mortgages and that the collateral securing such
mortgages may not be sufficient to enable the Company to recoup its full
investment. The Company may also retain a purchase money mortgage for a
portion of the sale price in connection with the disposition of a property
from time to time.
Investments in Securities or Interests in Persons Primarily Engaged in Real
Estate Activities and Other Issuers. Although the Company has no present
intention to do so, it also may invest in securities of other REITs, other
entities engaged in real estate activities, or securities of other issuers
(including for the purpose of exercising control over such entities), subject
to the percentage of ownership limitations, limitations on ownership of
certain types of assets, and the gross income tests necessary for REIT
qualification. See "Certain Federal Income Tax Considerations--Taxation of the
Company."
DISPOSITION POLICY
Management will periodically review the assets comprising the Company's
portfolio. The Company has no current intention to dispose of any of the
Properties, although it reserves the right to do so. Disposition decisions
relating to the Company's assets will be made based upon several factors,
including but not limited to: (i) the potential for continuing increases in
cash flow and value, (ii) the sale price, (iii) the strategic fit of the
properties with the Company's portfolio, (iv) the potential for, or the
existence of, any environmental or regulatory issues, (v) alternative uses of
capital, (vi) maintaining qualification as a REIT, and (vii) other tax-related
considerations. See "Certain Federal Income Tax Considerations--Taxation of
the Company."
FINANCING POLICIES
The Company intends to make additional investments in Life Science
Facilities and may incur indebtedness to make such investments or to meet the
distribution requirements imposed by the REIT provisions of the Code to the
extent that cash flows from the Company's investments and working capital is
insufficient. The Company has adopted a policy to limit its total consolidated
indebtedness so that at the time any debt is incurred, the Company's debt to
total market capitalization ratio does not exceed 50%. Upon consummation of
the Offering and the Formation Transactions, the Company's debt to total
market capitalization ratio will be approximately 19.6%. The Company's Charter
and Bylaws, however, do not limit the amount or percentage of indebtedness
that the Company may incur. The Company may, from time to time, modify its
debt policy in light of current economic conditions, relative costs of debt
and equity capital, market values of its properties, general conditions in the
market for debt and equity securities, fluctuations in the market price of the
Common Stock, growth and acquisition opportunities, the Company's continued
REIT qualification requirements and other factors. Accordingly, the Company
may increase or decrease its debt to total market capitalization ratio beyond
the limits described above. If these policies were changed, the Company could
become more highly leveraged, resulting in an increased risk of default on its
obligations and a related increase in debt service requirements that could
adversely affect the Company's financial condition and its ability to make
distributions to stockholders. See "Risk Factors--Changes in Policies Without
Stockholder Approval" and "--No Limitation on Debt."
57
<PAGE>
The Company has established its debt policy relative to the total market
capitalization of the Company computed at the time debt is incurred, rather
than relative to the book value of its assets. The Company believes that the
book value of its assets (which to a large extent is the depreciated value of
real property, the Company's primary tangible asset) does not accurately
reflect its ability to borrow and to meet debt service requirements and that a
debt to total market capitalization ratio, therefore, provides a more
appropriate indication of leverage. A debt to total market capitalization
ratio, however, is based, in part, upon the aggregate market value of the
outstanding shares of Common Stock and will fluctuate with changes in the
price of the Common Stock (and the issuance of additional shares of Common
Stock). Accordingly, because the measurement of the Company's total
consolidated indebtedness to total market capitalization is made at the time
debt is incurred, the debt to total market capitalization ratio could later
exceed the 50% level.
To the extent that the Board of Directors desires to obtain additional
capital, the Company may raise such capital through additional public and
private equity offerings, debt financings, retention of cash flow (subject to
satisfying the Company's distribution requirements under the REIT provisions
of the Code) or a combination of these methods. The Company's debt may consist
of a combination of property level debt and corporate level debt, and
financing may consist of floating and/or fixed rate debt. Borrowings may be
unsecured or secured by any or all of the assets of the Company and may have
full or limited recourse to all or any portion of the assets of the Company.
Indebtedness may be in the form of bank borrowings, purchase money obligations
to sellers of properties, publicly or privately placed debt instruments or
financing from institutional investors or other lenders. The proceeds from any
borrowings by the Company may be used (subject to limitations which may be
contained in the instruments governing such indebtedness) to pay
distributions, to provide working capital, to pay existing indebtedness or to
finance acquisitions, expansions or selective development of new properties.
The Company has not established any limit on the number or amount of mortgages
that may be placed on any single property or on its portfolio.
CONFLICT OF INTEREST POLICIES
The Company has entered into agreements with Messrs. Sudarsky, Marcus, Gold,
Stone and Kreitzer, and intends to enter into a similar agreement with Mr.
Nelson, designed to eliminate or minimize potential conflicts of interests.
The respective agreements prohibit each of them from engaging in any activity
competitive with the business of the Company during the term of each such
officer's employment agreement with the Company and for any period during
which such officer is entitled to severance benefits thereunder. See
"Management--Employment Agreements." In addition, the Board of Directors is
subject to certain provisions of Maryland law that are designed to eliminate
or minimize certain potential conflicts of interest. There can be no
assurance, however, that these policies will be successful in eliminating the
effects of such conflicts, and if they are not successful, decisions could be
made that might fail to reflect fully the interests of all stockholders.
Pursuant to Maryland law, each director will be subject to restrictions on
misappropriation of corporate opportunities. Generally, a contract or other
transaction between the Company and a director or between the Company and any
other corporation or other entity in which a director of the Company is a
director or has a material financial interest is not void or voidable solely
on the grounds of such interest if (i) the fact of the common directorship is
disclosed or known to the Board of Directors (or committee thereof) or the
stockholders, as applicable, and the contract or transaction is authorized,
approved or ratified by the affirmative vote of a majority of the
disinterested directors or the stockholders, or (ii) the transaction is
established to have been fair and reasonable to the Company. The Company's
Charter provides, however, that directors of the Company who are affiliates of
AEW have no obligation to present to the Company opportunities that may be
pursued by AEW, unless such opportunities were presented to the director in
his capacity as such.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer Common Stock, Preferred Stock or options
to purchase capital stock in exchange for property and to repurchase or
otherwise acquire its Common Stock or other securities in the open
58
<PAGE>
market or otherwise and may engage in such activities in the future. The Board
of Directors, however, has no present intention of causing the Company to
repurchase any capital stock. The Company may issue Preferred Stock from time
to time, in one or more series, as authorized by the Board of Directors
without stockholder approval. See "Description of Capital Stock--Preferred
Stock." The Company has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers nor has the Company
invested in the securities of other issuers for the purposes of exercising
control (other than with respect to the Acquisition LLC and QRS), and does not
intend to do so. The Company has not made any loans to third parties, although
it may in the future make loans to third parties, including, without
limitation, to joint ventures in which it participates. The Company intends to
make investments in such a manner as to maintain its qualification as a REIT,
unless because of circumstances or changes in the Code (or the Treasury
Regulations), the Board of Directors determines that it is no longer in the
best interest of the Company to qualify as a REIT.
The Company will be required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). In addition to applicable legal or NYSE requirements, if any,
holders of shares of Common Stock will receive annual reports containing
audited financial statements with a report thereon by the Company's
independent certified public accountants.
FORMATION AND STRUCTURE
FORMATION AND RELATED TRANSACTIONS
Formation. Holdings filed its Articles of Incorporation in the State of
Maryland on September 30, 1993 and was capitalized in January 1994. On October
27, 1994, Alexandria filed its Articles of Incorporation in the State of
Maryland. In connection with the formation of Alexandria, Holdings contributed
substantially all of its assets and liabilities to Alexandria in exchange for
all of the issued and outstanding shares of Common Stock. On September 6,
1996, QRS filed its Articles of Incorporation in the State of Maryland. In
connection with the formation of QRS, Alexandria contributed 1413 Research
Boulevard in Rockville, Maryland to QRS in exchange for all of the issued and
outstanding shares of common stock of QRS.
Stock Split. Prior to the effectiveness of the Registration Statement, each
then outstanding share of Common Stock will be split into approximately
shares of Common Stock (the "Stock Split"). As a result, Holdings will
directly own approximately shares of Common Stock, representing
approximately % of the shares of Common Stock to be outstanding upon
consummation of the Offering and the Formation Transactions.
Conversion of Series U Preferred Stock. In January 1996, Alexandria issued
220 shares of Series U Preferred Stock to 126 holders, including certain
officers and directors of the Company, in order to meet certain REIT
requirements of the Code. Upon the effectiveness of the Registration
Statement, the outstanding shares of Series U Preferred Stock will be
converted into an aggregate of approximately 7,100 shares of Common Stock,
representing 0.1% of the shares of Common Stock to be outstanding upon
consummation of the Offering and the Formation Transactions.
Conversion of Series V Preferred Stock. In 1996, Alexandria issued 27,500
shares of Series V Preferred Stock to AEW in a series of transactions.
Pursuant to the terms of the Series V Preferred Stock, the Company will notify
AEW that it intends to (i) convert one-half of the outstanding shares of
Series V Preferred Stock into shares of Common Stock and (ii) redeem the
remaining shares of Series V Preferred Stock for cash. Notwithstanding the
option of the Company to effectuate the foregoing conversion and redemption,
AEW may elect, within 15 days of receipt of the above-specified notice from
the Company, to convert all of its shares of Series V Preferred Stock into
shares of Common Stock. Assuming AEW elects to convert all of the outstanding
shares of Series V Preferred Stock into shares of Common Stock, AEW will
directly own approximately shares of Common Stock, representing % of the
shares of Common Stock to be outstanding upon consummation of the Offering and
the Formation Transactions.
59
<PAGE>
Purchase of the Acquisition LLC. Pursuant to the terms of the Agreement for
Sale and Purchase of Membership Interests (the "LLC Agreement") entered into
between certain affiliates of PaineWebber and the Company on January 13, 1997,
the Company assigned its rights to purchase the Acquisition LLC Properties to
the Acquisition LLC, which is controlled by PaineWebber Real Estate Holdings
Inc. and PW Realty Partners, LLC (the "PW Affiliates"). Thereafter, the
Acquisition LLC acquired the Acquisition LLC Properties. In connection with
the Offering, the Company will acquire 100% of the membership interests in the
Acquisition LLC from the PW Affiliates. Thereafter, the Company expects that
Alexandria will hold a 99% non-managing interest in the Acquisition LLC, and
QRS will hold a 1% managing interest therein. As a result of the acquisition
of the Acquisition LLC, the Company will acquire the Properties located at
1550 East Gude Drive, Rockville, Maryland, 1330 Piccard Drive, Rockville,
Maryland and 14225 Newbrook Drive, Chantilly, Virginia (the "Acquisition LLC
Properties").
The purchase price of the membership interests in the Acquisition LLC will
equal the original purchase price of the Acquisition LLC Properties, plus a
minimum return and a percentage of the aggregate fair market value (as
defined) of the Acquisition LLC Properties on the date of purchase of the
Acquisition LLC by the Company in excess of the original purchase price. The
Company currently anticipates that the purchase price for the membership
interest in the Acquisition LLC will be approximately $62.9 million. The terms
of the LLC Agreement, including the purchase price, were determined through
arm's-length negotiations, and none of the Continuing Investors has any direct
or indirect interest in the Acquisition LLC or the Properties owned thereby.
BENEFITS TO RELATED PARTIES
Accretion in Value. As a result of the Offering and the Formation
Transactions, Holdings, the officers and directors of the Company directly,
and AEW will realize an immediate accretion in the net tangible book value of
their investment in Alexandria of $ , $ and $ per share of Common Stock,
respectively, representing an aggregate accretion of $6.01 per share of Common
Stock for the Continuing Investors as a group.
Stock Grants and Stock Options. In connection with the Offering, officers
and directors of the Company will be issued an aggregate of shares of
Common Stock. In addition, in connection with the Offering, such officers and
directors will be granted options to purchase shares of Common Stock under
the 1996 Plan in substitution for previously granted Holdings Stock Options.
Such options will be exercised in connection with the Offering at a nominal
exercise price, and thereafter no further stock options will be issued under
the 1996 Plan. Upon consummation of the Offering and the Formation
Transactions, the officers and directors of the Company will directly own
approximately shares of Common Stock, representing % of the shares of
Common Stock to be outstanding upon consummation of the Offering and the
Formation Transactions. The following table lists the number of shares to be
issued to officers and directors of the Company and the number of shares
issuable upon exercise of stock options under the 1996 Plan.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK ISSUABLE
UPON EXERCISE OF
OPTIONS UNDER
SHARES OF COMMON THE 1996 PLAN
NAME STOCK TO BE ISSUED (1)
---- ------------------ ----------------
<S> <C> <C> <C>
Jerry M. Sudarsky....................
Joel S. Marcus.......................
Alan D. Gold.........................
Peter J. Nelson......................
Gary A. Kreitzer.....................
Steven A. Stone......................
Vincent R. Ciruzzi...................
Joseph Elmaleh.......................
Viren Mehta..........................
David M. Petrone.....................
Anthony M. Solomon...................
</TABLE>
- --------
(1) All options issued under the 1996 Plan will be exercised in connection
with the Offering and, thereafter, no further stock options will be issued
under the 1996 Plan.
60
<PAGE>
In connection with the Offering, the Company will grant options to the
following officers and directors of the Company under the 1997 Stock Option
Plan, as follows: Jerry Sudarsky ; Joel Marcus ; Alan Gold ; Peter
Nelson ; Gary Kreitzer ; Steven Stone ; Vincent Ciruzzi ; Joseph
Elmaleh ; Viren Mehta ; David Petrone ; and Anthony Solomon . See
"Management--Benefit Plans."
Related Party Loans and Reimbursements. During 1996, certain stockholders of
Holdings, including Jacobs Engineering Group, Inc., Southern Shipping &
Energy, Inc., Joseph Jacobs, Jerry Sudarsky, Joseph Flom and Joseph Elmaleh,
loaned in the aggregate $2.5 million to Holdings. Such loans mature on June
30, 1997, bear interest at the rate of 10% per annum, and are payable in
monthly installments. The proceeds from such loans were subsequently advanced
to the Company for general working capital purposes. Holdings will receive
$2.5 million from the proceeds of the Offering as repayment of the advance to
the Company and will use the proceeds thereof to repay the loans from the
stockholders of Holdings. See "Use of Proceeds."
Upon consummation of the Offering and the Formation Transactions, Bernardo
Capital, Inc. (a corporation of which Messrs. Gold, Kreitzer and Stone are
stockholders) will receive approximately $517,000 from Holdings as
reimbursement for certain expenses, including accrued salaries and benefits
paid to each of Messrs. Gold, Kreitzer and Stone, incurred in connection with
the formation of Holdings in 1993. Bernardo Capital, Inc. has had no active
operations since January 1994.
Benefits to Lead Managing Underwriter. PaineWebber will receive certain
benefits in connection with the Offering in addition to underwriting discounts
and commissions, and a fee for structural and advisory services. Certain
affiliates of PaineWebber will receive $44.4 million of the net proceeds as
repayment of amounts outstanding under the PaineWebber Facility and are
expected to receive approximately $62.9 million as consideration for the
acquisition of the Acquisition LLC. See "Use of Proceeds," "--Formation and
Related Transactions" and "Underwriting."
61
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company, as well as certain of its
senior management.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jerry M. Sudarsky........ 78 Chairman of the Board
Joel S. Marcus........... 49 Chief Executive Officer, Secretary and Director
Alan D. Gold............. 36 President and Director
Peter J. Nelson.......... 39 Chief Financial Officer and Treasurer
(as of April 3, 1997)
Gary A. Kreitzer......... 42 Senior Vice President and In-House Counsel
Steven A. Stone.......... 35 Corporate Vice President
Vincent R. Ciruzzi....... 34 Vice President
Joseph Elmaleh........... 58 Director
Viren Mehta.............. 47 Director
David M. Petrone......... 52 Director
Anthony M. Solomon....... 77 Director
</TABLE>
JERRY M. SUDARSKY has served as the Company's Chairman of the Board of
Directors since its inception. Mr. Sudarsky also served as Chief Executive
Officer of the Company from its inception until March 1997. Mr. Sudarsky
served as Vice Chairman of Jacobs Engineering Group, Inc., an engineering and
construction firm, from 1986 to 1994. Mr. Sudarsky has had extensive
experience in the design, engineering, construction and operation of
commercial properties, including Life Science Facilities. In 1967,
Mr. Sudarsky founded and became Chairman of Israel Chemicals, where he served
until 1972, and in 1946, he founded Bioferm Corp., a pioneer in the production
of Vitamin B12 and the first commercial bio-insecticide products, where he
served until 1965.
JOEL S. MARCUS was appointed the Company's Chief Executive Officer in March
1997 and also has served as the Company's Secretary and as a director since
inception. Mr. Marcus previously served as the Company's Vice Chairman of the
Board and Chief Operating Officer from its inception until his appointment as
Chief Executive Officer in March 1997. Mr. Marcus was a partner in the law
firm of Brobeck, Phleger & Harrison, and a predecessor firm, from 1986 to
1994, specializing in corporate finance and acquisitions. From 1984 to 1994,
he also served as General Counsel and Secretary of Kirin-Amgen, Inc., a joint
venture that financed the development of two genetically engineered
pharmaceuticals. Mr. Marcus has served on the Board of Directors of Ariad
Pharmaceuticals, a publicly traded biotechnology company, since 1995. Mr.
Marcus was formerly a practicing Certified Public Accountant specializing in
the financing and taxation of real estate, including REITs. Mr. Marcus has a
broad-based network of working relationships in the real estate and Life
Science industries. He received his undergraduate and Juris Doctor Degrees
from the University of California at Los Angeles and is a member of NAREIT.
ALAN D. GOLD has served as President and a director of the Company since its
inception and will serve as Treasurer until April 1, 1997. Mr. Gold has served
as managing partner of GoldStone Real Estate Finance and Investments, a
partnership engaged in the real estate and mortgage business, since 1989. The
partnership ceased active operations in January 1994. He also served as
Assistant Vice President of Commercial Real Estate for Northland Financial
Company, a full service commercial property mortgage banker, from 1989 to 1990
and as Real Estate Investment Officer-Commercial Real Estate for John Burnham
Company, a regional full service real estate company, from 1985 to 1989. Mr.
Gold received his Bachelor of Science Degree in Business Administration and
his Master of Business Administration with an emphasis in real estate finance
from San Diego State University.
62
<PAGE>
PETER J. NELSON will serve as the Chief Financial Officer, Treasurer and
Secretary of the Company, effective April 3, 1997. Prior to joining the
Company, from 1995 to 1997, Mr. Nelson served as Chief Financial Officer of
Lennar Partners, Inc., a homebuilder and real estate company, where he was
responsible for the financial management of the firm's real estate portfolio.
From 1990 to 1995, Mr. Nelson was Chief Financial Officer of Westrec
Properties, Inc., a large owner and operator of boat marinas in the United
States. Mr. Nelson also served as Vice President, Corporate Financial Planning
at Public Storage, Inc. from 1986 to 1990, and as an Audit Manager at Ernst &
Young LLP from 1979 to 1986. Mr. Nelson is a Certified Public Accountant and a
member of the American Institute of CPAs and the California Society of CPAs
where he serves on the Real Estate Committee. Mr. Nelson received his Bachelor
of Science Degree from California State University.
GARY A. KREITZER has served as Senior Vice President and In-House Counsel of
the Company since its inception. From 1990 to 1994, Mr. Kreitzer was In-House
Counsel and Vice President for Seawest Energy Corporation, an alternative
energy facilities development company. Mr. Kreitzer also served as In-House
Counsel, Secretary and Vice President for The Christiana Companies, Inc., a
publicly traded investment and real estate development company from 1982 to
1989. Mr. Kreitzer received his Juris Doctor Degree, with honors, from the
University of San Francisco and a Bachelor of Arts Degree in economics from
the University of California, San Diego. Mr. Kreitzer is a member of the
California State Bar, the American Bar Association and the American Corporate
Counsel Association.
STEVEN A. STONE has served as Corporate Vice President of the Company since
its inception. Since 1989, Mr. Stone has served as a partner in GoldStone Real
Estate Finance and Investments, which ceased active operations in January
1994. Mr. Stone served as Asset Manager for Baldwin Industrial Properties,
Ltd., a commercial real estate developer, from 1986 to 1989, Assistant to Vice
President-Business and Real Estate Development at Grant General Contractors
from 1986 to 1989, and Appraiser for the Bank of America from 1983 to 1984.
Mr. Stone holds a Bachelor of Science Degree in Business Administration from
San Diego State University.
VINCENT R. CIRUZZI has served as a Vice President of the Company since
September 1996. In 1993, Mr. Ciruzzi founded a real estate consulting
business, which provided consulting services to the Company from September
1995 until his appointment as Vice President. Mr. Ciruzzi served as Project
Manager for Home Capital Development Corporation, a real estate development
company, from 1986 to 1993, where he specialized in project management of
master planned communities as well as real estate development. Mr. Ciruzzi
received his Bachelor of Science Degree in Finance and Real Estate from the
University of Southern California.
JOSEPH ELMALEH has served as a director of the Company since its inception.
Dr. Elmaleh is a chemical engineer and international financier, with
businesses in the United States, Europe and the Middle East. Dr. Elmaleh has
been a director of Panatech Research and Development Inc., a manufacturer of
tips for spray guns, since 1980. He served as Chairman and Chief Executive
Officer of Passport Ltd., an oil and gas and real estate company, from 1989 to
1995 and of J.O.E.L. Ltd., an oil and gas and real estate company, from 1981
to 1995. Dr. Elmaleh also served as Chairman, Chief Executive Officer and a
director of Isramco, Inc., a publicly traded oil and gas exploration company,
from 1981 to 1996. Dr. Elmaleh received his Bachelor of Science Degree in
chemical engineering from the Technion-Israel Institute of Technology and his
Doctorate in Operations Research from the Imperial College of Science and
Technology, London.
VIREN MEHTA has served as a director of the Company since January 1995.
Since 1989, Mr. Mehta has been a partner of Mehta and Isaly, a pharmaceutical
and biotechnology industry advisory and investment firm. Mr. Mehta served as a
Vice President at S.G. Warburg & Co., Inc., a merchant bank, from 1987 to
1989. In 1986, he established the pharmaceutical investment research division
in Wood MacKenzie & Company Inc., New York, of which he became a Vice
President and served until 1987. Mr. Mehta also worked with the international
division of Merck & Co., a pharmaceutical manufacturer, from 1983 to 1986. Mr.
Mehta received his Doctor of Pharmacy Degree from the University of Southern
California and his Master of Business Administration from the University of
California at Los Angeles.
63
<PAGE>
DAVID M. PETRONE has served as a director of the Company since its
inception. Mr. Petrone has been Chairman of the Board of Housing Capital
Corporation, a real estate finance company, since 1994. From 1986 until 1992,
Mr. Petrone was Vice Chairman of the Board of Wells Fargo and Company. Mr.
Petrone also served as Chief Executive Officer and President of Wells Fargo
Realty Advisors from 1978 to 1981 and of Wells Fargo Mortgage and Equity
Trust, a publicly held REIT, from 1981 to 1988. Mr. Petrone has served as a
director of Jacobs Engineering Group, Inc. since 1986 and of Spieker
Properties, a publicly held REIT, since 1993. He received his Bachelor of
Science and Master of Business Administration Degrees from the University of
Oregon.
ANTHONY M. SOLOMON has served as a director of the Company since October
1994. Mr. Solomon is an economist and banker and has served as Chairman of The
Blackstone Alternate Asset Management Advisory Board since 1994. Mr. Solomon
also has served as Chairman of The Europe Fund, a closed end fund investing in
Europe since 1990 and of The United Kingdom Fund, a closed end fund investing
in the United Kingdom since 1987. Mr. Solomon has served as an economic
advisor to the Banca Comerciale Italiana since 1985. Mr. Solomon was a
director of S.G. Warburg p.l.c. London from 1985 until 1991 and Chairman of
S.G. Warburg USA from 1985 until 1989. Mr. Solomon also served as President
and Chief Executive Officer of the Federal Reserve Bank of New York from 1980
to 1985 and was Under Secretary of the Treasury from 1977 to 1980. Mr. Solomon
received his Bachelor of Arts Degree in Economics from the University of
Chicago and his Masters Degree in Economics and Public Administration from
Harvard University.
ELECTION OF DIRECTORS AND DIRECTOR COMPENSATION
All directors are elected to hold office until the next annual meeting of
stockholders of the Company and until their successors are duly elected and
qualify. Pursuant to an agreement with the Company, AEW has the right to
include two nominees on the ballot for the election of directors of the
Company, and one nominee on the ballot for the election of directors of QRS,
so long as AEW owns Common Stock representing more than 15% of the voting
securities of the Company, and the right to include one director on the ballot
for the election of directors of the Company so long as AEW owns Common Stock
representing more than 7% of such securities. Holdings has agreed to vote its
shares of Common Stock for such nominees included on the ballot for the
election of directors of the Company, and the Company has agreed to take all
actions necessary to cause the election of the nominee at QRS. No directors
currently serve on the board of directors of the Company or QRS pursuant to
such arrangement, although AEW may, at its discretion, exercise its right to
include nominees on the ballot in the future. If, at any time, AEW's ownership
of Common Stock represents less than 15% of the voting securities of the
Company, within 10 days of such decrease in ownership, AEW has agreed to cause
one director elected or nominated by it to resign from the Board of Directors
and all committees thereof, and from the board of directors of QRS and all
committees thereof. Upon AEW's ownership of Common Stock decreasing to less
than 7% of the outstanding voting securities of the Company, within 10 days of
such decrease in ownership, AEW shall cause all directors nominated by it
pursuant to this arrangement to resign from the Board of Directors and all
committees thereof. Upon consummation of the Offering and the Formation
Transactions, AEW will own % of the outstanding voting securities of the
Company. See "Formation and Structure--Benefits to Related Parties."
Following the Offering, the Company intends to pay each of its non-employee
directors annual compensation of $12,000 for their services. In addition, each
non-employee director will receive a fee of $1,000 for each meeting of the
Board of Directors attended in person and $500 for attendance at each
telephonic meeting of the Board of Directors, and will be reimbursed for
reasonable expenses incurred to attend director and committee meetings. Non-
employee directors also will be eligible to receive options to purchase Common
Stock as compensation for their service as directors under the 1997 Stock
Option Plan. Officers of the Company who are also directors will not be paid
any fees for services as directors. Prior to the Offering, non-employee
directors received no annual compensation for their services but were entitled
to reimbursement for reasonable expenses incurred to attend director and
committee meetings. Directors of the Company will also receive certain
benefits in connection with the Offering and the Formation Transactions. See
"Formation and Structure."
64
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board currently has two committees, the principal functions of which are
described below. The Board of Directors may, from time to time, establish
other committees, composed of one or more directors, and delegate to such
committees various powers, to the extent permitted by Maryland law.
The Audit Committee, among other things, recommends the firm to be appointed
as independent accountants to audit the Company's financial statements,
discusses the scope and results of the audit with the independent accountants,
reviews with management and the independent accountants the Company's interim
and year-end operating results, considers the adequacy of the internal
accounting controls and audit procedures of the Company and reviews the non-
audit services to be performed by the independent accountants. The members of
the Audit Committee currently are Messrs. Petrone and Elmaleh.
The Compensation Committee has authority to, among other things, renew and
approve salary arrangements, including annual incentive awards, for directors,
officers and other employees of the Company; adopt and amend employment
agreements for officers and other employees of the Company; and administer the
Company's option and other incentive plans. Members of the Compensation
Committee currently include Messrs. Sudarsky and Petrone. Mr. Sudarsky will
resign from the Compensation Committee immediately prior to consummation of
the Offering and a second non-employee director will be appointed to the
Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth, in summary form, the compensation paid by
the Company to its Chief Executive Officer and the four other most highly
compensated executive officers of the Company (the "Named Executive Officers")
for services rendered to the Company in all capacities for the year ended
December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM COMPENSATION
COMPENSATION(1) AWARDS
------------------ ----------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS(2) YEAR SALARY($) BONUS($) OPTIONS (#) COMPENSATION($)
- ------------------------------- ---- --------- -------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
Jerry M. Sudarsky....... 1996 $244,339 -- -- --
Chairman of the Board
Joel S. Marcus.......... 1996 213,797 $100,000 369(3) $6,343(4)
Chief Executive
Officer, Secretary and
Director
Alan D. Gold............ 1996 179,076 $ 65,000 -- $1,510(5)
President and Director
Gary A. Kreitzer........ 1996 127,260 $ 35,000 -- $2,300(6)
Senior Vice President
and In-House Counsel
Steven A. Stone......... 1996 95,260 $ 35,000 -- $1,194(7)
Corporate Vice
President
</TABLE>
- --------
(1) While each of the five named individuals received perquisites or other
personal benefits in the years shown, in accordance with applicable
regulations, the value of these benefits is not indicated because they did
not exceed in the aggregate the lesser of $50,000 or 10% of the
individual's salary and bonus in any year.
(2) During 1996, Mr. Sudarsky served as Chairman of the Board and Chief
Executive Officer; Mr. Marcus served as Vice Chairman of the Board, Chief
Operating Officer and Secretary; and Mr. Gold served as President,
Treasurer and Director.
(3) In 1996, Holdings granted to Mr. Marcus a non-qualified option under the
1994 Plan to purchase 369 shares of common stock of Holdings exercisable
at $2.55 per share. As of January 28, 1997, the value of the shares of
common stock of Holdings subject to the option was $6.91 per share. In
connection with the Offering, the Company will grant to Mr. Marcus an
option under the 1996 Plan to purchase shares of Common Stock in
substitution for such option, which will be fully vested and exercisable
at a nominal exercise price. Such option will be exercised in connection
with the Offering. See "Formation and Structure--Benefits to Related
Parties."
(4) Consists of $1,540 paid by the Company for term life insurance premiums,
$2,767 for individual disability insurance premiums and $2,036 for long-
term disability insurance premiums.
(5) Consists of $948 paid by the Company for individual disability insurance
premiums and $562 paid by the Company for long-term disability insurance
premiums.
(6) Consists of $1,060 paid by the Company for term life insurance premiums
and $1,240 for long-term disability insurance premiums.
(7) Consists of $820 paid by the Company for term life insurance premiums and
$374 for long-term disability insurance premiums.
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BENEFIT PLANS
1997 Stock Option Plan. The Company expects to adopt a stock option and
incentive plan (the "1997 Stock Option Plan") prior to consummation of the
Offering. The 1997 Stock Option Plan is expected to be administered by the
Compensation Committee of the Board of Directors. The 1997 Stock Option Plan
is expected to provide for the grant of incentive and non-qualified stock
options, stock appreciation rights and restricted stock with respect to
1,030,000 shares of Common Stock. The 1997 Stock Option Plan is also expected
to permit the Compensation Committee to select eligible officers and employees
of the Company to receive awards and to determine certain terms and conditions
of such awards. Options granted to officers and employees under the 1997 Stock
Option Plan are expected to vest pro rata over a three-year period and such
options are expected to be exercisable at a price that is no less than the
market value of such stock on the date of grant. In addition, the 1997 Stock
Option Plan also is expected to provide for the granting of non-qualified
stock options to non-employee directors of the Company, which options will
vest upon the date of grant. In connection with the Offering, the Company
intends to grant options to officers and directors of the Company under the
1997 Stock Option Plan with respect to an aggregate of 650,000 shares of
Common Stock. See "Formation and Structure--Benefits to Related Parties."
1996 Stock Option Plan. Options may be granted under the Company's Amended
and Restated 1996 Stock Option Plan ("1996 Plan") to employees and non-
employee directors of the Company. Options issued under the 1996 Plan may be
either incentive stock options intended to qualify as such under Section 422
of the Code or non-qualified stock options. Recipients of stock options must
enter into a written stock option agreement with the Company. There are
shares of Common Stock reserved for issuance under the 1996 Plan, of which
shares are currently eligible for issuance thereunder. No options or stock
appreciation rights were granted under the 1996 Plan for the year ended
December 31, 1996, and no Named Executive Officer exercised options during
such period. Moreover, as of December 31, 1996, no Named Executive Officer
held unexercised options granted pursuant to the 1996 Plan. Following
consummation of the Offering, no further grants of options will be made under
the 1996 Plan.
Unless otherwise determined by the administrator of the 1996 Plan (the
"Administrator"), options granted to non-employee members of the Board of
Directors are exercisable immediately, and options granted to other eligible
employees may be exercised as follows: 50% of the option shares, one year
following the grant date, 75% of the option shares, two years following the
grant date and 100% of the option shares, three years following the grant
date. The Administrator may waive such installment exercise provisions at any
time based on such factors as the Administrator may determine in its sole
discretion. No stock option is exercisable more than ten years after the date
such stock option is granted.
Any option that is outstanding and not yet fully exercisable under the 1996
Plan shall become fully and immediately exercisable upon (i) the termination
of the employment of the option holder by reason of death or disability or by
the Company without "cause" or by the option holder for "good reason," if and
to the extent that either term is defined in any employment or similar
agreement between the option holder and the Company, (ii) the consummation of
an underwritten initial public offering of Common Stock by the Company or
(iii) a change in control (as defined in the 1996 Plan).
The purchase price for shares issued to an optionee upon exercise of an
option is the price determined by the Administrator at the time of grant and
may not be less than the Fair Market Value (as defined in the 1996 Plan) of
the Common Stock as of the grant date.
Holders of options granted under Holdings' 1994 Stock Option Plan, as
amended, or Holdings' 1994 Stock Option Plan for Non-Employee Directors, as
amended ("Holdings Stock Options"), may be eligible to be
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granted substitute stock options under the 1996 Plan in the event of certain
changes in the capital or corporate structure of the Company or a subsidiary
of the Company, including an initial public offering of the Common Stock.
Substitute stock options will be granted under the 1996 Plan in substitution
for then outstanding Holdings Stock Options to the extent that the
Administrator determines, in its sole discretion, that the grant of substitute
stock options is necessary to provide that holders of Holdings Stock Options
not be deprived of benefits to which they would otherwise have been entitled
had such event or events not occurred. Any grant of a substitute stock option
will be subject to the prior cancellation and surrender of the corresponding
Holdings Stock Option. The terms and conditions of substitute stock options
shall be substantially equivalent to those of the Holdings Stock Options in
respect of which the substitute stock options are granted.
Each substitute stock option will entitle the holder to purchase that number
of shares of Common Stock equal to the product of (i)(a) the fair market value
of a share of Holdings common stock divided by (b) the fair market value of a
share of Common Stock (the "Conversion Ratio") and (ii) the number of shares
of Holdings' common stock subject to such option (rounded to the nearest whole
share). The exercise price of the substitute stock option will be equal to the
per share exercise price of the Holdings Stock Option divided by the
Conversion Ratio (rounded to the nearest cent). The Company intends to grant
substitute stock options under the 1996 Plan in connection with the Offering.
See "Formation and Structure." All of such options will be exercised in
connection with the Offering.
401(k) Plan. The Company adopted its 401(k) Plan (the "401(k) Plan")
effective January 1, 1997. Each employee of the Company may enroll in the
401(k) Plan on such employee's date of hire. An employee actively employed by
the Company is eligible to receive a matching contribution under the 401(k)
Plan. Plan participants are immediately vested in their contributions to the
401(k) Plan and the matching contributions by the Company. The 401(k) Plan
permits each participant to elect to defer up to 15% of base compensation,
subject to the annual statutory limitation prescribed by Section 402(g) of the
Code, on a pre-tax basis. The Company will make matching contributions equal
to 50% of each participant's contribution.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Sudarsky, Marcus,
Gold, Kreitzer and Stone. Mr. Sudarsky's employment agreement provides that
commencing on January 1, 1997 and ending on December 31, 2000, he will serve
as Chairman of the Board of Directors. Through December 31, 1997, Mr. Sudarsky
will be paid a base salary of $240,000 per year. From and after December 31,
1997, Mr. Sudarsky will be paid a base salary of $180,000. Commencing on Mr.
Sudarsky's termination of employment, he will receive an annual retirement
benefit equal to $90,000 for the remainder of his life and his then living
spouse's life.
Mr. Marcus' employment agreement provides that he will serve as the
Company's Chief Executive Officer through December 31, 2000. Mr. Marcus'
employment agreement provides for automatic one-year extensions until either
Mr. Marcus or the Company notifies the other that such party does not wish to
extend the agreement. Mr. Marcus will be paid a base salary of $235,000 per
year.
The employment agreements with each of Messrs. Gold, Kreitzer and Stone
provide for a term ending on December 31, 1998, with provision for automatic
one-year extensions until either the executive or the Company notifies the
other that such party does not wish to extend the agreement. Messrs. Gold,
Kreitzer and Stone are paid a base salary of $190,000, $140,000 and $105,000
per year, respectively.
Each of the employment agreements with Messrs. Sudarsky, Marcus, Gold,
Kreitzer and Stone provides that such executive will be entitled to an annual
bonus and that his base salary will be subject to annual increases, each as
may be determined by the Board of Directors or a committee thereof. With
respect to Messrs. Marcus and Gold, such bonuses are subject to minimums based
on increases in the Company's FFO.
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<PAGE>
The employment agreements with each of Messrs. Sudarsky, Marcus, Gold,
Kreitzer and Stone also provide for standard employee benefits, including,
without limitation, participation in the Company's pension, welfare and stock
incentive plans, to the extent the Company maintains any such plans. In
addition, the employment agreements with each of Messrs. Marcus, Gold, Kreitzer
and Stone provide that the Company will maintain term life insurance on the
life of each executive in the aggregate amount of $1 million.
Each of the employment agreements provides that if the Company terminates the
executive's employment without "cause" or if the executive terminates his
employment for "good reason" (each as defined in the employment agreements),
then such executive shall be entitled to receive a severance payment
("Severance Payment"), payable in monthly installments (except that portion of
the Severance Payment that represents the executive's bonus will be payable on
the dates such amounts would have been paid had such executive continued in the
Company's employment), equal to the sum of his base salary plus bonus otherwise
payable during the remainder of the term of his agreement (the "Severance
Period"), provided, however, that if any of Messrs. Marcus, Gold, Kreitzer or
Stone terminates his employment for "good reason" following a "change in
control" (as defined), then such executive shall be entitled to receive a lump
sum Severance Payment equal to three times the sum of his base salary plus
bonus otherwise payable during the remaining term of the agreement, and if,
following a "change in control," Mr. Sudarsky terminates his employment for
"good reason" or the Company terminates his employment without "cause," then
Mr. Sudarsky shall be entitled to receive a lump sum Severance Payment equal to
three times the sum of his base salary plus bonus otherwise payable during the
remainder of the term. Upon termination by reason of death or disability, each
of Messrs. Sudarsky and Marcus will receive a Severance Payment equal to the
sum of his base salary and bonus otherwise payable during the remaining term of
his agreement. In the event that an executive is entitled to any Severance
Payment, he will also be entitled to full and immediate vesting of all awards
granted under any of the Company's stock option or incentive compensation plans
and continued participation throughout the Severance Period in all employee
welfare and pension benefits plans. In addition, in the event that amounts
payable to executive are subject to the excise tax imposed under Section 4999
of the Code, the Company will provide such executive with a tax "gross up"
payment in an amount sufficient to offset the effects of such excise tax.
The employment agreements with each of Messrs. Sudarsky, Marcus, Gold,
Kreitzer and Stone also provide that during the term of employment, and any
period, if any, which such executive is entitled to receive Severance Payments,
such executive will not engage in any activity competitive with the business of
the Company.
The Company will enter into an employment agreement with Mr. Nelson that will
provide that commencing on April 3, 1997 he will serve as Chief Financial
Officer, Treasurer and Secretary of the Company for a one year term, with
provision for automatic one year extensions until either the executive or the
Company notifies the other that such party does not wish to extend the
agreement. Mr. Nelson will be paid a base salary of $165,000, and will be
entitled to an annual bonus at the discretion of the Compensation Committee. In
addition, Mr. Nelson will be entitled to participate in the Company's medical
plan and the 401(k) Plan. Mr. Nelson's agreement will provide that if he is
terminated for any reason other than "cause" (as defined in the agreement), he
will receive a severance payment, payable in monthly installments, equal to
seven and one-half months of his base salary. Mr. Nelson's agreement will also
provide that during the term of employment, and any period, if any, which he is
entitled to receive Severance Payments, he will not engage in any activity
competitive with the business of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From January 1, 1996 through September 9, 1996, Messrs. Sudarsky, Marcus,
Gold, Petrone, Mehta, Elmaleh and Solomon constituted the Board of Directors of
each of Holdings and Alexandria, and Messrs. Sudarsky, Petrone and Elmaleh
constituted the Compensation Committee of each such entity. From September 9,
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1996 through March 14, 1997, Thomas Eastman and Thomas Nolan also served on
the Board of Directors of Alexandria. In addition, on September 9, 1996, Mr.
Elmaleh resigned from the Compensation Committee of Alexandria, and Mr.
Eastman served thereon until December 5, 1996, at which time he was replaced
by Mr. Nolan, who resigned from the Compensation Committee in March 1997.
Messrs. Sudarsky, Petrone, Elmaleh, Eastman and Nolan each served on the
Compensation Committee during 1996. Mr. Sudarsky also served as Chief
Executive Officer of the Company during 1996. Messrs. Kreitzer and Stone,
executive officers of the Company, serve on the Board of Directors of Bernardo
Capital, Inc. Mr. Gold, an executive officer of Bernardo Capital, Inc., serves
as a director of the Company. See "Formation and Structure--Benefits to
Related Parties."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter of the
Company contains a provision that eliminates such liability to the maximum
extent permitted by the MGCL.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (i) any
present or former director or officer or (ii) any individual who, while a
director of the Company and at the request of the Company, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee from and against any claim or liability to which such person may
become subject or to which such person may incur by reason of his or her
serving as a present or former director or officer of the Company.
The Bylaws obligate the Company, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (i) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (ii) any individual who, while a director of the Company and at
the request of the Company, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee and who is made a party
to the proceeding by reason of his service in that capacity. The Charter and
Bylaws also permit the Company, with the approval of the Board of Directors,
to indemnify and advance expenses to any person who served a predecessor of
the Company in any of the capacities described above and to any employee or
agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (i) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty, (ii) the director or officer actually
received an improper personal benefit in money, property or services or
(iii) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In addition, the
MGCL requires the Company, as a condition to advancing expenses, to obtain a
written affirmation by the director or officer of his good faith belief that
he has met the standard of conduct necessary for indemnification by the
Company as authorized by the Bylaws and a written statement by or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.
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<PAGE>
CERTAIN TRANSACTIONS
Jacobs Engineering Group, Inc., a stockholder of Holdings, subleases space
to the Company in Pasadena, California. The Company paid $3,762 per month plus
expenses to Jacobs Engineering Group, Inc. in 1996 under such sublease. The
term of the sublease expires on October 30, 1997. Jacobs Engineering Group,
Inc. also has, from time to time, provided non-exclusive consulting,
engineering, design and related services to the Company. The Company has not
paid any fees to Jacobs Engineering Group, Inc. for such services. Mr.
Petrone, a director of the Company, is also a director of Jacobs Engineering
Group, Inc.
A partner of Skadden, Arps, Slate, Meagher & Flom LLP owns certain debt and
equity securities of Holdings and will receive $197,500, from Holdings in
connection with the Offering as repayment of certain loans. During 1996, the
Company paid $1.4 million to Skadden, Arps, Slate, Meagher & Flom LLP for
legal services provided to the Company. See "Formation and Structure."
Certain executive officers and directors of the Company (or members of their
immediate families) and persons who will hold more than 5% of the outstanding
shares of Common Stock have direct or indirect interests in the transactions
to be consummated in connection with the Offering. In addition, PaineWebber,
lead managing Underwriter of the Offering, and certain of its affiliates, will
receive certain benefits in connection with the Offering in addition to
underwriting discounts and commissions. See "Formation and Structure,"
"Management--Election of Directors and Executive Compensation," "Shares
Eligible for Future Sale" and "Underwriting."
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SHARE OWNERSHIP
PRINCIPAL STOCKHOLDERS OF ALEXANDRIA
The following table sets forth certain information as of March 14, 1997
regarding the beneficial ownership of the Common Stock with respect to (i) each
director of the Company, (ii) each Named Executive Officer, (iii) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock and (iv) all directors and executive
officers as a group, assuming exercise of all options to purchase shares of
Common Stock to be granted under the 1996 Plan and the issuance of shares
of Common Stock in connection with the Offering. See "Formation and Structure--
Benefits to Related Parties."
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY
NUMBER OF OWNED
SHARES -----------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
- ------------------- ------------ -------- --------
<S> <C> <C> <C>
Jerry M. Sudarsky(2)...........................
Joel S. Marcus(3)..............................
Alan D. Gold(4)................................
Gary A. Kreitzer...............................
Steven A. Stone................................
Joseph Elmaleh(5)..............................
Viren Mehta....................................
David M. Petrone...............................
Anthony M. Solomon.............................
Holdings(6)....................................
AEW Partners II, L.P.
225 Franklin Street
Boston, Massachusetts(7)...................... (8)
Executive officers and directors as a group (11
persons)(9)...................................
</TABLE>
- --------
* less than 1%.
(1) Unless otherwise indicated, the business address of each beneficial owner
is c/o Alexandria Real Estate Equities, Inc., 251 S. Lake Avenue, Suite
700, Pasadena, CA 91101.
(2) Includes shares owned by Holdings, which may be deemed to be
beneficially owned by Mr. Sudarsky.
(3) Includes shares owned by Holdings, which may be deemed to be
beneficially owned by Mr. Marcus.
(4) Includes shares owned by Holdings, which may be deemed to be
beneficially owned by Mr. Gold.
(5) Includes shares owned by Holdings, which may be deemed to be
beneficially owned by Mr. Elmaleh.
(6) Each of Messrs. Sudarsky, Marcus, Gold and Elmaleh is a member of the board
of directors and a stockholder of Holdings. See "--Certain Beneficial
Ownership of Holdings." As a result, each such individual may be deemed to
be the beneficial owner of the shares of Common Stock owned by Holdings. In
addition, Jacobs Engineering Group, Inc. and an affiliate own approximately
26.1% of the outstanding voting securities of Holdings but disclaim
beneficial ownership of the shares of Common Stock owned by Holdings.
(7) Includes 6,666 shares held by AEW Health Science Properties Co-Investment,
L.P., which may be deemed to be beneficially owned by AEW Partners II, L.P.
(8) Assuming conversion of all outstanding shares of Series V Preferred Stock
into shares of Common Stock.
(9) See notes (2) through (9) above.
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<PAGE>
CERTAIN BENEFICIAL OWNERSHIP IN HOLDINGS
The following table sets forth certain information regarding the beneficial
ownership of the Holdings' common stock as of March 14, 1997, with respect to
(i) each director of Alexandria, (ii) each Named Executive Officer and (iii)
all directors and executive officers of Alexandria as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
HOLDINGS' COMMON STOCK PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ---------------- ---------------------- ------------------
<S> <C> <C>
Jerry M. Sudarsky(1)................ 11,340 10.40%
Joel S. Marcus(2)................... 6,626 6.08
Alan D. Gold(3)..................... 10,729 9.84
Gary A. Kreitzer(4)................. 6,012 5.51
Steven A. Stone(5).................. 8,055 7.39
Joe Elmaleh(6)...................... 9,969 9.14
Viren Mehta(7)...................... 500 *
David M. Petrone(8)................. 500 *
Anthony M. Solomon(9)............... 500 *
Executive officers and directors as
a group (11 persons)(10)........... 54,231 48.36%
</TABLE>
- --------
* Less than 1%
(1) Excludes 875 shares issuable upon the exercise of options granted under the
1994 Plan.
(2) Excludes 6,123 shares issuable upon the exercise of options granted under
the 1994 Plan.
(3) Excludes 1,601 shares issuable upon the exercise of options granted under
the 1994 Plan.
(4) Excludes 803 shares issuable upon the exercise of options granted under the
1994 Plan.
(5) Excludes 885 shares issuable upon the exercise of options granted under the
1994 Plan.
(6) Excludes 250 shares issuable upon the exercise of options granted under the
1994 Plan. Includes shares beneficially owned by Southern Shipping and
Energy, Inc., of which Mr. Elmaleh is the Chairman of the Board.
(7) Excludes 250 shares issuable upon the exercise of options granted under the
1994 Plan. Includes 500 shares held by Mehta and Isaly, of which Mr. Mehta
is a partner.
(8) Excludes 250 shares issuable upon the exercise of options granted under the
1994 Plan.
(9) Excludes 250 shares issuable upon the exercise of options granted under the
1994 Plan.
(10) See notes (1) through (9) above.
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DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the stock of the Company existing upon
consummation of the Offering and the Formation Transactions does not purport
to be complete and is subject to and qualified in its entirety by reference to
the Company's Charter and Bylaws, copies of which are exhibits to the
Registration Statement. See "Additional Information."
GENERAL
The Charter provides that the Company may issue up 100,000,000 shares of
Common Stock, 100,000,000 shares of Preferred Stock, 50,000 shares of Series V
Preferred Stock and 200,000,000 shares of Excess Stock (as defined below).
Upon consummation of the Offering and the Formation Transactions, 10,829,634
shares of Common Stock will be issued and outstanding and no shares of
Preferred Stock will be issued and outstanding. See "Formation and Structure."
Under Maryland law, stockholders generally are not liable for a corporation's
debts or obligations.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other class
or series of stock and to the provisions of the Charter regarding the
restrictions on transfer of stock, holders of shares of Common Stock are
entitled to receive dividends on such shares if, as and when authorized and
declared by the Board of Directors out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its stockholders in the event of its liquidation, dissolution
or winding up after payment of or adequate provision for all known debts and
liabilities of the Company.
Subject to the provisions of the Charter regarding the restrictions on
transfer of stock, each outstanding share of Common Stock entitles the holder
thereof to one vote on all matters submitted to a vote of stockholders,
including the election of directors, and, except as provided with respect to
any other class or series of stock, the holders of such shares will possess
the exclusive voting power. There is no cumulative voting in the election of
directors, which means that the holders of a majority of the outstanding
shares of Common Stock can elect all of the directors then standing for
election, and the holders of the remaining shares will not be able to elect
any directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any securities of the Company. Subject to the provisions of the
Charter regarding restriction on transfer of stock, shares of Common Stock
will have equal dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business, unless approved by the affirmative vote of stockholders holding at
least two thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be
cast on the matter) is set forth in the corporation's charter. The Company's
Charter provides for approval of such matters by the affirmative vote of a
majority of all of the votes entitled to be cast thereon.
The Charter authorizes the Board of Directors to reclassify any unissued
shares of Common Stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
PREFERRED STOCK
The Charter authorizes the Board of Directors, without the approval of the
stockholders of the Company, to classify any unissued shares of Preferred
Stock and to reclassify any previously classified but unissued shares of
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<PAGE>
any series, as authorized by the Board of Directors. Prior to issuance of
shares of each series, the Board of Directors is required by the MGCL and the
Charter of the Company to set, subject to the provisions of the Charter
regarding restrictions on transfer of stock, the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Thus, the Board of Directors could authorize
the issuance of shares of Preferred Stock with terms and conditions which
could have the effect of delaying, deferring or preventing a transaction or a
change in control of the Company that might involve a premium price for
holders of Common Stock or otherwise be in their best interest. Upon
consummation of the Offering and the Formation Transactions, there will be no
shares of Preferred Stock outstanding, and the Company has no present plans to
issue any additional shares of Preferred Stock. See "Formation and Structure."
POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock
and to classify or reclassify unissued shares of Common Stock or Preferred
Stock and thereafter to cause the Company to issue such classified or
reclassified shares of stock will provide the Company with increased
flexibility in structuring possible future financing and acquisitions and in
meeting other needs which might arise. The additional classes or series, as
well as the Common Stock, will be available for issuance without further
action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation
system on which the Company's securities may be listed or traded. Although the
Board of Directors has no present intention to do so, it could authorize the
Company to issue a class or series that could, depending upon the terms of
such class or series, delay, defer or prevent a transaction or a change in
control of the Company that might involve a premium price for holders of
Common Stock or otherwise be in their best interest. See "Risk Factors--Anti-
takeover Effect of Ownership Limit and Power to Issue Additional Stock."
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% of
the value of its outstanding stock may be owned, directly or constructively,
by five or fewer individuals or entities (as set forth in the Code) during the
last half of a taxable year (other than the first year for which an election
to be a REIT has been made). Also, shares of its outstanding stock must be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (other than the first year for which an election to
be a REIT has been made) or during a proportionate part of a shorter taxable
year.
In order for the Company to maintain its qualification as a REIT, the
Company's Charter provides for the Ownership Limit, which prohibits, with
certain exceptions, direct or constructive ownership of shares of stock
representing more than 9.8% of the combined total value of outstanding shares
of the Company's stock by any person.
The Board of Directors, in its sole discretion, may waive the Ownership
Limit for any person. However, the Board may not grant such waiver if, after
giving effect to such waiver, five individuals could beneficially own, in the
aggregate, more than 49.9% of the value of the Company's outstanding stock. As
a condition to waiving the Ownership Limit, the Board of Directors may require
a ruling from the IRS or an opinion of counsel in order to determine the
Company's status as a REIT. The Charter excepts Holdings and AEW from the
Ownership Limit. Therefore, Holdings and AEW will be permitted to own in the
aggregate, actually or constructively, % and % of the Common Stock,
respectively.
The Company's Charter further prohibits (a) any person from beneficially or
constructively owning shares of stock of the Company that would result in the
Company being "closely held" under Section 856(h) of the Code and (b) any
person from transferring shares of stock of the Company if such transfer would
result in shares of stock of the Company being owned by fewer than 100
persons. Any transfer in violation of any of such restrictions is void ab
initio. Any person who acquires or attempts to acquire beneficial or
constructive ownership
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of shares of stock of the Company in violation of the foregoing restrictions
on transferability and ownership is required to give notice immediately to the
Company and provide the Company with such other information as the Company may
request in order to determine the effect of such transfer on the Company's
status as a REIT. The foregoing restrictions on transferability and ownership
will not apply if the Board of Directors determines that it is no longer in
the best interests of the Company to attempt to qualify, or to continue to
qualify, as a REIT.
If any transfer of shares of stock of the Company or other event occurs
that, if effective, would result in any person beneficially or constructively
owning shares of stock of the Company in excess or in violation of the above
transfer or ownership limitations (a "Prohibited Owner"), then that number of
shares of stock of the Company the beneficial or constructive ownership of
which otherwise would cause such person to violate such limitations (rounded
to the nearest whole share) shall be automatically exchanged for an equal
number of shares of excess stock (the "Excess Stock") and such shares of
Excess Stock shall be automatically transferred to a trust (the "Trust") for
the exclusive benefit of one or more charitable beneficiaries (the "Charitable
Beneficiary"), and the Prohibited Owner shall generally not acquire any rights
in such shares. Such automatic exchange shall be deemed to be effective as of
the close of business on the business day prior to the date of such violative
transfer. Shares of Excess Stock held in the Trust shall be issued and
outstanding shares of stock of the Company. The Prohibited Owner shall not
benefit economically from ownership of any shares of Excess Stock held in the
Trust, shall have no rights to dividends and shall not possess any rights to
vote or other rights attributable to the shares of Excess Stock held in the
Trust. The trustee of the Trust (the "Trustee") shall have all voting rights
and rights to dividends or other distributions with respect to shares of stock
held in the Trust, which rights shall be exercised for the exclusive benefit
of the Charitable Beneficiary. Any dividend or other distribution paid prior
to the discovery by the Company that shares of stock have been transferred to
the Trustee shall be paid by the recipient of such dividend or distribution to
the Company upon demand, or, at the Company's sole election, shall be offset
against any future dividends or distributions payable to the purported
transferee or holder, and any dividend or distribution authorized but unpaid
shall be rescinded as void ab initio with respect to such shares of stock and
promptly thereafter paid over to the Trustee with respect to such shares of
Excess Stock, as trustee of the Trust for the exclusive benefit of the
Charitable Beneficiary. The Prohibited Owner shall have no voting rights with
respect to shares of Excess Stock held in the Trust and, subject to Maryland
law, effective as of the date that such shares of stock have been transferred
to the Trustee, the Trustee shall have the authority (at the Trustee's sole
discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior
to the discovery by the Company that such shares have been transferred to the
Trustee and (ii) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary. However, if the
Company has already taken irreversible corporate action, then the Trustee
shall not have the authority to rescind and recast such vote.
Within 180 days after the date of the event that resulted in shares of
Excess Stock of the Company being transferred to the Trust (or as soon as
possible thereafter if the Trustee did not learn of such event within such
period), the Trustee shall sell the shares of stock held in the Trust to a
person, designated by the Trustee, whose ownership of the shares will not
violate the ownership limitations set forth in the Charter. Upon such sale,
the interest of the Charitable Beneficiary in the shares sold shall terminate
and such shares of Excess Stock shall be automatically exchanged for an equal
number of shares of the same class or series of stock that originally were
exchanged for the Excess Stock. The Trustee shall distribute to the Prohibited
Owner, as appropriate (i) the price paid by the Prohibited Owner for the
shares, (ii) if the Prohibited Owner did not give value for the shares in
connection with the event causing the shares to be held in the Trust (e.g., a
gift, devise or other such transaction), the Market Price (as defined in the
Charter) of such shares on the day of the event causing the shares to be held
in the Trust, or (iii) if the exchange for Excess Stock did not arise as a
result of a purported transfer, the Market Price of such Shares on the day of
the other event causing the Shares to be held in the Trust. If such shares are
sold by a Prohibited Owner, then to the extent that the Prohibited Owner
received an amount for such shares that exceeds the amount that such
Prohibited Owner was entitled to receive pursuant to the aforementioned
requirement, such excess shall be paid to the Trustee.
All certificates representing shares of Common Stock and Preferred Stock
will bear a legend referring to the restrictions described above.
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Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of
the Company's stock, including shares of Common Stock, within 30 days after
the end of each taxable year, is required to give written notice to the
Company stating the name and address of such owner, the number of shares of
each class and series of stock of the Company which the owner beneficially
owns and a description of the manner in which such shares are held. Each such
owner shall provide to the Company such additional information as the Company
may reasonably request in order to determine the effect, if any, of such
beneficial ownership on the Company's status as a REIT. In addition, each
stockholder shall upon demand be required to provide to the Company such
information as the Company may reasonably request in order to determine the
Company's status as a REIT, to comply with the requirements of any taxing
authority or governmental authority or to determine such compliance, or to
comply with the REIT provisions of the Code.
These ownership limits could delay, defer or prevent a transaction or a
change in control of the Company that might involve a premium price for the
Common Stock or otherwise be in the best interest of the stockholders. See
"Risk Factors--Anti-takeover Effect of Ownership Limit and Power to Issue
Additional Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of the Company does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and the
Charter and Bylaws of the Company, copies of which are exhibits to the
Registration Statement. See "Additional Information."
BOARD OF DIRECTORS
The Company's Bylaws provide that the number of directors of the Company may
be established by the Board of Directors, but may not be fewer than the
minimum number required by the MGCL nor more than 15. Any vacancy will be
filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors must be filled by a
majority of the entire Board of Directors. All directors are elected to hold
office until the next annual meeting of stockholders of the Company and until
their successors are duly elected and qualify. Pursuant to a contractual
arrangement with the Company, AEW has the right to include two nominees on the
ballot for the election of directors of the Company, and one nominee on the
ballot for the election of directors of QRS, so long as AEW owns Common Stock
representing more than 15% of the voting securities of the Company, and the
right to include one director on the ballot for the election of directors of
the Company so long as AEW owns Common Stock representing more than 7% of such
securities. Holdings has agreed to vote its shares of Common Stock for such
nominees included on the ballot for the election of directors of the Company,
and the Company has agreed to take all actions necessary to cause the election
of the nominees at QRS. No directors currently serve on the board of directors
of the Company or QRS pursuant to such arrangement, although AEW may, at its
discretion, exercise its right to include nominees on the ballot in the
future. If, at any time, AEW's ownership of Common Stock represents less than
15% of the voting securities of the Company, within 10 days of such decrease
in ownership, AEW will cause one director elected or nominated by it to resign
from the Board of Directors and all committees thereof, and from the board of
directors of QRS and all committees thereof. Upon AEW's ownership of Common
Stock decreasing to less than 7% of the outstanding voting securities of the
Company, within 10 days of such decrease in ownership, AEW shall cause all
directors nominated by it pursuant to this arrangement to resign from the
Board of Directors and all committees thereof. Upon consummation of the
Offering and the Formation Transactions, AEW will own % of the outstanding
voting securities of the Company. See "Management--Election of Directors and
Director Compensation."
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BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
of such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative
vote of at least (i) 80% of the votes entitled to be cast by holders of
outstanding shares of voting stock of the corporation and (ii) two thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. Pursuant to an act of the Board of Directors, any
business combination between the Company and AEW is exempt from the above-
described provisions of the MGCL. As a result, AEW may be able to enter into
business combinations with the Company that may not be in the best interest of
the stockholders, without compliance by the Company with the supermajority
vote requirements and other provisions of the MGCL.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority, or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
Under Maryland law, a person who has made or proposes to make a control
share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the board of directors of the
corporation to call a special meeting of stockholders to be held within 50
days of demand to consider the voting rights of the shares. If no request for
a meeting is made, the corporation may itself present the question at any
meeting of the stockholders.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a meeting of the
stockholders and the acquiror becomes entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise appraisal rights.
The fair value of the shares as determined for purposes of such appraisal
rights may not be less than the highest price per share paid by the acquiror
in the control share acquisition.
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The control share acquisition statute does not apply (i) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (ii) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
The Bylaws contain a provision exempting from the control share acquisition
statute any acquisition by any person of the Company's shares of stock. There
can be no assurance that such provision will not be amended or eliminated in
the future.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(a) pursuant to the Company's notice of the meeting, (b) by the Board of
Directors or (c) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and
(ii) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders and nominations of persons for election to the Board of
Directors may be made only (a) pursuant to the Company's notice of the
meeting, (b) by the Board of Directors or (c) provided that the Board of
Directors has determined that directors shall be elected at such meeting, by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.
AMENDMENT TO THE CHARTER OR BYLAWS
As permitted by the MGCL, the Charter provides that it may be amended by the
affirmative vote of the holders of a majority of votes entitled to be cast on
the matter. The Board of Directors has the exclusive power to adopt, alter,
repeal or amend the Bylaws.
DISSOLUTION OF THE COMPANY
As permitted by the MGCL, the Charter provides that dissolution of the
Company must be approved by the affirmative vote of the holders of not less
than a majority of all of the votes entitled to be cast on the matter. See
"Description of Capital Stock--Common Stock."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS
The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL and
the advance notice provisions of the Bylaws could delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Stock or otherwise be in their best interest.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering and the Formation Transactions, there will
be 10,829,634 shares of Common Stock issued and outstanding (11,854,134 if the
Underwriters' over-allotment option is exercised in full). The shares
outstanding will include shares of Common Stock held by Holdings,
shares of Common Stock held directly by officers and directors of the Company,
and shares of Common Stock held by AEW (collectively, the "Restricted
Shares"). In addition, the Company has reserved 1,030,000 shares of Common
Stock for issuance to employees and directors of the Company pursuant to the
Company's 1997 Stock Option Plan, of which options for 650,000 shares will be
issued in connection with the Offering. All of the Shares issued in the
Offering will be freely tradeable by persons other than Affiliates (as defined
below) without registration or other restrictions under the Securities Act,
subject to limitations set forth in the Charter and, in certain cases, to the
additional contractual restrictions described below. The Restricted Shares and
shares issued upon the exercise of options (unless issued pursuant to an
effective registration statement) will be
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"restricted securities" under the meaning of Rule 144 promulgated under the
Securities Act ("Rule 144"), and may be sold only pursuant to an effective
registration statement under the Securities Act or an applicable exemption,
including an exemption under Rule 144, under the Securities Act.
In general, under Rule 144 as in effect as of April 29, 1997, a person (or
persons whose shares are aggregated), including an "affiliate" as that term is
defined in Rule 144 (an "Affiliate"), who has beneficially owned his or her
"restricted securities" for at least one year, is entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of 1% of the then outstanding shares of Common Stock (approximately
108,296 shares immediately after the Offering) or the average weekly trading
volume of Common Stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain restrictions on the manner of sale, notice requirements
and the availability of current public information about the Company. If two
years have elapsed since the date of acquisition of "restricted securities"
from the Company or from any Affiliate of the Company, and the acquiror or
subsequent holder thereof is deemed not to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, such person would be
entitled to sell such shares of Common Stock in the public market under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.
The Company and the Continuing Investors have agreed with the Underwriters,
subject to certain limited exceptions, not to offer, sell, contract to sell,
pledge, grant any option to purchase or otherwise dispose of any shares of
Common Stock (or any securities convertible into, or exercisable, exchangeable
or redeemable for, shares of Common Stock) for a period of one year after the
effective date of the Registration Statement, without the prior written consent
of PaineWebber. Management of the Company, including Messrs. Sudarsky, Marcus,
Gold, Nelson, Kreitzer, Stone and Ciruzzi, have agreed with the Underwriters,
subject to certain limited exceptions, not to offer, sell, contract to sell,
pledge or otherwise dispose of any shares of Common Stock (or any securities
convertible into, or exercisable, exchangeable or redeemable for, shares of
Common Stock), including any shares of Common Stock that any such persons may
have the right to receive by virtue of their ownership interest in Holdings,
for a period of two years after the effective date of the Registration
Statement, without the prior written consent of PaineWebber. After such time,
such shares of Common Stock may be sold in the public market, subject to
applicable securities laws restrictions or exemptions from registration, if
available. The Company has granted to AEW certain registration rights in
connection with the Restricted Shares owned by them. AEW has the ability to
"demand" that the Company under certain circumstances and subject to certain
conditions, prepare and file a shelf registration statement within a specified
time period after the Offering with respect to the resale of shares of Common
Stock issued upon conversion of the Series V Preferred Stock. AEW also has
certain rights following an initial public offering to have shares of Common
Stock registered incidentally to any registration being conducted by the
Company with respect to the Common Stock. The Company also expects to grant to
Holdings customary transferable registration rights with respect to the shares
of Common Stock held by it. See "Certain Transactions."
The Company intends to issue options to purchase shares of Common Stock to
directors, officers and certain key employees of the Company from time to time
after the Offering. See "Management--Benefits Plans." The Company expects to
file a registration statement on Form S-8 with the Commission with respect to
the shares of Common Stock issuable under stock option plans of the Company
following the Offering. Shares of Common Stock issued after the effective date
of any such registration statement on Form S-8 upon the exercise of options
granted under any such plan will be available for sale in the public market
without restriction to the extent that such shares are held by persons who are
not Affiliates of the Company.
Prior to the Offering, there has been no public market for the Common Stock.
Trading of the Common Stock on the NYSE is expected to commence immediately
following consummation of the Offering, upon official notice of issuance, under
the symbol "ARE." No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sale, will
have on the market price prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales occur, could
adversely affect prevailing market prices of the Common Stock.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
regarding an investment in Common Stock of the Company is based on current
law, is for general information only and is not tax advice. This discussion
does not purport to deal with all aspects of taxation that may be relevant to
particular investors in light of their personal investment or tax
circumstances, or, except to the extent discussed under the headings "Taxation
of Tax-Exempt Stockholders" and "Taxation of Non-U.S. Stockholders," to
certain types of investors (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the U.S.) that are subject to
special treatment under the federal income tax laws. This discussion assumes
that investors will hold the Common Stock as a "capital asset" (generally,
property held for investment) under the Code.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT ITS TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF THE
COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The REIT provisions of the Code are highly technical and complex.
The following sets forth the material aspects of the provisions of the Code
that govern the federal income tax treatment of a REIT and its stockholders.
This summary is qualified in its entirety by the applicable Code provisions,
rules and regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change which may apply
retroactively.
The Board of Directors intends that the Company will operate in a manner
that permits it to elect, and that it will elect, REIT status for the taxable
year ended December 31, 1996, and the Company intends to continue to operate
in such a manner. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an
opinion in connection with the Offering that, commencing with the Company's
taxable year ending December 31, 1996, the Company was organized in conformity
with the requirements for qualification as a REIT, and its proposed method of
operation, and its actual method of operation since January 1, 1996, has and
will enable it to meet the requirements for qualification and taxation as a
REIT under the Code. It must be emphasized that this opinion will be based and
conditioned upon certain assumptions and representations made by the Company
as to factual matters (including representations of the Company concerning,
among other things, its business and properties, the amount of rents
attributable to personal property and other items regarding the Company's
ability to meet the various requirements for qualification as a REIT). The
opinion will be expressed as of its date, and Skadden, Arps, Slate, Meagher &
Flom LLP will have no obligation to advise holders of Common Stock of any
subsequent change in the matters stated, represented or assumed or any
subsequent change in the applicable law. Moreover, such qualification and
taxation as a REIT depends upon the Company having met and continuing to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code as
discussed below, the results of which will not be reviewed by Skadden, Arps,
Slate, Meagher & Flom LLP. Accordingly, no assurance can be given that the
actual results of the Company's operation for any particular taxable year have
satisfied or will satisfy such requirements. See "--Failure to Qualify." An
opinion of counsel is not binding on the IRS, and no assurance can be given
that the IRS will not challenge the Company's eligibility for taxation as a
REIT.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, the Company will be subject
to federal income tax as follows: First, the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital
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gains. Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% tax. Fourth, if the Company should fail
to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which the Company fails the 75% or 95% test multiplied by (b) a
fraction intended to reflect the Company's profitability. Fifth, if the
Company should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, the Company would be subjected to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed during such year. Sixth, if during the 10-year period (the
"Recognition Period") beginning on the first day on the first taxable year for
which the Company qualified as a REIT, the Company recognizes gain on the
disposition of any asset held by the Company as of the beginning of such
Recognition Period, then, to the extent of the excess of (a) the fair market
value of such asset as of the beginning of such Recognition Period over (b)
the Company's adjusted basis in such asset as of the beginning of such
Recognition Period (the "Built-in Gain"), such gain will be subject to tax at
the highest regular corporate tax rate pursuant to IRS regulations that have
not yet been promulgated. Seventh, if the Company acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate level
tax) in a transaction in which the basis of the asset in the Company's hands
is determined by reference to the basis of the asset (or any other property)
in the hands of the C corporation, and the Company recognizes gain on the
disposition of such asset during the Recognition Period beginning on the date
on which such asset was acquired by the Company, then, to the extent of the
Built-in Gain, such gain will be subject to tax at the highest regular
corporate rate pursuant to IRS regulations that have not yet been promulgated.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (3) that would be taxable
as a domestic corporation, but for the special Code provisions applicable to
REITs; (4) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (5) the beneficial ownership of
which is held by 100 or more persons; (6) in which, during the last half of
each taxable year, not more than 50% in value of the outstanding stock is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities); and (7) that meets certain other tests
described below (including with respect to the nature of its income and
assets). The Code provides that conditions (1) through (4) must be met during
the entire taxable year, and that condition (5) must be met during at least
335 days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months.
The Company believes that it has already issued sufficient shares to allow
it to satisfy conditions (5) and (6) above. In order to comply with the share
ownership tests described in conditions (5) and (6) above, the Company's
Charter provides certain restrictions on the transfer of its capital stock to
prevent concentration of stock ownership. These restrictions may not ensure
that, in all cases, the Company will be able to satisfy the share ownership
tests set forth above. If the Company fails to satisfy such requirements, the
Company's status as a REIT will terminate.
To monitor the Company's compliance with such share ownership requirements,
the Company is required to maintain records regarding the actual ownership of
its shares. To do so, the Company must demand written statements each year
from the record holders of certain percentages of its stock in which the
record holders are to disclose the actual owners of the shares (i.e., the
persons required to include in gross income the REIT dividends). A list of
those persons failing or refusing to comply with this demand must be
maintained as part of the Company's records. A stockholder who fails or
refuses to comply with the demand must submit a statement with its tax return
disclosing the actual ownership of the shares and certain other information.
See "Description of Capital Stock--Restrictions on Transfer."
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In the case of a REIT that is a partner in a partnership, regulations
provide that the REIT is deemed to own its proportionate share of the
partnership's assets and to earn its proportionate share of the partnership's
income. In addition, the assets and gross income of the partnership retain the
same character in the hands of the REIT for purposes of the gross income and
asset tests applicable to REITs as described below. Thus, the Company's
proportionate share of the assets, liabilities and items of income of any
partnership will be treated as assets, liabilities and items of income of the
Company for purposes of applying the REIT requirements described below. There
can be no assurance, however, that any partnerships will be organized or
operated in a manner that will enable the Company to continue to satisfy the
REIT requirements of the Code.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from "prohibited
transactions," i.e., certain sales of property held primarily for sale to
customers in the ordinary course of business) for each taxable year must be
derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in
certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of the Company's gross income (excluding
gross income from prohibited transactions) for each taxable year must be
derived from such real property investments, and from other dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing). Third, short-term gain from the sale or
other disposition of stock or securities, gain from certain sales of property
held primarily for sale, and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must, in the aggregate, represent less than 30%
of the Company's gross income for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income tests described above only if several conditions
are met, including the following. First, if rent attributable to personal
property, leased in connection with real property, is greater than 15% of the
total rent received under any particular lease, then all of the rent
attributable to such personal property will not qualify as rents from real
property. The determination of whether an item of property constitutes real
property or personal property under the REIT provisions of the Code is
inherently factual and is subject to differing interpretations. The Company
has represented to counsel that it has reviewed its properties and that rents
attributable to personal property do not exceed 15% of the total rent with
respect to any particular lease. Skadden, Arps, Slate, Meagher & Flom LLP, in
rendering its opinion as to the qualification of the Company as a REIT, is
relying on such representation. Due to the highly specialized nature of the
Company's properties, however, there can be no assurance that the IRS will not
assert that" the rent attributable to personal property with respect to a
particular lease is greater than 15% of the total rent with respect to such
lease. If the IRS were successful, and the amount of such non-qualifying
income, together with other non-qualifying income, exceeds 5% of the Company's
taxable income, the Company may fail to qualify as a REIT. See "Risk Factors--
Adverse Consequences of Failure to Qualify as a REIT."
In addition, rents received by the Company will not qualify as rents from
real property of the Company if an owner of 10% or more of the Company
directly or constructively owns 10% or more in such tenant (a "Related
Tenant"). Moreover, an amount received or accrued will not qualify as rents
from real property (or as interest income) if it is based in whole or part of
the income or profits of any person. Rent or interest will not be
disqualified, however, solely by reason of being based on a fixed percentage
or percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an "independent contractor" from which the REIT derives no
revenue. However, the Company (or its affiliates) is permitted to, and does
directly perform services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered rendered to the occupant of the property. The Company regularly
attempts to monitor such requirements. There can be no assurance, however,
that the Company will not realize income from a Related Tenant that does not
qualify as "rents from real property."
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The Company will provide certain services with respect to the Properties and
any newly acquired Properties. The Company believes that the services provided
by the Company with respect to the Properties are usually and customarily
rendered in connection with the rental of space occupancy only, and therefore
the provision of such services will not cause the rents received with respect
to the Properties to fail to qualify as rents from real property for purposes
of the 75% and the 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests (though not the 30% gross income test) for any taxable year, it may
nevertheless qualify as a REIT for such year if it is entitled to relief under
certain provisions of the Code. These relief provisions will be generally
available if the Company's failure" to meet such tests was due to reasonable
cause and not due to willful neglect, the Company attaches a schedule of the
sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would be entitled
to the benefit of these relief provisions. If these relief provisions are
inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above in "--General," even
where these relief provisions apply, a tax is imposed with respect to the
excess net income.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets, stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company, cash, cash items and U.S. government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of
the investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the
Company's total assets, and the Company may not own more than 10% of any one
issuer's outstanding voting securities.
The Company expects that substantially all of its assets will be real estate
assets. In addition, the Company does not expect that the value of any
security of any one entity would ever exceed 5% of the Company's total assets,
and the Company does not expect to own more than 10% of any one issuer's
voting securities.
The Company intends to monitor closely the purchase, holding and disposition
of its assets in order to comply with the REIT asset tests. In particular, the
Company intends to limit and diversify its ownership of any assets not
qualifying as real estate assets to less than 25% of the value of the
Company's assets and to less than (i) 5%, by value, of any single issuer and
(ii) 10% of the outstanding voting securities of any one issuer. If it is
anticipated that these limits would be exceeded, the Company intends to take
appropriate measures, including the disposition of non-qualifying assets, to
avoid exceeding such limits.
QRS is a wholly owned corporate subsidiary of the Company organized and
operated as a "qualified REIT subsidiary" within the meaning of the Code.
Qualified REIT subsidiaries are not treated as separate entities from their
parent REIT for federal income tax purposes. Instead, all assets, liabilities
and items of income, deduction and credit of a qualified REIT subsidiary are
treated as assets, liabilities and items of the Company. A qualified REIT
subsidiary therefore will not be subject to federal corporate income taxation,
although it may be subject to state or local taxation. In addition, the
Company's ownership of the voting stock of a qualified REIT subsidiary does
not violate the general restriction against ownership of more than 10% of the
voting securities of any issuer.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its stockholders in an amount at least equal to (i) the sum of (a) 95% of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (b) 95% of the net
income (after tax), if any, from foreclosure property, minus (ii) the sum of
certain items of noncash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid with or before the first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital gain
or distributes at least 95%, but less than 100%, of its "REIT taxable income,"
as adjusted, it will be subject to tax thereon at the capital gains or
ordinary corporate
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tax rates, as the case may be. Furthermore, if the Company should fail to
distribute during each calendar year at least the sum of (1) 85% of its REIT
ordinary income for such year, (2) 95% of its REIT capital gain income for
such year, and (3) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. The Company believes that
it has made, and intends to make, timely distributions sufficient to satisfy
this annual distribution requirement.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable
distributions of property.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest based on the amount of
any deduction taken for deficiency dividends.
Absence of Earnings and Profits. The Company, in order to qualify as a REIT,
must not have accumulated earnings and profits attributable to any non-REIT
years. A REIT has until the close of its first taxable year in which it has
non-REIT earnings and profits to distribute any such accumulated earnings and
profits. Unless the "deficiency dividend" procedures described above apply and
the Company complies with those procedures, failure to distribute such
accumulated earnings and profits would result in the disqualification of the
Company as a REIT. The Company believes that the Company had no accumulated
earnings and profits as of December 31, 1995. The determination of accumulated
earnings and profits, however, depends upon a number of factual matters
related to the activities and operations of the Company during its entire
corporate existence and is subject to review and challenge by the IRS. There
can be no assurance that the IRS will not examine the tax returns of the
Company for prior years and propose adjustments to increase its taxable
income. In this regard, the IRS can consider all taxable years of the Company
as open for review for purposes of determining the amount of such earnings and
profits.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, and certain relief provisions do not apply, the Company
will be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to stockholders
in any year in which the Company fails to qualify will not be deductible by
the Company nor will they be required to be made under the Code. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations of the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company will also be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances the Company
would be entitled to such statutory relief. In addition, a recent federal
budget proposal contains language which, if enacted in its present form, would
result in the immediate taxation of all gain inherent in a C corporation's
assets upon an election by the corporation to become a REIT, and thus would
effectively preclude the Company from re-electing REIT status following a
termination of its REIT qualification.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
General. As long as the Company qualifies as a REIT, distributions made to
the Company's taxable domestic stockholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by them as ordinary income and will not be eligible for the
dividends
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received deduction for corporations. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
that they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the stockholder has held its
stock. However, corporate stockholders may be required to treat up to 18% of
certain capital gain dividends as ordinary income.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions exceed
the adjusted basis of a stockholder's shares, they will be included in income
as long-term capital gain (or short-term capital gain if the shares have been
held for one year or less). In addition, any dividend declared by the Company
in October, November or December of any year and payable to a stockholder of
record on a specified date in any such month shall be treated as both paid by
the Company and received by the stockholder on December 31 of such year,
provided that the dividend is actually paid by the Company during January of
the following calendar year. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of the Company.
Upon a sale or other disposition of the Common Stock, a stockholder will
generally recognize a capital gain or loss in an amount equal to the
difference between the amount realized and the stockholder's adjusted basis in
such shares, which gain or loss will be long-term if such shares have been
held for more than one year. To the extent of any long-term capital gain
dividends received by a stockholder, any loss on the sale or other disposition
of Common Stock held by such stockholder for six months or less will generally
be treated as a long-term capital loss.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Based upon a published ruling by the IRS, distributions by the Company to a
stockholder that is a tax-exempt entity will not constitute "unrelated
business taxable income" ("UBTI"), provided that the tax-exempt entity has not
financed the acquisition of its shares with "acquisition indebtedness" within
the meaning of the Code and the shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity.
Notwithstanding the preceding paragraph, however, a portion of the dividends
paid by the Company may be treated as UBTI to certain domestic private pension
trusts if the Company is treated as a "pension-held REIT." The Company
believes that it is not, and does not expect to become, a "pension-held REIT."
If the Company were to become a pension-held REIT, these rules generally would
only apply to certain pension trusts that hold more than 10% of the Company's
stock.
TAXATION OF NON-U.S. HOLDERS
The following is a discussion of certain anticipated U.S. federal income and
estate tax consequences of the ownership and disposition of the Company's
Common Stock applicable to Non-U.S. Holders of such stock. A "Non-U.S. Holder"
is any person other than (i) a citizen or resident of the U.S., (ii) a
corporation or partnership created or organized in the U.S. or under the laws
of the U.S. or of any state thereof, (iii) an estate whose income is
includable in gross income for U.S. federal income tax purposes regardless of
its source, or (iv) a trust whose administration is subject to the primary
supervision of a U.S. court and which has one or more U.S. fiduciaries who
have the authority to control all substantial decisions of the trust. The
discussion is based on current law and is for general information only. The
discussion addresses only certain and not all aspects of U.S. federal income
and estate taxation.
Ordinary Dividends. The portion of dividends received by Non-U.S. Holders
payable out of the Company's earnings and profits which are not attributable
to capital gains of the Company and which are not effectively connected with a
U.S. trade or business of the Non-U.S. Holder will be subject to U.S.
withholding tax at the rate of 30% (unless reduced by treaty). In general,
Non-U.S. Holders will not be considered engaged in a U.S. trade or business
solely as a result of their ownership of stock of the Company. In cases where
the dividend income from a Non-U.S. Holder's investment in stock of the
Company is (or is treated as) effectively
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connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the
Non-U.S. Holder generally will be subject to U.S. tax at graduated rates, in
the same manner as U.S. stockholders are taxed with respect to such dividends
(and may also be subject to the 30% branch profits tax in the case of a Non-
U.S. Holder that is a foreign corporation).
Non-Dividend Distributions. Unless the Company's stock constitutes a USRPI
(as defined below), distributions by the Company which are not dividends out
of the earnings and profits of the Company will not be subject to U.S. income
or withholding tax. If it cannot be determined at the time a distribution is
made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S. Holder
may seek a refund of such amounts from the IRS if it is subsequently
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company. If the Company's stock
constitutes a USRPI, such distribution shall be subject to 10% withholding tax
and may be subject to taxation under FIRPTA (as defined below).
Capital Gain Dividends. Under the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of U.S. Real
Property Interests ("USRPIs") such as the properties beneficially owned by the
Company ("'USRPI Capital Gains"), will be considered effectively connected
with a U.S. trade or business of the Non-U.S. Holder and subject to U.S.
income tax at the rate applicable to U.S. individuals or corporations, without
regard to whether such distribution is designated as a capital gain dividend.
In addition, the Company will be required to withhold tax equal to 35% of the
amount of dividends to the extent such dividends constitute USRPI Capital
Gains. Distributions subject to FIRPTA may also be subject to a 30% branch
profits tax in the hands of a foreign corporate stockholder that is not
entitled to treaty exemption.
Disposition of Stock of the Company. Unless the Company's stock constitutes
a USRPI, a sale of such stock by a Non-U.S. Holder generally will not be
subject to U.S. taxation under FIRPTA. The stock will not constitute a USRPI
if the Company is a "domestically controlled REIT." A domestically controlled
REIT is a REIT in which, at all times during a specified testing period, less
than 50% in value of its shares is held directly or indirectly by Non-U.S.
Holders. The Company believes that it is, and it expects to continue to be a
domestically controlled REIT, and therefore that the sale of the Company's
stock will not be subject to taxation under FIRPTA. Because the Company's
stock will be publicly traded, however, no assurance can be given that the
Company will continue to be a domestically controlled REIT.
If the Company does not constitute a domestically controlled REIT, a Non-
U.S. Holder's sale of stock generally will still not be subject to tax under
FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly traded"
(as defined by applicable Treasury regulations) on an established securities
market (e.g., the NYSE, on which the Company's Common Stock is listed) and
(ii) the selling Non-U.S. Holder held 5% or less of the Company's outstanding
stock at all times during a specified testing period.
If gain on the sale of stock of the Company were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals) and the purchaser of the stock could be required to
withhold 10% of the purchase price and remit such amount to the IRS.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's
investment in the stock of the Company is effectively connected with a U.S.
trade or business conducted by such Non-U.S. Holder, the Non-U.S. Holder will
be subject to the same treatment as a U.S. stockholder with respect to such
gain, or (ii) if the Non-U.S. Holder is a nonresident alien individual who was
present in the U.S. for 183 days or more during the taxable year and has a
"tax home" in the United States, the nonresident alien individual will be
subject to a 30% tax on the individual's capital gain.
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Estate Tax. Stock of the Company owned or treated as owned by an individual
who is not a citizen or resident (as specially defined for U.S. federal estate
tax purposes) of the United States at the time of death will be includable in
the individual's gross estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may
be subject to U.S. federal estate tax on the property includable in the estate
for U.S. federal estate tax purposes.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each Non-U.S. Holder the amount of dividends
(including any capital gain dividends) paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of these returns may also be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required
under the U.S. information reporting requirements) and information reporting
will generally not apply to dividends (including any capital gain dividends)
paid on stock of the Company to a Non-U.S. Holder at an address outside the
United States.
The payment of the proceeds from the disposition of stock of the Company to
or through a U.S. office of a broker will be subject to information reporting
and backup withholding unless the owner, under penalties of perjury,
certifies, among other things, its status as a Non-U.S. Holder, or otherwise
establishes an exemption. The payment of the proceeds from the disposition of
stock to or through a non-U.S. office of a non-U.S. broker generally will not
be subject to backup withholding and information reporting.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.
These information reporting and backup withholding rules are under review by
the U.S. Treasury and their application to the Common Stock could be changed
by future regulations. On April 15, 1996, the IRS issued proposed Treasury
Regulations concerning the withholding of tax and reporting for certain
amounts paid to non-resident individuals and foreign corporations. The
proposed Treasury Regulations, if adopted in their present form, would be
effective for payments made after December 31, 1997. Prospective purchasers
should consult their tax advisors concerning the potential adoption of such
proposed Treasury Regulations and the potential effect on their ownership of
Common Stock.
OTHER TAX CONSEQUENCES
Possible Legislative or Other Actions Affecting Tax
Consequences. Prospective investors should recognize that the present federal
income tax treatment of an investment in the Company may be modified by
legislative, judicial or administrative action at any time, and that any such
action may affect investments and commitments previously made. The rules
dealing with federal income taxation are constantly under review by persons
involved in the legislative process and by the IRS and the U.S. Treasury
Department, resulting in revisions of regulations and revised interpretations
of established concepts as well as statutory changes. For example, a recent
federal budget proposal contains language which, if enacted in its present
form, would result in the immediate taxation of all gain inherent in a C
corporation's assets upon an election by the corporation to become a REIT, and
thus would effectively preclude the Company from re-electing REIT status
following a termination of its REIT qualification. Revisions in federal tax
laws and interpretations thereof could adversely affect the tax consequences
of an investment in the Company.
State and Local Taxes. The Company and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective
stockholders should consult their tax advisors regarding the effect of state
and local tax laws on an investment in the Company.
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UNDERWRITING
Subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom PaineWebber,
Lehman Brothers Inc., Smith Barney Inc. and EVEREN Securities, Inc. are acting
as representatives of the Underwriters (the "Representatives"), has severally
agreed to purchase from the Company, the respective number of shares of Common
Stock set forth opposite their names. Pursuant to the terms of the Underwriting
Agreement, the Underwriters are obligated to purchase all such shares of Common
Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITERS PURCHASED
------------ ------------
<S> <C>
PaineWebber Incorporated.......................................
Lehman Brothers Inc............................................
Smith Barney Inc...............................................
EVEREN Securities, Inc.........................................
----
Total........................................................
====
</TABLE>
The Representatives have advised the Company that the Underwriters propose to
offer the Shares to the public at the initial public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less
a concession not in excess of $ per Share. The Underwriters may allow, and
such dealers may re-allow, a discount not in excess of $ per Share on sales
to certain other brokers and dealers. After the Offering, the public offering
price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to 1,024,500 additional
shares of Common Stock to cover over-allotments, if any, at the initial public
offering price, less the underwriting discounts and commissions set forth on
the cover page of this Prospectus. If the Underwriters exercise this option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares of Common Stock to be purchased by it shown in the foregoing
table bears to the number of Shares initially offered hereby.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
federal securities laws, or to contribute to payments that the Underwriters may
be required to make in respect thereof.
The Company and the Continuing Investors have agreed with the Underwriters,
subject to certain limited exceptions, not to offer, sell, contract to sell,
pledge, grant any option to purchase or otherwise dispose of any shares of
Common Stock (or any securities convertible into, or exercisable, exchangeable
or redeemable for, shares of Common Stock) for a period of one year after the
effective date of the Registration Statement, without the prior written consent
of PaineWebber. Management of the Company, including Messrs. Sudarsky, Marcus,
Gold, Nelson, Kreitzer, Stone and Ciruzzi, have agreed with the Underwriters,
subject to certain limited exceptions, not to offer, sell, contract to sell,
pledge or otherwise dispose of any shares of Common Stock (or any securities
convertible into, or exercisable, exchangeable or redeemable for, shares of
Common Stock), including any shares of Common Stock that any such persons may
have the right to receive by virtue of their ownership interest in Holdings,
for a period of two years after the effective date of the Registration
Statement, without the prior written consent of PaineWebber. After such time,
such shares of Common Stock may be sold in the public market, subject to
applicable securities laws restrictions or exemptions from registration, if
available. See "Shares Eligible for Future Sale."
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The Underwriters do not intend to confirm sales of Shares to any account
over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company. The initial public offering price will be
determined through negotiations among the Company and the Representatives.
Among the factors considered in such negotiations, in addition to prevailing
market conditions, are dividend yields and financial characteristics of
publicly traded REITs that the Company and the Representatives believe to be
comparable to the Company, the expected results of operations of the Company
and the Properties, estimates of the future business potential and earnings
prospects of the Company as a whole, the current state of the real estate
market in the Company's target markets and the economy as a whole.
The Company will apply for listing of the Common Stock on the NYSE under the
symbol "ARE." In order to meet one of the requirements for listing the shares
of Common Stock on the NYSE, the Underwriters have undertaken to sell lots of
100 or more shares of Common Stock to a minimum of 2,000 beneficial holders.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions
that stabilize the price of the Common Stock. Such transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing shares of Common Stock in the
open market. The Representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security before the distribution is
completed.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above might have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Company has agreed to pay PaineWebber an advisory fee equal to 1.0% of
the gross proceeds of the Offering for structural and advisory services. In
addition, affiliates of PaineWebber will receive $44.4 million of the net
proceeds as repayment of amounts outstanding under the PaineWebber Facility
and are expected to receive approximately $62.9 million as consideration for
the acquisition of the Acquisition LLC. See "Use of Proceeds" and "Formation
and Structure" for a description of the payments to be received by affiliates
of PaineWebber and the manner in which the purchase price for the Acquisition
LLC membership interests will be calculated.
Certain of the Underwriters, including the Representatives, have in the past
performed and may continue to perform investment banking, broker-dealer and
financial advisory services for the Company and have received customary
compensation therefor.
89
<PAGE>
Although the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "Conduct Rules") exempt REITs from the conflict of interest
provisions thereof, because affiliates of PaineWebber will receive more than
10% of the net proceeds of the Offering as described above, the Underwriters
have determined to conduct the Offering in accordance with the applicable
provisions of Rules 2710(c)(8) and 2720(c)(3) of the Conduct Rules. In
accordance with these requirements, Lehman Brothers Inc. (the "Independent
Underwriter") is assuming the responsibilities of acting as "qualified
independent underwriter" and will recommend the maximum initial public
offering price for the Shares in compliance with the requirements of the
Conduct Rules. In connection with the Offering, the Independent Underwriter is
performing due diligence investigations and is reviewing and participating in
the preparation of this Prospectus and the Registration Statement. The initial
public offering price of the Shares will be no higher than the price
recommended by the Independent Underwriter.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Skadden, Arps,
Slate, Meagher & Flom LLP, Los Angeles, California, and certain legal matters
with respect to Maryland law, including the validity of the issuance of the
Shares offered hereby, will be passed upon for the Company by Ballard Spahr
Andrews & Ingersoll, Baltimore, Maryland. Certain legal matters will be passed
upon for the Underwriters by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts. Goodwin, Procter & Hoar LLP will rely on the legal opinion of
Ballard Spahr Andrews & Ingersoll with respect to certain matters relating to
Maryland law. A partner at Skadden, Arps, Slate, Meagher & Flom LLP owns
certain debt and equity securities of Holdings and will receive $197,500 from
Holdings in connection with the Offering as repayment of certain loans. See
"Certain Transactions."
EXPERTS
The historical consolidated financial statements of Alexandria Real Estate
Equities, Inc. as of December 31, 1996 and 1995, and for each of the two years
ended December 31, 1996 and 1995, and for the period October 27, 1994
(inception) through December 31, 1994, and the statements of revenue and
certain expenses for 1413 Research Boulevard; 300 and 401 Professional Drive;
25, 35, and 45 W. Watkins Mill Road; 1311, 1401 and 1431 Harbor Bay Parkway;
and 1550 East Gude Drive, all appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
90
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-11 under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Shares offered pursuant to this Prospectus.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the
exhibits and financial statement schedules thereto. For further information
with respect to the Company and the Shares, reference is made to the
Registration Statement and such exhibits and financial statement schedules,
copies of which may be examined without charge at or obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and will also
be available for inspection and copying at the regional offices of the
Commission located at 13th Floor, 7 World Trade Center, New York, New York
10048, and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. The Commission maintains a Website at http:/www.sec.gov, and reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission (including the Company) can be
obtained from that site.
Statements contained in this Prospectus as to the contents of any contract
or other document that is filed as an exhibit to the Registration Statement
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the full text of such contract or document.
The Company will be required to file reports and other information with the
Commission pursuant to the Exchange Act. In addition to applicable legal or
NYSE requirements, if any, holders of shares of Common Stock will receive
annual reports containing audited financial statements with a report thereon
by the Company's independent certified public accountants.
91
<PAGE>
GLOSSARY
As used in this Prospectus, the capitalized and other terms listed below
have the meanings indicated.
"401(k) Plan" means the Company's 401(k) Plan.
"1940 Act" means the Investment Company Act of 1940, as amended.
"1994 Plan" means the Holdings' Amended and Restated 1994 Stock Option Plan.
"1996 Acquired Properties" means the eight Properties acquired by the
Company in 1996.
"1996 Plan" means the Company's Amended & Restated 1996 Stock Option Plan.
"1997 Stock Option Plan" means the stock option and incentive plan the
Company expects to adopt prior to the Offering.
"ACMs" means asbestos-containing materials.
"Acquisition LLC" means PW Acquisitions I, LLC.
"Acquisition LLC Properties" means 1550 East Gude Drive, Rockville,
Maryland, 1330 Piccard Drive, Rockville, Maryland and 14225 Newbrook Drive,
Chantilly, Virginia.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"AEW" means AEW Partners II, L.P. and certain of its affiliates.
"Affiliate" of a person means a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with such person.
"Alexandria" means Alexandria Real Estate Equities, Inc., a Maryland
corporation.
"Annualized Base Rent" means the annualized fixed base rental amount
(determined in accordance with GAAP) in effect as of March 1, 1997 paid by
tenants under the terms of their leases. In the case of triple net leases,
Annualized Base Rent does not include real estate taxes and insurance, common
area and other operating expenses, substantially all of which are borne by the
tenants.
"Annualized Net Effective Rent" means the Annualized Base Rent in effect as
of March 1, 1997, less (for gross leases) real estate taxes and insurance,
common area and other operating expenses and (for all leases) amortized tenant
improvements and leasing commissions.
"Bankruptcy Code" means Title 11 of the United States Code.
"Built-in Gain" means the excess of the fair market value of an asset as of
the beginning of the Recognition Period over the Company's adjusted basis in
such asset as of the beginning of the Recognition Period.
"Bylaws" means the Amended and Restated Bylaws of Alexandria.
"Capitalization Rate" means, for each acquired property, the initial annual
projected property EBITDA for the 12 months following acquisition, based upon
leases in effect at the time of acquisition, divided by the consideration paid
for such property by the Company, including closing costs and budgeted capital
improvements.
"Charter" means the Articles of Amendment and Restatement of Alexandria to
be filed prior to the consummation of the Offering.
92
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per share, of
Alexandria.
"Company" means Alexandria, QRS and the Acquisition LLC, unless the context
otherwise requires.
"Continuing Investors" means, collectively, Holdings, the Company's
officers, directors and employees and AEW.
"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.
"Control Shares" means voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror or in respect
of which the acquiror is able to exercise or direct the exercise of voting
power (except solely by virtue of revocable proxy), would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority or more of all
voting power, but does not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder
approval.
"CPI" means a consumer price index.
"Credit Facility" means the proposed revolving credit facility for over $100
million, to be entered into between the Company and a major lending
institution.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FDA" means the U.S. Food and Drug Administration.
"FFO" means Funds from Operations as defined in the White Paper as net
income (loss) (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"Formation Transactions" means the transactions described in "Formation and
Structure."
"GAAP" means generally accepted accounting principles as from time to time
in effect.
"Holdings" means Health Science Properties Holding Corporation, a Maryland
corporation.
"Holdings Stock Options" means options granted under Holdings 1994 Stock
Option Plan, as amended, or Holdings 1994 Stock Option Plan for Non-Employee
Directors, as amended.
"HVAC" means heating, ventilation and air conditioning.
"Independent Underwriter" means Lehman Brothers Inc., who will act as
"qualified independent underwriter" and will recommend the maximum initial
public offering price for the Shares.
"Interested Stockholder" means any person who beneficially owns 10% or more
of the voting power of a corporation's shares or an affiliate of a corporation
who, at any time within the two-year period prior to the date
93
<PAGE>
in question, was the beneficial owner of 10% or more of the voting power of
the then-outstanding voting stock of the corporation.
"IRS" means the Internal Revenue Service.
"Life Science Facilities" means office buildings containing scientific
research and development laboratories, enhanced infrastructure and other
improvements that are generic to tenants operating in the Life Science
Industry.
"Life Science Industry" means the industry comprised of pharmaceutical,
biotechnology, diagnostic and personal care products companies, major
scientific research institutions and related government agencies.
"LLC Agreement" means the Agreement for Sale and Purchase of Membership
Interests entered into between certain affiliates of PaineWebber and the
Company on January 13, 1997.
"MGCL" means the Maryland General Corporation Law, as amended.
"Named Executive Officers" means the Company's Chief Executive Officer and
the four other most highly compensated executive officers of the Company.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NIH" means the National Institutes of Health.
"Non-U.S. Holder" means any person other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in
the United States or under the laws of the United States or of any state
thereof, (iii) an estate whose income is includable in gross income for U.S.
federal income tax purposes regardless of its source, or (iv) a trust whose
administration is subject to the primary supervision of a U.S. court and which
has one or more U.S. fiduciaries who have the authority to control all
substantial decisions of the trust.
"NYSE" means the New York Stock Exchange.
"Offering" means the offering of Shares hereby.
"Ownership Limit" means the direct or constructive ownership of shares of
capital stock representing more than 9.8% of the combined total value of
outstanding shares of the Company's capital stock by any person.
"PaineWebber" means PaineWebber Incorporated, the lead managing Underwriter
of the Offering.
"PaineWebber Facility" means the Company's acquisition facility with certain
affiliates of PaineWebber entered into on September 9, 1996, as amended.
"PhRMA" means Pharmaceutical Research Manufacturers Association.
"Preferred Stock" means preferred stock, par value $.01 per share, of the
Company.
"Prohibited Owner" means a person who beneficially or constructively owns
shares of stock of the Company in excess or in violation of the transfer or
ownership limitations.
"Properties" means the 15 Properties the Company will own upon consummation
of the Offering and the Formation Transactions.
"PW Affiliates" means PaineWebber Real Estate Holdings Inc. and PW Realty
Partners, LLC.
"QRS" means ARE-QRS Corp., a Maryland corporation, a wholly owned subsidiary
of Alexandria.
94
<PAGE>
"Recognition Period" means the 10-year period beginning on the first day of
the first taxable year for which the Company qualified as a REIT.
"REIT" means a real estate investment trust.
"Registration Statement" means the Registration Statement of which this
Prospectus forms a part.
"Related Tenant" means an owner of 10% or more of the Company who directly
or constructively owns 10% or more in a tenant.
"Representatives" means PaineWebber, Lehman Brothers Inc., Smith Barney Inc.
and EVEREN Securities, Inc.
"Restricted Securities" means the Restricted Shares and shares of Common
Stock that will be restricted securities under Rule 144.
"Restricted Shares" means shares of Common Stock held by the Continuing
Investors upon consummation of the Offering and the Formation Transactions.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Series T Preferred Stock" means the Series T Preferred Stock, par value
$.01 per share, of Alexandria.
"Series U Preferred Stock" means the Series U Preferred Stock, par value
$.01 per share, of Alexandria.
"Series V Preferred Stock" means the Series V Preferred Stock, par value
$.01 per share, of Alexandria.
"Shares" means the shares of Common Stock to be offered and sold in the
Offering.
"Stock Split" means the split of each share of outstanding Common Stock into
approximately shares of Common Stock in connection with the Offering.
"UBTI" means unrelated business taxable income.
"Underwriters" means the Underwriters named in this Prospectus for whom
PaineWebber, Lehman Brothers Inc., Smith Barney Inc. and EVEREN Securities,
Inc. are acting as Representatives.
"Underwriting Agreement" means the Underwriting Agreement to be entered into
between the Company and the Underwriters.
"USRPIs" means U.S. Real Property Interests.
"USRPI Capital Gains" means gains from dispositions of USRPIs, such as the
properties beneficially owned by the Company.
"White Paper" means the White Paper on FFO approved by the Board of
Governors of NAREIT in March 1995.
95
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Pro Forma Condensed Consolidated Financial Statements (Unaudited)........ F-2
Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1996.. F-3
Pro Forma Condensed Consolidated Income Statement for the Year Ended
December 31, 1996...................................................... F-4
Notes to Pro Forma Condensed Consolidated Financial Statements.......... F-5
Historical Consolidated Financial Statements
Report of Independent Auditors.......................................... F-7
Consolidated Balance Sheets as of December 31, 1996 and 1995............ F-8
Consolidated Statements of Operations for the Years Ended December 31,
1996 and 1995 and the period October 27, 1994 (inception) through
December 31, 1994...................................................... F-9
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1995 and the period October 27, 1994 (inception)
through December 31, 1994.............................................. F-10
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996 and 1995 and the period October 27, 1994 (inception) through
December 31, 1994...................................................... F-11
Notes to Consolidated Financial Statements.............................. F-12
Schedule III--Rental Properties and Accumulated Depreciation............ F-22
1413 RESEARCH BLVD.
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-23
Statement of Revenue and Certain Expenses for the Period January 1, 1996
to July 2, 1996 (Unaudited) and for the Year Ended December 31, 1995... F-24
Notes to Statement of Revenue and Certain Expenses...................... F-25
300 AND 401 PROFESSIONAL DRIVE
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-26
Statement of Revenue and Certain Expenses for the Period January 1, 1996
to September 10, 1996 (Unaudited) and for the Year Ended December 31,
1995................................................................... F-27
Notes to Statement of Revenue and Certain Expenses...................... F-28
25, 35 AND 45 W. WATKINS MILL ROAD
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-29
Statement of Revenue and Certain Expenses for the Period January 1, 1996
to October 18, 1996 (Unaudited) and for the Year Ended December 31,
1995................................................................... F-30
Notes to Statement of Revenue and Certain Expenses...................... F-31
1311, 1401 AND 1431 HARBOR BAY PARKWAY
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-32
Statement of Revenue and Certain Expenses for the Period January 1, 1996
to December 12, 1996 (Unaudited) and for the Year Ended December 31,
1995................................................................... F-33
Notes to Statement of Revenue and Certain Expenses...................... F-34
1550 EAST GUDE DRIVE
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-35
Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................... F-36
Notes to Statement of Revenue and Certain Expenses...................... F-37
</TABLE>
F-1
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(FORMERLY KNOWN AS HEALTH SCIENCE PROPERTIES, INC.)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated balance sheet as of December
31, 1996 is presented as if the Offering, the application of the net proceeds
thereof and the transactions described in "Formation and Structure" all had
occurred on December 31, 1996.
The unaudited pro forma condensed consolidated income statement for the year
ended December 31, 1996 is presented as if the Offering, the application of
the net proceeds thereof, the transactions described in "Formation and
Structure" (including the acquisition of the Acquisition LLC Properties) and
the acquisition of the eight Properties acquired during 1996 (the "1996
Acquired Properties") all had occurred on January 1, 1996.
The pro forma condensed consolidated financial statements are not
necessarily indicative of what the Company's financial position or results of
operations would have been assuming consummation of the transactions described
in "Formation and Structure" and the Offering on such date or at the beginning
of the period indicated, nor do they purport to project the Company's
financial position or results of operations at any future date or for any
future period.
F-2
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
ALEXANDRIA PROCEEDS
REAL ESTATE ACQUISITION LLC FROM THE PRO FORMA COMPANY
EQUITIES, INC. PROPERTIES (A) OFFERING (B) ADJUSTMENTS PRO FORMA
-------------- --------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Rental properties--net.. $146,960 $ 62,894 $209,854
Cash and cash
equivalents............ 1,696 (62,894) $129,525 $ 14,320 (C) 6,453
(76,093)(D)
(1)(H)
(100)(F)
Tenant security deposit
funds and other
restricted cash........ 5,585 -- 5,585
Tenant receivables and
deferred rents......... 1,244 -- 1,244
Loan fees and costs--
net.................... 2,502 1,040 (C) 1,554
(1,988)(E)
Leasing commissions--
net.................... 353 -- 353
Other assets............ 2,052 (194) 100 (F) 1,958
-------- -------- -------- -------- --------
Total assets........ $160,392 $ -- $129,331 $(62,722) $227,001
======== ======== ======== ======== ========
LIABILITIES AND EQUITY
Secured notes payable... $113,182 $(73,237)(D) $55,305
15,360 (C)
Accounts payable and
accrued expenses....... 3,027 (331)(D) 2,696
Dividends payable....... 1,550 -- 1,550
Tenant security
deposits............... 535 -- 535
Unsecured line of
credit................. -- -- --
Due to Holdings......... 2,300 (2,300)(D) --
Advances from Holdings.. 225 (225)(D) --
-------- -------- -------- -------- --------
Total liabilities... 120,819 (60,733) 60,086
Mandatorily redeemable
Series V Preferred
Stock.................. 24,707 (24,707)(G) --
Stockholders' equity
Preferred stock
Undesignated Preferred
Stock................ -- --
Series T 8.5%
Preferred Stock...... 1 (1)(H) --
Series U 8.5%
Preferred Stock...... 110 (110)(H) --
Common Stock............ -- $ 68 18 (G) 108
22 (H)
Additional paid-in
capital................ 16,530 129,263 (1,988)(E) 172,097
24,689 (G)
110 (H)
3,493 (H)
Accumulated deficit..... (1,775) (3,515)(H) (5,290)
-------- -------- -------- -------- --------
Total stockholders'
equity............. 14,866 -- 129,331 22,718 166,915
-------- -------- -------- -------- --------
Total liabilities
and equity......... $160,392 $ -- $129,331 $(62,722) $227,001
======== ======== ======== ======== ========
</TABLE>
F-3
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRE-
ACQUISITION
PERIOD FOR
1996
ACQUIRED PRE-
PROPERTIES ACQUISITION
HISTORICAL EXCLUDING PERIOD FOR
ALEXANDRIA 1102 AND 1124 1102 AND 1124 ACQUISITION PRO COMPANY
REAL ESTATE COLUMBIA COLUMBIA LLC FORMA PRO
EQUITIES, INC. STREET STREET(I) PROPERTIES(I) ADJUSTMENTS FORMA
-------------- ------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenue........ $12,941 $5,248 $1,976 $6,781 $ 175 (J) $ 27,121
Tenant recoveries..... 4,169 1,323 763 62 352 (K) 6,669
Other................. 563 3 201 -- (109)(L) 658
------- ------ ------ ------ -------- ----------
Total revenues...... 17,673 6,574 2,940 6,843 418 34,448
------- ------ ------ ------ -------- ----------
Expenses:
Rental properties..... 4,356 1,853 745 62 180 (K) 7,196
General and
administrative ...... 2,410 -- -- -- 440 (M) 2,850
Stock grant
compensation......... -- -- -- -- 3,515 (N) 3,515
Interest ............. 6,327 -- -- -- (1,492)(O) 4,835
Depreciation and
amortization......... 2,405 -- -- -- 2,591 (P) 4,996
------- ------ ------ ------ -------- ----------
Total expenses...... 15,498 1,853 745 62 5,234 23,392
------- ------ ------ ------ -------- ----------
Net income.............. $ 2,175 $4,721 $2,195 $6,781 $ (4,816) $ 11,056
======= ====== ====== ====== ======== ==========
Net income allocable to
preferred
stockholders........... $ 1,256
=======
Net income allocable to
common stockholders.... $ 919
=======
Common Stock
outstanding............ 1,000 10,829,634
======= ==========
Net income per share.... $ 919 $ 1.02
======= ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSEDCONSOLIDATED FINANCIAL
STATEMENTS
(IN THOUSANDS)
1. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The adjustments to the Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
(A) Estimated purchase price and estimated closing costs of the
Acquisition LLC Properties
(B) Sale of 6,830,000 shares Common Stock in the Offering:
Proceeds from the Offering based on initial price of $21.00
per share................................................... $143,430
Costs associated with the Offering........................... (13,905)
--------
129,525
Offering costs paid by Alexandria prior to Offering.......... (194)
--------
$129,331
========
Par Value of Common Stock issued, excluding conversion of
Series V preferred stock.................................... 68
Additional paid in capital from proceeds of sale of Common
Stock....................................................... 129,263
--------
$129,331
========
(C) Net proceeds from mortgage financing and line of credit
commitment fees
Gross proceeds from new debt................................. $ 15,360
Costs associated with new debt origination................... (290)
Costs associated with new line of credit..................... (750)
--------
$ 14,320
========
(D) Repayment of certain secured notes payable and Due to
Holdings
Payment of certain secured notes payable..................... $(73,237)
Payment Due to Holdings...................................... (2,300)
Payment of advances from Holdings............................ (225)
Payment of accrued interest.................................. (331)
--------
$(76,093)
========
(E) Write off of unamortized loan fees
(F) Deposit on vacant land parcel................................ 100
(G) Conversion of mandatorily redeemable Series V Preferred Stock
exchanged for 1,816,121 shares of Common Stock
Par Value of Common Stock.................................... $ 18
Additional paid-in-capital................................... 24,689
--------
$ 24,707
========
(H) Redemption of Series T 8.5% Preferred Stock for cash......... $ (1)
Conversion of Series U 8.5% Preferred Stock exchanged for 7,071
shares of the Common Stock.................................... (110)
Stock split on Holdings Stock and Grant of the Company's Common
Stock and substitute options.................................. (22)
Non-cash compensation expense associated with the issuance of
167,370 shares of fully vested Common Stock................... (3,515)
</TABLE>
F-5
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS--(CONTINUED)
(IN THOUSANDS)
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME
STATEMENT
The pro forma adjustments reflected in the Unaudited Pro Forma Condensed
Consolidated Income Statement for the year ended December 31, 1996 are as
follows:
<TABLE>
<S> <C>
(I) Increase in revenue and expenses to adjust for the previously
owner-occupied period for certain acquired Properties and
Acquisition LLC Properties
</TABLE>
<TABLE>
<CAPTION>
1102/1104 ACQUISITION
COLUMBIA STREET LLC PROPERTIES
--------------- --------------
<S> <C> <C>
Rental revenue............................ $ 1,976 $ 6,781
Tenant recoveries......................... 763 62
Other..................................... 201 --
Rental properties expense................. 745 62
</TABLE>
<TABLE>
<S> <C>
(J) Increase in rental revenue to adjust the 1996 Acquired
Properties and the Acquisition LLC Properties to straight line
rental revenue for the pro forma period
(K) Increase in rental properties expenses and related tenant
recoveries for costs expected to be incurred in excess of
historical amounts
(L) Decrease in other income to eliminate non-recurring
construction management fees which would not have been realized
by the Company as a REIT
(M) Increase in general and administrative expense related to
expected level of operations as a public REIT
(N) Non-cash compensation expense associated with the issuance of
167,370 shares of fully vested Common Stock
(O) Decrease in interest expense
Decrease in interest expense due to repayment of certain mort-
gage loans.................................................... $(2,875)
Increase in interest expense related to the newly originated
amortizing debt
with an interest rate of 7.20% due in 2014.................... 612
Increase in interest expense related to the newly originated
amortizing debt
with an interest rate of 7.60% due in 2017.................... 521
Increase in amortization of finance costs related to the newly
originated debt............................................... 250
-------
Net decrease in interest expense............................. $(1,492)
=======
(P) Increase in depreciation expense to reflect a full period of
depreciation for the 1996 Acquired Properties and the
Acquisition LLC Properties utilizing a 40-year useful
life for buildings and a 10-year useful life for improvements.. $ 2,591
=======
Historical depreciation of the Company........................... $ 2,405
Additional depreciation of the 1996 Acquired Properties and the
Acquisition LLC Properties:
Pro forma depreciation as if the 1996 Acquired Properties were
purchased
on January 1, 1996............................................ 1,885
Historical depreciation recorded by the Company................ (645)
-------
Net increase in depreciation expense......................... 1,240
Depreciation on the Acquisition LLC Properties................... 1,351
-------
Total pro forma depreciation..................................... $ 4,996
=======
</TABLE>
F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Alexandria Real Estate Equities, Inc.
We have audited the accompanying consolidated balance sheets of Alexandria
Real Estate Equities, Inc. (formerly known as Health Science Properties, Inc.)
(the "Company") as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years ended December 31, 1996 and 1995 and the period October 27, 1994
(inception) through December 31, 1994. Our audits also included the financial
statement schedule III, rental properties and accumulated depreciation. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
as of December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the two years ended December 31,
1996 and 1995 and the period October 27, 1994 (inception) through December 31,
1994, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Los Angeles, California
February 13, 1997,
except for Note 11,
as to which the date is
March 13, 1997
F-7
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- -------
<S> <C> <C>
ASSETS
Rental properties, net..................................... $146,960 $54,353
Cash and cash equivalents.................................. 1,696 919
Tenant security deposit funds and other restricted cash.... 5,585 1,214
Tenant receivables and deferred rent....................... 1,244 830
Loan fees and costs (net of accumulated amortization of
$131 and $25 in 1996 and 1995)............................ 2,502 206
Leasing commissions (net of accumulated amortization of $92
and $26 in 1996 and 1995)................................. 353 258
Other assets (net of accumulated amortization of $103 and
$69 in 1996 and 1995)..................................... 2,052 922
-------- -------
Total assets........................................... $160,392 $58,702
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable...................................... $113,182 $36,894
Accounts payable and accrued expenses...................... 3,026 834
Dividends payable.......................................... 1,550 --
Tenant security deposits................................... 536 536
Unsecured line of credit................................... -- 4,000
Due to Health Science Properties Holding Corporation....... 2,300 --
Advances from Health Science Properties Holding
Corporation............................................... 225 105
-------- -------
120,819 42,369
Commitments and contingencies.............................. -- --
Manditorily redeemable Series V cumulative convertible
preferred stock, $0.01 par value, $1,000 stated value per
share, 50,000 shares authorized; 27,500 issued and
outstanding............................................... 24,707 --
Stockholders' equity:
Preferred stock:
Undesignated preferred stock, $0.01 par value per share,
14,625 shares authorized; no shares were issued and
outstanding............................................. -- --
Series T 8.5% preferred stock, $0.01 par value and $100
stated value per share, 125 shares authorized; 12 shares
issued and outstanding.................................. 1 1
Series U 8.5% cumulative convertible preferred stock,
$0.01 par value and $500 stated value per share, 250
shares authorized; 220 shares issued and outstanding.... 110 --
Common stock, $0.01 par value per share, 65,000 shares
authorized; 1,000 issued and outstanding.................. -- --
Additional paid-in capital................................. 16,530 17,128
Accumulated deficit........................................ (1,775) (796)
-------- -------
Total stockholders' equity............................. 14,866 16,333
-------- -------
Total liabilities and stockholders' equity............. $160,392 $58,702
======== =======
</TABLE>
See accompanying notes.
F-8
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
THE PERIOD
OCTOBER 27, 1994
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
------------------------ DECEMBER 31,
1996 1995 1994
------------ ----------- ----------------
<S> <C> <C> <C>
Revenues:
Rental............................ $ 12,941 $ 8,020 $ 834
Tenant recoveries................. 4,169 1,699 87
Other............................. 563 204 90
------------ ----------- ------
17,673 9,923 1,011
Expenses:
Rental operations................. 4,356 2,228 252
General and administrative........ 2,410 1,608 1,016
Interest.......................... 6,327 3,553 328
Depreciation and amortization..... 2,405 1,668 63
------------ ----------- ------
15,498 9,057 1,659
------------ ----------- ------
Income (loss) from operations....... 2,175 866 (648)
Charge in lieu of income taxes...... -- 105 --
------------ ----------- ------
Net income (loss)................... $ 2,175 $ 761 $ (648)
============ =========== ======
Net income allocated to preferred
stockholders....................... $ 1,256 $ -- $ --
============ =========== ======
Net income (loss) allocated to
common stockholders................ $ 919 $ 761 $ (648)
============ =========== ======
Weighted average common shares
outstanding........................ 1,000 1,000 1,000
============ =========== ======
Income (loss) per common share...... $ 919 $ 761 $ (648)
============ =========== ======
Dividends per common share.......... $ 2,489 $ 909 $ --
============ =========== ======
Dividends declared per Series V
preferred share.................... $ 100 $ -- $ --
============ =========== ======
Dividends declared per Series T 8.5%
preferred share.................... $ 17 $ -- $ --
============ =========== ======
Dividends declared per Series U 8.5%
preferred share.................... $ 42 $ -- $ --
============ =========== ======
</TABLE>
See accompanying notes.
F-9
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SERIES T SERIES T SERIES U SERIES U NUMBER OF ADDITIONAL
PREFERRED PREFERRED PREFERRED PREFERRED COMMON COMMON PAID-IN ACCUMULATED
SHARES STOCK SHARES STOCK SHARES STOCK CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- --------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 27,
1994................... $ $ $ $ $ $
Issuance of common
stock................. -- -- -- -- 1,000 -- 17,128 -- 17,128
Net loss............... -- -- -- -- -- -- -- (648) (648)
--- ---- --- ---- ----- ---- ------- ------- -------
Balance at December 31,
1994................... -- -- -- -- 1,000 -- 17,128 (648) 16,480
Issuance of Series T
preferred stock....... 12 1 -- -- -- -- -- -- 1
Cash dividend on common
stock................. -- -- -- -- -- -- -- (909) (909)
Net income............. -- -- -- -- -- -- -- 761 761
--- ---- --- ---- ----- ---- ------- ------- -------
Balance at December 31,
1995................... 12 1 -- -- 1,000 -- 17,128 (796) 16,333
Issuance of Series U
preferred stock....... -- -- 220 110 -- -- -- -- 110
Accretion on Series V
preferred stock....... -- -- -- -- -- -- (598) -- (598)
Cash dividends on
Series T & U preferred
stock................. -- -- -- -- -- -- -- (9) (9)
Cash dividends on
Series V preferred
stock................. -- -- -- -- -- -- -- (656) (656)
Cash dividends on
common stock.......... -- -- -- -- -- -- -- (939) (939)
Dividends declared on
common stock.......... -- -- -- -- -- -- -- (1,550) (1,550)
Net income............. -- -- -- -- -- -- -- 2,175 2,175
--- ---- --- ---- ----- ---- ------- ------- -------
Balance at December 31,
1996................... 12 $ 1 220 $110 1,000 $-- $16,530 $(1,775) $14,866
=== ==== === ==== ===== ==== ======= ======= =======
</TABLE>
See accompanying notes.
F-10
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE PERIOD
OCTOBER 27, 1994
DECEMBER 31, (INCEPTION) THROUGH
----------------- DECEMBER 31,
1996 1995 1994
-------- ------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................... $ 2,175 $ 761 $ (648)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization......... 2,405 1,668 63
Changes in operating assets and
liabilities:
Tenant security deposit funds and
other restricted cash.............. (4,371) (779) (130)
Loan fees and costs................. (2,402) (15) --
Leasing commissions................. (67) (258) --
Other assets........................ (1,578) (1,433) 86
Accounts payable and accrued
expenses........................... 2,192 267 (384)
Tenant security deposits............ -- 144 (11)
-------- ------- --------
Net cash (used in) provided by operating
activities............................. (1,646) 355 (1,024)
INVESTING ACTIVITIES
Additions to rental properties.......... (1,578) (1,554) --
Purchase of rental properties........... (93,322) -- (29,924)
-------- ------- --------
Net cash used in investing activities... (94,900) (1,554) (29,924)
FINANCING ACTIVITIES
Proceeds from secured notes payable..... 77,260 1,250 19,711
Cash portion of contributed net assets.. -- -- 9,427
Proceeds from issuance of Series T
preferred stock........................ -- -- 1
Proceeds from issuance of Series U
preferred stock........................ 110 -- --
Proceeds from issuance of Series V
preferred stock (net of issuance costs
of $3,391)............................. 24,109 -- --
Proceeds from unsecured line of credit.. -- 1,000 3,000
Increase in due to Health Science
Properties Holding Corporation......... 2,300 -- --
Increase in advances from Health Science
Properties Holding Corporation......... 120 105 --
Principal reductions of unsecured line
of credit.............................. (4,000) -- --
Principal reductions of secured notes
payable................................ (972) (519) --
Common dividends paid................... (939) (909) --
Preferred dividends paid................ (665) -- --
-------- ------- --------
Net cash provided by financing
activities............................. 97,323 927 32,139
Net increase (decrease) in cash and cash
equivalents............................ 777 (272) 1,191
Cash and cash equivalents at beginning
of year................................ 919 1,191 --
-------- ------- --------
Cash and cash equivalents at end of
year................................... $ 1,696 $ 919 $ 1,191
======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest.. $ 5,953 $ 3,409 $ 293
======== ======= ========
Cash paid during the year for income
taxes.................................. $ -- $ -- $ --
======== ======= ========
</TABLE>
See accompanying notes.
F-11
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE
PERIOD OCTOBER 27, 1994 (INCEPTION) THROUGH DECEMBER 31, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alexandria Real Estate Equities, Inc. (formerly known as Health Science
Properties, Inc.--see Note 11), a Maryland corporation (the "Company"), was
formed on October 27, 1994. The common stock of the Company is wholly owned by
Health Science Properties Holding Corporation ("Holdings").
The Company and its wholly owned subsidiary, ARE-QRS Corp. ("ARE-QRS"), were
formed to acquire, manage and develop properties for lease to the life science
industry. As of December 31, 1996, the Company had acquired the following
properties:
<TABLE>
<CAPTION>
NUMBER NUMBER
OF OF RENTABLE
PROPERTY NAME LOCATION BUILDINGS TENANTS SQUARE FEET
------------- -------- --------- ------- -----------
<S> <C> <C> <C> <C>
10933 N. Torrey Pines.... San Diego, California 1 3 108,133
11099 N. Torrey Pines.... San Diego, California 1 4 86,962
3535 General Atomics
Court................... San Diego, California 1 3 76,084
3565 General Atomics
Court................... San Diego, California 1 1 43,600
1102 and 1124 Columbia
Street.................. Seattle, Washington 1 2 213,397
1413 Research Blvd....... Rockville, Maryland 1 1 105,000
300 and 401 Professional
Drive................... Gaithersburg, Maryland 2 3 111,179
25, 35 and 45 W. Watkins
Mill Road............... Gaithersburg, Maryland 1 6 138,938
1311, 1401 and 1431
Harbor Bay Parkway...... Alameda, California 3 4 147,777
---------
1,031,070
=========
</TABLE>
Principles of Consolidation
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Proposed Transactions
The Company expects to elect real estate investment trust ("REIT") status
effective 1996 for federal income tax purposes. The Company currently intends
to consummate an Initial Public Offering ("IPO") of the Company's common stock
to enable it and ARE-QRS to (i) acquire a limited liability company formed and
owned by certain affiliates of PaineWebber Incorporated (see Note 11), (ii)
repay certain existing debt, (iii) provide a vehicle for future acquisitions,
and (iv) comply with certain requirements under the federal income tax laws and
regulations relating to REITs.
Prior to consummation of the IPO, the Company will redeem all of the
outstanding shares of its Series T preferred stock and convert into shares of
Common Stock all of the outstanding shares of its Series U preferred stock. In
addition, the Company will notify AEW Partners II, L.P. and certain of its
affiliates (collectively, "AEW"), the sole holders of the Series V preferred
stock, of its intention to (i) convert one-half of the outstanding shares of
its Series V preferred stock into shares of Common Stock and (ii) redeem the
remaining shares of Series V preferred stock for cash. Notwithstanding the
option of the Company to effectuate the foregoing conversion and redemption,
AEW may elect to convert all of the outstanding shares of Series V preferred
stock into shares of Common Stock. As a result, the officers, directors and
employees of the Company, together with Holdings and AEW (the "Continuing
Investors"), will hold 3,999,634 shares of Common Stock
F-12
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
after the Offering. Simultaneous with consummation of the Offering, the
Company also will acquire 100% of the ownership interests in the Acquisition
LLC (see Note 11), thereby acquiring three additional properties. None of the
current shareholders has any direct or indirect interest in the Acquisition
LLC or the additional properties owned thereby.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents.
Rental Properties
Rental properties are recorded at cost. Costs associated with acquiring and
renovating properties are capitalized as incurred. At such times that events
or circumstances indicate that the carrying amount of a property may be
impaired, the Company makes an assessment of its recoverability by estimating
the future undiscounted cash flows, excluding interest charges, of the
property. If the carrying amount exceeds the aggregate future cash flows, the
Company would recognize an impairment loss to the extent the carrying amount
exceeds the fair value of the property. Based upon such periodic assessments,
no impairment has been determined and no rental properties carrying amounts
have been adjusted.
Maintenance and repairs are expensed as incurred. Major replacements and
betterments are capitalized and depreciated over their estimated useful lives.
Depreciation is computed on the straight-line method using estimated lives
of 30 to 40 years for building and improvements, and the term of the
respective lease for tenant improvements.
Restricted Cash
Restricted cash consists of security deposit funds and a $4,715,000 tenant
improvement reserve established by the Company pursuant to a lease with a
tenant at one of the Company's properties.
Rental Income
Rental income from leases with scheduled rent increases, free rent and other
rent concessions are recognized on a straight-line basis over the lease term.
Amounts currently recognized as income, and expected to be received in later
years, are included in tenant receivables and deferred rent. Amounts received
currently, but recognized as income in future years, are included in unearned
rent.
Loan Fees and Costs
Fees and costs incurred in obtaining long-term financing are amortized over
the terms of the related loan agreements and included in interest expense.
F-13
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Leasing Commissions
Leasing commissions are amortized on a straight-line basis over the term of
the related lease.
Offering Costs and Yield Adjustment
Offering costs associated with the issuance of preferred shares are deducted
from the proceeds of the preferred stock. The Company accretes the difference
between the minimum yield requirement on the preferred stock and the minimum
dividend payment as a charge to additional paid-in capital.
Fair Value of Financial Instruments
The Company believes the carrying amounts of its financial instruments,
except certain secured notes payable, approximate their fair values (see Note
4).
Earnings Per Share
Net income (loss) per common share is based upon the weighted average number
of common shares outstanding during the period. Primary earnings per common
share are based upon the weighted average number of such shares outstanding
and the assumed equivalent shares outstanding during the period. The assumed
exercise of outstanding stock options, using the treasury stock method, is not
materially dilutive and such amounts are not presented. The conversion of
convertible preferred stock is antidilutive and, therefore, excluded from the
earnings per share computation.
Income Taxes
For the taxable year ended December 31, 1996, the Company intends to make an
election to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code. As a REIT, the Company generally will not be subject to federal
income tax if it meets a number of organizational and operational requirements
and distributes at least 95% of its taxable income for each tax year to its
stockholders. If the Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate tax rates.
Even if the Company qualifies for taxation as a REIT, the Company may be
subject to state and local income taxes and to federal income tax and excise
tax on its undistributed income. Distributions for the year ended December 31,
1996, are being reflected as earnings and profit.
For the year ended December 31, 1995, deferred income taxes are recognized
for tax consequences of temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods and tax net operating loss ("NOL") carryforwards.
2. RENTAL PROPERTIES
Rental properties are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................... $ 28,383 $10,444
Building and improvements............................... 121,236 45,397
Tenant and other improvements........................... 1,535 413
-------- -------
151,154 56,254
Less accumulated depreciation........................... (4,194) (1,901)
-------- -------
$146,960 $54,353
======== =======
</TABLE>
F-14
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All of the Company's rental properties are encumbered by deeds of trust and
assignments of the rents and leases associated with the properties. The
Company leases space, under noncancelable leases with remaining terms of 1 to
20 years. Certain tenants are also obligated to reimburse the Company for
specific operating expenses.
Minimum lease payments to be received under the terms of the operating lease
agreements, excluding expense reimbursements, as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................................ $21,663
1998........................................................ 20,371
1999........................................................ 16,107
2000........................................................ 12,459
2001........................................................ 9,004
Thereafter.................................................. 28,299
</TABLE>
3. UNSECURED LINE OF CREDIT
The unsecured line of credit to the Company from a bank had a maximum
commitment of $3,000,000 (which was subject to increase, with certain
limitations, to $4,000,000) bore interest at LIBOR plus 2.5% (or prime plus
1.5%) and matured on October 31, 1995.
In September 1995, certain terms of the line of credit were amended. The
limitation to increase the maximum commitment to $4,000,000 was removed and
the maximum commitment was increased to $4,000,000. The interest rate was
increased to LIBOR plus 3.00% (or prime plus 1.75%) and the due date was
extended to January 31, 1996. The loan was further extended to June 30, 1996.
This loan was repaid in full during the year ended December 31, 1996.
4. SECURED NOTES PAYABLE
Secured notes payable are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Line of credit, with PaineWebber Incorporated, secured by
four of the Company's properties, with a maximum
commitment of $44,400,000, bearing interest at LIBOR plus
2.5%, and due in 1999, convertible to a 10 year term
loan..................................................... $ 44,400 $ --
Notes payable to banks, an insurance company, and a
tenant/prior owner secured by first and second deeds of
trust on the rental properties, bearing interest at fixed
rates ranging from 8.25% to 9.00% and due at various
dates through 2014....................................... 67,152 35,204
Note payable to a bank, secured by certain building
improvements, bearing interest at prime plus 1.5% and due
in 1997.................................................. 380 440
Line of credit with a maximum commitment of $1,250,000,
secured by deeds of trust on rental properties, bearing
interest at LIBOR plus 2.5% and due in 1997.............. 1,250 1,250
-------- -------
$113,182 $36,894
======== =======
</TABLE>
F-15
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future principal payments due on secured notes payable, as of December 31,
1996, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................................ $ 25,016
1998........................................................ 1,430
1999........................................................ 49,523
2000........................................................ 1,192
2001........................................................ 1,295
Thereafter.................................................. 34,726
--------
$113,182
========
</TABLE>
The prime and LIBOR rates of interest at December 31, 1996 were 8.25% and
5.78%, respectively.
Based on the borrowing rates currently available to the Company for bank
loans with similar maturities, the fair value of secured notes payable as of
December 31, 1996 and 1995 are approximately $113,215,000 and $37,650,000,
respectively.
Effective October 1, 1996, the Company entered into two interest rate floor
and cap transactions with notional amounts of $44,500,000 to convert floating
rate liabilities to fixed rate liabilities. The agreements fix the variable
portion of the interest rate on variable rate debt at 8.0% through October 1,
1999. The Company does not hold or issue the interest rate agreements for
trading purposes and is exposed to possible credit risk if the counterparties
fail to perform on the contracts.
5. INCOME TAXES
As of December 31, 1996, the Company had net deferred tax assets totaling
$808,000 arising primarily from differences between financial accounting and
income tax reporting for the effects of (i) straight line rents;
(ii) depreciation and amortization; (iii) unearned rents, and (iv) an NOL
carryforward totaling $213,000. Since the Company intends to qualify as a REIT
it has fully reserved the amount of income tax benefit relating to its
deferred tax assets to the extent they exceed deferred tax liabilities, and
has not recognized any deferred tax expense.
6. MANDITORILY REDEEMABLE PREFERRED STOCK
Series V cumulative convertible preferred stock
Series V preferred stockholders are entitled to dividends at an annual rate
of 10% of the stated value per share during the first twelve dividend periods
or such larger amount as would be payable on an as converted basis were the
Series V preferred stock converted to common stock. Beginning with the
thirteenth dividend period, the annual dividend rate increases to 15%. The
stated value of each share is $1,000. Dividends are cumulative and are payable
in quarterly equal installments on March 31, June 30, September 30, and
December 31 of each year. In the event of any liquidation events, the Series V
preferred stockholders are entitled to a liquidation preference that will
provide an internal rate of return of 15% on the stated value per share. The
difference between the amount of dividends and the minimum 15% internal rate
of return is accreted to the recorded value of the stock.
Upon the closing of an IPO during the four years following the issue date of
the shares of Series V preferred stock, the Company has the right to redeem no
less than one-half of the Series V preferred stock for cash and to convert the
balance into fully paid and nonassessable shares of common stock. The
redemption price per share of Series V preferred stock is the stated value
plus an amount calculated to provide an internal rate of return of
F-16
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20%. Notwithstanding the Company's option to redeem and convert the Series V
preferred stock as set forth above, the Series V preferred stockholders may
elect to convert up to all of the Series V preferred stock at the conversion
share price (as defined). In addition, each share of Series V preferred stock
may convert at the conversion share price into common stock at the option of
the holder (i) prior to the closing of a merger or consolidation of the
Company, (ii) at any time after the fourth anniversary of the issue date or
(iii) upon consummation of an IPO.
Other than in connection with a partial cash redemption (as defined), the
Company may not redeem the Series V preferred stock prior to the third
anniversary of the issue date. Thereafter, such shares may be redeemed in
whole but not in part, at an amount which provides the holders an internal
rate of return equal to 25%, for the first three years and 20% thereafter.
The Series V preferred stock is subject to certain procedural and operating
covenants including payment of regular dividends and maintaining minimum cash
available for distribution (as defined). Following the first anniversary of
the issue date, the holder of the Series V preferred stock shall have the
option upon a breach of such covenants to cause the Company to redeem such
shares for an amount in cash necessary to provide an internal rate of return
ranging from 15% to 20% depending on the covenant breach which triggered such
redemptions.
The Series V preferred stock ranks senior to the common stock and all other
classes of preferred stock issued by the Company with respect to dividends,
liquidations, and for all other purposes.
7. PREFERRED STOCK
Series T 8.5% preferred stock
Holders of the Series T preferred stock are entitled to dividends at an
annual rate of 8.5% of the stated value per share. Dividends are fully
cumulative and are payable, in arrears, on July 1 and January 1 of each year.
The Series T preferred stock may be redeemed from time to time, in whole or
in part, at the option of the Company, at a redemption price equal to 100% of
the stated value per share, plus all accrued and unpaid dividends, whether or
not authorized and declared. The stated value per share of the Series T
preferred stock is $100.
In addition to separate class voting rights on certain matters directly
effecting the specific status and rights of the Series T preferred
stockholders, the Series T preferred stockholders are entitled to vote upon
all matters upon which holders of common stock have the right to vote.
Series T preferred stock ranks on parity with Series U 8.5% preferred stock
and is junior to Series V preferred stock with respect to dividends,
liquidations, and all other purposes.
Series U 8.5% cumulative convertible preferred stock
Holders of the Series U 8.5% preferred stock are entitled to dividends at an
annual rate of 8.5% of the stated value per share. Dividends are fully
cumulative and are payable in arrears on January 1 of each year.
Commencing on the fifth anniversary of the issue date, the Series U
preferred stock may be redeemed, at a redemption price equal to 135% of the
stated value per share, plus all accrued and unpaid dividends. The stated
value per share of the Series U preferred stock is $500.
F-17
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Series U preferred stock is mandatorily convertible into common stock if
(i) shares of common stock are registered under the Securities Act of 1933, as
amended, pursuant to an effective registration statement, and (ii) the Company
has entered into an underwriting agreement to sell shares of common stock
(which underwriting agreement sets forth the price at which such shares will
be offered for sale). Upon such conversion, each share of Series U preferred
stock will convert into a number of shares of common stock having a value
equal to 135% of the Series U stated value plus all accrued and unpaid
dividends.
The Series U holders have no voting rights other than on certain matters
directly affecting the specific status and rights of the Series U.
The Series U preferred stock ranks on parity with Series T preferred stock
and is junior to Series V preferred stock with respect to dividends,
liquidations, and all other purposes.
8. COMMITMENTS AND CONTINGENCIES
Litigation
To the Company's knowledge, no litigation is pending against the Company,
other than routine actions and administrative proceedings, substantially all
of which are expected to be covered by liability insurance or which, in the
aggregate, are not expected to have a material adverse effect on the business
or financial condition of the Company.
Employment Agreements
Two of the Company's executives have signed employment agreements that run
through December 31, 2000. For the year ended December 31, 1997, these
executives will earn a combined salary of $475,000. For the remaining three
years they will earn a combined salary of $415,000. One of the executives will
earn an annual retirement benefit of $90,000 per year for the remainder of his
life and his then living spouse's life. For the year ended December 31, 1996,
the Company recorded a post-retirement benefit for past services provided by
this executive equal to $438,000.
Three employees are subject to employment agreements that provide for a
combined annual salary of $435,000 per year and are for a term ending on
December 31, 1998, with a provision for automatic one year extensions until
either the executive or the Company notifies the other that such party does
not wish to extend the agreement.
Each of the employment agreements of the executives and employees provides
for bonuses and base salary adjustments. With respect to two of these
individuals, the bonus is tied to the annual increase in funds from operations
(as defined).
Concentration of Credit Risk
The Company maintains its cash and cash equivalents at insured financial
institutions. The combined account balances at each institution periodically
exceeds FDIC insurance coverage, and, as a result, there is a concentration of
credit risk related to amounts on deposit in excess of FDIC insurance
coverage. Management believes that the risk is not significant.
The Company is dependent on rental payments from a limited number of tenants
and the inability of any single tenant to make its lease payments could
adversely affect the Company and its ability to make distributions to
stockholders. The Company currently has approximately 32 leases with a total
of approximately 27 tenants,
F-18
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and eight of the Company's 15 properties (including the properties to be
acquired in connection with the Company's acquisition of the Acquisition LLC
(see Note 11)) are single-tenant properties. At February 1, 1997, three of the
Company's tenants, accounted for approximately 37% of the Company's aggregate
annualized base rent.
The Company does not generally require collateral or other security from its
tenants other than security deposits.
The Company has available two irrevocable letters of credit totaling $858,000
which are used as security deposits for two leases.
9. STOCK OPTION PLANS
1996 Stock Option Plan
The Company has a ten-year incentive and nonqualified stock option plan (the
"Plan") for certain employees and non-employee directors of the Company. Under
the Plan, options to purchase shares of common stock of the Company are granted
to eligible participants at an exercise price to be determined by the
Administrator of the Plan (the "Administrator") at the time of grant, which may
not be less than the Fair Market Value (as defined in the Plan) of the common
stock as of the grant date. The Plan resulted from the consolidation of the
Company's 1996 Stock Option Plan, 1996 Stock Option Plan for Non-Employee
Directors, 1995 Substitute Stock Option Plan and 1995 Substitute Stock Option
Plan for Non-employee Directors. Non-employee directors of the Company are only
eligible to receive non-qualified stock options under the Plan. Unless
otherwise determined by the Administrator, the option shares may be exercised
as follows:
. 50% one year following the grant date.
. 75% two years following the grant date.
. 100% three years following the grant date.
The Administrator may waive such installment exercise provisions at any time
based on such factors as the Administrator may determine in its sole
discretion. In addition, any option that is outstanding and not yet fully
exercisable under the Plan shall become fully and immediately exercisable upon
(i) certain events of termination of employment as set forth in the Plan, (ii)
the underwritten initial public offering of common stock by the Company or
(iii) a Change in Control (as defined in the Plan). A maximum of 239.60 shares
of common stock are authorized for issuance under the Plan and none are
outstanding.
Under the Plan, holders of options granted under the Holdings 1994 Stock
Option Plan, as amended, or the Holdings 1994 Stock Option Plan for Non-
Employee Directors, as amended, ("Holdings Stock Options") may be eligible to
be granted substitute stock options in the event of certain changes in the
capital or corporate structure of the Company or a subsidiary of the Company
(including upon the consummation of an IPO). Substitute stock options may be
granted under the Plan in substitution for then outstanding Holdings Stock
Options to the extent that the Administrator determines, in its sole
discretion, that the grant of substitute stock options is necessary to provide
that holders of Holdings Stock Options not be deprived of benefits to which
they would otherwise have been entitled had such event or events not occurred.
Any grant of a substitute stock option will be subject to the prior
cancellation and surrender of the corresponding Holdings Stock Option. The
terms and conditions of substitute stock options shall be substantially
equivalent to those of the Holdings Stock Options in respect of which the
substitute stock options are granted. In connection with the proposed Offering
substitute stock options will be granted under the 1996 Plan in substitution
for Outstanding Holdings Stock Options. As of
F-19
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1996, 7,932 Holdings Stock Options had been issued and are
outstanding. In January 1997 an additional 4,045 options were issued by
Holdings. No substitute stock options were outstanding at December 31, 1996.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee and director stock options.
Post IPO Stock Option Plan
The Company expects to adopt a stock option and incentive plan (the "1997
Stock Option Plan") prior to consummation of the Offering. The 1997 Stock
Option Plan is expected to be administered by the Compensation Committee of
the Board of Directors. The 1997 Stock Option Plan is expected to provide for
the grant of incentive and non-qualified stock options, stock appreciation
rights and restricted stock with respect to 1,030,000 shares of Common Stock.
The 1997 Stock Option Plan is also expected to permit the Compensation
Committee to select eligible officers and employees of the Company to receive
awards and to determine certain terms and conditions of such awards. Options
granted to employees pursuant to the 1997 Stock Option Plan are expected to
vest pro rata over a three-year period and such options are expected to be
exercisable at a price that is no less than the then current market value of
such stock. In addition, the 1997 Stock Option Plan also is expected to
provide for the granting of non-qualified stock options to non-employee
directors of the Company. Such options are expected to vest immediately. In
connection with the Offering, the Company intends to grant options to officers
and directors of the Company under the 1997 Stock Option Plan with respect to
an aggregate of 650,000 shares of Common Stock.
10. RELATED PARTY TRANSACTIONS
During 1996 and 1995, the Company incurred $1,708,000 and $369,000,
respectively, for legal services provided by a law firm of which a shareholder
of Holdings is a member.
General and administrative expenses for 1996 and 1995 include $49,000 and
$35,000, respectively, for payroll accounting and office space provided by a
shareholder of Holdings.
Holdings advanced to the Company $2,483,000 at a rate of 10% which is due on
demand. For the year ended December 31, 1996, $162,000 of interest was accrued
and $42,000 was paid on this advance.
11. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the following events occurred:
The Company assigned its rights to purchase three properties to PW
Acquisitions I, LLC ("PW"), a limited liability company ("Acquisition LLC")
controlled by PaineWebber Real Estate Holdings, Inc. and PW Realty Partners
LLC (together "PaineWebber"). In January 1997, the Acquisition LLC acquired
the three properties for approximately $52 million. The Company, upon
occurrence of certain events (but no later than September 30, 1998) is
required to purchase the outstanding membership interests in the Acquisition
LLC and has agreed to fund any cash flow deficit of the Acquisition LLC. The
purchase price for the membership interest in the Acquisition LLC will equal
the original purchase price of the properties plus an amount which provides a
return to PaineWebber equal to (i) the Adjusted Eurodollar rate on the first
73.65% of PaineWebber's equity
F-20
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contributions and (ii) a 15% compound return on the remaining 26.35% of
PaineWebber's equity contributions, plus 50% of the difference between the
aggregate fair value, as defined, over PaineWebber's contributions to the
Acquisition LLC and the Company's approved expenses. Based upon the properties
purchased by the Acquisition LLC, the Company will be required to purchase the
properties for approximately $62.9 million with a portion of the net proceeds
of the IPO.
On January 24, 1997, the Company entered into an unsecured line of credit of
$2,500,000 which bears interest at either the "Reference Rate" or the LIBOR
rate, plus a margin based upon the ratio of liabilities to gross asset value,
and matures on December 31, 1997. The Company has drawn $2,500,000 subsequent
to December 31, 1996. The line of credit contains certain financial covenants,
and repayment is guaranteed by Holdings.
Subsequent to year end, the Company adopted a 401(k) plan which became
effective January 1, 1997. Each employee of the Company may enroll in the plan
on such employee's date of hire. An actively employed employee is eligible to
receive a matching contribution under the plan equal to 50% of each
participant's contribution. Plan participants are immediately vested in their
contributions to the plan and the matching contributions by the Company.
Subsequent to year end, the Company changed its name from Health Science
Properties, Inc. to Alexandria Real Estate Equities, Inc. and changed the name
of its consolidated subsidiary from HSP-QRS, Inc. to ARE-QRS, Inc.
12. NON-CASH TRANSACTION
In connection with the formation of the Company, the following net assets
were contributed from Holdings, on November 4, 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Rental properties, net...................................... $ 24,544
Cash and cash equivalents................................... 9,427
Tenant security deposit funds............................... 306
Other assets, net........................................... 655
Secured notes payable and unsecured line of credit.......... (16,453)
Tenants security deposits................................... (403)
Accounts payable and accrued expenses....................... (948)
--------
Net assets................................................ $ 17,128
========
</TABLE>
F-21
<PAGE>
SCHEDULE III
ALEXANDRIA REAL ESTATE EQUITIES, INC.
RENTAL PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COSTS ACQUISITION TOTAL COSTS
--------------------- ------------- ------------------------------
SQUARE BUILDINGS AND BUILDINGS AND ACCUMULATED
PROPERTY FOOTAGE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION ENCUMBRANCES
- -------- --------- ------- ------------- ------------- ------- ------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10933 Torrey
Pines.......... 108,133 $ 3,903 $ 5,960 $1,048 $ 3,903 $ 7,008 $ 10,911 $ 586 $ 7,741
11099 N. Torrey
Pines.......... 86,962 2,663 10,649 1,545 2,663 12,194 14,857 1,069 10,106
3535 General
Atomics Court.. 76,084 2,651 18,046 153 2,651 18,199 20,850 1,244 12,180
3565 General
Atomics Court.. 43,600 1,227 9,554 -- 1,227 9,554 10,781 650 6,303
1102 and 1124
Columbia
Street......... 213,397 6,566 23,528 73 6,566 23,601 30,167 339 32,452
1413 Research
Boulevard...... 105,000 2,317 9,611 238 2,317 9,849 12,166 121 8,600
300 and 401
Professional
Drive.......... 111,179 2,000 12,302 22 2,000 12,324 14,324 95 10,800
25, 35 and 45 W.
Watkins Mill
Road........... 138,938 3,281 14,416 32 3,281 14,448 17,729 69 11,700
1311, 1401 and
1431 Harbor Bay
Parkway........ 147,777 3,775 15,526 68 3,775 15,594 19,369 21 13,300
--------- ------- -------- ------ ------- -------- -------- ------ --------
1,031,070 $28,383 $119,592 $3,179 $28,383 $122,771 $151,154 $4,194 $113,182
========= ======= ======== ====== ======= ======== ======== ====== ========
<CAPTION>
PROPERTY YEAR BUILT
- -------- ----------
<S> <C>
10933 Torrey
Pines.......... 1971
11099 N. Torrey
Pines.......... 1986
3535 General
Atomics Court.. 1991
3565 General
Atomics Court.. 1991
1102 and 1124
Columbia
Street......... 1975/1983
1413 Research
Boulevard...... 1967/1973
300 and 401
Professional
Drive.......... 1989/1987
25, 35 and 45 W.
Watkins Mill
Road........... 1989
1311, 1401 and
1431 Harbor Bay
Parkway........ 1985/1989
</TABLE>
A summary of activity of rental office properties and accumulated
depreciation is as follows:
<TABLE>
<CAPTION>
RENTAL PROPERTIES
DECEMBER 31,
------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period................... $ 56,254 $54,700 $ --
Improvements..................................... 1,578 1,554 47
Acquisition of land, building and improvements... 93,322 -- 54,653
-------- ------- -------
Balance at end of period......................... $151,154 $56,254 $54,700
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION
DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period................... $ 1,901 $ 333 $ 270
Depreciation expense............................. 2,293 1,568 63
-------- -------- ------
Balance at end of period......................... $ 4,194 $ 1,901 $ 333
======== ======== ======
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses
of 1413 Research Blvd. (the "Property") for the year ended December 31, 1995.
This statement of revenue and certain expenses is the responsibility of the
management of the Property. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenue and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Alexandria Real Estate Equities, Inc. Certain expenses (described in Note
1) that would not be comparable to those resulting from the proposed future
operations of the Property are excluded and the statement is not intended to
be a complete presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of the Property for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
February 20, 1997
F-23
<PAGE>
1413 RESEARCH BLVD.
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE ACQUISITION
PERIOD FOR THE YEAR
JANUARY 1, ENDED
1996 TO DECEMBER 31,
JULY 2, 1996 1995
--------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Rental........................................... $ 711 $407
Tenant recoveries................................ 595 243
------ ----
Total revenue.................................. 1,306 650
Certain Expenses:
Utilities........................................ 194 128
Repairs and maintenance.......................... 389 134
Insurance........................................ 10 --
Taxes and license................................ 87 174
------ ----
Total certain expenses......................... 680 436
------ ----
Excess of revenue over certain expenses........ $ 626 $214
====== ====
</TABLE>
See accompanying notes to statement of revenue and certain expenses.
F-24
<PAGE>
1413 RESEARCH BLVD.
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The accompanying statement of revenue and certain expenses includes the
operations of 1413 Research Blvd. located in Rockville, Maryland (the
"Property") which was acquired by Alexandria Real Estate Equities, Inc., a
Maryland corporation (the "Company") from a nonaffiliated third party. The
Property is 100% leased to the United States Government.
Basis of Presentation
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of the Company.
The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of
the Property have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of the Property.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
Risks and Uncertainties
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Statement
The statement of revenue and certain expenses for the period January 1,
1996, to July 2, 1996 (date of acquisition) is unaudited. In the opinion of
management, this financial statement reflects all adjustments necessary for a
fair presentation of the results of the respective interim period. All such
adjustments are of a normal, recurring nature.
2. RENTAL OFFICE PROPERTY
The future minimum lease payments to be received under noncancelable
operating leases as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 1,563,000
1998........................................................... 1,563,000
1999........................................................... 1,366,000
2000........................................................... 1,225,000
2001........................................................... 919,000
Thereafter..................................................... --
</TABLE>
The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses
of 300 and 401 Professional Drive (the "Property") for the year ended December
31, 1995. This statement of revenue and certain expenses is the responsibility
of the management of the Property. Our responsibility is to express an opinion
on the statement of revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenue and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Alexandria Real Estate Equities, Inc. Certain expenses (described in Note
1) that would not be comparable to those resulting from the proposed future
operations of the Property are excluded and the statement is not intended to
be a complete presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of the Property for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
February 20, 1997
F-26
<PAGE>
300 AND 401 PROFESSIONAL DRIVE
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE ACQUISITION
PERIOD FOR THE YEAR
JANUARY 1, 1996 ENDED
TO SEPTEMBER 10, DECEMBER 31,
1996 1995
---------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Rental.......................................... $1,096 $1,582
Tenant recoveries............................... 350 525
------ ------
Total revenue................................. 1,446 2,107
Certain Expenses:
Utilities....................................... 75 76
Repairs and maintenance......................... 85 260
Insurance....................................... 13 8
Taxes and license............................... 177 181
------ ------
Total certain expenses........................ 350 525
------ ------
Excess of revenue over certain expenses....... $1,096 $1,582
====== ======
</TABLE>
See accompanying notes to statement of revenue and certain expenses.
F-27
<PAGE>
300 AND 401 PROFESSIONAL DRIVE
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The accompanying statement of revenue and certain expenses includes the
operations of 300 and 401 Professional Drive located in Gaithersburg, Maryland
(the "Property") which was acquired by Alexandria Real Estate Equities, Inc.,
a Maryland corporation (the "Company") from a nonaffiliated third party. The
Property consists of two buildings that are 100% occupied and leased to three
tenants under triple net leases which require the tenants to pay substantially
all expenses associated with the Property including operating and maintenance,
utilities, taxes and insurance.
Basis of Presentation
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of the Company.
The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of
the Property have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of the Property.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
Risks and Uncertainties
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Statement
The statement of revenue and certain expenses for the period January 1,
1996, to September 10, 1996 (date of acquisition) is unaudited. In the opinion
of management, this financial statement reflects all adjustments necessary for
a fair presentation of the results of the respective interim period. All such
adjustments are of a normal, recurring nature.
2. RENTAL OFFICE PROPERTY
The future minimum lease payments to be received under noncancelable
operating leases as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997.............................................................. $1,640,000
1998.............................................................. 1,674,000
1999.............................................................. 1,030,000
2000.............................................................. 1,023,000
2001.............................................................. 1,039,000
Thereafter........................................................ 4,592,000
</TABLE>
The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses
of 25, 35 and 45 W. Watkins Mill Road (the "Property") for the year ended
December 31, 1995. This statement of revenue and certain expenses is the
responsibility of the management of the Property. Our responsibility is to
express an opinion on the statement of revenue and certain expenses based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenue and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Alexandria Real Estate Equities, Inc. Certain expenses (described in Note
1) that would not be comparable to those resulting from the proposed future
operations of the Property are excluded and the statement is not intended to
be a complete presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of the Property for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
February 20, 1997
F-29
<PAGE>
25, 35 AND 45 W. WATKINS MILL ROAD
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE ACQUISITION
PERIOD
JANUARY 1, FOR THE
1996 TO YEAR ENDED
OCTOBER 18, DECEMBER 31,
1996 1995
--------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Rental........................................... $1,296 $1,739
Tenant recoveries................................ 300 287
------ ------
Total revenue.................................. 1,596 2,026
Certain Expenses:
Utilities........................................ 31 46
Repairs and maintenance.......................... 74 52
Insurance........................................ 11 12
Taxes and license................................ 216 198
------ ------
Total certain expenses......................... 332 308
------ ------
Excess of revenue over certain expenses........ $1,264 $1,718
====== ======
</TABLE>
See accompanying notes to statement of revenue and certain expenses.
F-30
<PAGE>
25, 35 AND 45 W. WATKINS MILL ROAD
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The accompanying statement of revenue and certain expenses includes the
operations of 25, 35 and 45 W. Watkins Mill Road located in Gaithersburg,
Maryland (the "Property") which was acquired by Alexandria Real Estate
Equities, Inc., a Maryland corporation (the "Company") from a nonaffiliated
third party. The Property consists of three buildings that are 100% occupied
and leased to five tenants under triple net leases which require the tenants
to pay substantially all expenses associated with the property including
operating and maintenance, utilities, taxes and insurance.
Basis of Presentation
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of the Company.
The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of
the Property have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of the Property.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
Risks and Uncertainties
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Statement
The statement of revenue and certain expenses for the period January 1,
1996, to October 18, 1996 (date of acquisition) is unaudited. In the opinion
of management, this financial statement reflects all adjustments necessary for
a fair presentation of the results of the respective interim period. All such
adjustments are of a normal, recurring nature.
2. RENTAL OFFICE PROPERTY
The future minimum lease payments to be received under noncancelable
operating leases as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $1,572,000
1998............................................................ 1,591,000
1999............................................................ 1,618,000
2000............................................................ 1,667,000
2001............................................................ 1,074,000
Thereafter...................................................... 7,358,000
</TABLE>
The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses
of 1311, 1401 and 1431 Harbor Bay Parkway (the "Property") for the year ended
December 31, 1995. This statement of revenue and certain expenses is the
responsibility of the management of the Property. Our responsibility is to
express an opinion on the statement of revenue and certain expenses based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenue and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Alexandria Real Estate Equities, Inc. Certain expenses (described in Note
1) that would not be comparable to those resulting from the proposed future
operations of the Property are excluded and the statement is not intended to
be a complete presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of the Property for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
February 20, 1997
F-32
<PAGE>
1311, 1401 AND 1431 HARBOR BAY PARKWAY
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE ACQUISITION
PERIOD
JANUARY 1, FOR THE
1996 TO YEAR ENDED
DECEMBER 12, DECEMBER 31,
1996 1995
--------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Rental........................................... $2,144 $2,188
Tenant recoveries................................ 142 207
Other income..................................... 4 --
------ ------
Total revenue.................................. 2,290 2,395
Certain Expenses:
Utilities........................................ 62 126
Repairs and maintenance.......................... 271 269
Insurance........................................ 22 21
Taxes and license................................ 200 200
------ ------
Total certain expenses......................... 555 616
------ ------
Excess of revenue over certain expenses........ $1,735 $1,779
====== ======
</TABLE>
See accompanying notes to statement of revenue and certain expenses.
F-33
<PAGE>
1311, 1401 AND 1431 HARBOR BAY PARKWAY
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The accompanying statement of revenue and certain expenses includes the
operations of 1311, 1401 and 1431 Harbor Bay Parkway located in Alameda,
California (the "Property") which was acquired by Alexandria Real Estate
Equities, Inc., a Maryland corporation (the "Company") from a nonaffiliated
third party. The Property consists of three buildings that are 86% occupied
and leased to four tenants under triple net leases which require the tenants
to pay substantially all expenses associated with the property including
operating and maintenance, utilities, taxes and insurance.
Basis of Presentation
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of the Company.
The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of
the Property have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of the Property.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
Risks and Uncertainties
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Statement
The statement of revenue and certain expenses for the period January 1,
1996, to December 12, 1996 (date of acquisition) is unaudited. In the opinion
of management, this financial statement reflects all adjustments necessary for
a fair presentation of the results of the respective interim period. All such
adjustments are of a normal, recurring nature.
2. RENTAL OFFICE PROPERTY
The future minimum lease payments to be received under noncancelable
operating leases as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 3,555,000
1998........................................................... 3,595,000
1999........................................................... 2,763,000
2000........................................................... 2,116,000
2001........................................................... 2,116,000
Thereafter..................................................... 11,732,000
</TABLE>
The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.
1431 Harbor Bay Parkway is 100% leased to the US Food and Drug
Administration. This lease has a monthly base rent of $246,000 with step downs
in monthly base rent to $176,000 and $63,000 on January 1, 1999 and January 1,
2004, respectively.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses
of 1550 East Gude Drive (the "Property") for the year ended December 31, 1996.
This statement of revenue and certain expenses is the responsibility of the
management of the Property. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenue and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Alexandria Real Estate Equities, Inc. Certain expenses (described in Note
1) that would not be comparable to those resulting from the proposed future
operations of the Property are excluded and the statement is not intended to
be a complete presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of the Property for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
February 20, 1997
F-35
<PAGE>
1550 EAST GUDE DRIVE
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenue:
Rental.................................................................. $539
Tenant recoveries....................................................... 62
----
Total revenue......................................................... 601
Certain Expenses:
Taxes and license....................................................... 62
----
Excess of revenue over certain expenses............................... $539
====
</TABLE>
See accompanying notes to statement of revenue and certain expenses.
F-36
<PAGE>
1550 EAST GUDE DRIVE
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The accompanying statement of revenue and certain expenses includes the
operations of 1550 East Gude Drive located in Rockville, Maryland (the
"Property") which was acquired by PW Acquisitions I, LLC (the "Acquisition
LLC"). Concurrently with the consummation of a proposed initial public
offering of the Common Stock of Alexandria Real Estate Equities, Inc., a
Maryland corporation, (the "Company"), the Acquisition LLC will be acquired by
the Company. The Property is 100% leased to a single tenant under a triple net
lease which requires the tenant to pay for substantially all costs associated
with the building including a reimbursement to the owner for real estate
taxes.
Basis of Presentation
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of the Company.
The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of
the Property have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of the Property.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the term of the
related lease.
Risks and Uncertainties
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
2. RENTAL OFFICE PROPERTY
The future minimum lease payments to be received under the noncancelable
operating lease as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997.............................................................. $527,000
1998.............................................................. 590,000
1999.............................................................. 609,000
2000.............................................................. 627,000
2001.............................................................. 646,000
Thereafter........................................................ 54,000
</TABLE>
The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.
F-37
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDER-
WRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLIC-
ITATION IS UNLAWFUL.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 14
The Company.............................................................. 26
Target Markets........................................................... 32
Distributions............................................................ 34
Use of Proceeds.......................................................... 37
Capitalization........................................................... 38
Dilution................................................................. 39
Selected Financial Data.................................................. 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 42
The Properties........................................................... 47
Policies with Respect to Certain Activities.............................. 56
Formation and Structure.................................................. 59
Management............................................................... 62
Certain Transactions..................................................... 70
Share Ownership.......................................................... 71
Description of Capital Stock............................................. 73
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws.................................................................. 76
Shares Eligible for Future Sale.......................................... 78
Certain Federal Income Tax Considerations................................ 80
Underwriting............................................................. 88
Legal Matters............................................................ 90
Experts.................................................................. 90
Additional Information................................................... 91
Glossary................................................................. 92
Index to Financial Statements............................................ F-1
</TABLE>
---------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECU-
RITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE-
LIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,830,000 SHARES
ALEXANDRIA REAL
ESTATE EQUITIES, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
PAINEWEBBER INCORPORATED
LEHMAN BROTHERS
SMITH BARNEY INC.
EVEREN SECURITIES, INC.
---------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred by the
Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions.
All amounts are estimated except the Securities and Exchange Commission
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission................... $52,364
NASD Fee............................................................... $17,985
New York Stock Exchange Listing Fee.................................... $ *
Transfer Agent and Registrar's Fees.................................... $ *
Printing and Engraving Expenses........................................ $ *
Legal Fees and Expenses................................................ $ *
Accounting Fees and Expenses........................................... $ *
Miscellaneous Expenses................................................. $ *
-------
Total.............................................................. $ *
=======
</TABLE>
- --------
* To be filled in by Amendment
ITEM 31. SALES TO SPECIAL PARTIES.
See Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
On November 3, 1994, Alexandria issued 1,000 shares of Common Stock to
Holdings, an accredited investor, in exchange for the contribution by Holdings
of substantially all of its assets and liabilities to Alexandria. The issuance
of such shares was effected in reliance upon an exemption from registration
under Section 4(2) of the Securities Act as a transaction by an issuer not
involving a public offering.
On December 31, 1994, Alexandria issued four shares of Series T Preferred
Stock to each of Messrs. Sudarsky, Marcus and Gold, accredited investors, for
an aggregate purchase price of $1,200. The issuance of such shares was
effected in reliance upon an exemption from registration under Section 4(2) of
the Securities Act as a transaction by an issuer not involving a public
offering. Such shares were redeemed in connection with the Offering.
On January 29, 1996, Alexandria issued 220 shares of Series U Preferred
Stock to 126 holders for an aggregate purchase price of $110,000, in order to
meet certain REIT requirements of the Code. The purchasers of the shares were
accredited investors. The issuance of such shares was effected in reliance
upon an exemption from registration under Section 4(2) of the Securities Act
as a transaction by an issuer not involving a public offering. Prior to
consummation of the Offering, shares of Common Stock will be issued in
exchange for the shares of Series U Preferred Stock in reliance upon an
exemption from registration under Section 3(a)(9) of the Securities Act.
On September 9, 1996, Alexandria issued 16,000 shares of Series V Preferred
Stock to AEW, an accredited investor. Subsequently, on October 16, 1996, and
on December 10, 1996, Alexandria issued an additional 6,000 and 5,500 shares,
respectively, of Series V Preferred Stock to AEW, for a total of 27,500 shares
for an aggregate purchase price of $27,500,000. The issuance of such shares
was effected in reliance upon an exemption from registration under Section
4(2) of the Securities Act as a transaction by an issuer not involving a
public offering. Prior to consummation of the Offering, shares of Common Stock
will be issued in exchange for the shares of Series V Preferred Stock in
reliance upon an exemption from registration under Section 3(a)(9) of the
Securities Act.
The Board of Directors has approved the issuance of an aggregate of
shares of Common Stock in connection with the Offering to certain officers and
directors of the Company. The issuance of such shares on , 1997 will be
effected in reliance upon an exemption from registration under Section 4(2) of
the Securities Act as a transaction by an issuer not involving a public
offering.
II-1
<PAGE>
On , 1997, in connection with the Offering, officers and directors of
the Company will be granted options to purchase in the aggregate shares of
Common Stock under the 1996 Plan in substitution for previously granted
Holdings Stock Options. The issuance of such options will be effected in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public offering.
On , 1997, an aggregate of shares of Common Stock will be issued to
officers and directors of the Company upon the exercise of options held by
such officers and directors at an exercise price of $ per share. The
issuance of such shares will be effected in reliance upon an exemption from
registration under Section 4(2) of the Securities Act as a transaction by an
issuer not involving a public offering.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter of the
Company contains such a provision which eliminates such liability to the
maximum extent permitted by Maryland law.
The Charter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (i) any
present or former director or officer or (ii) any individual who, while a
director of the Company and at the request of the Company, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his or her serving
as a present or former director or office of the Company.
The Bylaws obligate the Company, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (i) any present or former director or
officer who is made a party to the proceeding by reason of his or her service
in that capacity or (ii) any individual who, while a director of the Company
and at the request of the Company, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee and who is made a party
to the proceeding by reason of his or her service in that capacity. The
Charter and Bylaws also permit the Company to indemnify and advance expenses
to any person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor
of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he or she is made a party by reason of his other service
in that capacity. The MGCL permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (i)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (a) was committed in bad faith or (b) was
the result of active and deliberate dishonesty, (ii) the director or officer
actually received an improper personal benefit in money, property or services
or (iii) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In addition, the
MGCL requires the Company, as a condition to advancing expenses, to obtain a
written affirmation by the director or officer of his good faith belief that
he has met the standard of conduct necessary for indemnification by the
Company as authorized by the Bylaws and a written statement by or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.
II-2
<PAGE>
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements. See page F-1 of the Prospectus for a list of the
financial statements included as part of the Prospectus.
(b) Schedules Included in Part II: None
All schedules have been omitted because they are either not applicable or
the information required has been disclosed in the financial statements and
related notes included in this Prospectus.
(c) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
1.1* Form of Underwriting Agreement between the Registrant and the
Representatives
3.1 Articles of Amendment and Restatement of the Registrant
3.2* Form of Articles of Amendment and Restatement of the Registrant
3.3 Amended and Restated Bylaws of the Registrant
3.4* Form of Second Amended and Restated Bylaws of the Registrant
4.1* Specimen Certificate representing shares of Common Stock
5.1* Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of
the Common Stock being registered
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding certain
federal income tax matters
10.1 Health Science Properties, Inc. Amended and Restated 1996 Stock Option
Plan
10.2* Form of Non-Employee Director Stock Option Agreement for use in
connection with options issued pursuant to the 1996 Plan
10.3* Form of Employee Stock Option Agreement for use in connection with
options issued pursuant to the 1996 Plan
10.4* Employment Agreement between the Registrant and Peter Nelson
10.5 Form of Director Indemnification Agreement
10.6 Employment Agreement between the Registrant and Jerry M. Sudarsky
10.7 Amendment to Employment Agreement between the Registrant and Jerry M.
Sudarsky
10.8 Employment Agreement between the Registrant and Joel S. Marcus
10.9 Amendment to Employment Agreement between the Registrant and Joel S.
Marcus
10.10 Employment Agreement between the Registrant and Alan Gold
10.11 Amendment to Employment Agreement between the Registrant and Alan Gold
10.12 Employment Agreement between the Registrant and Gary Kreitzer
10.13 Amendment to Employment Agreement between the Registrant and Gary
Kreitzer
10.14 Employment Agreement between the Registrant and Steven Stone
10.15 Amendment to Employment Agreement between the Registrant and Steven
Stone
10.16 Standard Lease Form to be executed by tenant and the Registrant as
Landlord
10.17 Second Amended and Restated Loan Agreement by and between PaineWebber
Incorporated and HSP-QRS Corp., dated September 9, 1996
10.18 First Amendment to Second Amended and Restated Loan Agreement by and
among PaineWebber Incorporated, PaineWebber Real Estate Securities
Inc. and HSP-QRS Corp., dated January 13, 1997.
10.19 Amended and Restated Promissory Note executed by Registrant in favor
of PaineWebber Incorporated, dated September 9, 1996
10.20 Unsecured Line of Credit Loan Agreement by and between Bank of America
NT&SA and the Registrant, dated January 24, 1997
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
10.21 Promissory Note executed by Registrant in favor of Bank of America National Trust and Savings
Association, dated January 24, 1997
10.22 Loan Agreement by and between the Registrant and Bank Audi (California), dated November 23, 1994
10.23 Promissory Note executed by Registrant in favor of Bank Audi (California), dated November 23, 1994
10.24 Form of Management Agreement
10.25 Agreement for Sale and Purchase of Membership Interest by and among PaineWebber Real Estate
Holdings, Inc., PW Realty Partners LLC, Registrant and HSP-QRS, dated January 13, 1997
10.26 Stockholders Agreement by and among the Registrant, Health Science Properties Holding Corporation
and AEW Partners II, L.P., dated September 9, 1996
10.27 Series V Convertible Preferred Stock Purchase Agreement, by and among Health Science Properties
Holding Corporation, Registrant and AEW Partners II, L.P., dated September 9, 1996
10.28* Form of 1997 Stock Option Plan of the Registrant
10.29* Form of Non-Employee Directors Stock Option Agreement for use in connection with options issued
pursuant to the 1997 Stock Option Plan
10.30* Form of Employee Stock Option Agreement for use in connection with Options issued pursuant to
the 1997 Stock Option Plan
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment
ITEM 36. UNDERTAKINGS.
The undersigned Company hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 33 above, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
the Registration Statement in reliance upon Rule 430A and contained in the
form of Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT CERTIFIES
THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA ON THE 18TH DAY OF
MARCH, 1997.
ALEXANDRIA REAL ESTATE EQUITIES,
INC.
/s/ Joel S. Marcus
By: _________________________________
JOEL S. MARCUS
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerry M. Sudarsky and Joel S. Marcus, and each
of them, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this Registration Statement, and any
registration statement relating to the offering covered by this Registration
Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents of
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities on
March 18, 1997.
SIGNATURE TITLE
/s/ J. M. Sudarsky Chairman of the Board of
_____________________________________ Directors
JERRY M. SUDARSKY
/s/ Joel S. Marcus Chief Executive Officer
_____________________________________ (Principal Executive
JOEL S. MARCUS Officer)
/s/ Alan D. Gold President, Treasurer and
_____________________________________ Director (Principal
ALAN D. GOLD Financial Officer)
/s/ Joseph Elmaleh Director
_____________________________________
JOSEPH ELMALEH
<PAGE>
SIGNATURE TITLE
/s/ Viren Mehta Director
_____________________________________
VIREN MEHTA
Director
_____________________________________
DAVID M. PETRONE
/s/ Anthony M. Solomon Director
_____________________________________
ANTHONY M. SOLOMON
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement between the Registrant
and the Representatives
3.1 Articles of Amendment and Restatement of the Registrant
3.2* Form of Articles of Amendment and Restatement of the
Registrant
3.3 Amended and Restated Bylaws of the Registrant
3.4* Form of Second Amended and Restated Bylaws of the
Registrant
4.1* Specimen Certificate representing shares of Common
Stock
5.1* Opinion of Ballard Spahr Andrews & Ingersoll regarding
the validity of the Common Stock being registered
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding certain federal income tax matters
10.1 Health Science Properties, Inc. Amended and Restated
1996 Stock Option Plan
10.2* Form of Non-Employee Director Stock Option Agreement
for use in connection with options issued pursuant to
the 1996 Plan
10.3* Form of Employee Stock Option Agreement for use in
connection with options issued pursuant to the 1996
Plan
10.4* Employment Agreement between the Registrant and Peter
Nelson
10.5 Form of Director Indemnification Agreement
10.6 Employment Agreement between the Registrant and Jerry
M. Sudarsky
10.7 Amendment to Employment Agreement between the
Registrant and Jerry M. Sudarsky
10.8 Employment Agreement between the Registrant and Joel S.
Marcus
10.9 Amendment to Employment Agreement between the
Registrant and Joel S. Marcus
10.10 Employment Agreement between the Registrant and Alan
Gold
10.11 Amendment to Employment Agreement between the
Registrant and Alan Gold
10.12 Employment Agreement between the Registrant and Gary
Kreitzer
10.13 Amendment to Employment Agreement between the
Registrant and Gary Kreitzer
10.14 Employment Agreement between the Registrant and Steven
Stone
10.15 Amendment to Employment Agreement between the
Registrant and Steven Stone
10.16 Standard Lease Form to be executed by tenant and the
Registrant as Landlord
10.17 Second Amended and Restated Loan Agreement by and
between PaineWebber Incorporated and HSP-QRS Corp.,
dated September 9, 1996
10.18 First Amendment to Second Amended and Restated Loan
Agreement by and among PaineWebber Incorporated,
PaineWebber Real Estate Securities Inc. and HSP-QRS
Corp., dated January 13, 1997.
10.19 Amended and Restated Promissory Note executed by
Registrant in favor of PaineWebber Incorporated, dated
September 9, 1996
10.20 Unsecured Line of Credit Loan Agreement by and between
Bank of America NT&SA and the Registrant, dated
January 24, 1997
10.21 Promissory Note executed by Registrant in favor of Bank
of America National Trust and Savings Association,
dated January 24, 1997
10.22 Loan Agreement by and between the Registrant and Bank
Audi (California), dated November 23, 1994
10.23 Promissory Note executed by Registrant in favor of Bank
Audi (California), dated November 23, 1994
10.24 Form of Management Agreement
10.25 Agreement for Sale and Purchase of Membership Interest
by and among PaineWebber Real Estate Holdings, Inc.,
PW Realty Partners LLC, Registrant and HSP-QRS, dated
January 13, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
10.26 Stockholders Agreement by and among the Registrant,
Health Science Properties Holding Corporation and AEW
Partners II, L.P., dated September 9, 1996
10.27 Series V Convertible Preferred Stock Purchase
Agreement, by and among Health Science Properties
Holding Corporation, Registrant and AEW Partners II,
L.P., dated September 9, 1996
10.28* Form of 1997 Stock Option Plan of the Registrant
10.29* Form of Non-Employee Directors Stock Option Agreement
for use in connection with options issued pursuant to
the 1997 Stock Option Plan
10.30* Form of Employee Stock Option Agreement for use in
connection with Options issued pursuant to the 1997
Stock Option Plan
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment.
<PAGE>
Exhibit 3.1
HEALTH SCIENCE PROPERTIES, INC.
-------------------------------
ARTICLES OF AMENDMENT AND RESTATEMENT
THIS IS TO CERTIFY THAT:
FIRST: Health Science Properties, Inc., a Maryland corporation (the
-----
"Corporation"), desires to amend and restate its charter as currently in effect
and as hereinafter amended.
SECOND: The following provisions are all the provisions of the charter
------
currently in effect and as hereinafter amended:
NAME
----
The name of the Corporation is Health Science Properties, Inc.
PURPOSES
--------
The purposes for which the Corporation is organized are:
A. To engage in the business of acquiring, developing, constructing, operating
and managing health science company facilities, including offices, laboratories,
pilot plants and manufacturing facilities;
B. To transact any and all lawful business for which corporations may be
incorporated under the laws of the State of Maryland, as now or hereafter in
force (including, without limitation or obligation, engaging in business as a
real estate investment trust under the Internal Revenue Code of 1986, as
amended, or any successor statute); and
C. To do everything necessary, proper, advisable and convenient for the
accomplishment of the purposes set forth above, and to do all other things
incidental thereto or connected therewith which are not forbidden by the laws of
the State of Maryland, as now or hereafter in force, or by these Articles of
Amendment and Restatement ("Articles").
PRINCIPAL OFFICE
----------------
The address of the principal office of the Corporation in the State of
Maryland is c/o The Prentice-Hall Corporation System, Maryland, 11 East Chase
Street, Suite 7C, Baltimore, Maryland 21202.
<PAGE>
RESIDENT AGENT
--------------
The name and street address of the resident agent of the Corporation are
c/o The Prentice-Hall Corporation System, Maryland, 11 East Chase Street, Suite
7C, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.
AUTHORIZED SHARES
-----------------
General
-------
The maximum number of shares of stock of all classes that the Corporation
is authorized to issue is two-hundred thousand (200,000), of which sixty-five
thousand (65,000) shares shall be common stock, par value $.01 per share (the
"Common Stock"), seventy thousand (70,000) shares shall be Excess Stock, $.01
par value per share ("Excess Stock"), and sixty-five thousand (65,000) shares
shall be preferred stock, par value $.01 per share (the "Preferred Stock"),
consisting of (i) fourteen thousand six-hundred twenty-five (14,625) shares of
undesignated Preferred Stock, (ii) one-hundred twenty-five (125) shares of
Series T Preferred Stock ("Series T Preferred Stock"), (iii) two-hundred fifty
(250) shares of Series U Preferred Stock ("Series U Preferred Stock") and (iv)
fifty thousand (50,000) shares of Series V Preferred Stock ("Series V Preferred
Stock"). The initial aggregate par value of all shares of all classes of stock
of the Corporation is $2,000.00.
Common Stock
------------
Each share of Common Stock shall entitle the holder of record thereof to
one vote at all meetings of the Corporation's stockholders, except meetings at
which only holders of another specified class or series of stock are entitled to
vote. Subject to any preference rights with respect to the payment of dividends
attaching to the Preferred Stock or any series thereof, the holders of shares of
Common Stock shall be entitled to receive, as and when authorized and declared
by the Board of Directors (the "Board"), dividends or other distributions that
may be paid in money or property or by the issuance of fully paid stock of the
Corporation. In the event of a liquidation, dissolution or winding up of the
Corporation or other distribution of the Corporation's assets among stockholders
for the purpose of winding up the Corporation's affairs, whether voluntary or
involuntary (any such event, a "Liquidation"), and subject to the rights,
privileges, conditions and restrictions attaching to the Preferred Stock or any
class or series thereof, the shares of Common Stock shall entitle the holders
thereof to receive the Corporation's remaining property.
-2-
<PAGE>
Undesignated Preferred Stock
----------------------------
The undesignated Preferred Stock (including, without limitation, redeemed
or acquired shares of previously designated preferred stock, as contemplated by
Sections D.8, E.11 and F.9 hereof) may be issued from time to time in one or
more classes or series as authorized by the Board. Prior to the issuance of
classified or reclassified shares of Preferred Stock, the Board by resolution
shall (i) designate that class or series to distinguish it from all other
classes and series of the Corporation's stock, (ii) specify the number of shares
to be included in the class or series, (iii) set, subject to the express terms
of any other Preferred Stock outstanding at the time, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications, terms or conditions of
redemption, and stated value ("Stated Value") of the shares of the class or
series and (iv) cause the Corporation to file articles supplementary with the
State Department of Assessments and Taxation of Maryland (the "SDAT"). Subject
to the express terms of any other Preferred Stock outstanding at the time, the
Board may increase or decrease the number or alter the designation or classify
or reclassify any unissued Preferred Stock by fixing or altering in one or more
respects, from time to time before issuing the shares, any terms, rights,
restrictions and qualifications of the shares, including any preference,
conversion or other rights, voting powers, restrictions, limitation as to
dividends or other distributions, qualifications, terms or conditions of
redemption, and Stated Value of the shares of the class or series.
Any of the terms of any class or series of Preferred Stock set pursuant to
this Section C may be made dependent upon facts or events ascertainable outside
the charter (including determinations by the Board or other facts or events
within the control of the Corporation) and may vary among holders thereof,
provided that the manner in which such facts, events or variations shall operate
upon the terms of such class or series of Preferred Stock is clearly and
expressly set forth in the articles supplementary filed with the SDAT.
Series T Preferred Stock
------------------------
1. Designation and Amount; Fractional Shares; and Stated Value. The
Series T Preferred Stock is issuable solely in whole shares that shall entitle
the holder thereof to exercise the voting rights, to participate in the
distributions and to have the benefit of all other rights of holders of the
Series T Preferred Stock as set forth in the charter of the Corporation. The
Stated Value of each such share of Series T Preferred Stock shall be $100.
2. Dividends.
Subject to any preference rights with respect to the payment of dividends
attaching to any other stock of the Corporation ranking prior to the Series T
Preferred Stock, holders of each share of Series T Preferred Stock shall be
entitled to receive out of the assets of the Corporation, at the time legally
-3-
<PAGE>
available therefor, dividends at an annual rate equal to 8.5% of the Stated
Value thereof, and no more, which shall be fully cumulative, shall accrue from
January 1, 1995, and shall be payable, in cash, semi-annually in arrears on July
1 and January 1 of each year (as used in this Section D, each such date a
"Dividend Payment Date"), commencing July 1, 1995, as set forth below (except
that, if any such date is a Saturday, Sunday or legal holiday, then such
dividend shall be payable on the next day that is not a Saturday, Sunday or
legal holiday), to holders of record as they appear upon the stock transfer
books of the Corporation at the close of business ten business days preceding
the related Dividend Payment Dates, or on such other date fixed by the Board (as
used in this Section D, each such date a "Record Date"). Subject to Section
D.2(d) hereof, dividends on account of arrearages for any past Dividend Payment
Date may be authorized, declared and paid at any time, without reference to any
regular Dividend Payment Date. Holders at the close of business on a Record
Date of shares of Series T Preferred Stock that are called for redemption on a
redemption date during the period between such Record Date and the corresponding
Dividend Payment Date shall not, in their capacity as such, be entitled to
receive the dividend payment on such Dividend Payment Date.
The dividend payable on each share of Series T Preferred Stock shall be
computed on the basis of a 360-day year consisting of twelve 30-day months. The
aggregate dividend paid to a holder of shares of Series T Preferred Stock shall
be based on the aggregate number of shares of Series T Preferred Stock held by
such holder at the close of business on the applicable Record Date and rounded
to the nearest whole cent (with one-half cent rounded upward). Unless otherwise
provided herein, dividends on each share of Series T Preferred Stock shall
accrue from and including January 1, 1995 to and excluding the earliest to occur
of (i) the date of redemption of such share and (ii) the date of final
distribution of assets upon Liquidation. All dividend payments made on shares
of Series T Preferred Stock shall first be credited against the earliest
accumulated but unpaid dividends with respect to such shares.
If, on any Dividend Payment Date, the holders of the Series T Preferred
Stock shall not have received the full dividends provided for herein, then such
dividends shall cumulate, whether or not earned, authorized or declared, with
additional dividends thereon for each succeeding full dividend period during
which such dividend shall remain unpaid.
No dividends or other distributions (other than a dividend or distribution
in Common Stock or any other stock of the Corporation ranking junior to the
Series T Preferred Stock as to dividends and upon Liquidation) shall be
authorized, declared, made or paid, or set apart for payment or distribution,
upon the Common Stock or upon any other stock of the Corporation ranking junior
to or on a parity with the Series T Preferred Stock as to dividends, nor may any
Common Stock or any other stock of the Corporation ranking junior to or on a
parity with the Series T Preferred Stock as to dividends or upon Liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the
-4-
<PAGE>
redemption of any shares of such stock) by the Corporation (except by conversion
into or in exchange for Common Stock or any other stock of the Corporation
ranking junior to the Series T Preferred Stock as to dividends and upon
Liquidation), unless full accrued dividends on all outstanding shares of the
Series T Preferred Stock have been, or contemporaneously are, authorized,
declared and paid, or authorized, declared and a sum sufficient for the payment
thereof is set apart for the payment thereof, to the date of such authorization,
declaration, payment, distribution, setting apart, making monies available,
redemption, purchase or acquisition. Notwithstanding the foregoing, (i) nothing
herein shall prevent the Corporation from making contributions to, or purchasing
stock in connection with, any employee benefit or dividend reinvestment plans or
(ii) if at any time full accrued or accumulated dividends have not been
authorized, declared and paid on the Series T Preferred Stock and on any of the
Corporation's Preferred Stock ranking on a parity as to dividends with the
Series T Preferred Stock, partial dividends may be authorized, declared and paid
on the Series T Preferred Stock and such other Preferred Stock so long as such
dividends are authorized, declared and paid pro rata so that the amounts of
dividends authorized, declared and paid per share on the Series T Preferred
Stock and such other Preferred Stock will in all cases bear to each other the
same ratio that accrued or accumulated and unpaid dividends per share on the
Series T Preferred Stock and such other Preferred Stock bear to each other.
Any reference to "distribution" contained in this Section D.2 shall not
include any distribution made in connection with any Liquidation.
3. Liquidation Preference. In the event of any Liquidation, and subject
to the rights, privileges, conditions and restrictions attaching to any other
stock of the Corporation ranking prior to the Series T Preferred Stock upon
Liquidation, each holder of a share of Series T Preferred Stock shall be
entitled to receive, and be paid out of the assets of the Corporation available
for distribution to its stockholders, an amount in cash per share equal to 100%
of the Stated Value thereof, plus all accrued and unpaid dividends on such share
to the date of final distribution to the holders of shares of Series T Preferred
Stock, whether or not authorized and declared, and no more, before any payment
shall be made or any assets distributed to the holders of Common Stock or any
other class or series of the Corporation's stock ranking junior to the Series T
Preferred Stock upon such Liquidation. If, upon any Liquidation the amounts
payable with respect to the liquidation preference of the Series T Preferred
Stock and any other shares of the Corporation's stock ranking on a parity with
the Series T Preferred Stock upon such Liquidation are not paid in full, holders
of the Series T Preferred Stock and of such other shares will share pro rata in
the amounts payable and other property distributable with respect to such
Liquidation so that the per share amounts to which holders of the Series T
Preferred Stock and such other shares are entitled will in all cases bear to
each other the same ratio that the liquidation preferences of the Series T
Preferred Stock and such other stock bear to each other.
-5-
<PAGE>
After payment in full of the preferences in respect of shares of the Series T
Preferred Stock upon Liquidation, the holders of such shares in their capacity
as such shall not be entitled to any further right or claim to any remaining
assets of the Corporation. For purposes hereof, a consolidation or merger of
the Corporation with or into another corporation, or a merger of any other
corporation with or into the Corporation, or the sale of all or substantially
all of the Corporation's property or business (other than in connection with a
winding up of its business) will not be considered a Liquidation.
4. Redemption at Option of the Corporation.
Shares of the Series T Preferred Stock may be redeemed by the Corporation,
at its option, on any date set by the Board, in whole or from time to time in
part, out of assets legally available therefor, at a redemption price per share
of 100% of the Stated Value thereof plus, in each case, an amount equal to all
accrued and unpaid dividends thereon, whether or not authorized and declared, to
but excluding the date fixed for redemption (as used in this Section D, the
"Redemption Price"). The aggregate Redemption Price paid to a holder of shares
of the Series T Preferred Stock shall be the product of the aggregate number of
shares of Series T Preferred Stock redeemed from such holder and the per share
Redemption Price, with such product being rounded to the nearest whole cent
(with one-half cent rounded upward), and shall be payable in cash. In case of
the redemption of less than all of the then outstanding shares of Series T
Preferred Stock, the Corporation shall designate the shares to be redeemed pro
rata so that the number of shares redeemed from each holder will in all cases
bear to each other the same ratio that the aggregate number of shares held by
each holder bear to each other. The Corporation shall not redeem less than all
of the shares of Series T Preferred Stock at any time outstanding unless all
dividends accumulated and in arrears upon all shares of Series T Preferred Stock
shall have been paid for all dividend periods ending on or prior to the
redemption date.
Not more than sixty nor less than thirty days prior to the redemption date
fixed by the Board, notice by first class mail, postage prepaid, shall be given
to the holders of record of shares of the Series T Preferred Stock to be
redeemed, addressed to such holders at their last addresses as shown upon the
stock transfer books of the Corporation. Each such notice of redemption shall
specify (i) the date fixed for redemption, (ii) the number of shares of Series T
Preferred Stock to be redeemed, and if less than all shares held by such holder
are to be redeemed, the number of such shares to be redeemed from such holder,
(iii) the Redemption Price, (iv) the place or places of payment, (v) that
payment will be made upon presentation and surrender of the certificates
representing shares of the Series T Preferred Stock at the place designated in
such notice and (vi) that on and after the date fixed for redemption dividends
will cease to accrue on such shares (unless the Corporation defaults in the
payment of the Redemption Price).
Any notice that is mailed as provided herein shall be conclusively presumed
to have been duly given, whether or not the
-6-
<PAGE>
holder of shares of the Series T Preferred Stock receives such notice; and
failure to give such notice by mail, or any defect in such notice to the holders
of any shares designated for redemption, shall not affect the validity of the
proceedings for the redemption of any other shares of the Series T Preferred
Stock. On or after the date fixed for redemption as stated in such notice, each
holder of shares of the Series T Preferred Stock called for redemption shall
surrender the certificate representing such shares to the Corporation at the
place designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price for each such share. If less than all shares of
the Series T Preferred Stock represented by any surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares
of Series T Preferred Stock, such unredeemed shares shall remain outstanding and
the rights of holders of such shares of Series T Preferred Stock thereafter
shall continue to be only those of a holder of shares of the Series T Preferred
Stock. Notice having been given as aforesaid, if, on the date fixed for
redemption, assets necessary for the redemption shall be legally available
therefor and shall have been irrevocably deposited or set aside, then,
notwithstanding that the certificates representing any shares of the Series T
Preferred Stock so called for redemption shall not have been surrendered, (i)
dividends with respect to the shares so called for redemption shall cease to
accrue on the date fixed for redemption, (ii) such shares shall no longer be
deemed outstanding, (iii) the holders thereof shall cease to be stockholders of
the Corporation to the extent of their interest in such shares and (iv) all
rights whatsoever with respect to the shares so called for redemption (except
the right of the holders to receive the Redemption Price for each such share,
without interest or any sum of money in lieu of interest thereon, upon surrender
of their certificates therefor at a place designated in such notice) shall
terminate. If assets legally available for such purpose are not sufficient for
redemption of all of the shares of Series T Preferred Stock that were to be
redeemed, then such assets shall be applied pro rata to the redemption of all of
the shares of Series T Preferred Stock to be redeemed.
Shares of the Series T Preferred Stock shall not be subject to the
operation of any mandatory redemption, purchase, retirement or sinking fund and
holders of shares of the Series T Preferred Stock shall have no right to require
redemption of the Series T Preferred Stock.
5. Voting Rights.
General. In addition to the voting rights provided in Section D.5(b)
hereof, the holders of each share of Series T Preferred Stock shall be entitled
to one vote upon all matters upon which holders of the Common Stock have the
right to vote, such vote to be counted together with all other shares of stock
having general voting powers and not separately as a class. In all cases where
the holders of shares of Series T Preferred Stock have the right to vote
separately as a class, such holders shall be entitled to one vote for each such
share held by them respectively. Any shares of Series T Preferred Stock held by
the Corporation, or any subsidiary of the Corporation in which the
-7-
<PAGE>
Corporation owns shares entitled to cast a majority of all votes entitled to be
cast, shall not have voting rights, and shall not be counted in determining the
presence of a quorum or in calculating any percentage of shares, under this
Section D.5.
Class Voting Rights. So long as shares of the Series T Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or consent
of the holders of at least a majority of all outstanding shares of Series T
Preferred Stock, voting separately as a class, amend any provision of the
charter of the Corporation so as to change the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption of the
Series T Preferred Stock. A class vote on the part of the Series T Preferred
Stock shall not be required (except as otherwise required by resolution of the
Board) in connection with any other matter.
6. Ranking. Any class or series of stock of the Corporation shall be
deemed to rank:
prior to the Series T Preferred Stock, as to dividends or upon Liquidation,
if the holders of such class or series shall be entitled to the receipt of
dividends or of amounts distributable upon Liquidation, as the case may be, in
preference or priority to the holders of Series T Preferred Stock;
on a parity with the Series T Preferred Stock, as to dividends or upon
Liquidation, whether or not the dividend rates, dividend payment dates or
redemption or liquidation preferences per share thereof are different from those
of the Series T Preferred Stock, if the holders of such class or series of stock
and the Series T Preferred Stock shall be entitled to the receipt of dividends
or of amounts distributable upon Liquidation, as the case may be, in proportion
to their respective amounts of accumulated or accrued and unpaid dividends per
share or liquidation preferences, as the case may be, without preferences or
priority one over the other; and
junior to the Series T Preferred Stock, as to dividends or upon
Liquidation, if such stock shall be Common Stock or any other class or series of
stock of the Corporation if the holders of Series T Preferred Stock shall be
entitled to receipt of dividends or of amounts distributable upon Liquidation,
as the case may be, in preference or priority to the holders of shares of such
stock.
For purposes hereof, the Series U Preferred Stock shall rank on parity
with the Series T Preferred Stock as to dividends and upon Liquidation.
7. Outstanding Shares. For purposes hereof, all shares of the Series T
Preferred Stock issued by the Corporation shall be deemed outstanding except (i)
as provided in Section D.4 hereof and (ii) from the date of surrender of a
certificate representing shares of Series T Preferred Stock, all shares of
Series T Preferred Stock represented by such certificate.
-8-
<PAGE>
8. Status of Acquired Shares. Shares of the Series T Preferred Stock
redeemed or otherwise acquired by the Corporation constitute authorized but
unissued shares of undesignated Preferred Stock, and may thereafter be issued,
but not as shares of Series T Preferred Stock.
Series U Preferred Stock
------------------------
9. Fractional Shares; and Stated Value. The Series U Preferred Stock is
issuable solely in whole shares that shall entitle the holder thereof to
exercise the voting rights, to participate in the distributions and to have the
benefit of all other rights of holders of the Series U Preferred Stock as set
forth in the charter of the Corporation. The Stated Value of each such share of
Series U Preferred Stock shall be $500.
10. Dividends.
a. Subject to any preference rights with respect to the payment of
dividends attaching to any other stock of the Corporation ranking prior to the
Series U Preferred Stock as to the payment of dividends, holders of each share
of Series U Preferred Stock shall be entitled to receive out of the assets of
the Corporation, at the time legally available therefor, dividends at an annual
rate equal to 8.5% of the Stated Value thereof, and no more, which shall be
fully cumulative, shall accrue from the date shares of the Series U Preferred
Stock are first issued by the Corporation (as used in this Section E, the "Issue
Date"), and shall be payable, in cash, annually in arrears on January 1 of each
year (as used in this Section E, each such date a "Dividend Payment Date"),
commencing January 1, 1997, as set forth below (except that, if any such date is
a Saturday, Sunday or legal holiday, then such dividend shall be payable on the
next day that is not a Saturday, Sunday or legal holiday), to holders of record
as they appear upon the stock transfer books of the Corporation at the close of
business on such record dates, not more than sixty days nor less than ten days
preceding the related Dividend Payment Dates, as are fixed by the Board (as used
in this Section E, each such date a "Record Date"). Subject to Section E.2(d)
hereof, dividends on account of arrearages for any past Dividend Payment Date
may be authorized, declared and paid at any time, without reference to any
regular Dividend Payment Date. Holders at the close of business on a Record Date
of shares of Series U Preferred Stock that are called for redemption on a
redemption date during the period (as used herein, the "Ex-Dividend Period")
between such Record Date and the corresponding Dividend Payment Date shall not,
in their capacity as such, be entitled to receive the dividend payment on such
Dividend Payment Date.
b. The dividend payable on each share of Series U Preferred Stock
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months. The aggregate dividend paid to a holder of shares of Series U Preferred
Stock shall be based on the aggregate number of shares of Series U Preferred
Stock held by such holder at the close of business on the applicable Record Date
and rounded to the nearest whole cent (with one-half cent rounded upward).
Unless otherwise provided herein, divi-
-9-
<PAGE>
dends on each share of Series U Preferred Stock shall accrue from and including
the Issue Date to and excluding the earliest to occur of (i) the date of
redemption of such share, (ii) the date of conversion of such share and (iii)
the date of final distribution of assets upon any Liquidation. All dividend
payments made on shares of Series U Preferred Stock shall first be credited
against the earliest accumulated but unpaid dividends with respect to such
shares.
c. If, on any Dividend Payment Date, the holders of the Series U
Preferred Stock shall not have received the full dividends provided for herein,
then such dividends shall cumulate, whether or not earned, authorized or
declared, with additional dividends thereon for each succeeding full dividend
period during which such dividend shall remain unpaid.
d. No dividends or other distributions (other than a dividend or
distribution in Common Stock or any other stock of the Corporation ranking
junior to the Series U Preferred Stock as to dividends and upon Liquidation)
shall be authorized, declared, made or paid, or set apart for payment or
distribution, upon the Common Stock, or upon any other stock of the Corporation
ranking junior to or on a parity with the Series U Preferred Stock as to
dividends, nor may any Common Stock or any other stock of the Corporation
ranking junior to or on a parity with the Series U Preferred Stock as to
dividends or upon Liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of such stock) by the Corporation (except by
conversion into or in exchange for Common Stock or any other stock of the
Corporation ranking junior to the Series U Preferred Stock as to dividends and
upon Liquidation), unless full accrued dividends on all outstanding shares of
the Series U Preferred Stock have been, or contemporaneously are, authorized,
declared and paid, or authorized, declared and a sum sufficient for the payment
thereof is set apart for the payment thereof, to the date of such authorization,
declaration, payment, distribution, setting apart, making monies available,
redemption, purchase or acquisition. Notwithstanding the foregoing, (i) nothing
herein shall prevent the Corporation from making contributions to, or
purchasing stock in connection with, any employee benefit or dividend
reinvestment plans or (ii) if at any time full accrued or accumulated dividends
have not been authorized, declared and paid on the Series U Preferred Stock and
on any of the Corporation's Preferred Stock ranking on a parity as to dividends
with the Series U Preferred Stock, partial dividends may be authorized, declared
and paid on the Series U Preferred Stock and such other Preferred Stock so long
as such dividends are authorized, declared and paid pro rata so that the amounts
of dividends authorized, declared and paid per share on the Series U Preferred
Stock and such other Preferred Stock will in all cases bear to each other the
same ratio that accrued or accumulated and unpaid dividends per share on the
Series U Preferred Stock and such other Preferred Stock bear to each other.
e. Any reference to "distribution" contained in this Section E.2
shall not include any distribution made in connection with any Liquidation.
-10-
<PAGE>
11. Liquidation Preference. In the event of any Liquidation, and subject
to the rights, privileges, conditions and restrictions attaching to any other
stock of the Corporation ranking prior to the Series U Preferred Stock upon
Liquidation, each holder of a share of Series U Preferred Stock shall be
entitled to receive, and be paid out of the assets of the Corporation available
for distribution to its stockholders, an amount in cash per share equal to 100%
of the Stated Value thereof, plus all accrued and unpaid dividends on such share
to the date of final distribution to the holders of shares of Series U Preferred
Stock, whether or not authorized and declared, and no more, before any payment
shall be made or any assets distributed to the holders of Common Stock or any
other class or series of the Corporation's stock ranking junior to the Series U
Preferred Stock upon such Liquidation. If, upon any Liquidation the amounts
payable with respect to the liquidation preference of the Series U Preferred
Stock and any other shares of the Corporation's stock ranking on a parity with
the Series U Preferred Stock upon such Liquidation are not paid in full, holders
of the Series U Preferred Stock and of such other shares will share pro rata in
the amounts payable and other property distributable with respect to such
Liquidation so that the per share amounts to which holders of the Series U
Preferred Stock and such other shares are entitled will in all cases bear to
each other the same ratio that the liquidation preferences of the Series U
Preferred Stock and such other stock bear to each other. After payment in full
of the preferences in respect of shares of the Series U Preferred Stock upon
Liquidation, the holders of such shares in their capacity as such shall not be
entitled to any further right or claim to any remaining assets of the
Corporation. For purposes of this Section, a consolidation or merger of the
Corporation with or into another corporation, or a merger of any other
corporation with or into the Corporation, or the sale of all or substantially
all of the Corporation's property or business (other than in connection with a
winding up of its business) will not be considered a Liquidation.
12. Redemption at Option of the Corporation.
a. Commencing on the fifth anniversary of the Issue Date, shares of
the Series U Preferred Stock may be redeemed by the Corporation, at its option,
on any date set by the Board, in whole or from time to time in part, out of
assets legally available therefor, at a redemption price per share of 135% of
the Stated Value thereof plus, in each case, an amount equal to all accrued and
unpaid dividends thereon, whether or not authorized and declared, to but
excluding the date fixed for redemption (as used in this Section E, the
"Redemption Price"). The aggregate Redemption Price paid to a holder of shares
of the Series U Preferred Stock shall be the product of the aggregate number of
shares of Series U Preferred Stock redeemed from such holder and the per share
Redemption Price, with such product being rounded to the nearest whole cent
(with one-half cent rounded upward), and shall be payable in cash. In case of
the redemption of less than all of the then outstanding shares of Series U
Preferred Stock, the Corporation shall designate the shares to be redeemed pro
rata so that the number of shares redeemed from each holder will in all cases
bear to each other the same ratio that the
-11-
<PAGE>
aggregate number of shares held by each holder bear to each other. The
Corporation shall not redeem less than all of the shares of Series U Preferred
Stock at any time outstanding unless all dividends accumulated and in arrears
upon all shares of Series U Preferred Stock shall have been paid for all
dividend periods ending on or prior to the redemption date.
b. Not more than sixty nor less than thirty days prior to the
redemption date fixed by the Board, notice by first class mail, postage prepaid,
shall be given to the holders of record of shares of the Series U Preferred
Stock to be redeemed, addressed to such holders at their last addresses as shown
upon the stock transfer books of the Corporation. Each such notice of redemption
shall specify (i) the date fixed for redemption, (ii) the number of shares of
Series U Preferred Stock to be redeemed, and if less than all shares held by
such holder are to be redeemed, the number of such shares to be redeemed from
such holder, (iii) the Redemption Price, (iv) the place or places of payment,
(v) that payment will be made upon presentation and surrender of the
certificates representing shares of the Series U Preferred Stock at the place
designated in such notice and (vi) that on and after the date fixed for
redemption dividends will cease to accrue on such shares (unless the Corporation
defaults in the payment of the Redemption Price).
c. Any notice that is mailed as provided herein shall be conclusively
presumed to have been duly given, whether or not the holder of shares of the
Series U Preferred Stock receives such notice; and failure to give such notice
by mail, or any defect in such notice to the holders of any shares designated
for redemption, shall not affect the validity of the proceedings for the
redemption of any other shares of the Series U Preferred Stock. On or after the
date fixed for redemption as stated in such notice, each holder of shares of the
Series U Preferred Stock called for redemption shall surrender the certificate
representing such shares to the Corporation at the place designated in such
notice and shall thereupon be entitled to receive payment of the Redemption
Price for each such share. If less than all shares of the Series U Preferred
Stock represented by any surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares of Series U Preferred Stock,
such unredeemed shares shall remain outstanding and the rights of holders of
such shares of Series U Preferred Stock thereafter shall continue to be those of
a holder of shares of the Series U Preferred Stock. Notice having been given as
aforesaid, if, on the date fixed for redemption, assets necessary for the
redemption shall be legally available therefor and shall have been irrevocably
deposited or set aside, then, notwithstanding that the certificates
representing any shares of the Series U Preferred Stock so called for redemption
shall not have been surrendered, (i) dividends with respect to the shares so
called for redemption shall cease to accrue on the date fixed for redemption,
(ii) such shares shall no longer be deemed outstanding, (iii) the holders
thereof shall cease to be stockholders of the Corporation to the extent of their
interest in such shares and (iv) all rights whatsoever with respect to the
shares so called for redemption (except the right of the holders to receive the
Redemption Price for each such share, without
-12-
<PAGE>
interest or any sum of money in lieu of interest thereon, upon surrender of
their certificates therefor at a place designated in such notice) shall
terminate. If assets legally available for such purpose are not sufficient for
redemption of all of the shares of Series U Preferred Stock that were to be
redeemed, then such assets shall be applied pro rata to the redemption of all of
the shares of Series U Preferred Stock to be redeemed.
d. Shares of the Series U Preferred Stock shall not be subject to the
operation of any mandatory redemption, purchase, retirement or sinking fund and
holders of shares of the Series U Preferred Stock shall have no right to require
redemption of the Series U Preferred Stock.
13. Mandatory Conversion.
a. On the first date on which (i) shares of Common Stock are
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to an effective registration statement, and (ii) the Corporation has
entered into an underwriting agreement to sell shares of Common Stock (which
underwriting agreement sets forth the price at which such shares will be offered
for sale (as used in this Section E, the "Offering Price")), the shares of
Series U Preferred Stock held by each holder not otherwise redeemed in
accordance herewith shall automatically convert as of the date immediately prior
thereto (as used in this Section E, the "Conversion Date") without further
action on the part of the Corporation or any such holder, into that number of
fully paid and nonassessable shares of Common Stock (calculated to the nearest
1/100th of a share, with .5/100 rounded upwards) determined by dividing (i) the
product of (x) 135%, (y) the Stated Value thereof (plus all accrued and unpaid
dividends thereon to but excluding the Conversion Date, unless the Corporation
shall elect to pay such amount in cash on such date) and (z) the aggregate
number of shares of Series U Preferred Stock held at such time by such holder by
(ii) the Offering Price.
b. Each holder of shares of Series U Preferred Stock shall, as soon
as practicable after the Conversion Date, surrender all shares of Series U
Preferred Stock held by such holder and the Corporation shall, as soon as
practicable after such surrender, deliver at the offices of the Corporation to
such holder, or to the nominee or nominees of such holder, certificates
representing the number of full shares of Common Stock to which such holder
shall be entitled, together with a cash payment in respect of any accrued and
unpaid dividends and any fraction of a share of Common Stock, in each case as
provided below. Conversion of shares of Series U Preferred Stock shall be
deemed to have been effected on the Conversion Date, without regard to the time
of surrender of such shares of Series U Preferred Stock and (i) dividends with
respect to such shares of Series U Preferred Stock shall cease to accrue and
accumulate on the Conversion Date, (ii) such shares of Series U Preferred Stock
shall no longer be deemed outstanding, (iii) the holders thereof shall cease to
be stockholders of the Corporation to the extent of their interest in such
shares, (iv) all rights whatsoever with respect to shares of Series U Preferred
Stock shall terminate
-13-
<PAGE>
(except the right of a holder to receive certificates representing the number
of full shares of Common Stock to which such holder shall be entitled, together
with a cash payment in respect of any fraction of a share of Common Stock as
provided herein) and (v) the holders entitled to receive the shares of Common
Stock deliverable upon conversion of such shares of Series U Preferred Stock
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on the Conversion Date, unless the stock transfer books of the
Corporation shall be closed on such date, in which event such person or persons
shall be deemed to become such holder or holders of record at the close of
business on the next succeeding day on which such stock transfer books are open,
but such conversion shall be at the Conversion Price in effect on the Conversion
Date.
14. No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of shares of
Series U Preferred Stock. If a certificate or certificates representing more
than one share of Series U Preferred Stock shall be surrendered for conversion
at one time by the same record holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series U Preferred Stock so surrendered by such record
holder. In lieu of any fractional share of Common Stock that would otherwise be
issuable upon conversion of any shares of Series U Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fractional share in
an amount equal to the same fraction as the Offering Price, calculated to the
nearest whole cent, with one-half cent rounded upward.
15. Reservation of Shares; Transfer Taxes.
The Corporation shall at all times reserve and keep available, out of
its authorized and unissued stock, solely for the purpose of effecting the
conversion of shares of Series U Preferred Stock, such number of shares of
Common Stock free of preemptive rights as shall be sufficient to effect the
conversion of all shares of Series U Preferred Stock outstanding. The
Corporation shall, in accordance with the laws of the State of Maryland, use its
reasonable best efforts to increase the authorized number of shares of Common
Stock if at such time the number of shares of authorized and unissued Common
Stock shall not be sufficient to permit the conversion of all the then
outstanding shares of Series U Preferred Stock. The Corporation shall not be
required to deliver shares of Common Stock upon conversion if, in the opinion of
its counsel, such delivery would violate the laws of the State of Maryland or
any other United States jurisdiction or any jurisdiction outside the United
States.
The Corporation shall pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock upon
conversion of the Series U Preferred Stock. The Corporation shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of Common Stock in a name other than
-14-
<PAGE>
that in which the shares of Series U Preferred Stock so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of such tax
or has established to the satisfaction of the Corporation that such tax has been
paid.
16. Voting Rights.
a. General. Holders of shares of the Series U Preferred Stock shall
not have any voting rights except as set forth below. In connection with any
such right to vote, each holder of shares of the Series U Preferred Stock will
have one vote for each such share held. Any shares of Series U Preferred Stock
held by the Corporation, or any subsidiary of the Corporation in which the
Corporation owns shares entitled to cast a majority of all votes entitled to be
cast, shall not have voting rights, and shall not be counted in determining the
presence of a quorum or in calculating any percentage of shares, under this
Section E.8.
b. Class Voting Rights. So long as shares of the Series U Preferred
Stock are outstanding, the Corporation shall not, without the affirmative vote
or consent of the holders of at least a majority (or such higher percentage, if
any, as may then be required by applicable law) of all outstanding shares of
Series U Preferred Stock, voting separately as a class, (i) amend any provision
of the charter of the Corporation so as to change the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption of the
Series U Preferred Stock or (ii) create, authorize or issue, or reclassify any
authorized stock of the Corporation into, or increase the authorized amount of,
any class or series of stock of the Corporation ranking senior to the Series U
Preferred Stock as to dividends or upon Liquidation (other than up to $50.0
million aggregate liquidation preference of Preferred Stock, to accredited
investors who are not current holders of any class or series of stock of the
Corporation (or of any other securities of the Corporation convertible into, or
exchangeable or exercisable for, such stock of the Corporation) in an offering
exempt from the registration requirements of the Securities Act, such stock to
have the designation, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications, terms or conditions of redemption, and Stated Value thereof, as
determined by the Board). A class vote on the part of the Series U Preferred
Stock shall not be required (except as otherwise required by law or resolution
of the Board) in connection with any other matter, including, without
limitation, the authorization, issuance or increase in the authorized amount of
any shares of any class or series of stock of the Corporation that either (A)
ranks junior to, or on a parity with, the Series U Preferred Stock as to
dividends and upon Liquidation or (B) is, at the time of such increase,
undesignated as to ranking with respect to dividends and upon Liquidation.
17. Ranking. Any class or series of stock of the Corporation shall be
deemed to rank:
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<PAGE>
a. prior to the Series U Preferred Stock, as to dividends or upon
Liquidation, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon Liquidation, as the case
may be, in preference or priority to the holders of Series U Preferred Stock;
b. on a parity with the Series U Preferred Stock, as to dividends or
upon Liquidation, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof are different from those of
the Series U Preferred Stock, if the holders of such class or series of stock
and the Series U Preferred Stock shall be entitled to the receipt of dividends
or of amounts distributable upon Liquidation, as the case may be, in proportion
to their respective amounts of accumulated or accrued and unpaid dividends per
share or liquida tion prices, as the case may be, without preferences or
priority one over the other; and
c. junior to the Series U Preferred Stock, as to divi dends or upon
Liquidation, if such stock shall be Common Stock or any other class or series of
stock of the Corporation if the holders of Series U Preferred Stock shall be
entitled to receipt of dividends or of amounts distributable upon Liquidation,
as the case may be, in preference or priority to the holders of shares of such
stock.
For purposes hereof, the Series T Preferred Stock shall rank on parity
with the Series U Preferred Stock as to dividends and upon Liquidation.
18. Outstanding Shares. For purposes hereof, all shares of the Series U
Preferred Stock issued by the Corporation shall be deemed outstanding except (i)
as provided in Sections E.4 and E.5 hereof and (ii) from the date of surrender
of a certificate representing shares of Series U Preferred Stock, all shares of
Series U Preferred Stock represented by such certificate.
19. Status of Acquired Shares. Shares of the Series U Preferred Stock
redeemed or otherwise acquired by the Corporation constitute authorized but
unissued shares of undesignated Preferred Stock, and may thereafter be issued,
but not as shares of Series U Preferred Stock.
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<PAGE>
Series V Preferred Stock Any term defined in this Section F shall only
------------------------
have the meaning as set forth in this Section F notwithstanding any other
definition contained elsewhere in the charter of the Corporation.
1. Designation, Notice, Fractional Shares, Taxes.
(a) Designation of Amount and Stated Value. The Series V Preferred
--------------------------------------
Stock (the "SERIES V PREFERRED STOCK") is issuable solely in whole shares and
------------------------
shall entitle the holder thereof to exercise the voting rights, to participate
in distributions and to have the benefits of all other rights of holders of the
Series V Preferred Stock as set forth herein. The stated value per share of the
Series V Preferred Stock shall be $1,000 ("STATED VALUE"). The number of shares
------------
which shall constitute such series shall not be more than 50,000 shares, par
value $.01 per share, which number of shares may be decreased (but not below the
number thereof then outstanding plus the number required to fulfill the
Corporation's obligations under options, warrants or similar rights to acquire
Series V Preferred Stock issued by the Corporation) from time to time by the
Board of Directors of the Corporation (the "BOARD OF DIRECTORS") by
------------------
reclassifying any unissued shares as shares of Preferred Stock or Common Stock.
(b) Notices. Any written notice required by the provisions of this
-------
Section F to be given to the holders of shares of Series V Preferred Stock shall
be given and shall be deemed to have been given (i) upon receipt if delivered in
person; (ii) one Business Day (as defined below) after transmission of a
facsimile, telegram or telex; or (iii) two Business Days after deposit in United
States registered mail or certified mail (postage prepaid, return receipt
requested); or (iv) one Business Day after delivery to a respectable overnight
courier, to the respective parties at such address appearing on the books of the
Corporation. Any notice to AEW Partners II, L.P. ("AEW") that calls for a
---
response by AEW shall be clearly marked on the envelope of any letter and the
cover page of any facsimile and the first page of any notice as follows:
"IMMEDIATE RESPONSE REQUIRED. DEADLINE FOR REPLY IS ________________. FAILURE
TO REPLY BY SUCH DATE WILL ELIMINATE AEW'S RIGHTS TO OBJECT."
(c) No Fractional Shares. No fractional shares or scrip representing
--------------------
fractions of Common Stock shall be issued upon conversion of Series V Preferred
Stock in accordance with this Section F. Instead of any fractional interest in
a share of Common Stock that would otherwise be delivered upon conversion of
Series V Preferred Stock, the Corporation shall pay to the holder of such share
an amount in cash based upon the initial public offering price of Common Stock
or, if not determinable, an amount in cash equal to the fair market value of
such fractional interest as determined in good faith by the Board of Directors.
If more than one share of Series V Preferred Stock shall be surrendered for
conversion at any one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis on
the aggregate number of Series V Preferred Stock so surrendered.
-17-
<PAGE>
(d) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series V Preferred Stock outstanding, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series V Preferred Stock and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then-outstanding shares of Series V Preferred
Stock, then, in addition to such other remedies as shall be available to the
holder of such Series V Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, reasonably be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(e) Taxes. The Corporation will pay any and all documentary stamp or
-----
similar issue or transfer taxes payable in respect of the issue or delivery of
Common Stock or other securities or property on conversion of the Series V
Preferred Stock pursuant to this Section F; provided, however, that the
-------- -------
Corporation shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issue or delivery of Common Stock or other
securities or property in a name other than that of the holder of the Series V
Preferred Stock to be converted, and no such issue or delivery shall be made
unless and until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or established, to the reasonable
satisfaction of the Corporation, that such tax has been paid.
2. Cumulative Dividends.
(a) Rights to Payment. The holders of Series V Preferred Stock shall
-----------------
be entitled to receive quarterly cash dividends, when, as and if authorized by
the Board of Directors out of funds legally available for that purpose. The
quarterly dividend periods (the "DIVIDEND PERIODS") shall commence on January 1,
----------------
April 1, July 1 and October 1 of each year and end on and shall include March
31, June 30, September 30 and December 31 of such year, respectively (other than
the initial Dividend Period, which shall commence on the issue date of each such
share of Series V Preferred Stock). For each of the first twelve Dividend
Periods after the date on which each share of Series V Preferred Stock was
issued and sold and during the portion of the thirteenth Dividend Period equal
to the number of days from the first day of the Dividend Period during which
each such share of Series V Preferred Stock was issued to the date that such
share was issued, each holder of Series V Preferred Stock shall be entitled to
receive an amount per share equal to the accrued but unpaid dividends from all
prior Dividend Periods plus the greater of (i) $25.00 per full Dividend Period,
and (ii) 100% of the quarterly dividend (excluding any Securities Dividends (as
defined below)) payable per share of Common Stock during the corresponding
Common Stock dividend period (determined as of the date on which the applicable
Common Stock dividend for the corresponding Common Stock dividend period is
paid) multiplied by
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<PAGE>
the Conversion Share Ratio then in effect (as defined in subsection 4 of this
Section F) (the "Assumed Common Dividend"). Thereafter, each holder of Series V
Preferred Stock shall be entitled to receive an amount per share equal to the
accrued but unpaid dividends from all prior Dividend Periods plus the greater of
(i) $37.50 per full Dividend Period and (ii) the Assumed Common Dividend. The
calculation of any such quarterly dividend shall be made to the nearest cent
(with $.005 being rounded upward). Such dividends shall begin to accumulate and
shall be fully cumulative with respect to each share of Series V Preferred Stock
from the issue date of each such share, whether or not authorized by the Board
of Directors and whether or not in any Dividend Period or Periods there shall be
funds of the Corporation legally available for the payment of such dividends
until the earliest to occur of (i) the date of redemption or conversion of such
share and (ii) the date of final distribution of assets upon the occurrence of a
Liquidation Event (as defined below). Nothwithstanding any other provision
hereof, (a) the Corporation, upon approval of a majority of the Board of
Directors, including the approval of the Series V Directors, may pay dividends
to Parent on the Common Stock before October 31, 1996 in an aggregate amount
equal to the lesser of (i) the aggregate amount of the Corporation's net income
(for book purposes) for the period from April 1, 1996 through September 9, 1996,
and (ii) $942,528, and (b) such dividends shall be excluded in the calculation
of Assumed Common Dividend.
Such dividends shall be payable quarterly in immediately available
funds, when, as and if authorized by the Board of Directors on a date which
shall not be later than the last day of the applicable Dividend Period;
provided, however, that if any dividend payment date falls on any day other than
- -------- -------
a Business Day (as defined below), the dividend payment due on such dividend
payment date shall be paid (without any effect on the amount due) on the
Business Day immediately following such dividend payment date (the "DIVIDEND
--------
PAYMENT DATE") or such other dates as provided herein, commencing on the first
- ------------
Dividend Payment Date after the date on which Series V Preferred Stock is first
issued (the "ISSUE DATE"). In addition to the above dividends, the holders of
----------
the Series V Preferred Stock shall be entitled to receive a pro rata share of
--- ----
all securities (including warrants, options and convertible securities) of
issuers other than the Corporation that are distributed to the holders of the
Corporation's Common Stock (the "Securities Dividends"). Such holder's pro rata
-------------------- --- ----
share, for purposes of this subsection 2, shall be a fraction of which the
numerator is the number of shares of Common Stock into which the Series V
Preferred Stock can be converted (by multiplying the number of shares of Series
V Preferred Stock held by such holder by the Conversion Share Ratio) and the
denominator is the sum of all shares of Common Stock outstanding immediately
before the issuance of the Securities Dividend plus all shares of Common Stock
then issuable upon conversion or exchange of all convertible or exchangeable
securities (including Series U and V Preferred Stock). Such Securities Dividend
shall be distributed to the holders of the Series V Preferred Stock (i) on the
same date that the distribution of Securities Dividends are made to the holders
of Common Stock and (ii) who are holders of Series V Preferred Stock
-19-
<PAGE>
on the record date used to determine the record holders of the Common Stock for
such Securities Dividends.
A "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a
------------
day on which state or federally chartered banking institutions in Los Angeles,
California are not required to be opened. Each such dividend shall be payable
to the holders of record of Series V Preferred Stock, as they appear on the
stock records of the Corporation at the close of business on such record dates,
not more than 30 days preceding such Dividend Payment Dates thereof, as shall be
fixed by the Board of Directors. Accumulated and unpaid dividends for any past
Dividend Periods may be authorized and paid at any time and for such interim
periods, without reference to any regular Dividend Payment Date, to holders of
record on such date, not more than 30 days preceding the payment date thereof,
as may be fixed by the Board of Directors. Dividend payments shall be
aggregated per holder and shall be made to the nearest cent (with $.005 being
rounded upward).
(b) Computation and Limitations on Dividends. The amount of dividends
----------------------------------------
payable for the initial Dividend Period, or any other period shorter than a full
Dividend Period on the Series V Preferred Stock shall be computed on the basis
of twelve 30-day months and a 360-day year. Holders of Series V Preferred Stock
shall not be entitled to any dividends, whether payable in cash, property or
stocks in excess of the dividend set forth in this Section F. No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series V Preferred Stock that may be in arrears.
(c) Payment of Dividends on Series V Preferred Stock Relative to
------------------------------------------------------------
Dividends on Parity Shares. So long as any shares of Series V Preferred Stock
- --------------------------
are outstanding, no dividends shall be authorized or paid or Set Apart for
Payment (as defined below) on any class or series of Parity Shares (as defined
below) for any period unless full cumulative dividends have been or
contemporaneously are authorized and paid or authorized and a sum sufficient for
the payment thereof set apart for such payment on the Series V Preferred Stock
for all Dividend Periods terminating on or prior to the dividend payment date on
such class or series of Parity Shares.
"PARITY SHARES" shall mean shares on a parity with the Series V
-------------
Preferred Stock, as to the payment of dividends and as to distribution of assets
upon liquidation, dissolution or winding up, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share thereof are
different from those of the Series V Preferred Stock, if the holders of such
class of stock or series and the Series V Preferred Stock shall be entitled to
the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of
accumulated and unpaid dividends per share or Liquidation Preferences (as
defined in subsection 3(a) below), without preference or priority one over the
other.
-20-
<PAGE>
"SET APART FOR PAYMENT" shall be deemed to include, without any action
---------------------
by the Corporation other than the following, the recording by the Corporation in
its accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to an authorization of dividends or other distribution by the Board of
Directors, the allocation of funds to be so paid on any series or class of stock
of the Corporation; provided, however, that if any funds for any class or series
-------- -------
of Junior Shares (defined below) or any Parity Shares are placed in a separate
account of the Corporation or delivered to a disbursing, paying or other similar
agent, then "Set Apart for Payment" with respect to the Series V Preferred Stock
shall mean placing such funds in a separate account or delivering such funds to
a disbursing, paying or other similar agent.
(d) Priority of Dividends on Series V Preferred Stock Over Junior
-------------------------------------------------------------
Shares. So long as any shares of Series V Preferred Stock are outstanding, no
- ------
dividends shall be authorized or paid or Set Apart for Payment or other
distribution authorized or made upon Junior Shares, nor shall any Junior Shares
be redeemed, purchased or otherwise acquired (other than a redemption, purchase
or other acquisition of Common Stock, as approved by a unanimous vote of the
Board of Directors or the Corporation's Compensation Committee) for any
consideration (or any moneys to be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation, directly
or indirectly (except by conversion into or exchange for Fully Junior Shares),
unless (i) the full cumulative dividends on all outstanding Series V Preferred
Stock shall have been paid or authorized and Set Apart for Payment for all past
Dividend Periods with respect to the Series V Preferred Stock, (ii) sufficient
funds shall have been paid or authorized with respect to the dividend on the
Series V Preferred Stock for the current Dividend Period and (iii) such
dividends per Junior Share do not exceed the dividends paid during the
corresponding Dividend Period on the Series V Preferred Stock on an as-
converted-to Common Stock basis unless the holders of the Series V Preferred
Stock shall simultaneously receive such higher dividend on an as-converted-to
Common Stock basis, in which case the amount paid to the holders of Series V
Preferred Stock on account of such higher dividend shall be offset against the
payment otherwise due on the next Dividend Payment Date. "FULLY JUNIOR SHARES"
-------------------
shall mean the shares of Common Stock and any other class or series of stock of
the Corporation now or hereafter issued and outstanding over which the Series V
Preferred Stock has preference or priority in both (i) the payment of dividends
and (ii) the distribution of assets on any liquidation, dissolution or winding
up of the Corporation, including the Series T Preferred Stock and the Series U
Preferred Stock. "JUNIOR SHARES" or "JUNIOR STOCK" shall mean the Fully Junior
------------- ------------
Shares and any other class or series of stock of the Corporation now or
hereafter issued and outstanding over which the Series V Preferred Stock shall
have preference or priority in the payment of dividends or in the distribution
of assets on any liquidation, dissolution or winding up of the Corporation.
-21-
<PAGE>
3. Liquidation Preference.
(a) Rights to Payment. In the event of any Liquidation Event (as
-----------------
defined below), before and in preference to any payment or distribution of any
of the assets or surplus funds of the Corporation made to or Set Apart for
Payment for the holders of Fully Junior Shares or shares which are Junior Shares
as to liquidation, each holder of the Series V Preferred Stock shall be entitled
to receive in immediately available funds to the extent available (i) the Stated
Value of the holder's shares of Series V Preferred Stock plus (ii) an amount per
share that will provide such holder with an Internal Rate of Return (as defined
below) equal to 15% on the Stated Value thereof (the "LIQUIDATION PREFERENCE");
----------------------
but such holders shall not be entitled to any further payment. "INTERNAL RATE
-------------
OF RETURN" shall be calculated using the effective annualized return with the
- ---------
Stated Value as the investment "out-flows," and all payments of dividends,
including Securities Dividends, and other distributions received with respect to
such share of Series V Preferred Stock as "in-flows"; provided that (i) the fact
--------
that such holders may from time to time borrow, finance or leverage the funds
invested in the purchase of Series V Preferred Stock shall not affect either
characterization or calculation of such investment amount (i.e., neither the
- -
receipt of the proceeds of any such financing nor the payment of any debt
service or costs related to such financing shall be taken into account); (ii)
neither the fact of any transfer of Series V Preferred Stock from the original
holders nor the amount of any consideration received by the original holders or
paid by the successor holder in connection with any transfer shall affect the
calculation of Internal Rate of Return; (iii) all items of investment/expense
and receipt shall be deemed to have been invested/expended or received on the
last day of the calendar month in which they occur; and (iv) all Securities
Dividends shall have a value equal to the fair market value of the Securities
Dividends as of the date of actual receipt as determined in good faith by the
Board of Directors.
A "LIQUIDATION EVENT" shall, unless the holders of a majority of the
-----------------
shares of Series V Preferred Stock otherwise agree, include (i) any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) any sale or transfer of all, or substantially all of the assets of the
Corporation and its subsidiaries (determined on a consolidated basis), (iii) a
consolidation or merger of the Corporation in which the Corporation or its
parent, Health Science Properties Holding Corporation, a Maryland corporation
("PARENT"), is not the surviving entity (other than for purposes of
------
reincorporation or in connection with an initial public offering of the Common
Stock of the Corporation (an "IPO")), and (iv) the acquisition by any
---
individual, firm, partnership, corporation or other entity or any successor by
merger of such entity (a "PERSON") of more than a majority of the outstanding
------
shares of Common Stock of the Corporation other than any acquisition by (A) any
holder of Series V Preferred Stock, (B) an acquisition as a result of the
conversion of the Series V Preferred Stock pursuant to subsections 4 and 5 of
this Section F, (C) holders of the outstanding Common Stock of the Corporation
or its Parent as of
-22-
<PAGE>
the Issue Date, (D) management of the Corporation or its Parent as of the Issue
Date, (E) an underwriter in a public offering or private placement of the Common
Stock or (F) any affiliates or members of the immediate families (their spouse,
issues, brothers, sisters and their respective issue and trusts for the benefit
of such persons) of the foregoing.
(b) Liquidation Relative to Parity Shares. If, upon any Liquidation
-------------------------------------
Event, the assets of the Corporation (or proceeds thereof) distributable among
the holders of the Series V Preferred Stock and any Parity Shares shall be
insufficient to pay in full the Liquidation Preference and liquidating payments
on such shares, then such assets, or the proceeds thereof, shall be distributed
among the holders of Series V Preferred Stock and any such other Parity Shares
ratably in accordance with the respective amounts that would be payable on such
Series V Preferred Stock and any such other Parity Shares if all amounts payable
thereon were paid in full. The holders of Series V Preferred Stock shall be
entitled to written notice at least thirty (30) days in advance of any
Liquidation Event or such shorter period if the Corporation does not have notice
of the Liquidation Event in which case written notice shall be given promptly
following the Corporation's receipt of notice of such event.
(c) Liquidation Rights of Parity and Junior Shares. Subject to the
----------------------------------------------
rights of the holders of shares of any series or class or classes of stock
ranking on a parity with or prior to the Series V Preferred Stock upon
liquidation, dissolution or winding up of the Corporation, after payment shall
have been made in full to the holders of the Series V Preferred Stock, as
provided in this subsection 3, any other series or class or classes of Junior
Shares shall, subject to the respective terms and provisions (if any) applying
thereto, be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Series V Preferred Stock shall not be
entitled to share therein.
(d) No Effect on Conversion. Nothing hereinabove set forth shall
-----------------------
affect in any way the right of each holder of Series V Preferred Stock to
convert such shares at any time and from time to time into Common Stock in
accordance with subsection 4 of this Section F.
4. Conversion at the Option of the Holder.
(a) Right to Convert. Subject to and upon compliance with the
----------------
provisions of this subsection 4, each share of Series V Preferred Stock shall be
convertible at the option of the holder (i) at any time after three Business
Days prior to the closing of a merger or consolidation of the Corporation (other
than a merger or consolidation for purposes of reincorporation or a merger or
consolidation in which a shareholder or shareholders of the Parent immediately
prior to the merger or consolidation owns more than 75% of the stock of the
merged or consolidated company outstanding after the transaction), (ii) at any
time after the fourth anniversary of the Issue Date, or (iii) upon consummation
of an IPO in which the shares of Series V Preferred Stock are
-23-
<PAGE>
proposed to be redeemed and converted in accordance with subsection 5(a) hereof,
in the case of (i) and (ii) above, into such number of fully paid and
nonassessable shares of Common Stock that is the result of multiplying the
number of Series V Preferred Stock to be converted by the Conversion Share Ratio
and, in the case of (iii) above, in accordance with subsection 5(a) hereof. The
"CONVERSION SHARE RATIO" shall be determined by dividing the Stated Value per
----------------------
share by the Conversion Share Price. The initial "CONVERSION SHARE PRICE" shall
----------------------
be $30,000 and the initial Conversion Share Ratio shall be .033333, provided,
--------
however, that the Conversion Share Price and thus the Conversion Share Ratio
- -------
shall be subject to adjustments as set forth below.
(b) Mechanics of Conversion. In order to exercise the conversion
-----------------------
right set forth above, the holder of each share of Series V Preferred Stock to
be converted shall surrender the certificate or certificates representing such
shares to be converted, duly endorsed or assigned to the Corporation or in
blank, at the principal office of the Corporation, or any agent or agents of the
Corporation as may be designated by the Board of Directors or their designee as
the transfer agent for the Series V Preferred Stock (the "TRANSFER AGENT"),
--------------
accompanied by written notice to the Corporation of the number of shares the
holder thereof elects to convert. Unless the shares of Common Stock issuable on
conversion are to be issued in the same name as the name in which such Series V
Preferred Stock is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Corporation,
duly executed by the holder or such holder's duly authorized attorney and an
amount sufficient to pay any transfer or similar tax (or evidence reasonably
satisfactory to the Corporation demonstrating that such taxes have been paid)
and any required payment in respect of dividends as set forth below. Holders of
Series V Preferred Stock at the close of business on a dividend payment record
date shall be entitled to receive the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding the conversion thereof
following such dividend payment record date and prior to such Dividend Payment
Date. However, Series V Preferred Stock surrendered for conversion during the
period between the close of business on any dividend payment record date and the
opening of business on the corresponding dividend payment date must be
accompanied by the payment of an amount equal to the dividend payable on such
shares on such dividend payment date multiplied by a fraction, the numerator of
which shall be the number of days between the conversion date and the dividend
payment date (assuming such date is the last day of the applicable Dividend
Period regardless of when actually paid) and the denominator of which shall be
the number of days in the Dividend Period during which the conversion occurred.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which the certificates for Series V Preferred
Stock shall have been surrendered (together with any required payments in
respect of dividends or transfer or similar taxes payable on such shares), and
the person or persons in whose name or names any certificate or certificates for
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders
-24-
<PAGE>
of record of the shares represented thereby at such time on such date.
(c) Conversion Share Price Adjustments. The Conversion Share Price of
----------------------------------
Series V Preferred Stock shall be subject to adjustments from time to time as
follows:
(i) Special Definitions. For purposes of this subsection 4, the
-------------------
following definitions shall apply:
(1) "OPTIONS" shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (other than options as approved by the Board of
Directors or Compensation Committee to acquire Common Stock and granted (or
with respect to the Corporation's substitute employee and non-employee
director stock option plans, reserved for issuance upon substitution of
outstanding options issued pursuant to the Parent's employee and non-
employee director stock option plans) under the Corporation's or the
Parent's employee and non-employee director stock option plans existing on
the Issue Date or at any time thereafter ("PERMITTED OPTIONS")).
-----------------
(2) "CONVERTIBLE SECURITIES" shall mean any evidence of
----------------------
indebtedness, shares (other than Common Stock, Series V Preferred Stock or
Series U Preferred Stock) or other securities convertible into, exercisable
or exchangeable for Common Stock (other than Options).
(3) "ADDITIONAL STOCK" shall mean all Common Stock issued (or
----------------
pursuant to subsection 4(c)(iii), deemed to be issued) by the Corporation
after the Issue Date, other than Common Stock issued or issuable at any
time: (A) upon conversion of this Series V Preferred Stock; (B) upon
exercise of Options; (C) upon conversion of Convertible Securities; (D)
upon issuance or exercise of Permitted Options; (E) as a dividend or
distribution on Series V Preferred Stock or any event for which adjustment
is made pursuant to subparagraph (c)(vi) hereof; (F) by way of dividend or
other distribution on Common Stock excluded from the definition of
Additional Stock by the foregoing clauses (A), (B), (C), (D), (E) or this
clause (F) or on Common Stock so excluded.
(ii) No Adjustment of Conversion Share Price. No adjustment of the
---------------------------------------
Conversion Share Price shall be made except as provided herein. Notwithstanding
any other provision hereof, no adjustment of the Conversion Share Price shall be
made (i) with respect to securities issued in any merger involving solely Parent
and the Corporation and approved in accordance with Section 8, or (ii) with
respect to issuances to holders of Series V Preferred Stock solely with respect
to their holdings of Series V Preferred Stock.
-25-
<PAGE>
(iii) Deemed Issue of Additional Shares of Common Stock.
-------------------------------------------------
(1) Options and Convertible Securities. Except as
----------------------------------
otherwise provided herein, in the event the Corporation at any time or from
time to time after the Issue Date shall issue any Options or Convertible
Securities, the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be shares of Additional Stock issued as of
the time of such issue, provided that Additional Stock shall not be deemed
to have been issued unless the consideration per share (determined pursuant
to subsection 4(c)(v) hereof) of such Additional Stock will be less than
the Conversion Price in effect on the date of and immediately prior to such
issue and provided further that in any such case in which Additional Stock
is deemed to be issued:
(A) no further adjustment in the Conversion Share Price
shall be made upon the subsequent issue of Options or Convertible
Securities or shares of Common Stock upon the exercise of such Options
or conversion or exchange of such Convertible Securities for which
adjustment has been made as a result of a deemed issuance pursuant to
this subsection 4(c)(iii);
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase
or decrease in the consideration payable to the Corporation, or in the
number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Share Price computed
upon the original issue thereof, and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective,
be recomputed to reflect such increase or decrease insofar as it
affects such Options or rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities
which shall not have been exercised, the Conversion Price computed
upon the original issue thereof, and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Stock issued was
Common Stock, if any,
-26-
<PAGE>
actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually
received by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration actually
received by the Corporation upon such exercise, or for the issue
of all such Convertible Securities whether or not actually
converted or exchanged plus the additional consideration, if any,
actually received by the Corporation upon such conversion or
exchange, and
(II) in the case of Options for Convertible
Securities, only the Additional Stock, if any, actually issued
upon the exercise thereof were issued at the time of issue of
such Options, and the consideration received by the Corporation
for the shares of Additional Stock deemed to have been then
issued was consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation
upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(D) no readjustment pursuant to Clause (B) or (C) above
shall have the effect of increasing the Conversion Share Price to an
amount which exceeds the lower of (i) the Conversion Share Price on
the date immediately prior to the original adjustment date, or (ii)
the Conversion Price that would have resulted from any issuance of
Additional Stock between such date and such readjustment date; and
(E) in the case of any Options or Convertible
Securities which expire by their terms not more than ninety (90) days
after the date of issue thereof, no adjustment of the Conversion Share
Price shall be made until the expiration, conversion or exercise of
all such Options or Convertible Securities.
(iv) Adjustment of Conversion Share Price Upon Issuance of
-----------------------------------------------------
Additional Stock.
- ----------------
(1) Prior to the second anniversary of the Issue Date. If
-------------------------------------------------
prior to the second anniversary of the Issue Date the Corporation shall
issue Additional Stock (including Additional Stock deemed to be issued
pursuant to subsection 4(c)(iii)) for a consideration per share less than
the Conversion Share Price for the Series V Preferred Stock in effect on
the date of and immediately prior to such issue, then and in such event,
such Conversion Share Price shall be reduced, concurrently with such issue,
to a price equal to the consideration per share received by the Corporation
for such Additional Stock.
-27-
<PAGE>
(2) On or after the second anniversary of the Issue Date. If
----------------------------------------------------
on or after the second anniversary of the Issue Date the Corporation shall
issue Additional Stock (including Additional Stock deemed to be issued
pursuant to subsection 4(c)(iii)) for a consideration per share less than
the Conversion Share Price for the Series V Preferred Stock in effect on
the date of and immediately prior to such issue, then and in such event,
such Conversion Share Price shall be reduced concurrently with such issue
to a price (calculated to the nearest cent) determined by multiplying such
Conversion Share Price by a fraction (i) the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issue (including all shares of Common Stock issuable upon conversion of the
outstanding Series U and Series V Preferred Stock and all outstanding
Permitted Options) plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the payment of
shares of Additional Stock so issued would purchase at such Conversion
Share Price; and (ii) the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Series V and Series U Preferred Stock and all outstanding
Permitted Options) plus the number of shares of Additional Stock so issued.
An example of such an adjustment is set forth on EXHIBIT A to the charter
---------
of the Corporation.
(v) Determination of Consideration. For purposes of this subsection
------------------------------
4(c), the consideration received by the Corporation for the issue of any shares
of Additional Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall (A) insofar as
-----------------
it consists of cash, be the gross aggregate amount of cash received by the
Corporation excluding amounts paid or payable for accrued interest or
accrued dividends; (B) insofar as it consists of property (other than cash)
or services, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and (C) in
the event Additional Stock is issued together with other shares of
securities or other assets of the Corporation for consideration which
covers both, be the proportion of such consideration so received which
relates to Additional Stock, computed as provided in Clause (A) and (B)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities: The consideration per
----------------------------------
share received by the Corporation for Additional Stock deemed to have been
issued pursuant to subsection 4(c)(iii)(1), relating to Options and
Convertible Securities, shall be determined by dividing: (i) the total
amount, if any, received or receivable by the Corporation as consideration
for the issue of such Options or Convertible Securities plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained
therein
-28-
<PAGE>
for a subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options to purchase the maximum
number of shares of Common Stock issuable thereunder or the conversion or
exchange of such Convertible Securities for the maximum number of shares of
Common Stock issuable in exchange therefor, or in the case of Options for
Convertible Securities, the exercise of Options for Convertible Securities
and the conversion or exchange of such Convertible Securities; by (ii) the
maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such
Options or the Conversion or exchange of such Convertible Securities for
such minimum aggregate amount of additional consideration.
(vi) Adjustments for Subdivisions, Combinations or Consolidation of
--------------------------------------------------------------
Common Stock. In the event the outstanding shares of Common Stock shall be
- ------------
subdivided (by stock split, or otherwise), into a greater number of shares of
Common Stock, or there shall be a dividend of Junior Stock convertible into
Common Stock paid to the holders of Junior Stock, the Conversion Share Price
then in effect shall, concurrently with the effectiveness of such subdivision,
be proportionately decreased. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, the Conversion Share Price then in
effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than shares of
Common Stock and an adjustment under this subsection 4 is not otherwise made,
then and in each such event, provision shall be made so that the holders of
Series V Preferred Stock shall receive upon conversion thereof, in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation which they would have received had their shares of
Series V Preferred Stock been converted into shares of Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this subsection 4 with respect
to the rights of the holders of this Series V Preferred Stock.
(viii) Adjustments for Reclassification, Exchange and
----------------------------------------------
Substitution. If the Common Stock issuable upon conversion of the Series V
- ------------
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares, consolidation or merger provided for
-29-
<PAGE>
above), the Conversion Share Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the shares of Series V Preferred Stock shall be convertible
into, in lieu of the number of shares Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of such stock that would
have been subject to receipt by the holders upon conversion of the Series V
Preferred Stock immediately before that change.
(d) No Impairment. The Corporation will not take action without the
-------------
consent of the holders of a majority of the shares of Series V Preferred Stock,
by amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, with the intent of avoiding the observance or performance of
any of the terms to be observed or performed under this subsection 4 by the
Corporation but will at all times in good faith assist in the carrying out of
all provisions of this subsection 4.
(e) Certificate of Adjustments. Upon the occurrence of each
--------------------------
adjustment or readjustment of the Conversion Share Price of the Series V
Preferred Stock pursuant to this subsection 4, the Corporation, at its expense,
shall promptly compute or cause to be computed such adjustment or readjustment
in accordance with the terms hereof and furnish each holder of such Series V
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in reasonable detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series V Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Share Price then in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of such Series V Preferred
Stock.
(f) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities which does not
include Series V Preferred Stock for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase, or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
this Corporation shall mail to each holder of Series V Preferred Stock, at least
20 days prior to the date specified therein, a written notice (in accordance
with subsection 1(b) of this Section F) specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
5. Conversion and Redemption at the Option of the Corporation.
-30-
<PAGE>
(a) Right to Convert Upon the closing of an IPO at any time during
----------------
the four years following the Issue Date and subject to the rights of the holder
of Series V Preferred Stock to approve the terms of an IPO in which the
Corporation would be unable to exercise its rights under this subsection 5(a),
the Corporation shall have the right, at its option, at any time, in whole but
not in part, to redeem (a "PARTIAL CASH EXCHANGE") no less than one-half of each
---------------------
holder's outstanding shares of Series V Preferred Stock for cash at the Cash
Return Redemption Price (defined below) and to convert the balance into that
number of fully paid and nonassessable shares of Common Stock determined by
dividing (i) the aggregate Cash Return Redemption Price for the shares to be
converted, by (ii) the per share price that the Common Stock is offered to the
public in the IPO.
Notwithstanding the Corporation's right to require a Partial Cash
Exchange, not later than 15 days after receipt of a written Notice of Exchange
(as defined below) of such Partial Cash Exchange, a holder of Series V Preferred
Stock may elect, in its sole discretion, to convert up to 100% of such holder's
shares of Series V Preferred Stock into that number of shares of Common Stock
determined by multiplying the number of shares of Series V Preferred Stock by
the Conversion Share Ratio if such holder provides written notice (in accordance
with subsection 1(b) of this Section F) of such election to the Corporation.
Such election may be conditioned upon consummation of the IPO. If requested by
the underwriter in an IPO, any shares of Common Stock issuable upon a Partial
Cash Exchange (including shares issuable if the holder elects to convert 100% of
such holder's shares of Series V Preferred Stock) shall be subject to a lock-up
of not greater than three hundred and sixty (360) days provided that all
officers, directors and substantially all 1% shareholders of the Corporation are
bound by the same lock-up terms.
The "CASH RETURN REDEMPTION PRICE" per share of Series V Preferred
----------------------------
Stock shall be the Stated Value plus an Internal Rate of Return (as defined in
subsection 3 of this Section F) of 20%; provided, however, that if such
-------- -------
conversion should occur prior to the first anniversary of the Issue Date, a
minimum holding period of one year shall be assumed for purposes of calculating
the 20% Internal Rate of Return; and provided further that for purposes of the
-------- -------
determination of Internal Rate of Return in this subsection, any Securities
Dividends shall be deemed to have no value.
(b) Notice. In order to effect a Partial Cash Exchange, a written
------
notice of exchange (a "NOTICE OF EXCHANGE") of the Series V Preferred Stock
------------------
shall be given by the Corporation to each record holder of Series V Preferred
Stock to be exchanged not later than thirty (30) days prior to the effective
date of an IPO. For purposes of the calculation of the date of exchange and the
dates on which notices are given pursuant to this Section 5, a Notice of
Exchange shall be deemed to be given as provided in subsection 1(b) of this
Section F. No defect in the Notice of Exchange or in the mailing thereof or
publication of its contents shall affect the validity of the Partial Cash
Exchange proceedings. The Corporation may only exercise its option under
-31-
<PAGE>
this subsection 5(b) if, at the time a Notice of Exchange is given, there are no
accumulated and unpaid dividends on the Series V Preferred Stock being redeemed
for any completed Dividend Period for which the Dividend Payment Date has
passed. "TRADING DAY" shall mean any day on which the securities in question
-----------
are traded on the NYSE, or if such securities are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which such
securities are listed or admitted, or if not listed or admitted for trading on
any national securities exchange, on The NASDAQ Stock Market, or if such
securities are not quoted on The NASDAQ Stock Market, in the applicable
securities market in which the securities are traded.
(c) Mechanics of Exchange. As promptly as practicable after a Notice
---------------------
of Exchange is given by the Corporation, the Corporation shall issue and shall
deliver to each holder of Series V Preferred Stock to be exchanged, against the
surrender of the certificate or certificates representing such shares of Series
V Preferred Stock (together with any required payments in respect of dividends
and transfer and similar taxes payable on such shares), a certificate or
certificates representing the number of full shares of Common Stock issuable
upon the Partial Cash Exchange of such shares in accordance with the provisions
of this subsection 5, and any fractional interest in respect of a Common Share
arising upon such exchange shall be settled as provided in subsection 5(d).
Each Partial Cash Exchange shall be deemed to have been effected immediately
prior to the first day of trading following an IPO, and the person or persons in
whose name or names any certificate or certificates for the Common Stock shall
be issuable upon such exchange shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date.
At such time on such date, all rights of the holders of the Series V Preferred
Stock to be exchanged as such holders shall cease, and such holders shall
thereupon and thereafter be deemed to be and be for all purposes the holders of
the Common Stock issued in exchange therefor regardless of whether the
certificate representing the Series V Preferred Stock is actually surrendered.
Holders of Series V Preferred Stock at the close of business on a dividend
payment record date shall be entitled to receive the dividend payable on such
shares on the corresponding Dividend Payment Date notwithstanding the Partial
Cash Exchange thereof following such dividend payment record date and prior to
such Dividend Payment Date. However, Series V Preferred Stock subject to a
Partial Cash Exchange during the period between the close of business on any
dividend payment record date and the opening of business on the corresponding
Dividend Payment Date must be accompanied by payment of an amount equal to the
dividend payable on such shares on such Dividend Payment Date. A holder of
Series V Preferred Stock on a dividend payment record date whose (or whose
transferee's) shares are subject to a Partial Cash Exchange on the corresponding
Dividend Payment Date will receive the dividend payable by the Corporation on
Series V Preferred Stock on such date.
(d) Validity of Common Stock. Any shares of Common Stock issued upon
------------------------
conversion of shares of Series V Preferred Stock shall be validly issued, fully
paid and nonassessable.
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<PAGE>
Before taking any action that would cause an adjustment reducing the Conversion
Share Price below the then-par value of the Common Stock deliverable upon
conversion of the shares of Series V Preferred Stock, the Corporation will take
any corporate action that, in the opinion of its counsel, may be reasonably
necessary in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Share
Price.
(e) Listing of Common Stock. The Corporation shall endeavor to list
-----------------------
the shares of Common Stock required to be delivered upon conversion of the
Series V Preferred Stock, prior to such delivery, upon each national securities
exchange, if any, upon which the outstanding shares of Common Stock are listed
at the time of such delivery.
(f) Compliance with Laws. Prior to the delivery of any securities
--------------------
that the Corporation shall deliver upon conversion of the Series V Preferred
Stock, the Corporation and the holders of such shares shall endeavor to comply
with all federal and state laws and regulations thereunder requiring the
registration of such securities with, or any approval of or consent to the
delivery thereof by, any governmental authority.
6. Mandatory Conversion. Unless all shares of Series V Preferred Stock
are earlier converted or redeemed pursuant to subsections 4, 5 or 7 of this
Section F and provided that the holders of Series V Preferred Stock have
approved the terms of an IPO as required in accordance with subsection 8 hereof,
then on the first Trading Day of the Corporation's Common Stock (the "CONVERSION
----------
DATE"), all outstanding shares of Series V Preferred Stock shall be converted
- ----
into that number of fully paid and nonassessable shares of Common Stock that is
the result of multiplying the number of shares of Series V Preferred Stock held
by each holder by the Conversion Share Ratio then in effect. Each holder of
shares of Series V Preferred Stock shall, as soon as practicable after the
Conversion Date, surrender all shares of Series V Preferred Stock held by such
holder and any payment in respect of dividends as set forth in subsection 4(b)
and the Corporation shall, as soon as practicable after such surrender, deliver
to such holder, or to the nominee or nominees of such holder, certificates
representing the number of full shares of Common Stock to which such holder
shall be entitled, together with a cash payment in respect of any fraction of a
share of Common Stock, in each case as provided herein. Conversion of shares of
Series V Preferred Stock shall be deemed to have been effected on the Conversion
Date, without regard to the time of surrender of such shares of Series V
Preferred Stock and (i) dividends with respect to such shares of Series V
Preferred Stock shall cease to accrue and accumulate on the Conversion Date,
(ii) such shares of Series V Preferred Stock shall no longer be deemed
outstanding, (iii) the holders thereof shall cease to be holders of Series V
Preferred Stock of the Corporation, (iv) all rights of the holders of Series V
Preferred Stock shall terminate (except the right of a holder to receive
certificates representing the number of full shares of Common Stock to which
such holder shall be entitled, together with a cash payment in respect of any
fraction of a share of Common Stock as provided
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<PAGE>
herein), and (v) the holder entitled to receive the shares of Common Stock
deliverable upon conversion of such shares of Series V Preferred Stock shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
7. Redemption.
The shares of Series V Preferred Stock shall be subject to the
redemption as follows:
(a) Redemption at the Option of the Corporation. Except as set forth
-------------------------------------------
in subsection 5, the Series V Preferred Stock may not be redeemed by the
Corporation prior to the third anniversary of the Issue Date. On and after such
third anniversary of the Issue Date, the Series V Preferred Stock may be
redeemed in whole (but not in part) at the option of the Corporation. The
Corporation shall give written notice to the holders of the Series V Preferred
Stock of its intent to redeem the Series V Preferred Stock not less than 30 nor
more than 60 days prior to the date set for redemption addressed to such holders
at their last address shown upon the transfer books of the Corporation. The
redemption price for each share of the Series V Preferred Stock to be redeemed
pursuant to this subsection (a) shall be the cash amount equal to the Stated
Value plus an Internal Rate of Return of 25% during the period from the Issue
Date until the third anniversary of the Issue Date and an Internal Rate of
Return of 20% during the period from and after the third anniversary date of the
Issue Date until the date of redemption. Such redemption shall be subject to
the limitations, if any, imposed by the Maryland General Corporation Law
("MGCL"), and shall be paid in immediately available funds. The Series V
Preferred Stock shall not be subject to the operation of any mandatory purchase,
retirement or sinking fund. Any notice that is mailed as provided in this
subsection 7(a) shall be conclusively presumed to have been duly given, whether
or not the holder of shares of the Series V Preferred Stock receives such
notice; and failure to give such notice by mail, or any defect in such notice to
the holders of any shares designated for redemption, shall not affect the
validity of the redemption of any other shares of the Series V Preferred Stock.
On or after the date fixed for redemption as stated in such notice,
each holder of shares of the Series V Preferred Stock called for redemption
shall surrender the certificate representing such shares to the Corporation at
the place designated in such notice and shall thereupon be entitled to receive
payment of the redemption price for each such share. Notice having been given
as aforesaid, if, on the date fixed for redemption, the cash funds necessary for
the redemption shall be legally available therefor and shall have been
irrevocably deposited or set aside in trust with a bank or trust company, then,
notwithstanding that any certificates representing any shares of the Series V
Preferred Stock so called for redemption shall not have been surrendered, (i)
dividends with respect to the shares so called for redemption shall cease to
accrue on the date fixed for redemption, (ii) such shares shall no longer be
deemed outstanding, (iii) the holders thereof shall cease to be
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<PAGE>
stockholders of the Corporation to the extent of their interest in such shares
and (iv) all rights whatsoever with respect to the shares so called for
redemption (except the right of the holders to receive the redemption price for
each such share, without interest or any sum of money in lieu of interest
thereon, upon surrender of their certificates therefor at a place designated in
such notice) shall terminate.
(b) Redemption at the Option of the Holder. The Series V Preferred
--------------------------------------
Stock may not be redeemed at the option of the holder thereof on or prior to the
first anniversary of the Issue Date. After the first anniversary of the Issue
Date, the Corporation will be required, at the option of the holder of the
Series V Preferred Stock, to redeem fully, but not in part, the shares of Series
V Preferred Stock held by such holder upon the occurrence of any one or more of
the following events: (i) a failure in two consecutive quarters to pay in full
the quarterly dividends on Series V Preferred Stock required by subsection 2 of
this Section F (including all dividends accumulated but unpaid for all prior
quarters); (ii) a default on the payment of principal or interest on any
institutional debt (or debts) having an outstanding balance (or balances)
aggregating greater than (a) $5 million for nonrecourse debt and (b) $2 million
for recourse debt (which default, in either case, shall not have been cured by
the Corporation within 30 Business Days from the time the Corporation receives
written notification of the default); (iii) failure to comply with subsection 8
hereof; (iv) from September 9, 1996 to December 31, 1996, the Corporation's FAD
(as defined below) fails to equal the required dividend payable on the
outstanding Series V Preferred Stock (calculated from the issue date of such
shares of Series V Preferred Stock to December 31, 1996) and an assumed annual
cash dividend on the outstanding Common Stock equal to at least $560 per share
(subject to adjustment for stock splits, stock dividends, combinations and the
like); (v) for calendar year 1997, the Corporation's FAD fails to equal the
required dividend payable on the outstanding Series V Preferred Stock and an
assumed annual cash dividend on the outstanding Common Stock equal to at least
$2,100 per share (subject to adjustment for stock splits, stock dividends,
combinations and the like); (vi) for calendar year 1998 and subsequent years,
the Corporation's FAD fails to equal the required dividend payable on the
outstanding Series V Preferred Stock and an assumed annual cash dividend on the
outstanding Common Stock equal to at least $2,400 per share (subject to
adjustment for stock splits, stock dividends, combinations and the like); or
(vii) failure of the Corporation to consummate an IPO by the fourth anniversary
of the Issue Date. For purposes of this Section F, "FAD" shall mean Funds From
---
Operations (as defined below) minus "Non-Revenue Enhancing Capital Expenditures"
(as defined below). The calculation of FAD shall be made by the Corporation and
confirmed by the Corporation's independent public accounting firm.
"FUNDS FROM OPERATIONS" or "FFO" shall be defined in accordance with
--------------------- ---
the FFO White Paper prepared in March 1995 by the National Association of Real
Estate Investment Trusts (the "WHITE PAPER") and shall mean the Corporation's
-----------
net income (computed in accordance with generally accepted accounting principles
in
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<PAGE>
effect on December 31, 1995, applied in a manner consistent with the
Corporation's accounting policies and practices as of that date), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships
and joint ventures will be calculated to reflect Funds From Operations on the
same basis. As the White Paper provides, only depreciation and amortization of
assets uniquely significant to the real estate industry will be added back.
Amounts added back would include real property depreciation, depreciation of
trade fixtures, including, for example, fume hoods and autoclaves, amortization
of capitalized leasing expenses, including leasing commissions, tenant
allowances or improvements, and the like. Specifically excluded are the add-
back of items such as the amortization of deferred financing costs, depreciation
of computer software, company office improvements, and other items commonly
found in other industries and required to be recognized as expenses in the
calculation of net income. Items classified by generally accepted accounting
principles as extraordinary or unusual, along with significant non-recurring
items of income or expense that materially distort the comparative measurement
of the Corporation's performance over time, are not meant to be reductions or
increases in FFO, and should be disregarded in its calculation. The use of a
corporate form versus a partnership form for unconsolidated partnerships and
joint ventures should not affect the determination of whether an entity is to be
treated as a joint venture for purposes of the definition. Gains or losses on
sales of securities or undepreciated land shall be included in FFO, unless they
are unusual and non-recurring. Notwithstanding any other provision hereof,
dividends on the Series V Preferred Stock shall not be deducted from net income
in computing FAD.
"NON-REVENUE ENHANCING CAPITAL EXPENDITURES" shall mean those capital
------------------------------------------
expenditures (computed in accordance with generally accepted accounting
principles consistently applied) made with respect to existing real property
that the Corporation has owned and leased to others in order to continue (but
not those expenditures designed to enhance) the revenue-generating capacity of
the property; the following categories of capital expenditures shall not be
---
included for this purpose (and accordingly, the listed capital expenditures will
not be deducted from FFO in computing FAD): capital expenditures relating to
(i) acquisitions, (ii) deferred maintenance on acquisitions, (iii) tenant
improvements (including initial shell build out) and leasing commissions on
square footage that was not leased at the time of acquisition, (iv) development
of new properties or material new elements of existing properties, and (v)
improvements to bring a property into compliance with government regulations.
The redemption price for each share of the Series V Preferred Stock to
be redeemed pursuant to this subsection (b) shall be the cash amount equal to
the Stated Value plus an Internal Rate of Return of 20%, except that an Internal
Rate of Return of 15% shall be paid in connection with a redemption on account
of the failure of the Corporation to consummate an IPO of
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<PAGE>
the Corporation's Common Stock by the fourth anniversary of the Issue Date as
specified in subsection (vii) above. Notwithstanding subsections (iv), (v) and
(vi) above, the Corporation shall not be deemed to have failed the FAD tests set
forth in such sections if and to the extent that any such failure is based
directly on lost revenues or expenses incurred arising out of a casualty, civil
unrest, natural disaster or similar act of God as to which the Corporation was
not insured (and prudent institutional owners in the market or markets where the
affected assets are located would not have been insured) or the Corporation has
experienced a delay in the receipt of insurance proceeds for reasons beyond the
reasonable control of the Corporation, provided that no single casualty event
shall operate to excuse failure to satisfy a FAD test as to more than one
calendar year.
(c) Waiver. The Corporation shall promptly notify in writing each
------
holder of Series V Preferred Stock of the occurrence of any events set forth or
referred to in subsection (b) (a "TRIGGER EVENT") and such notice shall specify
-------------
the redemption price and place at which the holders may obtain payment of the
redemption price. Unless such holder submits to the Corporation a written
notice electing to redeem (the "ELECTION NOTICE") on or before 90 days after
----------------
receipt of the Corporation's notice, the holder shall be deemed to have waived
the right to have shares of Series V Preferred Stock redeemed as a result of
such occurrence. No such waiver shall constitute the waiver of rights with
respect to any subsequent occurrence.
(d) Redemption Date, Notice of Redemption. The redemption date shall
-------------------------------------
be 180 days after receipt of the Election Notice by the Corporation in the case
of a redemption at the option of a holder. On or before the redemption date,
each holder of shares called for redemption shall surrender the certificate or
certificates representing such shares to the Corporation at the place designated
in the redemption notice and shall thereupon be entitled to receive payment of
the redemption price on the redemption date. If on or before the redemption
date the Corporation has cash funds available or has deposited for such purpose
in trust with a bank or trust company sufficient funds to pay the redemption
price in full to the holders of all shares called for redemption, then,
notwithstanding that the certificates representing any shares of the Series V
Preferred Stock so called for redemption shall not have been surrendered, (i)
dividends with respect to the shares so called for redemption shall cease to
accrue on the date fixed for redemption, (ii) such shares shall no longer be
deemed outstanding, (iii) the holders thereof shall cease to be stockholders of
the Corporation to the extent of their interest in such shares and (iv) all
rights whatsoever with respect to the shares so called for redemption (except
the right of the holders to receive the redemption price for each such share,
without interest or any sum of money in lieu of interest thereon, upon surrender
of their certificates therefor at a place designated in such notice) shall
terminate.
(e) Continuing Rights to Conversion. All rights to convert shares in
-------------------------------
accordance with subsections 4, 5 and 6 of this Section F shall remain valid and
effective following the
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<PAGE>
Corporation's notice of redemption, provided that the right to convert shares of
Series V Preferred Stock shall terminate as to a holder's shares at the close of
business on the 5th day prior to the redemption date if such holder's conversion
rights are not exercised in accordance with subsections 4, 5 and 6 on or prior
to such date. Any amounts so deposited on account of the redemption price of
shares converted subsequent to the date of deposit shall be repaid to the
Corporation forthwith upon conversion of such shares of Series V Preferred Stock
into shares of Common Stock. Notwithstanding anything contained herein to the
contrary, no shares of Series V Preferred Stock shall be required to be redeemed
by the Corporation if, prior to the actual receipt by the Corporation of the
Election Notice, the Trigger Event has been cured.
(f) Payment In Cash. All redemption payments shall be made in cash.
---------------
If the Corporation fails to make a redemption payment because the payment is
prohibited by the MGCL or similar statute, then on the redemption date the
Corporation shall provide to the holders of Series V Preferred Stock, whose
shares are subject to redemption, payment of the maximum amount that may then be
legally paid, on a pro rata basis, together with a certificate of the chief
--- ----
executive or chief financial officer of the Corporation setting forth the
computation made under the applicable statutory provision to determine what
amount could be legally paid. Thereafter, until the shares subject to
redemption have been fully redeemed, within 15 days after the end of each month,
the Corporation shall provide the holders of Series V Preferred Stock whose
shares are subject to redemption, a similar certificate showing the computation
of the maximum legally permitted redemption payment that may be made as of the
end of such month, together with the maximum permitted payment, if any, on a pro
---
rata basis. All shares of Series V Preferred Stock for which a redemption
- ----
payment has not been made on a redemption date shall be considered to be
outstanding for all purposes. Nothing in this subsection (f) is intended to
limit the other rights of holders of the Series V Preferred Stock relating to
failure of the Corporation to make a redemption payment.
8. Protective Provisions.
In addition to any other approval that may be required by law and the
charter of the Corporation, (A) the Corporation shall not take any of the
following actions (other than the actions specified in clause (vii) below) and
the Corporation shall not permit any subsidiary of the Corporation (the
"Subsidiary") to take any of the actions specified in clauses (i), (ii), (iii),
(iv), (v), (vi) or (viii) below without first obtaining prior written approval
of (x) the holders of a majority of the outstanding shares of Series V Preferred
Stock or (y) if AEW does not own a majority of the outstanding shares of Series
V Preferred Stock, the directors elected by the holders of Series V Preferred
Stock and (B) the Corporation shall not take any of the actions specified in
clause (vii) below without first obtaining prior unanimous approval of the board
of directors:
(i) the issuance of or modification in a manner materially adverse to
the Corporation or Subsidiary of any debt
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<PAGE>
if the principal amount of such debt exceeds $10 million or the conversion to a
term loan of any amounts owed to PaineWebber Incorporated, provided that such
approval will not be required upon such issuance or modification necessary in
connection with the redemption in full of the Series V Preferred Stock in
accordance with Section 7 hereof or an IPO in which the shares of Series V
Preferred Stock are converted and redeemed in accordance with Section 5(a)
hereof.
(ii) new investments, including a purchase of a real estate operating
company or REIT, with a purchase price equal to or greater than $10 million, or
any series of investments within any 90-day period with an aggregate purchase
price exceeding $25 million;
(iii) issuance of any equity securities by the Corporation or
Subsidiary in an IPO of Common Stock other than an IPO in which the shares of
Series V Preferred Stock are converted and redeemed in accordance with Section
5(a) hereof or redeemed in accordance with Section 7(a) hereof.
(iv) issuance of any equity security by the Subsidiary (other than to
the Corporation) or issuance of any equity security by the Corporation (other
than (i) securities issuable upon conversion, exercise or exchange of any Share
of Series V Preferred Stock, Convertible Security (provided the issuance of such
Convertible Security was made in accordance with the provisions of this Section
8), Option or Permitted Option, (ii) securities issuable in consideration of the
acquisition of assets or shares of another entity as long as the acquisition is
approved in accordance with this Section 8, (iii) securities issuable in
connection with any stock split or stock dividend payable in Common Stock or
(iv) Substitute Securities (as defined in the Series V Convertible Stock
Purchase Agreement, dated as of September 9, 1996, between the Corporation,
Health Science Properties Holding Corporation and AEW Partners II, L.P.)) unless
the following conditions are satisfied, (A) such securities do not rank senior
in liquidation preferences, dividend payment or redemption to the Series V
Preferred Stock, (B) the rights of such securities do not impair the voting or
approval rights of the holders of the Series V Preferred Stock or prevent the
holders of shares of Series V Preferred Stock from electing a majority of the
members of the Board of Directors under circumstances set forth in Section 11 of
this Section F, (C) the holders of the Series V Preferred Stock are offered
transferable preemptive rights to purchase their Pro Rata Portion (as defined
below) of such securities on terms no less favorable to the Corporation, and (D)
if such securities are Common Stock or securities convertible into Common Stock,
and if the Common Stock purchase price or Common Stock conversion share price is
less than the then Conversion Share Price then the Conversion Share Price will
be adjusted as set forth in Section 4 (and the Conversion Share Ratio adjusted
accordingly), provided however that prior approval will not be required upon
issuance of any equity securities fully to redeem the Series V Preferred Stock
or as part of an IPO in which the shares of Series V Preferred Stock are
converted and redeemed in accordance with Section 5(a) hereof.
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<PAGE>
(v) payment of dividends on any equity securities when the
Corporation's FAD fails to equal the required dividends payable on the
outstanding Series V Preferred Stock and the assumed dividends on the
outstanding Common Stock as set forth in any of Sections 7(b)(iv), 7(b)(v) or
7(b)(vi) hereof;
(vi) sale in any one transaction of any asset or assets with a sales
price in excess of $10 million, or any series of sales within a 90-day period
exceeding $25 million; provided, however, that such approval will not be
-------- -------
required in connection of such sale of assets necessary in connection with a
complete redemption of the Series V Preferred Stock in accordance with Section
7(a) hereof or as part of an IPO in which the shares of Series V Preferred Stock
are converted and redeemed in accordance with subsection 5(a) hereof;
(vii) institution of any bankruptcy action (as defined below)
provided, however, that such approval will not be required in connection with
such bankruptcy action if obtaining such approval is determined by a court of
competent jurisdiction to be unenforceable under applicable state or federal
law;
(viii) sale, consolidation or merger of the Corporation or Subsidiary;
(ix) the voluntary termination of the Corporation's status as a
REIT for tax purposes;
(x) any substantial change in the Corporation's current business
strategies substantially as described in the Corporation's Confidential Offering
Memorandum dated September 11, 1995;
(xi) Jerry Sudarsky ceasing to serve as the full-time Chairman of the
Corporation (other than by reason of his death or disability) during the period
ending on the earlier of January 1, 1998 or consummation of a public offering of
the securities of the Corporation or Joel Marcus ceasing to serve as the full-
time Chief Executive Officer or Chief Operating Officer of the Corporation
(other than by reason of his death or disability);
(xii) the sale or disposition by Mr. Sudarsky or Mr. Marcus of 20% or
more of his stock ownership interest in the Parent as of the Issue Date. For the
purposes of this paragraph, shares held in (a) a trust for estate planning
purposes for the benefit of Mr. Sudarsky or Mr. Marcus or members of their
immediate families (spouse, issues and siblings), or (b) held by members of
their immediate families or (c) an entity wholly-owned by any of the foregoing,
shall be deemed to be held by Mr. Sudarsky or Mr. Marcus as the case may be;
(xiii) the distribution to any shareholder of the Corporation of any
securities of any issuer other than the Corporation other than by means of a pro
---
rata distribution to the holders of Common and Series V Preferred Stock (on an
- ----
as-converted-to Common Stock basis).
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<PAGE>
The term "Pro Rata Share" shall mean a fraction of the entire issuance
of equity securities the numerator of which shall be the sum of the number of
the shares of Common Stock then owned (or issuable upon conversion of Shares
then owned) by the holder of Series V Preferred Stock and the denominator of
which shall be the total number of the shares of Common Stock outstanding
immediately prior to the issuance of such equity securities assuming full
conversion or exercise of all outstanding Common Stock and Shares, Convertible
Securities, Options and Permitted Options.
Any offer of equity securities made to the holders of Series V
Preferred Stock shall be made by notice in writing at least 20 days prior to the
date on which the Corporation intends to issue and sell such securities. Such
notice shall set forth (i) the number and type of securities proposed to be
issued and sold and the terms of such securities, (ii) the approximate price at
which such securities are proposed to be sold and the terms of payment, (iii)
the number of securities offered to the holders of Series V Preferred Stock in
compliance with the provisions of this Section, and (iv) the proposed date of
issuance and sale of such securities. Not later than 10 Business Days after
receipt of such notice, each holder of Series V Preferred Stock shall notify the
Corporation in writing whether it elects to purchase all or any portion of its
Pro Rata Portion of the securities offered pursuant to such notice. If any
holder of Series V Preferred Stock does not so notify the Corporation, such
holder shall be deemed to have waived rights to purchase any of the securities.
If a holder of Series V Preferred Stock shall elect to purchase any such
securities, the securities which it shall have elected to purchase shall be
issued and sold to such holder by the Corporation at the same time and on the
same terms and conditions as the securities are issued and sold to third
parties. If, for any reason, the sale of securities to third parties is not
consummated, such holder's election shall terminate, subject to such holder's
ongoing subscription right with respect to issuances of securities at later
dates or times.
The term "bankruptcy action" shall mean:
(a) Commencing any case, proceeding or other action seeking
protection for the Corporation as a debtor under any existing or future law of
any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of
debtors;
(b) Consenting to the entry of an order of relief in any involuntary
bankruptcy case against the Corporation;
(c) Filing an answer in any involuntary case described in clause (b)
above admitting the material allegations of the petition therein;
(d) Seeking or consenting to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator, custodian or any similar official
for the Corporation or for a substantial portion of its properties;
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<PAGE>
(e) Making any assignment for the benefit of the creditors of the
Corporation; and
(f) Admitting in writing the inability of the Corporation to
generally pay its debts as they mature or that the Corporation is generally not
paying its debts as they become due.
If any director of the Corporation votes against the initiation of any
bankruptcy action, such director shall not be liable for monetary damages to the
Corporation or its stockholders for voting against such bankruptcy action. This
exculpation shall be in addition to, and shall not in any way limit or modify
any other exculpation contained in the charter of the Corporation.
With respect to each of the above transactions, if their approval is
required, the holders of Series V Preferred Stock shall be provided with the
information regarding the proposed transaction at least 10 Business Days prior
to the scheduled approval date. If the holders of the Series V Preferred Stock
shall not deliver written notice objecting to the particular transaction before
the end of such 10 Business Day period, such holders shall be deemed to have
consented to such transaction.
The above requirements to obtain prior approval of certain actions
shall terminate if (i) the Corporation shall have an IPO in which the
Corporation issues primary shares of Common Stock with an aggregate offering
price of $100 million or more of new equity or (ii) at any time prior to or
following conversion into Common Stock if the holders of Series V Preferred
Stock own less than 15% of the total equity stock of the Corporation assuming a
conversion of Series V Preferred Stock in accordance with subsection 4 of this
Section F. Notwithstanding the above, the requests to obtain prior approval of
certain actions and unless otherwise required by law, no approval shall be
required if the Board of Directors determines in good faith that such action
must be taken to establish or maintain the Corporation's qualification as a real
estate investment trust (as defined in Section 856 of the Internal Revenue Code
of 1986 ("REIT")).
----
9. Shares to Be Retired. All shares of Series V Preferred Stock which
shall have been issued and reacquired in any manner by the Corporation shall be
restored to the status of authorized but unissued shares of Preferred Stock of
the Corporation, without designation as to class or series.
10. Ranking. Any class or series of stock of the Corporation shall be
deemed to rank:
(a) prior to the Series V Preferred Stock, as to the payment of
dividends or as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
Series V Preferred Stock ("SENIOR SHARES");
-------------
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<PAGE>
(b) on a parity with the Series V Preferred Stock as to the payment
of dividends and as to the distribution of assets upon liquidation, dissolution
or winding up if such stock or series shall be Parity Shares;
(c) junior to the Series V Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Junior Shares; and
(d) junior to the Series V Preferred Stock, as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Fully Junior Shares.
11. Voting Rights. Except as expressly provided below or otherwise in
this charter or required by law, the holders of Series V Preferred Stock shall
have no voting rights.
(a) Directors. Subject to subsection (c) below, the holders of
---------
shares of Series V Preferred Stock as a class shall have the right to elect two
members of the Board of Directors and the holders of Common Stock shall have the
right to elect the remaining directors; provided, however, that if at any time:
-------- -------
(i) the Corporation has failed in two consecutive quarters to pay
in full the quarterly dividends on Series V Preferred Stock as required by
subsection 2 of this Section F (including all dividends accumulated but unpaid
for all prior quarters);
(ii) the Corporation violates Section 8(xi) and (xii) hereof;
(iii) the Corporation has failed to close an IPO of its
Common Stock by the fourth anniversary of the Issue Date; or
(iv) the Corporation fails to pay the full redemption price on
the Series V Preferred Stock subject to redemption pursuant to subsection 7(b)
on any redemption date (provided, that such redemption was made at the request
of the holders of the majority of the then-outstanding shares of Series V
Preferred Stock),
then the holders of Series V Preferred Stock shall immediately (and regardless
of any subsequent cure) and thereafter be entitled to elect the smallest number
of directors constituting a majority of the Board of Directors, and the holders
of Common Stock, as a class, shall retain the right to elect the remaining
directors. In order to facilitate the effective control of the Board of
Directors by the holders of Series V Preferred Stock upon the occurrence of any
event identified in (i), (ii), (iii) or (iv) above, the size of the Board shall
automatically be increased to 15, and the holders of Series V Preferred Stock,
voting together as a single class, shall have the exclusive right to elect six
persons to fill such newly created vacancies on the Board of Directors. All
Directors elected by a vote of the
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holders of Series V Preferred Stock shall be referred to as "Series V
Directors." The initial two Series V Directors serving as directors of the
Corporation shall be a Class B Director and a Class C Director. If more than
the two Series V Directors are serving then they shall be assigned to classes to
make the number of directors in each class as nearly equal as possible. Holders
of Series V Preferred Stock may elect the Series V Directors by unanimous
written consent, by a special meeting of the holders of the Series V Preferred
Stock, or at an annual meeting of stockholders of the Corporation. Any special
meeting of the holders of the Series V Preferred Stock may be called by holders
who hold at least 10% of the outstanding shares of Series V Preferred Stock or
by a Series V Director and shall be held at a time and place specified by the
holder or Series V Director calling a meeting. The presence in person or by
proxy at a meeting of persons entitled to cast a majority of all the votes
entitled to be cast by the holders of a majority of the outstanding shares of
Series V Preferred Stock shall constitute a quorum for the purposes of any such
special meeting. In the case of any vacancy occurring among the Series V
Directors, a majority of the remaining Series V Directors, if any, may elect a
successor to hold office until the earlier of the expiration of the remaining
term of such Series V Director or the next meeting of the stockholders of that
class or series, which shall not be later than the next annual meeting of
holders of the Common Stock. If all Series V Directors shall cease to serve as
directors before their terms expire, the holders of Series V Preferred Stock
then outstanding may, by unanimous written consent or at an annual or special
meeting of the holders of Series V Preferred Stock, elect successors to hold
office for the unexpired terms of the Series V Directors.
(b) Amendment. Notwithstanding any other provision in the charter of
---------
the Corporation, any amendment to the charter of the Corporation which will
materially adversely affect the preferences or rights of the Series V Preferred
Stock shall be approved only by the affirmative vote of the holders of at least
a majority of the outstanding shares of Series V Preferred Stock, voting
together as a single class or, if AEW does not own a majority of the outstanding
shares of Series V Preferred Stock, the directors nominated by the holders of
Series V Preferred Stock.
(c) Termination. The voting rights set forth in (a) and (b) above
-----------
shall terminate if the number of shares of Common Stock issuable upon conversion
of the outstanding shares of Series V Preferred Stock by applying the Conversion
Share Ratio shall represent less than 15% of the total of (i) the number of
outstanding shares of Common Stock plus (ii) the number of shares of Common
Stock that would be outstanding upon conversion of the outstanding shares of
Series U Preferred Stock, together with the outstanding shares of Series V
Preferred Stock applying the Conversion Share Ratio plus all outstanding
Convertible Securities. If the number of shares of Common Stock issuable upon
conversion of the Series V Preferred Stock by applying the Conversion Share
Ratio represents less than 15% but 7% or more of such total, the holders of
shares of Series V Preferred Stock as a class shall only have the right to elect
one member of the
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Board of Directors rather than two and such right to elect one member of the
Board of Directors shall terminate if the number of shares of Common Stock
issuable upon conversion of the outstanding shares of Series V Preferred Stock
at the Conversion Share Ratio represents less than 7% of such total. In the
event the voting rights with respect to any one or more Series V Directors
terminates in accordance with this Subsection (c), the term of any such Series V
Director elected in accordance herewith shall immediately terminate.
(d) Mechanics. Solely for the purpose of this subsection 11, each
---------
holder of shares of Series V Preferred Stock shall be entitled to one vote for
each such share of Series V Preferred Stock held on a record date for vote or
consent of stockholders.
(e) Notice of Meetings. The holder of each share of Series V
------------------
Preferred Stock shall be entitled to written notice of any stockholders' meeting
in the manner provided in the Bylaws of the Corporation.
(f) Service on Compensation Committee. At least one Series V
---------------------------------
Director shall serve on the Compensation Committee of the Board of Directors,
which committee shall be made up of not more than three Directors during such
time as the holders of Series V Preferred Stock have the right to elect at least
one Series V Director. The number of members on the Compensation Committee may
not be increased without the prior approval of the holders of a majority of
outstanding shares of the Series V Preferred Stock during such time as the
holders of Series V Preferred Stock have the right to elect at least one Series
V Director.
12. Record Holders. The Corporation and the Transfer Agent may deem and
treat the record holder of any Series V Preferred Stock as the true and lawful
owner thereof for all purposes, and neither the Corporation nor the Transfer
Agent shall be affected by any notice to the contrary.
13. Fees and Expenses. In the event any holder of Series V Preferred
Stock takes any legal action to enforce any of its rights under this Section F
of the Corporation's charter, the non-prevailing party shall be required to pay
the costs and expenses of the prevailing party in connection with such action,
including reasonable attorney and witness fees.
Severability of Provisions
--------------------------
Whenever possible, each provision of this Article V shall be interpreted in
a manner as to be effective and valid under applicable law, but if any provision
of this Article V is held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating or otherwise adversely affecting the remaining
provisions hereof.
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Permissible Distributions
-------------------------
Unless otherwise determined by the Board, determining whether a
distribution (other than upon Liquidation), by dividend, redemption or other
acquisition of shares or otherwise, is permitted under the Maryland General
Corporation Law (the "MGCL"), amounts that would be needed, if the Corporation
were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of holders of shares of any class or series
of stock whose preferential rights upon dissolution are superior to those
receiving the distribution shall not be added to the Corporation's total
liabilities.
Charter and Bylaws
------------------
All persons who shall acquire stock in the Corporation shall acquire the
same subject to the provisions of the charter and the Bylaws of the Corporation.
ARTICLE
EXCESS SHARE PROVISIONS
-----------------------
A.Ownership Restrictions
----------------------
20. Definitions. As used in this Article VI, the following terms shall
have the following meanings:
"Beneficial Ownership" shall mean ownership of Capital Stock either
directly or constructively through application of section 544 of the Code, as
modified by section 856(h) of the Code. The terms "Beneficial Owner,"
"Beneficially Owns" and "Beneficially Owned" shall have correlative meanings.
"Beneficial Transferee" shall mean the transferee that acquires for
consideration Equity Stock or Series U Preferred Stock from the Trustee pursuant
to Section B.5 of this Article VI.
"Capital Stock" shall mean all classes and series of stock of the
Corporation, including, without limitation, Common Stock, Excess Stock, and
Preferred Stock (including the Series U Preferred Stock).
"Charitable Beneficiary" shall mean the beneficiary or beneficiaries
of the Trust which shall be the United Jewish Appeal and, if necessary either
(i) to prevent the Corporation from becoming Closely Held, as defined below, or
(ii) to prevent beneficial ownership of Series U Preferred Stock by fewer than
100 Persons (determined without reference to any rules of attribution), one or
more additional persons exempt from tax under section 501(c)(3) of the Code to
be selected by the Trustee.
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<PAGE>
"Closely Held" shall have the meaning set forth in Section 2(D) of
this Article VI.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Equity Stock" shall mean stock that is either Common Stock or
Preferred Stock, but excluding the Series U Preferred Stock.
"Excess Stock" shall mean stock that is exchanged for Equity Stock or
Series U Preferred Stock pursuant to Section A.3 of this Article VI.
"Individual" shall mean any Person that is treated as an individual
for purposes of section 542(a)(2) of the Code as the application of such section
may be modified by section 856(h) of the Code and by applying the "look through"
rule of section 856(h)(3) of the Code to any trust described in section 401(a)
of the Code and exempt from tax under section 501(a) of the Code.
"Market Price" on any date shall mean the fair market value as
determined by a nationally recognized investment banking firm selected by the
Board of Directors.
"Ownership Limit" shall mean (i) with respect to the Equity Stock,
9.8% of the value of the outstanding shares of Capital Stock of the Corporation,
subject to adjustment as set forth in Section 9, and (ii) with respect to the
Series U Preferred Stock, two shares of Series U Preferred Stock.
"Person" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be used exclusively
for the purposes described in section 642(c) of the Code, association, private
foundation within the meaning of section 509(a) of the Code, joint stock company
or other entity or any government or agency or political subdivision thereof and
also includes a "group" as that term is used for purposes of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended.
"Purported Holder" shall mean, with respect to any event, other than a
purported Transfer, that results in Excess Stock, the record holder of the
Equity Stock or Series U Preferred Stock but for this Article VI.
"Purported Transferee" shall mean, with respect to any purported
Transfer of Equity Stock or Series U Preferred Stock, including (without
limitation) a purported Transfer that results in Excess Stock, the person who
would be the record holder of the Equity Stock or Series U Preferred Stock but
for this Article VI.
"Restriction Termination Date" shall mean the first day on which the
Board determines that it is no longer in the best interests of the Corporation
to attempt to, or continue to, qualify as a REIT.
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<PAGE>
"REIT" shall mean a real estate investment trust under the Code.
"Series U Preferred Stock" shall mean the Series U Preferred Stock,
par value $.01 per share, of the Corporation.
"Transfer" shall mean any sale, issuance, transfer, gift,
hypothecation, pledge, assignment, devise or other disposition (including (i)
the granting of any option or entering into any agreement for the sale, transfer
or other disposition of Equity Stock or Series U Preferred Stock, or (ii) the
sale, transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Equity Stock or Series U Preferred Stock),
whether voluntary or involuntary, whether of record, constructively or
beneficially and whether by operation of law or otherwise. The terms "Transfers"
and "Transferred" shall have the correlative meanings.
"Trust" shall mean the trust created pursuant to Section B.1 of this
Article VI.
"Trustee" shall mean such person, as trustee of the Trust, as shall be
selected from time to time by the Board.
21. Restriction on Transfers. Prior to the Restriction Termination Date:
(A) No Individual shall Beneficially Own Equity Stock and no
Person shall beneficially own (without reference to any rules of attribution or
constructive ownership) Series U Preferred Stock in excess of the Ownership
Limit for such class of shares.
(B) Any Transfer that, if effective, would result in any
Individual Beneficially Owning Equity Stock in excess of the Ownership Limit
with respect to Equity Stock shall be void ab initio as to the Transfer of such
-- ------
Equity Stock that would be otherwise Beneficially Owned by such Individual in
excess of such Ownership Limit; and the intended transferee shall acquire no
rights to such Equity Stock.
(C) Any Transfer of Series U Preferred Stock that, if
effective, would result in any Person beneficially owning Series U Preferred
Stock (determined without reference to any rules of attribution) in excess of
the Ownership Limit with respect to Series U Preferred Stock shall be void ab
--
initio as to the Transfer of such Series U Preferred Stock that would be
- ------
otherwise beneficially owned by such Person (determined without reference to any
rules of attribution) in excess of such Ownership Limit; and the intended
transferee shall acquire no rights in such Series U Preferred Stock.
(D) Any Transfer that, if effective, would result in the
Corporation being "closely held" within the meaning of section 856(h) of the
Code at any time during the taxable year ("Closely Held") shall be void ab
--
initio as to the Transfer of that number of shares of Equity Stock or Series U
- ------
Preferred Stock that would otherwise cause the Corporation to be Closely Held;
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<PAGE>
and the intended transferee shall acquire no rights in such shares of Equity
Stock or Series U Preferred Stock.
(E) Any Transfer that, if effective, would result in the
Equity Stock and Series U Preferred Stock being beneficially owned, in the
aggregate, by fewer than 100 Persons (determined without reference to any rules
of attribution) shall be void ab initio as to the Transfer of that number of
-- ------
shares that would result in beneficial ownership of Equity Stock and Series U
Preferred Stock, in the aggregate, by fewer than 100 Persons (determined without
reference to any rules of attribution); and the intended transferee shall
acquire no rights in such shares.
22. Exchange for Excess Stock.
(A) If, notwithstanding the other provisions contained in
this Article VI, at any time prior to the Restriction Termination Date, there is
a purported Transfer or any other event such that any Individual would
Beneficially Own Equity Stock in excess of the Ownership Limit with respect to
the Equity Stock, then such shares of Equity Stock in excess of such Ownership
Limit (such shares to be rounded up to the nearest whole share) shall be
automatically exchanged for an equal number of shares of Excess Stock and shall
be subject to the terms of Section B hereof. Such exchange shall be effective as
of the close of business on the business day prior to the date of the Transfer
or other event.
(B) If, notwithstanding the other provisions contained in
this Article VI, at any time prior to the Restriction Termination Date, there is
a purported Transfer or any other event such that any Person would beneficially
own (without reference to any rules of attribution) Series U Preferred Stock in
excess of the Ownership Limit with respect to the Series U Preferred Stock, then
such shares of Series U Preferred Stock in excess of such Ownership Limit (such
shares to be rounded up to the nearest whole share) shall be automatically
exchanged for an equal number of shares of Excess Stock and shall be subject to
the terms of Section B hereof. Such exchange shall be effective as of the close
of business on the business day prior to the date of the Transfer or other
event.
(C) If, notwithstanding the other provisions contained in
this Article VI, at any time prior to the Restriction Termination Date, there is
a purported Transfer or any other event that would result in the Corporation
being Closely Held, then such shares of Equity Stock or Series U Preferred Stock
that would otherwise cause the Corporation to become Closely Held (such shares
to be rounded up to the nearest whole share) shall be automatically exchanged
for an equal number of shares of Excess Stock and shall be subject to the terms
of Section B hereof. Such exchange shall be effective as of the close of
business on the business day prior to the date of the Transfer or other event.
23. Remedies for Breach. If the Board or a duly authorized committee
thereof, at any time determines in good faith that a
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<PAGE>
Transfer has taken place in violation of Section A.2 or that an Individual
intends to acquire or has attempted to acquire Beneficial Ownership of any
shares of Equity Stock in violation of Section A.2 or that a Person intends to
acquire or has attempted to acquire beneficial ownership (determined without
reference to any rules of attribution) of any shares of Series U Preferred Stock
in violation of Section A.2, the Board or a committee thereof shall take such
action as it deems advisable to refuse to give effect to or to prevent such
Transfer, including, but not limited to, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to enjoin or
rescind such Transfer; provided, however, that any Transfers or attempted
-------- -------
Transfers in violation of Section A.2 shall be void ab initio and shall
-- ------
automatically be treated in the manner provided in Section A.3 irrespective of
any action (or non-action) by the Board or its designees.
24. Notice of Ownership or Attempted Ownership in Violation of Section
A.2. Any Individual or Person who acquires or attempts to acquire Beneficial
Ownership of shares of Capital Stock in violation of Section A.2 of this Article
VI, shall immediately give written notice to the Corporation of such event and
shall provide to the Corporation such other information as the Corporation may
request in order to determine the effect, if any, of such acquisition or
attempted acquisition on the Corporation's qualification as a REIT.
25. Owners Required to Provide Information. Prior to the Restriction
Termination Date:
(A) The Corporation shall demand written notice, within 30
days after the close of each taxable year, from every stockholder of record of
more than 5% (during any periods in which the number of such owners exceeds
2000) or 1% (during any periods in which the number of such owners is greater
than 200 but no more than 2000), or such lower percentages as required pursuant
to regulations under the Code, of the outstanding shares of Capital Stock of the
Corporation stating the name and address of such Beneficial Owner, the number of
shares of Capital Stock Beneficially Owned, and a description of how such shares
are held. Each such Beneficial Owner shall provide to the Corporation such
additional information as the Corporation may reasonably request in order to
determine the effect, if any, of such Beneficial Ownership on the Corporation's
status as a REIT.
(B) Each Person who is a Beneficial Owner of Capital Stock
and each Person (including the stockholder of record) who is holding Capital
Stock for a Beneficial Owner shall provide to the Corporation such information
as the Corporation may reasonably request in order to determine the
Corporation's status as a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine such compliance, or to comply
with regulations promulgated under the REIT provisions of the Code including,
without limitation, Treasury Regulation Section 1.857-8 or any successor
regulation.
(C) Every stockholder of record who holds shares of Capital
Stock as nominee for another Person shall give
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written notice to the Corporation of the name and address of such other Person
and the number of shares of Capital Stock which the stockholder of record holds
as nominee for such Person.
26. Remedies Not Limited. Nothing contained in this Article VI shall
limit the authority of the Board to take such other action as it deems necessary
or advisable to protect the Corporation and the interests of its stockholders by
establishment or preservation of the Corporation's status as a REIT.
27. Ambiguity. In the case of an ambiguity in the application of any of
the provisions of this Article VI, including any definition contained in Section
A.1 and any ambiguity with respect to whether Equity Stock or Series U Preferred
Stock is to be exchanged for Excess Stock in a given situation, the Board shall
have the power to determine the application of the provisions of this Article VI
with respect to any situation based on the facts known to it and any such
determination by the Board shall be final and conclusive for all purposes.
28. Modifications of Ownership Limit. Subject to the limitations provided
in Section 10, the Board of Directors may from time to time increase or decrease
the Ownership Limit with respect to the Equity Stock.
10. Limitations on Modifications.
(1) The Ownership Limit with respect to the Equity Stock may not be
increased if, after giving effect to such increase, five Individuals could
Beneficially Own, in the aggregate, more than 49.9% of the value of the
outstanding Capital Stock.
(2) Prior to the modification of any Ownership Limit pursuant to
Section 9, the Board may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to
determine or ensure the Corporation's status as a REIT.
11. Legend.
(A) Each certificate for Equity Stock issued on or after
September 9, 1996 shall bear substantially the following legend:
The shares of Equity Stock represented by this Certificate are subject
to restrictions on transfer for the purpose of establishing or maintaining
the Corporation's status as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code"). No Individual may
Beneficially Own Equity Stock in excess of the applicable Ownership Limit
with respect to the Equity Stock, which may increase or decrease from time
to time. Any Individual who attempts to Beneficially Own shares of Equity
Stock in violation of the above limitation must immediately notify the
Corporation. All capitalized terms
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<PAGE>
in this legend have the meanings defined in the Corporation's charter. If
the restrictions on ownership or transfer are violated, the shares of
Equity Stock represented hereby will be automatically exchanged for shares
of Excess Stock, which will then be held in trust for a Charitable
Beneficiary. The foregoing is qualified in its entirety by reference to
the Corporation's charter, a copy of which, including the restrictions on
transfer, will be sent without charge to each stockholder who so requests.
(B) Each certificate for Series U Preferred Stock issued on
or after September 9, 1996 shall bear substantially the following legend:
The shares of Series U Preferred Stock represented by this Certificate
are subject to restrictions on transfer for the purpose of establishing or
maintaining the Corporation's status as a real estate investment trust
under the Internal Revenue Code of 1986, as amended (the "Code"). No
Person may beneficially own more than two shares of Series U Preferred
Stock. Any Person who attempts to beneficially own shares of Series U
Preferred Stock in violation of the above limitations must immediately
notify the Corporation and any transfer that could result in ownership of
Series U Preferred Stock in excess of the above limitations shall be void.
All capitalized terms in this legend have the meanings defined in the
Corporation's charter. If the restrictions on ownership or transfer are
violated, the shares of Series U Preferred Stock represented hereby will be
automatically exchanged for shares of Excess Stock, which will then be held
in trust for a Charitable Beneficiary. The foregoing is qualified in its
entirety by reference to the Corporation's charter, a copy of which,
including the restrictions on transfer, will be sent without charge to each
stockholder who so requests.
B. Excess Stock
------------
1. Ownership in Trust. Upon any purported Transfer or other event that
results in the exchange of shares of Equity Stock or Series U Preferred Stock
for Excess Stock pursuant to Section A.3 of this Article VI, such shares of
Excess Stock shall be deemed to have been Transferred to the Trustee, as trustee
of a Trust for the exclusive benefit of the Charitable Beneficiary. Shares of
Excess Stock so held in the Trust shall continue to be issued and outstanding
shares of stock of the Corporation of such class. The Purported Transferee or
Purported Holder shall have no rights in such shares of Excess Stock except for
the rights provided in Sections B.3 and B.5.
2. Dividend Rights. Dividends or other distributions that have been
declared on any shares of Equity Stock or Series U Preferred Stock that have
been exchanged for Excess Stock pursuant to Section A.3 shall be paid with
respect to such Excess Stock when due to the Trustee, as trustee of the Trust
for the exclusive benefit of the Charitable Beneficiary, until such time as the
Trustee shall transfer the Excess Stock to the Beneficial Transferee pursuant to
Section B.5 of this Article VI. Any
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<PAGE>
dividend or distribution paid prior to the discovery by the Corporation that the
shares of Equity Stock or Series U Preferred Stock have been exchanged for
Excess Stock shall be repaid to the Corporation upon demand or, at the
Corporation's sole election, shall be offset against any future dividends or
distributions payable to the Purported Transferee or Purported Holder, and any
dividend or distribution authorized but unpaid shall be rescinded as void ab
--
initio with respect to such shares of Equity Stock or Series U Preferred Stock,
- ------
as the case may be, and promptly thereafter paid over to the Trustee with
respect to such shares of Excess Stock, as trustee of the Trust for the
exclusive benefit of the Charitable Beneficiary.
3. Rights Upon Liquidation. At such time as (i) the Corporation has
received the necessary stockholder approval with respect to a voluntary
liquidation or dissolution of the Corporation, or (ii) the Corporation has
become the subject of an order of a court of competent jurisdiction compelling
an involuntary liquidation or dissolution of the Corporation, the Trustee, as
trustee of the Trust for the exclusive benefit of the Charitable Beneficiary,
shall be entitled to receive that amount of distributable assets of the
Corporation to which such Excess Stock would be entitled if such Excess Stock
were entitled to share ratably in the distributable assets of the Corporation as
shares of Equity Stock or Series U Preferred Stock, as the case may be (the
"Distributed Amount"). The Trustee shall distribute to the Purported Transferee
or Purported Holder an amount equal to the lesser of (a) the Distributed Amount,
or (b) as appropriate, either (1) the price per share paid by such Purported
Transferee for the shares of Equity Stock or Series U Preferred Stock that were
exchanged for Excess Stock, (2) if the Purported Transferee did not give value
for such shares of Equity Stock or Series U Preferred Stock (having received
such through a gift, devise or otherwise), a price per share equal to the Market
Price on the date of the purported Transfer that resulted in the Excess Stock,
or (3) if the exchange for Excess Stock did not arise as a result of a purported
Transfer, a price per share equal to the Market Price on the date of the other
event that resulted in the exchange for Excess Stock. Payment to the Purported
Transferee or Purported Holder shall be without interest. Subject to applicable
law, if the Corporation causes such liquidation or dissolution to be revoked or
otherwise rescinded, any Excess Stock previously automatically cancelled
pursuant to this Section B.3 of this Article VI shall be automatically reissued.
4. Voting Rights. The Trustee, as holder of any Excess Stock and as
trustee for the benefit of the Charitable Beneficiary, shall have the right to
vote any such Excess Stock in connection with any matter on which the holders of
the Equity Stock or Series U Preferred Stock, as the case may be, are entitled
to vote until such time as the Trustee shall transfer such Excess Stock pursuant
to Section B.5. The holders of shares of Excess Stock (other than the Trustee)
shall have no voting rights with respect to Excess Stock and, subject to
Maryland law, effective as of the date that the Excess Stock has been
transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a Purported
Transferee prior to the discovery by the
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<PAGE>
Corporation that the shares of Excess Stock have been transferred to the Trustee
and (ii) to recast such vote in accordance with the desires of the Trustee
acting for the benefit of the Charitable Beneficiary; provided, however, that if
-------- -------
the Corporation has already taken irreversible corporate action, then the
Trustee shall not have the authority to rescind or recast such vote.
Notwithstanding the provisions of this Article VI, until the Corporation has
received notification that shares of Excess Stock have been transferred to the
Trustee, the Corporation shall be entitled to rely on its stock transfer and
other stockholder records for purposes of preparing lists of stockholders
entitled to vote at meetings, determining the validity and authority of proxies
and otherwise conducting votes of stockholders.
5. Restrictions on Transfer.
a. Any shares of Excess Stock that were issued in exchange for Equity
Stock or Series U Preferred Stock pursuant to Section A.3 of this Article VI and
are held by the Trustee pursuant to Section B.1 of this Article VI shall be
Transferred by the Trustee only as provided for in this subparagraph B.5(a).
The Trustee shall, within 180 days after the date of the purported Transfer or
other event that resulted in the Excess Stock being issued in exchange for
Equity Stock or Series U Preferred Stock (or as soon as possible thereafter if
the Trustee does not learn of such purported Transfer or other event within such
period), Transfer for consideration the Excess Stock held in Trust to a
Beneficial Transferee, to be designated by the Corporation, provided that (i)
such shares would not be Excess Stock in the hands of such Beneficial Transferee
and (ii) simultaneously with such Transfer such shares shall be automatically
exchanged for an equal number of shares of the same class or series of Equity
Stock or Series U Preferred Stock which originally was exchanged for the Excess
Stock. The Trustee shall distribute to the Purported Transferee or Purported
Holder from and to the extent of the consideration received by the Trustee from
the Beneficial Transferee an amount equal to, as appropriate (i) the price per
share paid by the Purported Transferee for the shares of the same class or
series of Equity Stock or Series U Preferred Stock that were exchanged for
Excess Stock, as the case may be, or (ii) if the Purported Transferee did not
give value for such shares of Equity Stock or Series U Preferred Stock (having
received such through a gift, devise or otherwise), a price per share equal to
the Market Price on the date of the purported Transfer that resulted in Excess
Stock or (iii) if the exchange for Excess Stock did not arise as a result of a
purported Transfer, a price per share equal to the Market Price on the date of
the other event that resulted in the exchange for Excess Stock.
b. Notwithstanding the foregoing, if a Purported Transferee receives
a price for its interest in the shares of Equity Stock or Series U Preferred
Stock that were exchanged for Excess Stock that exceeds the amounts such
Purported Transferee would receive under Section B.5(a) of this Article VI, such
Purported Transferee shall pay, or cause to be paid, such excess
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<PAGE>
to the Trustee, as trustee of the Trust for the exclusive benefit of the
Charitable Beneficiary.
c. If any of the foregoing restrictions are determined to be void,
invalid or unenforceable by any court of competent jurisdiction, then the
Purported Transferee may be deemed, at the option of the Corporation, to have
acted as an agent of the Corporation, acting in turn as agent on behalf of a
third-party purchaser, in acquiring such Excess Stock and to hold such Excess
Stock on behalf of the Corporation (acting, in turn, as agent as aforesaid).
C. Further Authority
-----------------
Nothing contained in this Article VI or in any other provision of this
charter shall limit the authority of the Board to take such other action as it
in its sole discretion deems necessary or advisable to protect the Corporation
and the interests of the stockholders by maintaining the Corporation's
eligibility to be, and preserving the Corporation's status as, a qualified REIT
under the Code. The Corporation is authorized specifically to seek equitable
relief, including injunctive relief, to enforce the provisions of this Article
VI.
D. Non-Waiver
----------
No delay or failure on the part of the Corporation or the Board in
exercising any right hereunder shall operate as a waiver of any right of the
Corporation or the Board, as the case may be, except to the extent specifically
waived in writing.
E. Severability
------------
If any provision of this Article VI or any application of any such
provision is determined to be invalid by any Federal or state court having
jurisdiction over the issues, the validity of the remaining provisions shall not
be affected and other applications of such provision shall be affected only to
the extent necessary to comply with the determination of such court.
ARTICLE
BOARD OF DIRECTORS
------------------
The number of directors of the Corporation shall be nine (9), which
number may be increased (but shall not be more than fifteen (15)) or decreased
(but shall not be less than three (3) or the minimum number permitted by the
MGCL now or hereafter in effect, whichever is greater) pursuant to the Bylaws.
So long as the holders of shares of Series V Preferred Stock have the power to
elect a Series V Director, the number of directors cannot be increased without
the approval of the holders of a majority of the outstanding shares of Series V
Preferred Stock in the manner required by law. The Board shall be divided into
three classes. Each director shall be nominated and elected for
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<PAGE>
a term ending on the date of the third annual meeting of stockholders following
the annual meeting at which such director was elected and until a successor is
duly elected and qualifies; provided, however, that the Class A Directors shall
serve for a term expiring at the annual meeting in 1997, the Class B Directors
shall serve for a term expiring at the annual meeting in 1996 and the Class C
Directors shall serve for a term expiring at the annual meeting in 1998.
The names of persons who currently serve as the current directors of
the Corporation are as follows:
Class A Directors (term expires 1997)
Jerry M. Sudarsky
Joel S. Marcus
Alan D. Gold
Class B Directors (term expires 1996)
Joe Elmaleh
Viren Mehta
Class C Directors (term expires 1998)
David Petrone
Anthony Solomon
A vacancy which results from the death, resignation or removal of a
director or as a result of an increase by the Board in the number of directors
may be filled by a vote of the entire Board, and a director so elected to fill a
vacancy shall serve until the next annual meeting of stockholders and until his
or her successor shall be duly elected and qualified. At the next annual
meeting of stockholders, the vacancy created by the death, resignation or
removal of a director shall be filled for the balance of such director's
original term, and the vacancy or vacancies created by an increase in the number
of directors shall be filled for the balance of the term of the class of
directors increased as a result of the action of the Board in increasing the
number of directors. The tenure of office of any director shall not be affected
by any decrease in the number of directors so made by the Board. Directors need
not be stockholders.
ARTICLE
REMOVAL OF DIRECTORS
--------------------
Any director (other than the Series V Directors) may be removed from
office at any time only with cause, upon, and only upon, the affirmative vote of
the holders of at least a majority of the votes entitled to be cast in the
election of directors. Any Series V Director may be removed from office at any
time, with or without cause, only upon the affirmative vote of the holders of at
least a majority of the outstanding shares of Series V Preferred Stock. For
purposes hereof, "cause" shall mean with respect to any director, a holding by a
court of competent jurisdiction that such director caused demonstrable,
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<PAGE>
material harm to the Corporation through bad faith or active and deliberate
dishonesty.
ARTICLE
AUTHORITY OF DIRECTORS
----------------------
The business and affairs of the Corporation shall be managed under the
direction of the Board.
The Board may authorize the issuance from time to time of shares of
stock of any class or series of the Corporation, whether now or hereafter
authorized, or securities convertible into shares of its stock of any class or
classes, whether now or hereafter authorized, for such consideration as may be
deemed advisable by the Board and without any action by the stockholders of the
Corporation, subject to such restrictions or limitations, if any, as may be set
forth in the charter or Bylaws of the Corporation and by the MGCL.
It is acknowledged that AEW engages in business competitive with the
Corporation. It is further acknowledged that a director of the Corporation
which is an Affiliate of AEW shall have no obligation to present to the
Corporation opportunities that may be pursued by AEW, unless such opportunities
were presented to such director in his or her capacity as a director of the
Corporation.
ARTICLE
NO PREEMPTIVE RIGHTS
--------------------
Except as may be provided by the Board in setting the terms of
classified or reclassified shares of stock pursuant to Article V or as may be
provided by contract, no holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any preemptive
right to subscribe for or purchase any stock or any other securities of the
Corporation, other than as the Board, in its sole discretion, may determine, and
at such price or prices and upon such other terms as the Board, in its sole
discretion, may fix; and any stock or other securities which the Board may
determine to offer for subscription may, as the Board in its sole discretion
shall determine, be offered to the holders of any class, series or type of stock
or other securities at the time outstanding to the exclusion of the holders of
any or all other classes, series or types of stock or other securities at the
time outstanding.
ARTICLE
CONTRACTS
---------
Any contract or other transaction between the Corporation and any one
or more of its directors, individually or jointly, or between the Corporation
and any other firm,
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<PAGE>
corporation or association of which one or more of its directors are
stockholders, members, officers, directors or employees, or in which they have
an interest, shall be valid for all purposes, notwithstanding the presence of
such director or directors at the meeting of the Board which acts upon or in
reference to such contract or transaction, if the fact of such interest shall be
disclosed or known to the Board and the Board shall authorize, approve or ratify
such contract or transaction by a vote which includes the affirmative vote of a
majority of the disinterested directors, even if the disinterested directors
constitute less than a quorum at such meeting. Such director or directors may
be counted in determining the presence of a quorum at such meeting. Every
person who is or may become a director of the Corporation is hereby relieved
from any liability that might otherwise exist from contracting with the
Corporation for the benefit of himself or any firm, association or corporation
in which he may be in any way interested.
ARTICLE
LIMITATION OF LIABILITY
-----------------------
An officer or director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages, except to
the extent that it can be proven that (i) the officer or director actually
received an improper benefit or profit in money, property, or services (in which
case recovery is limited to the actual amount of such improper benefits or
profit) or (ii) the action or failure to act, by the officer or director, was
the result of active and deliberate dishonesty which was material to the cause
of action adjudicated in the proceeding. If the MGCL is hereafter amended to
further eliminate or limit the liability of an officer or director, then an
officer or director of the Corporation, in addition to the circumstances in
which an officer or director is not personally liable as set forth in the
preceding sentence, shall not be liable to the fullest extent permitted by the
amended MGCL. Any repeal or modification of the foregoing provisions of this
Article XI by the stockholders of the Corporation shall not adversely affect any
right or protection of an officer or director of this Corporation existing at
the time of such repeal or modification.
The private property or assets of the stockholders of the Corporation
shall not to any extent whatsoever be subject to the payment of any debts of the
Corporation.
ARTICLE
INDEMNIFICATION
---------------
The Corporation shall have the power, to the maximum extent permitted
by Maryland law in effect from time to time, to obligate itself to indemnify,
and to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to, (a) any individual who is a present or former director or officer
of
- 58 -
<PAGE>
the Corporation or (b) any individual who, while a director of the Corporation
and at the request of the Corporation, serves or has served as a director,
officer, partner or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise from and against any claim
or liability to which such person may become subject or which such person may
incur by reason of this status as a present or former director or officer of the
Corporation. The Corporation shall have the power, with the approval of the
Board, to provide such indemnification and advancement of expenses to a person
who served a predecessor of the Corporation in any of the capacities described
in (a) or (b) above and to any employee or agent of the Corporation or a
predecessor of the Corporation.
ARTICLE
CONTROL SHARE RIGHTS
--------------------
Notwithstanding any other provision of the charter or the Bylaws of
the Corporation, Title 3, Subtitle 7 of the Corporations and Associations
Article of the Annotated Code of Maryland (or any successor statute) shall not
apply to any acquisition by any person of shares of stock of the Corporation.
This Article XIV may be repealed, in whole or in part, at any time, whether
before or after an acquisition of control shares and, upon such repeal, may, to
the extent provided by any amendment to this Article XIV, apply to any prior or
subsequent control share acquisition; provided, however, in addition to any
other requirement set forth by law or in the charter of the Corporation, that
this Article XIV may not be modified or repealed without the prior approval of
the holders of a majority of the shares of Series V Preferred Stock, voting
separately as a class.
ARTICLE
AMENDMENTS
----------
The Corporation reserves the right from time to time to make any
amendment to its charter which may be now or hereafter authorized by law,
including any amendment altering the terms or contract rights of any of its
outstanding shares of stock by classification, reclassification, or otherwise.
Unless otherwise provided herein, no amendment which alters the terms or
contract rights of any of its outstanding shares of stock shall be valid unless
such amendment shall have been approved by holders of not less than two-thirds
of the aggregate number of votes entitled to be cast thereon at any annual or
special meeting. Any other amendment to the Corporation's charter shall be
valid if such amendment shall have been approved by holders of not less than a
majority of the aggregate number of votes entitled to be cast thereon at any
annual or special meeting. All rights and powers conferred by the charter of
the Corporation upon stockholders, directors and officers are granted herein
subject to this reservation.
- 59 -
<PAGE>
THIRD: The amendment to and restatement of the charter of the
-----
Corporation as hereinabove set forth has been duly advised by the Board of
Directors and approved by the stockholders of the Corporation as required by
law.
FOURTH: The current address of the principal office of the
------
Corporation is as set forth in Article III of the foregoing amendment and
restatement of the charter.
FIFTH: The name and address of the Corporation's current resident
-----
agent is as set forth in Article IV of the foregoing amendment and restatement
of the charter.
SIXTH: The number of directors of the Corporation and the names of
-----
those currently in office are as set forth in Article VII of the foregoing
amendment and restatement of the charter.
SEVENTH: The total number of shares of stock which the Corporation
--------
had authority to issue immediately prior to this amendment was seventeen
thousand (17,000), consisting of two thousand (2,000) shares of Common Stock,
$.01 par value per share, and fifteen thousand (15,000) shares of Preferred
Stock, $.01 par value per share, of which one-hundred twenty-five (125) are
shares of Series T Preferred Stock and two-hundred fifty (250) are shares of
Series U Preferred Stock. The aggregate par value of all shares of stock having
par value was $170.00.
EIGHTH: The total number of shares of stock which the Corporation has
------
authority to issue pursuant to the foregoing amendment and restatement of the
charter of the Corporation is two-hundred thousand (200,000), consisting of
sixty-five thousand (65,000) shares of Common Stock, $.01 par value per share,
seventy thousand (70,000) shares of Excess Stock, $.01 par value per share, and
sixty-five thousand (65,000) shares of Preferred Stock, $.01 par value per
share, of which fourteen thousand six-hundred twenty-five (14,625) shares are
undesignated Preferred Stock, one-hundred twenty- five (125) are designated as
shares of Series T Preferred Stock, two-hundred fifty (250) are designated as
Series U Preferred Stock and fifty thousand (50,000) are designated as Series V
Preferred Stock. The aggregate par value of all authorized shares of stock
having par value is $2,000.00.
NINTH: The undersigned President acknowledges these Articles of
-----
Amendment and Restatement to be the corporate act of the Corporation and as to
all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
President and attested to by its Secretary on this 9th day of September, 1996.
ATTEST: HEALTH SCIENCE PROPERTIES, INC.
/s/ Joel S. Marcus /s/ Jerry M. Sudarsky
________________________ By:__________________________(SEAL)
Joel S. Marcus Jerry M. Sudarsky
Secretary President
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<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
ASSUME:
- ------
<S> <C>
Common Shares Outstanding - (including shares issuable on conversion of outstanding 1,000 Shares
shares of Series U and V Preferred Stock)
Then Current Conversion Share Price for Series V Preferred $30,000
Proposed Per Share Consideration for Additional Stock $20,000
Proposed Number of Shares of Additional Stock 800 Shares
Additional Stock that would be Purchased at Conversion Share 800 x $20,000
-------------
Price $30,000 533 shares
Conversion Share Price reduction = $30,000 x 1000 + 533
-------------------------------- ----------
1000 + 800 - $25,549.99
</TABLE>
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
HEALTH SCIENCE PROPERTIES, INC.
(THE "CORPORATION")
ARTICLE I.
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation
in the State of Maryland shall be in the City of Baltimore, and the resident
agent in charge thereof shall be The Prentice-Hall Corporation System.
SECTION 2. PRINCIPAL EXECUTIVE OFFICE. The Corporation's principal
executive office shall be in Los Angeles, California and the Corporation may
have other offices at such other place or places either within or without of the
State of Maryland as the Board of Directors may from time to time determine or
the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the stockholders of the
Corporation for the election of directors or any other purpose shall be held at
an office of the Corporation in Los Angeles, California, or at such other place
within the United States as may from time to time be fixed by the Board of
Directors and specified in the respective notices of such meetings or any
waivers of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meeting of the stockholders
for the election of directors and for the transaction of such other business as
may come before the meeting shall be held on the last Thursday in September in
each year or at such other date and time in the month of September as may be
fixed by the Board of Directors.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders may be
called by the Chairman or Vice Chairman of the Board, if any, or the President
whenever such meeting is deemed advisable, and shall be called by the Secretary
when so ordered by a majority of the Board of Directors, upon the written
request of holders of not less than 25% of all votes entitled to be cast at such
meeting or, in the event of a Trigger Event (as defined in the Charter), upon
the written request of holders of not less than a majority of the outstanding
shares of Series V Preferred Stock, par value $.01 per share, of the Corporation
("Series V Preferred Stock"). Such request shall state the purpose or purposes
of such
<PAGE>
meeting and the matter proposed to be acted on. The Secretary shall inform such
stockholders of the reasonable estimated cost of preparing and mailing such
notice of the meeting, and upon payment to the Corporation by such stockholders
of such costs, the Secretary shall give notice stating the purpose or purposes
of the meeting to all stockholders entitled to vote at such meeting. No special
meeting need be called upon the request of the holders of shares entitled to
cast less than a majority of all votes entitled to be cast at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of the stockholders held during the preceding twelve months.
SECTION 4. NOTICE OF MEETING. Except as otherwise provided by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10), nor more than ninety (90), days before the day on
which the meeting is to be held to each stockholder of record entitled to vote
at such meeting or to each other stockholder of record entitled to notice of
such meeting by delivering a written or printed notice thereof to such
stockholder personally, or by mailing such notice, postage prepaid, addressed to
such stockholder at the post-office address furnished by such stockholder to the
Secretary or transfer agent of the Corporation for such purpose, or, if not
furnished to the Secretary or transfer agent of the Corporation for such
purpose, then at such stockholder's post office address last known to the
Secretary of the Corporation, or by transmitting a notice thereof to such
stockholder at such address by facsimile, telegraph, cable, radio or wireless.
If mailed, such notice shall be deemed given when deposited in the United States
mail addressed to the stockholder at his post office address as it appears on
the records of the Corporation, with postage prepaid. Except where expressly
required by law, no publication of any notice of a meeting of stockholders shall
be required. Every such notice shall state the time and place of the meeting
and, in the case of a special meeting or as otherwise may be required by any
statute, shall state briefly the purposes thereof. Notice of any meeting of
stockholders shall be waived by any stockholder who shall attend such meeting
in person or by proxy. Notice of any adjourned meeting of the stockholders
shall not be required to be given, except when expressly required by law. Any
business of the Corporation may be transacted at an annual meeting of
stockholders without being specifically designated in the notice, except such
business as is required by any statute to be stated in such notice. No business
shall be transacted at a special meeting of stockholders except as specifically
designated in the notice.
SECTION 5. LIST OF STOCKHOLDERS. It shall be the duty of the
Secretary or other officer who shall have charge of the stock ledger of the
Corporation, either directly or through a transfer agent appointed by the Board
of Directors, to prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order. The original or a duplicate stock
ledger shall be the only evidence as to which
-2-
<PAGE>
stockholders are entitled to vote in person or by proxy at such election.
SECTION 6. QUORUM. At each meeting of the stockholders, the presence
in person or by proxy of stockholders entitled to cast a majority of all of the
votes entitled to be cast at such meeting shall constitute a quorum for the
transaction of business except where otherwise provided by law or by the charter
of the Corporation (the "Charter"). If, however, such quorum shall not be
present at any meeting of the stockholders, the stockholders entitled to vote at
such meeting, present in person or by proxy, shall have the power to adjourn the
meeting from time to time to a date not more than 120 days after the original
record date without notice other than announcement at the meeting. At any such
adjourned meeting at which a quorum may be present, any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 7. ORGANIZATION. At each meeting of the stockholders, the
Chairman or Vice Chairman of the Board or, in his or her absence, the President
or, in the absence of both of them, a chairman chosen by a majority vote of the
stockholders present, in person or represented by proxy, and entitled to vote,
shall act as chairman, and the Secretary, or, in his or her absence, an
Assistant Secretary of the Corporation, or in the absence of the Secretary and
all Assistant Secretaries, a person whom the chairman shall appoint, shall act
as secretary of the meeting.
The following order of business, unless otherwise ordered at the
meeting by the chairperson thereof, shall be observed as far as practicable and
consistent with the purposes of the meeting.
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of notice of the meeting
and, if the meeting is a special meeting, the call thereof.
(3) Presentation of proxies.
(4) Determination and announcement that a quorum is present.
(5) Reading and approval (or waiver thereof) of the minutes of
the previous meeting.
(6) Reports, if any, of officers.
(7) Election of directors to succeed those whose terms expired,
if the meeting is an annual meeting or a meeting called for such purpose.
(8) Transaction of such other business as may properly come
before the meeting.
-3-
<PAGE>
(9) Adjournment.
SECTION 8. VOTING. Except as otherwise required by law, the Charter
or these Bylaws, each stockholder of the Corporation entitled to vote on any
matter at a meeting of the stockholders shall, at such meeting and on such
matter, be entitled to one vote in person or by proxy for each share of stock of
the Corporation held by such person and registered in such person's name on the
books of the Corporation:
(a) on the date fixed by the Board of Directors as the record date
for the determination of stockholders entitled to vote at such meeting; or
(b) if no such record date shall have been fixed, then ten days prior
to such meeting;
provided, however, that, except where the transfer books of the Corporation
shall have been closed or such a record date shall have been so fixed, no share
of stock of the Corporation which shall have been transferred on the books of
the Corporation within twenty days next preceding any election of directors
shall be voted on at such election of directors. Shares of its own stock
belonging to the Corporation shall not be voted upon directly or indirectly.
Any vote on stock may be given by the stockholder entitled thereto in person or
by his or her proxy appointed by an instrument in writing, subscribed by such
stockholder or by his or her attorney thereunto authorized and delivered to the
secretary of the meeting; provided, however, that no proxy shall be voted on
after eleven months from its date unless said proxy provides for a longer
period. At all meetings of the stockholders, all matters (except where other
provision is made by law or by the Charter) shall be decided by a majority of
the votes cast by the stockholders present in person or represented by proxy and
entitled to vote thereat on such matter, a quorum being present. Unless
demanded by a stockholder present in person or by proxy at such meeting and
entitled to vote thereat or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by his or her proxy as
such if there be such proxy, and shall state the number of shares voted.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure
-4-
<PAGE>
which the Board of Directors considers necessary or desirable. On receipt of
such certification, the person specified in the certification shall be regarded
as, for the purposes set forth in the certification, the stockholder of record
of the specified stock in place of the stockholder who makes the certification.
SECTION 9. JUDGES. If at any meeting of the stockholders a vote by
ballot shall be taken on any question, the Chairman of such meeting shall
appoint two Judges to act thereat with respect to such vote. Each Judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
Judge at such meeting with strict impartiality and according to the best of his
or her ability. Such Judges shall decide upon the qualifications of voters and
shall report the number of shares represented at the meeting and entitled to
vote on such question, shall conduct and accept the votes and, when the voting
is completed, shall ascertain and report the number of shares voted respectively
for and against the question. Such report shall be in writing and subscribed
and delivered by them to the Secretary of the meeting. The Judges need not be
stockholders of the Corporation and any officer of the Corporation may be a
Judge on any question other than a vote for or against his or her election to
any position with the Corporation or on any other questions in which he or she
may be directly interested.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The property, affairs and business of the
Corporation shall be managed under the direction of the Board of Directors.
SECTION 2. NUMBER, QUALIFICATION AND TERM OF OFFICE. The number of
directors shall be nine (9), which number may be increased (but shall not be
more than fifteen (15)) or decreased (but shall not be less than three (3) or
the minimum number permitted by the Maryland General Corporation Law now or
hereafter in effect, whichever is greater) by a majority of the Board of
Directors (as constituted at any given time), subject to the foregoing, without
amendment to this Bylaw. The Board of Directors shall be divided into three
classes. Each director shall be nominated and elected for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which such director was elected and until a successor is duly elected and
qualifies; provided, however, that the initial Class A Directors shall serve for
a term expiring at the annual meeting in 1997, the initial Class B Directors
shall serve for a term expiring at the annual meeting in 1996 and the initial
Class C Directors shall serve for a term expiring at the annual meeting in 1995.
A vacancy which results from the death, resignation or removal of a
director may be filled by a majority vote of the remaining directors, and a
vacancy which results from an increase
-5-
<PAGE>
in the number of directors may be filled by a majority vote of the entire Board
of Directors. A director so elected to fill a vacancy shall serve until the
next annual meeting of stockholders and until his or her successor shall be duly
elected and qualified. At the next annual meeting of stockholders, the vacancy
created by the death, resignation or removal of a director shall be filled for
the balance of such director's original term, and the vacancy or vacancies
created by an increase in the number of directors shall be filled for the
balance of the term of the class of directors increased as a result of the
action of the Board of Directors in increasing the number of directors. The
tenure of office of any director shall not be affected by any decrease in the
number of directors so made by the Board of Directors. Directors need not be
stockholders.
SECTION 3. QUORUM AND MANNER OF ACTING. Except as otherwise provided
by law or by these Bylaws, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business at any meeting and the
action of a majority of the directors present at any meeting at which a quorum
is present shall be the action of the Board of Directors. In the absence of a
quorum, a majority of the directors present may adjourn any meeting from time to
time until a quorum be present. Notice of any adjourned meeting need not be
given. If, pursuant to the Charter or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group. The directors shall act only as a Board of Directors
(or as a committee thereof pursuant to Article IV hereof) and the individual
directors shall have no power as such.
SECTION 4. VOTING. The action of the majority of the directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute.
SECTION 5. TELEPHONE MEETINGS. Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if prior to such action a
written consent thereto is signed by all members of the Board of Directors or of
such committees, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee.
SECTION 7. PLACE OF MEETING; OFFICES. Except as otherwise
specifically provided by statute, the Board of Directors may hold its meetings
and have one or more offices at such place or
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places within or without of the State of Maryland as the Board of Directors may
from time to time determine.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such times and places as the Board of Directors by
resolution may determine. If any day fixed for a regular meeting shall be a
legal holiday at the place where the meeting is to be held, then the meeting
which would otherwise be held on that day shall be held at such place at the
same hour on the next succeeding business day not a legal holiday. Notice of
regular meetings need not be given.
SECTION 9. SPECIAL MEETINGS NOTICE. Special meetings of the Board of
Directors shall be held whenever called by the Chairman or Vice Chairman of the
Board, by any two directors or, in the event of a Trigger Event (as defined in
the Charter), by any Series V Director (as such term is defined in the Charter).
Notice of each such special meeting shall be mailed to each director, addressed
to such director at his or her residence or usual place of business, at least
two days before the day on which the meeting is to be held, or shall be sent to
such place by telegraph, cable, facsimile or wireless or be delivered personally
or by telephone, not later than one day before the day on which the meeting is
to be held. Each such notice shall state the time and place of the meeting but
need not state the purposes thereof. Notice of any meeting of the Board of
Directors need not be given to any director who shall be present at such meeting
and any special meeting of the Board of Directors shall be a legal meeting,
without any notice thereof having been given, if all the directors of the
corporation then in office shall be present thereat.
SECTION 10. ORGANIZATION. At each meeting of the Board of Directors,
the Chairman of the Board and the Vice Chairman of the Board shall act as Co-
Chairman. In the absence of both the Chairman and Vice Chairman of the Board,
the President or in the absence of the President, a director chosen by a
majority of the directors present, shall act as Chairman. The Secretary or, in
his or her absence, an Assistant Secretary of the corporation, or in the absence
of the Secretary and all Assistant Secretaries, a person appointed by the Co-
Chairman, shall act as Secretary of the meeting.
SECTION 11. ORDER OF BUSINESS. At all meetings of the Board of
Directors business shall be transacted in the order determined by the Co-
Chairman of the meeting, subject to the approval of the Board of Directors.
SECTION 12. RESIGNATION. Any director of the Corporation may resign
at any time by giving written notice to the Chairman or Vice Chairman of the
Board or to the President or to the Secretary of the Corporation. The
resignation of any director shall take effect at the time specified therein;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
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SECTION 13. COMPENSATION. Directors shall be entitled to such
compensation for their services as directors as from time to time may be fixed
by the Board of Directors, including, without limitation, for their services as
members of committees of the Board of Directors and in any event shall be
entitled to reimbursement of all reasonable expenses incurred by them in
attending directors' meetings. Any director may waive compensation for any
meeting. No director who receives compensation as a director shall be barred
from serving the Corporation in any other capacity or from receiving
compensation and reimbursement of reasonable expenses for any or all such other
services.
SECTION 14. LOSS OF DEPOSITS. No director shall be liable for any
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or stock
have been deposited.
SECTION 15. SURETY BONDS. Unless required by law, no director shall
be obligated to give any bond or surety or other security for the performance of
any of his duties.
SECTION 16. RELIANCE. Each director, officer, employee and agent of
the Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the advisor, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
ARTICLE IV.
COMMITTEES
SECTION 1. DESIGNATION; VACANCIES. The Board of Directors may
appoint from among its members an Executive Committee and other committees,
composed of two or more directors and may delegate to such committees specified
powers of the Board of Directors in the management of the business and affairs
of the Corporation, except the power to declare dividends or distributions on
stock, to issue stock other than as provided in Section 2-411(b) of the Maryland
General Corporation Law, to recommend to stockholders any action which requires
stockholder approval, to amend these Bylaws or to approve any merger or share
exchange which does not require stockholder approval, or such other powers as
may be prohibited by law. In the absence of any member of any such committee,
the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the Board of Directors to act in place of such
absent member. While the holders of Series V Preferred Stock possess the right
to elect a Series V Director pursuant to the Charter, if the Board of Directors
creates a new committee or increases the authority of a committee in
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existence at the time of the initial issuance of shares of Series V Preferred
Stock, at least one Series V Director must be appointed to such committee.
SECTION 2. PROCEDURE; MEETINGS. The committees shall keep minutes of
their proceedings and shall report the same to the Board of Directors at the
meeting next succeeding, and any action by the committees shall be subject to
revision and alteration by the Board of Directors, provided that no rights of
third persons shall be affected by any such revision or alteration.
SECTION 3. MEETINGS. Notice of committee meetings shall be given in
the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee,
and such chairman or any two members of any committee may fix the time and place
of its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.
SECTION 4. TELEPHONE MEETINGS. Members of a committee of the Board
of Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
SECTION 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
SECTION 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V.
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be a
Chairman, a Vice Chairman, a Chief Executive Officer, a Chief Operating Officer,
a President, one or more Vice Presidents, a Secretary, a Treasurer, and such
other officers as may be estab-
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lished and appointed by the Board of Directors in accordance with the provisions
of this Section l of Article V. Any two or more offices, except those of
Chairman and Vice Chairman or President and Vice President, may be held by the
same person. The Board of Directors may from time to time appoint such other
officers and agents of the Corporation as it may deem necessary, including one
or more Assistant Treasurers and Assistant Secretaries. The Board of Directors
may from time to time authorize any officer or officers to appoint and remove
agents and employees and to prescribe their powers and duties. Such officers,
agents and employees shall hold office for such period, have such authority and
perform such duties as the Board of Directors or the officer or officers
appointing the same may from time to time prescribe. The Board of Directors may
establish and appoint one or more officers of the Board of Directors, which
officers of the Board of Directors shall not be deemed to be officers of the
Corporation.
SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers
shall be elected annually by the Board of Directors. Unless otherwise set forth
in a written agreement between an officer and the Corporation, officers shall
hold their respective office until the next annual election of officers and
until a successor shall have been duly elected and qualified, or until the
death, resignation or removal in the manner hereinafter provided of any such
officer. The Chairman, the Vice Chairman and the President shall be and remain
directors.
SECTION 3. DUTIES. The respective officers of the Corporation shall
have such authority, responsibilities and duties as may be prescribed therefor
from time to time by resolution of the Board of Directors or by a written
agreement between any such officer and the Corporation.
SECTION 4. REMOVAL. Subject to the terms of a written agreement
between an officer and the Corporation, any officer may be removed, either with
or without cause, by the vote of a majority of the Board of Directors or, except
in the case of any officer elected by the Board of Directors, by any superior.
SECTION 5. RESIGNATIONS. Subject to the terms of a written agreement
between an officer and the Corporation, any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 6. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these Bylaws for
regular election or appointment to such office.
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SECTION 7. SALARIES. The salaries of the officers shall be fixed
from time to time by the Board of Directors or a committee thereof and may be
evidenced by a written agreement executed from time to time between the
Corporation and any of such officers. No officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the Corporation or a member of the Executive Committee.
SECTION 8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the Chairman or the Vice
Chairman of the Board, the Chief Executive Officer or any officer of the
Corporation authorized by the President shall have power to vote and otherwise
act on behalf of the Corporation, in person or by proxy, at any meeting of
stockholders of or with respect to any action of stockholders of any other
corporation in which the Corporation may hold securities and otherwise to
exercise any and all rights and powers which the Corporation may possess by
reason of its ownership or securities in such other corporation.
SECTION 9. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
an agent of the Corporation and, subject to the direction of the Board of
Directors, shall perform such functions and duties as from time to time may be
assigned to him or her by the Board of Directors. The Chairman of the Board, if
present, shall preside with the Vice Chairman of the Board at all meetings of
the stockholders and all meetings of the Board of Directors.
SECTION 10. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board shall be an agent of the Corporation and, subject to the direction of the
Board of Directors, shall perform such functions and duties as from time to time
may be assigned to him or her by the Board of Directors. The Vice Chairman of
the Board, if present, shall preside with the Chairman of the Board at all
meetings of the stockholders and all meetings of the Board of Directors.
SECTION 11. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of
the Corporation shall, subject to the direction of the Board of Directors, have
general charge of the business, affairs and property of the Corporation and
general supervision over its other officers and agents. In general, the Chief
Executive Officer shall perform all duties incident to such office of a stock
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. Unless otherwise prescribed by the Board of
Directors, the Chief Executive Officer shall have full power and authority on
behalf of the Corporation to attend, act and vote at any meeting of stockholders
of other corporations in which the Corporation may hold securities. At any such
meeting, the Chief Executive Officer shall possess and may exercise any and all
rights and powers incident to the ownership of such securities which the
Corporation possesses and has the power to exercise. The Board of Directors
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from time to time may confer like powers upon any other person or persons.
SECTION 12. CHIEF OPERATING OFFICER. The Chief Operating Officer of
the Corporation shall, subject to the direction of the Board of Directors and
the Chief Executive Officer, have general charge over the operation of the
business, affairs and property of the Corporation and general supervision over
its other officers and agents. In general, the Chief Operating Officer shall
perform all duties incident to the office of Chief Operating Officer of a stock
corporation. In the absence or disability of the Chief Executive Officer, the
Chief Operating Officer shall perform the duties and exercise the powers of the
Chief Executive Officer.
SECTION 13. PRESIDENT. The President of the Corporation shall,
subject to the direction of the Board of Directors, the Chief Executive Officer
and the Chief Operating Officer, have general charge over the operation of the
real properties of the Corporation and the operation of the San Diego office.
In the absence or disability of the Chief Operating Officer, the President shall
perform the duties and exercise the powers of the Chief Operating Officer.
SECTION 14. VICE PRESIDENTS. In the absence or disability of the
President, the Vice President, if any (or in the event there is more than one,
the Vice Presidents in the order designated, in the order of their election),
shall perform the duties and exercise the powers of the President. The Vice
President(s) also generally shall assist the President, the Chief Executive
Officer and the Chief Operating Officer and shall perform such other duties and
have such other powers as from time to time may be prescribed by the Board of
Directors.
SECTION 15. SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and of the stockholders and shall record all votes and
the proceedings of all meetings in a book to be kept for such purposes. The
Secretary also shall perform like duties for the committees, if required by any
such committee. The Secretary shall give (or cause to be given) notice of all
meetings of stockholders and all special meetings of the Board and shall perform
such other duties as from time to time may be prescribed by the Board of
Directors, the Chairman or Vice Chairman of the Board or the President. The
Secretary shall have custody of the seal of the Corporation, shall have
authority (as shall any assistant secretary) to affix the same to any instrument
requiring it, and to attest the seal by his or her signature. The Board of
Directors may give general authority to officers other than the Secretary or any
Assistant Secretary to affix the seal of the Corporation and to attest the
affixing thereof by his or her signature.
SECTION 16. ASSISTANT SECRETARY. The Assistant Secretary, if any (or
in the event there is more than one, the
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Assistant Secretaries in the order designated, or in the absence of any
designation, in the order of their election), in the absence or disability of
the Secretary, shall perform the duties and exercise the powers of the
Secretary. The Assistant Secretary(ies) shall perform such other duties and
have such other powers as from time to time may be prescribed by the Board of
Directors.
SECTION 17. TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and shall monitor the custody of the corporate funds,
securities, other similar valuable effects, and evidences of indebtedness, shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and payroll matters and shall cause to be deposited all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as from time to time may be designated by the
Board of Directors. The Treasurer shall cause to be disbursed the funds of the
Corporation in such manner as may be ordered by the Board of Directors from time
to time and shall render to the Chairman or Vice Chairman of the Board, the
President and the Board, at regular meetings of the Board or whenever any of
them may so require, an account of all transactions and of the financial
condition of the Corporation.
SECTION 18. ASSISTANT TREASURER. The Assistant Treasurer, if any (or
in the event there is more than one, the Assistant Treasurers in the order
designated, or in the absence of any designation, in the order of their
election), in the absence or disability of the Treasurer, shall perform the
duties and exercise the powers of the Treasurer. The Assistant Treasurer(s)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board of Directors.
ARTICLE VI.
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. CONTRACTS, ETC.; HOW EXECUTED. The Board of Directors or
the Executive Committee may authorize, by written contract or otherwise, any
officer or officers or agent or agents of the Corporation to enter into any
contract or execute and deliver any contract or other instrument in the name and
on behalf of the Corporation, and such authority may be general or confined to
specific instances. Unless authorized to do so by the Board of Directors or by
the Executive Committee, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable pecuniarily for any purpose or to any amount.
SECTION 2. LOANS. No loan shall be contracted on behalf of the
Corporation and no negotiable paper shall be issued in its name unless
authorized by the Board of Directors or the Executive Committee. Such authority
may be general or confined to specific instances. When so authorized, the
officer or officers thereunto authorized may effect loans and advances at any
time for the
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Corporation from any bank, trust company or other institution or from any firm,
corporation or individual, and for such loans and advances may make, execute and
deliver promissory notes or other evidences of indebtedness of the Corporation
and, when authorized as aforesaid, as security for the payment of any and all
loans, advances, indebtedness and liabilities of the Corporation, may mortgage,
pledge, hypothecate or transfer any real or personal property at any time held
by the Corporation and to that end execute instruments of mortgage or pledge or
otherwise transfer such property.
SECTION 3. CHECKS, DRAFTS, ETC. All checks drafts, bills of exchange
or other orders for the payment of money, obligations, notes or other evidences
of indebtedness, bills of lading, warehouse receipts and insurance certificates
of the Corporation shall be signed or endorsed by such officer or officers,
employee or employees, of the Corporation as shall from time to time be
determined by resolution of the Board of Directors or the Executive Committee.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
or the Executive Committee may from time to time designate, or as may be
designated by any officer or officers or agent or agents of the Corporation to
whom such power may be delegated by the Board of Directors or by the Executive
Committee, and, for the purpose of such deposit, all checks, drafts and other
orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer of the
Corporation or in such other manner as may from time to time be determined by
resolution of the Board of Directors or the Executive Committee.
ARTICLE VII.
BOOKS AND RECORDS
SECTION 1. PLACE, ETC. The Board of Directors may keep the books and
records of the Corporation at such places within or without the State of
Maryland as it may from time to time determine. The stock record books and the
blank stock certificate books of the Corporation shall be kept by the Secretary
or by a transfer agent or by any other officer or agent of the Corporation
designated by the Board of Directors or by the Executive Committee.
SECTION 2. ADDRESSES OF STOCKHOLDERS. Each stockholder shall
designate to the Secretary or transfer agent of the Corporation an address at
which notices of meetings and all other corporate notices may be served upon or
mailed to such stockholder, and if any stockholder shall fail to designate such
address, corporate notices may be served upon such stockholder by mail directed
to such stockholder at its last known post office address.
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SECTION 3. EXAMINATION OF BOOKS BY STOCKHOLDERS. The Board of
Directors shall have power to determine from time to time whether and to what
extent and at what times and places and under what conditions and regulations
the accounts, corporate records, books and documents of the Corporation, or any
of them, shall be open to the inspection of the stockholders; and no stockholder
shall have any right to inspect any account, corporate record, book or document
of the Corporation, except as conferred by the laws of the State of Maryland,
unless and until authorized to do so by resolution of the Board of Directors or
of the stockholders of the Corporation.
ARTICLE VIII.
SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES OF STOCK. Every stockholder of the
Corporation shall be entitled to have a certificate in such form as the Board of
Directors shall prescribe. Each such certificate shall be signed in the name of
the Corporation by the President, a Vice President or the Chairman of the Board
and countersigned by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary of the Corporation; provided, however, that, where such
certificate is signed by a transfer agent or an assistant transfer agent or by a
transfer clerk acting on behalf of the Corporation, and a registrar, the
signature or signatures of the President, Vice President, Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary may be facsimile. In case any
officer or officers who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates shall
cease to be such officer or officers of the Corporation, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures shall have been used thereon had not ceased to
be such officer or officers of the Corporation.
SECTION 2. RECORD DATES. The Board of Directors may fix, in advance,
a date as the record date for purposes of determining stockholders entitled to
notice of, or to vote at, any meeting of the stockholders, or stockholders
entitled to receive payment of any dividend or the allotment of any rights, or
in order to make a determination of stockholders for any other purpose. Such
date, in any case, shall not be more than ninety (90) days, and in case of a
meeting of stockholders not less than ten (10) days, prior to the date on which
the particular action requiring such determination of stockholders is to be
taken.
SECTION 3. RECORDS, ETC. A record shall be kept of the person, firm
or corporation owning the stock represented by each certificate for stock of the
Corporation issued, the number of
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shares represented by each such certificate, and the date thereof, and, in the
case of cancellation, the date of cancellation. Every certificate surrendered
to the Corporation for exchange or transfer shall be canceled, and no new
certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so canceled, except
in cases provided for in Section 5 of this Article VIII. The person in whose
name shares of stock stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
SECTION 4. TRANSFER OF STOCK. Transfer of shares of stock of the
Corporation may be made on the books of the Corporation by the registered holder
thereof, or by his or her attorney thereunto authorized, and upon the surrender
of the certificate or certificates for such shares properly endorsed, transfers
of shares of stock of the Corporation may be made in any other manner
permissible under Maryland law. Whenever any transfer of shares shall be made
for collateral security, and not absolutely, such fact, if known to the
Secretary of the Corporation, shall be so expressed in the entry of transfer.
SECTION 5. TRANSFER AGENT AND REGISTRAR; REGULATIONS. The
Corporation shall, if and whenever the Board of Directors shall so determine,
maintain one or more transfer offices or agencies, each in charge of a transfer
agent designated by the Board of Directors, where the shares of stock of the
Corporation shall be directly transferable, and also one or more registry
offices, each in charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered. The Board of Directors may make
such rules and regulations as it may deem expedient, not inconsistent with these
Bylaws, concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
SECTION 6. LOST, DESTROYED AND MUTILATED CERTIFICATES. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation which is claimed to have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors, in its discretion, may
require as a condition precedent to issuance that the owner of such lost, stolen
or destroyed certificate, or his or her legal representative, advertise the same
in such manner as the Board shall require and/or to give the Corporation a bond
in such sum, or other security in such form, as the Board of Directors may
direct, as indemnity against any claim that may be made against the Corporation
with respect to the certificate claimed to have been lost, stolen or destroyed.
ARTICLE IX.
FISCAL YEAR
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The fiscal year of the Corporation shall begin on January 1 and end on
December 31 of each year.
ARTICLE X.
WAIVER OF NOTICE
Whenever any notice whatsoever is required to be given by these
Bylaws, the Charter or the laws of the State of Maryland, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE XI.
AMENDMENTS
These Bylaws, or any of them, may be altered, amended or repealed, or
new Bylaws may be made at any annual or special meeting, by the stockholders
having voting power, or at any regular or special meeting of the Board of
Directors, by a vote of a majority of the Board of Directors, provided that the
proposed action in respect thereof shall be stated in the notice of such
meeting. Bylaws made, altered or amended by the Board of Directors shall be
subject to alteration, amendment or repeal by the stockholders. Notwithstanding
the foregoing, so long as the holders of Series V Preferred Stock possess the
right to elect a Series V Director pursuant to the Charter, the first sentence
of Article II, Section 3, the first sentence of Article III, Section 2, the
first sentence of Article III, Section 9, the last sentence of Article IV,
Section 1 or this sentence may be altered, amended or repealed only by a vote of
the holders of a majority of the outstanding shares of Series V Preferred Stock,
voting separately as a class.
ARTICLE XII.
MISCELLANEOUS
SECTION 1. INDEMNIFICATION. Reference is hereby made to Section 2-
418 of the Maryland General Corporation Law (or any successor provision thereto)
(the "Section"). The Corporation shall indemnify each director and officer of
the Corporation to the full extent permitted by and in accordance with the
Section. The Corporation may, in the sole discretion of the Board of Directors,
indemnify any other person who may be indemnified pursuant to the Section to the
extent the Board of Directors deems advisable, as permitted by the Section. In
each and every situation where the Corporation may do so under the Section, the
Corporation hereby obligates itself to so indemnify the directors and officers
of the Corporation, and in each case, if any, where the Corporation must make
certain investigations on a case-by-case basis prior to indemnification, the
Corporation hereby obligates itself to pursue such investigations diligently.
It is the specific intention of these Bylaws to obligate the Corporation to
indemnify each director
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and officer of the Corporation to the fullest extent permitted by the Maryland
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment). The Corporation
shall pay expenses incurred by a director or officer in defending any action,
suit or proceedings, whether civil, criminal, administrative, arbitrative or
investigative ("Proceeding"), in advance of its final disposition; provided,
however, that the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to any employee benefit plan) in advance
of the final disposition of such Proceeding, shall be made only upon delivery to
the Corporation of (a) a written affirmation by the director of the director's
good faith belief that the standard of conduct necessary for indemnification by
the Corporation as authorized by this Section has been met and (b) a written
undertaking by or on behalf of such director or officer to repay all amounts so
advanced if it should be determined ultimately that such director or officer is
not entitled to be indemnified under this Section.
The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the Corporation, or any person serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, providing for indemnification rights
equivalent to or, if the Board so determines, less than or greater than, those
provided for in this Article XIII.
SECTION 2. INSURANCE. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person entitled to
indemnification or whom the Corporation may indemnify under ARTICLE XII of the
Charter of the Corporation or under Maryland law against any liability, whether
or not the Corporation would have the power to indemnify him or her against such
liability. The rights to indemnification set forth in the Charter or in these
Bylaws are in addition to all rights which any Indemnitee may be entitled as a
matter of law and shall inure to the benefit of the heirs and personal
representatives of each such Indemnitee.
SECTION 3. BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of executive or other
committees when exercising any of the powers or authority of the Board of
Directors. The books and records of the Corporation may be in written form or
in any other form that may be converted within a reasonable time into written
form for visual inspection. Minutes
-18-
<PAGE>
shall be recorded in written form, but may be maintained in the form of a
reproduction.
SECTION 4. DIVIDENDS. Subject to the Maryland General Corporation
Law and to any provisions of the Charter relating to dividends, dividends upon
the outstanding stock of the Corporation may be declared by the Board of
Directors at any annual, regular or special meeting and may be paid in cash, in
property or in shares of the Corporation's stock.
CERTIFICATE
This is to certify that the foregoing is a true and correct copy of the Bylaws
of the corporation named in the title thereto and that such Bylaws were duly
adopted by the Board of Directors of said corporation at a duly convened meeting
on September 8, 1996.
Dated: September 8, 1996 /s/ Joel S. Marcus
------------------------------------
Joel S. Marcus, Secretary
-19-
<PAGE>
EXHIBIT 10.1
HEALTH SCIENCE PROPERTIES, INC.
AMENDED & RESTATED 1996 STOCK OPTION PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
------------------------------------
The name of this plan is the Health Science Properties, Inc. Amended
and Restated 1996 Stock Option Plan (the "Plan"). The Plan constitutes the
consolidation of (a) the Health Science Properties, Inc. 1996 Stock Option Plan;
(b) the Health Science Properties, Inc. 1996 Stock Option Plan for Non-Employee
Directors (which plans were adopted by the Board (as defined below) on July 26,
1996, subject to the approval of stockholders of the Company (as defined below),
which stockholder approval was obtained on the same date); (c) the Health
Science Properties, Inc. 1995 Substitute Stock Option Plan; and (d) the Health
Science Properties, Inc., 1995 Substitute Stock Option Plan for Non-Employee
Directors (which plans were adopted by the Board on September 28, 1995, subject
to the approval of the stockholders of the Company, which stock holder approval
was obtained on the same date), which consolidation was effected to reflect
recent changes to Rule 16b-3 (as defined below). The purpose of the Plan is to
enable the Company to continue to (i) provide for the issuance of stock options
in substitution for stock options previously granted under the Parent's Option
Plan (as defined below) in the event of certain changes in the capital or
corporate structure of the Company and/or the Parent (as defined below) and (ii)
compensate non-employee members of the Board and to provide incentives to such
members, to obtain and retain competent personnel who will contribute to the
Company's success by their ability, ingenuity and industry and to provide
incentives to the participating officers and other key employees who are linked
directly to increases in stockholder value as affected by the recent change in
the capitalization of the Company and will, therefore, inure to the benefit of
all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Administrator" means the Board, or, if the Board does not
-------------
administer the Plan, the Committee in accordance with Section 2 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended from
----
time to time, or any successor thereto.
<PAGE>
(d) "Commission" means the Securities and Exchange Commission.
----------
(e) "Committee" means the Compensation Committee of the Board, which
---------
shall consist of at least two members of the Board who are Non-Employee
Directors, or any other Committee the Board may appoint to administer the Plan.
If at any time the Board shall not administer the Plan, then the functions of
the Board specified in the Plan shall be exercised by the Committee.
(f) "Company" means Health Science Properties, Inc., a corporation
-------
organized under the laws of the State of Maryland (or any successor
corporation).
(g) "Convertible Preferred Stock" means the Series V Preferred Stock,
---------------------------
par value $.01 per share, of the Company.
(h) "Effective Date" means the date provided pursuant to Section 11.
--------------
(i) "Eligible Participant" means a non-employee director or employee
--------------------
of the Company or any Subsidiary eligible to participate in the Plan pursuant to
Section 4 of the Plan.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any given date, with respect to
-----------------
any awards granted hereunder, (i) if the Stock is quoted or listed or admitted
to trading on any national securities exchange or quotation system, the closing
sale price, regular way, or in case no such sale takes place, the average of the
reported closing bid and asked prices, regular way, in each case on the
principal national securities exchange or quotation system on which the Stock is
quoted or listed or admitted to trading, averaged for the ten consecutive
trading day period ending on such given date, or (ii) if the Stock is not
publicly traded, the fair market value of the Stock as otherwise determined by
the Committee in the good faith exercise of its discretion.
(l) "Incentive Stock Option" means any Stock Option intended to be
----------------------
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2
<PAGE>
(m) "Non-Employee Director" shall have the meaning set forth in Rule
---------------------
16b-3.
(n) "Nonqualified Stock Option" means any Stock Option that is not an
-------------------------
Incentive Stock Option, including any Stock Option that provides (as of the time
such option is granted) that it will not be treated as an Incentive Stock
Option.
(o) "Parent" means Health Science Properties Holding Corporation, a
------
corporation organized under the laws of the State of Maryland (or any successor
corporation).
(p) "Parent Stock Options" means stock options granted under the
--------------------
Parent's Option Plan.
(q) "Parent's Option Plan" means the Parent's 1994 Stock Option Plan
--------------------
and 1994 Stock Option Plan for Non-Employee Directors, as such plans may be
amended from time to time in accordance with the terms thereof.
(r) "Participant" means any Eligible Participant selected by the
-----------
Administrator, pursuant to the Administrator's authority in Section 2 of the
Plan, to receive grants of Stock Options or a holder of a Parent Stock Option
deter mined by the Administrator pursuant to the Administrator's authority in
Section 6 of the Plan to receive grants of Substitute Stock Options.
(s) "Rule 16b-3" means Rule 16b-3 under Section 16 of the Exchange
----------
Act, as such rule may be amended from time to time, or any successor definition
adopted by the Commission.
(t) "Stock" means the common stock, par value $.01 per share, of the
-----
Company.
(u) "Stock Option" means any option to purchase shares of Stock
------------
granted pursuant to Section 5 or 6 of the Plan.
(v) "Subsidiary" means any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
3
<PAGE>
(w) "Substitute Stock Option" means any option to purchase shares of
-----------------------
Stock granted pursuant to Section 6 of the Plan.
SECTION 2. ADMINISTRATION.
--------------
The Plan shall be administered by the Board, or by a Committee that
shall be appointed by the Board and that shall serve at the pleasure of the
Board.
The Administrator shall have the power and authority to grant Stock
Options to Eligible Participants and to grant Substitute Stock Options to
holders of Parent Stock Options.
In particular, the Administrator shall have the authority:
(a) to select those non-employee directors and employees of the
Company or any Subsidiary who are Eligible Participants;
(b) to determine whether and to what extent Stock Options are to be
granted to Eligible Participants;
(c) to determine the number of shares of Stock to be covered by each
such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder; and
(e) to determine the terms and conditions, not inconsistent with the
terms of the Plan, which shall govern all written instruments evidencing the
Stock Options.
The Administrator shall have the discretionary authority to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall from time to time deem advisable; to interpret the terms
and provisions of the Plan and any award issued under the Plan (and any
agreements relating thereto); and to otherwise supervise the administration of
the Plan.
4
<PAGE>
All decisions made by the Administrator pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company, any
Subsidiaries and the Participants.
SECTION 3. STOCK SUBJECT TO PLAN.
---------------------
(a) Stock Option other than Substitute Stock Options. The total
------------------------------------------------
number of shares of Stock reserved and available for issuance under the Plan for
Stock Options (other than Substitute Stock Options) shall be 239.60, of which
(i) 205.37 shall be available for issuance to employees of the Company and (ii)
34.23 shall be available for issuance to non-employee directors of the Company.
Such shares of Stock may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
Subject to the foregoing, (i) the number of shares subject to
outstanding Stock Options issued under this Section 3(a) to employees of the
Company, may not exceed 10.77% of the sum of the number of shares of Stock into
which the Convertible Preferred Stock issued as of the date of any grant may be
converted plus the number of shares of Stock issuable upon the exercise of Stock
Options previously granted under this Section 3(a) and (ii) the number of shares
subject to outstanding Stock Options issued under this Section 3(a) to non-
employee directors of the Company on the date any such Stock Option is granted
hereunder, may not exceed 1.8% of the sum of the number of shares of Stock into
which the Convertible Preferred Stock issued as of the date of any grant may be
converted plus the number of shares of Stock issuable upon the exercise of Stock
Options previously granted under this Section 3(a).
(b) Substitute Stock Options. The total number of shares of Stock
------------------------
reserved and available for issuance under the Plan pursuant to Substitute Stock
Options shall be 143.76, of which (i) 123.22 shall be available for issuance to
employees of the Company and (ii) 20.54 shall be available for issuance to non-
employee directors of the Company. Such shares of stock may consist, in whole
or in part, of authorized and unissued shares or treasury shares.
(c) Expiration of Options, Etc. To the extent that a Stock Option
--------------------------
expires or is otherwise terminated without being exercised, any shares issuable
pursuant to such Stock Option shall again be available for issuance in
connection with future awards under the Plan. If any shares of Stock have been
pledged as collateral for indebtedness incurred by a Participant in connection
with the exercise of a Stock Option and such shares are returned to the Company
in
5
<PAGE>
satisfaction of such indebtedness, such shares shall again be available for
issuance in connection with future awards under the Plan.
(d) Adjustments. In the event of any merger, reorganization,
-----------
consolidation, recapitalization, stock dividend or other change in capital or
corporate structure affecting the Stock, a substitution or adjustment shall be
made, as determined by the Administrator, in its sole discretion, in (i) the
kind and aggregate number of shares reserved for issuance under the Plan and
(ii) the kind, number and option price of shares subject to outstanding Stock
Options granted under the Plan. Such other substitutions or adjustments shall
be made as may be determined by the Administrator, in its sole discretion.
SECTION 4. ELIGIBILITY.
-----------
(a) Stock Options other than Substitute Stock Options. Non-employee
-------------------------------------------------
directors, officers and other key employees of the Company or Subsidiaries who
are responsible for or contribute to the management, growth and/or profitability
of the business of the Company or its Subsidiaries shall be eligible to be
granted Stock Options (other than Substitute Stock Options) hereunder. The
Participants under the Plan shall be selected from time to time by the
Administrator, in its sole discretion, from among Eligible Participants
recommended by the senior management of the Company; and the Administrator shall
determine, in its sole discretion, the number of shares covered by each award.
Incentive Stock Options may be granted only to employees of the Company or a
Subsidiary.
(b) Substitute Stock Options. Only holders of Parent Stock Options
------------------------
shall be eligible to be granted Substitute Stock Options hereunder.
SECTION 5. STOCK OPTIONS OTHER THAN SUBSTITUTE STOCK OPTIONS.
-------------------------------------------------
(a) General. Only Stock Options that are not Substitute Stock Options
-------
may be granted pursuant to the provisions of this Section 5. Any Stock Option
granted under this Section 5 of the Plan shall be in such form as the
Administrator may from time to time approve, and the provisions of Stock Option
awards need not be the same with respect to each optionee. Recipients of Stock
Options shall enter into a stock option agreement with the Company, in such form
as the Administrator shall determine, which agreement shall set forth, among
other things, the exercise price of the option, the term of the option and
provisions regarding exercisability of the option granted thereunder.
6
<PAGE>
(b) Types of Options. The Stock Options granted under this Section 5
----------------
of the Plan may be of two types: (i) Incentive Stock Options and (ii)
Nonqualified Stock Options. The Administrator shall have the authority to grant
any optionee Incentive Stock Options, Nonqualified Stock Options, or both types
of Stock Options; provided, however, that Incentive Stock Options may be granted
--------
only to employees of the Company or a Subsidiary. To the extent that any Stock
Option does not qualify as an Incentive Stock Option, it shall constitute a
separate Nonqualified Stock Option.
(c) Terms and Conditions. Stock Options granted under this Section 5
--------------------
of the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Administrator shall deem desirable:
(1) Option Price. The option price per share of Stock purchasable
------------
under a Stock Option granted under this Section 5 of the Plan shall be deter
mined by the Administrator at the time of grant but shall be not less than 100%
of the Fair Market Value of the Stock on such date. If an employee owns or is
deemed to own (by reason of the attribution rules applicable under Section
425(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company, the Parent or any Subsidiary and an Incentive Stock Option
is granted to such employee, the option price of such Incentive Stock Option (to
the extent required by the Code at the time of grant) shall be no less than 110%
of the Fair Market Value of the Stock on the date such Incentive Stock Option is
granted.
(2) Option Term. The term of each Stock Option granted under this
-----------
Section 5 of the Plan shall be fixed by the Administrator, but no Stock Option
shall be exercisable more than ten years after the date such Stock Option is
granted; provided, however, that if an employee owns or is deemed to own (by
-------- -------
reason of the attribution rules of Section 425(d) of the Code) more than 10% of
the combined voting powers of all classes of stock of the Company, the Parent or
any Subsidiary and an Incentive Stock Option is granted to such employee, the
term of such Incentive Stock Option (to the extent required by the Code at the
time of grant) shall be no more than five years from the date of grant.
(3) Exercisability. Stock Options granted under this Section 5 of the
--------------
Plan shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Administrator at or after grant;
provided, however, that, except as provided herein or unless otherwise
- -------- -------
deter-
7
<PAGE>
mined by the Administrator at or after grant, Stock Options granted to non-
employee members of the Board shall be exercisable immediately and Stock Options
granted to other Participants shall be exercisable as follows:
(A) 50% of the shares of Stock subject to the Stock Option,
one year following the date of grant of the Stock Option;
(B) 75% of the shares of Stock subject to the Stock Option,
two years following the date of grant of the Stock Option; and
(C) 100% of the shares of Stock subject to the Stock Option,
three years following the date of grant of the Stock Option.
The Administrator may waive such installment exercise provisions at any time in
whole or in part based on such factors as the Administrator may determine in its
sole discretion. In addition, any such Stock Option that is outstanding and not
yet fully exercisable at the time of the occurrence of any of the following
events shall become fully and immediately exercisable upon the earliest to occur
of such events:
(X) the termination of the employment of the holder of the Stock
Option (i) by reason of such holder's death or Disability (as defined in
the Participant holder's employment agreement, if any, or in the Company's
long term disability plan) or (ii) by the Company without "Cause" or by
such holder for "Good Reason," if and to the extent that either such term
is defined in any employment or similar agreement between the Participant
holder and the Company;
(Y) the underwritten initial public offering of Stock by the
Company; and
(Z) a Change in Control, as defined in Section 9 hereof.
(4) Method of Exercise. Subject to Section 5(c)(3) above, Stock
------------------
Options granted under the Section 5 of the Plan may be exercised in whole or in
part at any time during the option period, by giving written notice of exercise
to the Company specifying the number of shares to be purchased,
8
<PAGE>
accompanied by payment in full of the purchase price in cash or its equivalent
as determined by the Administrator. As determined by the Administrator, in its
sole discretion, payment in whole or in part may also be made in the form of
unrestricted Stock already owned by the optionee (based on the Fair Market
Value of the Stock on the date the option is exercised); provided, however, that
-------- -------
in the case of an Incentive Stock Option, the right to make payment in the form
of already owned shares may be authorized only at the time of grant. An
optionee shall generally have the rights to dividends and other rights of a
stockholder with respect to shares subject to the option only after the optionee
has given written notice of exercise, has paid in full for such shares, and, if
requested, has given the representation described in Section 10(a).
The Administrator may require the voluntary surrender of all or a
portion of any Stock Option granted under this Section 5 of the Plan as a
condition precedent to a grant of a new Stock Option under this Section. Subject
to the provisions of the Plan, such new Stock Option shall be exercisable at the
price, during such period and on such other terms and conditions as are
specified by the Administrator at the time the new Stock Option is granted;
rovided, however, that should the Administrator so require, the number of
- -------- -------
shares subject to such new Stock Option shall not be greater than the number of
shares subject to the surrendered Stock Option. Upon their surrender, the Stock
Options shall be canceled and the shares previously subject to such canceled
Stock Options shall again be available for the grant of Stock Options hereunder.
(5) Loans. The Company may make loans available to Stock Option
-----
holders as the Administrator, in its discretion, may determine in connection
with the exercise of outstanding Stock Options granted under the Plan. Such
loans shall (i) be evidenced by promissory notes entered into by the holders in
favor of the Company, (ii) be subject to the terms and conditions set forth in
this Section 5(c)(5) and such other terms and conditions, not inconsistent with
the Plan, as the Administrator shall determine, (iii) bear interest, if any, at
such rate as the Administrator shall determine, and (iv) be subject to Board
approval. The principal amount of any such loan shall not, except to the extent
permitted by applicable law, exceed the sum of (x) the exercise price less the
par value of the shares of Stock covered by the option, or portion thereof,
exercised by the holder and (y) any Federal, state or local income tax
attributable to such exercise. The initial term of the loan, the schedule of
payments of principal and interest under the loan, the extent to which the loan
is to be with or without recourse against the holder with respect to principal
or interest and the conditions upon which the loan will become payable in the
event of the holder's termination of employment shall
9
<PAGE>
be determined by the Administrator; provided, however, that the term of the
-------- -------
loan, including extensions, shall not exceed seven years. Unless the
Administrator determines otherwise, when a loan shall have been made, shares of
Stock having a Fair Market Value at least equal to the principal amount of the
loan shall be pledged by the holder to the Company as security for payment of
the unpaid balance of the loan, and such pledge shall be evidenced by a pledge
agreement, the terms of which shall be determined by the Administrator, in its
discretion; provided, however, that each loan shall comply with all applicable
-------- -------
laws, regulations and rules of the Board of Governors of the Federal Reserve
System and any other governmental agency having jurisdiction.
(6) Nontransferability of Options. No Stock Options shall be
-----------------------------
transferable by the optionee otherwise than by will or by the laws of descent
and distribution or pursuant to a "qualified domestic relations order" as such
term is defined in the Employee Retirement Income Security Act of 1974, as
amended, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee or as otherwise provided by a qualified domestic
relations order.
(7) Termination by Death. If an optionee's employment or directorship
--------------------
with the Company or any Subsidiary terminates by reason of death, the Stock
Option may thereafter be exercised by the legal representative of the estate or
by the legatee of the optionee under the will of the optionee until the
expiration of the stated term of such Stock Option.
(8) Termination by Reason of Disability. If an optionee's employment
-----------------------------------
or directorship with the Company or any Subsidiary terminates by reason of
Disability, any Stock Option granted under this Section 5 of the Plan held by
such optionee may thereafter be exercised, (i) in the case of an Incentive Stock
Option, for a period of twelve months (or such shorter period as the
Administrator shall specify at grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is shorter, and (ii) in the case of a Nonqualified Stock
Option, until the expiration of the stated term of such Stock Option; provided,
--------
however, that, if the optionee dies within such twelve-month period (or such
- -------
shorter period as the Administrator shall specify at grant) and prior to the
expiration of the stated term of such Stock Option, any unexercised Stock Option
held by such optionee shall thereafter be exercisable until the expiration of
the stated term of such Stock Option. In the event of a termination of
employment by reason of Disability, and an Incentive Stock Option is exercised
after the expiration of the exercise periods
10
<PAGE>
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Nonqualified Stock Option.
(9) Other Termination. Except as otherwise provided in this
-----------------
paragraph or otherwise determined by the Administrator, if an optionee's
employ ment or directorship with the Company or any Subsidiary terminates for
any reason other than death, Disability, without Cause or for Good Reason, if
applicable, the Stock Option may be exercised until the earlier to occur of (i)
three months from the date of such termination and (ii) the expiration of such
Stock Option's term.
(10) Annual Limit on Incentive Stock Options. To the extent that the
---------------------------------------
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the shares of Stock with respect to which Incentive Stock
Options granted under this Plan and all other option plans of the Company, the
Parent and any Subsidiary become exercisable for the first time by an optionee
during any calendar year exceed $100,000, such options shall be treated as
Nonqualified Stock Options.
(11) Annual Limit on Stock Options. More than one Stock Option may be
-----------------------------
granted to an Eligible Participant during any fiscal year of the Company, but
the aggregate number of shares of Stock underlying Stock Options granted to any
Eligible Participant during any such fiscal year under this Section 5 shall not
exceed fifty percent (50%) of the shares of Stock reserved for issuance under
the Plan pursuant to Section 3 of the Plan.
SECTION 6. SUBSTITUTE STOCK OPTIONS.
------------------------
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in the capital or corporate
structure of the Company and/or the Parent (including without limitation an
initial public offering of the Stock), Substitute Stock Options shall be granted
under the Plan in substitution for then outstanding Parent Stock Options to the
extent that the Administrator determines, in its sole discretion, that the
grant of Substitute Stock Options is necessary to provide that holders of Parent
Stock Options not be deprived of benefits to which they would otherwise have
been entitled had such event or events not occurred; provided, however, that any
-------- -------
grant of a Substitute Stock Option shall be subject to the prior cancellation
and surrender of the corresponding Parent Stock Option. The terms and
conditions of Substitute Stock Options shall be substantially equivalent to
those of the Parent Stock Options in respect of
11
<PAGE>
which the Substitute Stock Options are granted, consistent with maintaining the
qualified status of any Parent Stock Options that qualify as Incentive Stock
Options, with such adjustments as the Administrator, in its sole discretion,
shall deem appropriate.
Recipients of Substitute Stock Options shall enter into a stock option
agreement with the Company, which agreement shall set forth, among other things,
the exercise price of the option, the term of the option and provisions
regarding exercisability of the option granted thereunder.
SECTION 7. AMENDMENT AND TERMINATION.
-------------------------
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made that would impair the rights of the
Participant under any award theretofore granted without such Participant's
consent. Notwithstanding the foregoing, stockholder approval under this Section
7 shall be required at such times and with respect to such amendments as shall
be required to fulfill the conditions of Rule 16b-3, Section 162(m) and such
other applicable statutory rules and regulations and only if the Company intends
to fulfill such conditions.
The Administrator may amend the terms of any award heretofore granted,
prospectively or retroactively, but, subject to Section 3 above, no such
amendment shall impair the rights of any holder without his or her consent.
SECTION 8. UNFUNDED STATUS OF PLAN.
-----------------------
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to an optionee by the
Company, nothing contained herein shall give any such optionee any rights that
are greater than those of a general creditor of the Company.
SECTION 9. CHANGE IN CONTROL.
-----------------
(a) In addition to the applicable provisions of Section 5(c)(3) of the
Plan, in the event of a Change in Control (as defined below), unless otherwise
determined by the Administrator or the Board in writing at or after grant
(including under any individual agreement), but prior to the occurrence of such
Change in Control, (i) any indebtedness incurred pursuant to Section 5(c)(5)
shall be forgiven and the collateral pledged in connection with any such loan
shall be
12
<PAGE>
released; and (ii) the value of all outstanding Stock Options shall, to the
extent determined by the Administrator at or after grant, be cashed out on the
basis of the Change in Control Price (as defined below) as of the date the
Change in Control occurs or such other date as the Administrator may determine
prior to the Change in Control.
(b) For purposes hereof, a "Change in Control" of the Company shall
be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company; any trustee or other
fiduciary holding securities under an employee benefit plan of the Company; any
company owned, directly or indirectly, or by the stockholders of the Company in
substantially the same proportions as their ownership of Stock of the Company)
is or becomes after the Effective Date the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company (not including in the securities beneficially owned by such person
any securities acquired directly from the Company or its affiliates)
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities; or
(ii) during any period of two consecutive years (not
including any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i), (iii) or (iv) of this
Section 9(b)) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 80% of the combined voting power of the voting securities of the Company
or such
13
<PAGE>
surviving entity outstanding immediately after such merger or consolidation or
(B) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person acquires more than 50% of
the combined voting power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(c) For purposes hereof , "Change in Control Price" means the higher
of (i) the highest price per share paid or offered in any transaction related to
a Change in Control or (ii) the highest price per share paid in any transaction
reported on the exchange or national market system on which the Stock is listed,
at any time during the preceding sixty-day period as determined by the
Administrator, except that, in the case of Incentive Stock Options, such price
shall be based only on transactions reported for the date on which the
Administrator decides to cash out such options.
SECTION 10. GENERAL PROVISIONS.
------------------
(a) The Administrator may require each person purchasing shares
pursuant to a Stock Option to represent to and agree with the Company in writing
that such person is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, and any applicable Federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee of the Company or any Subsidiary any
right to continued employment with the Company or a Subsidiary, as the case
14
<PAGE>
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(c) Each Participant shall, no later than the date as of which the
value of an award first becomes includible in the gross income of the
Participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
Federal, state or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company (and, where
applicable, its Subsidiaries) shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.
(d) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination or interpretation taken
or made in good faith with respect to the Plan, and all members of the Board or
the Administrator and each and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
SECTION 11. EFFECTIVE DATE OF PLAN.
----------------------
The Plan shall become effective on the date approved by the Board of
Directors of the Company (the "Effective Date").
SECTION 12. TERM OF PLAN.
------------
No Stock Option shall be granted pursuant to the Plan on or after the
tenth anniversary of the Effective Date, but awards theretofore granted may
extend beyond that date.
15
<PAGE>
Exhibit 10.5
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement, made and entered into this ____ day of __________, 199_
("Agreement"), by and between _________________________________, a Maryland
corporation (the "Company"), and ________________ ("Indemnitee").
WHEREAS, at the request of the Company, Indemnitee currently serves as a
director of the Company and may, therefore, be subjected to claims, suits or
proceedings arising as a result of his service; and
WHEREAS, as an inducement to Indemnitee to continue to serve as such
director, the Company has agreed to indemnify Indemnitee against expenses and
costs incurred by Indemnitee in connection with any such claims, suits or
proceedings, to the fullest extent that is lawful; and
WHEREAS, the parties by this Agreement desire to set forth their agreement
regarding indemnification;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Definitions. For purposes of this Agreement:
-----------
(a) "Change in Control" means a change in control of the Company
occurring after the Effective Date of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing ____% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) there occurs a proxy contest, or the
Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization not approved by at least two-thirds of the
members of the Board of Directors then in office, as a consequence of which
members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or (iii) during any period of two consecutive years, other than as a
result of an event described in clause (a)(ii) of this Section 1, individuals
who at the beginning of such period constituted the Board of Directors
(including for this purpose any new director whose election or nomination for
election by the Company's stockholders was approved by a vote of at least two-
thirds of the directors then still in office who were directors
<PAGE>
at the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b) "Corporate Status" means the status of a person who is or was a
director, officer, employee or agent of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(d) "Effective Date" means _____________, 1996.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law
firm, selected by the board of directors by vote as set forth in Section 8(b),
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(g) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
(i) initiated by an Indemnitee pursuant to Section 10 of this Agreement to
enforce his rights under this Agreement or (ii) pending on or before the
Effective Date.
Section 2. Services by Indemnitee. Indemnitee agrees to serve as a
----------------------
director of the Company and may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation imposed
by operation of
-2-
<PAGE>
law), in which event the Company shall have no obligation under this Agreement
to continue Indemnitee in such position.
Section 3. Indemnification - General. The Company shall indemnify, and
-------------------------
advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) to the
fullest extent permitted by Maryland law in effect on the date hereof and as
amended from time to time; provided, however, that no change in Maryland law
-------- -------
shall have the effect of reducing the benefits available to Indemnitee hereunder
based on Maryland law as in effect on the date hereof. The rights of Indemnitee
provided in this Section shall include, but shall not be limited to, the rights
set forth in the other Sections of this Agreement.
Section 4. Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification provided
- -------
in this Section 4 if, by reason of his Corporate Status, he is, or is threatened
to be, made a party to any threatened, pending, or completed Proceeding, other
than a Proceeding by or in the right of the Company. Pursuant to this Section
4, Indemnitee shall be indemnified against all Expenses, judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with a Proceeding by reason of his Corporate Status
unless it is established that (i) the act or omission of the Indemnitee was
material to the matter giving rise to the Proceeding and (a) was committed in
bad faith or (b) was the result of active and deliberate dishonesty, (ii) the
Indemnitee actually received an improper personal benefit in money, property or
services, or (iii) in the case of any criminal Proceeding, the Indemnitee had
reasonable cause to believe or should have believed that his conduct was
unlawful.
Section 5. Proceedings by or in the Right of the Company. Indemnitee
---------------------------------------------
shall be entitled to the rights of indemnification provided in this Section 5
if, by reason of his Corporate Status, he is made a party to any threatened,
pending or completed Proceeding brought by or in the right of the Company to
procure a judgment in its favor. Pursuant to this Section 5, Indemnitee shall
be indemnified against all Expenses actually and reasonably incurred by him or
on his behalf in connection with such Proceeding unless it is established that
(i) the act or omission of the Indemnitee was material to the matter giving rise
to such a Proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty or (ii) the Indemnitee actually received an
improper personal benefit in money, property or services; provided, however,
-------- -------
that, if applicable law so provides, no indemnification against such Expenses
shall be made in respect of any Proceeding in which Indemnitee shall have been
adjudged to be liable to the Company.
-3-
<PAGE>
Section 6. Indemnification for Expenses of a Party Who is Wholly or Partly
---------------------------------------------------------------
Successful. Notwithstanding any other provision of this Agreement, to the
- ----------
extent that Indemnitee is, by reason of his Corporate Status, made a party to
and is successful, on the merits or otherwise, in the defense of any Proceeding,
he shall be indemnified against all Expenses actually and reasonably incurred by
him or on his behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or otherwise, as
to one or more but less than all claims, issues or matters in such Proceeding,
the Company shall indemnify Indemnitee against all Expenses actually and
reasonably incurred by him or on his behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 7. Advancement of Expenses. The Company shall advance all
-----------------------
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding to which Indemnitee is, or is threatened to be, made a party,
within ten days after the receipt by the Company of a statement or statements
from Indemnitee requesting such advance or advances from time to time, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by Indemnitee and
shall include or be preceded or accompanied by a written affirmation by the
Indemnitee of the Indemnitee's good faith belief that the standard of conduct
necessary for indemnification by the Company as authorized by law and by this
Agreement has been met and a written undertaking by or on behalf of Indemnitee
to repay any Expenses advanced if it shall ultimately be determined that such
standard of conduct has not been met or as required by Section 6 if Indemnitee
is actually or partly unsuccessful.
Section 8. Procedure for Determination of Entitlement to Indemnification.
-------------------------------------------------------------
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 8(a)
-4-
<PAGE>
hereof, a determination, if required by applicable law, with respect to
Indemnitee's entitlement thereto shall promptly be made in the specific case:
(i) if a Change in Control shall have occurred, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee or (C) if so directed by a majority of the members of the Board of
Directors, by the stockholders of the Company; and, if it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within ten days after such determination. Indemnitee shall cooperate with the
person, persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including reasonable attorneys' fees and disbursements)
incurred by Indemnitee in so cooperating with the person, persons or entity
making such determination shall be borne by the Company (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the Company
hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
Section 9. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making of any determination contrary to that
presumption.
(b) The termination of any proceeding by judgment, order, settlement,
conviction, a plea of nolo contendere or its equivalent, or an entry of an order
---- ----------
of probation prior to judgment, does not create a presumption that the
Indemnitee did not meet the requisite standard of conduct described herein for
indemnification.
-5-
<PAGE>
Section 10. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to Section
8 of this Agreement that Indemnitee is not entitled to indemnification under
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 8 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 8(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 6 of this
Agreement within ten days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten days after a
determination has been made that Indemnitee is entitled to indemnification,
Indemnitee shall be entitled to an adjudication in an appropriate court of the
State of Maryland, or in any other court of competent jurisdiction, of his
entitlement to such indemnification or advancement of Expenses. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the commercial Arbitration Rules of the American
Arbitration Association. Indemnitee shall commence such proceeding seeking an
adjudication or an award in arbitration within 180 days following the date on
which Indemnitee first has the right to commence such proceeding pursuant to
this Section 9(a); provided, however, that the foregoing clause shall not apply
-------- -------
in respect of a proceeding brought by Indemnitee to enforce his rights under
Section 6 of this Agreement.
(b) If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 10 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
of this Agreement that Indemnitee is entitled to indemnification, the Company
shall be bound by such determination in any judicial proceeding or arbitration
commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee
of a material fact, or an omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 9, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the
-6-
<PAGE>
definition of Expenses in Section 1 of this Agreement) actually and reasonably
Incurred by him in such judicial adjudication or arbitration, but only if he
prevails therein. If it shall be determined in said judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
appropriately prorated.
Section 11. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
-----------------------------------------------------------
(a) The rights of indemnification and advancement of Expenses as
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the charter
or Bylaws of the Company, any agreement, a vote of stockholders or a resolution
of directors, or otherwise. No amendment, alteration or repeal of this
Agreement or of any provision hereof shall limit or restrict any right of
Indemnitee under this Agreement in respect of any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue until
---------------------
and terminate ten years after the date that Indemnitee shall have ceased to
serve as a director, officer, employee, or agent of the Company or of any other
corporation,
-7-
<PAGE>
partnership, joint venture, trust, employee benefit plan or other enterprise
which Indemnitee served at the request of the Company; provided, that the rights
--------
of Indemnitee hereunder shall continue until the final termination of any
proceeding then pending in respect of which Indemnitee is granted rights of
indemnification or advancement of expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors
and assigns and shall inure to the benefit of Indemnitee and his heirs,
executors and administrators.
Section 13. Severability. If any provision or provisions of this
------------
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
Section 14. Exception to Right of Indemnification or Advancement of
-------------------------------------------------------
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
- --------
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding brought by Indemnitee, unless the
bringing of such Proceeding or making of such claim shall have been approved by
the Board of Directors.
Section 15. Identical Counterparts. This Agreement may be executed in one
----------------------
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
--------
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Modification and Waiver. No supplement, modification or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No
-8-
<PAGE>
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
Section 18. Notice by Indemnitee. Indemnitee agrees promptly to notify
--------------------
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 19. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to: The address set forth in the signature
pages hereto.
(b) If to the Company to:
Health Science Properties, Inc.
251 S. Lake Avenue
Pasadena, California 91101
Attn: Joel S. Marcus
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
Section 20. Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Maryland.
Section 21. Miscellaneous. Use of the masculine pronoun shall be deemed
-------------
to include usage of the feminine pronoun where appropriate.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
ATTEST: ________________________________
______________________________________ By:_________________________(SEAL)
Secretary President
WITNESS: INDEMNITEE
______________________________________ ____________________________
Address: ____________________________
-10-
<PAGE>
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
by and between
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation,
and
JERRY M. SUDARSKY,
an individual
<PAGE>
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
1. Position and Duties; Location................................ 1
-----------------------------
2. Term of Employment........................................... 1
------------------
2.1. Term................................................... 1
----
3. Compensation, Benefits and Reimbursement..................... 2
----------------------------------------
3.1. Base Salary............................................. 2
-----------
(a) Earned Base Salary................................. 2
------------------
(b) Payment............................................ 2
-------
3.2. Increases in Base Salary................................ 3
------------------------
3.3. Bonus................................................... 3
-----
3.4. Stock Options........................................... 4
-------------
3.5. Additional Benefits..................................... 4
-------------------
(a) Officer Benefits................................... 4
----------------
(b) Vacation........................................... 5
--------
(c) Disability Insurance............................... 5
--------------------
(d) Reimbursement for Expenses......................... 5
--------------------------
(e) Retirement Benefit................................. 6
------------------
(f) Withholding........................................ 6
-----------
4. Termination of the Agreement.................................. 7
----------------------------
4.1. Termination by Corporation Defined...................... 7
----------------------------------
(a) Termination Without Cause.......................... 7
-------------------------
(b) Termination For Cause.............................. 7
---------------------
(c) Termination by Reason of
------------------------
Death or Permanent Disability...................... 7
-----------------------------
4.2. Termination by Officer Defined.......................... 8
------------------------------
(a) Termination Other Than For Good Reason............. 8
--------------------------------------
(b) Termination For Good Reason........................ 8
---------------------------
(c) Good Reason Following a Change in Control.......... 8
-----------------------------------------
4.3. Effect of Termination................................... 10
---------------------
(a) Termination by Corporation......................... 10
--------------------------
(i) Termination Without Cause, Death
--------------------------------
or Permanent Disability....................... 10
-----------------------
(ii) Termination For Cause......................... 11
----------------------
(b) Termination by Officer............................. 11
----------------------
(i) Termination Other Than For Good Reason........ 11
--------------------------------------
(ii) Termination For Good Reason................... 11
---------------------------
(c) Termination by Reason of Expiration
-----------------------------------
of Contract Term................................... 11
----------------
i
<PAGE>
4.4. Severance Payment...................................... 12
-----------------
(a) Definition of "Severance Payment."............ 12
--------------------------------
(b) Payment of Severance Payment.................. 12
----------------------------
(c) Other Severance Benefits...................... 13
------------------------
(d) Change in Control............................. 13
-----------------
4.5. Consulting Arrangement................................. 14
----------------------
4.6. Gross-Up............................................... 15
--------
4.7. Offset................................................. 16
------
5. Noncompetition............................................... 16
--------------
6. Miscellaneous................................................ 16
-------------
6.1. Payment Obligations................................... 16
-------------------
6.2. Confidentiality....................................... 16
---------------
6.3. Waiver................................................ 16
------
6.4. Entire Agreement; Modifications....................... 17
-------------------------------
6.5. Notices............................................... 17
-------
6.6. Headings.............................................. 17
--------
6.7. Governing Law......................................... 17
-------------
6.8. Arbitration........................................... 18
-----------
6.9. Severability.......................................... 18
------------
6.10. Survival of Corporation's Obligations................. 18
-------------------------------------
6.11. Survival of Certain Rights and Obligations............ 19
------------------------------------------
6.12. Counterparts.......................................... 19
------------
6.13. Indemnification....................................... 20
---------------
SIGNATURE PAGE................................................... 20
ii
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and
entered into as of this 9th day of June, 1994, and shall be retroactively
effective as of the 1st day of February, 1994 (the latter date shall be
referred to as the "Effective Date"), by and between HEALTH SCIENCE
PROPERTIES, INC., a Maryland corporation ("Corporation"), and JERRY M.
SUDARSKY, an individual ("Officer").
RECITAL
-------
Corporation desires to employ Officer as its Chairman and Chief
Executive Officer, and Officer is willing to accept such employment by
Corporation, on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. POSITION AND DUTIES: LOCATION.
-----------------------------
During the term of this Agreement, Officer agrees to be employed
by and to serve Corporation as its Chairman and Chief Executive Officer.
Corporation agrees to employ and retain Officer in such capacities. Officer
shall devote such of his business time, energy, and skill to the affairs of
Corporation as shall be necessary to perform the duties of such positions.
Officer shall report to the Board of Directors of Corporation and at all times
during the term of this Agreement shall have powers and duties at least
commensurate with his positions as Chairman and Chief Executive Officer.
Officer shall be based at the principal executive offices of Corporation in
the Los Angeles, California metropolitan area, except for required travel on
Corporation's business.
2. TERM OF EMPLOYMENT.
------------------
2.1. TERM. The term ("Term") of this Agreement shall
----
commence on the Effective Date and shall continue until December 31, 1995;
provided, however, that on December 31, 1995, and on each anniversary thereof,
the Term of this Agreement shall automatically be extended for one additional
year unless, not later than 90 days prior to December 31, 1995 or such
anniversary
1
<PAGE>
thereof, either party shall have given written notice to the other that it
does not wish to extend the Term of the Agreement. If Officer's employment
hereunder shall terminate by reason of the expiration of the Term (including
any extensions thereof), the date of such termination shall be referred to as
the "Termination Date." The date of any termination of Officer's employment
pursuant to this Agreement that occurs prior to the expiration of the Term
(including any extensions thereof) shall be referred to as the "Early
Termination Date."
3. COMPENSATION, BENEFITS AND REIMBURSEMENT.
----------------------------------------
3.1. Base Salary. During the Term of this Agreement and subject
to the terms and conditions set forth herein, Corporation agrees to pay to
Officer an initial annual "Base Salary" of Two Hundred Forty Thousand Dollars
($240,000), or such higher amount as may from time to time be determined by
Corporation. Unless otherwise agreed in writing by Officer and Corporation,
and subject to subparagraph (b) below, the Base Salary shall be payable in
substantially equal semimonthly installments in accordance with the standard
policies of Corporation in existence from time to time.
(a) EARNED BASE SALARY. For purposes of any early termination
------------------
of this Agreement as provided in Paragraph 4 below, the term "Earned Base
Salary" shall mean all semimonthly installments of the Base Salary which have
become due and payable to Officer pursuant to this Paragraph 3.1, together
with any partial monthly installment prorated on a daily basis up to and
including the applicable Termination Date.
(b) PAYMENT. The initial Base Salary shall be paid to Officer
-------
as follows:
(i) Payment of the gross amount of Officer's semimonthly
installment of initial Earned Base Salary as contemplated in Paragraph 3.1
above shall be reduced by one-fourth (1/4). Each said one-fourth (1/4) amount
shall be earned, but payment thereof deferred as set forth below:
a) Three-fourths (3/4) of the gross amount of
each of Officer's semimonthly installments of initial
Base Salary shall be paid to Officer as set forth in
Paragraph 3.1 above.
b) Payment of the remaining earned but deferred
one-fourth (1/4) of the gross amount of
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each of Officer's semimonthly installments of initial
Base Salary, together with the commencement of the
payment of full semimonthly installment of Officer's
Earned Base Salary, shall be paid upon the earlier to
occur of the following events ("Trigger Date"):
i) The effective date of Corporation's
underwritten initial public offering;
ii) The closing of any debt and/or equity
financing of Corporation occurring after the
Effective Date of this Agreement in an amount not
less than Fourteen Million Dollars ($14,000,000);
iii) October 1, 1994; or
iv) Death or the Permanent Disability (as
defined below) of Officer.
3.2. INCREASES IN BASE SALARY. Officer's Base Salary shall be
------------------------
reviewed no less frequently than on each anniversary of the Effective Date
during the Term of this Agreement by the Board of Directors of Corporation (or
such committee as may be appointed by the Board for such purpose). The Base
Salary payable to Officer shall be increased on each such anniversary date
(and such other times as the Board or a committee of the Board may deem
appropriate during the Term of this Agreement) to an amount determined by the
Board (or a committee of the Board). Each such new Base Salary shall become
the base for each successive year's increase; provided, however, that such
increase, at a minimum, shall be equal to the cumulative cost-of-living
increment as reported in the "Consumer Price Index, Los Angeles, California,
All Items," published by the U.S. Department of Labor (the "CPI"), using
January 1, 1994 as the base date for comparison. Any increase in Base Salary
or other compensation shall in no way limit or reduce any other obligations of
Corporation hereunder and, once established at an increased specified rate,
Officer's Base Salary shall not be reduced unless Officer otherwise agrees in
writing.
3.3. BONUS. Officer shall be eligible to receive a bonus for
-----
each fiscal year of Corporation (or portion thereof) during the Term of this
Agreement, with the actual amount of any such bonus to be determined in the
sole discretion of the Board of Directors (or a committee of the Board) based
upon its evalua-
3
<PAGE>
tion of Officer's performance during such year and such other factors and
conditions as the Board (or a committee of the Board) deems relevant. Any such
bonus shall be payable within seventy-five (75) days after the end of
Corporation's fiscal year to which such bonus relates. The Board of Directors
shall, at an appropriate subsequent time, consider the establishment of an
annual incentive compensation plan providing for the payment of a minimum
annual bonus based upon the achievement of certain objective criteria for the
benefit of Officer and other specified executive officers of Corporation.
3.4. STOCK OPTIONS. Pursuant to the terms of the stock option
-------------
agreement issued under Corporation's Stock Option Plan, Corporation has
granted to Officer the right and option to purchase an aggregate of 2,500
shares of the authorized but unissued Common Stock of Corporation on the
terms and conditions set forth therein. Nothing contained herein shall be
construed to increase or decrease Officer's compensation and/or benefits in
existence at the time the options are granted.
3.5. ADDITIONAL BENEFITS. Officer shall be entitled to the
-------------------
following additional benefits under this Agreement:
(a) OFFICER BENEFITS. During the Term of this Agreement,
----------------
Officer shall be eligible to participate in such of Corporation's benefit and
deferred compensation plans as are made available to executive officers of
Corporation, including, without limitation, Corporation's stock incentive
plans, annual incentive compensation plans, profit sharing/pension plans,
deferred compensation plans, annual physical examinations, dental, vision,
sick pay, and medical plans, personal catastrophe and accidental death
insurance plans, financial planning and automobile arrangements, retirement
plans and supplementary executive retirement plans, if any. For purposes of
establishing the length of service under any benefit plans or programs of
Corporation, Officer's employment with the Corporation will be deemed to have
commenced on the Effective Date of this Agreement. Until Corporation adopts a
package of health and medical benefits, Corporation shall promptly reimburse
Officer for payments made by Officer (i) with respect to the continuation of
benefits provided by Officer's previous employer pursuant to Section 4980B
("COBRA") of the Internal Revenue Code of 1986, as amended ("Code"), and (ii)
upon expiration of COBRA coverage to maintain substantially similar health and
medical benefits coverage for Officer and his family.
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(b) VACATION. Officer shall be entitled to four (4) weeks of
--------
vacation during each year during the Term of this Agreement and any extensions
thereof, prorated for partial years. Any accrued vacation not taken during any
year may be carried forward to subsequent years; provided that Officer may not
accrue more than eight (8) weeks of unused vacation at any time.
(c) DISABILITY INSURANCE. Commencing on the Trigger Date, and
--------------------
for the Term of this Agreement, Corporation shall, at its sole cost and
expense, procure and keep in effect disability insurance similar to Officer's
current disability insurance policy on Officer, payable to Officer in an
annual amount not less than sixty percent (60%) of Officer's Base Salary then
in effect ("Disability Policy"); provided, however, that Corporation shall not
be required to provide such disability insurance to the extent it is unable to
procure such disability insurance at a reasonable cost to Corporation. For
purposes of this Agreement, "Permanent Disability" shall have the same meaning
as is ascribed to such term in the Disability Policy (including the COBRA
Disability Policy) covering Officer at the time of occurrence of any such
Permanent Disability; provided, however, that during any period when no
Disability Policy is in effect, "Permanent Disability" shall mean Officer's
absence, as the result of Officer's incapacity due to physical or mental
illness, from the full-time performance of his duties with Corporation for six
(6) consecutive months, and Officer's failure to have returned to the fulltime
performance of his duties within thirty (30) days after Corporation has
provided Officer with written notice of its intent to terminate his employment
for Permanent Disability.
(d) REIMBURSEMENT FOR EXPENSES. During the Term of this
--------------------------
Agreement, Corporation shall reimburse Officer for all reasonable out-of-
pocket business and/or entertainment expenses incurred by Officer for the
purpose of and in connection with the performance of his services pursuant to
this Agreement. Officer shall be entitled to such reimbursement upon the
presentation by Officer to Corporation of vouchers or other statements
itemizing such expenses in reasonable detail consistent with Corporation's
policies. In addition, Officer shall be entitled to reimbursement for (i) dues
and membership fees in professional organizations and/or industry associations
in which Officer is currently a member or becomes a member, and (ii)
appropriate industry seminars and mandatory continuing education.
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<PAGE>
(e) RETIREMENT BENEFIT. Commencing on the earlier of the
------------------
Termination Date or the Early Termination Date, as applicable, but in no event
prior to the Trigger Date, the Company shall pay Officer an annual retirement
benefit equal to 25% of Officer's highest Base Salary in effect during the
Term of this Agreement; provided, however, that following commencement of
-------- -------
payment of the retirement benefit, the amount of the retirement benefit shall
be increased on January 1st of each year in an amount equal to the cumulative
cost-of-living increment as reported in the CPI, using January 1st of the year
in which the retirement benefit commences as the base date for comparison. The
benefit shall be payable monthly, beginning on the first day of the month
following the month in which the Termination (for any reason or for no reason)
of this Agreement occurs and shall be in the form of a 100% joint and survivor
annuity on the lives of Officer and Officer's then living spouse, if any. In
the event of Officer's death prior to the commencement of the retirement
benefit under this Paragraph 3.5(e), Officer's surviving spouse, if any, shall
be entitled to receive, commencing on the first day of the month coinciding
with or next following Officer's death, the retirement benefit she would have
received had Officer retired and commenced receiving benefits immediately
prior to his death. Amounts payable under this Paragraph 3.5(e) shall be
offset by any amounts paid to Officer under any Disability Policy maintained
by Corporation. Notwithstanding anything to the contrary in this Paragraph
3.5(e), no amounts shall accrue or be payable pursuant to this Paragraph
3.5(e) during any period in which the Consulting Agreement is in effect under
Paragraph 4.5 hereof. Notwithstanding anything to the contrary in this
Paragraph 3.5(e), in the event that (x) the Board determines in good faith
that the possible long-run losses of Corporation may reasonably be expected to
increase unreasonably if Corporation is not dissolved and (y) such dissolution
is effected in accordance with applicable law, the Board may terminate
Officer's right to the Retirement Benefit upon twelve (12) months' notice to
Officer.
(f) WITHHOLDING. Compensation and benefits paid to Officer
-----------
under this Agreement shall be subject to applicable federal, state and local
wage deductions and other deductions required by law.
6
<PAGE>
4. TERMINATION OF THE AGREEMENT.
----------------------------
4.1. TERMINATION BY CORPORATION DEFINED.
----------------------------------
(a) TERMINATION WITHOUT CAUSE. Subject to the provisions set
-------------------------
forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any
termination of this Agreement by Corporation other than termination for Cause
as defined in Paragraph 4.1(b) below or by reason of Death or Permanent
Disability as set forth in paragraph 4.1(c) below. The effective date of any
such Termination without Cause shall be the applicable Early Termination Date.
(b) TERMINATION FOR CAUSE. Subject to the provisions set forth
---------------------
in Paragraph 4.3 below, prior to the Termination Date, Corporation shall have
the right to terminate this Agreement for Cause immediately after written
notice has been delivered to Officer, which notice shall specify the reason
for and the effective date of such Termination (which date shall be the
applicable Early Termination Date). For purposes of this Agreement, "Cause"
shall mean the following:
(i) Officer's use of alcohol or narcotics which
proximately results in the willful material breach or habitual willful neglect
of Officer's duties under this Agreement;
(ii) Officer's criminal conviction of fraud,
embezzlement, misappropriation of assets, malicious mischief, or any felony;
or
(iii) Officer's willful Material Breach (as defined
below) of this Agreement, if such willful Material Breach is not cured by
Officer within thirty (30) days after Corporation's written notice thereof
specifying the nature of such willful Material Breach. For purposes of this
Paragraph 4.1(b), the term willful "Material Breach" shall mean the
substantial and continual willful nonperformance of Officer's duties under
this Agreement which the Board of Directors determines has resulted in
material injury to Corporation.
(c) TERMINATION BY REASON OF DEATH OR PERMANENT DISABILITY.
------------------------------------------------------
Subject to the provisions set forth in Paragraph 4.3 below, prior to the
Termination Date, Corporation shall have the right to terminate this Agreement
by reason of Officer's death or Permanent Disability. The effective date of
any such termination shall be the applicable Early Termination Date.
7
<PAGE>
4.2. TERMINATION BY OFFICER DEFINED.
------------------------------
(a) TERMINATION OTHER THAN FOR GOOD REASON. Subject to the
--------------------------------------
provisions set forth in Paragraph 4.3 below, Officer shall have the right to
terminate this Agreement for any reason other than for Good Reason (as defined
in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon
written notice delivered to Corporation thirty (30) days prior to the
effective date of termination specified in such notice (which date shall be
the applicable Early Termination Date).
(b) TERMINATION FOR GOOD REASON. Subject to the provisions of
---------------------------
Paragraph 4.3 below, Officer shall have the right to terminate this Agreement
prior to the Termination Date in the event of the material breach of this
Agreement by Corporation, if such breach is not cured by Corporation within
thirty (30) days after written notice thereof specifying the nature of such
breach has been delivered to Corporation, or, following a Change of Control as
defined in Paragraph 4.4(d) below, under the circumstances set forth in
Paragraph 4.2(c) below. The effective date of any such termination shall be
the applicable Early Termination Date. For purposes of this Agreement,
termination of this Agreement by Officer in the event of Corporation's
material breach of this Agreement in accordance with the provisions of this
Paragraph 4.2(b) or the provisions of Paragraph 4.2(c) below shall be defined
as termination by Officer for "Good Reason."
(c) GOOD REASON FOLLOWING A CHANGE IN CONTROL. Following a
-----------------------------------------
Change in Control as defined in Paragraph 4.4(d) below, "Good Reason" shall
mean, without Officer's express written consent, a material breach of this
Agreement by Corporation, including the occurrence of any of the following
circumstances, which breach is not fully corrected within thirty (30) days
after written notice thereof specifying the nature of such breach has been
delivered to Corporation:
(a) the assignment to Officer of any duties inconsistent
with the position in Corporation that Officer held immediately prior to the
Change in Control, or an adverse alteration in the nature or status of
Officer's responsibilities from those in effect immediately prior to such
change;
(b) a substantial change in the nature of the business
operations of Corporation;
8
<PAGE>
(c) a reduction by Corporation in Officer's annual base
salary as in effect on the date hereof or as the same may be increased from
time to time;
(d) the relocation of Corporation's principal executive
offices to a location outside the Los Angeles metropolitan area (or, if
different, the metropolitan area in which such offices are located immediately
prior to the Change in Control) or Corporation's requiring Officer to be based
anywhere other than the Corporation's principal executive offices except for
required travel on Corporation's business to an extent substantially
consistent with Officer's business travel obligations immediately prior to the
Change in Control;
(e) the failure by Corporation to pay Officer any
portion of his current compensation except pursuant to an across-the-board
compensation deferral similarly affecting all officers of Corporation and all
officers of any person whose actions resulted in a Change in Control or any
person affiliated with Corporation or such person, or to pay Officer any
portion of an installment of deferred compensation under any deferred
compensation program of Corporation, within seven (7) days of the date such
compensation is due;
(f) the failure by Corporation to continue in effect any
compensation plan in which Officer participates immediately prior to the
Change in Control which is material to Officer's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by Corporation to
continue Officer's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of participation relative to other
participants, as existed at the time of the Change in Control;
(g) the failure by Corporation to continue to provide
Officer with benefits substantially similar to those under any of
Corporation's life insurance, medical, health and accident, or disability
plans in which Officer was participating at the time of the Change in Control,
the taking of any action by Corporation which would directly or indirectly
materially reduce any of such benefits or deprive Officer of any material
fringe benefit enjoyed by him at the time of the Change in Control, or the
failure by Corporation to provide Officer with the number of paid vacation
days to which he is entitled on the basis of years of service with Corporation
in accordance with Corporation's
9
<PAGE>
normal vacation policy in effect at the time of the Change in Control; or
(h) the failure of Corporation to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement.
Officer's right to terminate Officer's employment for Good
Reason shall not be affected by Officer's incapacity due to physical or mental
illness. Officer's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.
4.3. EFFECT OF TERMINATION. In the event that this Agreement is
---------------------
terminated by Corporation or Officer prior to the Termination Date in
accordance with the provisions of this Paragraph 4, the obligations and
covenants of the parties under this Paragraph 4 shall be of no further force
and effect, except for the obligations of the parties set forth below in this
Paragraph 4.3, and such other provisions of this Agreement which shall survive
termination of this Agreement as provided in Paragraph 6.11 below. Except as
otherwise specifically set forth, all amounts due upon termination shall be
payable on the date such amounts would otherwise have been paid had the Agree-
ment continued through its Term; provided, however, that Deferred Amounts (as
defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days
following the Early Termination Date. In the event of any such early
termination in accordance with the provisions of this Paragraph 4.3, Officer
shall be entitled to the following:
(a) TERMINATION BY CORPORATION.
--------------------------
(i) TERMINATION WITHOUT CAUSE, DEATH OR PERMANENT
---------------------------------------------
DISABILITY. In the event that Corporation terminates this Agreement without
----------
Cause pursuant to Paragraph 4.1(a) above or by reason of death or Permanent
Disability pursuant to Paragraph 4.1.(c) above, Officer shall be entitled to
(i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii)
any earned bonus which Officer has been awarded pursuant to the terms of this
Agreement or any other plan or arrangement as of the Early Termination Date,
but which has not been received by Officer as of such date; (iv) any
compensation earned but deferred, either pursuant to Paragraph 3.1(b) above
or otherwise ("Deferred Amounts"); and (v) the Severance Payment (as defined
in Paragraph 4.4(a) below).
10
<PAGE>
(ii) TERMINATION FOR CAUSE. In the event that
---------------------
Corporation terminates this Agreement for Cause pursuant to Paragraph 4.1(b)
above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned
bonus which Officer has been awarded pursuant to the terms of this Agreement
or any other plan or arrangement as of the Early Termination Date, but which
has not been received by Officer as of such date; (iii) earned benefits and
reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not in
such event be entitled to the Severance Payment.
(b) TERMINATION BY OFFICER.
----------------------
(i) TERMINATION OTHER THAN FOR GOOD REASON. In the event
--------------------------------------
that Officer terminates this Agreement other than for Good Reason, Officer
shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which
Officer has been awarded pursuant to the terms of this Agreement or any other
plan or arrangement as of the Early Termination Date, but which has not been
received by Officer as of such date; (iii) earned benefits and reimbursable
expenses; and (iv) any Deferred Amounts. Officer shall not in such event be
entitled to the Severance Payment.
(ii) TERMINATION FOR GOOD REASON. In the event that
---------------------------
Officer terminates this Agreement for Good Reason, Officer shall be entitled
to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses;
(iii) any earned bonus which Officer has been awarded pursuant to the terms of
this Agreement or any other plan or arrangement as of the Early Termination
Date, but which has not been received by Officer as of such date; (iv) any
Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph
4.4(a) below).
(c) TERMINATION BY REASON OF EXPIRATION OF CONTRACT TERM. In
----------------------------------------------------
the event that Officer's employment terminates on the Termination Date by
reason of expiration of the Term, Officer shall be entitled to (i) Earned Base
Salary; (ii) earned benefits and reimbursable expenses; and (iii) any earned
bonus which has been awarded pursuant to the terms of this Agreement or any
other plan or arrangement as of the Termination Date, but which has not been
received by Officer as of such date. Officer shall not in such event be
entitled to the Severance Payment.
11
<PAGE>
4.4. SEVERANCE PAYMENT.
-----------------
(a) DEFINITION OF "SEVERANCE PAYMENT". For purposes of this
---------------------------------
Agreement, the term "Severance Payment" shall mean an amount equal to the sum
of (i) the portion of Officer's Base Salary then in effect otherwise payable
to Officer during the remainder of the Term (including any extensions thereof)
had such early termination of this Agreement not occurred ("Severance
Period"), provided that in no event shall the Severance Period be less than
six (6) months, and (ii) the amount of the bonus paid to Officer with respect
to the most recently ended fiscal year of Corporation ("Final Year's Bonus"),
provided that in no event shall the Final Year's Bonus be less than an amount
equal to 50% of the Base Salary then in effect; provided, further, that in the
event that, following a Change in Control as defined in Paragraph 4.4(d)
below, Officer terminates this Agreement for Good Reason pursuant to
Paragraphs 4.2(b) and 4.2(c) above or Corporation terminates this Agreement
without Cause pursuant to Paragraph 4.1(a) above, the term "Severance Payment"
shall mean an amount equal to three (3) times the sum of the Base Salary then
in effect and the Final Year's Bonus (such Bonus not to be less than 50% of
such Base Salary); and further provided, however, notwithstanding anything to
the contrary herein, that in the event that (x) Officer's employment is
terminated in connection with or following the Board's good faith
determination that the possible long-run losses of Corporation may reasonably
be expected to increase unreasonably if Corporation is not dissolved and (y)
such dissolution is effected in accordance with applicable law, the term
"Severance Payment" shall mean the sum of the Base Salary then in effect and
the Final Year's Bonus (such Bonus not to be less than 50% of such Base
Salary), and the term "Severance Period" shall mean the one-year period
immediately following Officer's date of termination of employment.
(b) PAYMENT OF SEVERANCE PAYMENT. In the event that Officer is
----------------------------
entitled to any Severance Payment pursuant to Paragraph 4.3 above, that
portion of such Severance Payment calculated on the basis of Base Salary shall
be payable in monthly installments during the Severance Period, in accordance
with the provisions set forth in Paragraph 3.1 above, and that portion of such
Severance Payment calculated on the basis of the Final Year's Bonus shall be
payable on the date a bonus payment as to the then current fiscal year would
ordinarily have been made had Officer continued in Corporation's employment;
provided, however, that in the event of a Termination Upon a Change in Control
as defined in Paragraph 4.4(d) below, the entire Severance Payment
12
<PAGE>
shall be payable in a lump sum within ten (10) days following the effective
date of such termination.
(c) OTHER SEVERANCE BENEFITS. In the event that Officer is
------------------------
entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall
also be entitled to full and immediate vesting of any awards granted to
Officer under Corporation's stock option or incentive compensation plans, and
continued participation throughout the Severance Period in all employee
welfare and pension benefit plans, programs or arrangements. In the event
Officer's participation in any such plan, program or arrangement is barred by
the terms thereof, Corporation shall arrange to provide Officer with
substantially similar benefits.
(d) CHANGE IN CONTROL. For purposes of this Agreement,
-----------------
"Termination Upon a Change of Control" shall mean a termination of this
Agreement, following a "Change in Control," by Officer for Good Reason or by
Corporation other than for Cause. A "Change in Control" shall be deemed to
have occurred if, following Corporation's underwritten initial public
offering:
(i) any "person," as such term is used in Paragraphs
13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(other than Corporation; any trustee or other fiduciary holding securities
under an employee benefit plan of Corporation; or any company owned, directly
or indirectly, by the stockholders of Corporation in substantially the same
proportions as their ownership of stock of Corporation) is or becomes after
the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of Corporation (not
including in the securities beneficially owned by such person any securities
acquired directly from Corporation or its affiliates) representing twenty
percent (20%) or more of the combined voting power of Corporation's then
outstanding securities; or
(ii) during any period of two (2) consecutive years (not
including any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board of Directors, and any new
director (other than a director designated by a person who has entered into an
agreement with Corporation to effect a transaction described in subparagraph
(i), (iii) or (iv) of this Paragraph 4.4(d)) whose election by the Board of
Directors of nomination for election by Corporation's stockholders was
approved by a vote of at least two-thirds (2/3) of the Board of Directors then
still in office who either were members of the Board of Directors at the
begin-
13
<PAGE>
ning of the period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority thereof;
(iii) the stockholders of Corporation approve a merger
or consolidation of Corporation with any other entity, other than (A) a merger
or consolidation which would result in the voting securities of Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of Corporation, at
least eighty percent (80%) of the combined voting power of the voting
securities of Corporation or such surviving entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation effected
to implement a recapitalization of Corporation (or similar transaction) in
which no person acquires more than fifty percent (50%) of the combined voting
power of Corporation's then outstanding securities; or
(iv) the stockholders of Corporation approve a plan of
complete liquidation of Corporation (other than a dissolution in connection
with the Board's good faith determination that the possible long-run loss of
Corporation may reasonably be expected to increase unreasonably if Corporation
is not dissolved) or an agreement for the sale or disposition by Corporation
of all or substantially all of Corporation's assets.
4.5. CONSULTING ARRANGEMENT. Commencing on the Termination Date
----------------------
or the Early Termination Date, as applicable, Corporation and Officer shall
enter into a Consulting Arrangement pursuant to which Corporation shall pay
Officer annually an amount equal to fifty percent (50%) of his Base Salary as
in effect immediately prior to the Termination Date or the Early Termination
Date, as applicable, which amount shall be payable in accordance with the
provisions of Paragraph 3.1 above. Such Consulting Arrangement shall remain in
effect for a period of two (2) years following the commencement thereof,
subject to Officer's continuing willingness and availability to provide
consulting services to Corporation for a minimum of forty (40) hours per
month; provided, however, that on each anniversary of the commencement of the
Consulting Arrangement, the term of the Consulting Arrangement shall be
extended for an additional year, unless either Officer or Corporation shall
have provided the other six (6) months notice to the contrary; and provided,
further, that this paragraph shall have no force or effect if
14
<PAGE>
Officer's employment is terminated by Corporation for Cause (as defined in
Section 4.1(b)) prior to the expiration of the Term of this Agreement.
4.6. GROSS-UP. If any of the Total Payments (as hereinafter
--------
defined) will be subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code, Corporation shall pay to Officer, no later than the tenth (10th)
day following the occurrence of any event that could give rise to the
imposition of any Excise Tax, an additional amount (the "Gross-Up Payment")
such that the net amount retained by him, after deduction of any Excise Tax on
the Total Payments and any federal and state and local income and Social
Security tax upon the payment provided for by this paragraph, shall be equal
to the excess of the Total Payments over the payment provided for by this
paragraph. For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) all
payments or benefits received or to be received by Officer in connection with
a Change in Control or the termination of Officer's employment (whether
payable pursuant to the terms of this Agreement or of any other plan,
arrangement or agreement with Corporation, its successors, any person whose
actions result in a Change in Control or any person affiliated (or which, as a
result of the completion of the transactions causing a Change in Control, will
become affiliated) with Corporation or such person within the meaning of
Section 1504 of the Code (the "Total Payments")) shall be treated as
"parachute payments" (within the meaning of Section 280G(b)(2) of the Code)
unless, in the opinion of tax counsel selected by Corporation's independent
auditors and reasonably acceptable to Officer, such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within
the meaning of Section 280G(b)(l) of the Code) shall be treated as subject to
the Excise Tax, unless in the opinion of such tax counsel such excess
parachute payments represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not
otherwise subject to the Excise Tax, and (ii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the residence
of Officer on the Early
15
<PAGE>
Termination Date, net of the maximum reduction in federal income taxes that
could be obtained from deduction of such state and local taxes.
4.7. OFFSET. Although Officer shall not be required to mitigate
------
damages under this Agreement by seeking other comparable employment or
otherwise, the amount of any payment or benefit provided for in this
Agreement, including without limitation welfare benefits, shall be reduced by
any compensation earned by or provided to Officer as the result of employment
by an employer other than Corporation prior to the expiration of the Term of
this Agreement; provided, however, that this Paragraph 4.7 shall not apply in
the event of a Termination Upon a Change in Control.
5. NONCOMPETITION.
--------------
During the Term of this Agreement and the period, if any, with
respect to which Officer shall be entitled to receive Severance Payments or
during which the Consulting Arrangement is in effect, Officer shall not engage
in any activity competitive with the business of Corporation.
6. MISCELLANEOUS.
-------------
6.1. PAYMENT OBLIGATIONS. Corporation's obligation to pay
-------------------
Officer the compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If arbitration after a Change in Control shall be brought
to enforce or interpret any provision contained herein, Corporation shall, to
the extent permitted by applicable law and Corporation's Articles of
Incorporation and Bylaws, indemnify Officer for Officer's attorneys' fees and
disbursements incurred in such arbitration.
6.2. CONFIDENTIALITY. Officer agrees that all confidential and
---------------
proprietary information relating to the business of Corporation shall be kept
and treated as confidential both during and after the Term of this Agreement,
except as may be permitted in writing by Corporation's Board of Directors or
as such information is within the public domain or comes within the public
domain without any breach of this Agreement.
6.3. WAIVER. The waiver of the breach of any provision of this
------
Agreement shall not operate or be construed as a waiver of any subsequent
breach of the same or other provision hereof.
16
<PAGE>
6.4. ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise
-------------------------------
provided herein, this Agreement (together with the agreements and plans
referred to herein) represents the entire understanding among the parties with
respect to the subject matter hereof, and this Agreement supersedes any and
all prior understandings, agreements, plans and negotiations, whether written
or oral, with respect to the subject matter hereof, including without
limitation any understandings, agreements or obligations respecting any past
or future compensation, bonuses, reimbursements or other payments to Officer
from Corporation. All modifications to the Agreement must be in writing and
signed by the party against whom enforcement of such modification is sought.
6.5. NOTICES. All notices and other communications under this
-------
Agreement shall be in writing and shall be given by fax or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twenty-four (24) hours
after transmission of a fax to the respective persons named below:
If to Corporation:
Health Science Properties, Inc.
251 South Lake Avenue
Pasadena, CA 91101
Phone: (818)
578-6812 Fax: (818) 578-6966
If to Officer: Jerry M. Sudarsky
2220 Avenue of the Stars
Suite 1503
Los Angeles, California 90067
Phone: (310) 556-1832
Fax: (818) 578-6966
Any Party may change such Party's address for notices by notice duly given
pursuant hereto.
6.6. HEADINGS. The Paragraph headings herein are intended for
--------
reference and shall not by themselves determine the construction or
interpretation of this Agreement.
6.7. GOVERNING LAW. Other than with respect to Paragraph 6.13
-------------
below, this Agreement shall be governed by and construed in accordance with
the laws of the State of California without regard to its principles of
conflicts of laws.
17
<PAGE>
6.8. ARBITRATION. Any dispute arising out of or relating to
-----------
this Agreement that cannot be settled by good faith negotiation between the
parties shall be submitted to ENDISPUTE for final and binding arbitration
pursuant to ENDISPUTE's Arbitration Rules incorporated herein by reference,
which arbitration shall be the exclusive remedy of the parties hereto. The
resulting arbitration shall be deemed a final order of a court having
jurisdiction over the subject matter, shall not be appealable, and shall be
enforceable in any court of competent jurisdiction. Submission to arbitration,
as provided in Exhibit A, shall not preclude the right of any party hereto
involved in a dispute regarding this Agreement (each a "Disputing Party" and
collectively, the "Disputing Parties") to institute proceedings at law or in
equity for injunctive or other relief pending the arbitration of a matter
subject to arbitration pursuant to this Agreement. Any documentation and
information submitted by any party in the arbitration proceeding shall be kept
strictly confidential by the parties and the arbitrator.
In addition to any other relief or award granted by the
arbitrator to either Disputing Party, the arbitrator shall determine the
extent to which each Disputing Party has prevailed as to the material issues
raised in the arbitration, and, based upon such determination, shall apportion
to each Disputing Party its ratable share of (i) the Disputing Parties'
reasonable attorneys' fees and other costs reasonably incurred in the
arbitration, (ii) the expense of the arbitrator, and (iii) all other expenses
of the arbitration; provided, however, that any dispute following a Change in
Control shall be governed by the provisions of Paragraph 6.1 above. The
arbitrator shall make such determination and apportionment whether or not the
dispute proceeds to a final award.
6.9. SEVERABILITY. Should a court or other body of competent
------------
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, all other provisions of this Agreement shall
be deemed valid and enforceable to the extent possible.
6.10. SURVIVAL OF CORPORATION'S OBLIGATIONS. Corporation's
-------------------------------------
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to
Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of Corporation. In the event any such
merger, consolidation or reorganization shall be accomplished by
18
<PAGE>
transfer of stock or by transfer of assets or otherwise, the provisions of
this Agreement shall be binding upon and inure to the benefit of the surviving
or resulting corporation or person. This Agreement shall be binding upon and
inure to the benefit of the executors, administrators, heirs, successors and
assigns of the parties; provided, however, that except as herein expressly
provided, this Agreement shall not be assignable either by Corporation (except
to an affiliate of the Corporation, in which event Corporation shall remain
liable if the affiliate fails to meet any obligations to make payments or
provide benefits or otherwise) or by Officer.
6.11. SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS. The rights and
------------------------------------------
obligations of the parties hereto pursuant to Paragraphs 3.5(e), 4.3, 4.4,
4.5, 4.6, 4.7, 5 and 6.1, 6.2, 6.10, 6.11 and 6.13 hereof shall survive the
Term of this Agreement.
6.12. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts, all of which taken together shall constitute one and the
same Agreement.
19
<PAGE>
6.13. INDEMNIFICATION. In addition to any rights to
---------------
indemnification to which Officer is entitled under the Corporation's Articles
of Incorporation and Bylaws, Corporation shall indemnify Officer at all times
during and after the Term of this Agreement to the maximum extent permitted
under Section 2418 of the General Corporation Law of the State of Maryland or
any successor provision thereof and any other applicable state law, and shall
pay Officer's expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action, suit, or
proceeding, to the maximum extent permitted under such applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement.
CORPORATION:
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation
By: /s/ Joel S. Marcus
-----------------------------
Joel S. Marcus
Vice Chairman and Chief
Operating Officer
Date: December 27, 1994
-----------------------------
OFFICER:
/s/ Jerry M. Sudarsky
----------------------------------
Jerry M. Sudarsky
Chairman and Chief Executive
Officer
Date: December 27, 1994
-----------------------------
20
<PAGE>
EXHIBIT 10.7
AMENDMENT
TO THE EMPLOYMENT AGREEMENT BETWEEN
HEALTH SCIENCE PROPERTIES, INC. AND JERRY M. SUDARSKY
Whereas, the parties hereto desire to amend that certain employment
agreement ("Agreement") dated January 5, 1994 between Health Science Properties,
Inc. ("HSP") and Jerry M. Sudarsky; and
Whereas, pursuant to section 6.4 of the Agreement, the Agreement may
be modified and amended with the written consent of HSP and Jerry M. Sudarsky.
Now Therefore, effective as of January 1, 1997, the Agreement is
hereby amended as follows:
1. Section 1 of the Agreement is hereby amended to read as follows:
During the first year of the term of this Agreement, Officer agrees to
be employed by and to serve Corporation as its Chairman and Chief
Executive Officer. Effective as of December 31, 1997, Officer agrees
to resign as the Company's Chief Executive Officer and, thereafter, to
continue to be employed by and to serve Corporation solely in his
capacity as its Chairman. Corporation agrees to employ and retain
Officer in such capacities. Officer shall devote such of his business
time, energy, and skill to the affairs of Corporation as shall be
necessary (as determined by Officer) to perform the duties of such
positions. Officer shall report to the Board of Directors of
Corporation and at all times during the term of this Agreement shall
have powers and duties at least commensurate with his position as
Chairman, as set forth above. Officer shall be based at the principal
executive offices of Corporation in the Los Angeles, California
metropolitan area, except for required travel on Corporation's
business.
2. Section 2.1 of the Agreement is hereby amended to read as follows:
2.1 Term. The term ("Term") of this Agreement shall commence on the
date hereof and shall end on December 31, 2000, unless terminated
earlier pursuant to this Agreement ("Early Termination
<PAGE>
Date"). If Officer's employment hereunder shall terminate by reason
of the expiration of the Term, the date of such termination shall be
referred to as the "Termination Date." The date of any termination of
Officer's employment pursuant to this Agreement (including officer's
position as Chairman) that occurs prior to the expiration of the Term
shall be referred to as the "Early Termination Date."
3. Section 3.1 of the Agreement is hereby amended to read as follows:
3.1 Base Salary. During the first year of the Term of this Agreement
and subject to the terms and conditions set forth herein, Corporation
agrees to pay to Officer an annual "Base Salary" of Two Hundred Forty
thousand Dollars ($240,000), or such higher amount as may from time to
time be determined by Corporation. From and after the last day of the
first year of the Term of this Agreement, Corporation agrees to pay to
Officer an annual Base Salary of One Hundred Eighty Thousand Dollars
($180,000). Unless otherwise agreed in writing by Officer and
Corporation, the Base Salary shall be payable in substantially equal
semimonthly installments in accordance with the standard policies of
Corporation in existence from time to time.
4. Section 3.2 of the Agreement is hereby deleted in its entirety.
5. Section 3.5(e) of the Agreement is hereby amended in its entirety to
read as follows:
(e) Retirement Benefit. Commencing on the earlier of the Termination
Date or the Early Termination Date, as applicable, the Company shall
pay Officer an annual retirement benefit equal to Ninety Thousand
Dollars ($90,000). The benefit shall be payable monthly, beginning on
the first day of the month following the month in which the
Termination (for any reason or for no reason) of this Agreement occurs
and shall be in the form of a 100% joint and survivor annuity on the
lives of Officer and Officer's then living spouse, if any. In the
event of Officer's death prior to the commencement of the retirement
benefit under this Paragraph 3.5(e), Officer's surviving spouse, if
any, shall be entitled to
<PAGE>
receive, commencing on the first day of the month coinciding with or
next following Officer's death, the retirement benefit she would have
received had Officer retired and commenced receiving bene fits
immediately prior to his death. Amounts payable under this Paragraph
3.5(e) shall be offset by any amounts paid to Officer under any
Disability Policy maintained by Corporation.
6. Section 4.5 and all references thereto shall be deleted in their
entirety.
IN WITNESS WHEREOF, this Instrument of amendment is executed this
30th day of July, 1996.
HEALTH SCIENCE PROPERTIES, INC.
By: /s/ Jerry M. Sudarsky
------------------------------
JERRY M. SUDARSKY
/s/ Jerry M. Sudarsky
---------------------------------
<PAGE>
EXHIBIT 10.8
- --------------------------------------------------------------------------------
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
by and between
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation,
and
JOEL S. MARCUS,
an individual
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
1. Position and Duties: Location .......................... 1
-----------------------------
2. Term of Employment ..................................... 1
------------------
2.1. Term ............................................ 1
----
3. Compensation, Benefits and Reimbursement ............... 2
----------------------------------------
3.1. Base Salary ..................................... 2
-----------
(a) Earned Base Salary .......................... 2
------------------
(b) Payment ..................................... 2
-------
3.2. Increases in Base Salary ........................ 3
-----------------------
3.3. Bonus ........................................... 3
-----
3.4. Stock Options ................................... 4
-------------
3.5. Additional Benefits ............................. 4
-------------------
(a) Officer Benefits ............................ 4
----------------
(b) Vacation .................................... 5
--------
(c) Life Insurance .............................. 5
--------------
(d) Disability Insurance ........................ 5
--------------------
(e) Reimbursement for Expenses .................. 5
--------------------------
(f) Withholding ................................. 5
-----------
(g) Signing Bonus ............................... 6
-------------
4. Termination of the Agreement ........................... 6
----------------------------
4.1. Termination by Corporation Defined .............. 6
----------------------------------
(a) Termination Without Cause ................... 6
-------------------------
(b) Termination For Cause ....................... 6
---------------------
(c) Termination by Reason of Death or Disability. 6
--------------------------------------------
4.2. Termination by Officer Defined .................. 7
------------------------------
(a) Termination Other Than For Good Reason ...... 7
--------------------------------------
(b) Termination For Good Reason ................. 7
---------------------------
(c) Good Reason Following a Change in Control ... 7
-----------------------------------------
4.3. Effect of Termination ........................... 9
---------------------
(a) Termination by Corporation .................. 9
--------------------------
(i) Termination Without Cause, Death
--------------------------------
or Permanent Disability .............. 9
-----------------------
(ii) Termination For Cause ................ 9
---------------------
(b) Termination by Officer ...................... 10
----------------------
(i) Termination Other Than For Good Reason 10
--------------------------------------
(ii) Termination For Good Reason .......... 10
---------------------------
<PAGE>
4.4. Severance Payment ................................. 10
-----------------
(a) Definition of "Severance Payment."............. 10
----------------------------------
(b) Payment of Severance Payment .................. 11
----------------------------
(c) Other Severance Benefits ...................... 11
------------------------
(d) Full Settlement of All Obligations ............ 11
----------------------------------
(e) Change in Control ............................. 11
-----------------
4.5. Gross-Up .......................................... 13
--------
4.6. Offset ............................................ 14
------
5. Noncompetition ......................................... 14
--------------
6. Miscellaneous ......................................... 14
-------------
6.1. Payment Obligations .............................. 14
-------------------
6.2. Confidentiality .................................. 14
---------------
6.3. Waiver ........................................... 15
------
6.4. Entire Agreement; Modifications .................. 15
-------------------------------
6.5. Notices .......................................... 15
-------
6.6. Headings ......................................... 15
--------
6.7. Governing Law .................................... 15
-------------
6.8. Arbitration ...................................... 16
-----------
6.9. Severability ..................................... 16
------------
6.10. Survival of Corporation's Obligations ............ 16
-------------------------------------
6.11. Survival of Certain Rights and Obligations ....... 17
------------------------------------------
6.12. Counterparts ..................................... 17
------------
6.13. Indemnification .................................. 18
---------------
SIGNATURE PAGE ................................................. 18
ii
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of this fifth (5th) day of January, 1994, and the employment hereunder
shall commence as of the seventh (7th) day of February, 1994 (the latter date
shall be referred to as the "Effective Date"), by and between HEALTH SCIENCE
PROPERTIES, INC., a Maryland corporation ("Corporation"), and JOEL S. MARCUS, an
individual ("Officer").
RECITAL
-------
Corporation desires to employ Officer as its Vice Chairman and Chief
Operating Officer, and Officer is willing to accept such employment by
Corporation, on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Position and Duties: Location.
-----------------------------
During the term of this Agreement, Officer agrees to be employed by and
to serve Corporation as its Vice Chairman and Chief Operating Officer.
Corporation agrees to employ and retain Officer in such capacities. Officer
shall devote such of his business time, energy, and skill to the affairs of
Corporation as shall be necessary to perform the duties of such positions.
Officer shall report to the Chairman and Chief Executive Officer and at all
times during the term of this Agreement shall have powers and duties at least
commensurate with his positions as Vice Chairman and Chief Operating Officer.
Officer shall be based at the principal executive offices of Corporation in the
Los Angeles, California metropolitan area, except for required travel on
Corporation's business.
2. Term of Emplovment.
------------------
2.1. Term. The term ("Term") of this Agreement shall be for a period of
----
three (3) years commencing with the Effective Date, unless terminated earlier
pursuant to this Agreement ("Early Termination Date"). Commencing upon the third
(3rd) anniversary of the Effective Date of this Agreement and on each subsequent
anniversary thereof, the Term shall be automatically
1
<PAGE>
extended for one (1) additional year unless, no later than six (6) months before
such anniversary, either party shall have given written notice to the other that
it does not wish to extend the Term of this Agreement. References herein to the
Term of this Agreement shall refer to both the initial Term and any such
extended Term.
3. Compensation, Benefits and Reimbursement.
----------------------------------------
3.1. Base Salary. During the Term of this Agreement and subject to the
-----------
terms and conditions set forth herein, Corporation agrees to pay to Officer an
initial annual "Base Salary" of Two Hundred Ten Thousand Dollars ($210,000), or
such higher amount as may from time to time be determined by Corporation. Unless
otherwise agreed in writing by Officer and Corporation, and subject to
subparagraph (b) below, the salary shall be payable in substantially equal
semimonthly installments in accordance with the standard policies of Corporation
in existence from time to time.
(a) Earned Base Salary. For purposes of any early termination of this
------------------
Agreement as provided in Paragraph 4 below, the term "Earned Base Salary" shall
mean all semimonthly installments of the Base Salary which have become due and
payable to Officer pursuant to this Paragraph 3.1, together with any partial
monthly installment prorated on a daily basis up to and including the applicable
Termination Date.
(b) Payment. The initial Base Salary shall be paid to Officer as
-------
follows:
(i) Payment of the gross amount of Officer's semimonthly
installment of initial Earned Base Salary as contemplated in Paragraph 3.1 above
shall be reduced by one-fourth (1/4). Each said one-fourth (1/4) amount shall be
earned, but payment thereof deferred as set forth below:
a) Three-fourths (3/4) of the gross amount of each of
Officer's semimonthly installments of initial Base Salary shall be
paid to Officer as set forth in Paragraph 3.1 above.
b) Payment of the remaining earned but deferred one-fourth
(1/4) of the gross amount of each of Officer's semimonthly
installments of initial Base Salary, together with the commencement
of the payment of full semimonthly install-
2
<PAGE>
ment of Officer's Earned Base Salary, shall be paid upon the earlier
to occur of the following events ("Trigger Date"):
i) The effective date of Corporation's underwritten
initial public offering;
ii) The closing of any debt and/or equity financing of
Corporation occurring after the Effective Date of this
Agreement in an amount not less than Fourteen Million Dollars
($14,000,000);
iii) October 1, 1994; or
iv) Death or the Permanent Disability (as defined
below) of Officer.
3.2. Increases in Base Salary. Officer's Base Salary shall be
------------------------
reviewed no less frequently than on each anniversary of the Effective Date
during the term of Officer's employment hereunder by the Board of Directors of
Corporation (or such committee as may be appointed by the Board for such
purpose). The Base Salary payable to Officer shall be increased on each such
anniversary date (and such other times as the Board or a committee of the Board
may deem appropriate during the Term of this Agreement) to an amount determined
by the Board (or a committee of the Board). Each such new Base Salary shall
become the base for each successive year increase; provided, however, that such
increase, at a minimum, shall be equal to the cumulative cost-of-living
increment as reported in the "Consumer Price Index, Los Angeles, California, All
Items," published by the U.S. Department of Labor (using January 1, 1994 as the
base date for comparison). Any increase in Base Salary or other compensation
shall in no way limit or reduce any other obligations of Corporation hereunder
and, once established at an increased specified rate, Officer's Base Salary
shall not be reduced unless Officer otherwise agrees in writing.
3.3. Bonus. Officer shall be eligible tO receive a bonus for each
-----
fiscal year of Corporation (or portion thereof) during the Term of this
Agreement, with the actual amount of any such bonus to be determined in the sole
discretion of the Board of Directors (or a committee of the Board) based upon
its evaluation of Officer's performance during such year and such other factors
and conditions as the Board (or a committee of the Board) deems relevant. Any
such bonus shall be payable within seventy-
3
<PAGE>
five (75) days after the end of Corporation's fiscal year to which such bonus
relates. The Board of Directors shall, at an appropriate subsequent time,
consider the establishment of an annual incentive compensation plan providing
for the payment of a minimum annual bonus based upon the achievement of certain
objective criteria for the benefit of Officer and other specified executive
officers of Corporation.
3.4. STOCK OPTIONS.
--------------
Pursuant to the terms of the stock option agreement issued under
Corporation's Stock Option Plan, Corporation has granted to Officer the right
and option to purchase an aggregate of 2,391 shares of the authorized but
unissued Common Stock of Corporation on the terms and conditions set forth
therein. Nothing contained herein shall be construed to increase or decrease
Officer's compensation and/or benefits in existence at the time the options are
granted.
3.5. ADDITIONAL BENEFITS. During the term of this Agreement, Officer
-------------------
shall be entitled to the following additional benefits:
(a) OFFICER BENEFITS. Officer shall be eligible to participate in such
----------------
of Corporation's benefit and deferred compensation plans as are made available
to executive officers of Corporation, including, without limitation,
Corporation's stock incentive plans, annual incentive compensation plans, profit
sharing/pension plans, deferred compensation plans, annual physical
examinations, dental, vision, sick pay, and medical plans, personal catastrophe
and accidental death insurance plans, financial planning and automobile
arrangements, retirement plans and supplementary executive retirement plans, if
any. For purposes of establishing the length of service under any benefit plans
or programs of Corporation, Officer's employment with the Corporation will be
deemed to have commenced on the Effective Date of this Agreement. Until
Corporation adopts a package of health and medical benefits, Corporation shall
promptly reimburse Officer for payments made by Officer (i) with respect to the
continuation of benefits provided by Officer's previous employer pursuant to
Section 4980B ("COBRA") of the Internal Revenue Code of 1986, as amended
("Code"), and (ii) upon expiration of COBRA coverage to maintain substantially
similar health and medical benefits coverage for Officer and his family.
4
<PAGE>
(b) VACATION. Officer shall be entitled to four (4) weeks of vacation
--------
during each year during the Term of this Agreement and any extensions thereof,
prorated for partial years. Any accrued vacation not taken during any year may
be carried forward to subsequent years; provided that Officer may not accrue
more than eight (8) weeks of unused vacation at any time.
(c) LIFE INSURANCE. Commencing on the Trigger Date, and for the Term of
--------------
this Agreement, Corporation shall, at its sole cost and expense, procure and
keep in effect term life insurance (a minimum three (3) year term certain
policy) on the life of Officer, payable to such beneficiaries as Officer may
from time to time designate, in the aggregate amount of One Million Dollars
($1,000,000). Such policy shall be owned by Officer or by a member of his
immediate family. Corporation shall have no incidents of ownership therein.
(d) DISABILITY INSURANCE. Commencing on the Trigger Date, and for the
--------------------
Term of this Agreement, Corporation shall, at its sole cost and expense, procure
and keep in effect disability insurance similar to Officer's current disability
insurance policy on Officer, payable to Officer in an annual amount not less
than sixty percent (60%) of Officer's then existing Base Salary ("Disability
Policy"). For purposes of this Agreement, "Permanent Disability" shall have the
same meaning as is ascribed to such terms in the Disability Policy (including
the COBRA Disability Policy) covering Officer at the time of occurrence of such
Permanent Disability.
(e) REIMBURSEMENT FOR EXPENSES. During the Term of this Agreement,
--------------------------
Corporation shall reimburse Officer for all reasonable out-of-pocket business
and/or entertainment expenses incurred by Officer for the purpose of and in
connection with the performance of his services pursuant to this Agreement.
Officer shall be entitled to such reimbursement upon the presentation by Officer
to Corporation of vouchers or other statements itemizing such expenses in
reasonable detail consistent with Corporation's policies. In addition, Officer
shall be entitled to reimbursement for (i) dues and membership fees in
professional organizations and/or industry associations in which Officer is
currently a member or becomes a member, and (ii) appropriate industry seminars
and mandatory continuing education.
(f) WITHHOLDING. Compensation and benefits paid to Officer under this
-----------
Agreement shall be subject to applicable federal, state and local wage
deductions and other deductions required by law.
5
<PAGE>
(g) SIGNING BONUS. Upon the Effective Date of this Agreement,
-------------
Corporation shall pay Officer a lump sum cash signing bonus equal to Fifteen
Thousand Dollars ($15,000).
4. TERMINATION OF THE AGREEMENT.
----------------------------
4.1. TERMINATION BY CORPORATION DEFINED.
----------------------------------
(a) TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in
-------------------------
Paragraph 4.3 below, "Termination Without Cause" shall constitute any
termination by Corporation other than termination for Cause as defined in
Paragraph 4.1(b) below.
(b) Termination For Cause. Subject to the provisions set forth in
---------------------
Paragraph 4.3 below, prior to the end of the Term ("Termination Date"),
Corporation shall have the right to terminate this Agreement for Cause
immediately after written notice has been delivered to Officer, which notice
shall specify the reason for and the effective date of such Termination (which
date shall be the applicable Early Termination Date). For purposes of this
Agreement, "Cause" shall mean the following:
(i) Officer's use of alcohol or narcotics which proximately
results in the willful material breach or habitual willful neglect of Officer's
duties under this Agreement;
(ii) Officer's criminal conviction of fraud, embezzlement,
misappropriation of assets, malicious mischief, or any felony;
(iii) Officer's willful Material Breach (as defined below) of this
Agreement, if such willful Material Breach is not cured by Officer within thirty
(30) days after Corporation's written notice thereof specifying the nature of
such willful Material Breach. For purposes of this Paragraph 4.1(b), the term
willful "Material Breach" shall mean the substantial and continual willful
nonperformance of Officer's duties under this Agreement which the Board of
Directors determines has resulted in material injury to Corporation.
(c) TERMINATION BY REASON OF DEATH OR DISABILITY. Subject to the
--------------------------------------------
provisions set forth in Paragraph 4.3 below, prior to the Termination Date,
Corporation shall have the right to terminate this Agreement by reason of
Officer's death or Permanent Disability.
6
<PAGE>
4.2. TERMINATION BY OFFICER DEFINED.
------------------------------
(a) TERMINATION OTHER THAN FOR GOOD REASON. Subject to the provisions
--------------------------------------
set forth in Paragraph 4.3 below, Officer shall have the right to terminate this
Agreement for any reason other than for Good Reason (as defined in Paragraph
4.2(b) below), at any time prior to the Termination Date, upon written notice
delivered to Corporation thirty (30) days prior to the effective date of
termination specified in such notice (which date shall be the applicable Early
Termination Date).
(b) TERMINATION FOR GOOD REASON. Subject to the provisions of Paragraph
---------------------------
4.3 below, Officer shall have the right to terminate this Agreement prior to the
Termination Date in the event of the material breach of this Agreement by
Corporation, if such breach is not cured by Corporation within thirty (30) days
after written notice thereof specifying the nature of such breach has been
delivered to Corporation, or, following a Change of Control as defined in
Paragraph 4.4(e) below, under the circumstances set forth in Paragraph 4.2(c)
below. For purposes of this Agreement, termination of this Agreement by Officer
in the event of Corporation's material breach of this Agreement in accordance
with the provisions of this Paragraph 4.2(b) shall be defined as termination by
Officer for "Good Reason."
(c) GOOD REASON FOLLOWING A CHANGE IN CONTROL. Following a Change in
Control as defined in Paragraph 4.4(e) below, "Good Reason" shall mean, without
Officer's express written consent, a material breach of this Agreement by
Corporation, including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after written notice
thereof specifying the nature of such breach has been delivered to Corporation:
(a) the assignment to Officer of any duties inconsistent with the
position in Corporation that Officer held immediately prior to the Change in
Control, or an adverse alteration in the nature or status of Officer's
responsibilities from those in effect immediately prior to such change;
(b) a substantial change in the nature of the business operations
of Corporation;
(c) a reduction by Corporation in Officer's annual base salary as
in effect on the date hereof or as the same may be increased from time to time;
7
<PAGE>
(d) the relocation of Corporation's principal executive offices to
a location outside the Los Angeles metropolitan area (or, if different, the
metropolitan area in which such offices are located immediately prior to the
Change in Control) or Corporation's requiring Officer to be based anywhere other
than the Corporation's principal executive offices except for required travel on
Corporation's business to an extent substantially consistent with Officer's
business travel obligations immediately prior to the Change in Control;
(e) the failure by Corporation to pay Officer any portion of his
current compensation except pursuant to an across-the-board compensation
deferral similarly affecting all officers of Corporation and all officers of any
person whose actions resulted in a Change in Control or any person affiliated
with Corporation or such person, or to pay Officer any portion of an installment
of deferred compensation under any deferred compensation program of
Corporation, within seven (7) days of the date such compensation is due;
(f) the failure by Corporation to continue in effect any
compensation plan in which Officer participates immediately prior to the Change
in Control which is material to Officer's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by Corporation to
continue Officer's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of participation relative to other participants,
as existed at the time of the Change in Control;
(g) the failure by Corporation to continue to provide Officer with
benefits substantially similar to those under any of Corporations life
insurance, medical, health and accident, or disability plans in which Officer
was participating at the time of the Change in Control, the taking of any action
by Corporation which would directly or indirectly materially reduce any of such
benefits or deprive Officer of any material fringe benefit enjoyed by him at the
time of the Change in Control, or the failure by Corporation to provide Officer
with the number of paid vacation days to which he is entitled on the basis of
years of service with Corporation in accordance with Corporation's normal
vacation policy in effect at the time of the Change in Control; or
8
<PAGE>
(h) the failure of Corporation to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement.
Officer's right to terminate Officer's employment for Good Reason shall
not be affected by Officer's incapacity due to physical or mental illness.
Officer's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
4.3. EFFECT OF TERMINATION. In the event that this Agreement is
---------------------
terminated by Corporation or Officer prior to the Termination Date in accordance
with the provisions of this Paragraph 4, the obligations and covenants of the
parties under this Paragraph 4 shall be of no further force and effect, except
for the obligations of the parties set forth below in this Paragraph 4.3, and
such other provisions of this Agreement which shall survive termination of this
Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically
set forth, all amounts due upon termination shall be payable on the date such
amounts would otherwise have been paid had the Agreement continued through its
Term; provided, however, that Deferred Amounts (as defined in Paragraph
4.3(a)(i) below) shall be payable within thirty (30) days following the Early
Termination Date. In the event of any such early termination in accordance with
the provisions of this Paragraph 4.3, Officer shall be entitled to the
following:
(a) TERMINATION BY CORPORATION.
--------------------------
(i) TERMINATION WITHOUT CAUSE, DEATH OR PERMANENT DISABILITY.
--------------------------------------------------------
In the event that Corporation terminates this Agreement without Cause pursuant
to Paragraph 4.1(a) above or by reason of death or Permanent Disability pursuant
to Paragraph 4.1.(c) above, Officer shall be entitled to (i) Earned Base Salary;
(ii) earned benefits and reimbursable expenses; (iii) any earned bonus which
Officer has been awarded pursuant to the terms of this Agreement or any other
plan or arrangement as of the Early Termination Date, but which has not been
received by Officer as of such date; (iv) any compensation earned but deferred,
either pursuant to Paragraph 3.1(b) above or otherwise ("Deferred Amounts); and
(v) the Severance Payment (as defined in Paragraph 4.4 below).
(ii) TERMINATION FOR CAUSE. In the event that Corporation
---------------------
terminates this Agreement for Cause pursuant to Paragraph 4.1(b) above, Officer
shall be entitled to (i) Earned
9
<PAGE>
Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to
the terms of this Agreement or any other plan or arrangement as of the Early
Termination Date, but which has not been received by Officer as of such date;
(iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts.
Officer shall not be entitled to any future annual bonus or Severance Payment.
(b) TERMINATION BY OFFICER.
----------------------
(i) TERMINATION OTHER THAN FOR GOOD REASON. In the event that
--------------------------------------
Officer terminates this Agreement other than for Good Reason, Officer shall be
entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been
awarded pursuant to the terms of this Agreement or any other plan or arrangement
as of the Early Termination Date, but which has not been received by Officer as
of such date; (iii) earned benefits and reimbursable expenses; and (iv) any
Deferred Amounts. Officer shall not be entitled to any future annual bonus or
Severance Payment.
(ii) TERMINATION FOR GOOD REASON. In the event that Officer
---------------------------
terminates this Agreement for Good Reason, Officer shall be entitled to (i)
Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any
earned bonus which Officer has been awarded pursuant to the terms of this
Agreement or any other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv) any Deferred
Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below).
4.4. SEVERANCE PAYMENT.
-----------------
(a) DEFINITION OF "SEVERANCE PAYMENT." For purposes of this Agreement,
----------------------------------
the term "Severance Payment" shall mean an amount equal to the sum of (i) the
Base Salary otherwise payable to Officer during the remainder of the Term had
such early termination of this Agreement not occurred ("Severance Period") and
(ii) for each full year remaining in the Severance Period, the average of the
annual bonuses earned by Officer in the two (2) years immediately preceding the
date of termination (or if there are less than two (2) years immediately
preceding such date, an amount equal to the immediately preceding bonus earned)
("Average Bonus"), but in no event shall Average Bonus be less than 50% of such
Base Salary; provided, however, that in the event that, following a Change in
Control as defined in Paragraph 4.4(e) below, Officer terminates this Agreement
for Good Reason
10
<PAGE>
pursuant to Paragraph 4.2(b) above, the term "Severance Payment" shall mean
three (3) times the sum of the Base Salary then in effect and the Average Bonus;
and further provided, however, that in the event that (i) Officer's employment
is terminated in connection with or following the Board's good faith
determination that the possible long-run loss of Corporation may reasonably be
expected to increase unreasonably if Corporation is not dissolved and (ii) such
dissolution is effected in accordance with applicable law, the term "Severance
Payment" shall mean the sum of the Base Salary then in effect and the Average
Bonus, and the term "Severance Period" shall mean the one-year period
immediately following Officer's date of termination of employment.
(b) Payment of Severance Payment. In the event that Officer is entitled
----------------------------
to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such
Severance Payment that represents Base Salary shall be payable in monthly
installments, in accordance with the provisions set forth in Paragraph 3.1
above, and that portion of such Severance Payment that represents the Average
Bonus shall be payable on the dates such amounts would have been paid had
Officer continued in Corporation's employment for the Severance Period;
provided, however, that in the event of a Termination upon a Change in Control
as defined in Paragraph 4.4(e) below, the Severance Payment shall be payable in
a lump sum within ten (10) days following such termination.
(c) Other Severance Benefits. In the event that Officer is entitled to
------------------------
any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled
to full and immediate vesting of any awards granted to Officer under
Corporation's stock option or incentive compensation plans, and continued
participation throughout the Severance Period in all employee welfare and
pension benefit plans, programs or arrangements. In the event Officer's
participation in any such plan, program or arrangement is barred, Corporation
shall arrange to provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer hereby acknowledges and
----------------------------------
agrees that any Severance Payment paid to Officer hereunder shall be deemed to
be in full and complete settlement of all obligations of Corporation under this
Agreement.
(e) Change in Control. For purposes of this Agreement, "Termination
-----------------
Upon a Change of Control" shall mean a termination of Officer's employment with
Corporation following a "Change in Control" by Officer for Good Reason or by
Corporation
11
<PAGE>
Other Than for Cause. A "Change in Control" shall be deemed to have occurred if,
following Corporation's underwritten initial public offering:
(i) any "person," as such term is used in Paragraphs 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than
Corporation; any trustee or other fiduciary holding securities under an employee
benefit plan of Corporation; any company owned, directly or indirectly, by the
Stockholders of Corporation in substantially the same proportions as their
ownership of Stock of Corporation) is or becomes after the Effective Date the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Corporation (not including in the securities
beneficially owned by such person any securities acquired directly from
Corporation or its affiliates) representing twenty percent (20%) or more of the
combined voting power of Corporation's then outstanding securities; or
(ii) during any period of two (2) consecutive years (not
including any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board of Directors, and any new director
(other than a director designated by a person who has entered into an agreement
with Corporation to effect a transaction described in subparagraph (i), (iii) or
(iv) of this Paragraph 4.4(e)) whose election by the Board of Directors of
nomination for election by Corporation's stockholders was approved by a vote of
at least two-thirds (2/3) of the Board of Directors then still in office who
either were members of the Board of Directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof;
(iii) the Stockholders of Corporation approve a merger or
consolidation of Corporation with any other entity, other than (A) a merger or
consolidation which would result in the voting securities of Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of Corporation, at
least eighty percent (80%) of the combined voting power of the voting securities
of Corporation or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to implement a
recapitalization of Corporation (or similar transac-
12
<PAGE>
tion) in which no person acquires more than fifty percent (50%) of the combined
voting power of Corporation's then outstanding securities; or
(iv) the stockholders of Corporation approve a plan of complete
liquidation of Corporation (other than a dissolution in connection with the
Board's good faith determination that the possible long-run loss of Corporation
may reasonably be expected to increase unreasonably if Corporation is not
dissolved) or an agreement for the sale or disposition by Corporation of all or
substantially all of Corporation's assets.
4.5. Gross-Up. If any of the Total Payments (as hereinafter defined)
--------
will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the
Code, Corporation shall pay to Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (the "Gross-Up
Payment") such that the net amount retained by him, after deduction of any
Excise Tax on the Total Payments and any federal and state and local income tax
upon the payment provided for by this paragraph, shall be equal to the excess of
the Total Payments over the payment provided for by this paragraph. For purposes
of determining whether any of the Total Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) all payments or benefits received or
to be received by Officer in connection with a Change in Control or the
termination of Officer's employment (whether payable pursuant to the terms of
this Agreement or of any other plan, arrangement or agreement with Corporation,
its successors, any person whose actions result in a Change in Control or any
person affiliated (or which, as a result of the completion of the transactions
causing a Change in Control, will become affiliated) with Corporation or such
person within the meaning of Section 1504 of the Code (the "Total Payments"))
shall be treated as "parachute payments" (within the meaning of Section
280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by
Corporation's independent auditors and reasonably acceptable to Officer, such
payments or benefits (in whole or in part) do not constitute parachute payments,
including by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall
be treated as subject to the Excise Tax, unless in the opinion of such tax
counsel such excess parachute payments represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4)(B) of the
Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance
13
<PAGE>
with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, Officer shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the residence of Officer on the Early Termination Date, net of the
maximum reduction in federal income taxes that could be obtained from deduction
of such state and local taxes.
4.6. Offset. Although Officer shall not be required to mitigate damages
------
under this Agreement by seeking other comparable employment or otherwise, the
amount of any payment or benefit provided for in this Agreement, including
without limitation welfare benefits, shall be reduced by any compensation earned
by or provided to Officer as the result of employment by an employer other than
Corporation prior to the expiration of the Term of this Agreement; provided,
however, that this Paragraph 4.6 shall not apply in the event of a Termination
Upon a Change in Control.
5. Noncompetition.
--------------
During the term of this Agreement, including the period, if any, with
respect to which Officer shall be entitled to Severance Payments, Officer shall
not engage in any activity competitive with the business of Corporation.
6. Miscellaneous.
-------------
6.1. Payment Obligations. Corporation's obligation to pay Officer the
-------------------
compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If arbitration after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation shall, to the
extent permitted by applicable law and Corporation's Articles of Incorporation
and By-Laws, indemnify Officer for Officer's attorneys' fees and disbursements
incurred in such arbitration.
6.2. Confidentiality. Officer agrees that all confidential and
---------------
proprietary information relating to the business of Corporation shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by Corporation's Board of Directors or as
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
14
<PAGE>
6.3. Waiver. The waiver of the breach of any provision of this
------
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
6.4. Entire Agreement; Modifications. Except as otherwise provided
-------------------------------
herein, this Agreement (together with the agreements and plans referred to
herein) represents the entire understanding among the parties with respect to
the subject matter hereof, and this Agreement supersedes any and all prior
understandings, agreements, plans and negotiations, whether written or oral,
with respect to the subject matter hereof, including without limitation any
understandings, agreements or obligations respecting any past or future
compensation, bonuses, reimbursements or other payments to Officer from
Corporation. All modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is sought.
6.5. Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be given by fax or first class mail, certified or
registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission
of a fax to the respective persons named below:
If to Corporation: Health Science Properties, Inc.
251 South Lake Avenue
Pasadena, CA 91101
Phone: (818) 578-6812
Fax: (818) 578-6966
If to Officer: Joel S. Marcus
3153 Abington Drive
Beverly Hills, California 90210
Phone: (310) 274-8383
Any Party may change such Party's address for notices by notice duly given
pursuant hereto.
6.6. Headings. The Paragraph headings herein are intended for reference
--------
and shall not by themselves determine the construction interpretation of this
Agreement.
6.7. Governing Law. Other than with respect to Paragraph 6.13 below,
-------------
this Agreement shall be governed by and construed in accordance with the laws of
the State of California without regard to its principles of conflict of laws.
15
<PAGE>
6.8. Arbitration. Any dispute arising out of or relating to this
-----------
Agreement that cannot be settled by good faith negotiation between the parties
shall be submitted to ENDISPUTE for final and binding arbitration pursuant to
ENDISPUTE'S Arbitration Rules incorporated herein by reference, which
arbitration shall be the exclusive remedy of the parties hereto. The resulting
arbitration shall be deemed a final order of a court having jurisdiction over
the subject matter, shall not be appealable, and shall be enforceable in any
court of competent jurisdiction. Submission to arbitration, as provided in
Exhibit A, shall not preclude the right of any party hereto involved in a
dispute regarding this Agreement (each a "Disputing Party" and collectively, the
"Disputing Parties") to institute proceedings at law or in equity for injunctive
or other relief pending the arbitration of a matter subject to arbitration
pursuant to this Agreement. Any documentation and information submitted by any
party in the arbitration proceeding shall be kept strictly confidential by the
parties and the arbitrator.
In addition to any other relief or award granted by the arbitrator to
either Disputing Party, the arbitrator shall determine the extent to which each
Disputing Party has prevailed as to the material issues raised in the
arbitration, and, based upon such determination, shall apportion to each
Disputing Party its ratable share of (i) the Disputing Parties' reasonable
attorneys' fees and other costs reasonably incurred in the arbitration, (ii) the
expense of the arbitrator, and (iii) all other expenses of the arbitration;
provided, however, that any dispute following a Change in Control shall be
governed by the provisions of Paragraph 6.1 above. The arbitrator shall make
such determination and apportionment whether or not the dispute proceeds to a
final award.
6.9. Severability. Should a court or other body of competent
------------
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, all other provisions of this Agreement shall be
deemed valid and enforceable to the extent possible.
6.10. Survival of Corporation's Obligations. Corporation's obligations
-------------------------------------
hereunder shall not be terminated by reason of any liquidation, dissolution,
bankruptcy, cessation of business, or similar event relating to Corporation.
This Agreement shall not be terminated by any merger or consolidation or other
reorganization of Corporation. In the event any such merger, consolidation or
reorganization shall be accomplished by
16
<PAGE>
transfer of stock or by transfer of assets or otherwise, the provisions of this
Agreement shall be binding upon and inure to the benefit of the surviving or
resulting corporation or person. This Agreement shall be binding upon and inure
to the benefit of the executors, administrators, heirs, successors and assigns
of the parties; provided, however, that except as herein expressly provided,
this Agreement shall not be assignable either by Corporation (except to an
affiliate of the Corporation, in which event Corporation shall remain liable if
the affiliate fails to meet any obligations to make payments or provide benefits
or otherwise) or by Officer.
6.11. Survival of Certain Rights and Obligations. The rights and
------------------------------------------
obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5
and 6.1, 6.2, 6.10, 6.11 and 6.13 hereof shall survive the termination of this
Agreement.
6.12. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one and the same
Agreement.
17
<PAGE>
6.13. Indemnification. In addition to any rights to indemnification to
---------------
which Officer is entitled under the Corporation's Articles of Incorporation and
Bylaws, Corporation shall indemnify Officer at all times during and after the
term of this Agreement to the maximum extent permitted under Section 2418 of the
General Corporation Law of the State of Maryland or any successor provision
thereof and any other applicable state law, and shall pay Officer's expenses in
defending any civil or criminal action, suit, or proceeding in advance of the
final disposition of such action, suit, or proceeding, to the maximum extent
permitted under such applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
CORPORATION:
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation
By: /s/ Jerry M. Sudarsky
---------------------------------
Jerry M. Sudarsky,
Chief Executive Officer
Date: January 5, 1994
-------------------------------
OFFICER:
/s/ Joel S. Marcus
-------------------------------------
Joel S. Marcus
Date: January 5, 1994
-------------------------------
18
<PAGE>
EXHIBIT 10.9
AMENDMENT
TO THE EMPLOYMENT AGREEMENT BETWEEN
HEALTH SCIENCE PROPERTIES, INC. AND JOEL S. MARCUS
Whereas, the parties hereto desire to amend that certain employment
agreement ("Agreement") dated January 5, 1994 between Health Science Properties,
Inc. ("HSP") and Joel S. Marcus; and
Whereas, pursuant to section 6.4 of the Agreement, the Agreement may
be modified and amended with the written consent of HSP and Joel S. Marcus.
Now Therefore, effective as of January 1, 1997, the Agreement is
hereby amended as follows:
1. Section 1 of the Agreement is hereby amended to read as follows:
During the term of this Agreement, Officer agrees to be employed by
and to serve Corporation as its Vice Chairman and Chief Operating
Officer, provided that, effective as of January 1, 1998, Officer shall
be employed by and serve the Corporation as its Vice Chairman and
Chief Executive Officer. In addition, Officer agrees to serve in such
additional capacity consistent with the Officer's current position as
a senior executive officer as may be determined by the Board of
Directors of the Corporation. Corporation agrees to employ and retain
officer in such capacities. Officer shall devote such of his business
time, energy, and skill to the affairs of Corporation as shall be
necessary to perform the duties of such positions. Officer shall
report to the Chairman and prior to January 1, 1998, the Chief
Executive Officer, and at all times during the term of this Agreement
shall have powers and duties at least commensurate with his position
as a senior executive officer. Officer shall be based at the
principal executive offices of Corporation in the Los Angeles,
California metropolitan area, except for required travel on
Corporation's business.
<PAGE>
2. Section 2.1 of the Agreement is hereby amended to read as follows:
2.1 Term. The term ("Term") of this Agreement shall be for a period
commencing on January 1, 1997 and ending on December 31, 2000, unless
terminated earlier pursuant to this Agreement ("Early Termination
Date"). Commencing on December 31, 2000 and on each subsequent
anniversary thereof, the Term shall be automatically extended for one
(1) additional year unless, no later than six (6) months before such
date, either party shall have given written notice to the other that
it does not wish to extend the Term of this Agreement. References
herein to the Term of this Agreement shall refer to both the initial
Term and any such extended Term.
3. Subsection 3.1(a) of the Agreement is hereby amended in its entirety to
read as follows:
3.1(a) Base Salary. During the Term of this Agreement and subject to
the terms and conditions set forth herein, Corporation agrees to pay
to Officer an annual "Base Salary" of Two Hundred Thirty Five Thousand
Dollars ($235,000), or such higher amount as may from time to time be
determined by Corporation. Unless otherwise agreed in writing by
Officer and Corporation, the salary shall be payable in substantially
equal semimonthly installments in accordance with the standard
policies of Corporation in existence from time to time.
4. Section 3.3 of the Agreement is hereby designated as subsection 3.3(a) and
a new subsection 3.3(b) is hereby added to read as follows:
3.3(b) Minimum Bonus. With respect to the calendar year commencing
on January 1, 1997, and each calendar year thereafter during the Term,
the bonus payable pursuant to subsection (a) shall not be less than an
amount equal to the product of (i) Officer's Base Salary and (ii) the
percentage by which the funds from operations based on year-end
financials prepared by the Corporation's auditors ("FFO") increased
over the FFO for the immediately preceding year, provided, however
that in no event shall the bonus payable
<PAGE>
pursuant to Paragraph 3.3(b) hereunder exceed 150% of Base
Salary.
5. Section 3.5(b) of the Agreement is hereby amended to read as follows:
(b) Vacation. Officer shall be entitled to a minimum of five (5)
weeks of vacation during each year during the Term of this Agreement
and any extensions thereof, prorated for partial years. Any accrued
vacation not taken during any year may be carried forward to
subsequent years; provided that Officer may not accrue more than eight
(8) weeks of unused vacation at any time.
6. Section 3.5(g) is hereby deleted in its entirety.
Except as otherwise provided hereinabove, the Agreement is ratified
and affirmed.
IN WITNESS WHEREOF, this Instrument of amendment is executed this
30th day of July, 1996.
HEALTH SCIENCE PROPERTIES, INC.
By: /s/ Jerry M. Sudarsky
------------------------------
JOEL S. MARCUS
/s/ Joel S. Marcus
---------------------------------
<PAGE>
EXHIBIT 10.10
================================================================================
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation,
and
ALAN D. GOLD,
an individual
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1. Position and Duties; Location ......................................... 1
2. Term of Employment .................................................... 1
2.1. Term ............................................................ 1
3. Compensation, Benefits and Reimbursement ................................ 2
3.1. Base Salary .................................................... 2
(a) Earned Base Salary ....................................... 2
(b) Payment .................................................. 2
3.2. Increases in Base Salary ....................................... 3
3.3. Bonus .......................................................... 3
3.4. Stock Options .................................................. 4
3.5. Additional Benefits ............................................ 4
(a) Officer Benefits ......................................... 4
(b) Vacation ................................................. 5
(c) Life Insurance ........................................... 5
(d) Disability Insurance ..................................... 5
(e) Reimbursement for Expenses ............................... 5
(f) Withholding .............................................. 5
4. Termination of the Agreement .......................................... 6
4.1. Termination by Corporation Defined ............................. 6
(a) Termination Without Cause ................................ 6
(b) Termination For Cause .................................... 6
(c) Termination by Reason of Death or Disability ............. 6
4.2. Termination by Officer Defined ................................. 7
(a) Termination Other Than For Good Reason ................... 7
(b) Termination For Good Reason .............................. 7
(c) Good Reason Following a Change in Control ................ 7
4.3. Effect of Termination .......................................... 9
(a) Termination by Corporation ............................... 9
(i) Termination Without Cause .......................... 9
(ii) Termination For Cause, Death or Permanent
Disability ......................................... 9
(b) Termination by Officer ................................... 10
(i) Termination Other Than for Good Reason ............. 10
(ii) Termination For Good Reason ........................ 10
i
<PAGE>
4.4. Severance Payment .............................................. 10
(a) Definition of "Severance Payment." ....................... 10
(b) Payment of Severance Payment ............................. 11
(c) Other Severance Benefits ................................. 11
(d) Full Settlement of All Obligations ...................... 11
(e) Change in Control ........................................ 11
4.5. Gross-Up ....................................................... 13
4.6. Offset ......................................................... 14
5. Noncompetition ....................................................... 14
6. Miscellaneous ........................................................ 14
6.1. Payment Obligations ............................................ 14
6.2. Confidentiality ................................................ 14
6.3. Waiver ......................................................... 14
6.4. Entire Agreement; Modifications ................................ 14
6.5. Notices ........................................................ 15
6.6. Headings ....................................................... 15
6.7. Governing Law .................................................. 15
6.6. Arbitration .................................................... 15
6.9. Severability ................................................... 16
6.10. Survival of Corporation's Obligations .......................... 16
6.11. Survival of Certain Rights and Obligations ..................... 17
6.12. Counterparts ................................................... 17
6.13. Indemnification ................................................ 18
SIGNATURE PAGE ............................................................. 18
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered into
as of this fifth (5th) day of January, 1994, and the employment hereunder shall
commence as of the fifth (5th) day of January, 1994 (the latter date shall be
referred to as the "Effective Date"), by and between HEALTH SCIENCE PROPERTIES,
INC., a Maryland corporation ("Corporation"), and ALAN D. GOLD, an individual
("Officer").
RECITAL
Corporation desires to employ Officer as its President and Treasurer, and
Officer is willing to accept such employment by Corporation, on the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Position and Duties; Location.
During the term of this Agreement, Officer agrees to be employed by and to
serve Corporation as its President and Treasurer. Corporation agrees to employ
and retain Officer in such capacities. Officer shall devote such of his business
time, energy, and skill to the affairs of Corporation as shall be necessary to
perform the duties of such positions. Officer shall report to the Chief
Operating Officer or such other officer as the Board of Directors of Corporation
shall direct, and at all times during the term of this Agreement shall have
powers and duties at least commensurate with his positions as President and
Treasurer. Officer shall be based at the offices of Corporation in the San
Diego, California metropolitan area, except for required travel on Corporation's
business.
2. Term of Employment.
2.1. Term. The term ("Term") of this Agreement shall be for a period of
three (3) years commencing with the Effective Date, unless terminated earlier
pursuant to this Agreement ("Early Termination Date"). Commencing upon the third
(3rd) anniversary of the Effective Date of this Agreement and on each subsequent
anniversary thereof, the Term shall be automatically extended for one (1)
additional year unless, no later than six
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(6) months before such anniversary, either party shall have given written notice
to the other that it does not wish to extend the Term of this Agreement.
References herein to the Term of this Agreement shall refer to both the initial
Term and any such extended Term.
3. Compensation, Benefits and Reimbursement.
3.1. Base Salary. During the Term of this Agreement and subject to the
terms and conditions set forth herein, Corporation agrees to pay to Officer an
initial annual "Base Salary" of One Hundred Seventy-Five Thousand Dollars
($175,000), or such higher amount as may from time to time be determined by
Corporation. Unless otherwise agreed in writing by Officer and Corporation, and
subject to subparagraph (b) below, the salary shall be payable in substantially
equal semimonthly installments in accordance with the standard policies of
Corporation in existence from time to time.
(a) Earned Base Salary. For purposes of any early termination of this
Agreement as provided in Paragraph 4 below, the term "Earned Base Salary" shall
mean all semimonthly installments of the Base Salary which have become due and
payable to Officer pursuant to this Paragraph 3.1, together with any partial
monthly installment prorated on a daily basis up to and including the applicable
Termination Date.
(b) Payment. The initial Base Salary shall be paid to Officer as follows:
(i) Payment of the gross amount of Officer's semimonthly installment
of initial Earned Base Salary as contemplated in Paragraph 3.1 above shall be
reduced by one-fourth (1/4). Each said one-fourth (1/4) amount shall be earned,
but payment thereof deferred as set forth below:
a) Three-fourths (3/4) of the gross amount of each of
Officer's semimonthly installments of initial Base Salary shall be
paid to Officer as set forth in Paragraph 3.1 above.
b) Payment of the remaining earned but deferred one-fourth
(1/4) of the gross amount of each of Officer's semimonthly
installments of initial Base Salary, together with the commencement
of the payment of full semimonthly installment of Officer's Earned
Base Salary, shall be
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paid upon the earlier to occur of the following events ("Trigger
Date"):
i) The effective date of Corporation's underwritten
initial public offering;
ii) The closing of any debt and/or equity financing of
Corporation occurring after the Effective Date of this
Agreement in an amount not less than Fourteen Million Dollars
($14,000,000);
(iii) October 1, 1994; or
(iv) Death or the Permanent Disability (as defined below)
of Officer.
3.2. Increases in Base Salary. Officer's Base Salary shall be reviewed no
less frequently than on each anniversary of the Effective Date during the term
of Officer's employment hereunder by the Board of Directors of Corporation (or
such committee as may be appointed by the Board for such purpose). The Base
Salary payable to Officer shall be increased on each such anniversary date (and
such other times as the Board or a committee of the Board may deem appropriate
during the Term of this Agreement) to an amount determined by the Board (or a
committee of the Board). Each such new Base Salary shall become the base for
each successive year increase; provided, however, that such increase, at a
minimum, shall be equal to the cumulative cost-of-living increment as reported
in the "Consumer Price Index, Los Angeles, California, All Items," published by
the U.S. Department of Labor (using January 1, 1994 as the base date for
comparison). Any increase in Base Salary or other compensation shall in no way
limit or reduce any other obligations of Corporation hereunder and, once
established at an increased specified rate, Officer's Base Salary shall not be
reduced unless Officer otherwise agrees in writing.
3.3. Bonus. Officer shall be eligible to receive a bonus for each fiscal
year of Corporation (or portion thereof) during the Term of this Agreement, with
the actual amount of any such bonus to be determined in the sole discretion of
the Board of Directors (or a committee of the Board) based upon its evaluation
of Officer's performance during such year and such other factors and conditions
as the Board (or a committee of the Board) deems relevant. Any such bonus shall
be payable within seventy-five (75) days after the end of Corporation's fiscal
year to
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which such bonus relates. The Board of Directors shall, at an appropriate
subsequent time, consider the establishment of an annual incentive compensation
plan providing for the payment of a minimum annual bonus based upon the
achievement of certain objective criteria for the benefit of Officer and other
specified executive officers of Corporation.
3.4. Stock Options.
Pursuant to the terms of the stock option agreement issued under
Corporation's Stock Option Plan, Corporation has granted to Officer the right
and option to purchase an aggregate of 2,130 shares of the authorized but
unissued Common Stock of Corporation on the terms and conditions set forth
therein. Nothing contained herein shall be construed to increase or decrease
Officer's compensation and/or benefits in existence at the time the options are
granted.
3.5. Additional Benefits. During the term of this Agreement, Officer shall
be entitled to the following additional benefits:
(a) Officer Benefits. Officer shall be eligible to participate in such of
Corporation's benefit and deferred compensation plans as are made available to
executive officers of Corporation, including, without limitation, Corporation's
stock incentive plans, annual incentive compensation plans, profit
sharing/pension plans, deferred compensation plans, annual physical
examinations, dental, vision, sick pay, and medical plans, personal catastrophe
and accidental death insurance plans, financial planning and automobile
arrangements, retirement plans and supplementary executive retirement plans, if
any. For purposes of establishing the length of service under any benefit plans
or programs of Corporation, Officer's employment with the Corporation will be
deemed to have commenced on the Effective Date of this Agreement. Until
Corporation adopts a package of health and medical benefits, Corporation shall
promptly reimburse Officer for payments made by Officer (i) with respect to the
continuation of benefits provided by Officer's previous employer pursuant to
Section 4980B ("COBRA") of the Internal Revenue Code of 1986, as amended
("Code"), (ii) upon expiration of COBRA coverage to maintain substantially
similar health and medical benefits coverage for Officer and his family, and
(iii) if Officer is not covered by COBRA, to maintain reasonable health and
medical benefits coverage for Officer and his family.
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(b) Vacation. Officer shall be entitled to four (4) weeks of vacation
during each year during the Term of this Agreement and any extensions thereof,
prorated for partial years. Any accrued vacation not taken during any year may
be carried forward to subsequent years; provided that Officer may not accrue
more than eight (8) weeks of unused vacation at any time.
(c) Life Insurance. Commencing on the Trigger Date, and for the Term of
this Agreement, Corporation shall, at its sole cost and expense, procure and
keep in effect term life insurance (a minimum three (3) year term certain
policy) on the life of Officer, payable to such beneficiaries as Officer may
from time to time designate, in the aggregate amount of One Million Dollars
($1,000,000). Such policy shall be owned by Officer or by a member of his
immediate family. Corporation shall have no incidents of ownership therein.
(d) Disability Insurance. Commencing on the Trigger Date, and for the Term
of this Agreement, Corporation shall, at its sole cost and expense, procure and
keep in effect disability insurance similar to Officer's current disability
insurance policy on Officer, payable to Officer in an annual amount not less
than sixty percent (60%) of Officer's then existing Base Salary ("Disability
Policy"). For purposes of this Agreement, "Permanent Disability" shall have the
same meaning as is ascribed to such terms in the Disability Policy (including
the COBRA Disability Policy) covering Officer at the time of occurrence of such
Permanent Disability.
(e) Reimbursement for Expenses. During the Term of this Agreement,
Corporation shall reimburse Officer for all reasonable out-of-pocket business
and/or entertainment expenses incurred by Officer for the purpose of and in
connection with the performance of his services pursuant to this Agreement.
Officer shall be entitled to such reimbursement upon the presentation by Officer
to Corporation of vouchers or other statements itemizing such expenses in
reasonable detail consistent with Corporation's policies. In addition, Officer
shall be entitled to reimbursement for (i) dues and membership fees in
professional organizations and/or industry associations in which Officer is
currently a member or becomes a member, and (ii) appropriate industry seminars
and mandatory continuing education.
(f) Withholding. Compensation and benefits paid to Officer under this
Agreement shall be subject to applicable federal, state and local wage
deductions and other deductions required by law.
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4. Termination of the Agreement.
4.1. Termination by Corporation Defined.
(a) Termination Without Cause. Subject to the provisions set forth in
Paragraph 4.3 below, "Termination Without Cause" shall constitute any
termination by Corporation other than termination for Cause as defined in
Paragraph 4.1(b) below.
(b) Termination For Cause. Subject to the provisions set forth in
Paragraph 4.3 below, prior to the end of the Term ("Termination Date"),
Corporation shall have the right to terminate this Agreement for Cause
immediately after written notice has been delivered to Officer, which notice
shall specify the reason for and the effective date of such Termination (which
date shall be the applicable Early Termination Date). For purposes of this
Agreement, "Cause" shall mean the following:
(i) Officer's use of alcohol or narcotics which proximately results
in the willful material breach or habitual willful neglect of Officer's duties
under this Agreement;
(ii) Officer's criminal conviction of fraud, embezzlement,
misappropriation of assets, malicious mischief, or any felony;
(iii) Officer's willful Material Breach (as defined below) of this
Agreement, if such willful Material Breach is not cured by Officer within thirty
(30) days after Corporation's written notice thereof specifying the nature of
such willful Material Breach. For purposes of this Paragraph 4.1(b), the term
willful "Material Breach" shall mean the substantial and continual willful
nonperformance of Officer's duties under this Agreement which the Board of
Directors determines has resulted in material injury to Corporation.
(c) Termination by Reason of Death or Disability. Subject to the
provisions set forth in Paragraph 4.3 below, prior to the Termination Date,
Corporation shall have the right to terminate this Agreement by reason of
Officer's death or Permanent Disability.
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4.2. Termination by Officer Defined.
(a) Termination Other Than For Good Reason. Subject to the provisions set
forth in Paragraph 4.3 below, Officer shall have the right to terminate this
Agreement for any reason other than for Good Reason (as defined in Paragraph
4.2(b) below), at any time prior to the Termination Date, upon written notice
delivered to Corporation thirty (30) days prior to the effective date of
termination specified in such notice (which date shall be the applicable Early
Termination Date).
(b) Termination For Good Reason. Subject to the provisions of Paragraph
4.3 below, Officer shall have the right to terminate this Agreement prior to the
Termination Date in the event of the material breach of this Agreement by
Corporation, if such breach is not cured by Corporation within thirty (30) days
after written notice thereof specifying the nature of such breach has been
delivered to Corporation, or, following a Change in Control as defined in
Paragraph 4.4(e) below, under the circumstances set forth in Paragraph 4.2(c)
below. For purposes of this Agreement, termination of this Agreement by Officer
in the event of Corporation's material breach of this Agreement in accordance
with the provisions of this Paragraph 4.2(b) shall be defined as termination by
Officer for "Good Reason."
(c) Good Reason Following a Change in Control. Following a Change in
Control as defined in Paragraph 4.4(e) below, "Good Reason" shall mean, without
Officer's express written consent, a material breach of this Agreement by
Corporation, including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after written notice
thereof specifying the nature of such breach has been delivered to Corporation:
(a) the assignment to Officer of any duties inconsistent with the
position in Corporation that Officer held immediately prior to the Change in
Control, or an adverse alteration in the nature or status of Officer's
responsibilities from those in effect immediately prior to such change;
(b) a reduction by Corporation in Officer's annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
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(c) the relocation of Officer's offices to a location outside the
San Diego metropolitan area (or, if different, the metropolitan area in which
such offices are located immediately prior to the Change in Control) or
Corporation's requiring Officer to travel on Corporation's business to an extent
not substantially consistent with Officer's business travel obligations
immediately prior to the Change in Control;
(d) the failure by Corporation to pay Officer any portion of his
current compensation except pursuant to an across-the-board compensation
deferral similarly affecting all officers of Corporation and all officers of any
person whose actions resulted in a Change in Control or any person affiliated
with Corporation or such person, or to pay Officer any portion of an installment
of deferred compensation under any deferred compensation program of Corporation,
within seven (7) days of the date such compensation is due;
(e) the failure by Corporation to continue in effect any
compensation plan in which Officer participates immediately prior to the Change
in Control which is material to Officer's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by Corporation to
continue Officer's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of participation relative to other participants,
as existed at the time of the Change in Control;
(f) the failure by Corporation to continue to provide Officer with
benefits substantially similar to those under any of Corporation's life
insurance, medical, health and accident, or disability plans in which Officer
was participating at the time of the Change in Control, the taking of any action
by Corporation which would directly or indirectly materially reduce any of such
benefits or deprive Officer of any material fringe benefit enjoyed by him at the
time of the Change in Control, or the failure by Corporation to provide Officer
with the number of paid vacation days to which he is entitled on the basis of
years of service with Corporation in accordance with Corporation's normal
vacation policy in effect at the time of the Change in Control; or
(g) the failure of Corporation to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement.
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Officer's right to terminate Officer's employment for Good Reason shall
not be affected by Officer's incapacity due to physical or mental illness.
Officer's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
4.3. Effect of Termination. In the event that this Agreement is terminated
by Corporation or Officer prior to the Termination Date in accordance with the
provisions of this Paragraph 4, the obligations and covenants of the parties
under this Paragraph 4 shall be of no further force and effect, except for the
obligations of the parties set forth below in this Paragraph 4.3, and such other
provisions of this Agreement which shall survive termination of this Agreement
as provided in Paragraph 6.11 below. Except as otherwise specifically set forth,
all amounts due upon termination shall be payable on the date such amounts would
otherwise have been paid had the Agreement continued through its Term; provided,
however, that Deferred Amounts (as defined in Paragraph 4.3(a) (i) below) shall
be payable within thirty (30) days following the Early Termination Date. In the
event of any such early termination in accordance with the provisions of this
Paragraph 4.3, Officer shall be entitled to the following:
(a) Termination by Corporation.
(i) Termination Without Cause. In the event that Corporation
terminates this Agreement without Cause pursuant to Paragraph 4.1(a) above,
Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and
reimbursable expenses; (iii) any earned bonus which Officer has been awarded
pursuant to the terms of this Agreement or any other plan or arrangement as of
the Early Termination Date, but which has not been received by Officer as of
such date; (iv) any compensation earned but deferred, either pursuant to
Paragraph 3.1(b) above or otherwise ("Deferred Amounts"); and (v) the Severance
Payment (as defined in Paragraph 4.4 below).
(ii) Termination For Cause Death or Permanent Disability. In the
event that Corporation terminates this Agreement for Cause pursuant to Paragraph
4.1(b) above or by reason of Permanent Disability or death pursuant to Paragraph
4.1.(c) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any
earned bonus which Officer has been awarded pursuant to the terms of this
Agreement or any other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iii) earned benefits
and reimbursable
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expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any
future annual bonus or Severance Payment.
(b) Termination by Officer.
(i) Termination Other Than For Good Reason. In the event that
Officer terminates this Agreement other than for Good Reason, Officer shall be
entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been
awarded pursuant to the terms of this Agreement or any other plan or arrangement
as of the Early Termination Date, but which has not been received by Officer as
of such date; (iii) earned benefits and reimbursable expenses; and (iv) any
Deferred Amounts. Officer shall not be entitled to any future annual bonus or
Severance Payment.
(ii) Termination For Good Reason. In the event that Officer
terminates this Agreement for Good Reason, Officer shall be entitled to (i)
Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any
earned bonus which Officer has been awarded pursuant to the terms of this
Agreement or any other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv) any Deferred
Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below).
4.4. Severance Payment.
(a) Definition of "Severance Payment." For purposes of this Agreement, the
term "Severance Payment" shall mean an amount equal to the sum of (i) the Base
Salary otherwise payable to Officer during the remainder of the Term had such
early termination of this Agreement not occurred ("Severance Period") and (ii)
for each full year remaining in the Severance Period, the average of the annual
bonuses earned by Officer in the two (2) years immediately preceding the date of
termination (or if there are less than two (2) years immediately preceding such
date, an amount equal to the immediately preceding bonus earned) ("Average
Bonus"); provided, however, that in the event that, following a Change in
Control as defined in Paragraph 4.4(e) below, Officer terminates this Agreement
for Good Reason pursuant to Paragraph 4.2(b) above, the term "Severance Payment"
shall mean three (3) times the sum of the Base. Salary then in effect and the
Average Bonus; and further provided, however, that in the event that (i)
Officer's employment is terminated in connection with or following the Board's
good faith determination that the possible long-run loss of Corporation may
reasonably be expected
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to increase unreasonably if Corporation is not dissolved and (ii) such
dissolution is effected in accordance with applicable law, the term "Severance
Payment" shall mean the Base Salary then in effect, and the term "Severance
Period" shall mean the one-year period immediately following Officer's date of
termination of employment.
(b) Payment of Severance Payment. In the event that Officer is entitled to
any Severance Payment pursuant to Paragraph 4.3 above, that portion of such
Severance Payment that represents Base Salary shall be payable in monthly
installments, in accordance with the provisions set forth in Paragraph 3.1
above, and that portion of such Severance Payment that represents the Average
Bonus shall be payable on the dates such amounts would have been paid had
Officer continued in Corporation's employment for the Severance Period;
provided, however, that in the event of a Termination upon a Change in Control
as defined in Paragraph 4.4(e) below, the Severance Payment shall be payable in
a lump sum within ten (10) days following such termination.
(c) Other Severance Benefits. In the event that Officer is entitled to any
Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to
full and immediate vesting of any awards granted to Officer under Corporation's
stock option or incentive compensation plans, and continued participation
throughout the Severance Period in all employee welfare and pension benefit
plans, programs or arrangements. In the event Officer's participation in any
such plan, program or arrangement is barred, Corporation shall arrange to
provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer hereby acknowledges and
agrees that any Severance Payment paid to Officer hereunder shall be deemed to
be in full and complete settlement of all obligations of Corporation under this
Agreement.
(e) Change in Control. For purposes of this Agreement, "Termination Upon a
Change in Control" shall mean a termination of Officer's employment with
Corporation following a "Change in Control" by Officer for Good Reason or by
Corporation Other Than for Cause. A "Change in Control" shall be deemed to have
occurred if:
(i) any "person," as such term is used in Paragraphs 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act") (other than
Corporation; any trustee or
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other fiduciary holding securities under an employee benefit plan of
Corporation; any company owned, directly or indirectly, by the Stockholders of
Corporation in substantially the same proportions as their ownership of Stock of
Corporation) is or becomes after the Effective Date the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Corporation (not including in the securities beneficially owned by
such person any securities acquired directly from Corporation or its affiliates)
representing twenty percent (20%) or more of the combined voting power of
Corporation's then outstanding securities; or
(ii) during any period of two (2) consecutive years (not
including any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board of Directors, and any new director
(other than a director designated by a person who has entered into an agreement
with Corporation to effect a transaction described in subparagraph (i), (iii) or
(iv) of this Paragraph 4.4(e)) whose election by the Board of Directors of
nomination for election by Corporation's stockholders was approved by a vote of
at least two-thirds (2/3) of the Board of Directors then still in office who
either were members of the Board of Directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof;
(iii) the Stockholders of Corporation approve a merger or
consolidation of Corporation with any other entity, other than (A) a merger or
consolidation which would result in the voting securities of Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of Corporation, at
least eighty percent (80%) of the combined voting power of the voting securities
of Corporation or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to implement a
recapitalization of Corporation (or similar transaction) in which no person
acquires more than fifty percent (50%) of the combined voting power of
Corporation's then outstanding securities; or
(iv) the stockholders of Corporation approve a plan of
complete liquidation of Corporation (other than a dissolution in connection with
the Board's good faith determination
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that the possible long-run loss of Corporation may reasonably be expected to
increase unreasonably if Corporation is not dissolved) or an agreement for the
sale or disposition by Corporation of all or substantially all of Corporation's
assets.
4.5. Gross-Up. If any of the Total Payments (as hereinafter defined)
will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the
Code, Corporation shall pay to Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (the "Gross-Up
Payment") such that the net amount retained by him, after deduction of any
Excise Tax on the Total Payments and any federal and state and local income tax
upon the payment provided for by this paragraph, shall be equal to the excess of
the Total Payments over the payment provided for by this paragraph. For purposes
of determining whether any of the Total Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) all payments or benefits received or
to be received by Officer in connection with a Change in Control or the
termination of Officer's employment (whether payable pursuant to the terms of
this Agreement or of any other plan, arrangement or agreement with Corporation,
its successors, any person whose actions result in a Change in Control or any
person affiliated (or which, as a result of the completion of the transactions
causing a Change in Control, will become affiliated) with Corporation or such
person within the meaning of Section 1504 of the Code (the "Total Payments"))
shall be treated as "parachute payments" (within the meaning of Section 280G(b)
(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's
independent auditors and reasonably acceptable to Officer, such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of Section 280G(b) (4) (A) of the Code, and all "excess parachute
payments" (within the meaning of Section 280G(b) (1) of the Code) shall be
treated as subject to the Excise Tax, unless in the opinion of such tax counsel
such excess parachute payments represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b) (4) (B) of the Code, or
are not otherwise subject to the Excise Tax, and (ii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of Sections 280G(d) (3)
and (4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, Officer shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the residence of Officer
on the Early
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Termination Date, net of the maximum reduction in federal income taxes that
could be obtained from deduction of such state and local taxes.
4.6. Offset. Although Officer shall not be required to mitigate
damages under this Agreement by seeking other comparable employment or
otherwise, the amount of any payment or benefit provided for in this Agreement,
including without limitation welfare benefits, shall be reduced by any
compensation earned by or provided to Officer as the result of employment by an
employer other than Corporation prior to the expiration of the Term of this
Agreement; provided, however, that this Paragraph 4.6 shall not apply in the
event of a Termination Upon a Change in Control.
5. Noncompetition.
During the term of this Agreement, including the period, if any,
with respect to which Officer shall be entitled to Severance Payments, Officer
shall not engage in any activity competitive with the business of Corporation.
6. Miscellaneous.
6.1. Payment Obligations. Corporation's obligation to pay Officer
the compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If arbitration after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation shall, to the
extent permitted by applicable law and Corporation's Articles of Incorporation
and By-Laws, indemnify Officer for Officer's attorneys' fees and disbursements
incurred in such arbitration.
6.2. Confidentiality. Officer agrees that all confidential and
proprietary information relating to the business of Corporation shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by Corporation's Board of Directors or as
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
6.3. Waiver. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
6.4. Entire Agreement; Modifications. Except as otherwise provided
herein, this Agreement (together with the agree-
14
<PAGE>
ments and plans referred to herein) represents the entire understanding among
the parties with respect to the subject matter hereof, and this Agreement
supersedes any and all prior understandings, agreements, plans and negotiations,
whether written or oral, with respect to the subject matter hereof, including
without limitation any understandings, agreements or obligations respecting any
past or future compensation, bonuses, reimbursements or other payments to
Officer from Corporation. All modifications to the Agreement must be in writing
and signed by the party against whom enforcement of such modification is sought.
6.5. Notices. All notices and other communications under this
Agreement shall be in writing and shall be given by fax or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twenty-four (24) hours
after transmission of a fax to the respective persons named below:
If to Corporation: Health Science Properties, Inc.
251 South Lake Avenue
Pasadena, CA 91101
Phone: (818) 578-6812
Fax: (818) 578-6966
If to Officer: Alan D. Gold
18269 Sun Maiden Court
San Diego, California 92127
Phone: (619) 487-3764
Any Party may change such Party's address for notices by notice duly given
pursuant hereto.
6.6. Headings. The Paragraph headings herein are intended for
reference and shall not by themselves determine the construction interpretation
of this Agreement.
6.7. Governing Law. Other than with respect to Paragraph 6.13 below,
this Agreement shall be governed by and construed in accordance with the laws of
the State of California without regard to its principles of conflict of laws.
6.8. Arbitration. Any dispute arising out of or relating to this
Agreement that cannot be settled by good faith negotiation between the parties
shall be submitted to ENDISPUTE for final and binding arbitration pursuant to
ENDISPUTE'S Arbitration Rules incorporated herein by reference, which
arbitration
15
<PAGE>
shall be the exclusive remedy of the parties hereto. The resulting arbitration
shall be deemed a final order of a court having jurisdiction over the subject
matter, shall not be appealable, and shall be enforceable in any court of
competent jurisdiction. Submission to arbitration, as provided in Exhibit A,
shall not preclude the right of any party hereto involved in a dispute regarding
this Agreement (each a "Disputing Party" and collectively, the "Disputing
Parties") to institute proceedings at law or in equity for injunctive or other
relief pending the arbitration of a matter subject to arbitration pursuant to
this Agreement. Any documentation and information submitted by any party in the
arbitration proceeding shall be kept strictly confidential by the parties and
the arbitrator.
In addition to any other relief or award granted by the arbitrator
to either Disputing Party, the arbitrator shall determine the extent to which
each Disputing Party has prevailed as to the material issues raised in the
arbitration, and, based upon such determination, shall apportion to each
Disputing Party its ratable share of (i) the Disputing Parties' reasonable
attorneys' fees and other costs reasonably incurred in the arbitration, (ii) the
expense of the arbitrator, and (iii) all other expenses of the arbitration;
provided, however, that any dispute following a Change in Control shall be
governed by the provisions of Paragraph 6.1 above. The arbitrator shall make
such determination and apportionment whether or not the dispute proceeds to a
final award.
6.9. Severability. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, all other provisions of this Agreement shall be
deemed valid and enforceable to the extent possible.
6.10. Survival of Corporation's Obligation. Corporation's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to
Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of Corporation. In the event any such
merger, consolidation or reorganization shall be accomplished by transfer of
stock or by transfer of assets or otherwise, the provisions of this Agreement
shall be binding upon and inure to the benefit of the surviving or resulting
corporation or person. This Agreement shall be binding upon and inure to the
benefit of the executors, administrators, heirs, successors and assigns of
16
<PAGE>
the parties; provided, however, that except as herein expressly provided, this
Agreement shall not be assignable either by Corporation (except to an affiliate
of the Corporation, in which event Corporation shall remain liable if the
affiliate fails to meet any obligations to make payments or provide benefits or
otherwise) or by Officer.
6.11. Survival of Certain Rights and Obligations. The rights and
obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5
and 6.1, 6.2, 6.10, 6.11 and 6.13 hereof shall survive the termination of this
Agreement.
6.12. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
17
<PAGE>
6.13. Indemnification. In addition to any rights to indemnification
to which Officer is entitled under the Corporation's Articles of Incorporation
and Bylaws, Corporation shall indemnify Officer at all times during and after
the term of this Agreement to the maximum extent permitted under Section 2-418
of the General Corporation Law of the State of Maryland or any successor
provision thereof and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or proceeding in
advance of the final disposition of such action, suit, or proceeding, to the
maximum extent permitted under such applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
CORPORATION:
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation
By: /s/ Jerry M. Sudarsky
---------------------------------
Jerry M. Sudarsky,
Chief Executive Officer
Date: Jan 5, 1994
OFFICER:
/s/ Alan D. Gold
--------------------------------------
Alan D. Gold
Date: Jan 5, 1994
18
<PAGE>
EXHIBIT 10.11
AMENDMENT
TO THE EMPLOYMENT AGREEMENT BETWEEN
HEALTH SCIENCE PROPERTIES, INC. AND ALAN D. GOLD
Whereas, the parties hereto desire to amend that certain employment
agreement ("Agreement") dated January 5, 1994 between Health Science Properties,
Inc. ("HSP") and Alan D. Gold; and
Whereas, pursuant to section 6.4 of the Agreement, the Agreement may
be modified and amended with the written consent of HSP and Alan D. Gold.
Now Therefore, effective as of January 1, 1997, the Agreement is
hereby amended as follows:
1. Section 1 of the Agreement is hereby amended to read as follows:
During the term of this Agreement, Officer agrees to be employed by
and to serve Corporation as its President and Treasurer or in such
other capacity consistent with the Officer's current position as a
senior executive officer as may be determined by the Board of
Directors of the Corporation. Corporation agrees to employ and retain
officer in such capacities. Officer shall devote such of his business
time, energy, and skill to the affairs of Corporation as shall be
necessary to perform the duties of such positions. Officer shall
report to the Chief Operating Officer or such other officer as the
Board of Directors of Corporation shall direct, and at all times
during the term of this Agreement shall have powers and duties at
least commensurate with his position as a senior executive officer.
Officer shall be based at the offices of Corporation in the San Diego,
California metropolitan area, except for required travel on
Corporation's business.
2. Section 2.1 of the Agreement is hereby amended to read as follows:
2.1 Term. The term ("Term") of this Agreement shall be for a period
commencing on January 1, 1997 and ending on December 31, 1998, unless
terminated earlier pursuant to this Agreement ("Early Termination
Date"). Commencing on December 31, 1998 and on each subsequent
anniversary thereof, the Term shall be
<PAGE>
automatically extended for one (1) additional year unless, no later
than six (6) months before such date, either party shall have given
written notice to the other that it does not wish to extend the Term
of this Agreement. References herein to the Term of this Agreement
shall refer to both the initial Term and any such extended Term.
3. Section 3.1 of the Agreement is hereby amended to read as follows:
During the Term of this Agreement and subject to the terms and
conditions set forth herein, Corporation agrees to pay to Officer an
annual "Base Salary" of One Hundred Ninety Thousand Dollars
($190,000), or such higher amount as may from time to time be
determined by Corporation. Unless otherwise agreed in writing by
Officer and Corporation, and subject to subparagraph (b) below, the
salary shall be payable in substantially equal semimonthly
installments in accordance with the standard policies of Corporation
in existence from time to time.
4. Section 3.3 of the Agreement is hereby designated as subsection 3.3(a)
and a new subsection 3.3(b) is hereby added to read as follows:
3.3(b) Minimum Bonus. With respect to the calendar year commencing
on January 1, 1997, and each calendar year thereafter during the Term,
the bonus payable pursuant to subsection (a) shall not be less than an
amount equal to the product of (i) 75% of Officer's Base Salary and
(ii) the percentage by which the funds from operations based on year-
end financials prepared by the Corporation's auditors ("FFO")
increased over the FFO for the immediately preceding year, provided,
however that in no event shall the bonus payable pursuant to this
Paragraph 3.3(b) hereunder exceed 100% of Base Salary.
<PAGE>
Except as otherwise provided hereinabove, the Agreement is ratified
and affirmed.
IN WITNESS WHEREOF, this Instrument of amendment is executed this
30th day of July, 1996.
HEALTH SCIENCE PROPERTIES, INC.
By: /s/ Jerry M. Sudarsky
------------------------
ALAN D. GOLD
/s/ Alan D. Gold
--------------------------
<PAGE>
EXHIBIT 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
by and between
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland CORPORATION,
and
GARY A. KREITZER,
an individual
<PAGE>
TABLE OF CONTENTS
PAGE
1. Position and Duties, Location....................................... 1
-----------------------------
2. Term of Employment.................................................. 1
------------------
2.1. Term.......................................................... 1
----
3. Compensation; Benefits and Reimbursement............................ 2
----------------------------------------
3.1. Base Salary.................................................. 2
-----------
(a) Earned Base Salary....................................... 2
------------------
(b) Payment.................................................. 2
-------
3.2. Increases in Base Salary..................................... 3
------------------------
3.3. Bonus ....................................................... 3
-----
3.4. Stock Options................................................ 4
-------------
3.5. Additional Benefits.......................................... 4
-------------------
(a) Officer Benefits......................................... 4
----------------
(b) Vacation................................................. 5
--------
(c) Life Insurance........................................... 5
--------------
(d) Disability Insurance..................................... 5
--------------------
(e) Reimbursement for Expenses............................... 5
--------------------------
(f) Withholding.............................................. 5
-----------
4. Termination of the Agreement........................................ 6
----------------------------
4.1. Termination by Corporation Defined........................... 6
----------------------------------
(a) Termination Without Cause................................ 6
-------------------------
(b) Termination For Cause.................................... 6
---------------------
(c) Termination by Reason of
Death or Disability...................................... 6
-------------------
4.2. Termination by Officer Defined............................... 7
------------------------------
(a) Termination Other Than For Good Reason................... 7
--------------------------------------
(b) Termination For Good Reason.............................. 7
---------------------------
(c) Good Reason Following a Change in Control................ 7
-----------------------------------------
4.3. Effect of Termination........................................ 9
---------------------
(a) Termination by Corporation............................... 9
--------------------------
(i) Termination Without Cause.......................... 9
-------------------------
(ii) Termination For Cause, Death
----------------------------
or Permanent Disability............................ 9
-----------------------
(b) Termination by Officer................................... 10
----------------------
(i) Termination Other Than For Good Reason............. 10
--------------------------------------
(ii) Termination For Good Reason........................ 10
---------------------------
i
<PAGE>
4.4. Severance Payment............................................ 10
-----------------
(a) Definition of "Severance Payment.".................... 10
----------------------------------
(b) Payment of Severance Payment.......................... 11
----------------------------
(c) Other Severance Benefits.............................. 11
------------------------
(d) Full Settlement of All Obligations.................... 11
----------------------------------
(e) Change in Control..................................... 11
-----------------
4.5. Gross-Up..................................................... 13
--------
4.6. Offset....................................................... 14
------
5. Noncompetition...................................................... 14
--------------
6. Miscellaneous....................................................... 14
-------------
6.1. Payment Obligations.......................................... 14
-------------------
6.2. Confidentiality.............................................. 14
---------------
6.3. Waiver....................................................... 14
------
6.4. Entire Agreement; Modifications.............................. 14
-------------------------------
6.5. Notices...................................................... 15
-------
6.6. Headings..................................................... 15
--------
6.7. Governing Law................................................ 15
-------------
6.8. Arbitration.................................................. 15
-----------
6.9. Severability................................................. 16
------------
6.10. Survival of Corporation's Obligations........................ 16
-------------------------------------
6.11. Survival of Certain Rights and Obligations................... 17
------------------------------------------
6.12. Counterparts................................................. 17
------------
6.13. Indemnification.............................................. 18
---------------
SIGNATURE PAGE............................................................ 18
ii
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of this fifth (5th) day of January, 1994, and the employment hereunder
shall commence as of the first (1st) day of February, 1994 (the latter date
shall be referred to as the "Effective Date"), by and between HEALTH SCIENCE
PROPERTIES, INC., a Maryland corporation ("Corporation"), and GARY A. KREITZER,
an individual ("Officer").
RECITAL
-------
Corporation desires to employ Officer as its Senior Vice President and
In-House Counsel, and Officer is willing to accept such employment by
Corporation, on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. POSITION AND DUTIES; LOCATION.
-----------------------------
During the term of this Agreement, Officer agrees to be employed by
and to serve Corporation as its Senior Vice President and In-House Counsel.
Corporation agrees to employ and retain Officer in such capacities. Officer
shall devote such of his business time, energy, and skill to the affairs of
Corporation as shall be necessary to perform the duties of such positions.
Officer shall report to the President or such other officer as the Board of
Directors of Corporation shall direct, and at all times during the term of this
Agreement shall have powers and duties at least commensurate with his positions
as Senior Vice President and In-House Counsel. Officer shall be based at the
offices of Corporation in the San Diego, California metropolitan area, except
for required travel on Corporation's business.
2. TERM OF EMPLOYMENT.
------------------
2.1. TERM. The term ("Term") of this Agreement shall be for a period
----
of three (3) years commencing with the Effective Date, unless terminated earlier
pursuant to this Agreement ("Early Termination Date"). Commencing upon the third
(3rd) anniversary of the Effective Date of this Agreement and on each subsequent
anniversary thereof, the Term shall be automatically
1
<PAGE>
extended for one (1) additional year unless, no later than six (6) months before
such anniversary, either party shall have given written notice to the other that
it does not wish to extend the Term of this Agreement. References herein to the
Term of this Agreement shall refer to both the initial Term and any such
extended Term.
3. COMPENSATION, BENEFITS AND REIMBURSEMENT.
----------------------------------------
3.1. BASE SALARY. During the Term of this Agreement and subject to the terms
-----------
and conditions set forth herein, Corporation agrees to pay to Officer an initial
annual "Base Salary" of One Hundred Twenty-Five Thousand Dollars ($125,000), or
such higher amount as may from time to time be determined by Corporation.
Unless otherwise agreed in writing by Officer and Corporation, and subject to
subparagraph (b) below, the salary shall be payable in substantially equal
semimonthly installments in accordance with the standard policies of Corporation
in existence from time to time.
(a) EARNED BASE SALARY. For purposes of any early termination of this
------------------
Agreement as provided in Paragraph 4 below, the term "Earned Base Salary" shall
mean all semimonthly installments of the Base Salary which have become due and
payable to Officer pursuant to this Paragraph 3.1, together with any partial
monthly installment prorated on a daily basis up to and including the applicable
Termination Date.
(b) PAYMENT. The initial Base Salary shall be paid to Officer as
-------
follows:
(i) Payment of the gross amount of Officer's semimonthly installment
of initial Earned Base Salary as contemplated in Paragraph 3.1 above shall be
reduced by one-fourth (1/4). Each said one-fourth (1/4) amount shall be earned,
but payment thereof deferred as set forth below:
a) Three-fourths (3/4) of the gross amount of each of
Officer's semimonthly installments of initial Base Salary shall
be paid to Officer as set forth in Paragraph 3.1 above.
b) Payment of the remaining earned but deferred one-fourth
(1/4) of the gross amount of each of Officer's semimonthly
installments of initial Base Salary, together with the
commencement of the payment of full semimonthly install-
2
<PAGE>
ment of Officer's Earned Base Salary, shall be paid upon the
earlier to occur of the following events ("Trigger Date"):
i) The effective date of Corporation's underwritten
initial public offering;
ii) The closing of any debt and/or equity financing of
Corporation occurring after the Effective Date of this
Agreement in an amount not less than Fourteen Million
Dollars ($14,000,000);
iii) October 1, 1994; or
iv) Death or the Permanent Disability (as defined
below) of Officer.
3.2. INCREASE IN BASE SALARY. Officer's Base Salary shall be
------------------------
reviewed no less frequently than on each anniversary of the Effective Date
during the term of Officer's employment hereunder by the Board of Directors of
Corporation (or such committee as may be appointed by the Board for such
purpose). The Base Salary payable to Officer shall be increased on each such
anniversary date (and such other times as the Board or a committee of the Board
may deem appropriate during the Term of this Agreement) to an amount determined
by the Board (or a committee of the Board). Each such new Base Salary shall
become the base for each successive year increase; provided, however, that such
increase, at a minimum, shall be equal to the cumulative cost-of-living
increment as reported in the "Consumer Price Index, Los Angeles, California, All
Items," published by the U.S. Department of Labor (using January 1, 1994 as the
base date for comparison). Any increase in Base Salary or other compensation
shall in no way limit or reduce any other obligations of Corporation hereunder
and, once established at an increased specified rate, Officer's Base Salary
shall not be reduced unless Officer otherwise agrees in writing.
3.3. BONUS. Officer shall be eligible to receive a bonus for each
-----
fiscal year of Corporation (or portion thereof) during the Term of this
Agreement, with the actual amount of any such bonus to be determined in the
sole discretion of the Board of Directors (or a committee of the Board) based
upon its evaluation of Officer's performance during such year and such other
factors and conditions as the Board (or a committee of the Board) deems
relevant. Any such bonus shall be payable within seventy-
3
<PAGE>
five (75) days after the end of Corporation's fiscal year to which such bonus
relates. The Board of Directors shall, at an appropriate subsequent time,
consider the establishment of an annual incentive compensation plan providing
for the payment of a minimum annual bonus based upon the achievement of certain
objective criteria for the benefit of Officer and other specified executive
officers of Corporation.
3.4. STOCK OPTIONS.
-------------
Pursuant to the terms of the stock option agreement issued under
Corporation's Stock Option Plan, Corporation has granted to Officer the right
and option to purchase an aggregate of 957 shares of the authorized but unissued
Common Stock of Corporation on the terms and conditions set forth therein.
Nothing contained herein shall be construed to increase or decrease Officer's
compensation and/or benefits in existence at the time the options are granted.
3.5. ADDITIONAL BENEFITS. During the term of this Agreement, Officer
-------------------
shall be entitled to the following additional benefits:
(a) OFFICER BENEFITS. Officer shall be eligible to participate in
----------------
such of Corporation's benefit and deferred compensation plans as are made
available to executive officers of Corporation, including, without limitation,
Corporation's stock incentive plans, annual incentive compensation plans, profit
sharing/pension plans, deferred compensation plans, annual physical
examinations, dental, vision, sick pay, and medical plans, personal catastrophe
and accidental death insurance plans, financial planning and automobile
arrangements, retirement plans and supplementary executive retirement plans, if
any. For purposes of establishing the length of service under any benefit plans
or programs of Corporation, Officer's employment with the Corporation will be
deemed to have commenced on the Effective Date of this Agreement. Until
Corporation adopts a package of health and medical benefits, Corporation shall
promptly reimburse Officer for payments made by Officer (i) with respect to the
continuation of benefits provided by Officer's previous employer pursuant to
Section 4980B ("COBRA") of the Internal Revenue Code of 1986, as amended
("Code"), (ii) upon expiration of COBRA coverage to maintain substantially
similar health and medical benefits coverage for Officer and his family, and
(iii) if Officer is not covered by COBRA, to maintain reasonable health and
medical benefits coverage for Officer and his family.
4
<PAGE>
(b) VACATION. Officer shall be entitled to four (4) weeks of vacation
--------
during each year during the Term of this Agreement and any extensions thereof,
prorated for partial years. Any accrued vacation not taken during any year may
be carried forward to subsequent years; provided that Officer may not accrue
more than eight (8) weeks of unused vacation at any time.
(c) LIFE INSURANCE. Commencing on the Trigger Date, and for the Term
--------------
of this Agreement, Corporation shall, at its sole cost and expense, procure and
keep in effect term life insurance (a minimum three (3) year term certain
policy) on the life of Officer, payable to such beneficiaries as Officer may
from time to time designate, in the aggregate amount of One Million Dollars
($1,000,000). Such policy shall be owned by Officer or by a member of his
immediate family. Corporation shall have no incidents of ownership therein.
(d) DISABILITY INSURANCE. Commencing on the Trigger Date, and for the
--------------------
Term of this Agreement, Corporation shall, at its sole cost and expense, procure
and keep in effect disability insurance similar to Officer's current disability
insurance policy on Officer, payable to Officer in an annual amount not less
than sixty percent (60%) of Officer's then existing Base Salary ("Disability
Policy"). For purposes of this Agreement, "Permanent Disability" shall have the
same meaning as is ascribed to such terms in the Disability Policy (including
the COBRA Disability Policy) covering Officer at the time of occurrence of such
Permanent Disability.
(e) REIMBURSEMENT FOR EXPENSES. During the Term of this Agreement,
--------------------------
Corporation shall reimburse Officer for all reasonable out-of-pocket business
and/or entertainment expenses incurred by Officer for the purpose of and in
connection with the performance of his services pursuant to this Agreement.
Officer shall be entitled to such reimbursement upon the presentation by Officer
to Corporation of vouchers or other statements itemizing such expenses in
reasonable detail consistent with Corporation's policies. In addition, Officer
shall be entitled to reimbursement for (i) dues and membership fees in
professional organizations and/or industry associations in which Officer is
currently a member or becomes a member, and (ii) appropriate industry seminars
and mandatory continuing education.
(F) WITHHOLDING. Compensation and benefits paid to Officer under this
-----------
Agreement shall be subject to applicable federal, state and local wage
deductions and other deductions required by law.
5
<PAGE>
4. TERMINATION OF THE AGREEMENT.
----------------------------
4.1. TERMINATION BY CORPORATION DEFINED.
----------------------------------
(a) TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in
-------------------------
Paragraph 4.3 below, "Termination Without Cause" shall constitute any
termination by Corporation other than termination for Cause as defined in
Paragraph 4.1(b) below.
(b) TERMINATION FOR CAUSE. Subject to the provisions set forth in
---------------------
Paragraph 4.3 below, prior to the end of the Term ("Termination Date"),
Corporation shall have the right to terminate this Agreement for Cause
immediately after written notice has been delivered to Officer, which notice
shall specify the reason for and the effective date of such Termination (which
date shall be the applicable Early Termination Date). For purposes of this
Agreement, "Cause" shall mean the following:
(i) Officer's use of alcohol or narcotics which proximately results in
the willful material breach or habitual willful neglect of Officer's duties
under this Agreement;
(ii) Officer's criminal conviction of fraud, embezzlement,
misappropriation of assets, malicious mischief, or any felony;
(iii) Officer's willful Material Breach (as defined below) of this
Agreement, if such willful Material Breach is not cured by Officer within thirty
(30) days after Corporation's written notice thereof specifying the nature of
such willful Material Breach. For purposes of this Paragraph 4.1(b), the term
willful "Material Breach" shall mean the substantial and continual willful
nonperformance of Officer's duties under this Agreement which the Board of
Directors determines has resulted in material injury to Corporation.
(c) TERMINATION BY REASON OF DEATH OR DISABILITY. Subject to the
--------------------------------------------
provisions set forth in Paragraph 4.3 below, prior to the Termination Date,
Corporation shall have the right to terminate this Agreement by reason of
Officer's death or Permanent Disability.
6
<PAGE>
4.2. TERMINATION BY OFFICER DEFINED.
------------------------------
(a) TERMINATION OTHER THAN FOR GOOD REASON. Subject to the provisions
--------------------------------------
set forth in Paragraph 4.3 below, Officer shall have the right to terminate this
Agreement for any reason other than for Good Reason (as defined in Paragraph
4.2(b) below), at any time prior to the Termination Date, upon written notice
delivered to Corporation thirty (30) days prior to the effective date of
termination specified in such notice (which date shall be the applicable Early
Termination Date).
(b) TERMINATION FOR GOOD REASON. Subject to the
---------------------------
provisions of Paragraph 4.3 below, Officer shall have the right to terminate
this Agreement prior to the Termination Date in the event of the material breach
of this Agreement by Corporation, if such breach is not cured by Corporation
within thirty (30) days after written notice thereof specifying the nature of
such breach has been delivered to Corporation, or, following a Change in Control
as defined in Paragraph 4.4(e) below, under the circumstances set forth in
Paragraph 4.2(c) below. For purposes of this Agreement, termination of this
Agreement by Officer in the event of Corporation's material breach of this
Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be
defined as termination by Officer for "Good Reason."
(c) GOOD REASON FOLLOWING A CHANGE IN CONTROL. Following a change in
-----------------------------------------
Control as defined in Paragraph 4.4(e) below, "Good Reason" shall mean, without
Officer's express written consent, a material breach of this Agreement by
Corporation, including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after written notice
thereof specifying the nature of such breach has been delivered to Corporation:
(a) the assignment to Officer of any duties inconsistent with the
position in Corporation that Officer held immediately prior to the Change in
Control, or an adverse alteration in the nature or status of Officer's
responsibilities from those in effect immediately prior to such change;
(b) a reduction by Corporation in Officer's annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
7
<PAGE>
(c) the relocation of Officer's offices to a location outside the San
Diego metropolitan area (or, if different, the metropolitan area in which such
offices are located immediately prior to the Change in Control) or Corporation's
requiring Officer to travel on Corporation's business to an extent not
substantially consistent with Officer's business travel obligations immediately
prior to the Change in Control;
(d) the failure by Corporation to pay Officer any portion of his
current compensation except pursuant to an across-the-board compensation
deferral similarly affecting all officers of Corporation and all officers of any
person whose actions resulted in a Change in Control or any person affiliated
with Corporation or such person, or to pay Officer any portion of an installment
of deferred compensation under any deferred compensation program of Corporation,
within seven (7) days of the date such compensation is due;
(e) the failure by Corporation to continue in effect any compensation
plan in which Officer participates immediately prior to the Change in Control
which is material to Officer's total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by Corporation to continue
Officer's participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of benefits
provided and the level of participation relative to other participants, as
existed at the time of the Change in Control;
(f) the failure by Corporation to continue to provide Officer with
benefits substantially similar to those under any of Corporation's life
insurance, medical, health and accident, or disability plans in which Officer
was participating at the time of the Change in Control, the taking of any action
by Corporation which would directly or indirectly materially reduce any of such
benefits or deprive Officer of any material fringe benefit enjoyed by him at the
time of the Change in Control, or the failure by Corporation to provide Officer
with the number of paid vacation days to which he is entitled on the basis of
years of service with Corporation in accordance with Corporation's normal
vacation policy in effect at the time of the Change in Control; or
(g) the failure of Corporation to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement.
8
<PAGE>
Officer's right to terminate Officer's employment for Good Reason
shall not be affected by Officer's incapacity due to physical or mental illness.
Officer's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
4.3. EFFECT OF TERMINATION. In the event that this Agreement is
---------------------
terminated by Corporation or Officer prior to the Termination Date in accordance
with the provisions of this Paragraph 4, the obligations and covenants of the
parties under this Paragraph 4 shall be of no further force and effect, except
for the obligations of the parties set forth below in this Paragraph 4.3, and
such other provisions of this Agreement which shall survive termination of this
Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically
set forth, all amounts due upon termination shall be payable on the date such
amounts would otherwise have been paid had the Agreement continued through its
Term; provided, However, that Deferred Amounts (as defined in Paragraph 4.3 (a)
(i) below) shall be payable within thirty (30) days following the Early
Termination Date. In the event of any such early termination in accordance with
the provisions of this Paragraph 4.3, Officer shall be entitled to the
following:
(a) TERMINATION BY CORPORATION.
--------------------------
(i) TERMINATION WITHOUT CAUSE. In the event that Corporation
-------------------------
terminates this Agreement without Cause pursuant to Paragraph 4.1(a) above,
Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and
reimbursable expenses; (iii) any earned bonus which Officer has been awarded
pursuant to the terms of this Agreement or any other plan or arrangement as of
the Early Termination Date, but which has not been received by Officer as of
such date; (iv) any compensation earned but deferred, either pursuant to
Paragraph 3.1(b) above or otherwise ("Deferred Amounts"); and (v) the Severance
Payment (as defined in Paragraph 4.4 below).
(ii) TERMINATION FOR CAUSE, DEATH OR PERMANENT DISABILITY. In the
----------------------------------------------------
event that Corporation terminates this Agreement for Cause pursuant to Paragraph
4.1(b) above or by reason of Permanent Disability or death pursuant to Paragraph
4.1. (c) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any
earned bonus which Officer has been awarded pursuant to the terms of this
Agreement or any other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iii) earned benefits
and reimbursable
9
<PAGE>
expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any
future annual bonus or Severance Payment.
(b) TERMINATION BY OFFICER.
----------------------
(i) TERMINATION OTHER THAN FOR GOOD REASON. In the event that Officer
--------------------------------------
terminates this Agreement other than for Good Reason, Officer shall be entitled
to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded
pursuant to the terms of this Agreement or any other plan or arrangement as of
the Early Termination DATE, but which has not been received by Officer as of
such date; (iii) earned benefits and reimbursable expenses; and (iv) any
Deferred Amounts. Officer shall not be entitled to any future annual bonus or
Severance Payment.
(ii) TERMINATION FOR GOOD REASON. In the event that Officer
---------------------------
terminates this Agreement for Good Reason, Officer shall be entitled to (i)
Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any
earned bonus which Officer has been awarded pursuant to the terms of this
Agreement or any other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv) any Deferred
Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below).
4.4. SEVERANCE PAYMENT.
-----------------
(a) DEFINITION OF "SEVERANCE PAYMENT." For purposes of this
----------------------------------
Agreement, the term "Severance Payment" shall mean an amount equal to the sum of
(i) the Base Salary otherwise payable to Officer during the remainder of the
Term had such early termination of this Agreement not occurred ("Severance
Period") and (ii) for each full year remaining in the Severance Period, the
average of the annual bonuses earned by Officer in the two (2) years immediately
preceding the date of termination (or if there are less than two (2) years
immediately preceding such date, an amount equal to the immediately preceding
bonus earned) ("Average Bonus"); provided, however, that in the event THAT,
following a Change in Control as defined in Paragraph 4.4(e) below, Officer
terminates this Agreement for Good Reason pursuant to Paragraph 4.2(b)above, the
term "Severance Payment" shall mean three (3)times the sum of the Base Salary
then in effect and the Average Bonus; and further provided, however, that in the
event that (i) Officer's employment is terminated in connection with or
following the Board's good faith determination that the possible long-run loss
of Corporation may reasonably be expected
10
<PAGE>
to increase unreasonably if Corporation is not dissolved and (ii) such
dissolution is effected in accordance with applicable law, the term "Severance
Payment" shall mean the Base Salary then in effect, and the term "Severance
Period" shall mean the one-year period immediately following Officer's date of
termination of employment.
(b) PAYMENT OF SEVERANCE PAYMENT. In the event that Officer is
----------------------------
entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion
of such Severance Payment that represents Base Salary shall be payable in
monthly installments, in accordance with the provisions set forth in Paragraph
3.1 above, and that portion of such Severance Payment that represents the
Average Bonus shall be payable on the dates such amounts would have been paid
had Officer continued in Corporation's employment for the Severance Period;
provided, however, that in the event of a Termination upon a Change in Control
as defined in Paragraph 4.4(e) below, the Severance Payment shall be payable in
a lump sum within ten (10) days following such termination.
(c) OTHER SEVERANCE BENEFITS. In the event that Officer is entitled
------------------------
to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be
entitled to full and immediate vesting of any awards granted to Officer under
Corporation's stock option or incentive compensation plans, and continued
participation throughout the Severance Period in all employee welfare and
pension benefit plans, programs or arrangements. In the event Officer's
participation in any such plan, program or arrangement is barred, Corporation
shall arrange to provide Officer with substantially similar benefits.
(d) FULL SETTLEMENT OF ALL OBLIGATIONS. Officer hereby acknowledges
----------------------------------
and agrees that any Severance Payment paid to Officer hereunder shall be deemed
to be in full and complete settlement of all obligations of Corporation under
this Agreement.
(e) CHANGE IN CONTROL. For purposes of this Agreement, "Termination
-----------------
Upon a Change in Control" shall mean a termination of Officer's employment with
Corporation following a "Change in Control" by Officer for Good Reason or by
Corporation Other Than for Cause. A "Change in Control" shall be deemed to have
occurred if:
(i) any "person," as such term is used in Paragraphs 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act") (other than
Corporation; any trustee or
11
<PAGE>
other fiduciary holding securities under an employee benefit plan of
Corporation; any company owned, directly or indirectly, by the Stockholders of
Corporation in substantially the same proportions as their ownership of Stock of
Corporation) is or becomes after the Effective Date the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Corporation (not including in the securities beneficially owned by
such person any securities acquired directly from Corporation or its affiliates)
representing twenty percent (2O%) or more of the combined voting power of
Corporation's then outstanding securities; or
(ii) during any period of two (2) consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board of Directors, and any new director (other than a
director designated by a person who has entered into an agreement with
Corporation to effect a transaction described in subparagraph (i), (iii) or (iv)
of this Paragraph 4.4(e)) whose election by the Board of Directors of nomination
for election by Corporation's stockholders was approved by a vote of at least
two-thirds (2/3) of the Board of Directors then still in office who either were
members of the Board of Directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(iii) the Stockholders of Corporation approve a merger or
consolidation of Corporation with any other entity, other than (A) a merger or
consolidation which would result in the voting securities of Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of Corporation, at
least eighty percent (8O%) of the combined voting power of the voting securities
of Corporation or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to implement a
recapitalization of Corporation (or similar transaction) in which no person
acquires more than fifty percent (5O%) of the combined voting power of
Corporation's then outstanding securities; or
(iv) the stockholders of Corporation approve a plan of complete
liquidation of Corporation (other than a dissolution in connection with the
Board's good faith determination.
12
<PAGE>
that the possible long-run loss of Corporation may reasonably be expected to
increase unreasonably if Corporation is not dissolved) or an agreement for the
sale or disposition by Corporation of all or substantially all of Corporation's
assets.
4.5. GROSS-UP. If any of the Total Payments (as hereinafter defined)
--------
will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the
Code, Corporation shall pay to Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (the "Gross-Up
Payment") such that the net amount retained by him, after deduction of any
Excise Tax on the Total Payments and any federal and state and local income tax
upon the payment provided for by this paragraph, shall be equal to the excess of
the Total Payments over the payment provided for by this paragraph. For
purposes of determining whether any of the Total Payments will be subject to the
Excise Tax and the amount of such Excise Tax, (i) all payments or benefits
received or to be received by Officer in connection with a Change in Control or
the termination of Officer's employment (whether payable pursuant to the terms
of this Agreement or of any other plan, arrangement or agreement with
Corporation, its successors, any person whose actions result in a Change in
Control or any person affiliated (or which, as a result of the completion of the
transactions causing a Change in Control, will become affiliated) with
Corporation or such person within the meaning of Section 1504 of the Code (the
"Total Payments")) shall be treated as "parachute payments" (within the meaning
of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel
selected by Corporation's independent auditors and reasonably acceptable to
Officer, such payments or benefits (in whole or in part) do not constitute
parachute payments, including by reason of Section 280G(b)(4)(A) of the Code,
and all "excess parachute payments" (within the meaning of Section 280G(b)(1)
of the Code) shall be treated as subject to the Excise Tax, unless in the
opinion of such tax counsel such excess parachute payments represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and
(ii) the value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes
of determining the amount of the Gross-Up Payment, Officer shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the residence of Officer on the Early
13
<PAGE>
Termination Date, net of the maximum reduction in federal income taxes that
could be obtained from deduction of such state and local taxes.
4.6. OFFSET. Although Officer shall not be required to mitigate
------
damages under this Agreement by seeking other comparable employment or
otherwise, the amount of any payment or benefit provided for in this Agreement,
including without limitation welfare benefits, shall be reduced by any
compensation earned by or provided to Officer as the result of employment by an
employer other than Corporation prior to the expiration of the Term of this
Agreement; provided, however, that this Paragraph 4.6 shall not apply in the
event of a Termination Upon a Change in Control.
5. NONCOMPETITION.
--------------
During the term of this Agreement, including the period, if any, with
respect to which Officer shall be entitled to Severance Payments, Officer shall
not engage in any activity competitive with the business of Corporation.
6. MISCELLANEOUS.
-------------
6.1. PAYMENT OBLIGATIONS. Corporation's obligation to pay Officer the
-------------------
compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If arbitration after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation shall, to the
extent permitted by applicable law and Corporation's Articles of Incorporation
and By-Laws, indemnify Officer for Officer's attorneys' fees and disbursements
incurred in such arbitration.
6.2. CONFIDENTIALITY. Officer agrees that all confidential and
---------------
proprietary information relating to the business of Corporation shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by Corporation's Board of Directors or as
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
6.3. WAIVER. The waiver of the breach of any provision of this
------
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
6.4. ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided
-------------------------------
herein, this Agreement (together with the agree-
14
<PAGE>
ments and plans referred to herein) represents the entire understanding among
the parties with respect to the subject matter hereof, and this Agreement
supersedes any and all prior understandings, agreements, plans and negotiations,
whether written or oral, with respect to the subject matter hereof, including
without limitation any understandings, agreements or obligations respecting any
past or future compensation, bonuses, reimbursements or other payments to
Officer from Corporation. All modifications to the Agreement must be in writing
and signed by the party against whom enforcement of such modification is sought.
6.5. NOTICES. All notices and other communications under this
-------
Agreement shall be in writing and shall be given by fax or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twenty-four (24) hours
after transmission of a fax to the respective persons named below:
If to Corporation: Health Science Properties, Inc.
251 South Lake Avenue
Pasadena, CA 91101
Phone: (818) 578-6812
Fax: (818) 578-6966
If to Officer: Gary A. Kreitzer
17511 Caminito Canasto
San Diego, California 92127
Phone: (619) 485-9425
Any Party may change such Party's address for notices by notice duly given
pursuant hereto.
6.6. HEADINGS. The Paragraph headings herein are intended for
--------
reference and shall not by themselves determine the construction interpretation
of this Agreement.
6.7. GOVERNING LAW. Other than with respect to Paragraph 6.13 below,
-------------
this Agreement shall be governed by and construed in accordance with the laws of
the State of California without regard to its principles of conflict of laws.
6.8. Arbitration. Any dispute arising out of or relating to this
-----------
Agreement that cannot be settled by good faith negotiation between the parties
shall be submitted to ENDISPUTE for final and binding arbitration pursuant to
ENDISPUTE'S Arbitration Rules incorporated herein by reference, which
arbitration
15
<PAGE>
shall be the exclusive remedy of the parties hereto. The resulting arbitration
shall be deemed a final order of a court having jurisdiction over the subject
matter, shall not be appealable, and shall be enforceable in any court of
competent jurisdiction. Submission to arbitration, as provided in Exhibit A,
shall not preclude the right of any party hereto involved in a dispute regarding
this Agreement (each a "Disputing Party" and collectively, the "Disputing
Parties") to institute proceedings at law or in equity for injunctive or other
relief pending the arbitration of a matter subject to arbitration pursuant to
this Agreement. Any documentation and information submitted by any party in the
arbitration proceeding shall be kept strictly confidential by the parties and
the arbitrator.
In addition to any other relief or award granted by the arbitrator to
either Disputing Party, the arbitrator shall determine the extent to which each
Disputing Party has prevailed as to the material issues raised in the
arbitration, and, based upon such determination, shall apportion to each
Disputing Party its ratable share of (i) the Disputing Parties' reasonable
attorneys' fees and other costs reasonably incurred in the arbitration, (ii) the
expense of the arbitrator, and (iii) all other expenses of the arbitration;
provided, however, that any dispute following a Change in Control shall be
governed by the provisions of Paragraph 6.1 above. The arbitrator shall make
such determination and apportionment whether or not the dispute proceeds to a
final award.
6.9. SEVERABILITY. Should a court or other body of competent
------------
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, all other provisions of this Agreement shall be
deemed valid and enforceable to the extent possible.
6.10. SURVIVAL OF CORPORATION'S OBLIGATIONS. Corporation's
-------------------------------------
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to
Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of Corporation. In the event any such
merger, consolidation or reorganization shall be accomplished by transfer of
stock or by transfer of assets or otherwise, the provisions of this Agreement
shall be binding upon and inure to the benefit of the surviving or resulting
corporation or person. This Agreement shall be binding upon and inure to the
benefit of the executors, administrators, heirs, successors and assigns of
16
<PAGE>
the parties; provided, however, that except as herein expressly provided, this
Agreement shall not be assignable either by Corporation (except to an affiliate
of the Corporation, in which event Corporation shall remain liable if the
affiliate fails to meet any obligations to make payments or provide benefits or
otherwise) or by Officer.
6.11. SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS. The rights and
------------------------------------------
obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5
and 6.1, 6.2, 6.10, 6.11 and 6.13 hereof shall survive the termination of this
Agreement.
6.12. COUNTERPARTS. This Agreement may be executed in one or more
-------------
counterparts, all of which taken together shall constitute one and the same
Agreement.
6.13. INDEMNIFICATION. In addition to any rights to indemnification
---------------
to which Officer is entitled under the Corporation's Articles of Incorporation
and Bylaws, Corporation shall indemnify Officer at all times during and after
the term of this Agreement to the maximum extent permitted under Section 2-418
of the General Corporation Law of the State of Maryland or any successor
provision thereof and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or proceeding in
advance of the final disposition of such action, suit, or proceeding, to the
maximum extent permitted under such applicable state laws.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
CORPORATION:
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland CORPORATION
By: /s/ Jerry M. Sudarsky
---------------------------------------
Jerry M. Sudarsky
Chief Executive Officer
Date: Jan. 5, 1994
-------------------------------------
OFFICER:
/s/ Gary A. Krietzer
------------------------------------------
Gary A. Krietzer
Date: January 5, 1994
-------------------------------------
18
<PAGE>
EXHIBIT 10.13
AMENDMENT
TO THE EMPLOYMENT AGREEMENT BETWEEN
HEALTH SCIENCE PROPERTIES, INC. AND GARY A. KREITZER
Whereas, the parties hereto desire to amend that certain employment
agreement ("Agreement") dated January 5, 1994 between Health Science
Properties, Inc. ("HSP") and Gary A. Kreitzer; and
Whereas, pursuant to section 6.4 of the Agreement, the Agreement may
be modified and amended with the written consent of HSP and Gary A. Kreitzer.
Now Therefore, effective as of January 1, 1997, the Agreement is
hereby amended as follows:
1. Section 1 of the Agreement is hereby amended to read as follows:
During the term of this Agreement, Officer agrees to be employed by
and to serve Corporation as its Senior Vice President and In-House
Counsel or in such other capacity consistent with the Officer's
current position as a senior executive officer as may be determined by
the Board of Directors of the Corporation. Corporation agrees to
employ and retain officer in such capacities. Officer shall devote
such of his business time, energy, and skill to the affairs of
Corporation as shall be necessary to perform the duties of such
positions. Officer shall report to the President or such other
officer as the Board of Directors of Corporation shall direct, and at
all times during the term of this Agreement shall have powers and
duties at least commensurate with his position as a senior executive
officer. Officer shall be based at the offices of Corporation in the
San Diego, California metropolitan area, except for required travel on
Corporation's business.
2. Section 2.1 of the Agreement is hereby amended to read as follows:
2.1 Term. The term ("Term") of this Agreement shall be for a period
commencing on January 1, 1997 and ending on December 31, 1998, unless
terminated earlier pursuant to this Agreement ("Early Termination
Date"). Commencing on December 31, 1998
<PAGE>
and on each subsequent anniversary thereof, the Term shall be
automatically extended for one (1) additional year unless, no later
than six (6) months before such date, either party shall have given
written notice to the other that it does not wish to extend the Term
of this Agreement. References herein to the Term of this Agreement
shall refer to both the initial Term and any such extended Term.
3. Section 3.1 of the Agreement is hereby amended to read as follows:
During the Term of this Agreement and subject to the terms and
conditions set forth herein, Corporation agrees to pay to Officer an
annual "Base Salary" of One Hundred Forty Thousand Dollars ($140,000),
or such higher amount as may from time to time be determined by
Corporation. Unless otherwise agreed in writing by Officer and
Corporation, and subject to subparagraph (b) below, the salary shall
be payable in substantially equal semimonthly installments in
accordance with the standard policies of Corporation in existence
from time to time.
Except as otherwise provided hereinabove, the Agreement is ratified
and affirmed.
IN WITNESS WHEREOF, this Instrument of amendment is executed this
30th day of July, 1996.
HEALTH SCIENCE PROPERTIES, INC.
By: /s/ Jerry M. Sudarsky
---------------------------------
GARY A. KREITZER
/s/ Gary A. Kreitzer
------------------------------------
<PAGE>
Exhibit 10.14
================================================================================
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation,
and
STEVEN A. STONE,
an individual
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1. Position and Duties; Location ...................................... 1
2. Term of Employment ................................................. 1
2.1. Term ....................................................... 1
3. Compensation, Benefits and Reimbursement ........................... 2
3.1. Base Salary ................................................ 2
(a) Earned Base Salary ..................................... 2
(b) Payment ................................................ 2
3.2. Increases in Base Salary ................................... 3
3.3. Bonus ...................................................... 3
3.4. Stock Options .............................................. 4
3.5. Additional Benefits ........................................ 4
(a) Officer Benefits ....................................... 4
(b) Vacation ............................................... 5
(c) Life Insurance ......................................... 5
(d) Disability Insurance ................................... 5
(e) Reimbursement for Expenses ............................. 5
(f) Withholding ............................................ 5
4. Termination of the Agreement ....................................... 6
4.1. Termination by Corporation Defined ......................... 6
(a) Termination Without Cause .............................. 6
(b) Termination For Cause .................................. 6
(c) Termination by Reason of
Death or Disability .................................... 6
4.2. Termination by Officer Defined ............................. 7
(a) Termination Other Than For Good Reason ................. 7
(b) Termination For Good Reason ............................ 7
(c) Good Reason Following a Change in Control .............. 7
4.3 Effect of Termination ...................................... 9
(a) Termination by Corporation ............................. 9
(i) Termination Without Cause ......................... 9
(ii) Termination For Cause, Death
or Permanent Disability ........................... 9
(b) Termination by Officer ................................. 10
(i) Termination Other Than For Good Reason ............ 10
(ii) Termination For Good Reason ....................... 10
i
<PAGE>
4.4. Severance Payment .......................................... 10
(a) Definition of "Severance Payment" ..................... 10
(b) Payment of Severance Payment .......................... 11
(c) Other Severance Benefits .............................. 11
(d) Full Settlement of All Obligations .................... 11
(e) Change in Control ..................................... 11
4.5. Gross-Up ................................................... 13
4.6. Offset ..................................................... 14
5. Noncompetition .................................................... 14
6. Miscellaneous ..................................................... 14
6.1. Payment Obligations ......................................... 14
6.2. Confidentiality ............................................. 14
6.3. Waiver ...................................................... 14
6.4. Entire Agreement; Modifications ............................. 14
6.5. Notices ..................................................... 15
6.6. Headings .................................................... 15
6.7. Governing Law ............................................... 15
6.8. Arbitration ................................................. 15
6.9. Severabi1ity ................................................ 16
6.10. Survival of Corporation's Obligations ....................... 16
6.11. Survival of Certain Rights and Obligations .................. 17
6.12. Counterparts ................................................ 17
6.13. Indemnification ............................................. 18
SIGNATURE PAGE ........................................................... 18
ii
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and
entered into as of this fifth (5th) day of January, 1994, and the employment
hereunder shall commence as of the fifth (5th) day of January, 1994 (the latter
date shall be referred to as the "Effective Date"), by and between HEALTH
SCIENCE PROPERTIES, INC., a Maryland corporation ("Corporation"), and STEVEN A.
STONE, an individual ("Officer").
RECITAL
Corporation desires to employ Officer as its Vice President, and
Officer is willing to accept such employment by Corporation, on the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Position and Duties; Location.
During the term of this Agreement, Officer agrees to be employed by
and to serve Corporation as its Vice President. Corporation agrees to employ and
retain Officer in such capacities. Officer shall devote such of his business
time, energy, and skill to the affairs of Corporation as shall be necessary to
perform the duties of such positions. Officer shall report to the President or
such other officer as the Board of Directors of Corporation shall direct, and at
all times during the term of this Agreement shall have powers and duties at
least commensurate with his position as Vice President. Officer shall be based
at the offices of Corporation in the San Diego, California metropolitan area,
except for required travel on Corporation's business.
2. Term of Employment.
2.1. Term. The term ("Term") of this Agreement shall be for a period
of three (3) years commencing with the Effective Date, unless terminated earlier
pursuant to this Agreement ("Early Termination Date"). Commencing upon the third
(3rd) anniversary of the Effective Date of this Agreement and on each subsequent
anniversary thereof, the Term shall be automatically extended for one (1)
additional year unless, no later than six
1
<PAGE>
(6) months before such anniversary, either party shall have given written notice
to the other that it does not wish to extend the Term of this Agreement.
References herein to the Term of this Agreement shall refer to both the initial
Term and any such extended Term.
3. Compensation, Benefits and Reimbursement.
3.1. Base Salary. During the Term of this Agreement and subject to
the terms and conditions set forth herein, Corporation agrees to pay to Officer
an initial annual "Base Salary" of Eighty Thousand Dollars ($80,000), or such
higher amount as may from time to time be determined by Corporation. Unless
otherwise agreed in writing by Officer and Corporation, and subject to
subparagraph (b) below, the salary shall be payable in substantially equal
semimonthly installments in accordance with the standard policies of Corporation
in existence from time to time.
(a) Earned Base Salary. For purposes of any early termination of
this Agreement as provided in Paragraph 4 below, the term "Earned Base Salary"
shall mean all semimonthly installments of the Base Salary which have become due
and payable to Officer pursuant to this Paragraph 3.1, together with any partial
monthly installment prorated on a daily basis up to and including the applicable
Termination Date.
(b) Payment. The initial Base Salary shall be paid to Officer as
follows:
(i) Payment of the gross amount of Officer's semimonthly
installment of initial Earned Base Salary as contemplated in Paragraph 3.1 above
shall be reduced by one-fourth (1/4). Each said one-fourth (1/4) amount shall be
earned, but payment thereof deferred as set forth below:
a) Three-fourths (3/4) of the gross amount of each of
Officer's semimonthly installments of initial Base Salary
shall be paid to Officer as set forth in Paragraph 3.1 above.
b) Payment of the remaining earned but deferred
one-fourth (1/4) of the gross amount of each of Officer's
semimonthly installments of initial Base Salary, together with
the commencement of the payment of full semimonthly
installment of Officer's Earned Base Salary, shall be
2
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paid upon the earlier to occur of the following events
("Trigger Date"):
i) The effective date of Corporation's
underwritten initial public offering;
ii) The closing of any debt and/or equity
financing of Corporation occurring after the Effective
Date of this Agreement in an amount not less than
Fourteen Million Dollars ($14,000,000);
iii) October 1, 1994; or
iv) Death or the Permanent Disability (as defined
below) of Officer.
3.2. Increases in Base Salary. Officer's Base Salary shall be
reviewed no less frequently than on each anniversary of the Effective Date
during the term of Officer's employment hereunder by the Board of Directors of
Corporation (or such committee as may be appointed by the Board for such
purpose). The Base Salary payable to Officer shall be increased on each such
anniversary date (and such other times as the Board or a committee of the Board
may deem appropriate during the Term of this Agreement) to an amount determined
by the Board (or a committee of the Board). Each such new Base Salary shall
become the base for each successive year increase; provided, however, that such
increase, at a minimum, shall be equal to the cumulative cost-of-living
increment as reported in the "Consumer Price Index, Los Angeles, California, All
Items," published by the U.S. Department of Labor (using January 1, 1994 as the
base date for comparison). Any increase in Base Salary or other compensation
shall in no way limit or reduce any other obligations of Corporation hereunder
and, once established at an increased specified rate, Officer's Base Salary
shall not be reduced unless Officer otherwise agrees in writing.
3.3. Bonus. Officer shall be eligible to receive a bonus for each
fiscal year of Corporation (or portion thereof) during the Term of this
Agreement, with the actual amount of any such bonus to be determined in the sole
discretion of the Board of Directors (or a committee of the Board) based upon
its evaluation of Officer's performance during such year and such other factors
and conditions as the Board (or a committee of the Board) deems relevant. Any
such bonus shall be payable within seventy-five (75) days after the end of
Corporation's fiscal year to
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which such bonus relates. The Board of Directors shall, at an appropriate
subsequent time, consider the establishment of an annual incentive compensation
plan providing for the payment of a minimum annual bonus based upon the
achievement of certain objective criteria for the benefit of Officer and other
specified executive officers of Corporation.
3.4. Stock Options.
Pursuant to the terms of the stock option agreement issued under
Corporation's Stock Option Plan, Corporation has granted to Officer the right
and option to purchase an aggregate of 957 shares of the authorized but unissued
Common Stock of Corporation on the terms and conditions set forth therein.
Nothing contained herein shall be construed to increase or decrease Officer's
compensation and/or benefits in existence at the time the options are granted.
3.5. Additional Benefits. During the term of this Agreement, Officer
shall be entitled to the following additional benefits:
(a) Officer Benefits. Officer shall be eligible to participate in
such of Corporation's benefit and deferred compensation plans as are made
available to executive officers of Corporation, including, without limitation,
Corporation's stock incentive plans, annual incentive compensation plans, profit
sharing/pension plans, deferred compensation plans, annual physical
examinations, dental, vision, sick pay, and medical plans, personal catastrophe
and accidental death insurance plans, financial planning and automobile
arrangements, retirement plans and supplementary executive retirement plans, if
any. For purposes of establishing the length of service under any benefit plans
or programs of Corporation, Officer's employment with the Corporation will be
deemed to have commenced on the Effective Date of this Agreement. Until
Corporation adopts a package of health and medical benefits, Corporation shall
promptly reimburse Officer for payments made by Officer (i) with respect to the
continuation of benefits provided by Officer's previous employer pursuant to
Section 4980B ("COBRA") of the Internal Revenue Code of 1986, as amended
("Code"), (ii) upon expiration of COBRA coverage to maintain substantially
similar health and medical benefits coverage for Officer and his family, and
(iii) if Officer is not covered by COBRA, to maintain reasonable health and
medical benefits coverage for Officer and his family.
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(b) Vacation. Officer shall be entitled to four (4) weeks of
vacation during each year during the Term of this Agreement and any extensions
thereof, prorated for partial years. Any accrued vacation not taken during any
year may be carried forward to subsequent years; provided that Officer may not
accrue more than eight (8) weeks of unused vacation at any time.
(c) Life Insurance. Commencing on the Trigger Date, and for the Term
of this Agreement, Corporation shall, at its sole cost and expense, procure and
keep in effect term life insurance (a minimum three (3) year term certain
policy) on the life of Officer, payable to such beneficiaries as Officer may
from time to time designate, in the aggregate amount of One Million Dollars
($1,000,000). Such policy shall be owned by Officer or by a member of his
immediate family. Corporation shall have no incidents of ownership therein.
(d) Disability Insurance. Commencing on the Trigger Date, and for
the Term of this Agreement, Corporation shall, at its sole cost and expense,
procure and keep in effect disability insurance similar to Officer's current
disability insurance policy on Officer, payable to Officer in an annual amount
not less than sixty percent (60%) of Officer's then existing Base Salary
("Disability Policy"). For purposes of this Agreement, "Permanent Disability"
shall have the same meaning as is ascribed to such terms in the Disability
Policy (including the COBRA Disability Policy) covering Officer at the time of
occurrence of such Permanent Disability.
(e) Reimbursement for Expenses. During the Term of this Agreement,
Corporation shall reimburse Officer for all reasonable out-of-pocket business
and/or entertainment expenses incurred by Officer for the purpose of and in
connection with the performance of his services pursuant to this Agreement.
Officer shall be entitled to such reimbursement upon the presentation by Officer
to Corporation of vouchers or other statements itemizing such expenses in
reasonable detail consistent with Corporation's policies. In addition, Officer
shall be entitled to reimbursement for (i) dues and membership fees in
professional organizations and/or industry associations in which Officer is
currently a member or becomes a member, and (ii) appropriate industry seminars
and mandatory continuing education.
(f) Withholding. Compensation and benefits paid to Officer under
this Agreement shall be subject to applicable federal, state and local wage
deductions and other deductions required by law.
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4. Termination of the Agreement.
4.1. Termination by Corporation Defined.
(a) Termination Without Cause. Subject to the provisions set forth
in Paragraph 4.3 below, "Termination Without Cause" shall constitute any
termination by Corporation other than termination for Cause as defined in
Paragraph 4.1(b) below.
(b) Termination For Cause. Subject to the provisions set forth in
Paragraph 4.3 below, prior to the end of the Term ("Termination Date"),
Corporation shall have the right to terminate this Agreement for Cause
immediately after written notice has been delivered to Officer, which notice
shall specify the reason for and the effective date of such Termination (which
date shall be the applicable Early Termination Date). For purposes of this
Agreement, "Cause" shall mean the following:
(i) Officer's use of alcohol or narcotics which proximately
results in the willful material breach or habitual willful neglect of Officer's
duties under this Agreement;
(ii) Officer's criminal conviction of fraud, embezzlement,
misappropriation of assets, malicious mischief, or any felony;
(iii) Officer's willful Material Breach (as defined below) of
this Agreement, if such willful Material Breach is not cured by Officer within
thirty (30) days after Corporation's written notice thereof specifying the
nature of such willful Material Breach. For purposes of this Paragraph 4.1(b),
the term willful "Material Breach" shall mean the substantial and continual
willful nonperformance of Officer's duties under this Agreement which the Board
of Directors determines has resulted in material injury to Corporation.
(c) Termination by Reason of Death or Disability. Subject to the
provisions set forth in Paragraph 4.3 below, prior to the Termination Date,
Corporation shall have the right to terminate this Agreement by reason of
Officer's death or Permanent Disability.
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4.2. Termination by Officer Defined.
(a) Termination Other Than For Good Reason. Subject to the
provisions set forth in Paragraph 4.3 below, Officer shall have the right to
terminate this Agreement for any reason other than for Good Reason (as defined
in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon
written notice delivered to Corporation thirty (30) days prior to the effective
date of termination specified in such notice (which date shall be the applicable
Early Termination Date).
(b) Termination For Good Reason. Subject to the provisions of
Paragraph 4.3 below, Officer shall have the right to terminate this Agreement
prior to the Termination Date in the event of the material breach of this
Agreement by Corporation, if such breach is not cured by Corporation within
thirty (30) days after written notice thereof specifying the nature of such
breach has been delivered to Corporation, or, following a Change in Control as
defined in Paragraph 4.4(e) below, under the circumstances set forth in
Paragraph 4.2(c) below. For purposes of this Agreement, termination of this
Agreement by Officer in the event of Corporation's material breach of this
Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be
defined as termination by Officer for "Good Reason."
(c) Good Reason Following a Change in Control. Following a Change in
Control as defined in Paragraph 4.4(e) below, "Good Reason" shall mean, without
Officer's express written consent, a material breach of this Agreement by
Corporation, including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after written notice
thereof specifying the nature of such breach has been delivered to Corporation:
(a) the assignment to Officer of any duties inconsistent with
the position in Corporation that Officer held immediately prior to the Change in
Control, or an adverse alteration in the nature or status of Officer's
responsibilities from those in effect immediately prior to such change;
(b) a reduction by Corporation in Officer's annual base salary
as in effect on the date hereof or as the same may be increased from time to
time;
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(c) the relocation of Officer's offices to a location outside
the San Diego metropolitan area (or, if different, the metropolitan area in
which such offices are located immediately prior to the Change in Control) or
Corporation's requiring Officer to travel on Corporation's business to an extent
not substantially consistent with Officer's business travel obligations
immediately prior to the Change in Control;
(d) the failure by Corporation to pay Officer any portion of
his current compensation except pursuant to an across-the-board compensation
deferral similarly affecting all officers of Corporation and all officers of any
person whose actions resulted in a Change in Control or any person affiliated
with Corporation or such person, or to pay Officer any portion of an installment
of deferred compensation under any deferred compensation program of Corporation,
within seven (7) days of the date such compensation is due;
(e) the failure by Corporation to continue in effect any
compensation plan in which Officer participates immediately prior to the Change
in Control which is material to Officer's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by Corporation to
continue Officer's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of participation relative to other participants,
as existed at the time of the Change in Control;
(f) the failure by Corporation to continue to provide Officer
with benefits substantially similar to those under any of Corporation's life
insurance, medical, health and accident, or disability plans in which Officer
was participating at the time of the Change in Control, the taking of any action
by Corporation which would directly or indirectly materially reduce any of such
benefits or deprive Officer of any material fringe benefit enjoyed by him at the
time of the Change in Control, or the failure by Corporation to provide Officer
with the number of paid vacation days to which he is entitled on the basis of
years of service with Corporation in accordance with Corporation's normal
vacation policy in effect at the time of the Change in Control; or
(g) the failure of Corporation to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement.
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Officer's right to terminate Officer's employment for Good Reason
shall not be affected by Officer's incapacity due to physical or mental illness.
Officer's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
4.3. Effect of Termination. In the event that this Agreement is
terminated by Corporation or Officer prior to the Termination Date in accordance
with the provisions of this Paragraph 4, the obligations and covenants of the
parties under Paragraph 4 shall be of no further force and effect, except for
the obligations of the parties set forth below in this Paragraph 4.3, and such
other provisions of this Agreement which shall survive termination of this
Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically
set forth, all amounts due upon termination shall be payable on the date such
amounts would otherwise have been paid had the Agreement continued through its
Term; provided, however, that Deferred Amounts (as defined in Paragraph
4.3(a)(i) below) shall be payable within thirty (30) days following the Early
Termination Date. In the event of any such early termination in accordance with
the provisions of this Paragraph 4.3, Officer shall be entitled to the
following:
(a) Termination by Corporation.
(i) Termination Without Cause. In the event that Corporation
terminates this Agreement without Cause pursuant to Paragraph 4.1(a) above,
Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and
reimbursable expenses; (iii) any earned bonus which Officer has been awarded
pursuant to the terms of this Agreement or any other plan or arrangement as of
the Early Termination Date, but which has not been received by Officer as of
such date; (iv) any compensation earned but deferred, either pursuant to
Paragraph 3.1(b) above or otherwise ("Deferred Amounts"); and (v) the Severance
Payment (as defined in Paragraph 4.4 below).
(ii) Termination For Cause, Death or Permanent Disability. In
the event that Corporation terminates this Agreement for Cause pursuant to
Paragraph 4.1(b) above or by reason of Permanent Disability or death pursuant to
Paragraph 4.1.(c) above, Officer shall be entitled to (i) Earned Base Salary;
(ii) any earned bonus which Officer has been awarded pursuant to the terms of
this Agreement or any other plan or arrangement as of the Early Termination
Date, but which has not been received by Officer as of such date; (iii) earned
benefits and reimbursable
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expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any
future annual bonus or Severance Payment.
(b) Termination by Officer.
(i) Termination Other Than For Good Reason. In the event that
Officer terminates this Agreement other than for Good Reason, Officer shall be
entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been
awarded pursuant to the terms of this Agreement or any other plan or arrangement
as of the Early Termination Date, but which has not been received by Officer as
of such date; (iii) earned benefits and reimbursable expenses; and (iv) any
Deferred Amounts. Officer shall not be entitled to any future annual bonus or
Severance Payment.
(ii) Termination For Good Reason. In the event that Officer
terminates this Agreement for Good Reason, Officer shall be entitled to (i)
Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any
earned bonus which Officer has been awarded pursuant to the terms of this
Agreement or any other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv) any Deferred
Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below).
4.4. Severance Payment.
(a) Definition of "Severance Payment." For purposes of this
Agreement, the term "Severance Payment" shall mean an amount equal to the sum of
(i) the Base Salary otherwise payable to Officer during the remainder of the
Term had such early termination of this Agreement not occurred ("Severance
Period") and (ii) for each full year remaining in the Severance Period, the
average of the annual bonuses earned by Officer in the two (2) years immediately
preceding the date of termination (or if there are less than two (2) years
immediately preceding such date, an amount equal to the immediately preceding
bonus earned) ("Average Bonus"); provided, however, that in the event that,
following a Change in Control as defined in Paragraph 4.4(e) below, Officer
terminates this Agreement for Good Reason pursuant to Paragraph 4.2(b) above,
the term "Severance Payment" shall mean three (3) times the sum of the Base
Salary then in effect and the Average Bonus; and further provided, however, that
in the event that (i) Officer's employment is terminated in connection with or
following the Board's good faith determination that the possible long-run loss
of Corporation may reasonably be expected
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to increase unreasonably if Corporation is not dissolved and (ii) such
dissolution is effected in accordance with applicable law, the term "Severance
Payment" shall mean the Base Salary then in effect, and the term "Severance
Period" shall mean the one-year period immediately following Officer's date of
termination of employment.
(b) Payment of Severance Payment. In the event that Officer is
entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion
of such Severance Payment that represents Base Salary shall be payable in
monthly installments, in accordance with the provisions set forth in Paragraph
3.1 above, and that portion of such Severance Payment that represents the
Average Bonus shall be payable on the dates such amounts would have been paid
had Officer continued in Corporation's employment for the Severance Period;
provided, however, that in the event of a Termination upon a Change in Control
as defined in Paragraph 4.4(e) below, the Severance Payment shall be payable in
a lump sum within ten (10) days following such termination.
(c) Other Severance Benefits. In the event that Officer is entitled
to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be
entitled to full and immediate vesting of any awards granted to Officer under
Corporation's stock option or incentive compensation plans, and continued
participation throughout the Severance Period in all employee welfare and
pension benefit plans, programs or arrangements. In the event Officer's
participation in any such plan, program or arrangement is barred, Corporation
shall arrange to provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer hereby acknowledges
and agrees that any Severance Payment paid to Officer hereunder shall be deemed
to be in full and complete settlement of all obligations of Corporation under
this Agreement.
(e) Change in Control. For purposes of this Agreement, "Termination
Upon a Change in Control" shall mean a termination of Officer's employment with
Corporation following a "Change in Control" by Officer for Good Reason or by
Corporation Other Than for Cause. A "Change in Control" shall be deemed to have
occurred if:
(i) any "person," as such term is used in Paragraphs 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than
Corporation; any trustee or
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other fiduciary holding securities under an employee benefit plan of
Corporation; any company owned, directly or indirectly, by the Stockholders of
Corporation in substantially the same proportions as their ownership of Stock of
Corporation) is or becomes after the Effective Date the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Corporation (not including in the securities beneficially owned by
such person any securities acquired directly from Corporation or its affiliates)
representing twenty percent (2O%) or more of the combined voting power of
Corporation's then outstanding securities; or
(ii) during any period of two (2) consecutive years (not
including any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board of Directors, and any new director
(other than a director designated by a person who has entered into an agreement
with Corporation to effect a transaction described in subparagraph (i), (iii) or
(iv) of this Paragraph 4.4(e)) whose election by the Board of Directors of
nomination for election by Corporation's stockholders was approved by a vote of
at least two-thirds (2/3) of the Board of Directors then still in office who
either were members of the Board of Directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof;
(iii) the Stockholders of Corporation approve a merger or
consolidation of Corporation with any other entity, other than (A) a merger or
consolidation which would result in the voting securities of Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of Corporation, at
least eighty percent (8O%) of the combined voting power of the voting securities
of Corporation or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to implement a
recapitalization of Corporation (or similar transaction) in which no person
acquires more than fifty percent (5O%) of the combined voting power of
Corporation's then outstanding securities; or
(iv) the stockholders of Corporation approve a plan of
complete liquidation of Corporation (other than a dissolution in connection with
the Board's good faith determination
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that the possible long-run loss of Corporation may reasonably be expected to
increase unreasonably if Corporation is not dissolved) or an agreement for the
sale or disposition by Corporation of all or substantially all of Corporation's
assets.
4.5. Gross-Up. If any of the Total Payments (as hereinafter defined)
will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the
Code, Corporation shall pay to Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (the "Gross-Up
Payment") such that the net amount retained by him, after deduction of any
Excise Tax on the Total Payments and any federal and state and local income tax
upon the payment provided for by this paragraph, shall be equal to the excess of
the Total Payments over the payment provided for by this paragraph. For purposes
of determining whether any of the Total Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) all payments or benefits received or
to be received by Officer in connection with a Change in Control or the
termination of Officer's employment (whether payable pursuant to the terms of
this Agreement or of any other plan, arrangement or agreement with Corporation,
its successors, any person whose actions result in a Change in Control or any
person affiliated (or which, as a result of the completion of the transactions
causing a Change in Control, will become affiliated) with Corporation or such
person within the meaning of Section 1504 of the Code (the "Total Payments"))
shall be treated as "parachute payments" (within the meaning of Section
280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by
Corporation's independent auditors and reasonably acceptable to Officer, such
payments or benefits (in whole or in part) do not constitute parachute payments,
including by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall
be treated as subject to the Excise Tax, unless in the opinion of such tax
counsel such excess parachute payments represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4)(B) of the
Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the residence of
Officer on the Early
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Termination Date, net of the maximum reduction in federal income taxes that
could be obtained from deduction of such state and local taxes.
4.6. Offset. Although Officer shall not be required to mitigate
damages under this Agreement by seeking other comparable employment or
otherwise, the amount of any payment or benefit provided for in this Agreement,
including without limitation welfare benefits, shall be reduced by any
compensation earned by or provided to Officer as the result of employment by an
employer other than Corporation prior to the expiration of the Term of this
Agreement; provided, however, that this Paragraph 4.6 shall not apply in the
event of a Termination Upon a Change in Control.
5. Noncompetition.
During the term of this Agreement, including the period, if any,
with respect to which Officer shall be entitled to Severance Payments, Officer
shall not engage in any activity competitive with the business of Corporation.
6. Miscellaneous.
6.1. Payment Obligations. Corporation's obligation to pay Officer
the compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If arbitration after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation shall, to the
extent permitted by applicable law and Corporation's Articles of Incorporation
and By-Laws, indemnify Officer for Officer's attorneys' fees and disbursements
incurred in such arbitration.
6.2. Confidentiality. Officer agrees that all confidential and
proprietary information relating to the business of Corporation shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by Corporation's Board of Directors or as
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
6.3. Waiver. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
6.4. Entire Agreement: Modifications Except as otherwise provided
herein, this Agreement (together with the agree-
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ments and plans referred to herein) represents the entire understanding among
the parties with respect to the subject matter hereof, and this Agreement
supersedes any and all prior understandings, agreements, plans and
negotiations, whether written or oral, with respect to the subject matter
hereof, including without limitation any understandings, agreements or
obligations respecting any past or future compensation, bonuses, reimbursements
or other payments to Officer from Corporation. All modifications to the
Agreement must be in writing and signed by the party against whom enforcement of
such modification is sought.
6.5. Notices. All notices and other communications under this
Agreement shall be in writing and shall be given by fax or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twenty-four (24) hours
after transmission of a fax to the respective persons named below:
If to Corporation: Health Science Properties, Inc.
251 South Lake Avenue
Pasadena, CA 91101
Phone: (818) 578-6812
Fax: (818) 578-6966
If to Officer: Steven A. Stone
3536 Santa Flora Court
Escondido, California 92029
Phone: (619) 432-0270
Any Party may change such Party's address for notices by notice duly given
pursuant hereto.
6.6. Headings. The Paragraph headings herein are intended for
reference and shall not by themselves determine the construction interpretation
of this Agreement.
6.7. Governing Law. Other than with respect to Paragraph 6.13 below,
this Agreement shall be governed by and construed in accordance with the laws of
the State of California without regard to its principles of conflict of laws.
6.8. Arbitration. Any dispute arising out of or relating to this
Agreement that cannot be settled by good faith negotiation between the parties
shall be submitted to ENDISPUTE for final and binding arbitration pursuant to
ENDISPUTE'S Arbitration Rules incorporated herein by reference, which
arbitration
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shall be the exclusive remedy of the parties hereto. The resulting arbitration
shall be deemed a final order of a court having jurisdiction over the subject
matter, shall not be appealable, and shall be enforceable in any court of
competent jurisdiction. Submission to arbitration, as provided in Exhibit A,
shall not preclude the right of any party hereto involved in a dispute regarding
this Agreement (each a "Disputing Party" and collectively, the "Disputing
Parties") to institute proceedings at law or in equity for injunctive or other
relief pending the arbitration of a matter subject to arbitration pursuant to
this Agreement. Any documentation and information submitted by any party in the
arbitration proceeding shall be kept strictly confidential by the parties and
the arbitrator.
In addition to any other relief or award granted by the arbitrator
to either Disputing Party, the arbitrator shall determine the extent to which
each Disputing Party has prevailed as to the material issues raised in the
arbitration, and, based upon such determination, shall apportion to each
Disputing Party its ratable share of (i) the Disputing Parties' reasonable
attorneys' fees and other costs reasonably incurred in the arbitration, (ii) the
expense of the arbitrator, and (iii) all other expenses of the arbitration;
provided, however, that any dispute following a Change in Control shall be
governed by the provisions of Paragraph 6.1 above. The arbitrator shall make
such determination and apportionment whether or not the dispute proceeds to a
final award.
6.9. Severability. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, all other provisions of this Agreement shall be
deemed valid and enforceable to the extent possible.
6.10. Survival of Corporation's Obligations. Corporation's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to
Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of Corporation. In the event any such
merger, consolidation or reorganization shall be accomplished by transfer of
stock or by transfer of assets or otherwise, the provisions of this Agreement
shall be binding upon and inure to the benefit of the surviving or resulting
corporation or person. This Agreement shall be binding upon and inure to the
benefit of the executors, administrators, heirs, successors and assigns of
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the parties; provided, however, that except as herein expressly provided, this
Agreement shall not be assignable either by Corporation (except to an affiliate
of the Corporation, in which event Corporation shall remain liable if the
affiliate fails to meet any obligations to make payments or provide benefits or
otherwise) or by Officer.
6.11. Survival of Certain Rights and Obligations. The rights and
obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5
and 6.1, 6.2, 6.10, 6.11 and 6.13 hereof shall survive the termination of this
Agreement.
6.12. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
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6.13. Indemnification. In addition to any rights to indemnification
to which Officer is entitled under the Corporation's Articles of Incorporation
and Bylaws, Corporation shall indemnify Officer at all times during and after
the term of this Agreement to the maximum extent permitted under Section 2-418
of the General Corporation Law of the State of Maryland or any successor
provision thereof and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or proceeding in
advance of the final disposition of such action, suit, or proceeding, to the
maximum extent permitted under such applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
CORPORATION:
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation
By: /s/ Jerry M. Sudarsky
--------------------------------
Jerry M. Sudarsky
Chief Executive Officer
Date: January 5, 1994
------------------------------
OFFICER
/s/ Steven A. Stone
-----------------------------------
Steven A. Stone
Date: January 5, 1994
------------------------------
18
<PAGE>
EXHIBIT 10.15
AMENDMENT
TO THE EMPLOYMENT AGREEMENT BETWEEN
HEALTH SCIENCE PROPERTIES, INC. AND STEVEN A. STONE
Whereas, the parties hereto desire to amend that certain employment
agreement ("Agreement") dated January 5, 1994 between Health Science
Properties, Inc. ("HSP") and Steven A. Stone; and
Whereas, pursuant to section 6.4 of the Agreement, the Agreement may
be modified and amended with the written consent of HSP and Steven A. Stone.
Now Therefore, effective as of January 1, 1997, the Agreement is
hereby amended as follows:
1. Section 1 of the Agreement is hereby amended to read as follows:
During the term of this Agreement, Officer agrees to be employed by
and to serve Corporation as its Vice President or in such other
capacity consistent with the Officer's current position as a senior
executive officer as may be determined by the Board of Directors of
the Corporation. Corporation agrees to employ and retain officer in
such capacities. Officer shall devote such of his business time,
energy, and skill to the affairs of Corporation as shall be necessary
to perform the duties of such positions. Officer shall report to the
President or such other officer as the Board of Directors of
Corporation shall direct, and at all times during the term of this
Agreement shall have powers and duties at least commensurate with his
position as a senior executive officer. Officer shall be based at the
offices of Corporation in the San Diego, California metropolitan area,
except for required travel on Corporation's business.
2. Section 2.1 of the Agreement is hereby amended to read as follows:
2.1 Term. The term ("Term") of this Agreement shall be for a period
commencing on January 1, 1997 and ending on December 31, 1998, unless
terminated earlier pursuant to this Agreement ("Early Termination
Date"). Commencing on December 31, 1998 and on each subsequent
anniversary thereof, the Term shall be
<PAGE>
automatically extended for one (1) additional year unless, no later
than six (6) months before such date, either party shall have given
written notice to the other that it does not wish to extend the Term
of this Agreement. References herein to the Term of this Agreement
shall refer to both the initial Term and any such extended Term.
3. Section 3.1 of the Agreement is hereby amended to read as follows:
During the Term of this Agreement and subject to the terms and
conditions set forth herein, Corporation agrees to pay to Officer an
annual "Base Salary" of One Hundred Five Thousand Dollars ($105,000),
or such higher amount as may from time to time be determined by
Corporation. Unless otherwise agreed in writing by Officer and
Corporation, and subject to subparagraph (b) below, the salary shall
be payable in substantially equal semimonthly installments in
accordance with the standard policies of Corporation in existence
from time to time.
Except as otherwise provided hereinabove, the Agreement is ratified
and affirmed.
IN WITNESS WHEREOF, this Instrument of amendment is executed this
30th day of July, 1996.
HEALTH SCIENCE PROPERTIES, INC.
By: /s/ Jerry M. Sudarsky
----------------------------------
STEVEN A. STONE
/s/ Steven A. Stone
-------------------------------------
<PAGE>
EXHIBIT 10.16
___________________________
Suite _______
__________________
LEASE
-----
BY AND BETWEEN
Health Science Properties, Inc.
and
________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
1. Lease Premises
2. Basic Lease Provisions
3. Term
4. Possession and Rental Commencement Date
5. Rent
6. Rental Adjustments
7. Operating Expenses
8. Rentable and Usable Area
9. Security Deposit
10. Use
11. Brokers
12. Holding Over
13. Taxes on Tenant's Property
14. Condition of Demised Premises
15. Common Areas and Parking Facilities
16. Utilities and Services
17. Alterations
18. Repairs and Maintenance
19. Liens
20. Indemnification and Exculpation
21. Insurance - Waiver of Subrogation
22. Damage or Destruction
23. Eminent Domain
24. Defaults and Remedies
25. Assignment or Subletting
26. Attorneys' Fees
27. Bankruptcy
28. Definition of Landlord
29. Estoppel Certificate
30. Joint and Several Obligations
31. Limitation of Landlord's Liability
32. Project Control by Landlord
33. Quiet Enjoyment
34. Quitclaim Deed
35. Rules and Regulations
36. Subordination and Attornment
37. Surrender
38. Waiver and Modification
39. Waiver of Jury Trial and Counterclaims
40. Relocation of Demised Premises
41. Hazardous Materials
42. Option to Expand
43. Miscellaneous
44. Existing Space
45. Option to Extend Term
Exhibits
- --------
"A" Project Site Plan and Legal Description
"A-1" Demised Premise
"B" Work Letter
"D" Rules and Regulations
"E" Estoppel Certificate
"F" Form of Acknowledgment of Term Commitment Date
"G" Tenant Personal Property List
"H" Existing Space
"I" Expansion Space
</TABLE>
2
<PAGE>
LEASE
-----
THIS LEASE is made as of the ______ day of ____________, 199_, by and
between Health Science Properties, Inc., a Maryland corporation (hereinafter
called "Landlord") and ________________________, a ______________ corporation
(hereinafter called "Tenant").
1. Lease of Premises
-----------------
1.1 Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, those certain premises (hereinafter called the "Demised Premises")
within the building located at the address set forth below (hereinafter called
the "Building"). The Demised Premises are crosshatched on the floor plan
attached hereto as Exhibit "A-1", and are situated on the floor(s) and suite(s)
of this Building as set forth in Section 2.1.2. The real property upon which the
Building is located, and all landscaping, parking facilities, and other
improvements and appurtenances related thereto, are hereinafter collectively
referred to as the "Project", the site plan and legal description for which is
attached hereto as Exhibit "A". All portions of the Project which are for the
non-exclusive use of tenants of the Building, including, without limitation,
driveways, sidewalks, parking areas, landscaped areas, service corridors,
stairways, elevators, public restrooms and Building lobbies, are hereinafter
referred to as "Common Area".
2. Basic Lease Provisions
----------------------
2.1 For convenience of the parties, certain basic provisions of this
Lease are set forth herein. The provisions set forth herein are subject to the
remaining terms and conditions of this Lease and are to be interpreted in light
of such remaining terms and conditions.
2.1.1 Address of the Building:
_______________________
_______________________
2.1.2 Designation of Tenant's
Suite(s): ___________
Floor(s): ___________
2.1.3 (a) Rentable Area of Demised Premises:
________ sq. ft.
(b) Rentable Area of Building/Project:
________ sq. ft.
(c) Usable Area of Demised Premises:
________ sq. ft.
2.1.4 Initial Basic Annual Rent:
________ s.f. x $_____ per s.f. x 12 months = $__________
2.1.5 Initial Monthly Rental Installments of Basic Annual Rent:
________ s.f. x $________ per s.f. = $____________
2.1.6 Tenant's Pro Rata Share:
______ % of the Building
2.1.7 (a) Estimated Term Commencement Date:
_______________ __, 199_
(b) Term Expiration Date:
____________ __, _______ (__ months)
2.1.8 Security Deposit: $_________________, subject to
increase in accordance with Section 9.5 hereof.
2.1.9 Permitted Use:
__________________________________________________
3
<PAGE>
2.1.10 Address for Rent Payment:
251 South Lake Avenue, Suite 535
Pasadena, CA 91101
Address for Notices to Landlord:
9737 Aero Drive, Suite 140
San Diego, CA 92123
Address for Notices to Tenant:
_______________________________________
_______________________________________
2.1.11 Guarantor of Lease: ______________________
2.1.12 Space Plan Approval Date: __________________________
2.1.13 The following Exhibits are attached hereto and
incorporated herein:
____________________________________________
3. Term
----
3.1 This Lease shall take effect upon the date of execution and
delivery hereof by all parties hereto and, except as specifically otherwise
provide within this Lease, each of the provisions hereof shall be binding upon
and inure to the benefit of Landlord and Tenant from the date of execution and
delivery hereof by all parties hereto.
3.2 The approximate term of this Lease is as set forth in Section
2.1.7. The actual term of this Lease (the "Term") will be that period from the
actual Term Commencement Date as defined in Section 4.2 below through the Term
Expiration Date (a period of _________________months), subject to earlier
termination of this Lease as provided herein.
4. Possession and Commencement Date
--------------------------------
4.1 Landlord shall tender possession of the Demised Premises to
Tenant on the Term Commencement Date as set forth in Section 2.1.7(a), with the
work required of Landlord described in the Work Letter attached hereto as
Exhibit "B", substantially completed. Tenant agrees that in the event such work
is not substantially completed on or before the Estimated Term Commencement
Date, this Lease shall not be void or voidable and Landlord shall not be liable
to Tenant for any loss or damage resulting therefrom. If Landlord fails to
tender possession of the Demised Premises to Tenant on the Estimated Term
Commencement Date for any reason whatsoever, Landlord shall have no liability to
Tenant for such failure and the Term Expiration Date shall be extended
accordingly, but Tenant shall not be responsible for the payment of any Rent (as
defined below) until the actual Term Commencement Date set forth in Section 4.2
below occurs. The work required of Landlord described in the Work Letter shall
be deemed substantially completed, as that term is used in this Article 4 and
elsewhere in this Lease, if Landlord has completed all Landlord's work
identified on Tenant's plans and specifications (subject only to a punch list of
items that do not materially and substantially interfere with Tenant's use of
the Demised Premises), has received the temporary certificate of occupancy from
the City of San Diego, or a substantial completion certificate from the
architect, or would have received the temporary occupancy certificate or
substantial completion certificate but for delays or failure of Tenant or
Tenant's architect to deliver items in accordance with the Work Letter.
Notwithstanding the foregoing, if the date of actual Term Commencement is
delayed beyond the Estimated Term Commencement Date due solely to the failure of
Tenant or Tenant's architect to timely deliver any item in the Work Letter, then
the Term Commencement Date will remain _______________ __, 199_.
4.2 The actual Term Commencement Date shall be the day Landlord
tenders possession of the Demised Premises to Tenant with all work required of
Landlord pursuant to the Work Letter, if any, substantially completed. If
possession is delayed by action of the Tenant then the Term Commencement Date
will be the date of substantial completion of Landlord's work. Landlord and
Tenant shall each execute and deliver to the other written acknowledgment of the
actual Term Commencement Date and the Term Expiration Date when such is
established, and shall attach it to this Lease as Exhibit "F". However, failure
to execute and deliver such acknowledgment shall not affect the Term
Commencement Date or Landlord or Tenant's liability hereunder.
4
<PAGE>
4.3 In the event that Landlord permits (in Landlord's sole and
absolute discretion) Tenant to enter upon the Demised Premises prior to the Term
Commencement Date for the purpose of installing improvements or the placement of
personal property, Tenant shall furnish to Landlord evidence satisfactory to
Landlord that insurance coverages required of Tenant under the provisions of
Article 21 are in effect, and such entry shall be subject to all the terms and
conditions of this Lease other than the payment of Basic Annual Rent or
Additional Rent (as defined below).
4.4 Possession of areas of the Demised Premises necessary for
utilities, services, safety and operation of the Building is reserved to
Landlord.
4.5 Landlord shall cause to be constructed the tenant improvements
in the Demised Premises ("Tenant Improvements") pursuant to the Work Letter
attached hereto as Exhibit "B" at a cost to Landlord not to exceed
____________________________ Dollars ($________) (based upon _________________
Dollars ($________) per usable square foot) ("Tenant Improvement Allowance")
which shall include the cost of construction, project management by Landlord
(which fee shall not exceed _________ percent (__%) of the Tenant Improvement
Allowance), cost of space planning, architect, engineering and other related
services, building permits and other planning and inspection fees. If the total
cost of the Tenant Improvements exceed ________________ Dollars ($________) per
square foot of usable area of Demised Premises, then the overage shall be paid
by Tenant to Landlord prior to the actual Term Commencement Date. Any portion of
Tenant Improvement Allowance not expended on the Demised Premises may be
utilized by Tenant to improve Tenant's Existing Space (as defined in Section 44
below) located at Suite ____ of the Building, subject to Landlord's review and
approval of the character, quality and cost of the proposed improvements. Tenant
shall have until __________ __, 199_ to expend the unused portion Tenant
Improvement Allowance, after which date Landlord's obligation to fund such costs
shall expire.
4.6 Landlord and Tenant shall mutually agree upon the selection of
the architect, engineer, general contractor and major subcontractors and each
party shall participate in the review of the competitive bid process. Landlord
shall provide Tenant with copies of the draw requests from the construction loan
or such other documentation reasonably required by Tenant to monitor expenditure
of the Tenant Improvement Allowance.
4.7 Any unresolved dispute arising under this Article 4 shall be
submitted to binding arbitration under the commercial rules of the American
Arbitration Association in San Diego, California.
5. Rent
----
5.1 Tenant agrees, commencing on the Term Commencement Date, to pay
Landlord as Basic Annual Rent for the Demised Premises the sum set forth in
Section 2.1.4 subject to the rental adjustments provided in Article 6 hereof.
Basic Annual Rent shall be paid in the equal monthly installments set forth in
Section 2.1.5, subject to the rental adjustments provided in Article 6 hereof,
each in advance on the first day of each and every calendar month during the
Term.
5.2 In addition to Basic Annual Rent, Tenant agrees to pay to
Landlord as additional rent ("Additional Rent") at times hereinafter specified
in this Lease (i) Tenant's pro rata share, as set forth in Section 2.1.6
("Tenant's Pro Rata Share") of Operating Expenses as provided in Article 7 and
(ii) any other amounts that Tenant assumes or agrees to pay under the provisions
of this Lease that are owed to Landlord, including, without limitation, any and
all other sums that may become due by reason of any default of Tenant or failure
on Tenant's part to comply with the agreements, terms, covenants and conditions
of this Lease to be performed by Tenant, after notice and lapse of applicable
cure period.
5.3 Basic Annual Rent and Additional Rent shall together be
denominated "Rent". Rent shall be paid to Landlord, without abatement,
deduction, or offset, in lawful money of the United States of America, at the
office of Landlord as set forth in Section 2.1.10 or to such other person or at
such other place as Landlord may from time designate in writing. In the event
the Term commences or ends on a day other than the first day of a calendar
month, then the Rent for such fraction of a month shall be prorated for such
period on the basis of a thirty (30) day month and shall be paid at the then
current rate for such fractional month.
5
<PAGE>
6. Rent Adjustments
----------------
6.1 The Basic Annual Rent shall be subject to upward adjustment once
every two years in proportion to rises in the Consumer Price Index as provided
within this Article 6. The first such adjustment shall become effective
commencing with that monthly rental installment which is due on or after the
second anniversary of the Term Commencement Date and subsequent adjustments
shall become effective on the same day of every other calendar year thereafter
for so long as this Lease continues in effect.
6.2 The Basic Annual Rent shall be adjusted upward as follows:
(a) The "Base Month" for purposes of each Basic Annual Rent
adjustment shall be that month which is fifteen (15) months prior to the month
in which the Basic Annual Rent adjustment occurs, and the "Comparison Month"
shall be that month which is three (3) months prior to the month in which the
Basic Annual Rent adjustment occurs.
(b) As used in this subsection, the term "Consumer Price Index"
means the Consumer Price Index (all items) for all wage earners and clerical
workers in the Los Angeles/Anaheim/Riverside metropolitan area (1982-84 = 100)
as published by the United States Department of Labor, Bureau of Labor
Statistics. If the 1982-84 base of the Consumer Price Index is hereafter
changed, then the new base will be converted to the 1982-84 base and the base as
so converted shall be used. In the event that the Bureau ceases to publish the
Consumer Price Index at lease once every other month, then the successor or most
nearly comparable index thereto reasonably selected by Landlord shall be used.
(c) In the event that the Consumer Price Index for the
Comparison Month exceeds the Consumer Price Index for the Base Month, the Basic
Annual Rent then payable (as increased by previous adjustments under this
Section 6) shall be multiplied by a fraction, the numerator of which is the
Consumer Price Index figure for the Comparison Month, and the denominator of
which is the Consumer Price Index figure for the Base Month. Such amount as
calculated shall be the Basic Annual Rent to be paid until the next date for
adjustment hereunder.
(d) Notwithstanding the foregoing, Basic Annual Rent shall
increase on account of any such adjustment a minimum of _________ percent (__%)
from the prior year's Basic Annual Rent, and shall not increase more than
_______ percent (__%) from the prior year's Basic Annual Rent.
7. Operating Expenses
------------------
7.1 As used herein, the term "Operating Expenses" shall include:
(a) Government impositions including, without limitation,
property tax costs consisting of real and personal property taxes and
assessments including amounts due under any improvement bond upon the Building
and/or Project including the parcel or parcels of real property upon which the
Building and areas serving such Building are located or assessments levied in
lieu thereof imposed by any governmental authority or agency, ,any tax on or
measured by gross rentals received from the rental of space in the Building, or
tax based on the square footage of the Demised Premises, Building, or Project as
well as any parking charges, utilities surcharges, or any other costs levied,
assessed or imposed by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by any federal, state,
regional, municipal or local government authority in connection with the use or
occupancy of the Building or the parking facilities serving the Building, any
tax on this transaction or any document to which Tenant is a party creating or
transferring an interest in the Demised Premises, any fee for a business license
to operate an office building, and any expenses, including the reasonable cost
of attorneys or experts, reasonably incurred by Landlord in seeking reduction by
the taxing authority of the applicable taxes, less tax refunds obtained as a
result of an application for review thereof. Operating Expenses shall not
include any net income franchise, capital stock, estate or inheritance taxes or
taxes which are the personal obligation of Tenant or of another tenant of the
Project.
6
<PAGE>
(b) All other costs of any kind paid or incurred by Landlord in
connection with the operation and maintenance of the Building and the Project
including, by way of examples and not as a limitation upon the generality of the
foregoing, costs of repairs and replacements to improvements within the Project
as appropriate to maintain the Project as required hereunder, including cost of
funding such reasonable reserves as Landlord, consistent with good business
practice, may establish to provide for future repairs and replacements, costs of
utilities furnished to the Common Areas, sewer fees, cable T.V., when
applicable, trash collection, cleaning, including windows, heating, ventilation,
air-conditioning, maintenance of landscape and grounds, maintenance of drives
and parking areas, security services and devices, building supplies, maintenance
and replacement to equipment utilized for operation and maintenance of the
Project, license, permit and inspection fees; sales, use and excise taxes on
goods and services purchased by Landlord in connection with the operation,
maintenance or repair of the Project and Building systems and equipment;
telephone, postage, stationary supplies and other expenses incurred in
connection with the operation, maintenance, or repair of the Project;
accounting, legal and other professional fees and expenses incurred in
connection with the Project; the cost of furniture, draperies, carpeting,
landscaping and other customary and ordinary items of personal property provided
by Landlord for use in Common Areas or in the Building office; Building office
rent or rental value for not more than _______ rentable square feet of space,
the extent an office used for Building operations is maintained at the Building,
capital expenditures, costs of complying with any applicable laws, hazard waste
remediation, rules or regulations, insurance premiums including premiums for
public liability, property casualty, earthquake and environmental coverages,
portions of insured losses paid by Landlord as part of deductible portion of
loss by reason of insurance policy terms, service contracts, costs of services
of independent contractors retained to do work of nature before referenced, and
costs of compensation (including employment taxes and fringe benefits) of all
persons who perform regular and recurring duties connected with the day-to-day
operation and maintenance of the Project, its equipment, the adjacent walks,
landscaped areas, drives, and parking areas, including without limitation,
janitors, floor waxers, window-washers, watchmen, gardeners, sweepers, and
handymen and costs of management services, which costs of management services
shall not exceed five percent (5%) of the Rent due from Tenant.
(c) Notwithstanding the foregoing, Operating Expenses shall not
include any leasing commissions, expenses which relate to preparation of rental
space for a tenant, expenses of initial development and construction, including
but not limited to, grading, paving, landscaping, and decorating (as
distinguished from maintenance repair and replacement of the foregoing), legal
expenses relating to other tenants, costs of repair to the extent reimbursed by
payment received by Landlord of insurance proceeds, interest upon loans to
Landlord or secured by mortgage or deed of trust covering the Project or a
portion thereof (provided interest upon a government assessment or improvement
bond payable in installments is an Operating Expense under subparagraph (a)
above), salaries of executive officers of Landlord, depreciation claimed by
Landlord for tax purposes (provided this exclusion of "depreciation" is not
intended to delete from Operating Expenses actual costs of repairs and
replacements and reasonable reserves in regard thereto which are provided for in
subparagraph (b) above) and taxes of the types set forth within the last
sentence of subparagraph (a) above.
7.2 Tenant shall pay to Landlord on the first day of each calendar
month of the Term, as Additional Rent, Landlord's estimate of Tenant's Pro Rata
Share (as set forth in 2.1.6) of Operating Expenses with respect to the Project
for such month.
(a) Within ninety (90) days after the conclusion of each
calendar year, (or such longer period as may be reasonably required) Landlord
shall furnish to Tenant a statement showing in reasonable detail the actual
Operating Expenses and Tenant's Pro Rata Share of Operating Expenses for the
previous calendar year. Any additional sum due from Tenant to Landlord shall be
immediately due and payable. If the amounts paid by Tenant pursuant to
Section 7.2 exceeds Tenant's Pro Rata Share of Operating Expense for the
previous calendar year, the difference shall be credited by Landlord against the
Rent next due and owing from Tenant; provided that, if the Lease term has
expired, Landlord shall accompany said statement with payment for the amount of
such difference.
(b) Any amount due under Section 7.2 for any period which is
less than a full month shall be prorated (based on a 30-day month) for such
fractional month.
7
<PAGE>
7.3 Landlord's annual statement shall be final and binding upon
Tenant unless Tenant, within thirty (30) days after Tenant's receipt thereof,
shall contest any item therein by giving written notice to Landlord, specifying
each item contested and the reason therefor. If, during such 30 day period,
Tenant reasonably and in good faith questions or contests the correctness of
Landlord's statement of Tenant's Pro Rata Share of Operating Expenses, Landlord
will provide Tenant with access to Landlord's books and records and such
information as Landlord reasonably determines to be responsive to Tenant's
questions. In the event that after Tenant's review of such information, Landlord
and Tenant cannot agree upon the amount of Tenant's Pro Rata Share of Operating
Expenses, then Tenant shall have the right to have an independent public
accounting firm hired by Tenant (at Tenant's sole cost and expense) and approved
by Landlord (which approval shall not be unreasonably withheld or delayed) audit
and/or review such Landlord's books and records for the year in question ("the
Independent Review"). The results of any such Independent Review shall be
binding on Landlord and Tenant. If the Independent Review shows that Tenant's
Pro Rata Share of Operating Expenses actually paid for the calendar year in
question exceeded Tenant's obligations for such calendar year, Landlord shall at
Tenant's option either (1) credit the excess to the next succeeding installments
of estimated Additional Rent or (2) pay the excess to Tenant within thirty (30)
days after delivery of such statement. If the Independent Review shows that
Tenant's payments of Tenant's Pro Rata Share of Operating Expenses for such
calendar year were less than Tenant's obligation for the calendar year, Tenant
shall pay the deficiency to the Landlord within thirty (30) days after delivery
of such statement.
7.4 Tenant shall not be responsible for Operating Expenses
attributable to the time period prior to the Term Commencement Date, except if
Landlord shall permit Tenant possession of the Demised Premises prior to the
Term Commencement Date, Tenant shall be responsible for Operating Expenses from
such earlier date of possession. The responsibility of Tenant for Tenant's Pro
Rata Share of Operating Expenses shall continue to the latest of (i) the date of
termination of the Lease, (ii) the date Tenant has fully vacated the Demised
Premises, or (iii) if termination of the Lease is due to the default of Tenant,
the date of rental commencement of a replacement tenant.
7.5 Operating Expenses for the calendar year in which Tenant's
obligation to share therein commences and in the calendar year in which such
obligation ceases, shall be prorated on a basis reasonably determined by
Landlord. Expenses such as taxes, assessments and insurance premiums which are
incurred for an extended time period shall be prorated based upon time periods
to which applicable so that the amounts attributed to the Demised Premises
relate in a reasonable manner to the time period wherein Tenant has an
obligation to share in Operating Expenses.
8. Rentable and Usable Area
------------------------
8.1 The term "Rentable Area" and "Usable Area" as set forth in
Section 2.1.3 and as referenced within the Work Letter attached hereto as
Exhibit "B" and as may otherwise be referenced within this Lease is calculated
in accordance with the 1980 Standard Method for Measuring Floor Area in Office
Buildings as adopted by the Building Owners and Managers Association. The Usable
Area refers generally to that approximate area to be occupied by Tenant, such
area having been calculated by measuring to the finished surface of the office
side of corridor and other permanent walls, to the center of partitions that
separate the office space of Tenant from adjoining usable area of other tenants
and to the inside finished surfaces of the dominant portion of the permanent
outer Building walls. No deductions are made with respect to such calculations
for any columns or projections which may be included within that area necessary
to the Building.
8.2 The "Rentable Area" of the Building is generally determined by
making separate calculations of Rentable Area applicable to each floor within
the Building and totaling the Rentable Area of all floors within the Building.
The Rentable Area of a floor is computed by measuring to the outside finished
surface of the permanent outer Building walls. The full area calculated as
before set forth is included as Rentable Area without deduction for columns and
projections or vertical penetrations which are defined as stairs, elevator
shafts, flues, pipe shafts, vertical ducts, and the like and their enclosing
walls.
8.3 The Rentable Area of the Project is the total of Rentable Area
of all buildings within the Project.
8
<PAGE>
8.4 The term "Rentable Area" when applied to Tenant is that area
equal to the Usable Area of the Demised Premises plus an equitable allocation of
Rentable Area within the Building which is not then utilized or expected to be
utilized as Usable Area, including but not limited to the portion of the
Building devoted to corridors, equipment rooms, restrooms, elevator lobby,
atrium and mailroom. In making such allocations, consideration will be given to
tenants benefited by space allocated such that area which primarily serve
tenants of only one floor, such as corridors and restrooms upon such floor,
shall be allocated to Usable Area of the Building as a whole.
8.5 Review of allocations of Rentable Areas as between tenants of
the Building and the Project may be made as frequently as in Landlord's opinion
appears appropriate in order to facilitate an equitable apportionment of
Operating Expenses. If such review is by a licensed architect and allocations
are certified correct by such licensed architect, the Tenant shall be bound by
such certifications.
9. Security Deposit
----------------
9.1 Tenant has deposited with Landlord the sum set forth in
Section 2.1.8, (the "Security Deposit") which sum shall be held by Landlord as
security for the faithful performance by Tenant of all of the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant during the Term.
If Tenant defaults with respect to any provision of this Lease, including, but
not limited to, any provision relating to the payment of Rent, Landlord may (but
shall not be required to) use, apply or retain all or any part of the Security
Deposit for the payment of any Rent or any other sum in default, or too
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of the Security Deposit is so used or
applied, Tenant shall, within ten (10) days following demand therefore, deposit
cash with Landlord in an amount sufficient to restore the Security Deposit to
its original amount and Tenant's failure to do so shall be a material breach of
this Lease. Landlord shall not be required to keep this Security Deposit
separate from its general fund, and Tenant shall not be entitled to interest on
the Security Deposit.
9.2 In the event of bankruptcy or other debtor-creditor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of Rent and other charges due Landlord for all periods prior to the
filing of such proceedings.
9.3 Landlord may deliver the funds deposited hereunder by Tenant to
any purchaser of Landlord's interest in the Demised Premises and thereupon
Landlord shall be discharged from any further liability with respect to such
deposit. This provision shall also apply to any subsequent transfers.
9.4 If Tenant shall fully and faithfully perform every provision of
this Lease to be performed by it, the Security Deposit, or any balance thereof,
shall be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) within thirty (30) days after the expiration or
earlier termination of this Lease.
9.5 In the event that upon Landlord's review of the Hazardous
Materials List (as defined in Section 41.1.1 hereof) Landlord reasonably
determines that Tenant's use of Hazardous Materials at the Demised Premises
increases the risk of damage to or contamination of the Demised Premises, the
Building or the Project, then upon Tenant's receipt of written notice of such
determination from the Landlord, Tenant shall deposit an additional $_________
with the Landlord, which amount shall be added to and treated as a part of the
Security Deposit.
10. Use
---
10.1 Tenant shall use the Demised Premises for the purpose set forth
in Section 2.1.9 and shall not use the Demised Premises, or permit or suffer
the Demised Premises to be used, for any other purpose without the prior written
consent of Landlord which may be withheld in Landlord's sole discretion.
10.2 Tenant shall not use or occupy the Demised Premises in violation
of any federal, state and local laws and regulations, zoning ordinances, or of
the certificate of occupancy issued for the Building, and shall, upon five (5)
days' written notice from Landlord, discontinue any use of the Demised Premises
which is declared or claimed by any governmental authority having jurisdiction
to be a violation of law, regulation or zoning ordinance or of said certificate
of occupancy, or which in the reasonable opinion of Landlord violates law,
regulation or zoning ordinance or the certificate of occupancy. Tenant shall
comply with any direction of any governmental authority having jurisdiction
which shall, by reason of the nature of Tenant's use or occupancy of the Demised
Premises, impose any duty upon Tenant or Landlord with respect to the Demised
Premises or with respect to the use or occupation thereof.
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10.3 Tenant shall not do or permit to be done anything which will
invalidate or increase the cost of any fire, environmental, extended coverage
or any other insurance policy covering the Building and Project and shall comply
with all rules, orders, regulations, and requirements of the insurers of the
Building and Project and Tenant shall promptly upon demand reimburse Landlord
for any additional premium charged for such policy by reason of Tenant's failure
to comply with the provisions of this Section.
10.4 Tenant shall keep all doors opening onto public corridors
closed, except when in use for ingress and egress.
10.5 No additional locks or bolts of any kind shall be placed upon
any of the doors or windows by Tenant nor shall any changes be made in existing
locks or the mechanism thereof without the prior written consent of Landlord.
Tenant must, upon termination of this Lease return to Landlord all keys to
offices and restrooms, either furnished to, or otherwise procured by Tenant. In
the event any key so furnished is lost, Tenant shall pay to Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such change.
10.6 No awnings or other projection shall be attached to any outside
wall of the building. No curtains, blinds, shades or screens shall be attached
to or hung in, or use in connection with, any window or door of the Demised
Premises other than Landlord's standard window coverings. Neither the interior
nor exterior of any windows shall be coated or otherwise sunscreened without the
express written consent of Landlord, nor shall any bottles, parcels, or other
articles be placed on the windowsills. No equipment, furniture or other items of
personal property shall be placed on any exterior balcony without the express
written consent of Landlord.
10.7 No sign, advertisement, or notice shall be exhibited, painted or
affixed by Tenant on any part of the Demised Premises or the Building without
the prior written consent of Landlord. Interior signs on doors and the directory
tablet shall be inscribed, painted or affixed for Tenant by Landlord at the
expense of Tenant, and shall be of a size, color and type acceptable to
Landlord. The directory tablet shall be provided exclusively for the display of
the name and location of tenants only. Nothing may be placed on the exterior of
corridor walls or corridor doors other than Landlord's standard lettering.
10.8 Tenant shall cause any office equipment or machinery to be
installed in the Demised Premises so as to reasonably prevent sounds or
vibrations therefrom from extending into Common Areas as defined in Section 1.1,
or other offices in the Building. Further, no equipment weighing five hundred
(500) pounds, or greater, shall be placed upon the Demised Premises without
advance notice to and approved by Landlord and placement, if approved by
Landlord, shall be at a location designed to carry the weight of such equipment.
10.9 Tenant shall not do or permit anything to be done in or about
the Demised Premises which shall in any way obstruct or interfere with the
rights of other tenants or occupants of the Building, or injure or annoy them,
or use or allow the Demised Premises to be used for immoral, unlawful or
objectionable purpose, nor shall Tenant knowingly cause, maintain or permit any
nuisance or waste in, on, or about the Demised Premises, Building or Project.
10.10 Notwithstanding any other provision herein to the contrary,
Tenant shall be responsible for all liabilities, costs and expense arising out
of or in connection with the compliance of the Demised Premises with the
Americans With Disabilities Act, 42 U.S.C. (S) 12101, et seq. (together with
regulations promulgated pursuant thereto, "ADA") and Tenant shall indemnify,
defend and hold harmless from and against any loss, cost, liability or expense
(including reasonable attorneys' fees and disbursements) arising out of any
failure of the Demised Premises to comply with the ADA.
11. Brokers
-------
11.1 Tenant represents and warrants that it has had no dealings with
any real estate broker or agent in connection with the negotiation of this Lease
other than ___________________________________________, as have been disclosed
in writing to Landlord and that it knows of no other real estate broker or agent
who is or might be entitled to a commission in connection with this Lease.
11.2 Tenant represents and warrants that no broker or agent has made
any representation or warranty relied upon by Tenant in Tenant's decision to
enter into this Lease other than as contained in this Lease.
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11.3 Tenant acknowledges and agrees that the employment of brokers by
Landlord is for the purpose of solicitation of offers of lease from prospective
tenants and no authority is granted to any broker to furnish any representation
(written or oral) or warranty from Landlord unless expressly contained within
this Lease. Landlord in executing this Lease does so in reliance upon Tenant's
representations and warranties contained within Sections 11.1 and 11.2 herein.
12. Holding Over
------------
12.1 If, with Landlord's express written consent, Tenant holds
possession of all or any part of the Demised Premises after the Term, Tenant
shall become a tenant from month-to-month upon the date of such expiration or
earlier termination, and in such case Tenant shall continue to pay in accordance
with Article 5 the Basic Annual Rent as adjusted from the Term Commencement Date
in accordance with Article 6, and Tenant's Pro Rata Share of Operating Expenses,
and such month-to-month tenancy shall be subject to every other term, covenant
and agreement contained herein.
12.2 Notwithstanding the foregoing, if Tenant remains in possession
of the Demised Premises after the expiration or earlier termination of the Term
without the express written consent of Landlord, Tenant shall become a tenant at
sufferance upon the terms of this Lease except that the monthly rental shall be
equal to one hundred fifty percent (150%) of the Rent (Basic Annual Rent and
Additional Rent) in effect during the last thirty (30) days of the Lease term.
12.3 Acceptance by Landlord of Rent after such expiration or earlier
termination shall not result in a renewal or reinstatement of this Lease.
12.4 The foregoing provisions of this Article 12 are in addition to
and do not affect Landlord's right to re-entry or any other rights of Landlord
hereunder or as otherwise provided by law.
13. Taxes on Tenant's Property
--------------------------
13.1 Tenant shall pay, prior to delinquency any and all, taxes levied
against any personal property or trade fixtures placed by Tenant in or about the
Demised Premises.
13.2 If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or, if the assessed
valuation of the Building is increased by the inclusion therein of a value
attributable to Tenant's personal property or trade fixtures, and if Landlord
after written notice to Tenant pays the taxes based upon such increase in the
assessed valued, then Tenant shall upon demand repay to Landlord the taxes so
levied against Landlord.
13.3 If any improvements in or alterations to the Demised Premises,
whether owned by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which improvements
conforming to Landlord's "Building Standard" in other spaces in the Building are
assessed, then the real property taxes and assessments levied against Landlord
or the Building by reason of such excess assessed valuation shall be deemed to
be taxes levied against personal property of Tenant and shall be governed by the
provisions of Section 13.2 above. Any such excess assessed valuation due to
improvements in or alterations to space in the Building leased by other tenants
of Landlord shall not be included in the Operating Expenses defined in
Section 7.5, but shall be treated, as to such other tenants, as provided in this
Section 13.3. If the records of the County Assessor are available and
sufficiently detailed to serve as a basis for determining whether said Tenant
improvements or alterations are assessed at a higher valuation than Landlord's
"Building Standard," such records shall be binding on both Landlord and Tenant.
14. Condition of Demised Premises
-----------------------------
14.1 Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the condition
of the Demised Premises or the Building or Project, or with respect to the
suitability for the conduct of Tenant's business. The taking of possession of
the Demised Premises by Tenant shall, except as otherwise agreed in writing by
Landlord and Tenant conclusively establish that the Demised Premises and
Building were at such time in good, sanitary and satisfactory condition and
repair.
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15. Common Areas and Parking Facilities
-----------------------------------
15.1 Tenant shall have the non-exclusive right, in common with
others, to use the Common Areas, subject to the rules and regulations adopted by
Landlord and attached hereto as Exhibit "D" together with such other reasonable
and nondiscriminatory rules and regulations as are hereafter promulgated by
Landlord in its discretion (the "Rules and Regulations").
15.2 As an appurtenance to the Demised Premises, Tenant shall have a
non-exclusive revocable license to use parking facilities serving the Building
in common on a non reserved basis with other tenants of the Building and the
Project.
15.3 Tenant agrees not to unreasonably overburden the parking
facilities and agrees to cooperate with Landlord and other tenants in the use of
parking facilities. Landlord reserves the right to determine that parking
facilities are becoming overcrowded and to limit Tenant's use thereof. Upon such
determination, Landlord may reasonably allocate parking spaces among Tenant and
other tenants. In the alternative, if Landlord determines that Tenant's
customers, clients, or invitees appear to be using more than the number of
parking spaces that would otherwise be attributable to a reasonable number of
parking spaces for Tenant's use, Landlord may require Tenant and its employees
to obtain for such unreasonable excess of parking outside the Project. However,
nothing in this Section is intended to create an affirmative duty on Landlord's
part to monitor parking.
15.4 Landlord reserves the right to modify Common Areas including the
right to add or remove exterior and interior landscaping and to subdivide real
property. It is recognized that Landlord specifically reserves the right as to a
portion of the Building to allow exclusive use of corridors and restroom
facilities located on specific floors to one or more tenants occupying such
floors, provided Tenant herein shall not be deprived of the use of the corridors
reasonably required to serve the Demised Premises or of restroom facilities
serving the floor upon which the Demised Premise are located.
16. Utilities and Services
----------------------
16.1 Tenant shall pay for all water, (including the cost to service,
repair and replace reverse osmosis, deionized and other treated water) gas,
heat, light, power, telephone and other utilities supplied to the Demised
Premises, together with any fees, surcharges and taxes thereon. If any such
utility is not separately metered to Tenant, Tenant shall pay a reasonable
proportion to be determined by Landlord of all charges jointly metered with
other premises as part of Tenant's Pro Rata Share of Operating Expenses, or in
the alternative, Landlord may, at its option, monitor the usage of such
utilities by Tenant and charge Tenant with the cost of purchasing, installing
and monitoring such metering equipment, which shall be paid by Tenant as
Additional Rent.
16.2 Landlord shall not be liable for nor shall any eviction of
Tenant result from the failure to furnish any such utility or service whether or
not such failure is caused by accident, breakage, repairs, strikes, lockouts or
other labor disturbances or labor disputes of any character, governmental
regulation, moratorium or other governmental action, inability despite the
exercise of reasonable diligence or by any other cause, including the gross
negligence of Landlord. In the event of such failure, Tenant shall not be
entitled to any abatement or reduction of Rent, nor be relieved from the
operation of any covenant or agreement of this Lease.
16.3 Tenant shall pay for, prior to delinquency, any utilities and
services which may be furnished to the Demised Premises during the Term.
16.4 Tenant shall not, without the prior written consent of Landlord,
use any device in the Demised Premises, including, but without limitation, data
processing machines, which will in any way increase the amount of ventilation,
air exchange, gas, steam, electricity or water beyond the existing capacity of
the Building as proportionately allocated to the Demised Premises based upon
Tenant's Pro Rata Share as usually furnished or supplied for the use set forth
in Section 2.1.9 or be in excess of Tenant's Pro Rata Share of the Building's
capacity to provide such utilities or services.
16.5 If Tenant shall require services in excess of that usually
furnished or supplied for similar space in the Building, by reason of equipment
operated and/or extended hours of business operation, then Tenant shall first
procure the consent of Landlord for the use thereof, which consent Landlord may
condition upon the availability of such excess utilities or services and
Tenant's payment as Additional Rent of an amount equal to the cost to provide
such excess services and utility capacity.
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16.6 Utilities and services provided by Landlord to the Demised
Premises shall be paid by Tenant directly to the supplier of such utility or
service.
16.7 Landlord shall provide water in Common Areas for drinking and
lavatory purposes only, but if Tenant requires, uses or consumes water for any
purpose in addition to ordinary drinking and lavatory purposes of which fact
Tenant constitutes Landlord to be the sole judge, Landlord may install a water
meter and thereby measure Tenant's water consumption for all purposes. Tenant
shall pay Landlord for the cost of the meter and the cost of the installation
thereof and throughout the duration of Tenant's occupancy, thereof and
throughout the duration of Tenant's occupancy, Tenant shall keep said meter and
installation equipment in good working order and repair at Tenant's own cost and
expense, in default of which Landlord may cause such meter and equipment to be
replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to
pay for water consumed, as shown on said meter, as and when bills are rendered,
and on default in making such payment, Landlord may pay such charges and collect
the same from Tenant. Any such costs or expenses incurred, or payments made by
Landlord for any of the reasons or purposes hereinabove stated shall be deemed
to be Additional Rent payment by Tenant and collectible by Landlord as such.
16.8 Landlord reserves the right to stop service of the elevator,
plumbing, ventilation, air conditioning and electric systems, when necessary, by
reason of accident or emergency or for repairs, alterations or improvements, in
the judgment of Landlord desirable or necessary to be made, until said repairs,
alterations or improvements shall have been completed, and Landlord shall
further have no responsibility or liability for failure to supply elevator
facilities, plumbing, ventilation, air conditioning or electric service, when
prevented from doing so by strike or accident, or by laws, rules, order,
ordinances, directions, regulations or requirements of any federal, state,
country or municipal authority or failure to deliver gas, oil or other suitable
fuel supply or inability by exercise of reasonable diligence to obtain gas, oil
or other suitable fuel. It is expressly understood and agreed that any covenants
on Landlord's part to furnish any service pursuant to any of the terms,
covenants, conditions, provisions or agreements of this Lease, or to perform any
act or thing for the benefit of Tenant, shall not be deemed breached if Landlord
is unable to furnish or perform the same by virtue of a strike or labor trouble
or any other cause whatsoever.
17. Alterations
-----------
17.1 Tenant shall make no alterations, additions or improvements in
or to the Demised Premises without Landlord's prior written consent, which
approval shall not be unreasonably withheld (provided, however, that in the
event any proposed alteration, addition or improvement affects (i) any
structural portions of the Building including exterior walls, roof, foundation
and core of the Building, (ii) the exterior of the Building or (iii) any
Building systems, including elevator, plumbing, air conditioning, heating
electrical, security, life safety and power, then Landlord may withhold its
consent with respect thereto in its sole and absolute discretion), and then only
by architects, contractors, suppliers or mechanics approved by Landlord in
Landlord's sole discretion. In seeking Landlord's approval, Tenant shall provide
Landlord, at least 14 days in advance of any proposed construction, with plans,
specifications, bid proposals, work contracts and such other information
concerning the nature and cost of the alterations as may be reasonably requested
by Landlord.
17.2 Tenant agrees that there shall be no construction of partitions
or other obstructions which might interfere with free access to mechanical
installation or service facilities of the Building or interfere with the moving
of Landlord's equipment to or from the enclosures containing said installations
or facilities.
17.3 Tenant agrees that any work by Tenant shall be accomplished in
such a manner as to permit any fire sprinkler system and fire water supply lines
to remain fully operable at all times.
17.4 All such work shall be done at such times and in such manner as
Landlord may from time to time designate. Tenant covenants and agrees that all
work done by Tenant shall be performed in full compliance with all laws, rules,
orders, ordinances, directions, regulations, and requirements of all
governmental agencies, offices, departments, bureaus and boards having
jurisdiction, and in full compliance with the rules, orders, directions,
regulations, and requirements of any applicable fire rating bureau. Tenant shall
provide Landlord with "as-built" plans showing any change in the Demised
Premises.
17.5 Before commencing any work, Tenant shall give Landlord at least
fourteen (14) days' prior written notice of the proposed commencement of such
work and shall, if required by Landlord, secure at Tenant's own cost and
expenses a completion and lien indemnity bond satisfactory to Landlord for said
work.
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17.6 All alterations, attached equipment, decorations, fixtures,
trade fixtures, additions and improvements, subject to Section 17.8, attached to
or built into the Demised Premises, made by either of the Parties, including
(without limiting the generality of the foregoing) all floor and wallcovering,
built-in cabinet work and paneling, sinks and related plumbing fixtures,
exterior venting fume hoods and walk-in freezers and refrigerators, ductwork,
conduits, electrical panels and circuits, shall, unless prior to such
construction or installation, Landlord elects otherwise, become the property of
Landlord upon the expiration or earlier termination of the term of this Lease,
and shall remain upon and be surrendered with the Demised Premises as a part
thereof.
17.7 Tenant shall repair any damage to the Demised Premises caused by
Tenant's removal of any property from the Demised Premises. During any such
restoration period, Tenant shall pay Rent to Landlord as provided herein as if
said space were otherwise occupied by Tenant.
17.8 Except as to those items listed on Exhibit "G" attached hereto
and incorporated herein, all business and trade fixtures, machinery and
equipment, built-in furniture and cabinets, together with all additions and
accessories thereto, installed in and upon the Demised Premises shall be and
remain the property of Landlord and shall not be moved by Tenant at any time
during the term of this Lease. If Tenant shall fail to remove all of its effects
from the Demised Premises prior to termination of this Lease, then Landlord may,
at its option, remove the same in any manner that Landlord shall choose, and
store said effects without liability to Tenant for loss thereof or damage
thereto, and Tenant agrees to pay Landlord upon demand any expenses incurred to
such removal and storage or Landlord may, at its option, without notice, sell
said property or any of the same, at private sale and without legal process, for
such price as Landlord may obtain and apply the proceeds of such sale against
any amounts due under this Lease from Tenant to Landlord and against any
expenses incident to the removal, storage and sale of said personal property.
17.9 Notwithstanding any other provision of this Article 17 to the
contrary, in no event may Tenant remove any improvement from the Demised
Premises as to which Landlord contributed payment, including, without
limitation, the Tenant Improvements made pursuant to the Work Letter without
Landlord's prior written consent, which may be withheld in Landlord's sole
discretion.
17.10 Tenant shall pay to Landlord an amount equal to ten percent
(10%) of the cost to Tenant of all changes installed by Tenant of its
contractors or agents to cover Landlord's overhead and expenses for plan review,
coordination, scheduling and supervision thereof. For purposes of payment of
such sum, Tenant shall submit to Landlord copies of all bills, invoices, and
statements covering the costs of such charges, which will be accompanied by
payment to Landlord of the percentage fee set forth above. Tenant shall
reimburse Landlord for any extra expense incurred by Landlord by reason of
faulty work done by Tenant or its contractors, or by reason of delays caused by
such work, or by reason of inadequate cleanup.
18. Repairs and Maintenance
-----------------------
18.1 Landlord shall repair and maintain the structural and exterior
portions and Common Areas of the Building and Project, including, without
limitations, roofing and covering materials, foundations, exterior walls, the
plumbing, fire sprinkler system (if any), heating, ventilating, air
conditioning, elevator, and electrical systems installed or furnished by
Landlord (and the full cost thereof shall be included as a part of Operating
Expenses), unless such maintenance or repairs are required in whole or in part
because of any act, neglect, fault of or omissions of any duty by Tenant, its
agents, servants, employees or invitees, in which case Tenant shall pay to
Landlord the cost of such maintenance and repairs.
18.2 Except for services of Landlord, if any, required by Section
18.1, Tenant shall at Tenant's sole cost and expense keep the Demised Premises
and every part thereof in good condition and repair, damage thereto from
ordinary wear and tear excepted. Tenant shall, upon the expiration or sooner
termination of the Term, surrender the Demised Premises to Landlord in as good
as condition as when received, ordinary wear and tear excepted. Landlord shall
have no obligation to alter, remodel, improve, repair, decorate or paint the
Demised Premises or any part thereof.
18.3 Landlord shall not be liable for any failure to make any repairs
or to perform any maintenance which is an obligation of Landlord unless such
failure shall persist for an unreasonable time after written notice of the need
of such repairs or maintenance is given to Landlord by Tenant. Tenant waives the
rights under Section 1941 and 1942 of the California Civil Code or under any
law, statute or ordinance now or hereafter in effect to make repairs at
Landlord's expense.
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18.4 Repairs under this Article 18 which are obligations of Landlord
are subject to allocation among Tenant and other tenants as Operating Expenses.
18.5 This Article 18 relates to repairs and maintenance arising in
ordinary course of operation of the Building and any related facilities. In the
event of fire, earthquake, flood, vandalism, war, or similar cause of damage or
destruction, this Article 18 shall not be applicable and the provisions of
Article 22 entitled "Damage or Destruction" shall apply and control.
19. Liens
-----
19.1 Subject to the immediately succeeding sentence, Tenant shall
keep the Demised Premises, the Building and the real property upon which the
Building is situated free from any liens arising out of work performed,
materials furnished or obligations incurred by Tenant. Tenant further covenants
and agrees that any mechanic's lien filed against the Demised Premises or
against the Building for work claimed to have been done for, or materials
claimed to have been furnished to Tenant, will be discharged by Tenant, by bond
or otherwise, within ten (10) days after the filing thereof, at the sole cost
and expense of Tenant.
19.2 Should Tenant fail to discharge any lien of the nature described
in Section 19.1, Landlord may at Landlord's election pay such claim or post a
bond or otherwise provide security to eliminate the lien as a claim against
title and the cost thereof shall be immediately due from Tenant as Additional
Rent.
19.3 In the event Tenant shall lease or finance the acquisition of
office equipment, furnishings, or other personal property of a removable nature
utilized by Tenant in the operation of Tenant's business, Tenant warrants that
any Uniform Commercial Code Financing Statement executed by Tenant will upon its
face or by exhibit thereto indicate that such Financing Statement is applicable
only to removable personal property of Tenant located within the Demised
Premises. In no event shall the address of the Building be furnished on the
statement without qualifying language as to applicability of the lien only to
removable personal property, located in an identified suite held by Tenant.
Should any holder of a Financing Statement executed by Tenant record or place of
record a Financing Statement which appears to constitute a lien against any
interest of Landlord or against equipment which may be located other than within
the Demised Premises, Tenant shall within ten (10) days after filing such
Financing Statement cause (i) a copy of the Security Agreement or other
documents to which Financing Statement pertains to be furnished to Landlord to
facilitate Landlord's being in a position to show such lien is not applicable to
Landlord's interest and (ii) its lender to amend documents of record so as to
clarify that such lien is not applicable to any interest of Landlord in the
Building or Project.
20. Indemnification and Exculpation
-------------------------------
20.1 Tenant agrees to indemnify, defend and save Landlord harmless
from and against any and all demands, claims, liabilities, losses, costs,
expenses, actions, causes of action, damages or judgments, and all reasonable
expenses incurred in investigating or resisting the same (including, without
limitation, reasonable attorneys' fees, charges and disbursements), for injury
or death to person or injury to property occurring within or about the Demised
Premises, arising directly or indirectly out of Tenant's, it's employees, agents
or guests use or occupancy of the Demised Premises or a breach or default by
Tenant in the performance of any of its obligations hereunder, unless caused
solely by the willful act or gross negligence of the Landlord.
20.2 Notwithstanding any provision of Sections 20.1 to the contrary,
Landlord shall not be liable to Tenant and Tenant assumes all risk of damage to
personal property or scientific research, including loss of records kept within
the Demised Premises if the cause of such damage is of a nature which, if Tenant
had elected to maintain fire and theft insurance with extended coverage and
business records endorsement available on a commercially reasonable basis, would
be a loss subject to settlement by the insurance carrier, including, but not
limited to, damage or losses caused by fire, electrical malfunctions, gas
explosion, and water damage of any type, including, but not limited to, broken
water lines, malfunction of fire sprinkler system, roof leakage or stoppages of
lines unless and except if such loss is due to willful disregard of Landlord of
written notice by Tenant of need for a repair which Landlord is responsible to
make for an unreasonable period of time. Tenant further waives any claim for
injury to Tenant's business or loss of income relating to any such damage or
destruction of personal property including any loss of records.
20.3 Landlord shall not be liable for any damages arising from any
act, omission or neglect of any other tenant in the Building or Project or of
any other third party.
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20.4 Security devices and services, if any, while intended to deter
crime may not in given instances prevent theft or other criminal acts and it is
agreed that Landlord shall not be liable for injuries or losses caused by
criminal acts of third parties and the risk that any security device or service
may malfunction or otherwise be circumvented by a criminal is assumed by Tenant.
Tenant shall at Tenant's cost obtain insurance coverage to the extent Tenant
desires protection against such criminal acts.
21. Insurance - Waiver of Subrogation
---------------------------------
21.1 Landlord, as part of Operating Expenses, shall carry insurance
upon the Building, in an amount equal to full replacement cost (exclusive of the
costs of excavation, foundations, and footings, and without reference to
depreciation taken by Landlord upon its books or tax returns) or such lesser
coverage as Landlord may elect provided such coverage is not less than ninety
percent (90%) of such full replacement cost or the amount of such insurance
Landlord's mortgage lender requires Landlord to maintain, providing protection
against any peril generally included within the classification "Fire and
Extended Coverage" together with insurance against sprinkler damage (if
applicable), vandalism and malicious mischief. Landlord, subject to availability
thereof and, as part of Operating Expenses, shall further insure as Landlord
deems appropriate coverage against flood, environmental hazard and earthquake,
loss or failure of building equipment, rental loss during the period of repair
or rebuild, workmen's compensation insurance and fidelity bonds for employees
employed to perform services. Notwithstanding the foregoing, Landlord may, but
shall not be deemed required to, provide insurance as to any improvements
installed by Tenant or which are in addition to the Standard Improvements
customarily furnished by Landlord without regard to whether or not such are made
a part of the Building.
21.2 Landlord, as part of Operating Expenses, shall further carry
public liability insurance with single limit of not less than One Million
Dollars ($1,000,000.00) for death or bodily injury, or property damage with
respect to the Project.
21.3 Tenant at its own cost shall procure and continue in effect
from the Term Commencement Date or the date of occupancy, whichever first
occurs, and continuing throughout the term of this Lease (and occupancy by
Tenant, if any, after termination of this Lease) comprehensive public liability
insurance with limits of not less than Two Million Dollars ($2,000,000.00) per
occurrence for death or bodily injury and not less than One Million Dollars
($1,000,000.00) for property damage with respect to the Demised Property.
21.4 The aforesaid insurance required of Tenant shall name
Landlord, its officers, employees and agents, as an additional insured. Said
insurance shall be with companies having a rating of not less than policyholder
rating of A and financial category rating of at least Class XII in "Best's
Insurance Guide." Tenant shall obtain for Landlord from the insurance companies
or cause the insurance companies to furnish certificates of coverage to
Landlord. No such policy shall be cancelable or subject to reduction of coverage
or other modification or cancellation except after thirty (30) days' prior
written notice to Landlord from the insurer. All such policies shall be written
as primary policies, not contributing with and not in excess of the coverage
which Landlord may carry. Tenant's policy may be a "blanket policy" which
specifically provides that the amount of insurance shall not be prejudiced by
other losses covered by the policy. Tenant shall, at least twenty (20) days
prior to the expiration of such policies, furnish Landlord with renewals or
binders. Tenant agrees that if Tenant does not take out and maintain such
insurance, Landlord may (but shall not be required to) procure said insurance on
Tenant's behalf and at its cost to be paid as Additional Rent.
21.5 Tenant assumes the risk of damage to any fixtures, goods,
inventory, merchandise, equipment, and leasehold improvements, and Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom relative to such damage all as more particularly heretofore set forth
within this Lease. Tenant at Tenant's cost shall carry such insurance as Tenant
desires for Tenant's protection with respect to personal property of Tenant or
business interruption.
21.6 In each instance where insurance is to name Landlord as
additional insured, Tenant shall upon written request of Landlord also designate
and furnish certificates so evidencing Landlord as additional insured to (i) any
lender of Landlord holding a security interest in the Building or real property
upon which the Building is situated, and/or (ii) the landlord under any lease
wherein Landlord is tenant of the real property whereupon the Building is
located if the interest of Landlord is or shall become that of a tenant under a
ground lease rather than that of a fee owner, and/or (iii) any management
company retained by Landlord to manage the Project.
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21.7 Landlord and Tenant each hereby waive any and all rights of
recovery against the other or against the officers, directors, employees,
agents, and representatives of the other, on account of loss or damage
occasioned to such waiving party or its property or the property of others under
its control to the extent that such loss or damage is insured against under any
fire and extended coverage insurance policy which either may have in force at
the time of such loss or damage. Such waivers shall continue as long as their
respective insurers so permit. Any termination of such a waiver shall be by
written notice of circumstances as hereinafter set forth. Landlord and Tenant
upon obtaining the policies of insurance required or permitted under this Lease
shall give notice to the insurance carrier or carriers that the foregoing mutual
waiver of subrogation is contained in this Lease. If such policies shall not be
obtainable with such waiver or shall be so obtainable only at a premium over
that chargeable without such waiver, the party seeking such policy shall notify
the other thereof, and the latter shall have ten (10) days thereafter to either
(i) procure such insurance with companies reasonably satisfactory to the other
party or (ii) agree to pay such additional premium (in the Tenant's case, in the
proportion which the area of the Demised Premises bears to the insured area). If
neither (i) nor (ii) are done, this Section 21.7 shall have no effect during
such time as such policies shall not be obtainable or the party in whose favor a
waiver of subrogation is desired refuses to pay the additional premium. If such
policies shall at any time be unobtainable, but shall be subsequently
obtainable, neither party shall be subsequently liable for a failure to obtain
such insurance until a reasonable time after notification thereof by the other
party. If the release of either Landlord or Tenant, as set forth in the first
sentence of this Section 21.7 shall contravene any law with respect to
exculpatory agreements, the liability of the party in question shall be deemed
not released but shall be secondary to the other's insurer.
21.8 Landlord may require insurance policy limits to be raised to
conform with requirements of Landlord's lender and/or to bring coverage limits
to levels then being required of new tenants within the Project.
22. Damage or Destruction
---------------------
22.1 In the event of a partial destruction of the Building wherein
the Demised Premises are located by fire or other perils covered by extended
coverage insurance, not exceeding twenty-five percent (25%) of the full
insurable value thereof, and if the damage thereto is such that the Building may
be repaired, reconstructed or restored within a period of six (6) months from
the date of the happening of such casualty and Landlord will receive insurance
proceeds sufficient to cover the cost of such repairs (except for any deductible
amount provided by Landlord's policy, which deductible amount if paid by
Landlord shall be an Operating Expense), Landlord shall commence and proceed
diligently with the work of repair, reconstruction and restoration and this
Lease shall continue in full force and effect.
22.2 In the event of any damage to or destruction of the Building
wherein the Demised Premises are located, other than as provided in Section
22.1, Landlord may elect to repair, reconstruct and restore the Building, in
which case this Lease shall continue in full force and effect. If Landlord
elects not to repair then this Lease shall terminate as of date of destruction.
22.3 Landlord shall give written notice to Tenant of its election not
to repair, reconstruct or restore the Building or Project within the sixty (60)
day period following the date of damage or destruction.
22.4 Upon any termination of this Lease under any of the provisions
of this Article, the parties shall be released thereby without further
obligation to the other from the date possession of the Demised Premises is
surrendered to the Landlord except for items which have theretofore occurred.
22.5 In the event of repair, reconstruction and restoration as
herein provided, the rental provided to be paid under this Lease shall be abated
proportionately based on the extent to which Tenant's use of the Demised
Premises is impaired during the period of such repair, reconstruction or
restoration, unless Landlord provides Tenant with other space during the period
of repair, which in Tenant's reasonable opinion is suitable for the temporary
conduct of Tenant's business.
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22.6 Notwithstanding anything to the contrary contained in this
Article, should Landlord be delayed or prevented from completing the repair or
restoration of the damage to the Demised Premises after the occurrence of such
damage or destruction by reason of acts of God or war, governmental
restrictions, inability to procure the necessary labor or materials, strikes, or
other uses beyond the control of Landlord, the time for Landlord to commence or
complete repairs shall be extended, provided, at the election of Landlord,
Landlord shall be relieved of its obligation to make such repairs or restoration
and Tenant shall be released from its obligation under this Lease as of the end
of eight (8) months from date of destruction, if repairs required to provide
Tenant use of the Demised Premises are not then substantially complete.
22.7 If Landlord is obligated to or elects to repair or restore
as herein provided, Landlord shall be obligated to make repairs or restoration
only of those portions of the Building and the Demised Premises which were
originally provided at Landlord's expense; the repair and restoration of items
not provide at Landlord's expense shall be the obligation of Tenant. In the
event Tenant elected to upgrade certain improvements from the standard normally
provided by Landlord, Landlord shall upon the need for replacement due to an
insured loss, provide only the standard Landlord improvements unless Tenant
shall elect to again upgrade and pay any additional cost of such upgrades,
except to such extent as insurance proceeds which, if received, the excess
proceeds are adequate to provide such upgrades, in addition to providing for
basic reconstruction and standard improvements.
22.8 Notwithstanding anything to the contrary contained in this
Article, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Demised Premises when the damage resulting from any
casualty covered under this Article occurs during the last twelve (12) months of
the term of this Lease or any extension hereof, or to the extent that insurance
proceeds are not available therefor.
23. Eminent Domain
--------------
23.1 In the event the whole of the Demised Premises, or such part
thereof as shall substantially interfere with the Tenant's use and occupancy
thereof, shall be taken for any public or quasi-public purpose by any lawful
power or authority by exercise of the right of appropriation, condemnation or
eminent domain, or sold to prevent such taking, Tenant or Landlord may terminate
this Lease effective as of the date possession is required to be surrendered to
said authority.
23.2 In the event of a partial taking of the Building, the Project
or of drives, walkways, and parking areas serving the Building for any public or
quasi-public purpose by any lawful power or authority by exercise of right of
appropriation, condemnation, or eminent domain, or sold to prevent such taking,
then without regard as to whether any portion of the Demised Premises occupied
by Tenant was so taken, Landlord may elect to terminate this Lease as of such
taking if such taking is, in the sole opinion of Landlord, of a material nature
such as to make it uneconomical to continue use of the unappropriated portion
for purposes of office rentals or laboratory space.
23.3 Tenant shall be entitled to any award which is specifically
awarded as compensation for the taking of Tenant's personal property, which was
installed at Tenant's expense and for costs of Tenant moving to a new location.
Except as before set forth, any award for such taking shall belong to Landlord.
23.4 If upon any taking of the nature described in this Article
23 this Lease continues in effect, the Landlord shall promptly proceed to
restore the Demised Premises, Building, and Project to substantially their same
condition prior to such partial taking. To the extent such restoration is
feasible, as determined by Landlord in its sole discretion, the Rent shall be
abated proportionately based upon the extent to which Tenants use of the Demised
Premises has decreased on the basis of the percentage of the rental value of the
Demised Premises after such taking and the rental value of the Demised Premises
prior to such taking.
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24. Defaults and Remedies
---------------------
24.1 Late payment by Tenant to Landlord of Rent and other sums due
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult and impracticable to ascertain. Such
costs include, but are not limited to, processing and accounting charges and
late charges which may be imposed on Landlord by the terms of any mortgage or
trust deed covering the Demised Premises. Therefore, if any installment of Rent
due from Tenant is not received by Landlord within five (5) days after the date
such payment is due, Tenant shall pay to Landlord an additional sum of six
percent (6%) of the overdue Rent as a late charge. The parties agree that this
late charge represents a fair and reasonable estimate of the costs that Landlord
will incur by reason of late payment by Tenant. In addition to the late charge,
Rent not paid when due shall bear interest from the 5th day after date due until
paid at the lesser of (i) twelve percent (12%) per annum or (ii) the maximum
rate permitted by law.
24.2 No payment by Tenant or receipt by Landlord of a lesser amount
than the Rent payment herein stipulated shall be deemed to be other than on
account of the Rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or pursue any other remedy
provided. If at any time a dispute shall arise as to any amount or sum of money
to be paid by Tenant to Landlord, Tenant shall have the right to make payment
"under protest" and such payment shall not be regarded as a voluntary payment,
and there shall survive the right on the part of Tenant to institute suit for
recovery of the payment paid under protest.
24.3 If Tenant fails to pay any sum of money (other than Basic
Annual Rent or Rental Adjustments) required to be paid by it hereunder, or shall
fail to perform any other act on its part to be performed hereunder, Landlord
may, without waiving or releasing Tenant from any obligations of Tenant, but
shall not be obligated to, make such payment or perform such act; provided, that
such failure by Tenant continues for three (3) days after notice from Landlord
demanding performance by Tenant was delivered to Tenant, or that such failure by
Tenant unreasonably interfered with the use of the Building by any other tenant
or with the efficient operation of the Building, or resulted or could have
resulted in a violation of law or the cancellation of an insurance policy
maintained by Landlord. All sums so paid or incurred by Landlord, together with
interest thereon, from the date such sums were paid or incurred, at the annual
rate equal to twelve percent (12%) per annum or highest rate permitted by law,
whichever is less, shall be payable to Landlord on demand as Additional Rent.
24.4 The occurrence of any one or more of the following events shall
constitute a "Default" hereunder by Tenant:
(a) The abandonment or vacation of the Demised Premises by
Tenant;
(b) The failure by Tenant to make any payment of Rent, as and
when due, where such failure shall continue for a period of three (3) days after
written notice thereof from Landlord to Tenant. Such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161;
(c) The failure by Tenant to observe or perform any obligation
or covenant contained herein (other than described in Section 24.4(a) and
24.4(b)) to be performed by Tenant, where such failure shall continue for a
period of ten (10) days after written notice thereof from Landlord to Tenant.
Such notice shall be in lieu of, and not in addition to, any notice required
under California Code or Civil Procedure Section 1161; provided that if the
nature of Tenant's default is such that it reasonably requires more than ten
(10) days to cure, then Tenant shall not be deemed to be in default if Tenant
shall commence such cure within said ten (10) day period and thereafter
diligently prosecute the same to completion provided, however, that such cure is
completed no later than thirty (30) days from the date of written notice;
(d) Tenant makes an assignment for the benefit of creditors;
(e) A receiver, trustee or custodian is appointed to, or does,
take title, possession or control of all, or substantially all, of Tenant's
assets;
(f) Tenant files a voluntary petition under the Bankruptcy Code
(or any similar law) or an order for relief is entered against Tenant pursuant
to a voluntary or involuntary proceeding commenced under any chapter of the
Bankruptcy Code;
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(g) Any involuntary petition if filed against the Tenant under
any chapter of the Bankruptcy Code and is not dismissed within one hundred
twenty (120) days; or
(h) Tenant's interest in this Lease is attached, executed upon,
or otherwise judicially seized and such action is not released within one
hundred twenty (120) days of the action.
Notices given under this Section shall specify the alleged
default and shall demand that Tenant perform the provisions of this Lease or pay
the Rent that is in arrears, as the case may be, within the applicable period of
time, or quit the Demised Premises. No such notice shall be deemed a forfeiture
or a termination of this Lease unless Landlord elects otherwise in such notice.
24.5 In the event of a Default by Tenant, and at any time thereafter,
with or without notice or demand and without limiting Landlord in the exercise
of any right or remedy which Landlord may have, Landlord shall be entitled to
terminate Tenant's right to possession of the Demised Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event, Landlord shall
have the immediate right to re-enter and remove all persons and property, and
such property may be removed and stored in a public warehouse or elsewhere at
the cost of, and for the account of Tenant, all without service of notice or
resort to legal process and without being deemed guilty of trespass, or becoming
liable for any loss or damage which may be occasioned thereby. In the event that
Landlord shall elect to so terminate this Lease, then Landlord shall be entitled
to recover from Tenant all damages incurred by Landlord by reason of Tenant's
default, including:
(a) The worth at the time of award of any unpaid Rent which had
been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds that portion of such rental loss which Tenant proves could have
been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award exceeds the
amount of such rental loss which Tenant proves could have been reasonably
avoided; plus
(d) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligation
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, the cost of restoring the
Premises to the condition required under the terms of this Lease; plus
(e) At the Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
As used in Subsections (a) and (b) above, "worth at the time of
award" shall be computed by allowing interest at the rate specified in Section
24.1. As used in Subsection (c) above, the "worth at the time of the award"
shall be computed by taking the present value of such amount, by using the
discount rate of the Federal Reserve Bank of San Francisco at the time of the
award plus six (6) percentage points.
24.6 If Landlord does not elect to terminate this Lease as provided
in this Section, then Landlord may, from time to time, recover all Rent as it
becomes due under this Lease. At any time thereafter, Landlord may elect to
terminate this Lease and to recover damage to which Landlord is entitled.
24.7 In the event Landlord elects to terminate this Lease and relet
the Premises, it may execute any new lease in its own name. Tenant hereunder
shall have no right or authority whatsoever to collect any Rent from such
tenant. The proceeds of any such reletting shall be applied as follows:
First, to the payment of any indebtedness other than Rent due
hereunder from Tenant to Landlord, including, but not limited to, storage
charges or brokerage commissions owing from Tenant to Landlord as the result of
such reletting;
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Second, to the payment of the costs and expenses of reletting
the Premises, including alterations and repairs which Landlord deems reasonably
necessary and advisable and reasonable attorneys' fees, charges and
disbursements incurred by Landlord in connection with the retaking of the
Premises and such reletting;
Third, to the payment of Rent and other charges due and unpaid
hereunder; and
Fourth, to the payment of future Rent and other damages payable
by Tenant under this Lease.
24.8 All rights, options, and remedies of Landlord contained in
this Lease shall be construed and held to be nonexclusive and cumulative.
Landlord shall have the right to pursue any one or all of such remedies or any
other remedy or relief which may be provided by law, whether or not stated in
this Lease. No waiver of any default of Tenant hereunder shall be implied from
any acceptance by Landlord of any Rent or other payments due hereunder or any
omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver.
24.9 Termination of this Lease or Tenant's right to possession by
Landlord shall not relieve Tenant from any liability to Landlord which has
theretofore accrued or shall arise based upon events which occurred prior to the
last to occur of (i) the date of Lease termination or (ii) the date possession
of Demised Premises is surrendered.
24.10 Landlord shall not be in default unless Landlord fails to
perform obligations required of Landlord within a reasonable time, but in no
event shall such failure to continue be for more than thirty (30) days after
written notice by Tenant specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty
(30) day period and thereafter diligently prosecutes the same to completion.
24.11 In the event of any default on the part of Landlord, Tenant
will give notice by registered or certified mail to any beneficiary of a deed of
trust or mortgagee or a mortgage covering the Building and to any landlord of
any lease in which building is located whose address shall have been furnished
and shall offer such beneficiary, mortgagee and/or landlord a reasonable
opportunity to cure the default, including time to obtain possession of the
Building by power of sale or a judicial action if such should prove necessary to
effect a cure, provided the Landlord shall have furnished to Tenant in writing
the names and addresses of all such persons who are to receive such notices.
25. Assignment or Subletting
------------------------
25.1 Except as hereinafter provided, Tenant shall not, either
voluntarily or by operation of law, directly or indirectly, sell, hypothecate,
assign, pledge, encumber or otherwise transfer this Lease, or sublet the Demised
Premises or any part hereof, or permit or suffer the Demises Premises or any
part thereof to be used or occupied as work space, storage space, mailing
privileges, concession or otherwise by anyone other than Tenant or Tenant's
employees, without the prior written consent of Landlord in each instance, which
consent may be withheld in Landlord's sole discretion.
25.2 If Tenant is a corporation, the shares of which are not actively
traded upon a stock exchange or in the over-the-counter market, a transfer or
series of transfers whereby twenty-five percent (25%) or more of the issued and
outstanding shares of such corporation are or the voting control is transferred
(but excepting transfers upon deaths of individual shareholders) from a person
or persons or entity or entities which were owners thereof at time of execution
of this Lease to persons or entities who were not owners of shares of the
corporation at time of execution of this Lease shall be deemed an assignment of
this Lease requiring the consent of Landlord as provided in Section 25.1 above.
25.3 If Tenant desires to assign this Lease to any entity into which
Tenant is merged, with which Tenant is consolidated, or which acquires all or
substantially all of the assets of Tenant, provided that the assignee first
executes, acknowledge and delivers to Landlord an agreement whereby the assignee
agrees to be bound by all of the covenants and agreements in this Lease and that
the assignee shall have a net worth (determined in accordance with generally
accepted accounting principles consistently applied) immediately after such
assignment which is at least equal to the net worth (as so determined) of Tenant
immediately prior to the assignment (or as of the date hereof, if greater), then
Landlord, upon receipt of proof of foregoing, will consent to the assignment.
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25.4 In the event Tenant desires to assign, sublease, hypothecate or
otherwise transfer this Lease or sublet the Demised Premises, then at least
forty-five (45) days, but not more than ninety (90) days, prior to the date when
Tenant desires the assignment or sublease to be effective (the "Assignment
Date"), Tenant shall give Landlord a notice (the "Assignment Notice") containing
information (including references) concerning the character of the proposed
assignee or sublessee, the Assignment Date, any ownership or commercial
relationship between Tenant and the proposed assignee or sublessee, and the
consideration and all other material terms and conditions of the proposed
assignment or sublease, all in such detail as Landlord shall reasonably require.
Tenant shall also tender to Landlord, reasonable attorneys fees and other costs
or overhead expenses incurred by Landlord in reviewing Tenants request for such
assignment.
25.5 Landlord in making its determination as to whether consent
should be given to a proposed assignment or sublease, may give consideration to
the financial strength of such successor (notwithstanding the assignor remaining
liable for Tenant's performance), any change in use which such successor
proposes to make in use of Demised Premises and desire of Landlord to exercise
rights under Section 25.10 to obtain cancellation of this Lease. In no event
shall Landlord be deemed to be unreasonable for declining to consent to transfer
to a successor of poor reputation, lacking financial qualifications, or seeking
change in use.
25.6 As conditions precedent to Landlord considering a request by
Tenant to Tenant's transfer of rights or sharing of the Premises, Landlord may
require any or all of the following:
(a) Tenant shall remain fully liable under this Lease during the unexpired
Term;
(b) Tenant shall provide Landlord with evidence reasonably satisfactory to
Landlord that the value of Landlord's interest under this Lease will not
thereby be diminished or reduced. Such evidence shall include, but need not
be limited to, evidence respecting the relevant business experience and
financial responsibility and status of the third party concerned;
(c) Tenant shall reimburse Landlord for Landlord's actual costs and expenses,
including, without limitation, reasonable attorneys' fees, charges and
disbursements incurred in connection with the review, processing and
documentation of such request;
(d) If Tenant's transfer of rights or sharing of the Premises provides for the
receipt by, on behalf or on account of Tenant of any consideration of any
kind whatsoever (including, but not by way of limitation, a premium rental
for a sublease or lump sum payment for an assignment) in excess of the
rental and other charges due Landlord under this Lease, Tenant shall pay
all of said excess to Landlord. If said consideration consists of cash paid
to Tenant, said payment to Landlord shall be made upon receipt by Tenant of
said cash payment;
(e) Written agreement from any third party concerned that in the event Landlord
gives such third party notice that Tenant is in default under this Lease,
such third party shall thereafter make all payments otherwise due Tenant
directly to Landlord, which payments will be received by Landlord without
any liability on Landlord except to credit such payment against those due
under the Lease, and any such third party shall agree to attorn to Landlord
or its successors and assigns should this Lease be terminated for any
reason; provided, however that in no event shall Landlord or its successors
or assigns be obligated to accept such attornment;
(f) Any such transfer and consent shall be effected on forms reasonably
approved by Landlord as to form and substance;
(g) Tenant shall not then be in default hereunder in any respect;
(h) Such third party's proposed use of the Premises shall be the same as
Tenant's permitted use;
(i) Landlord shall not be bound by any provision of any agreement pertaining to
Tenant's transfer of rights or sharing of the Premises;
(j) Tenant shall deliver to Landlord one executed copy of any and all written
instruments evidencing or relating to Tenant's transfer of rights or
sharing of the Premises; and
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(k) A list of Hazardous Material (as defined in Section 41.6 below), certified
by the proposed sublessee to be true and correct, which the proposed
sublessee intends to use or store in the Demised Premises. Additionally,
Tenant shall deliver to Landlord, on or before the date any proposed
sublessee takes occupancy of the Demised Premises, all of the items
relating to Hazardous Material of such proposed sublessee as described in
Section 41.1.1 below.
25.7 Any sale, assignment, hypothecation or transfer of this Lease or
subletting of the Demised Premises that is not in compliance with the provisions
of this Article 25 shall be void and shall, at the option of Landlord, terminate
this Lease.
25.8 The consent by Landlord to an assignment or subletting shall
not relieve Tenant or any assignees of this Lease or sublessee of the Demised
Premises from obtaining the consent of Landlord to any further assignment or
subletting nor shall it release Tenant or any assignee or sublessee of Tenant
from full and primary liability under the Lease.
25.9 Notwithstanding any subletting or assignment, Tenant shall
remain fully and primarily liable for the payment of all Rent and other sums
due, or to become due hereunder, and for the full performance of all other
terms, conditions, and covenants to be kept and performed by Tenant. The
acceptance of Rent or any other sum due hereunder, or the acceptance of
performance of any other term, covenant, or condition thereof, from any other
person or entity shall not be deemed to be a waiver of any of the provisions of
this Lease or a consent to any subletting, assignment or other transfer of the
Demised Premises.
25.10 If Tenant delivers to Landlord an Assignment Notice indicating
a desire to transfer this Lease to a transferee other than as provided within
Section 25.4, then Landlord shall have the option, exercisable by giving notice
to Tenant at any time within ten (10) days after Landlord's receipt of the
Assignment Notice, to terminate this Lease as of the date specified in the
Assignment Notice as the Assignment Date. If Landlord exercises such option,
then Tenant shall have the right to withdraw such Assignment Notice by delivery
to Landlord written notice of such election within five (5) days after
Landlord's delivery of notice electing to exercise such option to terminate. In
the event Tenant withdraws the Assignment Notice as hereinabove provided, this
Lease shall continue in full force and effect as if such Assignment Notice as
hereinabove provided, this Lease, and the term and estate herein granted, shall
terminate as of the Assignment Date. No failure of Landlord to exercise any such
option to terminate this Lease shall be deemed to be Landlord's consent to the
proposed Assignment, Sublease or other Transfer.
25.11 If Tenant shall sublet the Demised Premises or any part,
Tenant hereby immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this Lease, all rent from any subletting of all or a
part of the Demised Premises and Landlord as assignee and as attorney-in-fact
for Tenant, or a receiver for Tenant appointed on Landlord's application, may
collect such rent and apply it toward Tenant's obligations under this Lease;
except that, until the occurrence of an act of Default by Tenant, Tenant shall
have the right to collect such rent.
26. Attorneys' Fees
---------------
26.1 If either party commences an action against the other party
arising out of or in connection with this Lease, the prevailing party shall be
entitled to have and recover from the non-prevailing party reasonable attorneys'
fees, charges and disbursements and costs of suit.
27. Bankruptcy
----------
27.1 In the event a debtor, trustee, or debtor in possession under
the Bankruptcy Code, or other person with similar rights, duties and powers
under any other law, proposes to cure any default under this Lease or to assume
or assign this Lease, and is obliged to provide adequate assurance to Landlord
that (i) a default will be cured, (ii) Landlord will be compensated for its
damages arising from any breach of this Lease, or (iii) future performance under
this Lease will occur, then adequate assurance shall include any or all of the
following, as designated by Landlord:
(a) Those acts specified in the Bankruptcy Code or other law as
included within the meaning of adequate assurance, even if this Lease does not
concern a shopping center or other facility described in such laws;
(b) A prompt cash payment to compensate Landlord for any
monetary defaults or actual damages arising directly from a breach of this
Lease;
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(c) A cash deposit in an amount at least equal to the Security
Deposit as referenced in 2.1.8 originally required at time of execution of this
Lease.
(d) The assumption or assignment of all of Tenant's interest and
obligations under this Lease.
28. Definition of Landlord
----------------------
28.1 The term "Landlord" as used in this Lease, so far as covenants
or obligations on the part of Landlord are concerned, shall be limited to mean
and include only Landlord or the successor-in-interest of Landlord under this
Lease at the time in question. In the event of any transfer, assignment or the
conveyance of Landlord's title or leasehold, the Landlord herein named (and in
case of any subsequent transfers or conveyances, the then grantor) shall be
automatically freed and relieved from, and after the date of such transfer,
assignment or conveyance, of all liability for the performance of any covenants
or obligations contained in this Lease thereafter to be performed by Landlord
and, without further agreement, the transferee of such title or leasehold shall
be deemed to have assumed and agreed to observe and perform any and all
obligations of Landlord hereunder, during its ownership or ground lease of the
demised Premises. Landlord may transfer its interest in the Demised Premises or
this Lease without the consent of Tenant and such transfer or subsequent
transfer shall not be deemed a violation on the part of Landlord or the then
grantor of any of the terms or conditions of this Lease.
29. Estoppel Certificate
--------------------
29.1 Tenant shall within ten (10) days of written notice from
Landlord, execute, acknowledge and deliver a statement in writing substantially
in the form attached to this Lease as Exhibit "E" with the blanks filled in, and
on any other form reasonably requested by a proposed lender or purchaser, (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this Lease
as so modified is in full force and effect) and the dates to which the rental
and other charges are paid in advanced, if any, (ii) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed and (iii) setting
forth such further information with respect to this Lease or the Demised
Premises as may be requested thereon. Any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the real
property of which the Demised Premises are a part. Tenant's failure to deliver
such statement within such time shall, at the option of Landlord, constitute a
Default under this Lease, and, in any event, shall be conclusive upon Tenant
that the Lease is in full force and effect and without modification except as
may be represented by Landlord in any certificate prepared by Landlord and
delivered to Tenant for execution.
30. Joint and Several Obligations
-----------------------------
30.1 If more than one person or entity executes this Lease as
Tenant,
(a) Each of them is jointly and severally liable for the
keeping, observing and performing of all of the terms, covenants, conditions,
provisions and agreements of this Lease to be kept, observed and performed by
Tenant, and
(b) The term "Tenant" as used in this Lease shall mean and
include each of them jointly and severally. The act of, notice from, notice to,
refund to, or the signature of, any one or more of them, with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
expiration, termination or modification of this Lease, shall be binding upon
each and all of the persons executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted, so given or received such
notice or refund or so signed.
31. Limitation of Landlord's Liability
----------------------------------
31.1 If Landlord is in default of this Lease, and as a consequence,
Tenant recovers a money judgment against Landlord, the judgment shall be
satisfied only out of the proceeds of sale received on execution of the judgment
and levy against the right, title and interest of Landlord in the Building and
Project of which the Demises Premises are a part, and out of rent or other
income from such real property receivable by Landlord or out of the
consideration received by Landlord from the sale, financing, refinancing, or
other disposition of all or any part of Landlord's right, title, and interest in
the Building and Project of which the Demised Premises are a part.
24
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31.2 Landlord shall not be personally liable for any deficiency.
If Landlord is a partnership or joint venture, the partners of such partnership
shall not be personally liable and no partner of Landlord shall be sued or named
as a party in any suit or action or service of process be made against any
partner of Landlord except as may be necessary to secure jurisdiction of the
partnership or joint venture. If Landlord is a corporation, the shareholders,
directors, officers, employees, and/or agents of such corporation shall not be
personally liable and no shareholder, director, officer, employee or agent of
Landlord shall be sued or named as a party in any suit or action or service of
process made against any shareholder, director, officer, employee or agent of
Landlord. No partner, shareholder, director, employee, or agent of Landlord
shall be required to answer or otherwise plead to any service of process and no
judgment will be taken or writ of execution levied against any partner,
shareholder, director, employee or agent of Landlord.
31.3 Each of the covenants and agreements of this Article 31 shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or by common law and shall survive the termination of this
Lease.
32. Project Control by Landlord
---------------------------
32.1 Landlord reserves full control over the Building and Project
to the extent not inconsistent with Tenant's enjoyment of the Demised Premises.
This reservation includes but is not limited to right of Landlord to subdivide
the Project, convert the Building and or other buildings within the Project to
condominium units, the right to grant easements and licenses to others and the
right to maintain or establish ownership of Building separate from fee title to
land.
32.2 Tenant shall, should Landlord so request, promptly join
with Landlord in execution of such documents as may be reasonably appropriate to
assist Landlord to implement any such action provided Tenant need not execute
any document which is of nature wherein liability is created in Tenant or if by
reason of the terms of such document, Tenant will be deprived of the quiet
enjoyment and use of the Demised Premises as granted by this Lease.
32.3 Landlord may, at any and all reasonable times during non-
business hours (or during business hours if Tenant so requests), and upon
reasonable advance notice (provided that no time restrictions shall apply or
advance notice need be given if an emergency necessitates an immediate entry),
enter the Demised Premises to (a) inspect the same and to determine whether
Tenant is in compliance with its obligations hereunder, (b) supply any service
Landlord is required to provide hereunder, (c) show the Premises to prospective
purchasers or tenants, during the last year of the Term, (d) post notices of
nonresponsibility, (e) access the telephone equipment, electrical substation and
fire risers, and (f) alter, improve or repair any portion of the Building other
than the Demised Premises, but for which access to the Demised Premises is
necessary. In connection with any such alteration, improvement or repair,
Landlord may erect in the Demised Premises or elsewhere in the Project
scaffolding and other structures reasonably required for the work to be
performed. In no event shall Tenant's Rent abate as a result of any such entry
or work; provided, however, that all such work shall be done in such a manner as
to cause as little interference to Tenant as reasonably possible. Landlord shall
at all times retain a key with which to unlock all of the doors in the Demised
Premises. If an emergency necessitates immediate access to the Demised Premises,
Landlord may use whatever force is necessary to enter the Demised Premises and
any such entry to the Demised Premises shall not constitute a forcible or
unlawful entry to the Demised Premises, a detainer of the Demised Premises, or
an eviction of Tenant from the Demised Premises, or any portion thereof.
33. Quiet Enjoyment
---------------
So long as Tenant is not in default, Landlord covenants that
Landlord or anyone acting through or under Landlord will not disturb Tenant's
occupancy of the Demised Premises except as permitted by the provisions of this
Lease.
34. Quitclaim Deed
--------------
Tenant shall execute and deliver to Landlord on the expiration or
termination of this Lease, immediately on Landlord's request, in recordable
form, a quitclaim deed to the Demised Premises or such other documentation
reasonably requested by Landlord evidencing termination of this Lease.
25
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35. Rules and Regulations
---------------------
Tenant shall faithfully observe and comply with the Rules and
Regulations attached hereto as Exhibit "D" and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord shall not be responsible to Tenant for the
violation or non-performance by any other tenant or any agent, employee or
invitee thereof of any of said Rules and Regulations.
36. Subordination and Attornment
----------------------------
36.1 This Lease shall be subject and subordinate to the lien of any
mortgage, deed of trust, or lease in which Landlord is tenant now or hereafter
in force against the Project and Building and to all advances made or hereafter
to be made upon the security thereof without the necessity of the execution and
delivery of any further instruments on the part of Tenant to effectuate such
subordination.
36.2 Notwithstanding the foregoing, Tenant shall execute and
deliver upon demand such further instrument or instruments evidencing such
subordination of this Lease to the lien of any such mortgage or mortgages or
deeds of trust or lease in which Landlord is tenant as may be required by
Landlord. However, if any such mortgagee, beneficiary or Landlord under lease
wherein Landlord is tenant so elects, this Lease shall be deemed prior in lien
to any such lease, mortgage, or deed of trust upon or including the Demised
Premises regardless of date and Tenant will execute a statement in writing to
such effect at Landlord's request. If Tenant fails to execute any document
required from Tenant under this Section within ten (10) days after written
request therefor, Tenant hereby constitutes and appoints Landlord or its special
attorney-in-fact to execute and deliver any such document or documents in the
name of Tenant. Such power is coupled with an interest and is irrevocable.
36.3 In the event any proceedings are brought for foreclosure, or
in the event of the exercise of the power of sale under any mortgage or deed of
trust made by the Landlord covering the Demised Premises, the Tenant shall at
the election of the purchaser at such foreclosure or sale attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease.
37. Surrender
---------
37.1 No surrender of possession of any part of the demised Premises
shall release Tenant from any of its obligations hereunder unless accepted by
Landlord.
37.2 The voluntary or other surrender of this Lease by Tenant shall
not work a merger, unless Landlord consents and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies.
37.3 The voluntary or other surrender of any ground or underlying
lease that now exists or may hereafter be executed affecting the Building or
Project, or a mutual cancellation, thereof, or of Landlord's interest therein,
shall not work a merger and shall, at the option of the successor of Landlord's
interest in the Building or Project, operate as an assignment of this Lease.
38. Waiver and Modification
-----------------------
38.1 No provision of this Lease may be modified, amended or added
to except by an agreement in writing. The waiver by Landlord of any breach of
any term, covenant or condition herein contained shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition herein contained.
39. Waiver of Jury Trial and Counterclaims
--------------------------------------
39.1 The parties hereto shall and they hereby do waive trial by
jury in any action, proceeding or counterclaim brought by either of the parties
hereto against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Demised Premises, and or any claim of injury or damage.
26
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40. Relocation of Demised Premises
------------------------------
40.1 Landlord shall have the right at any time during the term hereof
upon giving Tenant not less than ninety (90) days prior written notice, to
provide Tenant with space elsewhere in the Building or Project of substantially
the same size, decor, and nature as the herein Demised Premises and remove and
place Tenant in such space, with Landlord to pay all reasonable and customary
costs and expenses incurred as a result of such removal of Tenant, including,
without limitation, costs incurred in changing addresses on stationery and
business cards. Should Tenant refuse to permit Landlord to move Tenant to such
new space at the end of said ninety (90) day period, Landlord shall have, in
addition to all other rights and remedies allowed by law or equity, the right to
cancel and terminate this Lease upon giving Tenant within thirty (30) days of
the end of such ninety (90) day period written notice of such election to
terminate. Upon giving such notice this Lease shall immediately terminate. If
Landlord moves Tenant to such new space, this Lease and each and all of its
terms, covenants, and conditions shall remain in full force and effect and be
deemed applicable to such new space and such new space shall thereafter be
deemed to be the "Demised Premises" as though Landlord and Tenant have entered
into an express written amendment to this Lease with respect thereto.
41. Hazardous Materials
-------------------
41.1 Prohibition/Compliance. Tenant shall not cause or permit any
----------------------
Hazardous Material (as hereinafter defined) to be brought upon, kept or used in
or about the Demised Premises or the Project in violation of applicable law by
Tenant, its agents, employees, contractors or invitees. If Tenant breaches the
obligation stated in the preceding sentence, or if the presence of Hazardous
Materials results in contamination of the Demised Premises, the Building, the
Project or any adjacent Property or if contamination of the Demised Premises,
the Building, the Project or any adjacent Property by Hazardous Material
otherwise occurs during the term of this Lease or any extension or renewal
hereof or holding over hereunder, then Tenant shall indemnify, defend and hold
Landlord, its agents and contractors harmless from any and all claims,
judgments, damages, penalties, fines, costs, liabilities, or losses (including,
without limitation, diminution in value of the Demised Premises or any portion
of the Project, damages for the loss or restriction on use of rentable or usable
space or of any amenity of the Demised Premises or Project, damages arising from
any adverse impact on marketing of space in the Demised Premises or the Project,
and sums paid in settlement of claims, attorneys' fees, consultant fees and
expert fees) which arise during or after the Lease term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal, or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the air, soil or ground water above on or under
the Demised Premises. Without limiting the foregoing, if the presence of any
Hazardous Material on the Demised Premises, the Building, the Project or any
adjacent Property, caused or permitted by Tenant results in any contamination of
the Demised Premises, the Building, the Project or any adjacent Property, Tenant
shall promptly take all actions at its sole expense as are necessary to return
the Demised Premises, the Building, the Project or any adjacent Property, to the
condition existing prior to the time of such contamination, provided that
Landlord's approval of such action shall first be obtained, which approval shall
not unreasonably be withheld so long as such actions would not potentially have
any material adverse long-term or short-term effect on the Demised Premises, the
Building or the Project.
41.1.1 Business. Landlord acknowledges that it is not the intent of
--------
this Article 41 to prohibit Tenant from operating its business as described in
Section 2.1.9 above. Tenant may operate its business according to the custom of
the industry so long as the use or presence of Hazardous Material is strictly
and properly monitored according to all applicable governmental requirements. As
a material inducement to Landlord to allow Tenant to use Hazardous Material in
connection with its business, Tenant agrees to deliver to Landlord prior to the
Term Commencement Date a list identifying each type of Hazardous Material to be
present on the Demised Premises and setting forth any and all governmental
approvals or permits required in connection with the presence of such Hazardous
Material on the Demised Premises ("Hazardous Material List"). Tenant shall
deliver to Landlord an updated Hazardous Material List at least once a year and
shall also deliver an updated list before any new Hazardous Material is brought
onto the Demised Premises. Tenant shall deliver to Landlord true and correct
copies of the following documents (hereinafter referred to as the "Documents")
relating to the handling, storage, disposal and emission of Hazardous Material
prior to the Term Commencement Date, or if unavailable at that time, concurrent
with the receipt from or submission to a governmental agency: permits;
approvals; reports and correspondence; storage and management plans, notice of
violations of any laws;
27
<PAGE>
plans relating to the installation of any storage tanks to be installed in or
under the Project (provided, said installation of tanks shall only be permitted
after Landlord has given Tenant its written consent to do so, which consent may
be withheld in Landlord's sole and absolute discretion); and all closure plans
or any other documents required by any and all federal, state and local
governmental agencies and authorities for any storage tanks installed in, on or
under the Project for the closure of any such tanks. Tenant is not required,
however, to provide Landlord with any portion(s) of the Documents containing
information of a proprietary nature which, in and of themselves, do not contain
a reference to any Hazardous Material or hazardous activities. It is not the
intent of this Section to provide Landlord with information which could be
detrimental to Tenant's business should such information become possessed by
Tenant's competitors. At the written request of Landlord, Tenant agrees that it
shall enter into a written agreement with other tenant's at the Building
concerning the equitable allocation of fire control areas (as defined in the
Uniform Building Code, and adopted by the City of San Diego ("UBC")) within the
Building for the storage of Hazardous Materials. In the event that Tenant's use
of Hazardous Materials is such that it utilizes fire control areas in the
Building in excess of Tenant's Pro Rata Share of the Building as set forth in
Section 2.1.6 above, Tenant agrees that it shall, at its own expense, and upon
the written request of Landlord, establish and maintain a separate area of the
Demised Premises classified by the UBC as an "H" occupancy area, for the use and
storage of Hazardous Materials, or take such other action so that its share of
the fire control areas of the Building is not greater than Tenant's Pro Rata
Share of the Building.
41.2 Termination of Lease. Notwithstanding the provisions of Section
--------------------
41.1 above, if (i) Tenant or the proposed assignee or sublessee of Tenant has
been required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Material contaminating a property
if the contamination resulted from such party's action or use of the property in
question, or (ii) Tenant or the proposed assignee or sublessee is subject to an
enforcement order issued by any governmental authority in connection with the
use, disposal or storage of a Hazardous Material, Landlord shall have the right
to terminate the Lease in Landlord's sole and absolute discretion (with respect
to any such matter involving Tenant) and it shall not be unreasonable for
Landlord to withhold its consent to any proposed assignment or subletting (with
respect to any such matter involving a proposed assignee or sublessee).
41.3 Testing. At any time, and from time to time, prior to the
-------
expiration of the Term, Landlord shall have the right to conduct appropriate
tests of the Demised Premises, Building and Project to demonstrate that
contamination has occurred as a result of Tenant's use of the Demised Premises.
Tenant shall be solely responsible for and shall defend, indemnify and hold the
Landlord, its agents and contractors harmless from and against any and all
claims, costs and liabilities including actual attorneys' fees, charges and
disbursements, arising out of or in connection with any removal, clean up,
restoration and materials required hereunder to return the Demised Premises and
any other property of whatever nature to their condition existing prior to the
time of any such contamination. Tenant shall pay for the cost of the tests of
the Demised Premises.
41.4 Underground Tanks. If underground or other storage tanks
-----------------
storing Hazardous Materials are located on the Demised Premises or are hereafter
placed on the Demised Premises by any party, Tenant shall monitor the storage
tanks, maintain appropriate records, implement reporting procedures, properly
close any underground storage tanks, and take or cause to be taken all other
steps necessary or required under the California Administrative Code, Title 23,
Chapter 3, Subchapter 16, "Underground Storage Tank Regulations," and
Division 20, Chapter 6.7 of the California Health & Safety Code, "Underground
Storage of Hazardous Substances," as they now exist or may hereafter be adopted
or amended.
41.5 Tenant's Obligations. Tenant's obligations under this Article
--------------------
41 shall survive the expiration or earlier termination of the Lease. During any
period of time employed by Tenant or Landlord after the termination of this
Lease to complete the removal from the Demised Premises of any such Hazardous
Materials, Tenant shall continue to pay the full Rent in accordance with this
Lease, which Rent shall be prorated daily.
41.6 Definition of "Hazardous Material." As used herein, the term
---------------------------------
"Hazardous Material" means any hazardous or toxic substance, material or waste
which is or becomes regulated by any local governmental authority, the State of
California or the United States government. The term "Hazardous Material"
includes, without limitation, any material or substance which is (i) defined as
a "hazardous waste, " "extremely hazardous waste" or "restricted hazardous
waste" under Section 25515 or 25117, or listed pursuant to Section 25140, of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a "hazardous substance" under Section
28
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25316 of the California Health and Safety Code, Division 2, Chapter 6.8
(Carpenter-Presly-Tanner Hazardous Substance Account Act), (iii) defined as a
"hazardous material," "hazardous substance" or "hazardous waste" under
Section 25501 of the California Health and Safety Code, Division 20,
Chapter 6.95 (Hazardous Substances), (v) petroleum, (vi) asbestos, (vii) listed
under Article 9 and defined as hazardous or extremely hazardous pursuant to
Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20, (viii) designated as a "hazardous substance" pursuant to Section 311
of the Federal Water Pollution Control Act (33 U.S.C. Section 1317),
(ix) defined as a "hazardous waste" pursuant to Section 1004 of the Federal
Resource Conversation and Recovery Act, 42 U.S.C. Section 6901, et. seq. (42
U.S.C. Section 6903), or (x) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C. Section 9601).
42. Option to Expand
----------------
42.1 Subject to the conditions set forth in this Section 42, Tenant
shall have the right, but not the obligation to expand the Demised Premises (the
"Expansion Option") to include approximately __________ rentable square feet
(______ usable square feet) of contiguous premises as more particularly shown on
the floor plan attached hereto as Exhibit "I" (the "Expansion Space").
42.2 Tenant may exercise the Expansion Option by providing Landlord,
no later than _________ __,____, with written notice that Tenant exercises the
Expansion Option. Within ten (10) days after the proper exercise of the
Expansion Option, Tenant and Landlord shall enter into a written amendment to
the Lease (the "Amendment") which shall provide, unless otherwise agreed in
writing, (a) that the commencement date of the Expansion Space shall be
_____________, 199_ ; (b) that the Demised Premises under the Lease shall be
increased to include the rentable square feet of the Expansion Space; (c) the
new Basic Annual Rent, with the Expansion Space increasing the Basic Annual Rent
at the square foot rental rate then applicable under the Lease; (d) Tenant's new
Pro Rata Share of Operating Expenses based upon the addition of the Expansion
Space to the Demised Premises; (e) the proportionate increase to the Security
Deposit (which shall be payable upon execution of the Amendment or provided by
letter of credit as described in Section 9 above); and (f) Landlord shall
provide a tenant improvement allowance not to exceed ______________ Dollars
($_____) per usable square feet which shall expire as to that portion not
expended within six (6) months of the commencement date of the Expansion Space.
In all other respects, the Lease shall remain in full force and effect, and
shall apply to the Expansion Space.
42.3 Notwithstanding the above, the Expansion Option shall not be
exercised by Tenant during such period of time that Tenant is in default under
any provision of the Lease. Any attempted exercise of an Expansion Option during
a period of time in which Tenant is in default shall be void. Tenant shall also
not be entitled to exercise the Expansion Option if Landlord has given Tenant
three (3) or more notices of default under the Lease, whether or not the
defaults are cured, during the five (5) month period prior to the date on which
Tenant seeks to exercise any Option.
43. Miscellaneous
-------------
43.1 Terms and Headings. Where applicable in this Lease, the
------------------
singular includes the plural and the masculine or neuter includes the masculine,
feminine and neuter. The section headings of this Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part hereof.
43.2 Examination of Lease. Submission of this instrument for
--------------------
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
43.3 Time. Time is of the essence with respect to the performance of
----
every provision of this Lease in which time of performance is a factor.
43.4 Covenants and Conditions. Each provision of this Lease
------------------------
performable by Tenant shall be deemed both a covenant and a condition.
43.5 Consents. Whenever consent or approval of either party is
--------
required, that party shall not unreasonably withhold such consent or approval,
except as may be expressly set forth to the contrary.
29
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43.6 Entire Agreement. The terms of this Lease are intended by the
----------------
parties as a final expression of their agreement with respect to the terms as
are included herein, and may not be contradicted by evidence of any prior or
contemporaneous agreement. The Basic Lease Provisions, general Provisions,
Addendum, and Exhibits all constitute a single document and are incorporated
herein.
43.7 Severability. Any provision of this Lease which shall provide
------------
to be invalid, void, or illegal in no way affects, impairs or invalidates any
other provision hereof, and such other provisions shall remain in full force and
effect.
43.8 Recording. Landlord may, but shall not be obligated to, record
---------
a short form memorandum hereof without the consent of Tenant. Neither parties
shall record this Lease. Tenant shall be responsible for the cost of recording
any Memorandum of Lease, including any transfer or other taxes incurred in
connection with said recordation.
43.9 Impartial Construction. The language in all parts of this Lease
----------------------
shall be in all cases construed as a whole according to its fair meaning and not
strictly for or against either Landlord or Tenant.
43.10 Inurement. Each of the covenants, conditions and agreements
---------
herein contained shall inure to the benefit of and shall apply to and be binding
upon the parties hereto and their respective heirs, legatees, devisees,
executors, administrators, successors, assigns, sublessees, or any person who
may come into possession of said Demised Premises or any part thereof in any
manner whatsoever. Nothing in this Section 43.10 contained shall in any way
alter the provisions against assignment or subletting in this Lease provided.
43.11 Notices. Any notice, consent, demand, bill, statement, or other
-------
communication required or permitted to be given hereunder must be in writing and
may be given by personal delivery or by mail, and if given by mail shall be
deemed sufficiently given two (2) days after time when deposited in United
States Mail is sent by registered or certified mail, addressed to Tenant at the
Demised Premises, or to Tenant or Landlord at the addresses shown in Section
2.1.10 of the Basic Lease Provisions. Either party may, by notice to the other
given pursuant to this Section, specify additional or different addresses for
notice purposes.
43.12 California Jurisdiction. This Lease has been negotiated and
-----------------------
entered into in the State of California and shall be governed by, construed and
enforced in accordance with the laws of the State of California, applied to
contracts made in California for California domiciliaries to be wholly performed
in California.
43.13 Authority. That individual or those individuals signing this
---------
Lease guarantee, warrant and represent that said individual or individuals have
the power, authority and legal capacity to sign this Lease on behalf of and to
bind all entities, corporations, partnerships, joint venturers or other
organizations and/or entities on whose behalf said individual or individuals
have signed.
44. Existing Space.
---------------
The portion of the Building identified on Exhibit "H" attached hereto (the
"Existing Space") consisting of approximately _________ rentable square feet, is
currently occupied by Tenant under a sublease with __________________("____")
pursuant to that certain Office Lease as amended dated _________ __, _____
between _______________________ as predecessor-in-interest to Landlord and
__________________, now known as ________ (the "_______ Lease"). Following the
execution hereof, Landlord and Tenant shall use their reasonable efforts to
cause _____ to terminate the _________ Lease so as to allow Landlord and Tenant
to enter into a direct lease with regard to the Existing Space; provided that,
Landlord shall not be required to expend any sums or incur any costs, or engage
in any litigation, in connection with such efforts. Following the surrender of
the Existing Space by ________ and termination of the ________ Lease (whether
pursuant to Landlord's efforts as provided hereinabove or pursuant to the
expiration or termination of the ________ Lease), Landlord shall, within thirty
days thereafter, deliver the Existing Space to Tenant, and the Existing Space
shall thereupon become part of, and be included within the definition of, the
Demised Premises subject to all of the terms and conditions of this Lease,
except: (a) that the Demised Premises under the Lease shall be increased to
include the rentable square feet of the Existing Space; (b) the new Basic Annual
Rent, with the Existing Space increasing the Basic Annual Rent at the square
foot rental rate then applicable under the Lease; (c) Tenant's new Pro Rata
Share of Operating Expenses based upon the addition of the Existing Space to the
Demised Premises; and (d) the proportionate increase to the Security Deposit
(which shall be payable upon execution of the Amendment or provided by letter of
credit as described in Section 9 above):
30
<PAGE>
Landlord, however, shall not be obligated to provide Tenant with any Tenant
improvement allowance for the Existing Space. In all other respects, the Lease
shall remain in full force and effect, and shall apply to the Existing Space.
Upon the delivery of the Existing Space to Tenant as provided herein, Landlord
and Tenant shall execute and deliver an amendment to this Lease confirming the
delivery and commencement date with respect thereto, and the other changes in
the Lease terms described above.
45. Option to Extend Term.
----------------------
Tenant shall have the option ("Option") to extend the term of this Lease
upon the following terms and conditions:
(a) Tenant shall have one (1) option to extend the term of this
Lease two (2) years on the same terms and conditions as this Lease. Basic Annual
Rent shall be adjusted on the first day of the renewal term and the one (1) year
anniversary date thereof in accordance with Article 6 above.
(b) The Option herein granted is not assignable separate and apart
from this Lease.
(c) The Option is conditional upon Tenant giving Landlord written
notice of its election to exercise the Option at least nine (9) months prior to
the end of the expiration of the initial term of this Lease.
(d) Tenant shall not have the right to exercise any Option,
notwithstanding anything set forth above to the contrary:
(1) During the time commencing from the date Landlord gives to
Tenant a written notice that Tenant is in default under any provisions of this
Lease and continuing until the default alleged in said notice is cured; or
(2) At any time after an event of Default as described in
Article 24, of the Lease (without any necessity of Landlord to give notice of
such default to Tenant) and continuing until any such default is cured, if
curable; or
(3) In the event that Tenant has defaulted in the performance
of its obligations three (3) or more times and a service charge has become
payable under Section 24.1 for each of such defaults during the twelve-month
period immediately prior to the date that Tenant intends to exercise the Option,
whether or not the defaults are cured.
(e) The period of time within which the Option may be exercised
shall not be extended or enlarged by reason of the Tenant's inability to
exercise the Option because of the foregoing provisions of subparagraph (d).
(f) All rights of Tenant under the provisions of the Option shall
terminate and be of no further force or effect even after Tenant's due and
timely exercise of an Option, if, after such exercise, but prior to the
commencement date of the new term, (1) Tenant fails to pay to Landlord a
monetary obligation of Tenant for a period of twenty (20) days after written
notice from Landlord to Tenant; (2) Tenant fails to commence to cure a default
(other than a monetary default) within thirty (30) days after the date Landlord
gives notice to Tenant of such default; or (3) Tenant has defaulted three (3) or
more times and a service charge under Section 24.1 has become payable for any
such default, during the period from the date of the exercise of such option to
the date of the commencement of such option term, whether or not such defaults
are cured.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
31
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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
Landlord: Tenant:
________________________________
By:________________________________ By:_____________________________
Name:______________________________ Name:___________________________
Its:_______________________________ Its:____________________________
By:_____________________________
Name:___________________________
Its:____________________________
32
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EXHIBIT 10.17
================================================================================
SECOND
AMENDED AND RESTATED
LOAN AGREEMENT
Dated and Effective as of September 9, 1996
BY and BETWEEN
HSP-QRS CORP.
as Borrower
AND
PAINEWEBBER INCORPORATED,
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION......................................... 2
1.1 Definitions............................................................. 2
1.2 Principles of Construction............................................. 33
II. GENERAL TERMS.................................................................. 34
2.1 Loan Commitment; Disbursement to Borrower.............................. 34
2.1.1 Revolving Loans.............................................. 34
2.1.2 Disbursement to Borrower..................................... 34
2.1.3 Requests for Revolving Loans; Continuations.................. 35
2.1.4 Promissory Note.............................................. 35
2.1.5 Facility Fees................................................ 35
2.1.6 Conversion................................................... 36
2.2 Use of Proceeds........................................................ 39
2.3 Note Record............................................................ 39
2.4 Loan Repayments and Prepayments........................................ 40
2.4.1 Repayments................................................... 40
2.4.2 Mandatory Prepayments........................................ 40
2.4.3 Voluntary Prepayments........................................ 41
2.4.4 Subsequent Transactions...................................... 42
2.5 Interest............................................................... 42
2.5.1 Generally.................................................... 42
2.5.2 Interest Payments............................................ 44
2.5.3 Default Rate; Post-Maturity Interest......................... 44
2.6 Payments; Computations................................................. 45
2.6.1 Making of Payments........................................... 45
2.6.2 Computation of Interest...................................... 45
2.6.3 Determination of Applicable Interest Rate.................... 45
2.6.4 Inability to Determine Applicable Interest Rate.............. 46
2.6.5 Illegality or Impracticability of Eurodollar Rate Loans...... 46
2.6.6 Compensation For Certain Non-Conforming Payments or
Non-Commencement of Interest Periods............................ 46
2.6.7 Booking of Loan.............................................. 47
2.6.8 Assumptions Concerning Funding of the Applicable Loan........ 47
2.6.9 Compensation for Increased Costs and Taxes................... 47
2.6.10 Withholding of Taxes......................................... 48
2.6.11 Capital Adequacy Adjustment.................................. 50
III. SPECIAL PROVISIONS............................................................. 51
3.1 Accounts............................................................... 51
</TABLE>
i
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3.1.1 Establishment................................................ 51
3.1.2 Pledge and Assignment; Notification of Depositories.......... 52
3.1.3 Deposit of Proceeds on Closing Date and Property
Addition Dates.................................................. 53
3.1.4 Deposit and Allocation of Property Income After the
Closing Date.................................................... 53
3.1.5 Permitted Investments........................................ 55
3.1.6 Earnings on Account Collateral; Monthly Statements........... 56
3.1.7 Borrower's Obligation to Fund Shortfalls..................... 56
3.1.8 Disbursement of Account Collateral........................... 57
3.1.9 Casualty Insurance Proceeds.................................. 60
3.1.10 Condemnation Proceeds........................................ 61
3.1.11 Other Capital Event Proceeds................................. 62
3.1.12 Remedies Upon Default in Respect of Account Collateral....... 62
3.2 Insurance; Casualty and Condemnation................................... 62
3.2.1 Insurance.................................................... 62
3.2.2 Casualty, Condemnation and Application of Proceeds........... 65
3.3 Release of Properties; Asset Sales..................................... 68
3.4 Limitation on Requests................................................. 69
3.5 Cooperation............................................................ 69
3.5.1 Sale, Assignment, Syndication, Securitization or other
Transfer of the Applicable Loan................................. 69
3.5.2 Severance of Mortgage........................................ 70
3.5.3 Notice of Securitization; Prepayment......................... 70
3.6 Subsequent Transactions................................................ 71
3.6.1 Qualified IPO................................................ 71
3.6.2 Non-Qualified IPO............................................ 72
3.6.3 Private Refinancing.......................................... 73
3.6.4 Back-End Fee................................................. 74
3.6.5 Miscellaneous................................................ 75
3.7 Defeasance............................................................. 77
IV. CONDITIONS PRECEDENT........................................................... 79
4.1 Conditions Precedent to Closing and Initial Revolving Loan............. 79
4.1.1 Representations and Warranties; Compliance with
Conditions...................................................... 80
4.1.2 Approval and Delivery of Documents........................... 80
4.1.3 Delivery of Mortgage and Assignment of Leases; Title
Insurance; Reports; Leases; Security Agreements and Other
Documentation................................................... 80
4.1.4 Delivery of Organizational Documents......................... 81
4.1.5 Opinions of Borrower's Counsel............................... 82
</TABLE>
ii
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4.1.6 Budgets...................................................... 83
4.1.7 Basic Carrying Costs and Other Impositions................... 83
4.1.8 Completion of Proceedings.................................... 83
4.1.9 Purchase Contracts........................................... 83
4.1.10 Estoppel Certificates and Attornment Agreements.............. 83
4.1.11 Acquisition of Properties.................................... 83
4.1.12 AEW Equity Placement............................................ 84
4.1.13 Funding of Accounts.......................................... 84
4.1.14 No Material Adverse Effect...................................... 84
4.1.15 Security Interests.............................................. 84
4.1.16 Advisory Fee; Origination Fee................................... 84
4.1.17 Out-of-Pocket Expenses.......................................... 84
4.1.18 Recording Instructions.......................................... 84
4.1.19 Property Management............................................. 85
4.1.20 No Condemnation................................................. 85
4.1.21 No Casualty..................................................... 85
4.1.22 1413 Research Boulevard Property Requirements................... 85
4.1.23 Interest Rate Cap Agreement..................................... 85
4.1.24 Other Documents................................................. 86
4.2 Conditions Precedent to Addition of Properties......................... 86
4.2.1 Representations and Warranties; Compliance with
Conditions...................................................... 87
4.2.2 Mortgage, Assignment of Leases and/or Amendments............. 87
4.2.3 Title Insurance.............................................. 87
4.2.4 Survey....................................................... 87
4.2.5 Title........................................................ 88
4.2.6 Insurance.................................................... 88
4.2.7 Environmental Reports and Engineering Reports................ 88
4.2.8 Zoning....................................................... 88
4.2.9 HSP Security Agreement; HSP Guaranty......................... 88
4.2.10 Other Loan Documents............................................ 88
4.2.12 Opinions of Borrower's Counsel.................................. 89
4.2.13 Budgets......................................................... 89
4.2.14 Basic Carrying Costs and Other Impositions...................... 89
4.2.15 Completion of Proceedings....................................... 89
4.2.16 Purchase Contracts.............................................. 89
4.2.17 Estoppel Certificates........................................... 89
4.2.18 Acquisition of Properties....................................... 90
4.2.19 Funding of Accounts............................................. 90
4.2.20 No Material Adverse Effect...................................... 90
4.2.21 No Condemnation................................................. 90
4.2.22 No Casualty..................................................... 90
</TABLE>
iii
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4.2.23 Security Interests.............................................. 90
4.2.24 Out-of-Pocket Expenses.......................................... 90
4.2.25 Recording Instructions.......................................... 90
4.2.26 Property Management............................................. 91
4.2.27 Additions to Schedules and Exhibits............................. 91
4.2.28 Other Documents................................................. 91
4.3 Conditions Precedent to All Borrowings................................. 91
4.3.1 Borrowing Base............................................... 91
4.3.2 Permitted Purpose............................................ 91
4.3.3 Representations True; No Event of Default.................... 91
4.3.4 Compliance Certificate....................................... 91
4.3.5 Date Down Endorsement........................................ 92
4.3.6 No Legal Impediment.......................................... 92
4.3.7 No Material Adverse Effect................................... 92
4.3.8 Additions to Schedules and Exhibits.......................... 92
4.3.10 Interest Rate Cap Agreement..................................... 92
4.3.11 Required Interest Deposit....................................... 93
4.4 Expiration............................................................. 93
V. REPRESENTATIONS AND WARRANTIES................................................. 93
5.1 Borrower Representations............................................... 93
5.1.1 Organization................................................. 93
5.1.2 Capitalization............................................... 94
5.1.3 Proceedings.................................................. 95
5.1.4 No Conflicts................................................. 95
5.1.5 Litigation................................................... 95
5.1.6 Agreements................................................... 96
5.1.7 Title........................................................ 96
5.1.8 No Bankruptcy Filing......................................... 96
5.1.9 Full and Accurate Disclosure................................. 96
5.1.10 Tax Filings; Impositions........................................ 96
5.1.11 Compliance................................................... 97
5.1.12 Use of Proceeds.............................................. 97
5.1.13 Financial Information........................................ 97
5.1.14 Condemnation................................................. 97
5.1.15 Debt......................................................... 97
5.1.16 Federal Reserve Regulations.................................. 98
5.1.17 Utilities and Public Access.................................. 98
5.1.18 Not Foreign Person........................................... 98
5.1.19 Separate Lots................................................ 98
5.1.20 Assessments.................................................. 98
5.1.21 Enforceability............................................... 98
</TABLE>
iv
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5.1.22 No Prior Assignment......................................... 98
5.1.23 Insurance................................................... 99
5.1.24 Flood Zone.................................................. 99
5.1.25 Physical Condition.......................................... 99
5.1.26 Filing and Recording Taxes..................................... 99
5.1.27 Subordination............................................... 99
5.1.28 Permitted Encumbrances...................................... 99
5.1.29 Rent Roll................................................... 100
5.1.30 Environmental Protection....................................... 100
5.1.31 Matters Relating to Collateral................................. 100
5.1.32 Investment Company Act......................................... 101
5.1.33 Public Utility Holding Company Act............................. 101
5.1.34 ERISA.......................................................... 101
5.2 Survival of Representations........................................... 102
VI. AFFIRMATIVE COVENANTS......................................................... 102
6.1 Borrower Covenants.................................................... 102
6.1.1 Existence; Compliance with Legal Requirements;
Insurance...................................................... 103
6.1.2 Impositions and Other Claims................................ 103
6.1.3 Litigation.................................................. 103
6.1.4 Access to Premises.......................................... 103
6.1.5 Cooperate in Legal Proceedings.............................. 103
6.1.6 Capital Event Proceeds; Condemnation and Insurance
Benefits....................................................... 103
6.1.7 Further Assurances; Supplemental Mortgage Affidavits........ 104
6.1.8 Management of Property...................................... 104
6.1.9 Financial Reporting......................................... 106
6.1.10 Business and Operations........................................ 110
6.1.11 Title to Properties............................................ 110
6.1.12 Estoppel Statement............................................. 110
6.1.13 Loan Proceeds.................................................. 110
6.1.14 Annual Operating Budget........................................ 110
6.1.15 Confirmation of Representations................................ 111
6.1.16 No Joint Assessment............................................ 112
6.1.17 Leasing Matters................................................ 112
6.1.18 Principal Place of Business.................................... 113
6.1.19 Attornment..................................................... 113
6.1.20 Taxes and Other Liabilities.................................... 113
6.1.21 Tax Returns.................................................... 113
6.1.22 1413 Research Boulevard Property Requirements.................. 114
6.1.23 Special Purpose Covenants...................................... 114
</TABLE>
v
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<CAPTION>
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<S> <C>
6.1.24 Interest Rate Cap Agreement.................................... 115
VII NEGATIVE COVENANTS............................................................ 116
7.1 Borrower Negative Covenants........................................... 116
7.1.1 Change in Business.......................................... 116
7.1.2 Dissolution; Merger; Etc.................................... 116
7.1.3 Assets...................................................... 116
7.1.4 Transfers of Properties and Assets.......................... 116
7.1.5 Liens....................................................... 117
7.1.6 Subsidiaries................................................ 118
7.1.7 Debt........................................................ 118
7.1.8 Dividends................................................... 118
7.1.9 Investments................................................. 119
7.1.10 Leases......................................................... 119
7.1.11 Stock.......................................................... 119
7.1.12 Sale-Leasebacks................................................ 119
7.1.13 Affiliate Transactions......................................... 119
7.1.14 Debt Cancellation.............................................. 119
7.1.15 Management of Properties....................................... 120
7.1.16 Zoning......................................................... 120
7.1.17 Borrower's Organizational Documents; Property Agreements....... 120
7.1.18 HSP's Organizational Documents; Series V Stock Purchase
Agreement; Stockholders Agreement.............................. 120
VIII. DEFAULTS...................................................................... 121
8.1 Event of Default...................................................... 121
8.2 Remedies.............................................................. 127
8.3 Remedies Cumulative................................................... 128
8.4 Cure of Individual Property Defaults.................................. 128
IX. MISCELLANEOUS................................................................. 129
9.1 Survival.............................................................. 129
9.2 Lender's Discretion................................................... 129
9.3 Governing Law......................................................... 129
9.4 Modification, Waiver in Writing....................................... 130
9.5 Delay Not a Waiver.................................................... 130
9.6 Notices............................................................... 131
9.7 Trial By Jury......................................................... 131
9.8 Headings.............................................................. 132
9.9 Severability.......................................................... 132
9.10 Preferences........................................................... 132
9.11 Waiver of Notice...................................................... 132
</TABLE>
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<CAPTION>
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<S> <C>
9.12 Remedies of Borrower.................................................. 132
9.13 Expenses; Indemnity................................................... 132
9.14 Exhibits, Schedules Incorporated...................................... 134
9.15 No Joint Venture or Partnership....................................... 134
9.16 Publicity............................................................. 134
9.17 Waiver of Marshalling of Assets....................................... 135
9.18 Waiver of Counterclaim................................................ 135
9.19 Conflict; Construction of Documents................................... 135
9.20 Brokers and Financial Advisors........................................ 135
9.21 Prior Agreements...................................................... 136
9.22 Maximum Rate of Interest.............................................. 136
9.23 Restatement........................................................... 136
9.24 Counterparts.......................................................... 137
9.25 Application of Payments............................................... 137
</TABLE>
vii
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<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
EXHIBITS
- --------
Exhibit A List of Properties
Exhibit B Form of Surveyor's Certification
Exhibit C Form of Assignment of Leases
Exhibit D Form of Assignment of Interest Rate Cap Agreement
Exhibit E Form of Mortgage
Exhibit F Form of Promissory Note
Exhibit G Form of Environmental Indemnity
Exhibit H Convertible Debentures
Exhibit I Loan Proceeds Deposited in the Cash
Collateral Account on the Closing Date
Exhibit J Pending and Threatened Litigation
Exhibit K Form of Cash Flow Statement
Exhibit L Properties in a Flood Zone
Exhibit M Rent Roll
Exhibit N Schedule of Non-Compliance with Legal
Requirements
Exhibit O Form of Restricted Account Letter
Exhibit P Form of HSP Security Agreement
Exhibit Q Form of HSP Guaranty
Exhibit R Form of Loan Request
Exhibit S Form of Compliance Certificate
Exhibit T Form of Assignment and Assumption Agreement
SCHEDULES
- ---------
Schedule I List of Property Agreements
Schedule II List of Environmental Reports and Engineering Reports
Schedule III Additional Disclosure
Schedule IV Deferred Maintenance and Environmental Remediation
Schedule V [INTENTIONALLY OMITTED]
Schedule VI HSP's Capitalization and Share Ownership
Schedule VII Condemnation
Schedule VIII [INTENTIONALLY OMITTED]
Schedule IX Affiliate Transactions
Schedule X Pledged Shares
Schedule XI Borrower's Organizational Documents
Schedule XII HSP's Organizational Documents
</TABLE>
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<PAGE>
SECOND
AMENDED AND RESTATED
LOAN AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT, dated and effective
as of September 9, 1996 (as amended, restated, replaced, supplemented or
otherwise modified from time to time, this "AGREEMENT"), by and between
PAINEWEBBER INCORPORATED, a Delaware corporation ("PAINEWEBBER"; and together
with its successors and assigns hereunder (including Paine Webber Real Estate
Securities Inc.), "LENDER"), having an address at 1285 Avenue of the Americas,
New York, New York 10019, and HSP-QRS CORP., a Maryland corporation
("BORROWER"), having an address at 251 South Lake Avenue, Suite 535, Pasadena,
California 91101, Attention: Joel S. Marcus.
All capitalized terms used herein shall have the respective meanings
set forth in Section 1.1.
-----------
W I T N E S S E T H :
WHEREAS, Health Science Properties, Inc., a Maryland corporation
("HSP") and PaineWebber entered into that certain Loan Agreement dated as of
July 2, 1996 (the "ORIGINAL LOAN AGREEMENT");
WHEREAS, PaineWebber's interest under the Original Loan Agreement and
the loan documents related thereto has been purchased by Paine Webber Real
Estate Securities Inc. ("PWRESI"), and thereafter, PWRESI's interest under the
Original Loan Agreement and the loan documents related thereto has been
purchased by PaineWebber;
WHEREAS, HSP and PaineWebber have amended and restated the Original
Loan Agreement in its entirety to, inter alia, modify the credit facility
provided therein, and to increase the maximum aggregate principal amount
available under such credit facility to $75,000,000.00, pursuant to that certain
Amended and Restated Loan Agreement dated as of even date herewith between HSP
and PaineWebber (the "FIRST RESTATED LOAN AGREEMENT"), all upon the terms and
conditions more particularly set forth therein;
WHEREAS, HSP has assigned to Borrower it rights under the First
Restated Loan Agreement and the loan documents related thereto, and Borrower has
assumed HSP's obligations thereunder;
WHEREAS, Lender and Borrower desire to amend and restate the First
Restated Loan Agreement, and to modify the credit facility provided therein,
subject to and in accordance with the terms of this Agreement; and
1
<PAGE>
NOW, THEREFORE, in consideration of the making of the Applicable Loan
by Lender and the covenants, agreements, representations and warranties set
forth in this Agreement, the parties hereto hereby covenant, agree, represent
and warrant as follows:
I DEFINITIONS; PRINCIPLES OF CONSTRUCTION
---------------------------------------
SECTION 1.1 DEFINITIONS.
----------- -----------
For all purposes of this Agreement, except as otherwise expressly
required or unless the context clearly indicates a contrary intent:
"ACCOUNT COLLATERAL" has the meaning specified in Section 3.1.2.
-------------
"ACCOUNTS" means, collectively, the Cash Collateral Account and the
Sweep Account.
"ACCUMULATED FUNDING DEFICIENCY" has the meaning assigned to that term
in Section 412 of the Code.
"ACT" has the meaning specified in Section 3.6.1.
-------------
"ADJUSTED EURODOLLAR RATE" means the Eurodollar Rate plus two and
----
fifty one-hundredths (2.50) percentage points.
"AEW" means AEW Partners II, L.P., a Delaware limited partnership.
"AEW EQUITY PLACEMENT" means HSP's issuance of Series V Preferred
Stock to AEW in accordance with the Series V Stock Purchase Agreement, the
Stockholders Agreement and the HSP Articles (each of the foregoing as approved
by Lender).
"AFFILIATE" means, as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person or is a director or officer of such Person. For purposes of
this definition, "control" of a Person means the power, directly or indirectly,
(i) to vote nine and eight-tenths percent (9.8%) or more of the securities
having ordinary voting power for the election of directors of such Person or
(ii) to direct or cause the direction of the management and policies of such
Person, whether by ownership of partnership interests, stock ownership, contract
or otherwise.
"AGGREGATE PROPERTY VALUE" means the aggregate of the values of the
Properties as of the Conversion Date, determined in accordance with the
appraised values of the Properties set forth in the appraisals delivered
pursuant to Section 2.1.6.4(ix), as such appraised values may be adjusted upward
-------------------
or downward by Lender in its sole discretion to comply with underwriting
policies and methodologies applied by the Rating Agencies in the rating of
commercial mortgage-backed securities (it being agreed that Lender will afford
Borrower a reasonable prior opportunity to consult with Lender in connection
with any such proposed adjustment).
2
<PAGE>
"AGGREGATE ANNUAL OPERATING BUDGET" has the meaning specified in
Section 6.1.14.
- --------------
"ALTA" means American Land Title Association, or any successor
thereto.
"ANNUAL OPERATING BUDGET" has the meaning specified in Section 6.1.14.
--------------
"APPLICABLE LOAN" means (i) prior to the Conversion Date, the
outstanding Revolving Loans (individually or collectively, as the context
requires), and (ii) after the Conversion Date, the Converted Fixed Rate Loan.
"APPRAISAL" means, with respect to any Individual Property, a written
appraisal of such Individual Property in form and substance satisfactory to
Lender, prepared by a qualified independent appraiser selected by Lender and
reasonably satisfactory to Borrower.
"ASSET" means any asset, tangible or intangible, including rights,
powers and privileges and proceeds thereof, owned or controlled by Borrower.
"ASSET SALE" shall mean the sale, transfer, disposition or other
conveyance of any Individual Property to any Person, other than the Permitted
Transfers and the granting of a leasehold interest permitted hereunder and under
the other Loan Documents.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" means that certain Assignment
and Assumption Agreement dated as of the date hereof between Borrower and HSP,
in the form attached hereto as Exhibit T.
---------
"ASSIGNMENT OF INTEREST RATE CAP AGREEMENT" means an Assignment of
Interest Rate Cap Agreement by Borrower in favor of Lender, in the form attached
hereto as Exhibit D.
---------
"ASSIGNMENT OF LEASES" means, individually or collectively, as the
context requires, (i) with respect to each Initial Collateral Property other
than the 1413 Research Boulevard Property, an Assignment of Leases and Rents
dated as of the date hereof, from Borrower, as assignor, to Lender, as assignee,
assigning to Lender all of Borrower's interest in and to the Leases and the
Property Income of such Individual Property as of the Closing Date as security
for the Indebtedness, substantially in the form of Part 1 of Exhibit C, (ii)
------ ---------
with respect to the 1413 Research Boulevard Property, that certain Assignment of
Leases and Rents dated as of July 2, 1996 from HSP to PaineWebber, as amended
and restated by the 1413 Restated Assignment of Leases, and (iii) with respect
to each Individual Property other than the Initial Collateral Properties, such
other or additional Assignments of Leases and Rents, each dated on the date that
the applicable property is added as an Individual Property, from Borrower to
Lender, each substantially in the form of Part 1 of Exhibit C, as each of the
------ ---------
foregoing may be amended, restated, replaced, supplemented or otherwise modified
from time to time.
"AUDITOR" means Ernst & Young, any other "Big 6" accounting firm or
any other independent CPA satisfactory to Lender.
3
<PAGE>
"AUDITOR'S LETTER" means a comfort letter in a form reasonably
satisfactory to Lender delivered to Lender by the Auditor.
"BACK-END FEE" has the meaning specified in Section 3.6.4.
-------------
"BANKRUPTCY" means, with respect to any Person, (i) the commencement
by such Person of a proceeding seeking relief under any provision or chapter of
the Bankruptcy Code or any other federal or state law relating to insolvency,
bankruptcy or reorganization; (ii) an adjudication that such Person is insolvent
or bankrupt; (iii) the entry of an order for relief under the Bankruptcy Code
with respect to such Person; (iv) the filing of any such petition or the
commencement of any such case or proceeding against such Person, unless such
petition and the case or proceeding initiated thereby are dismissed within
seventy-five (75) days from the date of such filing; (v) the filing of an answer
by such Person admitting the material allegations of any such petition; (vi) the
appointment of a trustee, receiver or custodian for all or substantially all of
the assets of such Person unless such appointment is vacated or dismissed within
seventy-five (75) days from the date of such appointment but not less than five
(5) days before the proposed sale of any assets of such Person; (vii) the
insolvency of such Person or the execution by such Person of a general
assignment for the benefit of creditors; (viii) the failure of such Person to
generally pay its debts as they mature; (ix) the levy, attachment, execution or
other seizure of substantially all of the assets of such Person where such
seizure is not discharged within the (10) days thereafter; or (x) the admission
by such Person in writing of its inability to generally pay its debts as they
mature or that it is generally not paying its debts as they become due.
"BANKRUPTCY ACTION" means commencing any case, proceeding or other
action seeking protection for Borrower as a debtor under any existing or future
law of any jurisdiction relating to bankruptcy, insolvency, reorganization or
relief of debtors, consenting to the entry of an order for relief in or
institution of any case, proceeding or other action brought by any third party
against Borrower as a debtor under any existing or future law of any
jurisdiction relating to bankruptcy, insolvency, reorganization or relief of
debtors, filing an answer in any involuntary case or proceeding described in
clause (ii) above admitting the material allegations of the petition therein or
otherwise failing to contest any such involuntary case or proceeding, seeking
or consenting to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator, custodian or any similar official for Borrower or for a
substantial portion of its properties, making any assignment for the benefit of
the creditors of Borrower, or admitting in writing the inability of Borrower to
generally pay its debts as they mature or that Borrower is generally not paying
its debts as they become due.
"BANKRUPTCY CODE" means the United States Code entitled "Bankruptcy",
as now and hereafter in effect, or any successor statute.
"BASIC CARRYING COSTS" means, with respect to an Individual Property
for any period, the sum of (i) Impositions and (ii) insurance premiums
associated with such Individual Property for such period.
"BASIC CARRYING COST DISBURSEMENT REQUEST" has the meaning specified
in Section 3.11.8.3.
----------------
4
<PAGE>
"BASIC CARRYING COSTS MONTHLY INSTALLMENT" means, with respect to the
Properties for any calendar month, one-twelfth (1/12th) of the aggregate annual
amount of Basic Carrying Costs payable in respect of the Properties.
Notwithstanding the foregoing, if and only if any item of Basic Carrying Costs
for any of the Properties is payable on a basis other than (a) annually or (b)
in equal and regular periodic installments, such that reserves set aside in
equal monthly amounts would not be sufficient for the payment of each
installment of such item when due, then the "BASIC CARRYING COSTS MONTHLY
INSTALLMENT" with respect to the Properties for any calendar month shall mean
the difference between (i) the aggregate, for each item of Basic Carrying Costs
payable in respect of the Properties, of the amount of the next succeeding
payment due in respect of such item, multiplied by a fraction, the numerator of
which is the integral number of calendar months from (w) the calendar month
----
during which the last preceding payment in respect of such item was due (or, in
respect of any item for which no past payment has been due, the first calendar
month in which such item is included in the calculation of the Basic Carrying
Costs Monthly Installment) to (x) the calendar month for which the Basic
--
Carrying Costs Monthly Installment is to be determined, and the denominator of
which is the integral number of calendar months from (y) the calendar month
----
during which the last preceding payment in respect of such item was due (or, in
respect of any item for which no past payment has been due, the first calendar
month in which such item is included in the calculation of the Basic Carrying
Costs Monthly Installment) to (z) the calendar month during which the next
--
succeeding payment in respect of such item is due, less (ii) the aggregate of
all amounts deposited into the Basic Carrying Costs Sub-Account on account of
such next succeeding payments of items of Basic Carrying Costs for the
Properties at or prior to the end of the preceding calendar month. Should any
item of Basic Carrying Costs for the Properties not be ascertainable at the time
any monthly deposit into the Cash Collateral Account is required to be made, the
Basic Carrying Costs Monthly Installment shall be determined by Lender on the
basis of the amount of such item of the Basic Carrying Costs for the prior
Fiscal Year or payment period or on another reasonable basis.
"BASIC CARRYING COSTS SUB-ACCOUNT" has the meaning specified in
Section 3.1.1.2.
- ---------------
"BORROWER" has the meaning specified in the Preamble.
"BORROWER AFFILIATED ENTITY" means any Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
Borrower, HSP and/or Holdings. For purposes of this definition, "control" of a
Person means the power, directly or indirectly, to direct or cause the direction
of the management and policies of such Person, whether by ownership of
partnership interests, stock ownership, contract or otherwise.
"BORROWER'S ORGANIZATIONAL DOCUMENTS" means the Articles of
Incorporation of Borrower, dated September 6, 1996, and the Bylaws of Borrower,
dated September 6, 1996, together with any future amendments, supplements and
other modifications thereto.
"BORROWING BASE" means, as of any time, the amount equal to the lesser
of: (i) Maximum Commitment Amount and (ii) the NOI Borrowing Amount, as such
amount may be adjusted pursuant to the provisions hereof (including Sections
--------
2.4.2(b) and 4.2(b)).
- -------- ------
5
<PAGE>
"BUSINESS DAY" means (i) for all purposes other than covered by clause
------
(ii) below, any day excluding Saturday, Sunday and any day which is a legal
- ----
holiday under the laws of the States of New York, Illinois or California or
which is a day on which banking institutions located in any such State are
authorized or required by law or other governmental action to close and (ii)
with respect to all notices in connection with any Interest Rate Determination
Date for any Revolving Loans, and payments of principal and interest on
Revolving Loans, any day that is a Business Day under clause (i) above and is
----------
also a London Banking Day.
"CAPITAL EVENT PROCEEDS" means, with respect to an Individual
Property, (i) proceeds from any Asset Sale or refinancing of all or any portion
of such Individual Property (other than any Asset Sale made in accordance with
Section 3.3 and in respect of which Lender has received the applicable Minimum
- -----------
Release Price), (ii) Loss Proceeds in respect of a Casualty or Condemnation of
all or any portion of such Individual Property, to the extent such Loss Proceeds
are not applied to the reasonable costs of collection of such Loss Proceeds and
the restoration of the relevant Individual Property in accordance with the Loan
Documents or released to Borrower pursuant to clause (i) of Section 3.2.2(b) or
---------- ----------------
(iii) proceeds from any Leases entered into other than in the ordinary course of
business (including Leases that were entered into other than in accordance with
the provisions of Section 6.1.17) which either (x) provide, in effect, for
--------------
payment of rent on a significantly accelerated basis as compared to a lease at
market rates and terms or (y) are essentially financing vehicles.
"CAPITAL EVENT SUB-ACCOUNT" has the meaning specified in Section
-------
3.1.1.2.
- -------
"CASH COLLATERAL ACCOUNT" has the meaning specified in Section
-------
3.1.1.2.
"CASH COLLATERAL BANK" means LaSalle National Trust, N.A., the
financial institution at which the Cash Collateral Account has been established,
and any other financial institution subsequently selected by Lender, and so long
as no Default or Event of Default has occurred and is continuing, reasonably
acceptable to Borrower, for the transfer of the Cash Collateral Account,
provided that any such subsequent financial institution shall be authorized to
- --------
maintain Eligible Accounts.
"CASUALTY", with respect to any Individual Property, means any
material damage to, or loss or destruction of, all or any material part of such
Individual Property, whether or not such damage, loss or destruction is insured
or insurable.
"CASUALTY/CONDEMNATION MANDATORY PREPAYMENT" has the meaning specified
in Section 2.4.2.
-------------
"CASUALTY INSURANCE PROCEEDS" means insurance proceeds paid or payable
in respect of a Casualty.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. (S) 9601 et seq.), as heretofore or hereafter
amended or supplemented from time to time, including the Superfund Amendments
and Reauthorization Act of 1986.
6
<PAGE>
"CLOSING DATE" means September 9, 1996.
"CODE" means the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"COLLATERAL" means (i) the Trust Property (as defined in the
Mortgage), (ii) the Pledged Collateral (as defined in the HSP Security
Agreement), (iii) the Account Collateral, and (iv) and other Assets or property,
tangible or intangible, of any Person that at the time in question has been
mortgaged, assigned or pledged, or in which a security interest has been
granted, to Lender as security for the Indebtedness (or any portion thereof).
"COMMON STOCK" means the common stock of HSP (or any successor to HSP
by merger or consolidation).
"COMPLETED LOAN REQUEST" means a request for a Revolving Loan
accompanied by all information required to be supplied pursuant to Section
-------
2.1.3.
- -----
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of the applicable certificate included in Exhibit S and delivered to Lender by
---------
Borrower.
"CONDEMNATION", with respect to an Individual Property, means any
actual or threatened taking, condemnation, eminent domain or other similar
proceeding relating to all or any material portion of such Individual Property.
"CONDEMNATION PROCEEDS" means any and all award proceeds and other
compensation payable in respect of a Condemnation.
"CONTINUATION NOTICE" has the meaning specified in Section 2.5.1.3.
---------------
"CONVERSION COMPLIANCE CERTIFICATE" means a certificate signed by the
Chief Financial Officer, Chief Executive Officer or Chief Operating Officer of
Borrower (i) setting forth computations evidencing that after taking into
account Borrower's requested conversion of Revolving Loans to the Converted
Fixed Rate Loan, the unpaid principal amount of the Converted Fixed Rate Loan
does not and will not exceed the lesser of (x) the Converted NOI Borrowing
Amount and (y) 75% of the Aggregate Property Value of the Properties, together
with a copy of the analysis used in determining such compliance, and (ii)
certifying that, both immediately before and immediately after giving effect to
such requested conversion, no Default or Event of Default exists or will exist,
and no Default or Event of Default will exist as of the Conversion Date or
immediately thereafter. For purposes of calculating the Converted Implied Debt
Service Rate in the initial Conversion Compliance Certificate that accompanies
the Conversion Notice, Borrower may utilize the date of the Conversion
Compliance Certificate for Borrower's calculation of the debt service constant
referenced in part (i) of the definition of "Converted Implied Debt Service
Rate."
7
<PAGE>
"CONVERSION DATE" means the date on which the aggregate outstanding
Revolving Loans are converted to the Converted Fixed Rate Loan pursuant to
Section 2.1.6 (which date shall in any event be the first day of a calendar
- -------------
month).
"CONVERSION DATE DEBT SERVICE COVERAGE RATIO" means 1.3:1.0.
"CONVERSION FEE" means one and one-half percent (1.5%) of the
aggregate principal balance of the Revolving Loans that are converted to the
Converted Fixed Rate Loan on the Conversion Date.
"CONVERSION NOTICE" means a written notice delivered by Borrower to
Lender during the Conversion Period requesting the conversion of outstanding
Revolving Loans to the Converted Fixed Rate Loan.
"CONVERSION PERIOD" means the period commencing on the second
anniversary of the Closing Date and ending on the third anniversary of the
Closing Date.
"CONVERSION VALUE" means, with respect to a particular Individual
Property, the portion of the Converted NOI Borrowing Amount attributable to such
Individual Property.
"CONVERTED DEBT SERVICE COVERAGE RATIO" means, for the relevant
calculation period, the ratio of (x) the Net Operating Income during such
calculation period of the Properties specified in Section 3.7(b)(iv), subject to
------------------
upward or downward adjustment by Lender as described in the following sentence,
to (y) the Converted Implied Debt Service Rate. For purposes of calculating the
Converted Debt Service Coverage Ratio, Net Operating Income may be adjusted
upward or downward by Lender in its sole discretion to comply with underwriting
policies and methodologies applied by the Rating Agencies in the rating of
commercial mortgage-backed securities (including adjustments for capital
expenditures, management fees and other expenses and income). Lender will
afford Borrower a reasonable prior opportunity to consult with Lender in
connection with any such proposed adjustment.
"CONVERTED FIXED RATE LOAN" means the 10-year fixed rate loan
resulting from the conversion of any outstanding Revolving Loans pursuant to and
in accordance with Section 2.1.6.
-------------
"CONVERTED IMPLIED DEBT SERVICE RATE" means, with respect to the
Converted Fixed Rate Loan, the higher of (i) the debt service constant required
to fully amortize the principal amount of such loan with level monthly payments
over twenty-five (25) years on a direct reduction basis assuming an interest
rate equal to the sum of 300 basis points plus the imputed ten (10) year United
----
States Treasury notes annual yield as of the Conversion Date based upon quotes
reported in the Federal Reserve Statistical Release H.15 - Selected Interest
Rates under the heading "U.S. Government Securities/Treasury constant
maturities" for Treasury notes having ten (10) years to maturity and (ii) ten
and one-half percent (10 1/2%) per annum. In the event Release H.15 is no longer
published, Lender shall select a comparable publication to determine the United
States Treasury Notes annual yield referenced in clause (i) above.
----------
8
<PAGE>
"CONVERTED NOI BORROWING AMOUNT" means, as of any date of
determination, the aggregate amount derived by dividing (i) all of the
Properties' Net Operating Income for the 12-month period preceding the
Conversion Date, subject to upward or downward adjustment by Lender as described
in the following sentence, by (ii) 1.3 times the Converted Implied Debt Service
Rate. For purposes of calculating the Converted NOI Borrowing Amount, Net
Operating Income may be adjusted upward or downward by Lender in its sole
discretion to comply with underwriting policies and methodologies applied by the
Rating Agencies in the rating of commercial mortgage-backed securities
(including adjustments for capital expenditures, management fees and other
expenses and income) (it being agreed that Lender will afford Borrower a
reasonable prior opportunity to consult with Lender in connection with any such
proposed adjustment).
"CONVERTED NOI DEFEASANCE AMOUNT" means, as of any date of
determination and with respect to a particular Individual Property, the amount
derived by dividing (i) such Individual Property's Net Operating Income for the
12-month period preceding such date of determination, subject to upward or
downward adjustment by Lender as described in the following sentence, by (ii)
1.3 times the Converted Implied Debt Service Rate. For purposes of calculating
the Converted NOI Defeasance Amount, Net Operating Income may be adjusted upward
or downward by Lender in its sole discretion to comply with underwriting
policies and methodologies applied by the Rating Agencies in the rating of
commercial mortgage-backed securities (including adjustments for capital
expenditures, management fees and other expenses and income) (it being agreed
that Lender will afford Borrower a reasonable prior opportunity to consult with
Lender in connection with any such proposed adjustment).
"CONVERTIBLE DEBENTURES" means the Series A Convertible Notes of
Holdings in the original principal amount of $6,918,269.24, as more particularly
described on Exhibit H.
---------
"CONVERTIBLE SECURITIES" means, with respect to any Person (other than
a natural person), all securities of such Person which by their terms are or may
at any time be converted into voting securities of such Person.
"CONVEYANCE" has the meaning specified in Section 3.5.1.
-------------
"CPA" means a certified public accounting firm.
"DEBT" means, with respect to any Person, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) all indebtedness of such
Person for the deferred purchase price of property or services (other than
property and services purchased, and expense accruals and deferred compensation
items arising, in the ordinary course of business), (iii) all obligations of
such Person evidenced by notes, bonds, debentures or other similar instruments
(other than performance, surety and appeal bonds arising in the ordinary course
of business), (iv) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (v) all obligations of such Person under leases which
have been or should be, in accordance with GAAP, recorded as capital leases, to
the extent required to be so recorded,
9
<PAGE>
(vi) all reimbursement, payment or similar obligations of such Person,
contingent or otherwise, under acceptance, letter of credit or similar
facilities (other than letters of credit in support of trade obligations or in
connection with workers' compensation, unemployment insurance, old-age pensions
and other social security benefits in the ordinary course of business), (vii)
all Debt (as defined in clauses (i) through (vi) above) of another Person
guaranteed directly or indirectly by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (A) to pay or
purchase such Debt or to advance or supply funds for the payment or purchase of
such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the debtor to
make payment of such Debt or to assure the holder of such Debt against loss in
respect of such Debt, (C) to supply funds to or in any other manner invest in
the debtor (including any agreement to pay for property or services irrespective
of whether such property is received or such services are rendered) or (D)
otherwise to assure a creditor against loss in respect of such Debt, and (viii)
all Debt (as defined in clauses (i) through (vi) above) of another Person
secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any lien, security interest or other
charge or encumbrance upon or in property (including accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Debt.
"DEBT SERVICE PAYMENT" means, for any Interest Payment Date, the
amount due on such Interest Payment Date to Lender under the Loan Documents,
including all interest, principal, default interest, late charges,
indemnification obligations then due and payable, attorneys' fees, appraisers'
fees, breakage costs and all other amounts payable by Borrower to Lender under
the Loan Documents on such Interest Payment Date.
"DEBT SERVICE SUB-ACCOUNT" has the meaning specified in Section
-------
3.1.1.2.
- -------
"DEFAULT" means the existence of any of the events set forth in
Section 8.1 which, but for the giving of notice or passage of time, or both,
- -----------
would be an Event of Default.
"DEFAULT RATE" means a rate per annum from time to time equal to (i)
from (and including) the Closing Date through (but excluding) the Conversion
Date, three percent (3%) greater than the then-applicable Interest Rate, and
(ii) from (and including) the Conversion Date and at all times thereafter, four
percent (4.0%) greater than the then-applicable Interest Rate.
"DEFEASANCE AMOUNT" means, as of any date of determination, either:
(i) if fewer than all Properties are proposed to be released pursuant
to Section 3.7, then the "Defeasance Amount" in respect of the Properties
-----------
proposed to be released pursuant to Section 3.7 means the greater of (i)
-----------
the excess, if any, of (x) the outstanding principal amount of the
Converted Fixed Rate Loan as of such date of determination over (y) the sum
of the Converted NOI Defeasance Amounts in respect of each of the
Properties subject to the Lien of the Mortgage on such date of
determination (excluding the Properties proposed to be released pursuant to
---------
Section 3.7), or (ii) the Converted NOI Defeasance Amount in respect of the
-----------
Properties proposed to be released pursuant to Section 3.7; provided, that
----------- --------
in no event shall the Defeasance Amount be greater than the outstanding
principal amount of the Converted Fixed Rate Loan as the such date of
determination; or
10
<PAGE>
(ii) if all Properties are proposed to be released pursuant to Section
-------
3.7, then the "Defeasance Amount" means the outstanding principal amount of
---
the Converted Fixed Rate Loan as of such date of determination.
"DEFEASANCE COLLATERAL" means obligations or securities not subject to
prepayment, call or early redemption which (i) are direct obligations of, or
obligations fully guaranteed as to timely payment by, the United States or any
agency or instrumentality of the United States, the obligations of which are
backed by the full faith and credit of the United States, and (ii) shall mature
or be redeemable, or provide for payments of interest thereon, on or prior to
the date on which payments of interest or principal are due under the Converted
Fixed Rate Loan.
"DEFEASANCE DEPOSIT" has the meaning set forth in Section 3.7.
-----------
"DEFERRED MAINTENANCE RESERVES SUB-ACCOUNT" has the meaning specified
in Section 3.1.1.2.
---------------
"DEPOSITED FUNDS" has the meaning specified in Section 3.1.2.
-------------
"DISCOUNT RATE" means the rate which, when compounded monthly, is
equivalent to the Treasury Rate when compounded semi-annually.
"DRAWDOWN DATE" means the date on which any Revolving Loan is made.
"ELIGIBLE ACCOUNT" means a trust account held by and at the Cash
Collateral Bank or an account that is either: (i) maintained with a depository
institution or trust company of which the long-term unsecured debt obligations
(or, in the case of a depository institution or trust company that is the
principal subsidiary of a holding company, the long-term unsecured debt
obligations of such holding company) have been rated by the Rating Agency in its
highest rating category or the short-term deposits or commercial paper of which
is rated by the Rating Agency in its highest rating category at the time of any
deposit therein; or (ii) a trust account or accounts maintained with a federal
or state chartered depository institution or trust company with trust powers
acting in its fiduciary capacity, which in the case of any state chartered
depository institution or trust company is subject to regulations or has
established internal guidelines regarding fiduciary funds on deposit
substantially similar to 12 C.F.R. (S) 9.10(b).
"ELIGIBLE TRANSFEREE" means is an institutional investor that (i) is
experienced in purchasing, owning and managing real estate, (ii) is not an
investment bank or an Affiliate of an investment bank, and (iii) has a net worth
of not less than $250,000,000.00.
"EMPLOYEE BENEFIT PLAN" has the meaning assigned to the term "employee
benefit plan" in Section 3(3) of ERISA, which is or was maintained or
contributed to by Borrower or a Related Person to Borrower.
"ENGINEERING REPORT" means the engineering report with respect to each
Individual Property, prepared by an engineering firm reasonably satisfactory to
Lender and Borrower (provided, that such engineering firm shall also meet the
--------
standards of the Rating Agencies for
11
<PAGE>
engineering firms in the rating of commercial mortgage-backed securities backed
by loans similar to the Applicable Loan), and delivered to Lender in connection
with the Loan, together with all addenda, supplements, exhibits and attachments
thereto, which engineering reports with respect to the Initial Collateral
Properties are described on Schedule II annexed hereto and by this reference
-----------
made a part hereof.
"ENVIRONMENTAL INDEMNITY" means the Amended and Restated Environmental
Indemnity Agreement dated as of the date hereof, by Borrower in favor of the
Indemnitees, substanti ally in the form of Exhibit G, as the same may be
---------
amended, restated, replaced, supplemented or otherwise modified from time to
time.
"ENVIRONMENTAL LAWS" means any and all current or future statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of governmental
authorities relating to (i) environmental matters, (ii) the generation, use,
storage, transportation or disposal of Hazardous Materials, or (iii)
occupational safety and health, industrial hygiene or the protection of human,
plant or animal health or welfare, in any manner applicable to Borrower or any
Individual Property, including the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. (S) 9601 et seq.), the Hazardous
-- ---
Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource
-- ---
Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water
-- ---
Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C.
-- ---
(S) 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et
-- --- --
seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S)136
- ---
et seq.), the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.),
- -- --- -- ---
the Oil Pollution Act (33 U.S.C. (S) 2701 et seq) and the Emergency Planning and
------
Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), each as amended or
-- ---
supplemented, any analogous present or future state or local statutes or laws,
and any regulations promulgated pursuant to any of the foregoing.
"ENVIRONMENTAL REPORT" means the environmental report with respect to
each Individual Property, prepared by an environmental firm reasonably
satisfactory to Lender and Borrower (provided, that such environmental firm
--------
shall also meet the standards of the Rating Agencies for environmental firms in
the rating of commercial mortgage-backed securities backed by loans similar to
the Applicable Loan), and delivered to Lender in connection with the Loan,
together with all addenda, supplements, exhibits and attachments thereto, which
Environmental Reports with respect to the Initial Collateral Properties are
described on Schedule II annexed hereto.
-----------
"EQUIPMENT" means all "equipment," as such term is defined in Article
9 of the UCC, now owned or hereafter acquired by Borrower, which is used at or
in connection with any Individual Property or is located thereon or therein
(including all machinery, equipment, furnishings, and electronic data-processing
and other office equipment now owned or hereafter acquired by Borrower, and any
and all additions, substitutions and replacements of any of the foregoing),
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
12
<PAGE>
"EQUITY RIGHTS" means, with respect to any Person, any outstanding
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including any stockholders' or voting trust agreements) for the
issuance, sale, registration or voting of, or outstanding securities convertible
into, any additional shares of capital stock of any class, or partnership or
other ownership interests of any type in, such Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may from time to time be amended or supplemented, including any rules
or regulations issued in connection therewith.
"ESCROW DEPOSITORY" has the meaning set forth in Section 8.2.2.
-------------
"EURODOLLAR RATE" means, for any Interest Period, (i) the rate per
annum appearing on Telerate page 3750 (or such display substituted therefor as
is then customarily used to quote the London interbank offering rate as
determined by Lender in its reasonable discretion) as of approximately 11:00
a.m. (London time) on the Interest Rate Determination Date for such Interest
Period (assuming, in the case of any Interest Period of under thirty (30) days,
an Interest Period of thirty (30) days commencing on the related Drawdown Date),
or (ii) if on the Interest Rate Determination Date for any Interest Period no
such rate appears on Telerate page 3750 (or such display substituted therefor as
is then customarily used to quote the London interbank offering rate as
determined by Lender in its reasonable discretion), a rate determined by Lender
as the arithmetic mean (rounded upwards as aforesaid) of the rates quoted at
approximately 11:00 a.m., London time, on such Interest Rate Determination Date
by four major banks, as selected by Lender, in the London interbank market, to
prime banks in the London interbank market for U.S. Dollar deposits commencing
on the first day of such Interest Period with a maturity date corresponding to
the last day of such Interest Period (assuming, in the case of any Interest
Period of under thirty (30) days, an Interest Period of thirty (30) days
commencing on the related Drawdown Date) and in a principal amount equal to an
amount that is representative for a single transaction in such market at such
time; it being understood that Lender will request the principal London office
of each of such four major banks to provide a quotation of its respective rate
in accordance with the foregoing, and if at least two such quotations are
provided, the Eurodollar Rate for such Interest Period will be the arithmetic
mean of such quotations, and if fewer than two quotations are provided as
requested, the Eurodollar Rate for such Interest Period will be the arithmetic
mean of the rates quoted by such major banks in New York City as shall be
selected by Lender, as of approximately 11:00 a.m., New York City time, on the
first Business Day of the Interest Period for loans in U.S. Dollars to leading
European banks with a maturity date corresponding to the last day of such
Interest Period (assuming, in the case of any Interest Period of under thirty
(30) days, an Interest Period of thirty (30) days) commencing on the first day
of such Interest Period in a principal amount equal to an amount that is
representative for a single transaction in such market at such time.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.1.
-----------
"EXTENDED AEW GROUP" means, collectively, AEW and each Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, AEW. For purposes of this definition, "control" means the power,
directly or indirectly, to direct or cause
13
<PAGE>
the direction of the management and policies of such Person, whether by stock
ownership, contract or otherwise.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 5.1.13.
--------------
"FIRST RESTATED LOAN AGREEMENT" has the meaning set forth in the
recitals hereto.
"FIRST RESTATED NOTE" means that certain Amended and Restated
Promissory Note dated as of even date herewith, made by HSP in favor of Lender,
as the same may heretofore have been amended, restated, replaced, supplemented
or otherwise modified.
"FISCAL YEAR" means each twelve month period commencing on January 1
and ending on December 31 during each year of the term of the Loan.
"FIXED RATE" means the sum of the imputed ten (10) year United States
Treasury notes annual yield as of the Conversion Date based upon quotes reported
in the Federal Reserve Statistical Release H.15 - Selected Interest Rates under
the heading "U.S. Government Securities/Treasury constant maturities" for
Treasury notes having ten (10) years to maturity, plus a spread of 300 basis
----
points. In the event Release H.15 is no longer published, Lender shall select a
comparable publication to determine the United States Treasury Notes.
"1413 RESEARCH BOULEVARD PROPERTY" means the Individual Property
located at 1413 Research Boulevard, Rockville, MD.
"1413 RESTATED ASSIGNMENT OF LEASES" means that certain Amended and
Restated Assignment of Leases and Rents dated as of the Closing Date between HSP
and Lender, substantially in the form attached hereto as Part 2 of Exhibit C.
------ ---------
"1413 RESTATED MORTGAGE" means that certain Amended and Restated Deed
of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing
dated as of the Closing Date from HSP for the benefit of Lender, substantially
in the form attached hereto as Part 2 of Exhibit E.
------
"GAAP" means generally accepted accounting principles in the United
States of America as of the date of the applicable financial report.
"GOVERNMENTAL AUTHORITY" means any legislative body, court, board,
agency, commission, office or authority of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence.
"HAZARDOUS MATERIALS" means (i) any chemical, material or substance at
any time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste", acutely
hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic
pollutant", "contaminant", "restricted hazardous waste", "infectious waste",
"toxic substances", or any other term or expression intended to define, list or
classify substances by reason of properties harmful to health, safety or the
indoor or outdoor
14
<PAGE>
environment (including harmful properties such as ignitability, corrosivity,
reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or
"EP toxicity" or words of similar import under any applicable Environmental
Laws); (ii) any oil, petroleum, petroleum fraction or petroleum derived
substance; (iii) any drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil, natural
gas or geothermal resources; (iv) any flammable substances or explosives; (v)
any radioactive materials; (vi) any asbestos-containing materials; (vii) urea
formaldehyde foam insulation; (viii) electrical equipment which contains any oil
or dielectric fluid containing polychlorinated biphenyls; (ix) pesticides; and
(x) any other chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority or which may or could pose a
hazard to the health and safety of the owners, occupants or any Persons in the
vicinity of any Individual Property or to the indoor or outdoor environment.
"HOLDINGS" means Health Science Properties Holding Corporation, a
Maryland corporation.
"HOLDINGS GUARANTY" means that certain Guaranty dated as of July 2,
1996 from Holdings, as guarantor, in favor of PaineWebber.
"HOLDINGS PLEDGED SHARES" means those certain shares of the common
stock of HSP pledged pursuant to the Holdings Security Agreement and delivered
to PaineWebber.
"HOLDINGS SECURITY AGREEMENT" means that certain Pledge and Security
Agreement dated as of July 2, 1996 between Holdings and PaineWebber.
"HOLDINGS STOCK POWER" means that certain in-blank stock power
executed by Holdings and delivered to PaineWebber.
"HOLDINGS UCC FINANCING STATEMENTS" means those certain UCC-1
Financing Statements signed by Holdings, as debtor, in favor of PaineWebber, as
secured party.
"HSP" has the meaning set forth in the recitals hereto.
"HSP ARTICLES" means the Articles of Amendment and Restatement of HSP
dated as of September 9, 1996, which, among other matters, set forth that HSP
has 50,000 shares of Series V Preferred Stock among its authorized stock.
"HSP GUARANTY" means a guaranty of the Indebtedness in the form
attached hereto as Exhibit Q executed by HSP in favor of Lender, as the same may
---------
be amended, restated, replaced, supplemented or otherwise modified from time to
time.
"HSP'S ORGANIZATIONAL DOCUMENTS" means the Articles of Amendment and
Restatement of HSP, dated January 25, 1996 as amended and restated by the HSP
Articles, and the Bylaws of HSP, dated December 6, 1994, together with any
future amendments, supplements and other modifications thereto.
15
<PAGE>
"HSP SECURITY AGREEMENT" means a Pledge and Security Agreement in the
form attached hereto as Exhibit P by and between HSP and Lender, as the same may
---------
be amended, restated, replaced, supplemented or otherwise modified from time to
time.
"IMPLIED DEBT SERVICE RATE" means, with respect to the Revolving Loans
and as of any date of determination, the highest of (i) the actual weighted
average annual interest rate applicable to the aggregate outstanding amount of
the Revolving Loans during the prior ninety (90) days, (ii) the debt service
constant required to fully amortize the principal amount of such loans with
level monthly payments over thirty (30) years on a direct reduction basis
assuming an interest rate equal to the sum of 250 basis points plus the imputed
----
ten (10) year United States Treasury notes annual yield as of such date based
upon published quotes for Treasury notes having ten (10) years to maturity and
(iii) ten and one-half percent (10 1/2%) per annum.
"IMPOSITIONS" means all real estate and personal property taxes,
water, sewer and vault charges and all other taxes, levies, assessments and
other similar charges, general and special, ordinary and extraordinary, foreseen
and unforeseen, of every kind and nature whatsoever, which at any time prior to,
at or after the execution hereof may be assessed, levied or imposed by a Govern
mental Authority upon or with respect to any Individual Property or the Property
Income or the ownership, use, occupancy or enjoyment thereof, and any interest,
costs or penalties with respect to any of the foregoing.
"IMPROVEMENTS" means any and all buildings, structures, utility sheds,
workrooms, air conditioning towers, open parking areas, and all other structures
and improvements of every kind whatsoever, and any and all additions,
alterations, betterments or appurtenances thereto, and all renewals,
substitutions or replacements now or at any time owned, or hereafter acquired by
Borrower and situated, placed or constructed on, over or under an Individual
Property or any part thereof.
"INDEBTEDNESS" means the aggregate amount of the Applicable Loan that
may be advanced to Borrower pursuant to the terms hereof, together with all
other obligations and liabilities of Borrower due or to become due to Lender
pursuant hereto in respect of the Applicable Loan, under the Promissory Note or
in accordance with any of the other Loan Documents, all amounts, sums and
expenses paid by or payable or reimbursable to Lender hereunder in respect of
the Applicable Loan or pursuant to the Promissory Note or any of the other Loan
Documents, and all other covenants, obligations and liabilities of Borrower
hereunder in respect of the Applicable Loan or pursuant to the Promissory Note
or any of the other Loan Documents, together with all interest thereon
(including, if and when applicable, interest at the Default Rate as provided in
this Agreement and in the Promissory Note).
"INDEMNIFIED LIABILITIES" has the meaning specified in Section 9.13.
------------
"INDEMNITEES" means, collectively, Lender and its successors and
assigns, and its and their respective officers, directors, agents (including any
servicer of the Loan) acting in their capacity as agent, employees, parents and
Affiliates.
16
<PAGE>
"INDEPENDENT DIRECTOR" means a director of Borrower who is not at the
time of appointment and who has not at any time during the preceding five (5)
years been and does not become subsequently: (i) a partner, stockholder or
holder of any other beneficial interest in Borrower, HSP, Holdings or AEW or in
any Affiliate of Borrower, HSP, Holdings or AEW (other than a holder of stock or
other beneficial interests in an any publicly traded Affiliate of any of the
foregoing, which stock and beneficial interests, in the aggregate, represent
less than 7.5% of the net worth of such holder), (ii) a director (other than an
Independent Director as provided in Section 2.1.6.4(xi)), officer or employee of
-------------------
Borrower, HSP, Holdings or AEW or of any Affiliate of Borrower, HSP, Holdings or
AEW; (iii) a creditor, supplier, independent contractor, manager, or any other
Person who derives more than ten percent (10%) of its gross revenues from its
activities with Borrower, HSP, Holdings or AEW or with any Affiliate of
Borrower, HSP, Holdings or AEW; (iv) a Person controlling or controlled by any
of the Persons referenced in clauses (i), (ii) or (iii) above, or (v) a member
----------- ---- -----
of the immediate family of any such Person referenced in clauses (i), (ii),
----------- ----
(iii) or (iv) above. Solely for purposes of this definition, (x) "Affiliate"
- ----- ----
means, as to any Person, any other Person that, directly or indirectly, is in
control of, is controlled by, or is under common control with, such Person or is
a director or officer of such Person, and (y) "control" of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person, whether by ownership of partnership
interests, stock ownership, contract, or otherwise.
"INDIVIDUAL NOI BORROWING AMOUNT" means, as at any date of
determination and with respect to a particular Individual Property:
(i) for any determination that is being made in connection with adding
the applicable property as an Individual Property and first receiving
credit for such Individual Property for purposes of determining the
Borrowing Base, and for any determination in respect of such Individual
Property occurring within twelve (12) months after such property becomes an
Individual Property, the "Individual NOI Borrowing Amount" means the
aggregate amount derived by dividing (a) all of such Individual Property's
Net Operating Income for the 12-month period preceding such date of
determination, subject to upward or downward adjustment by Lender as
described in the following sentence, by (b) 1.3 times the Implied Debt
Service Rate. For purposes of calculating the Individual NOI Borrowing
Amount pursuant to this clause (i), Net Operating Income may be adjusted
----------
upward or downward by Lender in its sole discretion to comply with
underwriting policies and methodologies applied by the Rating Agencies in
the rating of commercial mortgage-backed securities (including adjustments
for capital expenditures, management fees and other expenses and income)
(it being agreed that Lender will afford Borrower a reasonable prior
opportunity to consult with Lender in connection with any such proposed
adjustment); or
(ii) if such date of determination occurs more than twelve (12) months
after the applicable property becomes an Individual Property, the
"Individual NOI Borrowing Amount" means the aggregate amount derived by
dividing (a) all of such Individual Property's net income as calculated in
accordance with GAAP for the 12-month period preceding such date of
determination before capital expenditures, depreciation and other non-cash
items, and further adjusted to eliminate straight line rents and reduced by
thirty-
17
<PAGE>
five cents (35c) per gross square foot of all Improvements at the
such Individual Property, by (b) 1.6 times the Implied Debt Service Rate;
or
(iii) notwithstanding the foregoing, the "Individual NOI Borrowing
Amount" in respect of the property located at 1311, 1401 and 1431 Harbor
Bay Parkway, Alameda, CA and commonly known as the Harbor Bay Parkway
property means an amount to be mutually agreed to by Lender and Borrower;
provided, however, that in no event shall the Individual NOI Borrowing Amount of
- -------- -------
any Individual Property at any time be more than the stated maximum principal
amount of the Indebtedness which may be secured by the Mortgage encumbering such
Individual Property at such time (as such Mortgage may have been amended
theretofore to increase the stated maximum principal amount of the Indebtedness
which may be secured thereby).
"INDIVIDUAL PROPERTY" means, individually, a parcel of real property
that constitutes, at the relevant time of determination, a part of the
Collateral subject to a Mortgage and an Assignment of Leases, and all
improvements thereon, together with all rights pertaining to such property and
improvements.
"INDIVIDUAL PROPERTY DEFAULT" means an Event of Default, other than an
Event of Default that can be cured by the payment of money, that arises solely
------
by reason of a circumstance or state of facts existing at or in respect of one
particular Individual Property.
"INITIAL COLLATERAL PROPERTIES" means the Individual Properties
referred to in Exhibit A hereto, and all improvements thereon, together with all
---------
rights pertaining to such property and improvements.
"INITIAL REVOLVING LOAN" means the first advance of a Revolving Loan
pursuant to the provisions of this Agreement, including the full or partial
conversion of the Interim Funding Loan into a Revolving Loan as provided in
Section 2.1.2.
- -------------
"INSURANCE REQUIREMENTS" means, with respect to each Individual
Property, all material terms of any insurance policy required pursuant to this
Agreement or the other Loan Documents, all material requirements of the issuer
of any such policy, and all material regulations and then current standards
applicable to or affecting the related Individual Property or any part thereof
or any use or condition thereof, which may, at any time, be recommended by the
Board of Fire Underwriters, if any, having jurisdiction over such Individual
Property, or such other body exercising substantially similar functions.
"INTEREST PAYMENT DATE" means the last Business Day of each calendar
month; provided that (i) if Borrower has elected to convert any Revolving Loans
--------
to the Converted Fixed Rate Loan, the final Interest Payment Date for all
Revolving Loans shall be the last Business Day prior to the Conversion Date; and
(ii) if the Maturity Date shall occur on a date that is other than the last
Business Day of a calendar month, the final Interest Payment Date for the
Applicable Loan shall be the last Business Day prior to the Maturity Date.
18
<PAGE>
"INTEREST PERIOD" has the meaning specified in Section 2.5.1.3.
---------------
"INTEREST RATE" has the meaning specified in Section 2.5.1.
-------------
"INTEREST RATE CAP AGREEMENT" means a written interest rate cap
agreement between Borrower and a counterparty, the long-term debt obligations of
which counterparty are rated "AA" or better by the Rating Agencies and which
counterparty is otherwise reasonably acceptable to Lender, which agreement (i)
provides for a "strike price", based on one-month LIBOR, of 8.0% per annum, (ii)
provides for monthly payments to Borrower (for deposit in the Sweep Account)
equal to the product of (x) the excess of one-month LIBOR over 8.0% per annum
and (y) a notional amount not less than the aggregate principal balance of all
Revolving Loans then outstanding at the relevant time of determination, (iii)
expires on or after the third anniversary of the Closing Date, and (iv) is
otherwise in form and substance reasonably acceptable to Lender.
"INTEREST RATE DETERMINATION DATE" means the second London Banking Day
prior to the first day of the Interest Period for which the Eurodollar Rate is
being determined.
"INTERIM FUNDING LOAN" means the loan from PaineWebber to HSP pursuant
to the Original Loan Agreement in the original principal amount of Fifteen
Million Nine Hundred Thousand Dollars ($15,900,000), as assigned.
"INVESTMENT", as applied to any Person, means any direct or indirect
purchase or other acquisition by that Person of stock or other securities, or of
a beneficial interest in stock or other securities, of any other Person, or any
direct or indirect loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution by that Person to any other Person,
including all indebtedness and accounts receivable from that other Person which
are not current assets or did not arise from sales to that other Person in the
ordinary course of business. The amount of any Investment shall be the original
cost of such Investment plus the cost of all additions thereto, adjusted for
decreases in value and write-downs and write-offs with respect to such
Investment, but not for increases in value or write-ups with respect to such
Investment.
"ISSUER" has the meaning set forth in Section 3.6.1.
-------------
"LEASE" means any lease or ground lease, or, to the extent of the
interest therein of Borrower, any sublease or subsublease, license, concession
or other agreement (whether written or oral and whether now or hereafter in
effect) pursuant to which Borrower holds the interest of lessor, sublessor,
subsublessor or licensor, as the case may be, and pursuant to which any Person
is granted a possessory interest in, or right to use or occupy all or any
portion of any Individual Property (including any use or occupancy arrangements
created pursuant to Section 365(d) of the Bankruptcy Code or otherwise in
connection with the commencement on continuance of any bankruptcy,
reorganization, arrangement, insolvency, dissolution, receivership, or similar
proceedings, or any assignment for the benefit of creditors, in respect of any
tenant or occupant of any portion of any Individual Property), and every
modification, amendment or other agreement relating to such lease, ground lease,
sublease, subsublease, license, concession or other agreement entered into in
connection therewith, and every guarantee of the performance and
19
<PAGE>
observance of the covenants, conditions and agreements to be performed and
observed by the other party or parties thereto.
"LEGAL REQUIREMENTS" means all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions of any Governmental Authority (including, but
not limited to, ERISA with respect to any Employee Benefit Plans and
Environmental Laws with respect to the Properties) affecting, as the context
requires, Borrower, HSP or any Individual Property or any part thereof,
including the construction, use, alteration, maintenance, management, occupancy
or operation of any such Individual Property, or any part thereof, whether now
or hereafter enacted and in force, and all permits, licenses, authorizations and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments at any time in force to which Borrower
or HSP is a party or which otherwise affect Borrower or HSP or any Individual
Property or any part thereof, including any of the foregoing which may (i)
require repairs, modifications or alterations in or to such Individual Property
or any part thereof, or (ii) in any way limit the use and enjoyment thereof.
"LENDER" has the meaning specified in the first Paragraph hereof.
"LETTER REGARDING SUBSEQUENT TRANSACTIONS" means that certain Amended
and Restated Letter Regarding Subsequent Transactions entered into by and among
Borrower, HSP, Holdings, PaineWebber and PWRESI, and dated as of even date
herewith.
"LIEN" means, with respect to each Individual Property, any mortgage,
deed of trust, lien, pledge, hypothecation, assignment, security interest,
security title, chattel mortgage, conditional bill of sale, or any other
encumbrance, charge or collateral transfer of, on or affecting such Individual
Property or any portion thereof or any interest therein, including any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, the filing of
any financing statement, and mechanic's, materialmen's and other similar liens
and encumbrances.
"LOAN CONVEYANCE DOCUMENTS" has the meaning specified in Section
-------
3.5.1.
- -----
"LOAN DOCUMENTS" means collectively, this Agreement, the Promissory
Note, the Mortgage, the 1413 Restated Mortgage, the Assignment of Leases, the
1413 Restated Assignment of Leases, the Environmental Indemnity, the HSP
Guaranty, the HSP Security Agreement, the Letter Regarding Subsequent
Transactions and any other document or instrument evidencing, governing and/or
securing the Indebtedness, as amended, restated, replaced, supplemented or
otherwise modified from time to time.
"LOAN FACILITY" means the credit facility made available to Borrower
in the maximum principal amount not to exceed the Maximum Commitment Amount,
subject to and in accordance with the terms of this Agreement.
"LONDON BANKING DAY" means a day on which trading in U.S. Dollar
deposits is carried on in the London interbank market.
20
<PAGE>
"LOSS PROCEEDS" means Casualty Insurance Proceeds and/or Condemnation
Proceeds, as the context may require.
"LOSS PROCEEDS SUB-ACCOUNT" has the meaning specified in Section
-------
3.1.1.2.
- -------
"MAJOR CASUALTY/CONDEMNATION" has the meaning specified in Section
-------
3.2.2.
- -----
"MANAGEMENT GROUP" means, collectively, J. Sudarsky, J. Marcus, A.
Gold, S. Stone and G. Kreitzer.
"MATERIAL ADVERSE EFFECT" means any circumstance, act, condition or
event of whatever nature (including any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding), whether singly or in
conjunction with any other event or events, act or acts, condition or
conditions, or circumstance or circumstances, whether or not related, that (i)
results in a materially adverse change in or has a materially adverse effect
upon the business, operations or condition (financial or otherwise) of Borrower,
HSP, or any Individual Property, or (ii) results in the material impairment of
the ability of Borrower (under the Loan Documents to which Borrower is a party)
or HSP (under the HSP Guaranty or the HSP Security Agreement) to perform, or of
Lender to enforce, the Applicable Loan, including the obligations of Borrower
(under the Loan Documents to which Borrower is a party) and HSP (under the HSP
Guaranty or the HSP Security Agreement) to perform, or of Lender to enforce, any
Loan Document to which Borrower or HSP, as the case may be, is a party, or any
material rights or remedies thereunder.
"MATURITY DATE" means the earlier of (i) (x) in the case of any
Revolving Loans, September 30, 1999 and (y) in the case of the Converted Fixed
Rate Loan, the date occurring on the tenth (10th) anniversary of the Conversion
Date (or if such day is not a Business Day, the preceding Business Day), and
(ii) in the case of any Applicable Loan, such earlier date on which the
outstanding principal balance of Promissory Note becomes due and payable as
therein and herein provided, whether at stated maturity, by declaration of
acceleration, or otherwise.
"MAXIMUM COMMITMENT AMOUNT" means Seventy-Five Million Dollars
($75,000,000).
"MAXIMUM RATE" has the meaning specified in Section 9.22.
------------
"MINIMUM RELEASE PRICE" means, for each Individual Property and at any
time of determination:
(i) if such date of determination occurs prior to the Conversion Date,
112.5% of the Individual NOI Borrowing Amount in respect of the applicable
Individual Property multiplied by the fraction the numerator of which is
the aggregate principal amount of all Revolving Loans then outstanding and
the denominator of which is the Borrowing Base at the relevant time of
determination; or
21
<PAGE>
(ii) if such date of determination occurs on or after the Conversion
Date, the greater of (i) the excess, if any, of (x) the outstanding
principal amount of the Converted Fixed Rate Loan as of such date of
determination over (y) the sum of the Converted NOI Defeasance Amounts in
respect of each of the Properties subject to the Lien of the Mortgage on
such date of determination (excluding any Properties proposed to be
---------
released or affected by the Casualty, Condemnation or other capital event
in question, as the case may be), or (ii) the Converted NOI Defeasance
Amount in respect of the Individual Property proposed to be released or
affected by the Casualty, Condemnation or other capital event in question,
as the case may be;
provided, that in no event shall the Minimum Release Price for any Individual
- --------
Property exceed the outstanding principal amount of the Applicable Loan as of
the date of determination.
"MORTGAGE" means, individually and collectively, as the context
requires, (i) with respect to each Initial Collateral Property other than the
1413 Research Boulevard Property, an instrument executed and delivered by
Borrower as security for the Indebtedness and to grant to Lender a Lien on such
Initial Collateral Property prior to or as of the Closing Date, substantially in
the form of Part 1 of Exhibit E, (ii) with respect to the 1413 Research
------ ---------
Boulevard Property, that certain Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing dated as of July 2, 1996 from HSP to
PaineWebber, as amended and restated by the 1413 Restated Mortgage, and (iii)
with respect to each Individual Property that is not an Initial Collateral
Property, such other or additional mortgages, deeds of trust or deeds to secure
debt, each dated on the date that the applicable property is added as an
Individual Property, from Borrower to Lender, each substantially in the form of
Part 1 of Exhibit E, as each of the foregoing may be amended, restated,
- ------ ---------
replaced, supplemented or otherwise modified from time to time.
"MULTIEMPLOYER PLAN" means a "multiemployer plan," as such term is
defined in Section 4001(a)(3) of ERISA, with respect to which Borrower or any
Related Person has or had within the last five years an obligation to make
contributions.
"NET INCOME" means, for any period, the net income of Borrower as
determined in accordance with GAAP; provided, however, that in determining Net
--------
Income of Borrower, there shall not be included in gross revenues any of the
following items: (i) any extraordinary items, (ii) if a corporation shall have
become a Subsidiary of Borrower, any earnings of such corporation prior to the
date it shall have become a Subsidiary of Borrower, (iii) if Borrower shall have
acquired the assets and business of any Person or any substantial part of the
assets and business of any Person, any earnings properly attributable to such
assets and business or part thereof prior to the date of such acquisition, and
(iv) any earnings of, and dividends payable to, Borrower in a currency which at
the time may not be converted into Dollars under the laws of the nation issuing
such currency.
"NET OPERATING INCOME" means, with respect to an Individual Property
for any period, the Property Income minus the Operating Expenses for such
period.
"NOI BORROWING AMOUNT" means, as of any date of determination, the sum
of the Individual NOI Borrowing Amounts for each of the Individual Properties.
22
<PAGE>
"NON-QUALIFIED IPO" has the meaning set forth in Section 3.6.2.
-------------
"NON-US LENDER" has the meaning set forth in Section 2.6.10.2(a).
-------------------
"NOTE RECORD" means the grid attached to the Promissory Note, or the
continuation of such grid, or any other similar record, including computer
records, maintained by Lender or an agent of Lender with respect to the
Applicable Loan.
"OFFICER'S CERTIFICATE" means a certificate delivered to Lender by Borrower
or HSP, as applicable, which is signed by an authorized officer of Borrower or
HSP, as the case may be.
"OPERATING EXPENSES" means, in respect of an Individual Property for any
calendar month, the sum of:
(i) all expenses paid in the ordinary course of owning, maintaining
and operating such Individual Property as a commercial project (including
real estate taxes and other Impositions (or a reasonable accrual therefor),
ground rents, reasonable accounting and audit expenses, insurance premiums
and management fees, inclusive of payments into reserves for Basic Carrying
Costs); but excluding, however, dividends to the shareholders of Borrower,
--------- -------
Debt Service Payments, income taxes, Tenant Capital Expenses for such
Individual Property, and non cash items such as depreciation; and
(ii) the greater of (x) amounts actually expended on capital
improvements (including Tenant Capital Expenses) during such calendar month
and (y) an amount equal to thirty-five cents ($0.35) per square foot per
annum multiplied by the aggregate gross square footage of the Improvements
multiplied by one-twelfth (1/12th).
"OPERATING EXPENSES DISBURSEMENT REQUEST" has the meaning specified in
Section 3.1.8.2.
- ---------------
"OPERATING EXPENSE SUB-ACCOUNT" has the meaning specified in Section
-------
3.1.1.2.
- -------
"ORIGINAL LOAN AGREEMENT" has the meaning specified in the recitals
hereto.
"ORIGINAL NOTE" means that certain Promissory Note dated as of July 2,
1996, made by HSP in favor of Lender, as the same may have been or be amended,
restated, replaced, supplemented or otherwise modified prior to the date hereof.
"PAINEWEBBER" has the meaning specified in the Preamble.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED ENCUMBRANCES" has the meaning specified in Section 7.1.5.
-------------
23
<PAGE>
"PERMITTED INVESTMENTS" means any one or more of the following
obligations or securities acquired at a purchase price of not greater than par,
including those issued by Lender or any of its Affiliates:
(i) direct obligations of, or obligations fully guaranteed as to
full and timely payment of principal and interest by, the United States of
America or any agency or instrumentality thereof provided such obligations
are backed by the full faith and credit of the United States of America;
(ii) fully FDIC-insured demand and time deposits in or certificates
of deposit of, or bankers' acceptances issued by, any bank or trust
company, savings and loan association or savings bank, provided that the
--------
commercial paper and long-term unsecured debt obligations of such
depository institution or trust company have the highest rating available
for such securities by the Rating Agency;
(iii) repurchase obligations with respect to any security described
in clause (i) above entered into with a depository institution or trust
company (acting as principal) described in clause (ii) above;
(iv) general obligations of or obligations guaranteed by any State of
the United States of America or the District of Columbia receiving the
highest long-term unsecured debt rating available for such securities by
the Rating Agency;
(v) securities bearing interest or sold at a discount that are issued
by any corporation incorporated under the laws of the United States of
America or any State thereof or the District of Columbia and are rated by
the Rating Agency in its highest long-term unsecured rating category at the
time of such investment or contractual commitment providing for such
investment; provided, however, that securities issued by any such
-------- -------
corporation will not be Permitted Investments to the extent that investment
therein will cause the then outstanding principal amount of securities
issued by such corporation and held as part of the Sweep Account or the
Cash Collateral Account to exceed 20% of the aggregate principal amount of
all Permitted Investments held in the Sweep Account or the Cash Collateral
Account;
(vi) commercial or finance company paper (including both non-interest-
bearing discount obligations and interest-bearing obligations payable on
demand or on a specified date not more than one year after the date of
issuance thereof) that is rated by the Rating Agency in its highest short-
term unsecured debt rating available at the time of such investment or
contractual commitment providing for such investment, and is issued by a
corporation the outstanding senior long-term debt obligations of which are
then rated by the Rating Agency in its highest long-term unsecured debt
rating available;
(vii) units of taxable money market funds or mutual funds, which
funds are regulated investment companies, seek to maintain a constant net
asset value per share and invest solely in obligations backed by the full
faith and credit of the United States of
24
<PAGE>
America and which funds have the highest rating available from the Rating
Agency for money market funds or mutual funds; and
(viii) any other demand, money market or time deposit, or any other
obligation, security or investment, that may be acceptable to the Rating
Agency as a permitted investment of funds backing securities having ratings
equivalent to its highest rating category;
provided, however, that such instruments or securities continue to qualify as
- -------- -------
"cash flow investments" pursuant to Code Section 860G(a)(6); and provided,
--------
further, that no instrument or security shall be a Permitted Investment if (i)
- -------
such instrument or security evidences either (x) a right to receive only
interest payments with respect to the obligations underlying such instrument or
security, or (y) the right to receive principal and interest payments derived
from obligations underlying such instrument or security and the interest and
principal payments with respect to such instrument or security provide a yield
to maturity in excess of 120% of the yield to maturity at par of such underlying
obligations or (ii) such instrument or security is trading in excess of par and
is callable at par, or can be redeemed at or prior to its stated maturity date
at an amount less than the purchase price paid therefor.
"PERMITTED TRANSFERS" has the meaning specified in Section 7.1.4.
-------------
"PERSON" means any individual, corporation, general partnership,
limited partnership, limited liability company, limited liability partnership,
joint venture, estate, trust, unincorporated association, or other organization,
whether or not a legal entity, any federal, state, county or municipal
government or any bureau, department or agency thereof and any fiduciary acting
in such capacity on behalf of any of the foregoing.
"PERSONALTY" means all furniture, furnishings, objects of art,
machinery, goods, tools, supplies, appliances, general intangibles, contract
rights, accounts, accounts receivable, franchises, licenses, certificates and
permits, and all other personal property of any kind or character whatsoever (as
defined in and subject to the provisions of the UCC) which are now or hereafter
owned by Borrower and which are related to an Individual Property, together with
all accessories, replacements and substitutions thereto or therefor and the
proceeds thereof.
"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Title IV of ERISA.
"PLAN ADMINISTRATOR" has the meaning assigned to the term
"administrator" in Section 3(16)(A) of ERISA.
"PLAN SPONSOR" has the meaning assigned to the term "sponsor" in
Section 3(16)(B) of ERISA.
"PLEDGED SHARES" means the shares of common stock denoted as "Pledged
Shares" on Schedule X.
----------
25
<PAGE>
"POLICIES" has the meaning specified in Section 3.2.1.
-------------
"PREPAID RENTS" means any payment of Rents (other than security
deposits collected in the ordinary course of business) by a tenant or occupant
under a Lease more than one (1) month prior to the due date therefor specified
in such Lease.
"PREPAID RENTS SUB-ACCOUNT" has the meaning specified in Section
-------
3.1.1.2.
- -------
"PREPAYMENT PREMIUM" means the greater of:
(i) one percent (1%) of the amount of the principal balance of
the Converted Fixed Rate Loan being prepaid, or
(ii) the product of (x) a fraction whose numerator is an amount
equal to the principal amount of the Converted Fixed Rate Loan being
prepaid and whose denominator is the outstanding principal balance of the
Converted Fixed Rate Loan on the date of such prepayment (before giving
effect to such prepayment), multiplied by (y) an amount equal to the
remainder obtained by subtracting (a) an amount equal to the outstanding
principal amount of the Converted Fixed Rate Loan as of the date of such
prepayment (before giving effect to such prepayment) from (b) the present
value as of the date of such prepayment of the remaining scheduled payments
of principal and interest on the Converted Fixed Rate Loan (before giving
effect to such prepayment) determined by discounting such payments at the
Discount Rate.
"PRIVATE REFINANCING" has the meaning specified in Section 3.6.5.
-------------
"PROHIBITED TRANSACTION" has the meaning assigned to that term in
Section 4975 of the Code or in Section 406 of ERISA.
"PROMISSORY NOTE" means that certain Second Amended and Restated
Promissory Note dated the date hereof, made by Borrower in favor of Lender,
substantially in the form of Exhibit F, as the same may be amended, restated,
---------
replaced, supplemented or otherwise modified from time to time.
"PROPERTIES" means, as of any time, collectively, the Individual
Properties.
"PROPERTY AGREEMENTS" means all material option agreements, purchase
and sale agreements, construction contracts, architect contracts, engineering
contracts, property management agreements, service contracts, utility contracts,
equipment leases, equipment maintenance contracts and equipment warranties,
purchase contracts, purchase orders and similar agreements and all amendments
thereto now or hereafter relating to any of the Individual Properties and
entered into or assumed by or on behalf of Borrower or any Affiliate of
Borrower.
"PROPERTY INCOME" means, with respect to each Individual Property, all
rents, income, issues, profits and other benefits now or hereafter received or
collected by or on behalf of the owner of such Individual Property from such
Individual Property in connection with the
26
<PAGE>
use, occupancy, management, leasing, operation or enjoyment of such Individual
Property or the Equipment related to such Individual Property or under or in
connection with any Leases related to such Individual Property including all
income received from tenants, transient guests, lessees, licensees and
concessionaires and other Persons occupying space at such Individual Property
and/or rendering services to such Individual Property's tenants; excluding,
---------
however, (i) tenant security deposits (unless and until the same are forfeited
- -------
by the related tenant), (ii) Capital Event Proceeds, including Loss Proceeds and
(iii) proceeds of any Asset Sale made in accordance with Section 3.3; provided,
----------- --------
however, that proceeds of rental loss insurance policies and Condemnation
- -------
Proceeds on account of lost rental income relating to temporary condemnations
shall be deposited in the Cash Collateral Account pursuant to Section 3.1.9 or
-------------
Section 3.1.10, as the case may be, and shall, for purposes of calculating Net
- --------------
Operating Income, constitute Property Income to the extent transferred to the
Operating Expense Sub-Account during the relevant calculation period pursuant to
Section 3.1.9 or Section 3.1.10, as the case may be.
- ------------- --------------
"PROPERTY MANAGER" means, with respect to any Individual Property, any
property manager approved by Lender in accordance with the terms of this
Agreement.
"PURCHASE CONTRACTS" means, individually and collectively, as the
context requires, all contracts and agreements for the purchase of any
Individual Property by Borrower, together with all amendments and modifications
thereto.
"PWRESI" has the meaning specified in the recitals.
"QUALIFIED IPO" means an initial public offering of the common stock
of Borrower, HSP or Holdings (or of any successor to the foregoing by merger or
consolidation with any Person that is a Borrower Affiliated Entity prior to
giving effect to such merger or consolidation) pursuant to which HSP (or such
successor) (x) redeems at least fifty percent (50%) of the Series V Preferred
Stock (as such term is defined in the HSP Articles) for cash at the Cash Return
Redemption Price (as such term is defined in the HSP Articles), and converts the
remaining Series V Preferred Stock to Common Stock, or (y) converts 100% of the
Series V Preferred Stock to Common Stock with no cash redemption all as set
forth in the HSP Articles.
"RATING AGENCY" means, collectively, any two of (i) Moody's Investors
Service, (ii) Standard & Poors Ratings Services, (iii) Fitch Investors Services,
L.P. and (iv) Duff & Phelps Credit Rating Co., as shall be designated by Lender
in its sole discretion.
"REFINANCING" has the meaning specified in Section 3.6.5.
-------------
"RELATED PERSON" means, with respect to any Person, any corporation or
any trade or business (whether or not incorporated) which, together with such
Person, is under common control as described in Sections 414(b) and (c) of the
Code or is a member of an affiliated service group as described in Sections
414(m) or (o) of the Code.
"RENT ROLL" means a rent roll for an Individual Property containing
the information described in clauses (i) through (xiii) of Section 5.1.29.
--------------
27
<PAGE>
"RENTS" means all rents, issues, revenues, income, proceeds, profits,
royalties, security (including all oil and gas or other hydrocarbon substances,
earnings, receipts, revenues, accounts, accounts receivable, security deposits
and other deposits) and income, including fixed, additional and percentage
rents, operating expense reimbursements, reimbursements for increases in Taxes,
sums paid by tenants to Borrower to reimburse Borrower for amounts originally
paid or to be paid by Borrower or Borrower's agents or affiliates for which such
tenants were liable, as, for example, tenant improvements costs in excess of any
work letter, lease takeover costs, moving expenses and tax and operating expense
pass-throughs for which a tenant is solely liable, parking, maintenance, common
area, tax, insurance, utility and service charges and contributions, proceeds of
sale of electricity, gas, heating, air-conditioning and other utilities and
services, deficiency rents and liquidated damages, and other benefits now or
hereafter derived from any portion of any Individual Property or the use,
enjoyment, development, operation, ownership or occupancy thereof (including any
payments received pursuant to Section 502(b) of the Bankruptcy Code or otherwise
in connection with the commencement or continuance of any bankruptcy,
reorganization, arrangement, insolvency, dissolution, receivership or similar
proceedings, or any assignment for the benefit of creditors, in respect of any
tenant or other occupants of any portion of any Individual Property and all
claims as a creditor in connection with any of the foregoing) and all cash or
security deposits, advance rentals, and all deposits or payments of a similar
nature relating thereto, now or hereafter, including during any period of
redemption, derived from any Individual Property and all proceeds from the
cancellation, surrender, sale or other disposition of any Lease and other
benefits paid or payable and to become due or payable to Borrower in respect of
the use, occupation, enjoyment, development, operation or ownership of any
portion or portions of the any Individual Property pursuant to the Lease.
"REPORTABLE EVENT" means a "reportable event" described in Section
4043(c) of ERISA for which the 30-day notice requirement has not been waived by
regulation.
"RESTRICTED ACCOUNT LETTER" has the meaning set forth in Section
-------
3.1.2.
- -----
"REVOLVING LOANS" means each and every advance of funds made or to be
made by Lender to Borrower pursuant to Section 2.1.3.
-------------
"SERIES V PREFERRED STOCK" means the Series V Preferred Stock, $0.01
par value per share, of HSP.
"SERIES V STOCK PURCHASE AGREEMENT" means that certain Series V
Convertible Preferred Stock Purchase Agreement dated as of September 9, 1996
among AEW, HSP and Holdings.
"STATE" means, with respect to an Individual Property, the State or
Commonwealth in which such Individual Property or any part thereof is located.
"STOCKHOLDER'S AGREEMENT" means the Stockholders Agreement dated as of
September 9, 1996 among HSP, Holdings, AEW and the stockholders of HSP.
28
<PAGE>
"STRUCTURAL COSTS" means, with respect to an Individual Property for
any calendar month, the aggregate cost of deferred maintenance, capital repairs
and other capital expenditures to be effected at such Individual Property during
such month, as set forth in the applicable Annual Operating Budget in effect for
such calendar month.
"STRUCTURAL DISBURSEMENT REQUEST" has the meaning specified in Section
-------
3.1.8.4.
- -------
"STRUCTURAL COSTS MONTHLY INSTALLMENT" means, with respect to the
Properties for any calendar month, one-twelfth (1/12th) of the greater of (i)
the aggregate annual amount of Structural Costs payable in respect of the
Properties or (ii) thirty-five cents (35c) per gross square foot of all
Improvements at the Properties.
"STRUCTURAL COSTS SUB-ACCOUNT" has the meaning specified in Section
-------
3.1.1.2.
- -------
"SUB-ACCOUNTS" means, collectively, any or all of the Debt Service
Sub-Account, Basic Carrying Costs Sub-Account, Operating Expense Sub-Account,
Structural Costs Sub-Account, Capital Event Sub-Account, Deferred Maintenance
Reserves Sub-Account, Prepaid Rents Sub-Account and Loss Proceeds Sub-Account,
as the context requires.
"SUBSIDIARY" means, (i) with respect to Borrower or HSP, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by their terms ordinary voting
power to elect a majority of the board of directors or other Persons performing
similar functions of such corporation, partnership or other entity (irrespective
of whether or not at the time securities or other ownership interests of any
other class or classes of such corporation, partnership or other entity shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by Borrower or HSP,
respectively, and/or one or more Subsidiaries of Borrower or HSP, respectively,
and (ii) with respect to Borrower or any Subsidiary of Borrower described in
clause (i) above, any partnership in which Borrower or any such Subsidiary is a
general partner, and (iii) with respect to HSP or any Subsidiary of HSP
described in clause (i) above, any partnership in which HSP or any such
Subsidiary is a general partner.
"SURVEY" means, with respect to any Individual Property, a survey map
of such Individual Property dated and certified within sixty (60) days prior to
the Closing Date (or, if the applicable property is not an Initial Collateral
Property, the date such property becomes an Individual Property), prepared by a
surveyor licensed in the State in which such Individual Property is located, and
satisfactory to Lender and Title Company, containing a certification of such
surveyor substantially conforming to the Form of Surveyor's Certification
attached hereto as Exhibit B.
---------
"SWEEP ACCOUNT" has the meaning specified in Section 3.1.1.1.
---------------
"SWEEP BANK" means LaSalle National Trust, N.A., the financial
institution at which the Sweep Account has been established, and any other
financial institution subsequently selected by Lender and, so long as no Default
or Event of Default is continuing, reasonably acceptable to Borrower, for the
transfer of the Sweep Account, provided that any such subsequent
--------
29
<PAGE>
financial institution shall be authorized to maintain Eligible Accounts. Lender
shall consult with Borrower in connection with and shall give Borrower notice of
any transfer of the Sweep Account to a successor Sweep Bank.
"TAX" means any present or future tax, levy, impost, duty, charge,
fee, deduction or withholding of any nature and whatever called, by whomsoever,
on whomsoever and wherever imposed, levied, collected, withheld or assessed;
provided that "TAX ON THE OVERALL NET INCOME" of a Person shall be construed as
- --------
a reference to a tax (including a franchise tax or income tax) imposed by any
jurisdiction in which that Person is organized or is doing business on, or
measured by, all or part of the net income, net profits or net gains of that
Person (whether worldwide, or only insofar as such income, profits or gains are
considered to arise in or to relate to a particular jurisdiction, or otherwise).
"TENANT CAPITAL EXPENSES" means costs incurred by Borrower in respect
of (i) tenant improvements under and pursuant to Leases, (ii) tenant concessions
under and pursuant to Leases that are in effect on the date hereof or that are
entered into in accordance with this Agreement (including Section 6.1.17) and
--------------
(iii) leasing and brokerage commissions in connection with Leases.
"TITLE COMPANY" means Chicago Title Insurance Company, Commonwealth
Land Title Insurance Company, First American Title Insurance Company, Stewart
Title Insurance Company or, if not one of the foregoing, such other nationally
recognized title insurance company licensed to do business in the states where
the Properties are located as shall be acceptable to Lender in its sole
discretion.
"TITLE INSURANCE POLICY" means, collectively, (i) with respect to each
Individual Property, a mortgagee title insurance policy or marked title
commitment dated as of the date of recordation of the Mortgage insured
thereunder, issued by Title Company on ALTA Loan Policy Form 1970 (or, if such
form shall be unavailable, on ALTA Loan Policy Form 1992 or on such other form
as shall be acceptable to Lender) satisfactory to Lender, in an amount equal to
the greatest of (1) the purchase price paid by Borrower or an Affiliate of
Borrower to an unaffiliated third party for the purchase of the applicable
Individual Property, or (2) the original Individual NOI Borrowing Amount in
respect of such Individual Property, or (3) the Conversion Value, and insuring
the Lien of the Mortgage encumbering the applicable Individual Property as a
first priority Lien in favor of Lender, subject only to Permitted Encumbrances,
with (q) a leasehold endorsement (in respect of each Individual Property ground
leased by Borrower), (r) last dollar endorsement (to the extent available in the
applicable state), (s) a contingent loss/first loss endorsement (to the extent
available in the applicable state), (t) a comprehensive lender's endorsement,
(u) a survey identicality endorsement, (v) variable rate endorsement, (w) a
usury endorsement (to the extent available at commercially reasonable rates or
required to comply with the standards and policies of the Rating Agencies for
title endorsements in the rating of commercial mortgage-backed securities backed
by loans similar to the Applicable Loan), (x) a zoning endorsement (to the
extent available at commercially reasonable rates or required to comply with the
standards and policies of the Rating Agencies for title endorsements in the
rating of commercial mortgage-backed securities backed by loans similar to the
Applicable Loan), (y) a revolving credit endorsement (to the extent available in
the applicable state) and (z) a tie-in
30
<PAGE>
endorsement (to the extent available in the applicable state and if at such time
more than one (1) Individual Property is included in the Collateral), all in
form and substance satisfactory to Lender and containing such other endorsements
and affirmative assurances, and such re-insurance and/or co-insurance agreements
with such other title insurance companies, as Lender shall in each case require,
and (ii) with respect to the 1413 Research Boulevard Property, in addition to
the title insurance policy referenced in clause (i) above, a bring-down
----------
(or signed commitment therefor) of Lender's existing mortgagee title insurance
policy for the 1413 Research Boulevard Property, all in form and substance
satisfactory to Lender.
"TRAILING 12-MONTH NET OPERATING INCOME" means, as of any date and
with respect to any Individual Property, the Net Operating Income of such
Individual Property for the immediately preceding twelve full calendar months.
"TRANSFER" of the Properties means any transfer, sale, conveyance,
assignment or other direct or indirect disposition of, or the grant of any
easements, leases or other material rights with respect to, all or any portion
of the Properties or of all or any portion of any Individual Property in any
manner whatsoever, whether directly or indirectly or voluntarily or
involuntarily.
"TREASURY RATE" means the yield calculated by the linear interpolation
of the yield, as reported in Federal Reserve Statistical Release H.15-Selected
Interest Rates under the heading "U.S. government securities/Treasury constant
maturities" for the week ending prior to the date of the relevant prepayment of
the Promissory Note, of U.S. Treasury constant maturities with a maturity date
(one longer and one shorter) most nearly approximating the Maturity Date of the
Converted Fixed Rate Loan. In the event Release H.15 is no longer published,
Lender shall select a comparable publication to determine the Treasury Rate.
"UCC" or "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code
as in effect in a State.
"UST" has the meaning set forth in Section 4.1.22(i).
-----------------
"WEST WATKINS MILL ROAD PROPERTY" means the Individual Property
located at 25, 35 and 45 West Watkins Mill Road, Gaithersburg, Montgomery
County, MD.
"WORK" has the meaning set forth in Section 3.2.2.
-------------
SECTION 1.2 PRINCIPLES OF CONSTRUCTION.
----------- --------------------------
All references to sections, schedules and exhibits are to sections,
schedules and exhibits in or to this Agreement unless otherwise specified.
Unless otherwise specified, the words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
words and phrases "including," "shall include," "inclusive of" and words and
phrases of similar import shall be deemed to be followed by "without limitation"
or "but not limited to." Unless otherwise specified, all meanings attributed to
defined terms herein shall be equally applic-
31
<PAGE>
able to both the singular and plural forms of the terms so defined. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP, as modified herein.
II. GENERAL TERMS
-------------
SECTION 2.1 LOAN COMMITMENT; DISBURSEMENT TO BORROWER.
----------- -----------------------------------------
2.1.1 REVOLVING LOANS. Subject to and upon the terms and
---------------
conditions set forth herein, Lender agrees to lend to Borrower and Borrower may
borrow, repay, and reborrow from Lender from time to time between the Closing
Date and the Maturity Date for the Revolving Loans such sums as are requested by
Borrower so long as the aggregate principal amount of the Revolving Loans
outstanding (after giving effect to all amounts requested) at any one time does
not exceed the Borrowing Base. Advances of a Revolving Loan shall be made not
more than five (5) times per calendar month, by wire transfer to an escrow
account satisfactory to Lender and Borrower and located in the state of New
York. Lender shall promptly process Completed Loan Requests and, subject to
Borrower's satisfaction of the required conditions in a time sufficient to allow
Lender to complete its diligence and determine to its satisfaction that all
required conditions have been met, fund the Revolving Loans on the proposed
Drawdown Date requested by Borrower in the Completed Loan Request. If Lender
believes that it will be unable to make a Revolving Loan on the proposed
Drawdown Date listed in the Completed Loan Request due to causes other than
Borrower's failure to timely satisfy the requirements of Section 4.1, Lender
-----------
shall use reasonable efforts to promptly notify Borrower of such inability to
fund on the proposed Drawdown Date.
No Revolving Loan shall be required to be made by Lender unless (i)
all of the conditions contained in Section 4 and all other applicable terms and
---------
conditions set forth in this Agreement that by their nature can be met prior to
the advance of a Revolving Loan have been met, and (ii) after giving effect to
the proposed advance, all of the conditions contained in Section 4 and all
---------
other applicable terms and conditions set forth in this Agreement will have been
met. Lender shall use reasonable efforts to fund each Revolving Loan not later
than 11:00 a.m. Eastern Standard Time on the related Drawdown Date.
2.1.2 DISBURSEMENT TO BORROWER. On the Closing
Date, subject to the satisfaction of all the conditions precedent to the closing
and the making of the Initial Revolving Loan hereunder (including the conditions
set forth in Sections 4.1 and 4.3.1), all or part of the outstanding principal
------------ -----
amount of the Interim Funding Loan shall be converted to and continued as, and
shall constitute, a Revolving Loan outstanding under this Agreement. Any portion
not so converted and continued shall be repaid by HSP or Borrower to Lender
prior to or contemporaneously with the Closing Date. The portion of such Interim
Funding Loan that is so converted, continued and modified hereunder, shall as of
the Closing Date constitute a Revolving Loan with such terms and conditions as
provided in, and for all purposes under, this Agreement and the other Loan
Documents.
Each Drawdown Date shall be a Business Day not fewer than fifteen (15)
Business Days after the date Lender receives the applicable Completed Loan
Request from Borrower.
32
<PAGE>
2.1.3 REQUESTS FOR REVOLVING LOANS; CONTINUATIONS. (a)
-------------------------------------------
Lender shall not be required to consider Completed Loan Requests in respect of
more than five (5) proposed additional Individual Properties during any calendar
month. Each request by Borrower for a Revolving Loan:
(i) shall be in a minimum amount of Five Hundred Thousand Dollars
($500,000);
(ii) shall be in the form of Exhibit R hereto completed to specify:
---------
(1) the principal amount of the Revolving Loan requested, (2) at Borrower's
option, the initial Interest Period (but the Completed Loan Request need
not specify the initial Interest Period), (3) the proposed Drawdown Date,
(4) the permitted purpose for which such funds will be used and (5) the
account and wire transfer routing instructions for such Revolving Loan;
(iii) shall be accompanied by the Compliance Certificate described in
Section 4.3.4; and
-------------
(iv) shall be delivered to Lender in accordance with Section 9.6
-----------
hereof and shall be in an envelope conspicuously marked with substantially
the following legend: ``LOAN REQUEST -- TIME SENSITIVE -- MUST RESPOND
WITHIN FIFTEEN (15) BUSINESS DAYS''; provided, that the failure to so mark
--------
any request for a Revolving Loan shall not by itself cause such request not
to constitute a Completed Loan Request.
(b) Lender shall not be obligated to fund any Revolving Loan
unless:
(i) a Completed Loan Request has been timely received by Lender;
and
(ii) all of the conditions contained in Section 4 and all other
---------
applicable terms and conditions set forth in this Agreement have been met
at the time of the advance of the Revolving Loan requested pursuant to the
Completed Loan Request, and after giving effect to the advance of such
Revolving Loan, will have been met.
2.1.4 PROMISSORY NOTE. The Applicable Loan shall be evidenced by
---------------
the Promissory Note, shall bear interest as provided in Section 2.5 and shall be
-----------
subject to repayment and prepayment as provided in Section 2.4. The Promissory
------------
Note shall be entitled to the benefits of this Agreement, and shall be secured
by the Mortgage, the Assignment of Leases, the HSP Guaranty, the HSP Security
Agreement and the other Loan Documents.
2.1.5 FACILITY FEES. Borrower shall pay to Lender facility fees
-------------
for the period from and including the Closing Date to and excluding the earlier
of (a) the Maturity Date and (b) the Conversion Date, equal to the greater of
(i) the average daily unused portion of the Borrowing Base, taking into
consideration any increases or reductions thereof pursuant to the provisions of
this Agreement, multiplied by 0.375% per annum, or (ii) the average daily unused
portion of the Loan Facility, multiplied by 0.25% per annum. Such facility fees
shall be calculated on the basis of a 360-day year and the actual number of days
elapsed, and shall be
33
<PAGE>
payable quarterly in arrears on the last day of each calendar quarter,
commencing on the first such date to occur after the Closing Date, and (if
Revolving Loans are converted to the Converted Fixed Rate Loan) on the
Conversion Date. For purposes of calculating the facility fees payable by
Borrower pursuant to this Section 2.1.5, the "daily unused portion of the
-------------
Borrowing Base," as of any date of determination, shall be an amount equal to
the Borrowing Base as of such date minus the aggregate outstanding principal
-----
amount of all Revolving Loans on such date, and the "unused portion of the Loan
Facility," as of any date of determination, shall be an amount equal to
$75,000,000 minus the aggregate outstanding principal amount of all Revolving
-----
Loans on such date. The facility fees provided in this Section 2.1.5 shall cease
-------------
to accrue upon the Conversion Date.
2.1.6. CONVERSION.
----------
2.1.6.1 OPTION TO CONVERT. Subject to the terms and
-----------------
conditions of this Section 2.1.6, Borrower shall have the option during the
-------------
Conversion Period to convert outstanding Revolving Loans to the Converted
Fixed Rate Loan. Borrower's option shall be exercisable only by delivery to
Lender of a Conversion Notice (accompanied by a Conversion Compliance
Certificate) on a Business Day no less than 15 Business Days prior to the
proposed Conversion Date. Borrower's election shall be irrevocable after
Lender's receipt of the Conversion Notice.
2.1.6.2 TERMS OF CONVERSION. Subject to the satisfaction of
-------------------
the other terms and conditions of this Section 2.1.6, Borrower shall have
-------------
the right to convert Revolving Loans into the Converted Fixed Rate Loan
having an unpaid principal amount not to exceed the lesser of (x) the
Converted NOI Borrowing Amount and (y) 75% of the Aggregate Property Value
of the Properties. The Converted Fixed Rate Loan shall mature on the
Maturity Date, shall accrue interest at the Fixed Rate as described in
Section 2.5.1 below, and the principal thereof shall be payable as
-------------
described in Section 2.4.1 below.
-------------
2.1.6.3 TERMINATION OF COMMITMENTS. Upon Borrower's
--------------------------
delivery of the Conversion Notice to Lender, Lender shall have no further
obligation to make additional Revolving Loans hereunder.
2.1.6.4 CONDITIONS TO CONVERSION. The obligation of
------------------------
Lender to convert Revolving Loans to the Converted
Fixed Rate Loan hereunder is subject to satisfaction by Borrower of the
following conditions precedent no later than the Conversion Date:
(i) The aggregate principal amount of Revolving Loans converted to
the Converted Fixed Rate Loan does not exceed the lesser of (x) the Converted
NOI Borrowing Amount and (y) 75% of the Aggregate Property Value of the
Properties, and all principal and interest in respect of any other outstanding
Revolving Loans and any other amounts due under the Loan Documents have been
paid in full.
(ii) Borrower shall have delivered to Lender a Conversion Notice,
accompanied by a Conversion Compliance Certificate, during the Conversion
Period.
34
<PAGE>
(iii) Borrower shall have delivered an updated Conversion
Compliance Certificate dated the Conversion Date.
(iv) Borrower shall have paid (or shall pay on the Conversion
Date) the Conversion Fee to Lender.
(v) No Event of Default shall have occurred.
(vi) Each of the representations and warranties of Borrower and
HSP contained in this Agreement and the other Loan Documents shall be true
at and as of the date on which they were made and also shall be true at and
as of (x) the date of delivery of the Conversion Notice to Lender and (y)
the Conversion Date, with the same effect as if made at and as of each such
time and in respect of the state of facts in existence at and as of each
such time, including in respect of any addition Individual Properties that
have been accepted by Lender after the Closing Date (except to the extent
of changes resulting from transactions contemplated or not prohibited by
this Agreement or the other Loan Documents).
(vii) Borrower shall have delivered to Lender such agreements or
documentation (including amendments to the Loan Documents and date-down
endorsements to the Title Policy) as Lender shall in good faith require to
evidence the conversion of the outstanding Revolving Loans to the Converted
Fixed Rate Loan and to continue the first priority Liens in favor of Lender
on the Collateral.
(viii) Borrower shall have delivered to Lender a
substantive consolidation legal opinion satisfactory to Lender in respect
of Borrower, on the one hand, and HSP, Holdings, AEW, and such other
persons as Lender may reasonably anticipate the Rating Agencies will
request be included in such legal opinion in connection with any
securitization of the Converted Fixed Rate Loan, on the other hand.
Borrower may discuss Rating Agency standards in respect of substantive
consolidation legal opinions with the Rating Agencies in connection with
the substantive consolidation legal opinion to be delivered pursuant to
clause (viii); provided that Borrower shall conduct such this discussions
------------ --------
in good faith, shall not cause a breach in the provisions of Section 9.16
------------
and shall use best efforts to not adversely impact the proposed
securitization (if any securitization is then proposed) of the Converted
Fixed Rate Loan.
(ix) If Lender shall have determined within five (5) Business Days
of its receipt of a Conversion Notice that it requires Appraisals for the
Individual Properties that shall secure the Converted Fixed Rate Loan and
Lender has provided Borrower with notice of the same, Borrower shall have
delivered to Lender an Appraisal of each Individual Property that shall
secure the Converted Fixed Rate Loan, which Appraisals shall be dated not
earlier than thirty (30) days prior to the Conversion Date. In addition,
Borrower shall have delivered to Lender such updated Engineering Reports
and updated Environmental Reports in respect of the Properties as Lender
may reasonably anticipate the Rating Agencies will request in connection
with any securitization of the Converted Fixed Rate Loan, in each case
satisfactory to Lender.
35
<PAGE>
(x) Borrower shall have delivered to Lender such updates to the
Schedules and Exhibits hereto and to the other Loan Documents as relate to
the Properties that shall secure the Converted Fixed Rate Loan, which
updates of Schedule IV hereto shall be satisfactory to Lender in its sole
-----------
discretion, and which updates of the Schedules and Exhibits other than
Schedule IV hereto shall (to the extent such updates are different than the
-----------
schedules previously delivered to Lender) be satisfactory to Lender in its
sole discretion.
(xi) Borrower's Organizational Documents shall:
(a) contain the restrictions set forth in Section 6.1.23; and
--------------
(b) provide that the unanimous vote of all directors of
Borrower, which vote must include the vote of one (1) Independent Director,
is necessary to do any of the following: (v) amend, alter, change or repeal
the provisions of Borrower's Organizational Documents providing for
restrictions similar to the provisions of Section 6.1.23; (w) dissolve or
--------------
liquidate, in whole or in part, consolidate or merge with or into any other
Person or convey, sell or transfer all or substantially all of the assets
of Borrower to any Person (other than any Transfer of Borrower's assets
that constitutes an Asset Sale and is made in accordance with Section 3.3);
-----------
(x) approve any act by Borrower as a result of which Borrower would be
dissolved; (y) engage in any business or activity other than the business
activities in which Borrower engages as of the date of this Agreement; (d)
incur or assume any indebtedness, except such indebtedness as may be
incurred or assumed in the ordinary course of conducting its business; and
(z) institute any Bankruptcy Action.
(xii) Borrower shall have agreed to any and all modifications to this
Agreement, the other Loan Documents and Borrower's Organizational Documents
(in the case of Borrower's Organizational Documents, subject to the
requirements of applicable law) as Lender may reasonably anticipate the
Rating Agencies will request in connection with any securitization of the
Converted Fixed Rate Loan (including modifications to the Loan Documents in
respect of insurance requirements, financial reporting requirements,
lockbox requirements and requirements in respect of the Title Company), and
this Agreement, the other Loan Documents and Borrower's Organizational
Documents shall have been modified accordingly; provided, that, except for
-------- ----
the changes to Borrower's Organizational Documents otherwise required
pursuant to this Agreement, Borrower shall not be required to acquiesce in
respect of material and adverse modifications to Borrower's payment
obligations under Loan Documents, alter the Maturity Date of the Converted
Fixed Rate Loan, provide any additional collateral as security for
Borrower's obligations to make payments of principal and interest on the
Converted Fixed Rate Loan, pay any additional fee to Lender, acquiesce in
any changes to the Loan Documents or Borrower's Organizational Documents
that would result in a Material Adverse Effect or acquiesce in any changes
to Sections 8.1(vii) through 8.1(xiii) of this Agreement. Borrower may
----------------- ---------
discuss Rating Agency standards with the Rating Agencies in connection with
the modifications to be delivered pursuant to this clause (xii); provided
------------ --------
that Borrower shall conduct such discussions in good faith, shall not cause
a breach in the provisions of
36
<PAGE>
Section 9.16 and shall use best efforts to not adversely impact the
------------
proposed securitization (if any securitization is then proposed) of the
Converted Fixed Rate Loan.
(xiii) Borrower shall have delivered or caused to be delivered to
Lender copies certified by Borrower of all organizational documentation
related to (a) Borrower and HSP and any successor to either of the
foregoing by merger or consolidation (to the extent not previously
delivered to Lender) and (b) the formation, structure, existence, status of
Borrower and HSP (or any successor to either of the foregoing by merger or
consolidation) as a real estate investment trust, good standing and
qualification of Borrower and HSP (or any successor to either of the
foregoing by merger or consolidation) to do business in the appropriate
jurisdictions and Borrower's board of directors (including the Independent
Director), all of which shall be acceptable to Lender in its sole
discretion.
(xiv) Lender shall have received payment of Lender's reasonable out-
of-pocket costs and expenses (including reasonable attorneys' fees and
expenses) incurred in connection with the conversion of the outstanding
Revolving Loans to the Converted Fixed Rate Loan.
SECTION 2.2 USE OF PROCEEDS. Borrower shall use the proceeds
------------ ---------------
of the Revolving Loans only for (x) funding the cost of the acquisition and
financing or refinancing of Properties (including (i) purchase deposits, (ii)
refinancing of indebtedness encumbering the applicable property and (iii)
improvements, tenant improvements, expansion and capital renovation costs
contemplated and incurred in connection with such acquisition (as evidenced in
the applicable Completed Loan Request)), (y) paying for reasonable closing costs
in connection with the closing hereunder and under the Purchase Contracts and
(z) funding the initial deposit into the Cash Collateral Account pursuant to
Section 3.1.3, and for no other purpose.
- -------------
SECTION 2.3 NOTE RECORD. Borrower irrevocably authorizes
------------ -----------
Lender to make or cause to be made, at or about the time of each Drawdown Date
and at the time of receipt of any payment of principal on the Promissory Note
(whether such payment occurs before, upon or after the Conversion Date), an
appropriate notation on the Note Record reflecting the making of the applicable
Revolving Loan or the receipt of such payment, as the case may be. In addition,
Borrower irrevocably authorizes Lender to make or cause to be made, at or about
the Conversion Date, an appropriate notation on such Note Record reflecting the
conversion of Revolving Loans to the Converted Fixed Rate Loan and the principal
balance thereof. The outstanding amount of the Applicable Loan set forth on such
Note Record shall be prima facie evidence of the principal amount thereof owing
and unpaid to Lender (in the absence of manifest error), but the failure to
record, or any error in so recording, any such amount on such Note Record shall
not limit or otherwise affect the obligations of Borrower hereunder or under the
Promissory Note to make payments of principal of or interest on the Applicable
Loan when due. There shall not be more than one (1) Note Record at any time.
37
<PAGE>
SECTION 2.4 LOAN REPAYMENTS AND PREPAYMENTS.
------------ -------------------------------
2.4.1 REPAYMENTS. Borrower shall repay the outstanding
----------
principal amount of the Applicable Loan in full on the Maturity Date, together
with accrued but unpaid interest thereon to (but excluding) the date of
repayment. In addition, from and after the Conversion Date, Borrower shall repay
the principal amount of the Converted Fixed Rate Loan in equal monthly
installments on each Interest Payment Date, in the amount required to fully
amortize the initial principal amount of the Converted Fixed Rate Loan with
level monthly payments over twenty-five (25) years on a direct reduction basis.
2.4.2 MANDATORY PREPAYMENTS. (a) The Applicable Loan is
---------------------
subject to mandatory partial or full prepayment on an Interest Payment Date, in
certain instances of Casualty or Condemnation (each a "CASUALTY/CONDEMNATION
MANDATORY PREPAYMENT"), in the manner and to the extent set forth in Section
-------
3.2.2. In addition, all Capital Event Proceeds (other than those
- ------
from a Casualty or Condemnation) shall be applied to the outstanding
Indebtedness, until the principal shall have been paid in the amount of the
greater of (x) the Minimum Release Price in respect of each applicable
Individual Property, and (y) in the event any Revolving Loans are outstanding,
the amount (if any) required to be prepaid so that the outstanding principal
amount of Revolving Loans does not exceed the Borrowing Base then in effect; and
all Capital Event Proceeds in excess thereof shall be released to Borrower. As a
condition of Lender's release of Capital Event Proceeds to Borrower, Lender
shall have received from Borrower a Compliance Certificate, together with an
Auditor's Letter confirming the same, evidencing that, on a pro forma basis
--- -----
after giving effect to the related prepayment, Borrower has paid the amounts
required to be paid to Lender pursuant to clauses (x) and (if applicable) (y)
----------- ---
above, attaching a copy of the pro forma analysis used in determining such
--- -----
compliance (including a calculation of each of the Individual NOI Borrowing
Amounts or the Converted NOI Defeasance Amounts, as applicable), and certifying
that after giving effect to such Casualty or Condemnation and related
prepayment, no Default or Event of Default exists under any Loan Document.
(b) Prior to the Conversion Date, Borrower shall promptly, and in any
event within ten (10) Business Days following Lender's demand, prepay the
Revolving Loans to the extent necessary so that the outstanding principal amount
of the Revolving Loans shall not at any time exceed the Borrowing Base then in
effect (including as a result of the Borrowing Base, as applicable, being
reduced following the release of any Individual Property or Properties),
provided, that in lieu of making a mandatory prepayment as provided in the
- -------- ----
foregoing clause (ii), Borrower may grant a first Lien in favor of Lender on one
-----------
or more additional properties, thereby adding such properties as Individual
Properties, such that the Borrowing Base is then increased to an amount equal to
or greater than the aggregate principal amount of the Revolving Loans then
outstanding, provided further however that Lender shall not be required to
-------- ------- -------
accept any such property as an Individual Property for purposes of this Section
-------
2.4.2 unless the requirements of Section 4.2 have been satisfied in respect of
- ----- -----------
such property.
(c) All mandatory prepayments of the Applicable Loan shall be made on
an Interest Payment Date (except for prepayments required to reduce the
outstanding Revolving Loans to the amount of the Borrowing Base, which need not
be made upon an Interest Payment Date). In the event any Capital Event Proceeds
(including Loss Proceeds) intended or required
38
<PAGE>
to be applied to the prepayment of the Applicable Loan are received on a date
other than an Interest Payment Date, such proceeds shall be deposited in the
Capital Event Sub-Account for application in accordance with Section 3.1.8.4 on
---------------
the next succeeding Interest Payment Date. All interest accruing on such
proceeds during the period such proceeds remain on deposit in the Cash
Collateral Account shall be part of the Account Collateral and shall be
allocated among the Sub-Accounts in the same manner as Property Income as
provided in Section 3.1.4.2.
---------------
(d) Any mandatory prepayment made prior to the Conversion Date shall
be without premium or penalty, except as otherwise provided in Section 2.6.6.
-------------
Any mandatory prepayment made on or after the Conversion Date shall be subject
to the Prepayment Premium, and Borrower shall pay the Prepayment Premium
(together with any other amount due to Lender pursuant to the provisions of
Section 2.6.6) to Lender when making any such prepayment.
- -------------
2.4.3 VOLUNTARY PREPAYMENTS.
---------------------
2.4.3.1 PREPAYMENTS PRIOR TO THE CONVERSION DATE. Subject to
----------------------------------------
the requirements of Section 2.4.3.3, Borrower may, on any Interest Payment
---------------
Date prior to or on the Conversion Date, prepay any Revolving Loans, in
whole or in part, together with (i) interest on the principal amount of the
Revolving Loans being prepaid to (but excluding) the date of payment, (ii)
any amount due to Lender pursuant to the provisions of Section 2.6.6
-------------
and (iii) reimbursement of Lender's actual and reasonable out-of-pocket
costs and expenses (including reasonable fees and expenses of counsel) in
connection with such prepayment. Any prepayment of the Revolving Loans
shall be without premium or penalty, except as otherwise provided in
Section 2.6.6.
-------------
2.4.3.2 PREPAYMENTS ON AND AFTER THE CONVERSION DATE.
--------------------------------------------
Borrower shall not prepay the Converted Fixed Rate Loan in whole or in part
from and including the Conversion Date through and excluding the fifth
(5th) anniversary of the Conversion Date. Subject to the requirements of
Section 2.4.3.3, Borrower may, on any Interest Payment Date on or after the
---------------
fifth (5th) anniversary of the Conversion Date, prepay the Converted Fixed
Rate Loan, in whole or in part, provided that such prepayment is
--------
accompanied by payment to Lender of (i) interest on the principal amount of
the Converted Fixed Rate Loan being prepaid to (but excluding) the date of
payment, (ii) the Prepayment Premium, (iii) any amount due to Lender
pursuant to the provisions of Section 2.6.6 and (iv) reimbursement of
-------------
Lender's actual and reasonable out-of-pocket costs and expenses (including
reasonable fees and expenses of counsel) in connection with such
prepayment; provided further that from no Prepayment Premium shall be
-------- -------
required in respect of any prepayment made after the date that is one (1)
month prior to the scheduled Maturity Date.
2.4.3.3 VOLUNTARY PREPAYMENT MECHANICS AND AMOUNTS. Any
------------------------------------------
partial prepayment shall be in a minimum principal amount of $500,000.
Prepayments shall be made upon not less than fifteen (15) Business Days'
prior written notice to Lender. Each notice of prepayment shall be
irrevocable and shall specify (i) the prepayment date, (ii) the amount of
such prepayment and the amount of interest thereon to be delivered in
connection therewith, (iii) in the case of any prepayment of any
39
<PAGE>
Revolving Loans, the outstanding Revolving Loan(s) that are being prepaid,
(iv) the amount of the Prepayment Premium (if applicable), together with a
written statement setting forth in reasonable detail the basis for
calculating the amount of such Prepayment Premium and (v) the amount due to
Lender pursuant to Sections 2.6.6 (if applicable).
--------------
2.4.4 SUBSEQUENT TRANSACTIONS. Borrower shall, in
-----------------------
connection with any prepayment under this Section 2.4, comply with its
-----------
obligations under Section 3.6, to the extent applicable.
-----------
SECTION 2.5 INTEREST.
----------- --------
2.5.1 GENERALLY. The rate at which the outstanding principal
---------
amount of the Applicable Loan bears interest from time to time shall be referred
to as the "INTEREST RATE".
2.5.1.1 REVOLVING LOANS. Subject to the provisions
---------------
of Sections 2.5.3, 2.6.4 and 2.6.5, each Revolving Loan shall bear interest
-------------- ----- -----
for any Interest Period on the outstanding principal balance of such
Revolving Loan from (and including) the first day of such Interest Period,
at a rate of interest equal to the Adjusted Eurodollar Rate, determined on
the Interest Rate Determination Date immediately preceding the commencement
of such Interest Period; provided, that in the event any Revolving
--------
Loan is (i) made on a day (x) that is other than the first day of a
calendar month and (y) when a Revolving Loan that bears interest at the
one-month Adjusted Eurodollar Rate is outstanding, such Revolving Loan
shall bear interest at the Interest Rate then in effect for the outstanding
Revolving Loan that bears interest at the one-month Adjusted Eurodollar
Rate, or (ii) made on a day (x) that is other than the first day of a
calendar month and (y) when no Revolving Loan that bears interest at the
one-month Adjusted Eurodollar Rate is outstanding, such Revolving Loan
shall bear interest at the one-month Adjusted Eurodollar Rate determined as
of the Interest Rate Determination Date immediately preceding the Drawdown
Date for the subject Revolving Loan. Revolving Loans made in accordance
with the foregoing proviso shall not be subject to breakage costs under
Section 2.6.6 solely by virtue of the fact that the initial Interest Period
-------------
is less than one month. As promptly as reasonably practicable after the
determination of the Adjusted Eurodollar Rate for any Interest Period,
Lender shall deliver to Borrower a statement showing Lender's estimate of
the debt service payment that will be due for such Interest Period;
provided that such estimate will be based on the assumption that Borrower
--------
will not prepay Revolving Loans or borrow additional Revolving Loans during
such Interest Period.
2.5.1.2 CONVERTED FIXED RATE LOAN. Subject to the provisions
-------------------------
of Sections 2.1.6 and 2.5.3, the Converted Fixed Rate Loan shall bear
-------------- -----
interest for any Interest Period on the outstanding principal balance of
such Converted Fixed Rate Loan from (and including) the first day of such
Interest Period, at a rate of interest equal to the Fixed Rate.
2.5.1.3 INTEREST PERIODS. In connection with each Revolving
----------------
Loan, Borrower may, pursuant to the applicable Completed Loan Request or
Continuation Notice, as the case may be, select an interest period (each an
"INTEREST PERIOD") to be
40
<PAGE>
applicable to such Revolving Loan, which Interest Period shall be, at
Borrower's option, either a one, two, three or four month period; provided
--------
that:
(i) except as provided in clauses (iii) and (iv) below, each
------------- ----
Interest Period for any Revolving Loans shall commence on (and include) the
first day of a calendar month and shall end on (and include) the last day
of a calendar month;
(ii) each successive Interest Period shall commence on the day
following the day on which the next preceding Interest Period expires;
(iii) the initial Interest Period for any Revolving Loan made on a
date that is other than on the first day of a calendar month shall commence
on (and include) the Drawdown Date for such Revolving Loan and shall end on
(and include) the last day of the calendar month in which the related
Drawdown Date occurred;
(iv) the Interest Period in respect of the principal amount of an
Applicable Loan that is prepaid in whole or in part by Borrower in
accordance with Section 2.4 shall end on and exclude the date of such
-----------
prepayment;
(v) if three (3) Interest Periods are outstanding, at least one (1)
such Interest Period shall be a one (1) month Interest Period;
(vi) there shall be no more than three (3) different Interest
Periods outstanding at any time; provided that the initial Interest Period
--------
in respect of any Revolving Loan that is made other than on the first day
of a calendar month shall not be counted in determining whether more than
three (3) different Interest Periods are outstanding;
(vii) in the event Borrower fails to specify an Interest Period for
any Revolving Loan in the applicable Completed Loan Request or Continuation
Notice, as the case may be, Borrower shall be deemed to have selected an
Interest Period of one (1) month;
(viii) the initial Interest Period in respect of the Converted Fixed
Rate Loan shall commence on (and include) the Conversion Date and shall end
on (and include) the last day of the calendar month in which the Conversion
Date occurs;
(ix) except as provided in clause (viii) above and clause (x) below,
------------- ----------
each Interest Period from and after the Conversion Date shall be a calendar
month; and
(x) the final Interest Period shall end on (and exclude) the
Maturity Date.
No later than 10:00 a.m. (New York City time) at least one (1)
Business Day in advance of the next succeeding Interest Rate Determination Date
for each Revolving Loan, Borrower shall deliver to Lender a written notice in
respect of the applicable Revolving Loan (each, a "CONTINUATION NOTICE")
specifying (w) the date upon which the next succeeding Interest Period for such
Revolving Loan shall commence, (x) the aggregate outstanding principal amount of
such Revolving Loan, (y) the requested Interest Period for such Revolving Loan
and (z) that
41
<PAGE>
no Default or Event of Default has occurred and is continuing. Such notice shall
be irrevocable on and after the related Interest Rate Determination Date.
2.5.2 INTEREST PAYMENTS. Subject to the provisions of
-----------------
Section 2.5.3, interest on the Applicable Loan shall be payable (a) for any
- -------------
Interest Period, on each Interest Payment Date in respect of such Interest
Period (provided, that all interest accruing on the Applicable Loan during any
calendar month shall be paid on the related Interest Payment Date that occurs
during such month, whether such Interest Payment Date occurs prior to or on the
last day of such calendar month), (b) upon any prepayment of the Applicable Loan
(to the extent accrued on the amount being prepaid), and (c) on the Maturity
Date.
2.5.3 DEFAULT RATE; POST-MATURITY INTEREST.
------------------------------------
2.5.3.1 EVENT OF DEFAULT. Upon the occurrence and
----------------
during the continuance of an Event of Default arising under any of Section
-------
8.1(i) through 8.1(v), the then outstanding principal amount of the
------ ------
Applicable Loan and, to the extent permitted by applicable law, any
interest payments thereon not paid when due and any fees and other amounts
then due and payable under this Agreement or any other Loan Document shall
bear interest (including post-petition interest in any proceeding under the
Bankruptcy Code or any other now existing or future applicable bankruptcy,
insolvency or other similar laws) at the Default Rate, but only upon the
occurrence and during the continuance of an Event of Default arising under
any of Section 8.1(i) through 8.1(v).
-------------- ------
2.5.3.2 OTHER DEFAULTS. Without limiting Section
-------------- -------
2.5.3.1 above, during any period in which (i) no Event of Default arising
-------
under any of Section 8.1(i) through 8.1(v) is continuing and (ii) Borrower
-------------- ------
is in default in the payment of any fees, reimbursement obligations or
other amounts owed by Borrower under this Agreement or any other Loan
Document, such fees, reimbursement obligations and other amounts then due
and payable under this Agreement or any other Loan Document shall bear
interest (including post-petition interest in any proceeding under the
Bankruptcy Code or any other now existing or future applicable bankruptcy,
insolvency or other similar laws) at the Default Rate, but only during such
period.
2.5.3.3 CALCULATION; NO WAIVER. All interest on
----------------------
unpaid amounts provided for in this Section 2.5.3 shall be compounded in
-------------
accordance with the applicable Interest Periods and be payable on demand.
Payment or acceptance of the increased rates provided for in this Section
is not a permitted alternative to timely payment and shall not constitute a
waiver of any Default or Event of Default or an amendment to this Agreement
or any other Loan Document and shall not otherwise prejudice or limit any
rights or remedies of Lender.
SECTION 2.6 PAYMENTS; COMPUTATIONS.
----------- ----------------------
2.6.1 MAKING OF PAYMENTS. Each payment by Borrower
------------------
hereunder or under the Promissory Note shall be made by transfer from the Cash
Collateral Account or, if from another source, in funds settled through the New
York Clearing House Interbank Payments
42
<PAGE>
System or other funds immediately available to Lender by 1:00 p.m., New York
City time, on the date such payment is due. Payments received after 1:00 p.m.,
New York City time, shall be deemed to have been received on the next Business
Day. Whenever any payments hereunder or under the Promissory Note shall be
stated to be due on a day that is not a Business Day and an alternative payment
date is not otherwise provided for, such payment shall be made on the next
Business Day, with interest thereon to the date of payment.
2.6.2 COMPUTATION OF INTEREST. Interest on the Applicable
-----------------------
Loan shall be computed on the basis of a 360-day year, for the actual
number of days elapsed in the period during which it accrues. In computing
interest on the Applicable Loan, the first day of an Interest Period and
the last day of such Interest Period shall be included.
2.6.3 DETERMINATION OF APPLICABLE INTEREST RATE. As soon as
-----------------------------------------
practicable after 10:00 a.m. (New York City time) on each Interest Rate
Determination Date, Lender shall determine the Interest Rate for the
corresponding Interest Period in respect of the Revolving Loans, which
determination shall, absent manifest error, be final, conclusive and
binding upon the parties hereto.
2.6.4 INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In
-----------------------------------------------
the event that Lender shall have in good faith determined on any Interest
Rate Determination Date that by reason of circumstances affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the Eurodollar Rate, Lender shall on such date give notice (by
telecopy or by telephone confirmed in writing) to Borrower of such
determination, whereupon the Revolving Loans shall bear interest at a rate,
selected by Lender in its sole discretion, equal to (i) the applicable
Interest Rate in effect for the immediately preceding Interest Period, or
(ii) Lender's reasonable determination of its cost of funds plus 250 basis
points. Any such rate shall continue in effect until such time as the
circumstances giving rise to such notice no longer exist.
2.6.6 ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE
-------------------------------------------------
LOANS. In the event that on any date Lender shall have in good faith
- -----
determined that the making, maintaining or continuation of loans bearing
interest at a spread over the Eurodollar Rate (i) has become unlawful as a
result of compliance with any law, treaty, governmental rule, regulation,
guideline or order (or would conflict with any such treaty, governmental
rule, regulation, guideline or order not having the force of law even
though the failure to comply therewith would not be unlawful) or (ii) has
become impracticable, or would cause Lender material hardship, as a result
of contingencies occurring after the date of this Agreement which
materially and adversely affect the interbank Eurodollar market or the
position of Lender in that market, then, and in any such event, Lender
shall give notice (by telecopy or by telephone confirmed in writing) to
Borrower of such determination. Thereafter the Revolving Loans shall bear
interest at such rate as Lender shall from time to time reasonably
determine as its cost of funds plus two and fifty one-hundredths (2.50)
percentage points from and after the date of such determination until such
notice is withdrawn by Lender, which notice shall be withdrawn as soon as
such unlawful or impracticable condition ceases to exist.
2.6.6 COMPENSATION FOR CERTAIN NON-CONFORMING PAYMENTS OR
---------------------------------------------------
NON-COMMENCEMENT OF INTEREST PERIODS. Borrower shall compensate Lender,
- ------------------------------------
upon written request
43
<PAGE>
by Lender (which request shall set forth the basis for requesting such
amounts in reasonable detail by an officer or other responsible person on
behalf of Lender), for all reasonable losses, expenses and liabilities
(including (x) any interest paid by Lender to lenders of funds borrowed by
it to make or carry the Applicable Loan and any loss, expense or liability
sustained by Lender in connection with the liquidation or re-employment of
such funds and (y) in the case of clause (ii) below, the Prepayment
-----------
Premium, but expressly excluding any losses, expenses and liabilities
sustained in connection with any agreement or arrangement contemplated by
Section 2.6.8(ii)), which Lender may actually sustain: (i) if any
- -----------------
prepayment of all or any portion of the Applicable Loan is not made on any
date specified in a notice of prepayment given by Borrower, or (ii) if
Borrower prepays the Converted Fixed Rate Loan prior to the fifth (5th)
anniversary of the Conversion Date (whether by virtue of a
Casualty/Condemnation Mandatory Prepayment, acceleration of the Converted
Fixed Rate Loan upon an Event of Default, or otherwise), or (iii) as a
consequence of any other default by Borrower in the repayment of the
Applicable Loan when required by the terms of this Agreement, or (iv) if
any prepayment of any Revolving Loan is not made on the last Business Day
of the applicable Interest Period, or (v) if Borrower fails to borrow any
Revolving Loan requested by Borrower pursuant to a Completed Loan Request,
or (vi) if Borrower fails to convert Revolving Loans to the Converted Fixed
Rate Loan in accordance with any Conversion Notice delivered by Borrower to
Lender, subject to Borrower's right to prepay Revolving Loans in
accordance with Section 3.5.3 following notice of Lender's intended
-------------
securitization of Revolving Loans.
2.6.7 BOOKING OF LOAN. Lender may make, carry or transfer
---------------
the Applicable Loan at, to, or for the account of any of its branch offices
or the office of an Affiliate of Lender.
2.6.8 ASSUMPTIONS CONCERNING FUNDING OF THE APPLICABLE LOAN.
-----------------------------------------------------
Borrower hereby expressly acknowledges and agrees that Lender may fund
and/or hedge the Applicable Loan in any manner it sees fit including (i)
through the actual purchase of a Eurodollar deposit bearing interest at the
rate obtained pursuant to the definition of Eurodollar Rate in an amount
equal to the amount of the Applicable Loan and having a maturity the same
as the relevant Interest Period or (ii) without any liability or obligation
of Borrower to compensate Lender pursuant to Section 2.6.6 hereof, through
-------------
Lender's entering into or purchase of repurchase agreements, interest rate
agreements, hedge arrangements, swap agreements or other arrangements in
such amounts as Lender shall determine (and which amounts may or may not,
in Lender's sole discretion, be "match-funded" to the then outstanding
Loan).
2.6.9 COMPENSATION FOR INCREASED COSTS AND TAXES. If Lender
------------------------------------------
shall in good faith determine that any change after the date hereof in any
law, treaty or govern mental rule, regulation or order, or in the
interpretation, administration or application after the date hereof of any
law, treaty or governmental rule, regulation or order, or any
determination after the date hereof of a court or governmental authority,
or compliance with any guideline, request or directive issued or made
after the date hereof by any central bank or other governmental or quasi-
governmental authority (whether or not having the force of law):
44
<PAGE>
(i) subjects Lender to any additional Tax (other than any Tax on
the overall net income of Lender) with respect to this Agreement or any of
its obligations hereunder or any payments to Lender of principal, interest,
fees or any other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
any marginal, emergency, supplemental, special or other reserve), special
deposit, compulsory loan, FDIC insurance or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
or advances or loans by, or other credit extended by, or any other
acquisition of funds by, any office of Lender; or
(iii) imposes any other condition on or affecting Lender or its
obligations hereunder or the interbank Eurodollar market;
and the result of any of the foregoing is to actually increase the cost to
Lender of agreeing to make, making or maintaining the Applicable Loan hereunder
or to reduce any amount received or receivable by Lender with respect thereto;
then, in any such case, Borrower shall promptly (but in any event no later than
five (5) Business Days following any notice from Lender to Borrower of the same)
pay to Lender, upon receipt of the statement referred to in the next sentence,
such additional amount or amounts as may be necessary to compensate Lender for
any such increased cost or reduction in amounts received or receivable
hereunder; provided, that, with respect to compensation payable pursuant to this
--------
Section in respect of any such increased costs or reduction, Lender shall only
be entitled to payment under this Section for increased costs or reductions
incurred from and after the date that is sixty (60) days prior to the date that
Lender obtains actual knowledge of such increased costs or reduction; provided,
--------
further, that compensation required to be paid to any transferee of Lender from
- -------
a Conveyance under this Section 2.6.9 shall be limited, if such transferee is a
-------------
Non-US Lender, to the compensation that would have been required to be paid to
Lender if no Conveyance had been effected, except that this proviso (beginning
with "provided, further" above) shall not apply with respect to the Converted
-------- -------
Fixed Rate Loan. Lender shall deliver to Borrower a written statement, setting
forth in reasonable detail the basis for calculating the additional amounts owed
to Lender under this Section 2.6.9, and specifically showing how (i) such change
-------------
in law, treaty, or governmental rule, regulation or order, (ii) such change in
interpretation, administration, or application, (iii) such determination of a
court or governmental authority, or (iv) such compliance by Lender with any such
guideline, request, or directive, as applicable, increases such costs or results
in such reductions with respect to amounts receivable or received by Lender
hereunder, which statement shall be conclusive and binding upon all parties
hereto absent manifest error.
2.6.10 WITHHOLDING OF TAXES.
--------------------
2.6.10.1 PAYMENTS TO BE FREE AND CLEAR. All sums payable
-----------------------------
by Borrower under this Agreement and the other Loan Documents shall be paid
free and clear of, and (except to the extent required by law) without any
deduction or withholding on account of, any Tax (other than a Tax on the
overall net income of Lender) imposed, levied, collected, withheld or
assessed by or within the United States of America or any political
subdivision in or of the United States of America or any other jurisdiction
from or to which a payment is made by or on behalf of Borrower or by any
federation or
45
<PAGE>
organization of which the United States of America or any such jurisdiction
is a member at the time of payment.
2.6.10.2 GROSSING-UP OF PAYMENTS. If Borrower or any other
-----------------------
Person is required by law to make any deduction or withholding on account
of any such Tax from any sum paid or payable by Borrower to Lender under
any of the Loan Documents:
(i) Borrower shall notify Lender of any such requirement or
any change in any such requirement as soon as Borrower becomes aware
of it;
(ii) Borrower shall pay any such Tax before the date on
which penalties attach thereto, such payment to be made (if the
liability to pay is imposed on Borrower) for its own account or (if
that liability is imposed on Lender) on behalf of and in the name of
Lender;
(iii) the sum payable by Borrower in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making of
that deduction, withholding or payment, Lender receives on the due
date a net sum equal to what it would have received had no such
deduction, withholding or payment been required or made; and
(iv) within thirty (30) days after paying any sum from which
it is required by law to make any deduction or withholding, and within
thirty (30) days after the due date of payment of any Tax which it is
required by clause (ii) above to pay, Borrower shall deliver to Lender
-----------
evidence reasonably satisfactory to Lender of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority.
provided, that no such additional amount shall be required to be paid to
--------
Lender under clause (iii) above except to the extent that any change after
------------
the date hereof in any such requirement for a deduction, withholding, or
payment as in clause (iii) shall result in an increase in the rate of such
------------
deduction, withholding or payment from that in effect as of the date of
this Agreement in respect of payments to Lender; provided, further, that
-------- -------
such additional amount required to be paid to any transferee of Lender from
a Conveyance under clause (iii) shall be limited, if such transferee is a
------------
Non-US Lender, to the additional amount that would have been required to be
paid to Lender if no Conveyance had been effected, except that this proviso
(beginning with "provided, further" above) shall not apply with respect to
-------- -------
the Converted Fixed Rate Loan.
(a) Each Lender that is organized under the laws of any
jurisdiction other than the United States or any state or other political
subdivision thereof (a "NON-US LENDER") shall deliver to Borrower, on or prior
to the Closing Date or on the date of the assignment agreement pursuant to which
it becomes a Lender, and at such other times as may be necessary in the
determination of Borrower (in the reasonable exercise of its discretion), two
original copies of Internal Revenue Service Form 1001 or 4224 (or any successor
forms), properly completed and
46
<PAGE>
duly executed by such Lender, together with any other certificate or statement
of exemption required under the Internal Revenue Code or the regulations issued
thereunder to establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to any payments to
such Lender of principal, interest, fees or other amounts payable under any of
the Loan Documents.
(b) Each Lender required to deliver any forms, certificates or other
evidence with respect to United States federal income tax withholding matters
hereby agrees, from time to time after the initial delivery by such Lender of
such forms, certificates or other evidence, whenever a lapse in time or change
in circumstances renders such forms, certificates or other evidence obsolete or
inaccurate in any material respect, such Lender shall (1) deliver to Lender for
transmission to Borrower two new original copies of Internal Revenue Service
Form 1001 or 4224, as the case may be, properly completed and duly executed by
such Lender, together with any other certificate or statement of exemption
required in order to confirm or establish that such Lender is not subject to
deduction or withholding of United States federal income tax with respect to
payments to such Lender under the Loan Documents or (2) immediately notify
Borrower of its inability to deliver any such forms, certificates or other
evidence.
(c) Borrower shall not be required to pay any additional amount to any
Non-US Lender under Section 2.6.10.2(iii) if such Lender shall have failed to
---------------------
satisfy the requirements of Section 2.6.10.2(a); provided that such Lender shall
------------------- --------
have satisfied such requirement, on the Closing Date or on the date of the
assignment agreement pursuant to which it became a Lender, nothing in this
clause (c) shall relieve Borrower of its obligation to pay any additional
- ----------
amounts pursuant to Section 2.6.10.2(iii) in the event that, as a result of any
---------------------
after the date hereof in any applicable law, treaty or governmental rule,
regulation or order, or any change in the interpretation, administration or
application thereof, such Lender is no longer properly entitled to deliver
forms, certificates or other evidence at a subsequent date establishing the fact
that such Lender is not subject to withholding as described in Section 2.6.10.2.
----------------
2.6.11 CAPITAL ADEQUACY ADJUSTMENT. If Lender shall have
---------------------------
determined that the adoption, effectiveness, phase-in or applicability after the
date hereof of any law, rule or regulation (or any provision thereof) regarding
capital adequacy, or any change after the date hereof or in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance with any guideline, request or directive regarding capital adequacy
(whether or not having the force of law) of any such governmental authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on the capital of Lender or any corporation controlling Lender as
a consequence of, or with reference to, the Applicable Loan or other obligations
hereunder to a level below that which Lender or such controlling corporation
could have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
Lender or such controlling corporation with regard to capital adequacy), then
from time to time, within five (5) Business Days after receipt by Borrower from
Lender of the statement referred to in the next sentence, Borrower shall pay to
Lender such additional amount or amounts as will compensate Lender or such
controlling corporation on an after-tax basis for such reduction; provided,
--------
that, with respect to compensation payable pursuant to this Section in respect
of any such reduction, Lender shall only be entitled to
47
<PAGE>
payment under this Section for reductions incurred from and after the date that
is sixty (60) days prior to the date that Lender obtains actual knowledge of
such reductions; provided, further, that compensation required to be paid to any
-------- -------
transferee of Lender from a Conveyance under this Section 2.6.11 shall be
--------------
limited, if such transferee is a Non-US Lender, to the compensation that would
have been required to be paid to Lender if no Conveyance had been effected,
except that this proviso (beginning with "provided, further" above) shall not
-------- -------
apply with respect to the Converted Fixed Rate Loan. Lender shall deliver to
Borrower a written statement, setting forth in reasonable detail the basis of
the calculation of such additional amounts, which statement shall be conclusive
and binding upon all parties hereto absent manifest error.
III. SPECIAL PROVISIONS
------------------
SECTION 3.1 ACCOUNTS.
----------- --------
3.1.1 ESTABLISHMENT.
-------------
3.1.1.1 SWEEP ACCOUNT. Lender has established with the
-------------
Sweep Bank, in the name of Lender, a trust account (the "SWEEP ACCOUNT")
for the purposes specified herein. Only Property Income, payments under the
Interest Rate Cap Agreements and other amounts permitted or required to be
deposited therein pursuant to this Section 3.1 shall be deposited in the
-----------
Sweep Account. The Sweep Account shall be under the sole dominion and
control of Lender, and Lender shall have the sole right to make withdrawals
from the Sweep Account and to exercise all rights with respect to the funds
on deposit therein from time to time in accordance herewith. The Sweep
Account shall at all times be maintained as an Eligible Account.
3.1.1.2 CASH COLLATERAL ACCOUNT; SUB-ACCOUNTS. Lender has
-------------------------------------
established with the Cash Collateral Bank, in the name of Lender, a trust
account (the "CASH COLLATERAL ACCOUNT") for the purposes specified herein.
Only Property Income, Capital Event Proceeds and other amounts permitted or
required to be deposited therein pursuant to this Section 3.1 shall be
-----------
deposited in the Cash Collateral Account. The Cash Collateral Account shall
be under the sole dominion and control of Lender, and Lender shall have the
sole right to make withdrawals from the Cash Collateral Account and to
exercise all rights with respect to the Account Collateral on deposit
therein from time to time. All funds on deposit from time to time in the
Cash Collateral Account shall be held in accordance with this Section 3.1.
-----------
The Cash Collateral Account shall at all times be maintained as an Eligible
Account. The Cash Collateral Account shall be comprised of eight (8) Sub-
Accounts, as follows:
(i) a sub-account for purposes of holding amounts payable in
respect of the Applicable Loan (the "DEBT SERVICE SUB-ACCOUNT");
(ii) a sub-account for purposes of holding, after funding of the
Debt Service Sub-Account, Basic Carrying Costs payable in respect of the
Properties (the "BASIC CARRYING COSTS SUB-ACCOUNT");
48
<PAGE>
(iii) a sub-account for purposes of holding, after funding of the
Debt Service Sub-Account and (if required pursuant to Section 3.1.4.2) the
---------------
Basic Carrying Costs Sub-Account, reserves for the payment of costs of
structural repairs relating to the Properties (the "STRUCTURAL COSTS SUB-
ACCOUNT");
(iv) a sub-account for purposes of holding, after funding of the
Debt Service Sub-Account and (if required pursuant to Section 3.1.4.2) the
---------------
Basic Carrying Costs Sub-Account and (if required pursuant to Section
-------
3.1.4.2) the Structural Costs Sub-Account, the balance of all Property
-------
Income generated by, or otherwise relating to the Properties (the
"OPERATING EXPENSE SUB-ACCOUNT");
(v) a sub-account for purposes of holding reserves for the
payment of costs of certain deferred maintenance and environmental
remediation described on Schedule IV relating to the Properties
-----------
(the "DEFERRED MAINTENANCE RESERVES SUB-ACCOUNT");
(vi) a sub-account for the purpose of holding all Prepaid Rents,
if any (the "PREPAID RENTS SUB-ACCOUNT");
(vii) a sub-account for purposes of holding Capital Event Proceeds
received with respect to the Properties, other than (x) Loss Proceeds that
are to be disbursed to Borrower in accordance with Section 3.2.2(b)(i) or
-------------------
disbursed to Borrower for restoration of any Individual Property in
connection with a Casualty or Condemnation or (y) such proceeds which are
to be applied as Property Income pursuant to Sections 3.1.9.2 or 3.1.10.2
---------------- --------
(the "CAPITAL EVENT SUB-ACCOUNT"); and
(viii) a sub-account for the purpose of holding Loss Proceeds
received with respect to the Properties that are to be disbursed to
Borrower for restoration of the Properties in connection with a Casualty or
Condemnation (the "LOSS PROCEEDS SUB-ACCOUNT").
The allocation of funds among the foregoing sub-accounts shall be
conducted in accordance with the provisions of Section 3.1.4.
-------------
3.1.2 PLEDGE AND ASSIGNMENT; NOTIFICATION OF DEPOSITORIES.
---------------------------------------------------
Lender and Borrower intend that Borrower shall not have any interest in the
Accounts or the Account Collateral, and the Accounts shall at all times be under
the sole dominion and control of Lender. Notwithstanding the foregoing, to the
extent Borrower shall be deemed to have any interest in any of the Accounts or
the Account Collateral, Borrower hereby pledges and assigns to Lender and grants
to Lender a security interest in the following (collectively, the "ACCOUNT
COLLATERAL") as security for Borrower's obligations under the Loan Documents:
(i) each of the Accounts and all certificates and instruments,
if any, from time to time representing or evidencing all or any of the
Accounts;
(ii) all of Borrower's right, title and interest in and to all
amounts, cash, cash equivalents and funds and all bankers acceptances,
bonds, book entry deposits, certificates
49
<PAGE>
of deposit, commercial paper, debentures, demand and time deposits, funding
agreements, investment contracts, letters of credit and all proceeds from
any drawings under any letter of credit, money market funds, notes,
reinvestment letters, repurchase obligations, securities or other
instruments, all bonds, securities and other obligations issued by any
government or any political subdivision thereof or any agency or
instrumentality thereof, and all other property from time to time on
deposit in the Accounts or delivered to or otherwise possessed by Lender in
substitution for or in addition to any or all of the then existing Account
Collateral (collectively, the "DEPOSITED FUNDS");
(iii) all investments from time to time representing or evidencing
the Accounts or the Deposited Funds and all certificates and instruments,
if any, from time to time representing or evidencing such investments; and
(iv) to the extent not covered by clauses (i) through (iii)
above, all cash and noncash proceeds and products of any of the foregoing,
including 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 Account Collateral.
Borrower shall notify the Cash Collateral Bank and the Sweep Bank of
the grant, pledge and assignment effected by this Agreement by executing and
delivering to each depository an irrevocable Restricted Account Letter in the
form of Exhibit O hereto (each a "RESTRICTED ACCOUNT LETTER"). Each such
---------
Restricted Account Letter shall be countersigned by the respective bank and
returned to Lender.
3.1.3 DEPOSIT OF PROCEEDS ON CLOSING DATE AND PROPERTY ADDITION
---------------------------------------------------------
DATES. On the Closing Date, Borrower shall deposit into the Cash Collateral
- -----
Account the amounts specified in Exhibit I for allocation to the Sub-Accounts as
---------
shown thereon. On each date that any property becomes an Individual Property as
contemplated by Section 4.2, Lender may require Borrower to deposit additional
-----------
funds into the Cash Collateral Account in respect of such additional Individual
Property, in which event Exhibit I shall be updated to reflect the additional
---------
deposit(s) to the Cash Collateral Account.
3.1.4 DEPOSIT AND ALLOCATION OF PROPERTY INCOME AFTER THE CLOSING
-----------------------------------------
DATE. Notwithstanding any provision of this Section 3.1, the accuracy or
- ---- -----------
inaccuracy of any statement of account in respect of the Sub-Accounts shall not
affect the obligations of Borrower to pay all amounts due in respect of the
Applicable Loan on the due dates therefor.
3.1.4.1 DEPOSITS TO SWEEP ACCOUNT. Borrower shall cause
-------------------------
all tenants at the Properties to make Rent payments directly to the Sweep
Account, either by wire transfer or by check delivered to the Sweep Bank in
accordance with its instructions for deposit into the Sweep Account.
Borrower shall collect (or cause to be collected) all of the other Property
Income from the Properties and shall deposit such Property Income (other
than tenant security deposits, which shall be held by Borrower in a
segregated bank account), immediately upon receipt thereof by Borrower,
directly into the Sweep Account. Borrower shall irrevocably instruct the
counterparty to the applicable Interest Rate Cap
50
<PAGE>
Agreements to make payments under such Interest Rate Cap Agreements
directly to the Sweep Account.
3.1.4.2 TRANSFERS TO CASH COLLATERAL ACCOUNT; ALLOCATION
-------------------------------------
AMONG SUB-ACCOUNTS. Lender shall, as often as deemed advisable by Lender,
------------------
but in no event less frequently than weekly, transfer all funds on deposit
in the Sweep Account to the Cash Collateral Account. Lender shall
thereafter promptly direct the Cash Collateral Bank to allocate the amounts
so transferred from the Sweep Account (other than Prepaid Rents) as
follows:
first, to the Debt Service Sub-Account until the aggregate amount
-----
so allocated in any calendar month shall equal the Debt Service
Payment due on the related Interest Payment Date plus any past due
Debt Service Payment;
second, upon the occurrence and during the continuance of an
------
Event of Default, and at all times from and after the Conversion Date,
to the Basic Carrying Costs Sub-Account until the aggregate amount so
allocated in any calendar month shall equal the Basic Carrying Costs
Monthly Installment due for such calendar month plus any past due
Basic Carrying Costs; provided that Lender shall not direct the Cash
--------
Collateral Bank to allocate the amounts transferred from the Sweep
Account to the Basic Carrying Costs Sub-Account as provided in this
paragraph unless (i) an Event of Default shall have occurred and be
continuing or (ii) the Conversion Date has occurred;
third, on and after the Conversion Date, to the Structural Costs
-----
Sub-Account until the aggregate amount so allocated in any calendar
month shall equal the Structural Costs Monthly Installment due for
such calendar month plus any past due Structural Costs; provided that
--------
Lender shall not direct the Cash Collateral Bank to allocate the
amounts transferred from the Sweep Account to the Structural Costs
Sub-Account as provided in this paragraph unless the Conversion Date
has occurred; and
fourth, upon the occurrence and during the continuance of a
------
Default, and at all times from and after the Conversion Date, to the
Operating Expense Sub-Account; provided, that Lender shall not direct
--------
the Cash Collateral Bank to transfer amounts from the Sweep Account to
the Operating Expense Sub-Account as provided in this paragraph unless
(i) a Default shall have occurred and be continuing or (ii) the
Conversion Date has occurred; and
fifth, so long as no Event of Default shall have occurred and be
-----
continuing, the balance, if any, shall be disbursed to Borrower for
its own account, as provided in Section 3.1.8.2.
---------------
Borrower shall immediately notify Lender in the event that any Prepaid
Rents are deposited into the Cash Collateral Account. Any such Prepaid
Rents so deposited in the Cash Collateral Account shall be allocated to the
Prepaid Rents Sub-Account. Lender shall
51
<PAGE>
direct the Cash Collateral Bank to reallocate the Prepaid Rents on deposit
in the Prepaid Rents Sub-Account to the Debt Service Sub-Account on the
date that such Prepaid Rents are to be applied pursuant to the applicable
Lease to the tenant's obligations thereunder.
3.1.4.3 REALLOCATION AMONG SUB-ACCOUNTS. After
-------------------------------
application of funds as set forth in Section 3.1.4.2, Lender may from time
---------------
to time, in its sole discretion, direct the Cash Collateral Bank to
reallocate the funds on deposit in any Sub-Account to any other Sub-
Account, if Lender shall determine that insufficient funds are on deposit
in such Sub-Account as required pursuant to this Section 3.1.4.3, and
---------------
Lender shall notify Borrower of any such reallocation promptly thereafter.
3.1.5 PERMITTED INVESTMENTS. Lender and Borrower intend that all
---------------------
Account Collateral (or so much thereof as Lender may reasonably arrange to
invest, but excluding any amount that Lender shall reasonably determine must be
maintained in cash or in a liquid cash equivalent consistent with the intended
purpose of the applicable Sub-Account) shall consistent with this Section at all
times be invested in Permitted Investments. Upon the request of Borrower, Lender
shall direct the Cash Collateral Bank and the Sweep Bank to invest and reinvest
any balances in the Accounts from time to time in such Permitted Investments as
instructed by Borrower, provided that (i) if Borrower fails to so instruct
--------
Lender within two (2) Business Days following notice from Lender that Borrower
has failed to so instruct Lender, or upon the occurrence of an Event of Default,
Lender may direct the Cash Collateral Bank and the Sweep Bank to invest and
reinvest such balances in such Permitted Investments as Lender shall determine;
(ii) the maturities of the Permitted Investments on deposit in the Accounts
shall be selected and coordinated so that Permitted Investments having an
aggregate amount equal to the amount of any transfers or disbursements to be
made will become due not later than on the Business Day before any such
transfers or disbursements therefrom will be made; (iii) all such Permitted
Investments shall be held in the name and be under the sole dominion and control
of Lender; and (iv) no Permitted Investment shall be made unless Lender shall
retain a perfected first priority Lien in such Permitted Investment securing the
obligations of Borrower under this Agreement and the other Loan Documents and
all filings and other actions necessary to ensure the validity, perfection, and
priority of such Lien shall have been taken. All funds in any Account which are
invested in a Permitted Investment shall be deemed to be held in such Account
for all purposes of this Agreement. Lender shall have no liability for any loss
of funds in the Accounts or any loss in investments of funds in the Accounts
(provided, that this provision shall not protect Lender against liability that
--------
would be imposed by reason of Lender's wilful misconduct or gross negligence in
the performance of its obligations under this Section 3.1.5), and no such loss
-------------
shall affect Borrower's obligations to fund the Accounts. All risk of loss in
respect of the Account Collateral shall be borne by Borrower and, promptly upon
realization of any such loss, Borrower shall deposit the amount of such loss
into the Cash Collateral Account, without any right of reimbursement.
3.1.6 EARNINGS ON ACCOUNT COLLATERAL; MONTHLY STATEMENTS. Without
--------------------------------------------------
limiting the pledge and assignment pursuant to Section 3.1.2, all interest and
-------------
other earnings on amounts on deposit in the Sweep Account and the Cash
Collateral Account shall be (a) deemed to be Property Income of Borrower; (b)
transferred to the Cash Collateral Account and/or allocated among the Sub-
Accounts in the same manner as Property Income pursuant to Section
-------
52
<PAGE>
3.1.4 above, and (c) deemed to be income of Borrower for federal and applicable
- -----
state and local tax purposes. Lender shall direct the Cash Collateral Bank and
the Sweep Bank to provide to Lender and Borrower a monthly statement of account
showing deposits into and disbursements (or transfers or reallocations, as the
case may be) from the Sweep Account and each Sub-Account of the Cash Collateral
Account.
3.1.7 BORROWER'S OBLIGATION TO FUND SHORTFALLS.
----------------------------------------
3.1.7.1 DEBT SERVICE PAYMENTS. No later than three
---------------------
(3) Business Days prior to each Interest Payment Date, Lender shall deliver
to Borrower a certificate setting forth (i) the Debt Service Payment due on
such Interest Payment Date and (ii) whether sufficient funds are on deposit
in the Debt Service Sub-Account to fund such required Debt Service Payment.
If such certificate states that the amount of funds required to make such
Debt Service Payment are not available in the Debt Service Sub-Account,
Borrower shall deposit an amount equal to such deficiency in the Cash
Collateral Account, for allocation to the Debt Service Sub-Account, not
less than one (1) Business Day prior to such Interest Payment Date.
3.1.7.2 BASIC CARRYING COSTS. On or before the 10th day
--------------------
of each month (i) during the continuance of an Event of Default and (ii)
after the Conversion Date, Borrower shall notify Lender in writing of the
amount of the Basic Carrying Costs for each Individual Property payable in
the ensuing month, and shall deliver therewith all bills, statements and/or
invoices therefor to the extent the same have theretofore been issued by
the applicable insurance company or taxing authority (and to the extent not
theretofore issued, Borrower shall deliver the same to Lender promptly upon
the issuance thereof). Within five (5) Business Days after receipt of any
such notice, Lender shall notify Borrower in writing of its estimate for
the ensuing month of the Basic Carrying Costs Monthly Installments for the
Properties and any shortfall in the Basic Carrying Costs Sub-Account,
determined after giving effect to the Debt Service Payment due on the next
ensuing Interest Payment Date. Within three (3) Business Days after receipt
of any such notice of a shortfall in the Basic Carrying Costs Sub-Account,
Borrower shall deposit an amount equal to such shortfall in the Cash
Collateral Account, for allocation to the Basic Carrying Costs Sub-Account,
provided that Borrower shall have no obligation to make such deposit unless
--------
(i) an Event of Default shall be continuing or (ii) the Conversion Date
shall have occurred.
3.1.7.3 STRUCTURAL COSTS. On or before the 10th day of
----------------
each month after the Conversion Date, Borrower shall notify Lender in
writing of the amount of the Structural Costs for each Individual Property
payable in the ensuing month, and shall deliver therewith all bills,
statements and/or invoices therefor to the extent the same have theretofore
been issued (and to the extent not theretofore issued, Borrower shall
deliver the same to Lender promptly upon the issuance thereof). Within five
(5) Business Days after receipt of any such notice, Lender shall notify
Borrower in writing of its estimate for the ensuing month of the Structural
Costs Monthly Installments for the Properties and any shortfall in the
Structural Costs Sub-Account, determined after giving effect to the Debt
Service Payment and Basic Carrying Costs payment due on the next ensuing
Interest
53
<PAGE>
Payment Date. Within three (3) Business Days after receipt of any such
notice of a shortfall in the Structural Costs Sub-Account, Borrower shall
deposit an amount equal to such shortfall in the Cash Collateral Account,
for allocation to the Structural Costs Sub-Account provided that Borrower
--------
shall have no obligation to make such deposit unless the Conversion Date
has occurred.
3.1.7.4 SHORTFALL REVISION. If Borrower in good faith
------------------
determines that any estimate for any shortfall related to the Basic Carrying
Costs Monthly Installments or Structural Costs Monthly Installments, as the
case may be, is excessive, Borrower shall deposit the amount of shortfall,
if any, Lender has determined to be correct in the Cash Collateral Account
for the related Sub-Account on the due date therefor, and shall deliver to
Lender a certificate setting forth in reasonable detail the basis for
Borrower's determination. After Borrower has deposited any such shortfall in
the Cash Collateral Account, Lender shall promptly review such certificate
in good faith and determine whether Borrower's determination is correct. If
Lender in good faith determines that Borrower's determination is incorrect,
Borrower shall not be entitled to any refund of amounts deposited by
Borrower. If Lender in good faith determines that Borrower's determination
is correct, Lender will promptly direct the Cash Collateral Bank to
reallocate the excessive amount of Borrower's shortfall deposit to the
Operating Expense Sub-Account or to Borrower, as the case may be, in
accordance with Section 3.1.4.2.
---------------
3.1.8 DISBURSEMENT OF ACCOUNT COLLATERAL. Provided that no
----------------------------------
Event of Default has occurred and is continuing, disbursements shall be made
from the Sub-Accounts in the following manner (provided that nothing contained
--------
in this Agreement shall be construed to impose liability upon Lender for any
shortfalls in the amounts on deposit in the Cash Collateral Account, or to
excuse Borrower from its obligations to make all payments required to be made by
Borrower under this Agreement and the other Loan Documents):
3.1.8.1 DEBT SERVICE ACCOUNT. Lender shall, to the
--------------------
extent available, disburse and apply funds on deposit in the Debt Service
Sub-Account to the Debt Service Payment due on each Interest Payment Date.
Payments shall be deemed made to Lender when such payments are deposited
into an account in New York state designated by Lender, notwithstanding
that a servicer or other agent may have theretofore received such payment.
3.1.8.2 DISBURSEMENTS TO BORROWER; OPERATING EXPENSE
--------------------------------------------
SUB-ACCOUNT.
-----------
(a) Unless (i) a Default shall have occurred and be continuing
or (ii) the Conversion Date shall have occurred, Lender shall, to the
extent available, make disbursements to Borrower, on a weekly basis (and
Lender shall use commercially reasonable efforts, at no additional cost to
Lender, to cooperate with any reasonable request by Borrower to make such
disbursements on a more frequent basis), of amounts payable to Borrower
pursuant to Section 3.1.4.2, by wire transfer to an account specified by
---------------
Borrower in writing; provided, that in respect of each Revolving Loan made
--------
after Borrower has received any disbursements under this Section 3.1.8.2
---------------
during the calendar
54
<PAGE>
month in which such Revolving Loan is made, Borrower shall (prior to or on
the Drawdown Date in respect of the applicable Revolving Loan) deposit in
the Cash Collateral Account, for allocation to the Debt Service Sub-
Account, an amount equal to the interest accruing on such Revolving Loan
for such Revolving Loan's initial Interest Period, in accordance with
Section 4.3.11.
--------------
(b) Upon the occurrence and during the continuance of a
Default (and prior to any Event of Default), and after the Conversion Date
(but prior to any Event of Default), Lender shall, to the extent available,
make disbursements to Borrower, on a monthly basis, of amounts on deposit
from time to time in the Operating Expense Sub-Account within three (3)
business days after Lender's receipt of an Officer's Certificate requesting
disbursement from the Operating Expense Sub-Account (an "OPERATING EXPENSE
DISBURSEMENT REQUEST") for payment or reimbursement of Operating Expenses
and Tenant Capital Expenses relating to the Properties or the general
administrative expenses of Borrower. The Operating Expense Disbursement
Request (a) shall set forth the amounts of Operating Expense or Tenant
Capital Expense disbursements requested for such calendar month for the
Properties, or the amount of the general administrative expense of Borrower
request for such calendar month, together, in the case of Operating
Expenses and Tenant Capital Expenses and in other cases if specifically
requested by Lender, with receipts, invoices and other evidence thereof
reasonably satisfactory to Lender, and (b) shall certify that (x) such
amounts are required to pay or reimburse Borrower for the payment of
Operating Expenses or Tenant Capital Expenses relating to the Properties,
or for the payment of general administrative expenses of Borrower, (y) such
Operating Expenses, Tenant Capital Expenses and general administrative
expenses are included in the Aggregate Annual Operating Budget for such
calendar month and (z) all material Operating Expenses and Tenant Capital
Expenses theretofore coming due for which Borrower has received a
disbursement pursuant to this Section 3.1.8.2 have been paid. After the
---------------
Conversion Date, if (i) all material Operating Expenses, Tenant Capital
Expenses and general administrative expenses of Borrower theretofore coming
due (as shown on the Aggregate Annual Operating Budget) have been paid and
(i) no Default shall have occurred and be continuing, Lender shall, on a
monthly basis, to the extent funds are available after making the above
disbursements to Borrower pursuant to Borrower's Operating Expense
Disbursement Request, make disbursements to Borrower of the amount
remaining in the Operating Expense Sub-Account (which amount Borrower may
apply to, among other things, payment of dividends in accordance with
Section 7.1.8), by wire transfer to an account specified by Borrower in
-------------
writing.
3.1.8.3 BASIC CARRYING COSTS. From and after the
--------------------
Conversion Date, Lender shall, to the extent available, make disbursements
to Borrower, on a monthly basis, of amounts on deposit from time to time in
the Basic Carrying Costs Sub-Account as follows. For any calendar month,
such disbursement shall be made within three (3) Business Days of Lender's
receipt of an Officer's Certificate requesting disbursement from the Basic
Carrying Costs Sub-Account (each such certificate, an "BASIC CARRYING COST
DISBURSEMENT REQUEST"). The Basic Carrying Cost Disbursement Request (a)
shall set forth the Basic Carrying Cost disbursement requested for such
calendar month for the Properties, together with receipts, invoices and
other evidence thereof reasonably
55
<PAGE>
satisfactory to Lender, and (b) shall certify that (i) such amounts are
required to pay or reimburse Borrower for the payment of Basic Carrying
Costs relating to the Properties, and (ii) such Basic Carrying Costs are
included in the Aggregate Annual Operating Budget for such calendar month.
3.1.8.4 STRUCTURAL COSTS. From and after the
----------------
Conversion Date, Lender shall, to the extent available, make disbursements
to Borrower, on a monthly basis, of amounts on deposit from time to time in
the Structural Costs Sub-Account as follows. For any calendar month, such
disbursement shall be made within three (3) Business Days of Lender's
receipt of an Officer's Certificate requesting disbursement from the
Structural Costs Sub-Account (each such certificate, a "STRUCTURAL COSTS
DISBURSEMENT REQUEST"). The Structural Costs Disbursement Request (a) shall
set forth the deferred maintenance or capital cost disbursement requested
for such calendar month for the Properties, together with receipts,
invoices and other evidence thereof reasonably satisfactory to Lender, and
(b) shall certify that (i) such amounts are required to pay or reimburse
Borrower for the payment of deferred maintenance or capital expenses
relating to the Properties, and (ii) such deferred maintenance or capital
expenses are included in the Aggregate Annual Operating Budget for such
calendar month.
3.1.8.5 CAPITAL EVENT PROCEEDS. On each Interest
----------------------
Payment Date, Lender shall apply the funds on deposit in the Capital Event
Sub-Account, together with Capital Event Proceeds received or to be applied
on such Interest Payment Date to the prepayment of the Applicable Loan,
first, to accrued but unpaid interest on the Applicable Loan; second, to
----- ------
the outstanding principal balance of the Applicable Loan; third, to all
-----
other outstanding Indebtedness of Borrower then due and payable to Lender;
and fourth, to Borrower.
------
3.1.8.6 DEFERRED MAINTENANCE RESERVES SUB-ACCOUNT.
-----------------------------------------
Lender shall, to the extent available, make monthly disbursements to
Borrower of amounts on deposit from time to time in the Deferred
Maintenance Reserves Sub-Account as follows. For any calendar month, such
disbursements shall be made within five (5) Business Days of Lender's
receipt of an Officer's Certificate requesting disbursement from the
Deferred Maintenance Reserves Sub-Account, which Officer's Certificate
shall (a) set forth the amount of disbursements requested for such calendar
month for deferred maintenance and environmental remediation for the
Properties (and such Officer's Certificate shall be accompanied by
receipts, invoices and other evidence that Borrower has incurred such costs
reasonably satisfactory to Lender), and (b) certify that (i) such amounts
are required to pay or reimburse Borrower for the payment of costs of
deferred maintenance and environmental remediation relating to the
Properties and (ii) such deferred maintenance and environmental remediation
costs are included on Schedule IV and included in the
-----------
Aggregate Annual Operating Budget for such calendar month.
3.1.9 CASUALTY INSURANCE PROCEEDS. Borrower shall
---------------------------
cause all Casualty Insurance Proceeds received with respect to the Properties to
be paid directly to the Cash Collateral Bank, on behalf of Lender. If any such
Casualty Insurance Proceeds are received by Borrower, the same shall be received
in trust for Lender, shall be segregated from other funds of
56
<PAGE>
Borrower, shall be paid directly to the Cash Collateral Bank and shall be
forthwith paid into the Cash Collateral Account to be applied or disbursed in
accordance with this Agreement. Borrower hereby authorizes and directs any
affected insurance company to make payment of Casualty Insurance Proceeds with
respect to the Properties directly to the Cash Collateral Bank. Lender shall
cause the Cash Collateral Bank to apply all such Casualty Insurance Proceeds in
accordance with this Section 3.1.
-----------
3.1.9.1 APPLICATION TO LOAN. If, in the event of a
-------------------
Casualty to an Individual Property, Casualty Insurance Proceeds are to be
applied to the outstanding Indebtedness pursuant to the terms of the Loan
Documents, such Casualty Insurance Proceeds shall be allocated to the
Capital Event Sub-Account, whereupon Lender shall apply the same on the
next succeeding Interest Payment Date in accordance with Section 3.1.8.5.
---------------
3.1.9.2 APPLICATION AS PROPERTY INCOME. Notwithstanding
------------------------------
the foregoing, (a) all Casualty Insurance Proceeds in respect of any
insurance policy providing business interruption or rental loss coverage
with respect to an Individual Property shall be deposited into the Cash
Collateral Account and allocated among the Sub-Accounts in the same manner
as Property Income, and (b) in the event the proceeds of any such business
interruption or rental loss insurance policy are paid in a lump sum in
advance, Lender shall (i) hold such Casualty Insurance Proceeds in the
Prepaid Rents Sub-Account, (ii) estimate, in Lender's reasonable
discretion, the number of months required for Borrower to restore the
damage caused by the Casualty, (iii) reallocate the aggregate business
interruption or rental loss insurance proceeds by such number of months,
and (iv) disburse such monthly installment of said insurance proceeds from
the Prepaid Rents Sub-Account into the other Sub-Accounts, allocated in the
same manner as Property Income, each month during the performance of such
restoration.
3.1.9.3 APPLICATION TO COST OF RESTORATION. In the
----------------------------------
event that Casualty Insurance Proceeds are to be applied toward restoration
of an Individual Property pursuant to the terms of the Loan Documents,
Lender and Borrower shall transfer such funds to the Cash Collateral Bank,
which shall hold such funds in the Loss Proceeds Sub-Account, and shall
make disbursements of same from time to time in accordance with Section
3.2.2. Any such Casualty Insurance Proceeds, to the extent not used by
Borrower in connection with, or to the extent they exceed the cost of, such
restoration, shall, after completion of such restoration, be deposited into
the Capital Event Sub-Account, whereupon Lender shall apply the same in
accordance with Section 3.1.8.5.
---------------
3.1.10 CONDEMNATION PROCEEDS. Borrower shall cause all
---------------------
Condemnation Proceeds received with respect to any Properties to be paid
directly to the Cash Collateral Bank, on behalf of Lender. If any Condemnation
Proceeds are received by Borrower, the same shall be received in trust for
Lender, shall be segregated from other funds of Borrower, shall be paid directly
to the Cash Collateral Bank and shall be forthwith paid into the Cash Collateral
Account to be applied or disbursed in accordance with this Agreement.
57
<PAGE>
3.1.10.1 APPLICATION TO LOAN. If, in the event of a
-------------------
Condemnation of an Individual Property, Condemnation Proceeds are to be
applied to the outstanding Indebtedness pursuant to the terms of the Loan
Documents, such Condemnation Proceeds shall be allocated to the Capital
Event Sub-Account, whereupon Lender shall apply the same on the next
succeeding Interest Payment Date in accordance with Section 3.1.8.5.
---------------
3.1.10.2 APPLICATION AS PROPERTY INCOME. Notwithstanding
------------------------------
the foregoing, (a) any Condemnation Proceeds received with respect to any
Individual Property in connection with a temporary Condemnation shall be
deposited into the Cash Collateral Account and allocated among its Sub-
Accounts in the same manner as Property Income, and (b) in the event the
proceeds of any such temporary Condemnation are paid in a lump sum in
advance, Lender shall (i) hold such Condemnation Proceeds in the Prepaid
Rents Sub-Account; (ii) estimate, in Lender's reasonable discretion, the
number of months required for such temporary Condemnation to cease; (iii)
divide the aggregate Condemnation Proceeds in connection with such
temporary Condemnation by such number of months; and (iv) disburse from
the Prepaid Rents Sub-Account into the other Sub-Accounts, allocated in the
same manner as Property Income each month during the continuance of such
temporary Condemnation such monthly installment of said Condemnation
Proceeds.
3.1.10.3 APPLICATION TO COST OF RESTORATION. In the event
----------------------------------
that Condemnation Proceeds received with respect to any Individual Property
are to be applied toward restoration of the Individual Property pursuant to
the terms of the Loan Documents, Lender shall transfer such funds to the
Cash Collateral Bank, which shall hold such funds in the Loss Proceeds Sub-
Account, and shall disburse same in accordance with Section 3.2.2. Any
-------------
Condemnation Proceeds made available to Borrower for restoration in
accordance herewith, to the extent not used by Borrower in connection with,
or to the extent they exceed the cost of, such restoration, shall, after
completion of such restoration, be deposited into the Capital Event Sub-
Account, whereupon Lender shall apply the same on the next succeeding
Interest Payment Date in accordance with Section 3.1.8.5.
---------------
3.1.11 OTHER CAPITAL EVENT PROCEEDS. If Borrower receives any other
----------------------------
Capital Event Proceeds with respect to any Individual Property other than Loss
Proceeds that are to be disbursed to Borrower in accordance with Section
-------
3.2.2(b)(i) or that are to be disbursed to Borrower for restoration of an
- -----------
Individual Property in connection with a Casualty or Condemnation, and in either
case are not otherwise covered by the provisions of this Section 3.1, Lender and
-----------
Borrower shall cause such Capital Event Proceeds to be paid directly to the
Capital Event Sub-Account, whereupon Lender shall apply the same on the next
succeeding Interest Payment Date in accordance with Section 3.1.8.5.
---------------
3.1.12 REMEDIES UPON DEFAULT IN RESPECT OF ACCOUNT COLLATERAL.
------------------------------------------------------
Notwithstanding the foregoing provisions of this Section 3.1, upon the
-----------
occurrence and during the continuance of an Event of Default, Lender may
exercise in respect of the Accounts and the Account Collateral all the rights
and remedies of a secured party under the UCC (whether or not the UCC applies to
such Accounts or Account Collateral) and any other rights and remedies afforded
to Lender hereunder or under any other Loan Document at law or in equity, in
respect
58
<PAGE>
of the Accounts and the Account Collateral, including the right to withdraw and
apply all Account Collateral to the outstanding Indebtedness then due to Lender;
provided, however, that no such application shall be deemed to have been made by
- -------- -------
Lender, by operation of law or otherwise, unless and until actually made by
Lender.
SECTION 3.2 INSURANCE; CASUALTY AND CONDEMNATION.
----------- ------------------------------------
3.2.1 INSURANCE.
---------
(a) Subject to Section 3.2.1(f) below, Borrower, at its sole cost
----------------
and expense, will keep each Individual Property insured during the entire term
of this Agreement for the mutual benefit of Borrower and Lender against loss or
damage by fire and against loss or damage by other risks and hazards covered by
a standard "All-Risk" extended coverage policy, including riot and civil
commotion, vandalism, malicious mischief, burglary and theft, and otherwise
satisfying the Insurance Requirements. Such insurance shall be in an amount at
least equal to the then full replacement cost of the Improvements and Equipment,
without deduction for physical depreciation, and such that the insurer would not
deem Borrower a co-insurer under said policies. The policies of insurance
carried in accordance with this Section shall contain the "Replacement Cost
Endorsement" with a waiver of depreciation.
(b) Subject to Section 3.2.1(f) below, Borrower, at its sole cost
----------------
and expense, for the mutual benefit of Borrower and Lender, shall also obtain
and maintain during the entire term of this Agreement the following policies of
insurance:
(i) flood insurance if any part of any Individual Property
is located in an area identified by the Federal Emergency Management Agency
as an area having special flood hazards and in which flood insurance has
been made available under the National Flood Insurance Act of 1968 (and any
amendment or successor act thereto) in an amount at least equal to the
maximum limit of coverage available under said Act with respect to the
Improvements and Equipment located on such Individual Property;
(ii) broad-form commercial general liability insurance
(including protective liability coverage on operations of independent
contractors engaged in construction, blanket contractual liability
insurance and garage liability insurance, with the exclusion for explosion,
collapse and underground property damage removed) written on a per-
occurrence basis with limits reasonably satisfactory to Lender;
(iii) rental loss insurance covering risk of loss due to the
occurrence of any of the hazards covered by the insurance described in
paragraph (a) above, in an amount equal to the aggregate amount of all
rents and additional rents payable by all of the tenants under the Leases
(whether or not such Leases are terminable in the event of a fire or
casualty), for a period of at least eighteen (18) months after the date of
occurrence of the hazard in question;
59
<PAGE>
(iv) insurance against loss or damage from explosion of
steam boilers, air conditioning equipment, high pressure piping, machinery
and equipment, pressure vessels or similar apparatus now or hereafter
installed in the Improvements;
(v) with respect to any Individual Property located in
California or other area at high risk for earthquakes, as reasonably
determined by Lender, and at the reasonable discretion of Lender,
earthquake insurance on such basis and in such amounts as in effect on the
date the applicable property becomes an Individual Property, to the extent
such insurance continues to be generally available at commercially
reasonable premiums;
(vi) such insurance coverage with respect to environmental
liabilities of Borrower as is in effect on the date the applicable property
becomes an Individual Property, to the extent such insurance continues to
be generally available at commercially reasonable premiums; and
(vii) such other or additional insurance as may be required
by Lender from time to time (including adjustments to the insurance
coverages required pursuant to clauses (i) through (vi) above) against
----------- ----
hazards that at the time are commonly insured against and in such amounts
as are generally available at commercially reasonable premiums and are
generally required by institutional lenders for properties and assets
comparable to the Properties and Borrower's Assets.
(c) All policies of insurance (the "POLICIES") required pursuant to
this Section 3.2.1 (i) shall contain the standard New York mortgagee non-
-------------
contribution clause (or equivalent) naming Lender as the Person to which all
payments made by such insurance company shall be paid; (ii) shall be maintained
throughout the term of this Agreement without cost to Lender; (iii) shall be
delivered to Lender (or Lender shall receive original certificates of insurance
and certified copies of all Policies); (iv) shall contain such provisions as
Lender shall reasonably require, including endorsements providing that neither
Borrower, Lender nor any other party shall be a co-insurer under said Policies
and that Lender shall receive at least thirty (30) days' prior written notice of
any material modification thereto or cancellation thereof; and (v) shall be
reasonably satisfactory in form and substance to Lender, including as to
amounts, form, deductibles, loss payees, and insureds. Each of such Policies
shall name Lender as an insured thereunder. Not later than thirty (30) days
prior to the expiration date of each Policy, Borrower will deliver to Lender
evidence of the renewal thereof satisfactory to Lender.
(d) All Policies required pursuant to this Section 3.2.1 shall be
-------------
issued by insurers authorized to issue insurance in the State of in which the
related Individual Property is located and which insurers shall be rated "A" or
better by the Rating Agency and AX or better by A.M. Best's, or shall be
approved in writing by Lender.
(e) In the event Borrower fails to provide, maintain, keep in
force, or deliver and furnish to Lender the Policies required hereunder, Lender
may procure such insurance or single-interest insurance for such risks covering
Lender's interest. Borrower will reimburse Lender for all premiums paid by
Lender, together with interest thereon at the Default Rate from
60
<PAGE>
the date of demand, promptly upon demand by Lender. Until such payment is made
by Borrower, the amount of all such premiums, together with interest thereon at
the Default Rate, shall be a part of the Indebtedness and secured by the
Mortgage.
(f) The insurance required by this Agreement, at the option of
Borrower, may be effected by blanket and/or umbrella Policies covering the
Properties and Borrower's Assets; provided, however, that, in each case, the
-------- -------
Policies otherwise comply with the provisions of this Agreement and allocate to
each of the Individual Properties, from time to time, the coverage specified in
this Agreement without possibility of reduction or co-insurance by reason of, or
damage to, any other Individual Property or Asset named therein. If the
insurance required by this Agreement shall be effected by such blanket or
umbrella Policies, Borrower shall furnish to Lender original policies, or
certified copies together with the certificates described in Section 4.1.3.4,
---------------
with schedules attached thereto showing the amount of the insurance provided
under such Policies which is applicable to each of the Individual Properties.
3.2.2 CASUALTY, CONDEMNATION AND APPLICATION OF PROCEEDS.
--------------------------------------------------
(a) Borrower shall give prompt written notice to Lender of any
Casualty at or Condemnation of any Individual Property and shall deliver to
Lender copies of any and all papers served in connection with such proceedings.
(b) Upon the occurrence of (x) any Casualty at or Condemnation of
any Individual Property or any part thereof occurring during the existence of an
Event of Default, or (y) any Casualty at or Condemnation of any Individual
Property or any part thereof affecting seventeen and one-half percent (17.5%) or
more of the total square footage of the Improvements included in such Individual
Property (a "MAJOR CASUALTY/CONDEMNATION"), (i) all Loss Proceeds with respect
thereto shall be applied to the outstanding Indebtedness, until the principal
shall have been paid in the amount of the greater of (x) the Minimum Release
Price in respect of such Individual Property and (y) in the event any Revolving
Loans are outstanding, the amount (if any) required to be prepaid so that the
outstanding principal amount of the Revolving Loans does not exceed the
Borrowing Base then in effect (after giving effect to the applicable Casualty or
Condemnation), and all Loss Proceeds in excess thereof shall be released to
Borrower, or (ii) all Loss Proceeds with respect thereto shall be applied toward
the restoration of such Individual Property, as shall be determined by Lender in
its sole and absolute discretion; in all other cases, all such Loss Proceeds
shall be used toward the restoration of such Individual Property. In the event
Loss Proceeds are applied to the outstanding Indebtedness as provided in clause
------
(i) above, as a condition of Lender's release of Loss Proceeds to Borrower,
- ---
Lender shall have received from Borrower a Compliance Certificate, together with
an Auditor's Letter confirming the same, evidencing that, on a pro forma basis
--- -----
after giving effect to the Casualty or Condemnation and related prepayment, as
applicable, Borrower has paid the amounts required to be paid to Lender pursuant
to clauses (x) and (if applicable) (y) above, attaching a copy of the pro forma
----------- --- --- -----
analysis used in determining such compliance (including a calculation of each of
the Individual NOI Borrowing Amounts or the Converted NOI Defeasance Amounts, as
applicable), and certifying that after giving effect to such Casualty or
Condemnation and related prepayment, no Default or Event of Default exists under
any Loan Document.
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<PAGE>
(c) Upon the occurrence of (x) any Casualty at or Condemnation of
any Individual Property or any part thereof during the existence of an Event of
Default, or (y) any Major Casualty/Condemnation, Lender alone shall have the
right, in its sole and absolute discretion, to settle, adjust or compromise any
claim (i) under any related policy of insurance or (ii) in connection with a
Condemnation thereof. In all other cases, Borrower may settle, adjust or
compromise any such claim which is less than $100,000, and with respect to any
such claim in excess of $100,000, Lender and Borrower shall consult and
cooperate with each other and each shall be entitled to participate in all
meetings and negotiations with respect to the settlement of such claim;
provided, that upon and after any actual or proposed Conveyance, the forgoing
- --------
$100,000 amount may be adjusted upward or downward by Lender by such amount as
Lender in good faith determines is or will be necessary to obtain the rating
Lender would seek from the Rating Agencies in a securitization of the Applicable
Loan. Any adjustment or settlement by Borrower of any claim which is in excess
of $100,000 shall be subject to the prior approval of Lender, which shall not be
unreasonably withheld or delayed.
(d) In the event that Loss Proceeds from any Casualty at or
Condemnation of any Individual Property or any part thereof are to be made
available to Borrower for restoration, the following provisions shall apply:
(i) Borrower shall, upon receipt of the Loss Proceeds,
commence diligently to restore such Individual Property substantially to
its value, character and general utility immediately prior to such Casualty
or Condemnation, in which event Borrower shall comply with the following
conditions in connection with the performance of all of such restoration
(hereinafter "WORK"):
(A) no Work shall be undertaken until Borrower shall
have provided Lender with evidence satisfactory to Lender that the
amounts deposited in the Loss Proceeds Sub-Account will be sufficient
to cover the entire cost of such Work, and in the event the available
Loss Proceeds are insufficient, in Lender's reasonable judgment, to
restore the affected Individual Property substantially to its value,
character and general utility immediately prior to the Casualty or
Condemnation, then prior to the commencement of any Work, Borrower
shall promptly deposit into the Cash Collateral Account, for
allocation to the Loss Proceeds Sub-Account, an amount sufficient to
make up any shortfall;
(B) no Work shall be undertaken until Borrower shall
have procured and paid for, so far as the same may be required from
time to time, all necessary permits and consents of all Governmental
Authorities having jurisdiction;
(C) any Work that is structural in nature, that
involves mechanical, electrical, fire safety, HVAC or other building
systems or the performance of which in the reasonable judgment of
Lender otherwise requires the services of a licensed architect,
engineer and/or other professional in accordance with safe and sound
construction practices, shall be performed in accordance with plans,
specifications, reports and/or drawings prepared by Borrower's
architect, engineer and/or other professional and approved by Lender.
Promptly following
62
<PAGE>
its receipt of same, Borrower shall deliver to Lender copies of all
plans, specifications, reports and/or drawings relating to any such
Work for its review and approval;
(D) all Work shall be performed in substantial
accordance with cost estimates approved by Lender. Promptly after
Borrower becomes aware that the Work exceeds or is reasonably likely
to exceed the cost estimates approved by Lender in any material
respect, Borrower shall (i) provide to Lender revised cost estimates
for the Work, and (ii) within three (3) Business Days after Lender's
request, deposit in the Cash Collateral Account, for allocation to the
Loss Proceeds Sub-Account, the sum of money that (when aggregated with
the Loss Proceeds then in the Loss Proceeds Sub-Account) is required
to complete the Work in accordance with such revised cost estimates.
Promptly following its receipt of same, Borrower shall deliver to
Lender copies of all cost estimates and revised cost estimates
relating to any such Work for its review and approval;
(E) any Work that is structural in nature or that
involves mechanical, electrical, fire safety, HVAC or other building
systems or the performance of which in the judgment of Lender
otherwise requires the services of a licensed architect, engineer
and/or other professional in accordance with safe and sound
construction practices, shall be performed under the supervision of a
licensed architect, engineer and/or other professional approved by
Lender;
(F) all Work shall be prosecuted diligently to
completion in a good and workmanlike manner and in compliance with all
applicable permits and authorizations and with all other applicable
Legal Requirements;
(G) all Work shall be completed free and clear of all
Liens (other than the Permitted Encumbrances) and substantially in
accordance with the plans and specifications therefor;
(H) during the performance of any Work, Borrower shall
procure and maintain, or cause to be procured and maintained, (x)
"All-Risk" builder's risk property insurance, with vandalism and
malicious mischief endorsements, completed value form, covering all
physical loss (including any loss of or damage to supplies, machinery
and equipment) in connection with the performance of such Work and (y)
statutory workers' compensation and employers' liability coverage, if
applicable to Borrower; and
(I) Borrower shall reimburse Lender for all reasonable
out-of-pocket fees and expenses incurred by Lender in connection with
its review of any Work.
(ii) All Loss Proceeds, together with any and all additional
sums required to complete the restoration in accordance with the terms
hereof which are to be made available to Borrower for restoration of any
Individual Property, shall be deposited
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in the Loss Proceeds Sub-Account in accordance with the terms of this
Agreement. Lender shall disburse such proceeds (together with any
additional sums deposited) to or for the account of Borrower from time to
time to pay the costs and expenses associated with the restoration of such
Individual Property, as set forth below:
(A) Each request for payment shall be made on ten (10)
Business Days' prior notice to Lender and, if an architect, engineer
or other professional was retained to supervise the restoration, shall
be accompanied by a certificate to be made by such supervising
architect, engineer and/or other professional stating that the sum
requested is required to reimburse Borrower for payments by Borrower
to, or is due to the contractor, subcontractors, materialmen,
laborers, engineers, architects or other Persons rendering services or
materials for the Work (giving a brief description of such services
and materials);
(B) Each request shall be accompanied by customary
waivers of Liens satisfactory to Lender covering that part of the Work
for which payment or reimbursement is being requested; and
(C) Each request shall be accompanied by evidence
reasonably satisfactory to Lender that the amounts deposited in the
Loss Proceeds Sub-Account will be sufficient to cover the remaining
cost of such Work.
(e) Notwithstanding anything to the contrary contained in this
Agreement, during the continuance of an Event of Default with respect to
Borrower, Lender shall have the absolute right to apply at any time all or any
part of the Loss Proceeds then held by or on behalf of Lender to the prepayment
of the Applicable Loan.
SECTION 3.3 RELEASE OF PROPERTIES; ASSET SALES. From time to time prior to
----------------------------------
the Conversion Date, Borrower may request Lender to release the Lien on any
Individual Property in connection with any Asset Sale of such Individual
Property. Lender shall provide such release only after (A) Lender's receipt, in
cash and in prepayment of outstanding principal amounts under the Revolving
Loans, of an amount equal to the greater of (x) applicable Minimum Release Price
and (y) the amount (if any) required to be prepaid so that the outstanding
principal amount of the Revolving Loans does not exceed the Borrowing Base then
in effect (after giving effect to the proposed release), provided that Borrower
--------
shall not be obligated to pay that portion of the Minimum Release Price that is
in excess of the aggregate outstanding amount of the Revolving Loans, (B)
Lender's receipt in cash of any amounts due to Lender under Section 2.4.3.1, and
---------------
(C) having determined that Borrower has met the following conditions as to each
such requested release: (i) after the proposed release, the outstanding
principal amount of the Revolving Loans will not exceed the Borrowing Base
adjusted to reflect such release and all other covenants hereunder, (ii)
Borrower shall have provided to Lender a Compliance Certificate, together with
an Auditor's Letter confirming the same, evidencing that, on a pro forma basis
--- -----
after giving effect to the release, the outstanding principal amount of the
Revolving Loans will not exceed the Borrowing Base adjusted to reflect such
release, attaching a copy of the pro forma analysis used in determining such
--- -----
compliance (including a calculation of each of the Individual NOI Borrowing
Amounts), and certifying that after giving effect to such release, no Default or
Event of Default
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<PAGE>
exists under any Loan Document and (iii) no Default or Event of Default shall
then exist. Borrower shall comply with the provisions of Section 2.4.3 in
-------------
connection with any Asset Sale made in accordance with this Section 3.3.
-----------
SECTION 3.4 LIMITATION ON REQUESTS. Lender shall not be required to
----------------------
consider more than two (2) requests during any calendar month delivered by
Borrower with respect to Asset Sales and related releases or other releases of
any Individual Properties pursuant to Section 3.3.1. Any single writing
-------------
requesting one or more of such actions shall constitute a single request. Except
for any request by Borrower to release all the Properties in connection with a
full and final repayment of all incurred Indebtedness (with a concurrent
termination of Lender's (i) commitments to make Revolving Loans and (ii)
obligations to convert Revolving Loans to the Converted Fixed Rate Loan), Lender
shall not be required to consider the requested release of more than five (5)
Individual Properties during any calendar month (regardless of whether such
requests for release are made pursuant to a single request or multiple
requests).
SECTION 3.5 COOPERATION.
-----------
3.5.1 SALE, ASSIGNMENT, SYNDICATION, SECURITIZATION OR OTHER
------------------------------------------------------
TRANSFER OF THE APPLICABLE LOAN. (i) Lender shall have the right, in its sole
- -------------------------------
discretion and at any time, to sell, assign, syndicate, securitize or otherwise
transfer and/or dispose of, or solicit one or more investors to participate in
or to invest in (or securitize such participation or co-investment) (each, a
"CONVEYANCE"), all or any portion of Lender's interest in the Revolving Loans
and/or the Converted Fixed Rate Loan and the security therefor.
(ii) In the event Lender intends to effect or effects the Conveyance
of the Applicable Loan or any portion thereof, Borrower shall cooperate in good
faith with Lender (with the costs thereof to be promptly reimbursed by Lender
pursuant to clause (iii) below) in connection with effecting any such Conveyance
------------
of the Applicable Loan or any portion thereof, including, if applicable, taking
all measures requested by Lender in its sole discretion to obtain the rating
Lender would seek from the Rating Agencies in a securitization of the Applicable
Loan. Without limiting the foregoing, Borrower covenants and agrees that it
will, promptly following demand, prepare (or cause to be prepared) and/or
deliver to Lender and to Lender's transferees and proposed transferees (and
hereby permits Lender to deliver to its transferees and proposed transferees)
all information and documentation requested by Lender in good faith or by any
Rating Agency in connection with the Loan Documents and/or any such Conveyance,
including materials furnished by Borrower under the Loan Documents and such
financial information and documentation relating to the Properties as Lender
and/or any such Rating Agency shall request in connection with any such
Conveyance and should Lender determine, in its sole discretion, to effect a
Conveyance, (x) agree to any and all modifications to this Agreement and the
other Loan Documents and Borrower's Organizational Documents as required by
Lender, in its reasonable discretion, in connection with such Conveyance, (y)
provide a datedown (satisfactory to Lender and the applicable Rating Agencies)
of the substantive consolidation legal opinion described in Section
-------
2.1.6.4(viii) and the legal opinions described in Section 4.1.5 and 4.2.12 and
- ------------- ------------- ------
such other legal opinions as required by Lender in its reasonable discretion,
and (z) execute and deliver all additional documents reasonably required by
Lender, including any estoppel certificates in connection therewith, provided
--------
that Lender shall under no circumstances be obligated to make
65
<PAGE>
any such modifications or require any such additional documents (all such
modifications and additional documents hereinafter, collectively, the "LOAN
CONVEYANCE DOCUMENTS"); and provided further, that Borrower shall not be
--- -------- -------
required to acquiesce in respect of material and adverse modifications to
Borrower's payment obligations under Loan Documents, alter the Maturity Date of
the Applicable Loan, make any modification or alteration that would cause
Borrower to incur any additional material out-of-pocket costs in the ongoing
administration of the Applicable Loan, which costs would not be reimbursed by
Lender, pay any additional fee, cost or expense that would not be reimbursed by
Lender, provide any additional collateral as security for Borrower's obligations
to make payments of principal and interest on the Applicable Loan, acquiesce in
any changes to the Loan Documents or Borrower's Organizational Documents that
would result in a Material Adverse Effect or acquiesce in any changes to
Sections 8.1(vii) through 8.1(xiii) of this Agreement. Lender shall provide
- ----------------- ---------
Borrower with drafts of the changes to the Loan Documents and Borrower's
Organizational Documents requested by Lender, and Borrower shall promptly
provide Lender with Borrower's comments on such proposed changes to the Loan
Documents and Borrower's Organizational Documents. Lender shall consider
comments of Borrower on the proposed changes to the Loan Documents and
Borrower's Organizational Documents but shall have no obligation to accept or
agree to such comments or to review any comments not promptly provided to Lender
or any comments that Lender otherwise determines are not being made in good
faith.
(iii) Lender shall promptly reimburse Borrower for Borrower's costs
and expenses incurred in connection with this Section 3.5.1 or Section 3.5.2
------------- -------------
(including costs and expenses in the ongoing administration of the Applicable
Loan incurred pursuant to Sections 3.5.1(ii)(z)(3) and 3.5.1(ii)(z)(4)),
------------------------ ---------------
regardless of whether any Conveyance is actually effected.
(iv) Lender shall have the right to disclose such financial and
other information regarding Borrower or the Properties as may be necessary to
effect a Conveyance. Lender acknowledges that Borrower may discuss Rating Agency
policies, standards and requests with the Rating Agency in connection with any
proposed securitization of the Applicable Loan; provided that Borrower shall
--------
conduct such discussions in good faith, shall not cause a breach in the
provisions of Section 9.16 and shall use best efforts to not adversely impact
------------
the proposed securitization of the Converted Fixed Rate Loan.
3.5.2 SEVERANCE OF MORTGAGE. In addition, Lender shall have
---------------------
the right, in its sole and absolute discretion, to split, divide and sever the
Mortgage and into two or more separate, distinct, independent substitute
mortgages or deeds of trust, each securing a separate, distinct, independent
debt being a portion of the same debt as currently secured by the mortgage or
mortgages being so split, divided and severed; and Borrower covenants and agrees
to promptly execute and/or deliver any documentation requested by Lender in
order to effect the foregoing, including any separate title insurance policies
required in connection therewith. Lender shall be responsible for all third-
party costs and expenses of Lender in connection with any such splitting,
division and severance pursuant to a Conveyance.
3.5.3 NOTICE OF SECURITIZATION; PREPAYMENT. (a) Lender shall
------------------------------------
provide Borrower with one hundred twenty (120) days' prior written notice of any
securitization of the Revolving Loans or any portion thereof. During such 120
day period (but in any event, only prior
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<PAGE>
to the Conversion Date), Borrower shall be entitled to prepay the outstanding
Revolving Loans in whole or in part without premium or penalty (except as
otherwise provided in Section 2.6.6), subject to the requirements of Section
------------- -------
2.4.3.
- -----
(b) Lender shall use its best efforts to provide Borrower with prior
written notice of any securitization of the Converted Fixed Rate Loan or any
portion thereof, as soon as practicable after commencement of such
securitization. Borrower shall not be entitled to prepay the Converted Fixed
Rate Loan in connection with a proposed securitization unless prepayment of the
Converted Fixed Rate Loan is permitted under Section 2.4.3.2.
---------------
SECTION 3.6 SUBSEQUENT TRANSACTIONS.
----------- -----------------------
3.6.1 QUALIFIED IPO. PaineWebber shall have the exclusive
-------------
right, on the terms and conditions set forth in this Section 3.6, to act as
-----------
financial advisor and book running lead manager in connection with any Qualified
IPO, provided that at least two of the following individuals are then employed
--------
by PaineWebber or PWRESI: Terrence E. Fancher, William D. Evans III and Diane M.
Sweet. Borrower, HSP or Holdings (and any successor to any of the foregoing by
merger or consolidation with any Person that is a Borrower Affiliated Entity
prior to giving effect to such merger or consolidation), as applicable (such
party, the "ISSUER"), shall, promptly after it determines to effect a Qualified
IPO, provide PaineWebber with notice of such proposed Qualified IPO. During the
thirty (30) day period after PaineWebber's receipt of such notice,
(1) PaineWebber may (but shall not be obligated to) conduct diligence,
provide information to PaineWebber's analysts and otherwise prepare to act
as financial advisor and book running lead manager in connection with the
proposed Qualified IPO,
(2) the Issuer shall cooperate in good faith with PaineWebber's reasonable
investigations and preparations set forth in the preceding clause (1), and
----------
(3) the Issuer shall not enter into discussions with or engage any
investment banks or underwriters in connection with the proposed Qualified
IPO.
Prior to or upon the expiration of the foregoing thirty (30) day period,
PaineWebber shall inform the Issuer whether PaineWebber has satisfied the
following conditions:
(I) PaineWebber's analysts are committed to follow and recommend the stock
of the Issuer,
(II) at least two of the following individuals are then employed by
PaineWebber or PWRESI: Terrence E. Fancher, William D. Evans III and Diane
M. Sweet, and
(III) PaineWebber is otherwise prepared to act as financial advisor and
book running lead manager in connection with the proposed Qualified IPO on
the terms set forth hereinbelow and otherwise on customary terms and
conditions.
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<PAGE>
Upon satisfaction of the conditions set forth in Sections 3.6.1(I) through
-----------------
3.6.1(III) above, PaineWebber and the Issuer shall negotiate and enter into an
- ----------
engagement letter containing customary terms and conditions substantially
similar to those contained in engagement letters then generally available from
similar underwriters for similar transactions. Promptly following the execution
of such engagement letter, Borrower shall reimburse PaineWebber and PWRESI for
the reasonable and customary out-of-pocket expenses actually incurred to third
parties (which shall not include any accountants' fees) in connection with the
investigations and preparations reasonably necessary to enable PaineWebber's
analysts to commit to follow and recommend the stock of the Issuer. The parties
acknowledge that the foregoing exclusive thirty (30) day right exists with
respect to any Qualified IPO, regardless of whether Borrower ever borrows any
Revolving Loans or otherwise exercises any of its rights under this Agreement
and the other Loan Documents. However, this exclusive right shall not apply to
any Qualified IPO for which a registration statement under the Securities Act of
1933 (the "ACT") is initially filed after the third anniversary of the Closing
Date. In connection with the Qualified IPO in which PaineWebber acts as
financial advisor and book running lead manager, (1) the underwriters shall
receive a gross spread of six and one half percent (6.5%), and (2) PaineWebber
shall receive a structuring fee of one percent (1%), which structuring fee shall
be payable exclusively to PaineWebber in connection with the Qualified IPO. All
other terms of PaineWebber's serving as exclusive financial advisor and
underwriter in connection with any transaction described in this Section 3.6.1
-------------
shall be substantially similar to the terms then generally available from
similar underwriters. Nothing herein contained shall require or obligate the
Issuer to consummate a Qualified IPO at any time.
3.6.2 NON-QUALIFIED IPO. Borrower, HSP and Holdings shall
-----------------
use their reasonable best efforts to cause AEW to accept PaineWebber as lead
underwriter in any initial public offering of the stock of any Issuer that does
not constitute a Qualified IPO (a "NON-QUALIFIED IPO"), provided that at least
--------
two of the following individuals are then employed by PaineWebber or PWRESI:
Terrence E. Fancher, William D. Evans III and Diane M. Sweet. If, but only if,
AEW so accepts, the Issuer shall, promptly after it determines to effect an
initial public offering that does not constitute a Qualified IPO and after it
has received AEW's approval of PaineWebber's engagement for such purpose,
provide PaineWebber with prompt notice of such proposed initial public offering.
During the thirty (30) day period after PaineWebber's receipt of such notice
with respect to such an initial public offering,
(1) PaineWebber may (but shall not be obligated to) conduct diligence,
provide information to PaineWebber's analysts and otherwise prepare to act
as lead underwriter in connection with the proposed initial public
offering, and
(2) the Issuer shall cooperate in good faith (but without incurring any
material out-of-pocket expense) with PaineWebber's reasonable
investigations and preparations set forth in the preceding clause (1).
----------
Prior to or upon the expiration of the foregoing thirty (30) day period,
PaineWebber shall notify the Issuer whether PaineWebber has satisfied the
following conditions:
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<PAGE>
(I) PaineWebber's analysts are committed to follow and recommend the stock
of the Issuer,
(II) at least two of the following individuals are then employed by
PaineWebber or PWRESI: Terrence E. Fancher, William D. Evans III and Diane
M. Sweet, and
(III) PaineWebber is otherwise prepared to act as lead underwriter in
connection with the proposed initial public offering on competitive fees
and terms (which shall be set forth in PaineWebber's notice).
The parties acknowledge that the foregoing obligations of Borrower, HSP and
Holdings apply with respect to any Non-Qualified IPO, regardless of whether
Borrower ever borrows any Revolving Loans or otherwise exercises any of its
rights under this Agreement and the other Loan Documents. The fees and other
terms of PaineWebber's serving as lead underwriter in connection with any
transaction described in this Section 3.6.2 shall be substantially similar to
-------------
the fees and other terms then generally available from similar underwriters. The
rights contained in this Section shall not apply to any Non-Qualified IPO for
which a registration statement under the Act is initially filed after the third
anniversary of the Closing Date. Nothing herein contained shall require or
obligate the issuer to consummate a Non-Qualified IPO at any time or to engage
PaineWebber in connection with a Non-Qualified IPO. AEW's review of this
Agreement and the other Loan Documents shall not be deemed to imply any consent
by AEW to accept PaineWebber as lead underwriter in any initial public offering
of the stock of an Issuer that does not constitute a Qualified IPO.
3.6.3 PRIVATE REFINANCING. Borrower, HSP and Holdings shall
-------------------
use their reasonable best efforts to cause AEW to accept PaineWebber or PWRESI
as exclusive financial advisor, private placement agent, lender or loan
purchaser, as applicable, in connection with any Private Refinancing, provided
--------
that at least two of the following individuals are then employed by PaineWebber
or PWRESI: Terrence E. Fancher, William D. Evans III and Diane M. Sweet. If, but
only if, AEW so accepts, the Issuer shall, promptly after it determines to
effect a Private Refinancing and after it has received AEW's approval of
PaineWebber's or PWRESI's engagement for such purpose, provide PaineWebber or
PWRESI, as appropriate, with prompt notice of such proposed Private Refinancing.
During the thirty (30) day period after PaineWebber's receipt of such notice
with respect to such Private Refinancing,
(1) PaineWebber or PWRESI, as appropriate, may (but shall not be obligated
to) conduct diligence, provide information to PaineWebber's analysts and
otherwise prepare to act as exclusive financial advisor, private placement
agent, lender or loan purchaser, as applicable, in connection with any
Private Refinancing, and
(2) the Issuer shall cooperate in good faith (but without incurring any
material out-of-pocket expense) with PaineWebber's or PWRESI's reasonable
investigations and preparations set forth in the preceding clause (1).
----------
69
<PAGE>
Prior to or upon the expiration of the foregoing thirty (30) day period,
PaineWebber or PWRESI, as the case may be, shall notify the Issuer whether
PaineWebber or PWRESI, as appropriate, has satisfied the following conditions:
(I) at least two of the following individuals are then employed by
PaineWebber or PWRESI: Terrence E. Fancher, William D. Evans III and Diane
M. Sweet, and
(II) PaineWebber or PWRESI, as the case may be, is otherwise prepared to
act as exclusive financial advisor, private placement agent, lender or loan
purchaser, as applicable, in connection with such Private Refinancing on
competitive fees and terms (which shall be set forth in such notice).
The parties acknowledge that the foregoing obligations of Borrower, HSP and
Holdings apply with respect to any Private Refinancing, regardless of whether
Borrower ever borrows any Revolving Loans or otherwise exercises any of its
rights under this Agreement and the other Loan Documents. The fees and other
terms of PaineWebber's or PWRESI's serving as exclusive financial advisor,
private placement agent, lender or loan purchaser, as applicable, in connection
with any Private Refinancing shall be substantially similar to the fees and
other terms then generally available from similar exclusive financial advisors,
private placement agents, lenders or loan purchasers, as appropriate. The
rights contained in this Section shall not apply to any Private Refinancing for
which a registration statement under the Act is initially filed after the third
anniversary of the Closing Date. Nothing herein contained shall require or
obligate the issuer to consummate a Private Refinancing at any time or to engage
PaineWebber in connection with a Private Refinancing. AEW's review of this
Agreement and the other Loan Documents shall not be deemed to imply any consent
by AEW to accept PaineWebber or PWRESI as exclusive financial advisor, private
placement agent, lender or loan purchaser, as applicable, in connection with any
Private Refinancing.
3.6.4 BACK-END FEE.
------------
(i) If PaineWebber is not selected by the Issuer to act as
exclusive financial advisor, underwriter or private placement agent or as lender
or loan purchaser, as applicable, in connection with any Refinancing, then, upon
the closing of such Refinancing, Borrower shall pay to PWRESI a fee (the "BACK-
END FEE") in an amount equal to the difference of (I) (a) if the Refinancing
occurs on or prior to the second anniversary of the Closing Date, One Million
Five Hundred Thousand Dollars ($1,500,000.00) (i.e., two percent (2%) of the
Maximum Commitment Amount); or (b) if the Refinancing occurs after the second
but on or prior to the third anniversary of the Closing Date, Seven Hundred
Fifty Thousand Dollars ($750,000.00) (i.e., one percent (1%) of the Maximum
Commitment Amount), less (II) the Waived Back-End Fee, if any.
(ii) If PaineWebber or PWRESI, as applicable, fails to satisfy the
conditions set forth in clause (III) of Section 3.6.1, clause (III) of
-------------
Section 3.6.2, or clause (II) of Section 3.6.3, as appropriate, in connection
- ------------- -------------
with a proposed Refinancing, and the Issuer thereafter consummates such proposed
Refinancing with a third party in a manner that does not require the payment of
the Back-End Fee to PWRESI pursuant to Section 3.6.5 below, then PWRESI shall
-------------
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<PAGE>
thereupon be deemed to have waived a portion of the Back-End Fee payable in
connection with any future Refinancing equal to the product of (A) a fraction,
the numerator of which is the amount of such proposed Refinancing and the
denominator of which is the Maximum Commitment Amount, multiplied by (B) the
Back-End Fee that would have been applicable at the time of the Closing of such
other Refinancing with such other third party. The aggregate amount of the Back-
End Fee deemed waived by PWRESI pursuant to the preceding sentence at any time
is herein referred to as the "WAIVED BACK-END FEE".
(iii) Notwithstanding any other provision hereof, but except as
otherwise provided in Section 3.6.5 below, Borrower shall not be obligated to
-------------
pay the Back-End Fee in connection with a Refinancing if PaineWebber fails to
satisfy any of the conditions set forth in Section 3.6.1, clauses (I) through
-------------
(III), Section 3.6.2, clauses (I) through (III), or Section 3.6.3, clauses (I)
------------- -------------
or (II), as appropriate, in connection with such Refinancing.
(iv) Notwithstanding any other provision hereof, Borrower shall not
be obligated to pay the Back End Fee upon more than one (1) occasion, or at any
time after PaineWebber shall have either acted (x) as financial advisor and book
running lead manager in connection with a consummated Qualified IPO or Non-
Qualified IPO or (y) as private placement agent, lender or loan purchaser, as
applicable, in connection with a Private Refinancing, and shall have received
the compensation therefore to which it is entitled. Upon PaineWebber's or
PWRESI's receipt of the fees to which they are entitled under this Section 3.6
-----------
(including the underwriters' gross spread set forth in Section 3.6.1, if
-------------
applicable), all of Borrower's, PWRESI's and PaineWebber's rights and
obligations under this Section 3.6 and the Letter Regarding Subsequent
-----------
Transactions shall terminate. The fees and other terms of PaineWebber's serving
as exclusive financial advisor, underwriter, private placement agent, lender or
loan purchaser, as applicable, in connection with any Refinancing shall be
generally competitive with the fees and other terms then generally available for
similar transactions.
3.6.5 MISCELLANEOUS.
-------------
(i) Unless Borrower's obligations under this Section 3.6 shall
-----------
theretofore have been satisfied or terminated in accordance with the provisions
hereof, Borrower's obligations under this Section 3.6 shall survive any
-----------
prepayment of the Applicable Loan and any termination of this Agreement or the
other Loan Documents.
(ii) Borrower, HSP and Holdings (and any successor to any of the
foregoing by merger or consolidation with any Person that is a Borrower
Affiliated Entity prior to giving effect to such merger or consolidation) shall
not wilfully or intentionally or in bad faith attempt to deprive PaineWebber or
PWRESI of their respective rights under this Section 3.6.
-----------
(iii) Notwithstanding the provisions of Section 3.6.4(iii), if the
------------------
Issuer does not engage PaineWebber or PWRESI, as appropriate, as financial
advisor, underwriter or private placement agent or as lender or loan purchaser,
as applicable, in connection with a proposed Private Refinancing for any reason
other than the failure of PaineWebber or PWRESI to satisfy the conditions set
forth in clause (I) of Section 3.6.3, and the Issuer shall consummate the
-------------
proposed Private Refinancing with any other financial advisor, underwriter or
private placement
71
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agent or as lender or loan purchaser, as applicable, on terms that are
substantially more favorable, taken as a whole, to such financial advisor,
underwriter or private placement agent or as lender or loan purchaser, as
applicable, than the terms that had been offered by PaineWebber or PWRESI, as
applicable, pursuant to clause (II) of Section 3.6.3, then Borrower shall be
-------------
obligated to pay to PWRESI the Back-End Fee upon the closing of such Private
Refinancing.
(iv) In connection with a Non-Qualified IPO, PaineWebber's notice to
the Issuer as to PaineWebber's satisfaction of the condition set forth in clause
(I) of Section 3.6.2 (i.e., that PaineWebber's analyst is committed to follow
-------------
and recommend the stock of the Issuer) may be conditioned upon one or more
requirements as to the structuring or pricing of such Non-Qualified IPO. If
PaineWebber's notice is so conditioned, the Issuer shall notify PaineWebber as
to which, if any, of such conditions the Issuer objects (the "REJECTED
CONDITIONS"). If the Issuer does not so notify PaineWebber, then PaineWebber
shall be deemed to have satisfied the condition set forth in clause (I) of
Section 3.6.2 for purposes of Section 3.6.4(iii). If the Issuer does so notify
- ------------- -----------------
PaineWebber, then PaineWebber shall not be deemed to have satisfied the
condition set forth in clause (I) of Section 3.6.2 for such purposes; provided,
------------- --------
however, that if the Issuer shall consummate the proposed Non-Qualified IPO with
- -------
any other financial advisor and underwriter on terms that (a) include one or
more of the Rejected Conditions, and (b) are otherwise not substantially more
favorable, taken as a whole, to the Issuer that the terms on which PaineWebber's
analyst was willing to commit to follow and recommend the stock of the Issuer,
then notwithstanding anything to the contrary contained in Section 3.6.4(iii),
------------------
Borrower shall be obligated to pay to PWRESI the Back-End Fee upon the closing
of such Non-Qualified IPO.
(v) As used herein, "REFINANCING" means (a) any public debt or
equity offering (other than a Qualified IPO) or Private Refinancing by Borrower,
HSP or Holdings (or any Affiliate of any of the foregoing or successor to any of
the foregoing by merger or consolidation), the proceeds of which transaction are
used or to be used, in whole or in part, to repay or prepay the Applicable Loan
or any portion thereof, or (b) any principal repayment or prepayment under the
Applicable Loan or any portion thereof; provided, however, that "REFINANCING"
shall not include any such transaction:
(I) that is an Asset Sale to a Person that is not an Affiliate of Borrower
that (1) is made in accordance with this Agreement and (2) does not result
in the repayment in full of the aggregate outstanding principal amount of
the Revolving Loans, or
(II) that consists of the issuance of Series V Preferred Stock to AEW
pursuant to and in accordance with the Stock Purchase Agreement (as in
effect on the date hereof) in connection with the initial investments by
AEW thereunder not to exceed $50,000,000.00 in the aggregate (which
aggregate amount includes the investment by AEW thereunder occurring on the
date of this Agreement), or
(III) that consists of the application of Loss Proceeds to the payment of
the Applicable Loan, or
(IV) that consists of the application of Property Income released to the
Borrower pursuant to Section 3.1.8.2 hereof to the payment of the
---------------
Applicable Loan, or that consists of the
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application to the payment of the Applicable Loan of cash flow from one or
more properties owned by HSP that would constitute net Property Income
after the payment of applicable debt service, Basic Carrying Costs and
Operating Expenses if such properties were Individual Properties hereunder.
(vi) As used herein, "PRIVATE REFINANCING" means any private
placement of debt or equity securities, or obtaining any other financing, by
Borrower, HSP or Holdings (or any Affiliate of any of the foregoing or successor
to any of the foregoing by merger or consolidation), the proceeds of which
transaction are used or to be used, in whole or in part, to repay or prepay the
Applicable Loan or any portion thereof.
SECTION 3.7 DEFEASANCE. After the second anniversary of the
----------- ----------
closing date of the securitization of the Converted Fixed Rate Loan, Borrower
shall have the right to obtain release of any Individual Property or Properties
from the Lien of the applicable Mortgage and substitute, in the place of such
Individual Property or Properties, Defeasance Collateral sufficient to pay in a
timely manner the portion of the outstanding principal amount of the Converted
Fixed Rate Loan equal to the Defeasance Amount in respect of such Individual
Property or Properties, plus all scheduled interest on such Defeasance Amount at
the Fixed Rate through the Maturity Date (a "DEFEASANCE DEPOSIT"), if all of the
following conditions and requirements are satisfied:
(i) no Default or Event of Default shall exist at the time Borrower
submits its request for substitution or on the date such substitution is
effected;
(ii) Borrower shall submit a written request for substitution to
Lender and the Defeasance Deposit shall be delivered to Lender within five
(5) Business Days of its receipt of Borrower's request for substitution;
(iii) the Defeasance Deposit shall be held by a Person approved by
Lender who is authorized to hold securities for the account of others with
proper notations on its books and records showing the ownership of the
Defeasance Collateral, pursuant to a trust or other agreement with terms
satisfactory to Lender, and deposited in a cash collateral account which is
an Eligible Account to be established under the sole dominion and control
of Lender, and the Defeasance Collateral shall mature at the times and in
such amounts as are sufficient to pay interest accrued at the Fixed Rate on
the Defeasance Amount on each Interest Payment Date following defeasance
(including the Maturity Date) and an amount equal to the Defeasance Amount
on the Maturity Date;
(iv) Borrower shall deliver all documentation reasonably required by
Lender in connection with the Defeasance Deposit, including:
(A) cash collateral account agreement(s),
(B) security agreements,
(C) an Auditor's Letter confirming that, on a pro forma basis after
--- -----
giving effect to the release, the Defeasance Collateral shall mature
at the times and in such amounts
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as are sufficient to pay interest accrued at the Fixed Rate on the
Defeasance Amount on each Interest Payment Date following defeasance
(including the Maturity Date) and an amount equal to the Defeasance
Amount on the Maturity Date, and attaching a copy of the pro forma
--- -----
analysis used in determining such compliance, and
(D) opinions of counsel (subject to customary assumptions and
qualifications reasonably satisfactory to Lender) stating, among other
things, that:
(1) the Defeasance Collateral has been duly and validly assigned
and delivered to Lender for the benefit of the holders of the
securities issued in connection with the securitization of the
Converted Fixed Rate Loan,
(2) the contemplated substitution will not have an adverse
effect upon the REMIC eligibility of the trust created pursuant
to the trust and servicing agreement entered into in connection
with the securitization of the Converted Fixed Rate Loan,
(3) Lender has a valid and enforceable first priority perfected
Lien on the securities constituting the Defeasance Deposit and
all proceeds thereof and distributions thereon,
(4) the defeasance shall not cause the securitization or the
assets backing the securities issued in the securitization to be
treated as an "Investment Company" (as such term is defined in
the Investment Company Act of 1940),
all of which documents shall be satisfactory to Lender in all
respects;
(v) Borrower shall deliver evidence reasonably satisfactory to
Lender that the posting of the Defeasance Deposit for the benefit of Lender
does not constitute a preferential transfer pursuant to the provisions of
Section 547(b) of the Bankruptcy Code in a bankruptcy proceeding by or
against Borrower or the other Person, if any, providing the Defeasance
Collateral, or Lender shall not release or reconvey the applicable Mortgage
and Assignment of Rents until the applicable preference period shall have
expired after the posting of the Defeasance Deposit;
(vi) the Converted Debt Service Coverage Ratio for the immediately
preceding twelve-month period in respect of all Properties subject to the
Lien of the Mortgage on the defeasance date (excluding the Individual
---------
Property or Properties proposed to be released pursuant to this Section
-------
3.7) shall be not less than the greatest of (A) the Conversion Date Debt
---
Service Coverage Ratio, (B) the Converted Debt Service Coverage Ratio for
the immediately preceding twelve-month period in respect of all Properties
subject to the Lien of the Mortgage on the defeasance date (including the
---------
Individual Property or Properties proposed to be released pursuant to this
Section 3.7) and (C) the Converted Debt Service Coverage Ratio for the most
-----------
recently-audited twelve-month period in respect of all
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Properties subject to the Lien of the Mortgage on the defeasance date
(excluding the Individual Property or Properties proposed to be released
---------
pursuant to this Section 3.7);
-----------
(vii) prior to the posting of the Defeasance Deposit, written
confirmation shall have been obtained from the Rating Agency that the
defeasance will not result in a downgrade, withdrawal or qualification of
the ratings then assigned to the securities issued in connection with the
securitization of the Converted Fixed Rate Loan; and
(viii) Borrower shall pay all reasonable costs and expenses incurred
by all parties in connection with such substitution.
All interest accruing on any Defeasance Deposit shall be transferred
to the Debt Service Sub-Account of the Cash Collateral Account as part of the
Account Collateral.
IV. CONDITIONS PRECEDENT
--------------------
SECTION 4.1 CONDITIONS PRECEDENT TO CLOSING AND INITIAL REVOLVING
----------- -----------------------------------------------------
LOAN.
----
On the Closing Date, Lender shall have (i) executed and delivered to
Borrower documents releasing Lender's interest in the Holdings Guaranty, the
Holdings Security Agreement, the Holdings UCC Financing Statements, the Holdings
Stock Power and the Holdings Pledged Shares, and (ii) returned the Holdings
Pledged Shares to Holdings, and (iii) marked the Original Note to indicate that
it has been amended and restated by the Promissory Note. In addition, the
obligations of Lender to make the Initial Revolving Loan (including converting
and continuing all or a portion of the Interim Funding Loan to a Revolving Loan)
hereunder are subject to the satisfaction by Borrower of the following
conditions precedent no later than the Closing Date:
4.1.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH
-----------------------------------------------
CONDITIONS.
----------
The representations and warranties of Borrower contained in this Agreement and
the other Loan Documents shall be true, correct and complete at and as of the
Closing Date with the same effect as if made at and as of such date; the
representations and warranties of HSP contained in the HSP Guaranty and HSP
Security Agreement shall be true, correct and complete at and as of the Closing
Date with the same effect as if made at and as of such date; no event shall have
occurred and be continuing that would constitute, by reason of the execution,
delivery or performance of this Agreement, the other Loan Documents, or the
grant of the Liens on the Properties and other Collateral contemplated hereby,
the making of any Revolving Loan (including the conversion of the Interim
Funding Loan to a Revolving Loan), or the consummation of the other transactions
contemplated by this Agreement or the other Loan Documents, a Default or an
Event of Default; Borrower shall be in compliance with all terms and conditions
set forth in this Agreement and in each other Loan Document on its part to be
observed or performed; and HSP shall be in compliance with all terms and
conditions set forth in the HSP Guaranty and the HSP Security Agreement on its
part to be observed or performed.
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4.1.2 APPROVAL AND DELIVERY OF DOCUMENTS. Lender shall have
----------------------------------
(i) approved the Property Agreements; and (ii) received an original executed
counterpart of this Agreement, the Promissory Note, the Assignment and
Assumption Agreement and the Environmental Indemnity, in each case, duly
executed and delivered on behalf of Borrower, HSP, and/or the other relevant
parties, as applicable.
4.1.3 DELIVERY OF MORTGAGE AND ASSIGNMENT OF LEASES; TITLE
----------------------------------------------------
INSURANCE; REPORTS; LEASES; SECURITY AGREEMENTS AND OTHER DOCUMENTATION.
- -----------------------------------------------------------------------
4.1.3.1 MORTGAGE AND ASSIGNMENT OF LEASES. Lender shall have
---------------------------------
received from Borrower in respect of each Initial Collateral Property,
fully executed and acknowledged counterparts of each applicable Mortgage,
the 1413 Restated Mortgage, each applicable Assignment of Leases and the
1413 Restated Assignment of Leases, in each case together with evidence
that counterparts of such Mortgage, 1413 Restated Mortgage, Assignment of
Leases and 1413 Restated Assignment of Leases have been unconditionally
delivered to the Title Company for recording in the appropriate land
records so as to create or continue, as the case may be, a valid,
enforceable and perfected first priority Lien upon the Initial Collateral
Properties, in favor of Lender, subject only to Permitted Encumbrances.
4.1.3.2 TITLE INSURANCE. Lender shall have received the Title
---------------
Insurance Policy dated as of the date of recordation of the Mortgage and
the 1413 Restated Mortgage. Lender also shall have received evidence that
all premiums in respect of such Title Insurance Policy have been paid (or
will be paid upon the Closing Date prior to or concurrently with the
funding of the Initial Revolving Loan).
4.1.3.3 SURVEY. Lender shall have received a current Survey of
------
each Initial Collateral Property, in each case satisfactory to Lender.
4.1.3.4 INSURANCE. Lender shall have received either (A) valid
---------
certificates of insurance for the Policies of insurance required to be
carried pursuant to Section 3.2 (on ACORD Form 27 with respect to property
-----------
insurance Policies), evidencing (x) the issuance of such Policies, (y) the
payment of all premiums (other than for earthquake insurance) through May
31, 1997, and (z) coverage which meets all of the requirements set forth in
the Loan Documents, together with certified copies of all such Policies, or
(B) original Policies evidencing the insurance coverage described in the
foregoing clause (A).
4.1.3.5 ENVIRONMENTAL REPORTS AND ENGINEERING REPORTS. Lender
---------------------------------------------
shall have received the Environmental Reports and Engineering Reports in
respect of each Initial Collateral Property, in each case satisfactory to
Lender.
4.1.3.6 ZONING. Lender shall have received evidence reasonably
------
satisfactory to Lender indicating in a manner satisfactory to Lender that
each Initial Collateral Property is in material compliance with applicable
zoning requirements, including applicable zoning classification, permitted
uses and set-back and parking
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<PAGE>
requirements under applicable zoning laws, including, in the case of each
Individual Property that constitutes a legal non-conforming use under
applicable zoning requirements, evidence that such Individual Property may
be rebuilt after a Casualty to the same condition, size and location as
such Individual Property was immediately prior to such Casualty.
4.1.3.7 HSP SECURITY AGREEMENT; HSP GUARANTY. Lender shall
------------------------------------
have received from HSP fully executed and acknowledged counterparts of the
HSP Security Agreement and the HSP Guaranty, a stock certificate
representing all of the Pledged Shares together with a stock power, in
blank, in each case duly executed and delivered on behalf of the parties
thereto, together with evidence that appropriate UCC financing statements
correctly prepared have been filed in the appropriate state and county
offices so as to create a valid, enforceable and perfected first priority
Lien on the Collateral.
4.1.3.8 RESTRICTED ACCOUNT LETTER. Lender shall have received
-------------------------
from Borrower a Restricted Account Letter in respect of each of the
Accounts, executed (or acknowledged, as applicable) by each party thereto.
4.1.4 DELIVERY OF ORGANIZATIONAL DOCUMENTS.
------------------------------------
4.1.4.1 ORGANIZATIONAL DOCUMENTS OF BORROWER. On the Closing
------------------------------------
Date, Borrower shall deliver or cause to be delivered to Lender an
Officer's Certificate of Borrower dated the Closing Date (x) annexing
Borrower's Organizational Documents and (y) certifying as to (1) Borrower's
Organizational Documents having been duly executed, delivered, adopted and
(to the extent required by applicable law) filed and remaining in full
force and effect and unmodified as of the date of such certificate, (2) the
due authorization, execution and delivery by Borrower of the Loan Documents
to which it is a party, (3) Borrower being in good standing and qualified
to do business in all jurisdictions where such qualification is required
(and annexing a good standing certificate and authority to do business
certificates of Borrower dated not more than twenty (20) days prior to the
Closing Date), (4) resolutions of Borrower authorizing and approving the
transactions contemplated by the Loan Documents and the execution and
delivery thereof by Borrower in respect of the documents to which Borrower
is a party, and (5) signatures and incumbency of all officers of Borrower
in connection with the transactions contemplated by the Loan Documents;
provided, however, that if Borrower shall fail to deliver a certificate of
good standing for Borrower from the Secretary of State of the State of
California on the Closing Date, such condition shall be waived as a
condition to closing on the sole condition that, and in such event Borrower
hereby agrees that, Borrower shall deliver such certificate to Lender no
later than ten (10) Business Days after the Closing Date.
4.1.4.2 ORGANIZATIONAL DOCUMENTS OF HSP. On the Closing Date,
-------------------------------
Borrower shall also deliver or cause to be delivered to Lender an Officer's
Certificate of HSP dated the Closing Date (x) annexing HSP's Organizational
Documents and (y) certifying as to (1) HSP's Organizational Documents
having been duly executed, deliv-
77
<PAGE>
ered, adopted and (to the extent required by applicable law) filed and
remaining in full force and effect and unmodified as of the date of such
certificate, (2) the due authorization, execution and delivery by HSP of
the HSP Guaranty, the HSP Security Agreement and the stock power pursuant
to which the Pledged Shares are assigned in blank, (3) HSP being in good
standing and qualified to do business in all jurisdictions where such
qualification is required (and annexing a good standing certificate and
authority to do business certificates of HSP dated not more than twenty
(20) days prior to the Closing Date), (4) resolutions of HSP authorizing
and approving the transactions contemplated by the HSP Guaranty and the HSP
Security Agreement and the Loan Documents and the execution and delivery
thereof by HSP in respect of the documents to which HSP is a party, and (5)
signatures and incumbency of all officers of HSP in connection with the
transactions contemplated by the HSP Guaranty, the HSP Security Agreement
and the Loan Documents.
4.1.4.3 BORROWER'S ORGANIZATIONAL DOCUMENTS. Borrower's
-----------------------------------
Organizational Documents shall be acceptable to Lender in its sole
discretion.
4.1.5 OPINIONS OF BORROWER'S COUNSEL. Lender shall have received
------------------------------
(i) the opinion of Skadden, Arps, Slate, Meagher & Flom, counsel for Borrower,
and (ii) the opinion of Ballard Spahr Andrews & Ingersoll, special counsel for
Borrower in the State of Maryland, with respect to the Mortgage, the 1413
Restated Mortgage, the Assignment of Leases, the 1413 Restated Assignment of
Leases and the other Loan Documents and such other matters as Lender shall
request, each in form and substance satisfactory to Lender, dated as of the
Closing Date and addressing such matters as Lender may request.
4.1.6 BUDGETS. Borrower shall have delivered the Annual Operating
-------
Budgets for the Properties, in form and substance satisfactory to Lender.
4.1.7 BASIC CARRYING COSTS AND OTHER IMPOSITIONS. Borrower shall
------------------------------------------
have paid or caused to be paid all Basic Carrying Costs relating to the
Properties which are in arrears, including (i) accrued but unpaid insurance
premiums, (ii) currently due real estate taxes (including any in arrears), and
(iii) other currently due Impositions (other than Impositions that constitute
Permitted Encumbrances).
4.1.8 COMPLETION OF PROCEEDINGS. All corporate and other
-------------------------
proceedings taken or to be taken in connection with the transactions
contemplated by this Agreement and the other Loan Documents and all documents
incidental thereto shall be satisfactory in form and substance to Lender, and
Lender shall have received all such counterpart originals or certified copies of
such documents as Lender may reasonably request.
4.1.9 PURCHASE CONTRACTS. Borrower shall have collaterally
------------------
assigned all of its surviving rights and indem nities under the Purchase
Contracts, to the extent permitted under the Purchase Contracts, to Lender by
written instrument(s) in form and content satisfactory to Lender.
4.1.10 ESTOPPEL CERTIFICATES AND ATTORNMENT AGREEMENTS. Borrower
-----------------------------------------------
shall have delivered estoppel certificates and subordination, non-disturbance
and attornment
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agreements from (i) all existing tenants at the 1413 Research Boulevard Property
and (ii) existing tenants demising not less than seventy percent (70%) of the
rentable space at each Initial Collateral Property other than the 1413 Research
Boulevard Property, each in form and content satisfactory to Lender. In
addition, Borrower shall use all commercially reasonable efforts to deliver
estoppel certificates and subordination, non-disturbance and attornment
agreements from all other existing tenants at each Initial Collateral Property
other than the 1413 Research Boulevard Property, each in form and content
satisfactory to Lender.
4.1.11 ACQUISITION OF PROPERTIES. On the Closing Date, prior to or
-------------------------
concurrently with the Initial Revolving Loan (including through escrow
arrangements acceptable to Lender), Borrower shall have consummated the
transactions contemplated in the Purchase Contracts in respect of the Initial
Collateral Properties, in a manner consistent with the requirements of the Loan
Documents. Such transactions shall be consummated prior to or simultaneously
with the Initial Revolving Loan pursuant to escrow or other arrangements
satisfactory to Lender.
4.1.12 AEW EQUITY PLACEMENT. On or prior to the Closing Date,
--------------------
Lender shall have received certified copies of the Series V Stock Purchase
Agreement, the Stockholders Agreement and the HSP Articles, each in form and
substance satisfactory to Lender in its sole discretion, and HSP shall have
consummated the AEW Equity Placement in a manner satisfactory to Lender.
4.1.13 FUNDING OF ACCOUNTS. Borrower shall have deposited into the
-------------------
Cash Collateral Account the amounts set forth on Exhibit I (which amounts may
---------
have been deposited prior to the Closing Date).
4.1.14 NO MATERIAL ADVERSE EFFECT. No Material Adverse Effect (in
--------------------------
the sole opinion of Lender) shall have occurred.
4.1.15 SECURITY INTERESTS. To the extent not otherwise satisfied
------------------
pursuant to Section 4.1.3, Lender shall have received evidence reasonably
-------------
satisfactory to it that Borrower and HSP shall have taken or caused to be taken
all such actions, executed and delivered or caused to be executed and delivered
all such agreements, documents and instruments, and made or caused to be made
all such filings and recordings that may be necessary or, in the opinion of
Lender, desirable in order to create in favor of Lender, a valid and (upon such
filing and recording) perfected first priority Liens on all Collateral.
4.1.16 ADVISORY FEE; ORIGINATION FEE. Borrower shall have paid to
-----------------------------
Lender on the Closing Date an advisory fee of $187,500 (i.e., 0.25% of $75.0
million) and an origination fee of $562,500 (i.e., 0.75% of $75.0 million).
4.1.17 OUT-OF-POCKET EXPENSES. Borrower shall have paid to Lender
----------------------
on the Closing Date an amount sufficient to reimburse Lender for Lender's
reasonable out-of-pocket expenses (including reasonable attorneys' and other
consultants' fees and expenses), in an amount up to a maximum of Four Hundred
Thousand Dollars ($400,000), plus the reasonable attorneys' fees and expenses
incurred in connection with the analysis and resolution of Maryland transfer and
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<PAGE>
mortgage recording tax issues, in an amount up to a maximum of Fifteen Thousand
Dollars ($15,000), in connection with the Interim Funding Loan, the preparation,
negotiation, execution and delivery of the Original Loan Agreement, the First
Restated Loan Agreement, the Loan Documents and the consummation of the
transactions contemplated thereby (other than the addition of any properties,
other than Initial Collateral Properties, as Individual Properties).
4.1.18 RECORDING INSTRUCTIONS. Borrower and Lender shall have
----------------------
delivered to the Title Company recording instructions, and the conditions
thereunder to delivering the Title Policy and recording the Mortgage, the 1413
Restated Mortgage, the Assignment of Leases and the 1413 Restated Assignment of
Leases, and releasing funds in accordance with such instructions, shall have
been satisfied.
4.1.19 PROPERTY MANAGEMENT. Lender shall have approved the relevant
-------------------
Property Manager and Management Agreement with respect to any Individual
Property that is not managed by Borrower.
4.1.20 NO CONDEMNATION. No portion of any Individual Property shall
---------------
have been condemned or threatened with condemnation by any Governmental
Authority (except for that portion of the 1413 Research Boulevard Property that
is subject to pending condemnation proceedings as identified on
Schedule VII).
- ------------
4.1.21 NO CASUALTY. No portion of any Individual Property shall
-----------
have been damaged or destroyed by fire or other casualty and not fully restored
to Lender's satisfaction.
4.1.22 1413 RESEARCH BOULEVARD PROPERTY REQUIREMENTS. Borrower
---------------------------------------------
shall have commenced to perform, and shall be diligently pursuing to completion,
the following obligations:
(i) Borrower shall permanently close the 20,000 gallon heating oil
underground storage tank ("UST") and the 5,000 gallon diesel oil UST
currently present at 1413 Research Boulevard Property, in compliance with
all applicable federal and state laws. Borrower shall obtain from such
regulatory agency written approval of the closure of the two USTs and
written confirmation that no further action is required with respect to
such USTs. Borrower shall promptly provide a copy of such approval and
confirmation to Lender; and
(ii) Borrower shall retain a state-accredited asbestos consultant to
develop an O&M Program for the asbestos-containing materials detected in
the buildings located on the 1413 Research Boulevard Property. As used
herein, "O&M Program" means an operation and maintenance program for ACMs
that is consistent with the recommendations in the Environmental Protection
Agency's "Managing Asbestos in Place, A Building Owner's Guide to
Operations and Maintenance Programs for Asbestos-Containing Materials."
Borrower shall comply with all elements of the O&M Program. Borrower shall
promptly provide a copy of such O&M Program to Lender.
4.1.23 INTEREST RATE CAP AGREEMENT. Borrower shall have delivered
---------------------------
an original or faxed copy of the cap confirmation in respect of an Interest Rate
Cap Agreement
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providing for monthly payments to Borrower equal to the product of (x) the
excess of one-month LIBOR over 8.0% per annum and (y) a notional amount not less
than the amount of the Initial Revolving Loan, an Assignment of Interest Rate
Cap Agreement dated as of the Closing Date and duly executed by Borrower in
respect of the Interest Rate Cap Agreement and cap confirmation, a consent duly
executed by the counterparty to the Interest Rate Cap Agreement and cap
confirmation, substantially in the form attached to the Assignment of Interest
Rate Cap Agreement as Exhibit B thereto, and evidence reasonably satisfactory to
Lender that (x) it has, as security for the Indebtedness (subject to the
Permitted Encumbrances), a first priority, perfected security interest in the
Interest Rate Cap Agreement and cap confirmation and that (y) Borrower has
irrevocably directed the counterparty to the Interest Rate Cap Agreement and cap
confirmation to make payments under the Interest Rate Cap Agreement and cap
confirmation directly to the Sweep Account; provided, however, that if Borrower
shall fail to deliver the cap confirmation described in clause (i) above and/or
the consent described in clause (iii) above on the Closing Date, such condition
shall be waived as a condition to closing on the sole condition that, and in
such event Borrower hereby agrees that, Borrower shall deliver such cap
confirmation and consent to Lender no later than one (1) Business Day after the
Closing Date.
4.1.24 OTHER DOCUMENTS. Lender shall have received such other
---------------
documents, agreements, certificates or instruments as Lender deems appropriate
or necessary.
SECTION 4.2 CONDITIONS PRECEDENT TO ADDITION OF PROPERTIES.
----------------------------------------------
(a) From time to time until six (6) calendar months prior to the Maturity Date
(but in no event on or after the date Borrower delivers the Conversion Notice to
Lender), Borrower may deliver written notice to Lender of those properties that
Borrower wishes to acquire and for which Borrower requests credit for purposes
of determining the Borrowing Base. Following timely receipt of such a request
and receipt of such information and materials from Borrower as Lender may
request, Lender will promptly perform such review and other investigations as it
may deem to be necessary or appropriate. Lender will exercise reasonable efforts
to provide Borrower with a preliminary assessment of whether Lender will
prohibit Borrower from acquiring the property or properties within fifteen (15)
Business Days after Borrower's request to acquire the property or properties. In
addition, Lender will exercise reasonable efforts to complete Lender's analysis
in no more than sixty (60) days after receiving all requested information in a
form satisfactory to Lender. Borrower shall pay or reimburse Lender's reasonable
out-of-pocket costs and expenses (including reasonable attorneys' and other
consultants' fees and expenses), in an amount up to a maximum of Twenty Thousand
Dollars ($20,000) for Borrower's request in respect of each property to be added
as an Individual Property and corresponding increase in the Borrowing Base, in
evaluating each property proposed to become an additional Individual Property
and, if approved, causing it to secure the Indebtedness. Lender shall not be
required to consider Borrower's requests in respect of the acquisition of more
than five (5) properties during any calendar month.
(b) Notwithstanding anything to the contrary contained herein, Lender
shall have the right, in its sole and absolute good faith discretion, to elect
not to permit Borrower to acquire any particular parcel or parcels of real
property or accept any parcel or parcels of real property as Collateral. If
Lender elects not to permit Borrower to acquire the applicable property, it
shall promptly give notice to Borrower, and Borrower shall not proceed to
acquire such property. If Lender elects to allow Borrower to acquire the
applicable property, upon satisfaction
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in full of the conditions precedent set forth below, Lender shall, calculate the
Borrowing Base based upon the inclusion of each such Individual Property and
give written notice thereof to Borrower. Revisions to the Borrowing Base shall
be effective upon the effectiveness of notices given by Lender to Borrower as
provided in the previous sentence. Any Individual Property approved by Lender
pursuant to this Section 4.2 shall secure all of the Indebtedness (unless Lender
-----------
determines that such Individual Property shall secure less than all of the
Indebtedness). In any event, no property shall be acquired by Borrower or
considered in calculating the Borrowing Base unless each of the following
conditions precedent is satisfied, all as determined by Lender in its sole and
absolute good faith discretion:
4.2.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH
-----------------------------------------------
CONDITIONS. The representations and warranties of Borrower and HSP contained in
- ----------
this Agreement and the other Loan Documents shall be true and correct in all
material respects at and as of each Drawdown Date, with the same effect as if
made at and as of each such Drawdown Date and in respect of the state of facts
in existence at and as of each such Drawdown Date, and no event shall have
occurred and be continuing that would constitute, by reason of the execution,
delivery and performance of this Agreement or the other Loan Documents, the
grant of the Lien on the Properties which have been included in the Mortgage,
contemplated hereby, the making of the Revolving Loan, or the consummation of
the other transactions contemplated by this Agreement or the other Loan
Documents, a Default or an Event of Default and no Default or Event of Default
would occur as a result of the making of the Revolving Loan; and Borrower and
HSP shall be in compliance in all material respects with all terms and
conditions set forth in this Agreement and in each other Loan Document on its
part to be observed or performed.
4.2.2 MORTGAGE, ASSIGNMENT OF LEASES AND/OR AMENDMENTS.
------------------------------------------------
Lender shall have received from Borrower, at Lender's option, (i) fully executed
and acknowledged counterparts of the Mortgage and the Assignment of Leases in
respect of the applicable Individual Property, and/or (ii) fully executed and
acknowledged amendments to the applicable Mortgage, the applicable Assignment of
Leases and any other Loan Documents, as required by Lender, together with
evidence that counterparts of such Mortgage, Assignment of Leases or amendments,
as the case may be, have been unconditionally delivered to the Title Company for
recording in the appropriate land records so as to create a valid, enforceable
and perfected first priority Lien upon the applicable Individual Property, in
favor of Lender, subject only to Permitted Encumbrances.
4.2.3 TITLE INSURANCE. Lender shall have received the Title
---------------
Insurance Policy (or modification endorsements to the Title Insurance Policy
previously issued to Lender, as required by Lender) dated as of the date of
recording or filing the applicable Mortgage or amendment to the Mortgage, as the
case may be, in respect of the applicable Individual Property. Lender also shall
have received evidence that all premiums in respect of such Title Insurance
Policy have been paid (or will be paid prior to or concurrently with the advance
of the Revolving Loan).
4.2.4 SURVEY. Lender shall have received a cur rent Survey
------
of the applicable Individual Property, satisfactory to Lender.
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4.2.5 TITLE. The property shall be 100% owned in fee simple
-----
or ground leased by Borrower, and shall be unencumbered by any Lien (other than
the Permitted Encumbrances);
4.2.6 INSURANCE. Lender shall have received either (A) valid
---------
certificates of insurance for the Policies of insurance required to be carried
pursuant to Section 3.2 (on ACORD Form 27 with respect to property insurance
-----------
Policies), evidencing (x) the issuance of such Policies, (y) the payment of all
premiums due and payable for the existing policy period, and (z) coverage which
meets all of the requirements set forth in the Loan Documents, together with
certified copies of all such Policies, or (B) original Policies evidencing the
insurance coverage described in the foregoing clause (A).
4.2.7 ENVIRONMENTAL REPORTS AND ENGINEERING REPORTS. Lender
---------------------------------------------
shall have received the Environmental Reports and Engineering Reports in respect
of the applicable Individual Property, satisfactory to Lender, and Lender shall
be satisfied with any potential Environmental Liability.
4.2.8 ZONING. Lender shall have received evidence reasonably
------
satisfactory to Lender indicating in a manner satisfactory to Lender that the
applicable Individual Property is in material compliance with applicable zoning
requirements, including applicable zoning classification, permitted uses and
set-back and parking requirements under applicable zoning laws, including, in
the case of each Individual Property that constitutes a legal non-conforming use
under applicable zoning requirements, evidence that such Individual Property may
be rebuilt after a Casualty to the same condition, size and location as such
Individual Property was immediately prior to such Casualty.
4.2.9 HSP SECURITY AGREEMENT; HSP GUARANTY. Lender shall
------------------------------------
have received from Borrower fully executed and acknowledged counterparts of the
HSP Security Agreement and the HSP Guaranty (to the extent not previously
delivered to Lender) or any amendments thereto required by Lender, in each case
duly executed and delivered on behalf of the parties thereto, together with
evidence that appropriate UCC financing statements correctly prepared have been
filed in the appropriate state and county offices so as to create a valid,
enforceable and perfected first priority Lien on the Collateral in respect of
the applicable Individual Property.
4.2.10 OTHER LOAN DOCUMENTS. Lender shall have received from
--------------------
Borrower or HSP, as the case may be, any additional loan documentation, Loan
Documents or amendments to Loan Documents as reasonably required by Lender to
reflect such increase in the Borrowing Base and the inclusion of each Property
as security for the entire Loan, all of which must be reasonably satisfactory to
Lender in all respects.
4.2.11 DELIVERY OF ORGANIZATIONAL DOCUMENTS. On or before the
------------------------------------
date of recording or filing such Mortgage or other Loan Documents or amendments
thereto in respect of the applicable Individual Property, Borrower shall deliver
or cause to be delivered to Lender copies certified by Borrower of all
organizational documentation related to Borrower and HSP and any successor to
either of the foregoing by merger or consolidation (to the extent not previously
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delivered to Lender) and/or the formation, structure, existence, status of HSP
(or any successor to HSP by merger or consolidation) as a real estate investment
trust, and evidence satisfactory to Lender of the good standing and/or
qualification of Borrower and HSP (or any successor to either of the foregoing
by merger or consolidation) to do business in the appropriate jurisdictions, to
the extent the same have not been previously delivered to Lender and the passage
of time or a change of circumstances has not made such prior deliveries out-of-
date.
4.2.12 OPINIONS OF BORROWER'S COUNSEL. Lender shall have
------------------------------
received opinions of counsel for Borrower (who shall be satisfactory to Lender)
in the State with respect to added Properties and with respect to Borrower, the
Mortgage, the Assignments of Leases and/or the other applicable Loan Documents,
each in form and substance reasonably satisfactory to Lender, dated as of the
date of recording or filing of such Mortgage with respect to the applicable
Property and addressing such matters as Lender may reasonably request.
4.2.13 BUDGETS. Borrower shall have delivered the Annual
-------
Operating Budgets for the applicable Individual Property and the Properties,
each in form and substance satisfactory to Lender.
4.2.14 BASIC CARRYING COSTS AND OTHER IMPOSITIONS. Borrower
------------------------------------------
shall have paid or caused to be paid all Basic Carrying Costs relating to the
applicable Individual Property which are in arrears, including (i) accrued but
unpaid insurance premiums, (ii) currently due real estate taxes (including any
in arrears), and (iii) other currently due Impositions (other than those that
constitute Permitted Encumbrances).
4.2.15 COMPLETION OF PROCEEDINGS. All corporate and other
-------------------------
proceedings taken or to be taken in connection with the transactions
contemplated by this Agreement and the other Loan Documents and all documents
incidental thereto shall be satisfactory in form and substance to Lender, and
Lender shall have received all such counterpart originals or certified copies of
such documents as Lender may reasonably request.
4.2.16 PURCHASE CONTRACTS. Borrower shall have col laterally
------------------
assigned all of its surviving rights and indemnities under the Purchase
Contracts in respect of the applicable Individual Property, to the extent
permitted under such Purchase Contracts, to Lender by written instrument(s) in
form and content satisfactory to Lender.
4.2.17 ESTOPPEL CERTIFICATES AND ATTORNMENT AGREEMENTS.
-----------------------------------------------
Borrower shall have delivered estoppel certificates and subordination, non-
disturbance and estoppel certificates from existing tenants demising not less
than seventy percent (70%) of the rentable space at each Individual Property,
each in form and content satisfactory to Lender. In addition, Borrower shall use
all commercially reasonable efforts to deliver estoppel certificates and
subordination, non-disturbance and attornment agreements from all other existing
tenants at each Individual Property, each in form and content satisfactory to
Lender.
4.2.18 ACQUISITION OF PROPERTIES. Concurrently with the
-------------------------
funding of the applicable Revolving Loan, Borrower shall have consummated the
transactions contemplated in the Purchase Contracts, in a manner consistent with
the requirements of the Loan Documents. Such
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<PAGE>
transactions shall be consummated simultaneously with the funding of the
applicable Revolving Loan pursuant to escrow arrangements satisfactory to
Lender.
4.2.19 FUNDING OF ACCOUNTS. Borrower shall have deposited
-------------------
into the Cash Collateral Account the amounts contemplated by this Agreement or
otherwise reasonably required by Lender, if applicable.
4.2.20 NO MATERIAL ADVERSE EFFECT. No Material Adverse Effect
--------------------------
(in the sole opinion of Lender) shall have occurred.
4.2.21 NO CONDEMNATION. No portion of the applicable
---------------
Individual Property shall have been condemned or threatened with condemnation by
any Governmental Authority.
4.2.22 NO CASUALTY. No portion of the applicable Individual
-----------
Property shall have been damaged or destroyed by fire or other casualty and not
fully restored to Lender's satisfaction prior to any funding with respect
thereto.
4.2.23 SECURITY INTERESTS. To the extent not otherwise
------------------
satisfied pursuant to Section 4.2, Lender shall have received evidence
-----------
reasonably satisfactory to it that Borrower and HSP shall have taken or caused
to be taken all such actions, executed and delivered or caused to be executed
and delivered all such agreements, documents and instruments, and made or caused
to be made all such filings and recordings that may be necessary or, in the
opinion of Lender, desirable in order to create in favor of Lender, valid and
(upon such filing and recording) perfected first priority Liens on all
Collateral.
4.2.24 OUT-OF-POCKET EXPENSES. Borrower shall have paid to
----------------------
Lender an amount sufficient to reimburse Lender for Lender's reasonable out-of-
pocket expenses (including reasonable attorneys' and other consultants' fees and
expenses), in an amount up to a maximum of Twenty Thousand Dollars ($20,000), in
connection with Lender's evaluation of each proposed Individual Property and the
satisfaction of conditions required to make the applicable Revolving Loan in
respect of such Individual Property.
4.2.25 RECORDING INSTRUCTIONS. Borrower and Lender shall have
----------------------
delivered to the Title Company recording instructions, and the conditions
thereunder to delivering the Title Policy and recording the applicable Mortgage
or amendment to the applicable Mortgage, as the case may be, and the applicable
Assignment of Leases or amendment thereto, and releasing funds in accordance
with such instructions, shall have been satisfied, if required by Lender in its
sole discretion.
4.2.26 PROPERTY MANAGEMENT. Lender shall have approved the
-------------------
Manager and Management Agreement with respect to the applicable Individual
Property, if such Individual Property is not managed by Borrower.
4.2.27 ADDITIONS TO SCHEDULES AND EXHIBITS. Borrower shall
-----------------------------------
have delivered to Lender such additions to the Schedules and Exhibits hereof and
to the schedules and exhibits to
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<PAGE>
the other Loan Documents as relate to the applicable Individual Property, which
additions shall be satisfactory to Lender in its sole discretion.
4.2.28 OTHER DOCUMENTS. Lender shall have received such other
---------------
documents, agreements, certificates or instruments as Lender deems appropriate
or necessary.
SECTION 4.3 CONDITIONS PRECEDENT TO ALL BORROWINGS. The obligations
--------------------------------------
of Lender to make any Revolving Loan (including the Initial Revolving Loan),
whether on or after the Closing Date, shall also be subject to the satisfaction
of the following conditions precedent:
4.3.1 BORROWING BASE. After giving effect to the Revolving
--------------
Loan to be made pursuant to the Completed Loan Request, the outstanding amount
of the Revolving Loan shall not exceed the Borrowing Base then in effect.
4.3.2 PERMITTED PURPOSE. The proceeds of the Revolving Loan
-----------------
shall be used for the purposes set forth in Section 2.2.
-----------
4.3.3 REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
-----------------------------------------
representations and warranties of Borrower and HSP contained in this Agreement
and the other Loan Documents shall be true at and as of the date as of which
they were made and also shall be true at and as of the time of the making of
each Revolving Loan, with the same effect as if made at and as of each such time
and in respect of the state of facts in existence at and as of each such time,
including in respect of any addition Individual Properties that have been
accepted by Lender after the Closing Date (except to the extent of changes
resulting from transactions contemplated or not prohibited by this Agreement or
the other Loan Documents); and no Default or Event of Default under this
Agreement shall have occurred and be continuing on the date of any Completed
Loan Request or on the Drawdown Date of any Revolving Loan.
4.3.4 COMPLIANCE CERTIFICATE. Borrower shall have delivered
----------------------
to Lender a Compliance Certificate signed by the Chief Financial Officer, Chief
Executive Officer or Chief Operating Officer of Borrower setting forth
computations evidencing that (y) after taking into account such requested
Revolving Loan, amounts are available within the Borrowing Base to make such
Revolving Loan and (z) the aggregate outstanding principal amount of the
Revolving Loans does not exceed the Borrowing Base on a pro forma basis after
---------
giving effect to the requested Revolving Loan, together with a copy of the pro
---
forma analysis used in determining such compliance, and certifying that, both
- -----
before and after giving effect to such requested Revolving Loan, no Default or
Event of Default exists or will exist, and no Default or Event of Default will
exist as of the Drawdown Date or immediately thereafter.
4.3.5 DATE DOWN ENDORSEMENT. In the case of any loan request
---------------------
under Section 2.1.3 with respect to any Title Insurance Policy which requires
-------------
rechecking of title as a condition to insuring the priority of the applicable
Mortgage with respect to future advances, Lender shall have received verbal
confirmation from the Title Company (to be followed by a date down endorsement
to the applicable Title Insurance Policy) that there have been no changes to the
title to or encumbrances upon the Properties, other than as may have been
permitted pursuant to this Agreement.
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<PAGE>
4.3.6 NO LEGAL IMPEDIMENT. No change shall have occurred in
-------------------
any law or regulations thereunder or interpretations thereof that in the
reasonable opinion of Lender would make it illegal or unprofitable for Lender to
make such Revolving Loan.
4.3.7 NO MATERIAL ADVERSE EFFECT. No Material Adverse Effect
--------------------------
shall have occurred.
4.3.8 ADDITIONS TO SCHEDULES AND EXHIBITS. Borrower shall
-----------------------------------
have delivered to Lender such additions to the Schedules and Exhibits hereof and
to the schedules and exhibits to the other Loan Documents as may be applicable,
which additions shall be satisfactory to Lender in its sole discretion.
4.3.9 GROUND LEASE REQUIREMENTS. Borrower shall have
-------------------------
delivered each of the following to Lender, in respect of each Individual
Property ground leased by Borrower:
4.3.9.1 GROUND LEASE. Borrower shall have delivered
------------
to Lender an executed or conformed, certified copy of each ground lease and
all amendments thereto, together with all documents related thereto which
ground lease (as amended) and related documents shall be satisfactory to
Lender in its sole discretion. Each such ground lease (as amended) shall be
in full force and effect and no term or condition thereof shall have been
further modified or amended or waived. No Person shall have failed in any
material respect to perform any material term or condition of such ground
lease (as amended) or related agreements.
4.3.9.2 ESTOPPEL AND CONSENT AGREEMENT. Borrower
------------------------------
shall have delivered to Lender an original estoppel certificate and consent
agreement in form and substance satisfactory to Lender, duly executed and
delivered by the ground lessor.
4.3.9.3 LOAN DOCUMENT AMENDMENTS. Borrower shall agree to
------------------------
all amendments to the Loan Documents required by Lender in its sole and
absolute good faith discretion to ensure the validity and perfection of the
Lien in favor of Lender on each Individual Property ground leased by
Borrower, and Borrower shall execute and deliver all such amendments to
Lender.
4.3.10 INTEREST RATE CAP AGREEMENT. Borrower shall have delivered an
---------------------------
original or faxed copy of the cap confirmation providing for monthly payments
equal to the product of (x) the excess of one-month LIBOR over 8.0% per annum
and (y) a notional amount not less than the aggregate amount of all outstanding
Revolving Loans (after giving effect to the proposed advance of the applicable
Revolving Loan), an Assignment of Interest Rate Cap Agreement dated as of the
applicable Drawdown Date and duly executed by Borrower in respect of the
foregoing Interest Rate Cap Agreement (to the extent not previously delivered to
Lender) and cap confirmation, a consent duly executed by the counterparty to the
applicable Interest Rate Cap Agreement (to the extent not previously delivered
by Lender) and cap confirmation, substantially in the form attached to the
Assignment of Interest Rate Cap Agreement as Exhibit B thereto, and evidence
reasonably satisfactory to Lender that (x) it has, as security for the
Indebtedness (subject to the Permitted Encumbrances), a first priority,
perfected security interest
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<PAGE>
in the applicable Interest Rate Cap Agreement and cap confirmation and (y)
Borrower has irrevocably directed the counterparty to the applicable Interest
Rate Cap Agreement and cap confirmation to make payments under the applicable
Interest Rate Cap Agreement and cap confirmation directly to the Sweep Account;
provided, however, that if Borrower shall fail to deliver the cap confirmation
described in clause (i) above and/or the consent described in clause (iii) above
on or prior to the date on which Lender is otherwise obligated to make a
Revolving Loan hereunder, such condition shall be waived as a condition to the
making of such Revolving Loan on the sole condition that, and in such event
Borrower hereby agrees that, Borrower shall deliver such cap confirmation and
consent to Lender no later than one (1) Business Day after the date on which
Lender makes such Revolving Loan.
4.3.11 REQUIRED INTEREST DEPOSIT. Borrower shall have deposited in
-------------------------
the Cash Collateral Account, for allocation to the Debt Service Sub-Account, the
amount (if any) required pursuant to Section 3.1.8.2.
---------------
SECTION 4.4 EXPIRATION. No Revolving Loans shall be made after the
----------
earlier to occur of (i) March 31, 1999 or (ii) the date Borrower delivers the
Conversion Notice to Lender.
V. REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 5.1 BORROWER REPRESENTATIONS. Borrower represents and
----------- ------------------------
warrants (which representations and warranties shall survive Borrower's delivery
of the Promissory Note, the making of the Revolving Loans and the conversion of
Revolving Loans to the Converted Fixed Rate Loan, until the payment in full of
all incurred Indebtedness, the performance of all other obligations of Borrower
and HSP under the Loan Documents and the termination of (x) all commitments of
Lender to make Revolving Loans to Borrower and (y) any obligation of Lender to
convert Revolving Loans to the Converted Fixed Rate Loan), on and as of the
Closing Date, on and as of each Drawdown Date, on and as of each date that a
property becomes an Individual Property and on and as of the Conversion Date,
that:
5.1.1 ORGANIZATION. Borrower is a corporation duly organized
------------
and validly existing and in good standing as a corporation under the laws of the
State of Maryland, with requisite corporate power and authority to own its
properties and to transact the businesses contemplated in this Agreement and the
other Loan Documents. Borrower is duly qualified to do business and is in good
standing in each jurisdiction where it is required to be so qualified in
connection with its properties, businesses and operations, and the execution and
delivery of this Agreement and each other Loan Document to which it is a party,
and to consummate the transactions contemplated hereby and thereby. Borrower
possesses all material rights, licenses, permits and authorizations,
governmental or otherwise, necessary to entitle it to own its properties and to
transact the businesses in which it is now engaged. Borrower's Organizational
Documents are set forth on Schedule XI, have been duly executed, delivered and,
-----------
to the extent required by applicable law filed, and are in full force and effect
in accordance with their terms and have not been modified or amended. The sole
shareholder of Borrower is HSP. All of the shareholders of the stock of HSP are
identified on Schedule VI hereto. Borrower has no Subsidiaries and
-----------
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<PAGE>
Borrower is not a general partner or a limited partner in any partnership or
member in any limited liability company.
5.1.2 CAPITALIZATION.
--------------
5.1.2.1 CAPITALIZATION OF BORROWER. The authorized stock
--------------------------
of Borrower consists of an aggregate of 1,000 shares consisting of 1,000
shares of common stock, par value $0.01 per share, of which 1,000 shares
are duly and validly issued and outstanding, each of which shares is fully
paid and nonassessable. All of such shares of common stock are owned
beneficially and of record by HSP. There are no (x) outstanding Equity
Rights with respect to Borrower, (y) outstanding obligations of Borrower,
HSP or Holdings or of any Subsidiary of Borrower, to repurchase, redeem, or
otherwise acquire any shares of stock of Borrower or (z) outstanding
obligations of Borrower, HSP or Holdings or of any Subsidiary of Borrower
to make payments to any Person, such as "phantom stock" payments, where the
amount of the payment is calculated with reference to the fair market value
or equity value of Borrower.
5.1.2.2 ORGANIZATION AND CAPITALIZATION OF HSP. The
--------------------------------------
authorized stock of HSP consists of an aggregate of 200,000 shares
consisting of 65,000 shares of common stock, par value $0.01 per share, of
which 1,000 shares are duly and validly issued and outstanding, each of
which shares is fully paid and nonassessable, 70,000 shares of Excess
Stock, par value $0.01 per share, and 65,000 shares of preferred stock, par
value $0.01 per share, of which 125 shares have been classified as Series T
Preferred Stock, of which 12 shares are issued and outstanding, 250 shares
have been classified as Series U Preferred Stock, of which 220 shares are
issued and outstanding and 50,000 shares have been classified as Series V
Preferred Stock, of which 16,000 shares will be issued and outstanding as
of the closing of the AEW Equity Placement. Such shares of common stock are
owned beneficially and of record by Holdings, and the Series U and Series T
Preferred Stock are owned of record by the Persons noted on Schedule VI as
-----------
the owners of such shares, and the Series V Preferred Stock is owned of
record by AEW. Other than the Series U Preferred Stock, the Series T
Preferred Stock, the Series V Preferred Stock, the 1995 Employee Substitute
Stock Option Plan, the 1995 Non-Employee Director Substitute Stock Option
Plan, the 1996 Employee Stock Option Plan, the 1996 Non-Employee Director
Stock Option Plan, the Amended and Restated 1996 Stock Option Plan, the
Series V Stock Purchase Agreement, the Stockholders Agreement and the HSP
Articles, true and complete copies of which have heretofore been provided
to Lender, there are no (x) outstanding Equity Rights with respect to HSP,
(y) outstanding obligations of HSP or Holdings or of any Subsidiary of HSP,
to repurchase, redeem, or otherwise acquire any shares of stock of HSP or
(z) outstanding obligations of HSP or Holdings or of any Subsidiary of HSP
to make payments to any Person, such as "phantom stock" payments, where the
amount of the payment is calculated with reference to the fair market value
or equity value of HSP. HSP's Organizational Documents are as set forth on
Schedule XII, have been duly executed, delivered and, to the extent
------------
required by applicable law filed, and are in full force and effect in
accordance with their terms and have not been modified or amended.
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<PAGE>
5.1.3 PROCEEDINGS. Borrower has taken all necessary
-----------
corporate action to authorize the execution, delivery and performance of this
Agreement and the other Loan Documents to which it is a party. This Agreement
and such other Loan Documents to which Borrower is a party have been duly
executed and delivered by or on behalf of Borrower, and constitute legal, valid
and binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms, subject to applicable bankruptcy, insolvency and
similar laws affecting rights of creditors generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.1.4 NO CONFLICTS. The execution, delivery and
------------
performance by Borrower of the Loan Documents to which it is a party will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any Lien,
charge or encumbrance (other than pursuant to the Loan Documents) upon any
property or assets of Borrower pursuant to the terms of any indenture, mortgage,
deed of trust, loan agreement, partnership agreement or other material agreement
or instrument to which it is a party or by which it is bound or to which its
property or assets are subject, nor will such action result in any material
violation of the provisions of any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over Borrower, or
over any of its properties or assets, and any consent, approval, authorization,
order, registration or qualification of or with any court or any such regulatory
authority or other governmental agency or body required for the execution,
delivery and performance by Borrower, of the Loan Documents to which it is a
party has been obtained and is in full force and effect.
5.1.5 LITIGATION. Except as set forth on Exhibit J, there
---------- ---------
are no actions, suits or proceedings at law or in equity by or before any
Governmental Authority or other agency now pending or, to Borrower's knowledge,
threatened against or affecting Borrower, HSP, any Individual Property or any
other Assets of Borrower or any tangible or intangible assets of HSP which have
or could reasonably be expected to have a Material Adverse Effect.
5.1.6 AGREEMENTS. Borrower is not in default in any material
----------
respect in the performance, observance or fulfillment of any of the material
obligations, covenants or conditions contained in any material agreement or
instrument to which it is a party or by which Borrower or any Individual
Property is bound. All of the Property Agreements currently in effect are set
forth on Schedule I hereto.
----------
5.1.7 TITLE. Borrower has good and marketable title in fee
-----
simple or under an insured ground leased to the real property comprising part of
each Individual Property owned or ground leased, as applicable by Borrower on
the date the representation is made and good title to the balance of each such
Individual Property and to all of its other Assets, in each case, after giving
effect to the transactions contemplated by the Loan Documents, free and clear of
all Liens whatsoever except the Permitted Encumbrances. The Mortgage, when
properly recorded in the appropriate records, together with any Uniform
Commercial Code financing statements required to be filed in connection
therewith, will create (i) a valid, perfected, first priority Lien on each
Property subject only to Permitted Encumbrances, and (ii) perfected, first
priority security interests in and to, and perfected, first priority collateral
assignments of, all personalty (including the Leases) which can be perfected by
the filing of financing statements, all in accordance with
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the terms thereof, in each case subject only to any applicable Permitted
Encumbrances. Except for (y) any Permitted Encumbrance and (z) any Liens or
claims for work, labor or materials in respect of the 1413 Research Boulevard
Property that do not appear as exceptions to the Title Insurance Policy for the
1413 Research Boulevard Property and that result solely from the renovation that
is in progress on the Closing Date at the 1413 Research Boulevard Property,
after giving effect to the transactions contemplated by the Loan Documents,
there are no Liens or claims for work, labor or materials affecting the
Properties which are or may be prior to, or of equal priority with, the Liens
created by the Loan Documents.
5.1.8 NO BANKRUPTCY FILING. Borrower has not filed and is
--------------------
not contemplating either the filing of a petition by it under any state or
federal bankruptcy or insolvency laws or the liquidation of all or a major
portion of its assets or property, and Borrower has no knowledge of any Person
contemplating the filing of any such petition against Borrower.
5.1.9 FULL AND ACCURATE DISCLOSURE. Taken as a
----------------------------
whole, this Agreement and the other Loan Documents do not contain any untrue
statement of a material fact or omit to state any material fact (other than a
fact previously disclosed to Lender in writing, including any fact disclosed on
Schedule III attached hereto) necessary to make the statements contained herein
- ------------
or therein, taken as a whole, not materially misleading. There is no material
fact presently known to Borrower or any Affiliate of Borrower which has not been
disclosed to Lender which has had or could reasonably be expected to have a
Material Adverse Effect.
5.1.10 TAX FILINGS; IMPOSITIONS. Borrower has filed all
------------------------
material federal, state and local tax returns required to be filed and has paid
or made adequate provision for the payment of all material federal, state and
local taxes, charges, assessments, fees and other governmental charges upon
Borrower or any of its properties, incomes or franchises or otherwise payable by
it. Borrower has paid all ground rents due in connection with all Properties
ground leased by Borrower. The tax returns of Borrower, if any, properly reflect
its income and taxes for the periods covered thereby. All material past-due
Impositions in respect of the Properties have been paid, together with all
interest and penalties due in connection therewith, except for any such
Impositions, interest and penalties that are being contested in good faith in
accordance with the provisions of the Loan Documents (including the provisions
of Section 6.1.20).
--------------
5.1.11 COMPLIANCE. Except as set forth on Exhibit N, Borrower
---------- ---------
and each Individual Property and the use thereof comply in all material respects
with all applicable Legal Requirements, including building and zoning ordinances
and codes, except where such non-compliance could not reasonably be expected to
have a Material Adverse Effect. Borrower is not in default or violation of any
order, writ, injunction, decree or demand of any Governmental Authority, the
violation of which could reasonably be expected to have a Material Adverse
Effect.
5.1.12 USE OF PROCEEDS. Borrower's use of the proceeds of the
---------------
Applicable Loan is solely for the purposes described in Section 2.2.
-----------
5.1.13 FINANCIAL INFORMATION. All financial data, including
---------------------
the balance sheets, statements of cash flow and income and operating
expense, that have been delivered to Lender (collectively, the "Financial
Statements") in respect of each Individual Property, Borrower
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and HSP (i) fairly present the financial condition of such Individual Property,
Borrower or HSP, as applicable, as of the date of such reports in all material
respects, and (ii) have been prepared in accordance with GAAP consistently
applied throughout the periods covered, except as disclosed therein. Except for
the Loan Documents, Borrower has no material contingent liability, liability for
taxes or other unusual forward commitment, other than those set forth in the
Financial Statements. Since December 31, 1995, there has been no material
adverse change in the business, operations or condition, financial or otherwise,
or prospects of the Properties, Borrower or HSP, other than those set forth in
the Financial Statements. Borrower has not incurred any obligation or liability,
contingent or otherwise, which could reasonably be expected to have a Material
Adverse Effect.
5.1.14 CONDEMNATION. Except as described on Schedule VII,
------------ ------------
no Condemnation has been commenced or, to Borrower's knowledge, is contemplated
with respect to all or any portion of any Individual Property or for the
relocation of roadways providing access to any Individual Property. Lender
acknowledges that a portion of the 1413 Research Boulevard Property is subject
to pending condemnation proceedings as identified on Schedule VII and that such
------------
portion of the 1413 Research Boulevard Property shall not, after completion of
the condemnation proceedings, be encumbered by the Lien of the Mortgage.
5.1.14 DEBT. Borrower has not incurred and is not the obligor
----
with respect to any Debt other than the obligations of Borrower under the Loan
Documents or as permitted pursuant to the terms of the Loan Documents.
5.1.16 FEDERAL RESERVE REGULATIONS. No part of the proceeds
---------------------------
of the Revolving Loans will be used for the purpose of purchasing or acquiring
any "MARGIN STOCK" within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System or for any other purpose which would be
inconsistent with such Regulation U or any other Regulations of such Board of
Governors, or for any purposes prohibited by Legal Requirements or by the terms
and conditions of this Agreement or the other Loan Documents.
5.1.17 UTILITIES AND PUBLIC ACCESS. Each Individual Property
---------------------------
has rights of access to public ways or private re corded easements or rights of
way providing access to public ways and is served by water, sewer, sanitary
sewer and storm drain facilities adequate to service such Individual Property
for its intended use. To Borrower's knowledge, all public utilities necessary to
the full use and enjoyment of such Individual Property are located in the public
right-of-way or private recorded easements or rights of way abutting such
Individual Property, and all such utilities are connected so as to serve such
Individual Property without passing over other property (except with respect to
easements therefor benefitting the relevant Individual Property). All roads
necessary for the use of such Individual Property for its current purpose have
been completed and dedicated to public use or established pursuant to recorded
easements or rights of way and, to the extent applicable, accepted by all
Governmental Authorities.
5.1.18 NOT FOREIGN PERSON. borrower is not a "foreign person"
------------------
within the meaning of (s) 1445(f)(3) of the code.
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5.1.19 SEPARATE LOTS. Each Individual Property is comprised of one
-------------
(1) or more parcels which constitutes a separate tax lot and does not constitute
a portion of any other tax lot not part of such Individual Property.
5.1.20 ASSESSMENTS. Except for any assessments described in the
-----------
Permitted Encumbrances, Borrower has no knowledge of any pending or proposed
special or other assessments of a material nature for public improvements or
otherwise affecting any Individual Property, nor are there any contemplated
public improvements to any Individual Property that to Borrower's best knowledge
after diligent inquiry may result in such special or other assessments.
5.1.21 ENFORCEABILITY. The Loan Documents are enforceable in
--------------
accordance with their respective terms (subject to applicable bankruptcy,
insolvency and similar laws affecting the rights of creditors generally, and
subject, as to enforceability, to general principles of equity (regardless of
whether enforcement in sought in a proceeding in equity or at law)), and are not
subject to any presently existing right of rescission, set-off, counterclaim or
defense by Borrower, including the defense of usury, and Borrower has not
asserted any right of rescission, set-off, counterclaim or defense with respect
thereto.
5.1.22 NO PRIOR ASSIGNMENT. In respect of each Individual
-------------------
(i) Lender is the assignee of Borrower's interest under the Leases, and (ii)
there are no prior assignments by Borrower of the Leases or any portion of the
Property Income due and payable or to become due and payable which are presently
outstanding.
5.1.23 INSURANCE. Borrower has obtained and has delivered to
---------
Lender the Policies (or original certificates of insurance with respect to and
certified copies of such Policies) reflecting the insurance coverages, amounts
and other requirements set forth in Section 3.2 in respect of each Individual
-----------
Property.
5.1.24 FLOOD ZONE. Except as otherwise shown on Exhibit L, no
---------- ---------
portion of any Individual Property is located in a zone identified by the
Director of the Federal Emergency Management Agency as a special flood hazard
zone described in 12 C.F.R. (S) 22.2.
5.1.25 PHYSICAL CONDITION. Except as set forth in the Engineering
------------------
Reports delivered by Borrower to Lender, each Individual Property is free of
structural defects and all building systems contained therein are in good
working order in all material respects, subject to ordinary wear and tear and
such defects which could not reasonably be expected to have a Material Adverse
Effect.
5.1.26 FILING AND RECORDING TAXES. All transfer taxes, deed stamps,
--------------------------
intangible taxes or other amounts in the nature of transfer taxes (other than
the Permitted Encumbrances) required to be paid by any Person under applicable
Legal Requirements currently in effect in connection with the transfer of the
Properties to Borrower have been (or, upon recordation of the deed transferring
title to the applicable Individual Property to Borrower, will be) paid. All
mortgage, mortgage recording, stamp, intangible or other similar tax required to
be paid by any Person under applicable Legal Requirements currently in effect in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan
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Documents, including the Mortgage and the 1413 Restated Mortgage, have been (or,
upon the applicable Drawdown Date and contemporaneously with the funding of the
applicable Revolving Loan, will be) paid, and, under current Legal Requirements,
the Mortgage is enforceable in accordance with its terms by Lender, subject to
applicable bankruptcy, insolvency and similar laws affecting the rights of
creditors generally, and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement in sought in a proceeding in equity or
at law).
5.1.27 SUBORDINATION. After giving effect to the transactions
-------------
contemplated herein, including the recordation of the Mortgage against the
Properties, substantially all space Leases existing at the Properties are by
their terms subordinate to the Liens created by the Mortgage on the Properties
or by their terms can be made so subordinate provided Lender delivers an
agreement of non-disturbance to the tenant thereunder.
5.1.28 PERMITTED ENCUMBRANCES. The Permitted Encumbrances do not
----------------------
materially and adversely affect Borrower's ability to meet its obligations under
the Loan Documents.
5.1.29 RENT ROLL. Attached as Exhibit M is a true, correct and
--------- ---------
complete Rent Roll as of date indicated on such Rent Roll for each Individual
Property, specifying with respect to each Lease: (i) name of tenant, (ii)
rentable square feet, (iii) lease term commencement date, (iv) lease term
termination date, (v) initial monthly base rent, (vi) initial annual rent per
square foot, (vii) effective dates of rent adjustments, (viii) adjusted monthly
base rent, (ix) adjusted rent per square foot, (x) material terms of any free
rent, (xi) material terms of CPI adjustments or expense stop increases, (xii)
contingent or absolute liabilities for unpaid brokerage commissions or finder's
fees in connection with Leases, and (xiii) security deposits. Since the
respective date indicated on such Rent Roll, there have been no changes with
respect to the Leases in effect with respect to the Properties which,
individually or in the aggregate, could have or could reasonably be expected to
have a Material Adverse Effect.
5.1.30 ENVIRONMENTAL PROTECTION. Except as disclosed in the
------------------------
Environmental Reports, neither Borrower nor any of the Properties are subject to
any outstanding written order, consent decree or settlement agreement with any
Person relating to (a) any Environmental Law, (b) any Environmental Claim, or
(c) except for the activities of tenants in the ordinary course of business that
could not be reasonably expected to have a Material Adverse Effect, any
Hazardous Materials Activity. Except as disclosed in the Environmental Reports,
there are and, to Borrower's knowledge, have been no conditions, occurrences, or
Hazardous Materials Activities which could reasonably be expected to form the
basis of an Environmental Claim against Borrower. Notwithstanding anything in
this Section 5.1.30 to the contrary, except as disclosed in the Environmental
--------------
Reports, no event or condition has occurred or is occurring with respect to
Borrower relating to any Environmental Law, any Release of Hazardous Materials,
or any Hazardous Materials Activity which individually or in the aggregate has
had or could reasonably be expected to have a Material Adverse Effect.
(Capitalized terms used in this Section 5.1.30 and not otherwise defined shall
--------------
have the meanings ascribed to such terms in the Environmental Indemnity.)
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5.1.31 MATTERS RELATING TO COLLATERAL.
------------------------------
5.1.31.1 CREATION, PERFECTION AND PRIORITY OF LIENS. The
------------------------------------------
execution and delivery of the Mortgage and the Assignment of Leases by
Borrower, the recording of the Mortgage and the Assignment of Leases, the
filing of UCC financing statements pursuant to Sections 4.1.3.1 and 4.1.3.7
-------- ------- -------
and the execution and delivery of the Restricted Account Letter by all
parties thereto (including the Sweep Bank and the Cash Collateral Bank)
pursuant to Section 4.1.3.8 are effective to create in favor of Lender, as
---------------
security for the Indebtedness, a valid and perfected first priority Lien on
the Collateral, other than the Pledged Shares and subject to the Permitted
Encumbrances, and all filings and other actions necessary or desirable to
perfect and maintain the perfection and first priority status of such Liens
have been duly made or taken and remain in full force and effect, other
than the filing of any UCC financing statements delivered to Lender for
filing (but not yet filed) and the periodic filing of UCC continuation
statements in respect of UCC financing statements filed by or on behalf of
Lender.
5.1.31.2 GOVERNMENTAL AUTHORIZATIONS. No authorization,
---------------------------
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for either (i) the
pledge or grant by Borrower of the Liens purported to be created in favor
of Lender pursuant to the Mortgage or (ii) the exercise by Lender of any
rights or remedies in respect of the Collateral (whether specifically
granted or created pursuant to any of the Loan Documents or created or
provided for by applicable law), except for filings or recordings
contemplated by Section 5.1.31.1.
----------------
5.1.31.3 ABSENCE OF THIRD-PARTY FILINGS. Except such as
------------------------------
may have been filed in favor of Lender as contemplated by Section 5.1.31.1,
----------------
those filed in favor of Lender in connection with the Original Loan
Agreement and the First Restated Loan Agreement and those filed with
respect to the Permitted Encumbrances, no effective UCC financing statement
or other instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office.
5.1.32 INVESTMENT COMPANY ACT. Borrower is not, and will not at any
----------------------
not at any time (including after application by Borrower of the proceeds of any
Revolving Loan), be an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
5.1.33 PUBLIC UTILITY HOLDING COMPANY ACT. Borrower is not subject to
----------------------------------
any state law or regulation regulating public utilities or similar entities, and
is not, within the meaning of the Public Utility Holding Company Act of 1935, as
amended, (a) a holding company; (b) a subsidiary or affiliate of a holding
company; or (c) a public utility.
5.1.34 ERISA.
-----
5.1.34.1 COMPLIANCE. Borrower and each Related Person to
----------
Borrower are in compliance in all material respects with all applicable
provisions and requirements of ERISA with respect to each Employee Benefit Plan,
and have performed all their obligations
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under each Employee Benefit Plan. Each Employee Benefit Plan which is intended
to qualify under Section 401(a) of the Code is so qualified.
5.1.34.2 NO REPORTABLE EVENT. No Reportable Event which
-------------------
presents a material risk of termination of any Pension Plan maintained by
Borrower or a Related Person to Borrower on the date this representation is made
has occurred or is reasonably expected to occur.
5.1.34.3 NO FUNDING DEFICIENCY. No Pension Plan maintained
---------------------
by Borrower or a Related Person to Borrower on the date this representation is
made had an Accumulated Funding Deficiency, whether or not waived, as of the
last day of the most recent fiscal year of such Pension Plan.
5.1.34.4 NO PROHIBITED TRANSACTION. Neither Borrower nor
-------------------------
any Related Person to Borrower has engaged in a non-exempt Prohibited
Transaction with respect to any Employee Benefit Plan which has had or could
reasonably be expected to have a Material Adverse Effect.
5.1.34.5 WITHDRAWAL LIABILITY. As of the most recent
--------------------
valuation date for each Multiemployer Plan for which the actuarial report is
available, the potential liability of Borrower or any Related Person for a
complete withdrawal from such Multiemployer Plan (within the meaning of Section
4203 of ERISA), when aggregated with such potential liability for a complete
withdrawal from all Multiemployer Plans, could not reasonably be expected to
have a Material Adverse Effect.
5.1.34.6 FORMER PLANS. Neither Borrower nor any Related
------------
Person to Borrower has any potential liability with respect to any Employee
Benefit Plan that is no longer maintained or contributed to by Borrower on the
date this representation is made that could reasonably be expected to have a
Material Adverse Effect.
5.1.35 GROUND LEASES. Each ground lease in respect of the Properties
-------------
ground leased by Borrower is in full force and effect. Borrower has delivered to
Lender an executed or conformed, certified copy of each such ground lease and
all amendments thereto together with all documents relating to such ground
lease, and no term or condition thereof has been further amended or modified or
waived. No Person has failed in any material respect to perform any material
term or condition of such ground leases (as amended) or related agreements.
SECTION 5.2 SURVIVAL OF REPRESENTATIONS.
----------- ---------------------------
Borrower agrees that all of the representations and warranties of
Borrower set forth in Section 5.1 and elsewhere in this Agreement and in the
-----------
other Loan Documents shall survive until and expire upon payment in full of all
incurred Indebtedness, the performance of all other obligations of Borrower and
HSP under the Loan Documents and the termination of (x) all commitments of
Lender to make Revolving Loans to Borrower and (y) any obligation of Lender to
convert Revolving Loans to the Converted Fixed Rate Loan, subject to the
applicable statute of limitations. All representations, warranties, covenants
and agreements made in this Agreement
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<PAGE>
or in the other Loan Documents by Borrower shall be deemed to have been relied
upon by Lender notwithstanding any investigation heretofore or hereafter made by
Lender or on its behalf.
VI. AFFIRMATIVE COVENANTS
---------------------
SECTION 6.1 BORROWER COVENANTS.
----------- ------------------
From the date hereof and until payment in full of all incurred
Indebtedness, the performance of all other obligations of Borrower and HSP under
the Loan Documents and the termination of (x) all commitments of Lender to make
Revolving Loans to Borrower and (y) any obligation of Lender to convert
Revolving Loans to the Converted Fixed Rate Loan, Borrower hereby covenants and
agrees with Lender that:
6.1.1 EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS;
-----------------------------------------------
INSURANCE. Borrower shall do or cause to be done all things necessary to
- ---------
preserve, renew and keep in full force and effect its corporate existence and
all of its material rights, licenses, permits and franchises and comply in all
material respects with all Legal Requirements applicable cable to it and the
Properties (except those being contested in good faith in accordance with the
provisions of the Loan Documents). Borrower shall at all times maintain,
preserve and protect all material franchises and trade names and preserve all
the remainder of its property necessary, used or useful in the conduct of its
business and each Individual Property in good working order and repair, ordinary
wear and tear excepted and subject to Section 3.2, and from time to time make,
-----------
or cause to be made, all reasonably necessary repairs, renewals, replacements,
betterments and improvements thereto so that Borrower may operate its business
in the normal course, all as more fully provided herein and in the Mortgage.
Borrower shall keep the Properties insured at all times, by financially sound
and reputable insurers, to such extent and against such risks, and maintain
liability and such other insurance, as is more fully provided in Section 3.2 and
-----------
in the other Loan Documents.
6.1.2 IMPOSITIONS AND OTHER CLAIMS. Borrower shall pay and
----------------------------
discharge or cause to be paid and discharged all Impositions on the Properties,
as well as all lawful claims for labor, materials and supplies or otherwise,
which could become a Lien (other than a Permitted Encumbrance) on any Individual
Property, but subject to Borrower's rights to contest the same in accordance
with the applicable provisions of the Loan Documents.
6.1.3 LITIGATION. Borrower shall give prompt written notice
----------
to Lender of any litigation or governmental proceedings pending or, to
Borrower's knowledge, threatened against Borrower or HSP which could reasonably
be expected to have a Material Adverse Effect.
6.1.4 ACCESS TO PREMISES. Borrower shall permit agents,
------------------
representatives and employees of Lender to inspect the Properties at reasonable
hours upon reasonable advance notice, subject to the rights of tenants,
subtenants and licensees under the Leases.
6.1.5 COOPERATE IN LEGAL PROCEEDINGS. Borrower shall and
------------------------------
shall cause HSP to cooperate fully with Lender with respect to any proceedings
before any court, board or
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other Governmental Authority which may in any way materially and adversely
affect the rights of Lender hereunder or any rights obtained by Lender under any
of the other Loan Documents and, in connection therewith, permit Lender, at its
election, to participate in any such proceedings; provided that Borrower shall
--------
not be required to pay any material out-of-pocket costs in connection with the
performance of its obligations under this Section 6.1.5.
-------------
6.1.6 CAPITAL EVENT PROCEEDS; CONDEMNATION AND INSURANCE
--------------------------------------------------
BENEFITS. Except to the extent otherwise required by this Agreement with
- --------
respect to Casualty Insurance Proceeds or Condemnation Proceeds, Borrower shall
cause all Capital Event Proceeds to be paid to Lender. Borrower shall cooperate
with Lender in obtaining for Lender the benefits of any Condemnation Proceeds,
Casualty Insurance Proceeds or other insurance proceeds lawfully or equitably
payable in connection with any Individual Property, and Lender shall be
reimbursed for any reasonable expenses incurred in connection therewith
(including reasonable attorneys' fees and disbursements) out of such
Condemnation Proceeds, Casualty Insurance Proceeds or other insurance proceeds.
6.1.7 FURTHER ASSURANCES; SUPPLEMENTAL MORTGAGE AFFIDAVITS.
----------------------------------------------------
(i) Notwithstanding anything to the contrary herein
(including Section 6.1.5), Borrower shall, at Borrower's sole cost and
-------------
expense:
(A) execute and deliver to Lender such documents,
instruments, certificates, assignments and other writings, and do such
other acts necessary or desirable, to evidence, preserve and/or
protect the collateral at any time securing or intended to secure the
obligations of Borrower under the Loan Documents, as Lender may
reasonably require; and
(B) do and execute all and such further lawful and
reasonable acts, conveyances and assurances for the better and more
effective carrying out of the intents and purposes of this Agreement
and the other Loan Documents, as Lender shall reasonably require from
time to time; provided that Borrower shall not be required to pay any
--------
material out-of-pocket costs in connection with the performance of its
obligations under this Section 6.1.7(i)(B).
-------------------
(ii) If at any time Lender determines, based on applicable
law, that all applicable taxes (including mortgage recording taxes or
similar charges) were not paid in connection with the recordation of the
Mortgage (including recordation of the 1413 Restated Mortgage) or the
perfection of the Liens granted pursuant to the Loan Documents, Borrower
shall pay the same upon demand.
6.1.8 MANAGEMENT OF PROPERTY.
----------------------
(i) Borrower shall own, operate, manage, maintain and
restore each Individual Property in accordance with professional management
standards applicable to comparable, similarly situated, institutionally-
owned properties. The Properties (other than the 1413 Research Boulevard
Property) are managed by Borrower and Borrower shall
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not hereafter engage a property manager for any Individual Property without
the prior written consent of Lender. Lender has approved the property
management agreement with respect to the 1413 Research Boulevard Property
in effect on the Closing Date. Borrower covenants and agrees to direct and
use best efforts to cause all Property Managers to abide by all of the
applicable material terms of the Loan Documents.
(ii) Any substitute property manager engaged after the
Closing Date shall be subject to the approval of Lender, which approval
shall not be unreasonably withheld or delayed if such property manager is a
reputable manager of properties of similar character and use in the
relevant local jurisdiction.
(iii) The existing property management agreement with respect
to the 1413 Research Boulevard Property shall not be amended or modified in
any material respect, or terminated, in each case without the prior written
consent of Lender; provided that (a) Lender will not unreasonably withhold
--------
or delay its consent to the termination of such property management
agreement if a substitute property manager satisfying the requirements of
clause (ii) above has been obtained by Borrower; (b) Lender will not
-----------
unreasonably withhold or delay its consent to any amendments or
modifications to such property management agreement, and (c) Borrower may
terminate such property management agreement in accordance with its terms
in connection with a default by the Property Manager or for other good
cause as long as Borrower has engaged a substitute property manager
satisfying the approval requirements of clause (ii) above. Borrower
-----------
covenants and agrees to obtain a replacement property manager meeting the
approval requirements set forth in clause (ii) above prior to exercising
-----------
any right to terminate such property management agreement.
(iv) If the Trailing 12-Month Net Operating Income of any
Individual Property has decreased by more than twenty percent (20%) from
the Net Operating Income of such Individual Property as reflected in the
most recent annual audited financial statements and calculation of Net
Operating Income delivered to Lender pursuant to Section 6.1.9, Lender
-------------
shall have the option to direct Borrower to terminate (and upon such
direction Borrower shall terminate) the property management agreement
relating to such Individual Property, if such Individual Property is
managed by a third party, or to direct Borrower to engage a third party
property manager, if such Individual Property is managed by Borrower;
provided that Lender shall not exercise such option to the extent the
--------
Trailing 12-Month Net Operating Income has decreased by more than twenty
percent (20%) due to unanticipated vacancies at the applicable Individual
Property and Borrower is diligently and continuously pursuing all
reasonably appropriate means to lease up such Individual Property
consistent with sound property management practices. Upon the exercise of
such option in the case of any Individual Property, Borrower shall promptly
engage a Property Manager to manage such Individual Property, subject to
Lender's prior written consent (not to be unreasonably withheld or
delayed), pursuant to a property management agreement in form and substance
reasonably satisfactory to Lender.
If following the engagement of any such Property Manager, the
Trailing 12-Month Net Operating Income of the related Individual Property
does not improve over the
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next sixty (60) days, or, if it does improve after such engagement but
declines thereafter to an amount that is more than twenty percent (20%)
less than the Net Operating Income of such Individual Property as reflected
in the most recent audited financial statements for the previous 12-month
period, Lender shall have the option to direct Borrower to terminate (and
upon such direction Borrower shall terminate) the Property Manager and the
management agreement relating to such Individual Property.
6.1.9 FINANCIAL REPORTING.
-------------------
6.1.9.1 BOOKS AND RECORDS. Borrower will keep and
-----------------
maintain or will cause to be kept and maintained on a calendar year basis,
in accordance with GAAP (or such other accounting basis reasonably
acceptable to Lender), proper and accurate books, records and accounts
reflecting all of the financial affairs of Borrower and all items of income
and expense in connection with the operation of each Individual Property
and in connection with any services, equipment or furnishings provided in
connection with the operation of such Individual Property, whether such
income or expense be realized by Borrower or by any other Person
whatsoever. Lender shall have the right from time to time at all times
during normal business hours upon reasonable notice and without undue
disruption of Borrower's business to examine such books, records and
accounts at the office of Borrower or other Person maintaining such books,
records and accounts and to make such copies or extracts thereof as Lender
shall desire. After the occurrence and during the continuance of an Event
of Default, Borrower shall pay any out-of-pocket costs and expenses
incurred by Lender to examine Borrower's accounting records with respect to
such Individual Property, as Lender shall determine to be necessary or
appropriate in the protection of Lender's interest.
6.1.9.2 ANNUAL FINANCIAL STATEMENTS. Borrower will
---------------------------
furnish to Lender annually, within ninety (90) days after the close of each
calendar year, (i) prior to the Conversion Date, a copy of the annual audit
report, prepared on a consolidated basis, for HSP and its Subsidiaries
(with Borrower's financial information separately stated in such audit
report and in all accompanying financial statements described below),
including a balance sheet, statements of income, retained earnings and cash
flow for such calendar year, such financial statements to be audited by an
Auditor, and certified by such Auditor to have been prepared in accordance
with GAAP consistently applied, and accompanied by the unqualified opinion
of such accountants and (ii) after the Conversion Date, a copy of the
annual audit report for such year for Borrower including a balance sheet,
statements of income, retained earnings and cash flow for such calendar
year, such financial statements to be audited by an Auditor, and certified
by such Auditor to have been prepared in accordance with GAAP consistently
applied, and accompanied by the unqualified opinion of such accountants. In
addition, the Auditor shall prepare and deliver with such annual audit
report (and Borrower shall furnish to Lender with such report) a
calculation of the Net Operating Income of each Individual Property as at
the end of the period covered by the annual audit report, such calculation
to be made based upon the definition of "Net Operating Income" set forth in
this Agreement. Together with such annual audit report and calculation of
Net Operating Income in each year, Borrower shall furnish to Lender an
Officer's Certificate certifying as of the date thereof (A) that such
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financial statements have been prepared in accordance with GAAP
consistently applied and that those financial statements fairly present in
all material respects the financial condition and results of operations of
Borrower and each Individual Property, as at the end of, and for, such
calendar year and (B) whether to Borrower's knowledge there exists an event
or circumstance that constitutes a Default or an Event of Default, and if a
Default or an Event of Default exists, the nature thereof, the period of
time it has existed and the action then being taken to remedy the same.
6.1.9.3 QUARTERLY FINANCIAL STATEMENTS. Borrower will
------------------------------
furnish to Lender quarterly, within forty-five (45) days after the close of
each of the first three quarterly periods in each calendar year, a balance
sheet of Borrower, statements of income, retained earnings and cash flow of
Borrower for such quarterly period, and certified by Borrower's Chief
Executive Officer, Chief Financial Officer or Chief Operating Officer to
have been prepared in accordance with GAAP consistently applied, and that
those financial statements fairly present in all material respects the
financial condition and results of operations of Borrower as at the end of,
and for, such period. In addition, together with such quarterly financial
statements, Borrower shall deliver an Officer's Certificate stating that
all operating expenses with respect to each Individual Property which have
accrued as of the last day of the quarter preceding the delivery of such
financial statements have been fully paid or otherwise provided for in its
accounts. Borrower shall also include with each of the foregoing
statements, monthly breakdowns of such statement for each month in such
quarter. Borrower shall prepare and deliver with the financial statements
described above, a calculation of net income calculated in accordance with
GAAP and Net Operating Income of each Individual Property as at the end of
the period covered by such financial statements, such calculation to be
based upon the definition of "Net Operating Income" set forth in this
Agreement.
6.1.9.4 BORROWING BASE COMPUTATIONS. Prior to the
---------------------------
Conversion Date, Borrower will furnish to Lender, within forty-five (45)
days after the end of each calendar quarter, an Officer's Certificate of
Borrower setting forth computations evidencing that the unpaid principal
amount of the Revolving Loans then outstanding does not and will not exceed
the lesser of (x) the Maximum Commitment Amount and (y) the NOI Borrowing
Amount, together with a copy of the analysis used in determining such
compliance.
6.1.9.5 CONVERSION COMPLIANCE CERTIFICATES. Accompanying
----------------------------------
any Conversion Notice delivered to Lender, Borrower will furnish to Lender
the Conversion Compliance Certificate described in Section 2.1.6.1. On the
---------------
Conversion Date, Borrower will furnish to Lender the Conversion Compliance
Certificate described in Section 2.1.6.4(ii).
-------------------
6.1.9.6 INDIVIDUAL PROPERTY CASH FLOW STATEMENTS.
----------------------------------------
Borrower will furnish to Lender monthly a true, complete and correct cash
flow statement with respect to each Individual Property as at the end of
the second preceding month in the form attached hereto as Exhibit K and
---------
made a part hereof, showing (x) all cash receipts of any kind whatsoever
and all cash payments and disbursements, and (y) year-to-date summaries
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of such cash receipts, payments and disbursements, together with a
certification of Borrower stating that (a) such cash flow statement is
true, complete and correct in all material respects and (b) all operating
expenses with respect to such Individual Property which have accrued and
have been billed to Borrower as of the last day of the second month
preceding the delivery of such cash flow statement have been fully paid or
otherwise provided for by Borrower.
6.1.9.7 RENT ROLL. Borrower will furnish to Lender at the
---------
close of each quarterly period of each calendar year, a true, complete and
correct Rent Roll for each Individual Property, accompanied by an Officer's
Certificate dated as of the date of the delivery of such Rent Roll,
certifying that such Rent Roll is true, correct and complete in all
material respects as of its date.
6.1.9.8 DEFAULT; EVENT OF DEFAULT. Borrower will furnish
-------------------------
to Lender as soon as possible, and in any event within five (5) Business
Days after Borrower has actual knowledge of the occurrence of an Event of
Default or a Default, a certificate of an authorized senior officer of
Borrower setting forth details of such Default or Event of Default and the
action which Borrower proposes to take with respect thereto (which shall
not obligate Borrower to take such action; provided, that Borrower shall
--------
notify Lender promptly of any changes in the action it proposes to take).
6.1.9.9 AUDIT REPORTS. Borrower will furnish to Lender as
-------------
soon as available, any written report pertaining to material items with
respect to matters involving Borrower's internal controls submitted to
Borrower by Borrower's independent public accountants in connection with
each annual or interim special audit of the financial condition of Borrower
made by such accountants.
6.1.9.10 MATERIAL ADVERSE EFFECT. Borrower will furnish to
-----------------------
Lender prompt written notice of any known condition or event which could
reasonably be expected to have a Material Adverse Effect.
6.1.9.11 LITIGATION. Borrower will furnish to Lender
----------
prompt written notice of any actual or known threatened claims, litigation,
suits, proceedings or disputes (whether or not purportedly on behalf of
Borrower) against or affecting Borrower or HSP, which could reasonably be
expected to have a Material Adverse Effect, or any material labor
controversy resulting in or threatening to result in a strike against
Borrower or HSP or any proposal by any public authority which could
reasonably be expected to result in the acquisition of any of the material
assets or business of Borrower or HSP or any of their respective
properties.
6.1.9.12 EMPLOYEE BENEFIT PLANS. Borrower will furnish to
----------------------
furnish to Lender: as soon as possible and in any event within thirty (30)
days after it knows or has reason to know that, regarding any Pension Plan
with respect to Borrower or a Related Person to Borrower, (i) a non-exempt
Prohibited Transaction or (ii) a Reportable Event which presents a material
risk of termination of any Pension Plan maintained by Borrower or a Related
Person to Borrower has occurred (whether or not the requirement for notice
of
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such Reportable Event has been waived by the PBGC), an Officer's
Certificate of a responsible officer of Borrower setting forth the details
of such Prohibited Transaction or Reportable Event; upon request of Lender
made from time to time, a copy of the most recent actuarial report and
annual report completed with respect to any Employee Benefit Plan
maintained by Borrower or a Related Person to Borrower; within ten (10)
Business Days after it knows or has reason to know that any of the
following has occurred with respect to any Pension Plan maintained by
Borrower or a Related Person to Borrower: any such Pension Plan has been
terminated, the Plan Sponsor intends to terminate any such Pension Plan,
the PBGC has instituted or will institute proceedings under Section 4042 of
ERISA to terminate any such Pension Plan, or Borrower or any Related Person
to Borrower (i) has failed to meet the minimum funding standard of Section
412 of the Code with respect to such Pension Plan (whether or not waived in
accordance with Section 412(d) of the Code) or (ii) has failed to make by
its due date a required installment under Section 412(m) of the Code, (5)
Borrower or any Related Person to Borrower withdraws from any such Pension
Plan, (6) the receipt from the Internal Revenue Service of notice of the
failure of any such Pension Plan to qualify under Section 401(a) of the
Code, or the failure of any trust forming part of such Pension Plan to
qualify for exemption from taxation under Section 501(a) of the Code, or
(7) the imposition of a Lien pursuant to Section 401(a) (29) or Section
412(n) of the Code or pursuant to ERISA with respect to any such Pension
Plan, an Officer's Certificate from a responsible officer of Borrower
setting forth the details thereof; (d) within ten (10) Business Days after
it knows or has reason to know that, with respect to any Multiemployer
Plan, Borrower or any Related Person to Borrower has withdrawn in a
complete or partial withdrawal (within the meaning of Sections 4203 and
4205 of ERISA) from such Multiemployer Plan if there is any potential
liability therefor, an Officer's Certificate from a responsible officer of
Borrower setting forth the details thereof; and (e) within ten (10)
Business Days after it knows or has reason to know any of the following has
occurred with respect to any Employee Benefit Plan other than a
Multiemployer Plan: (1) the assertion of a material claim (other than a
routine claim for benefits) against any such Employee Benefit Plan or
against Borrower or any Related Person to Borrower in connection with any
such Plan, or (2) the occurrence of an act or omission which could give
rise to the imposition on Borrower or any Related Person to Borrower of
fines, penalties, taxes or related charges under Chapter 43 of the Code or
under Section 409, 502(c), (i) or (l) or 4071 of ERISA in respect to any
such Plan, an Officer's Certificate from a responsible officer of Borrower
providing written notice thereof and setting forth the details thereof. For
purposes of this Section, Borrower shall be deemed to have knowledge of all
facts known by the Plan Administrator of any Plan or Employee Benefit Plan
of which Borrower or any Related Person to Borrower is the Plan Sponsor.
6.1.9.13 ADDITIONAL INFORMATION. Borrower will furnish to
----------------------
Lender from time to time such other information regarding the financial
condition, operations, business or prospects of Borrower (including with
respect to any Employee Benefit Plan and any reports or other information
required to be filed under ERISA) or the Properties or any Individual
Property as Lender may reasonably request.
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6.1.10 BUSINESS AND OPERATIONS. Borrower will continue to engage in
-----------------------
the businesses presently conducted by it. Borrower will qualify to do business
and will remain in good standing under the laws of each jurisdiction necessary
for the conduct of its business as presently conducted.
6.1.11 TITLE TO PROPERTIES. Borrower will warrant and defend (i) the
-------------------
title to the Properties and the other Assets in which a Lien or security
interest is granted to Lender, subject only to Permitted Encumbrances, and (ii)
the validity and priority of the Liens of the Mortgage and the Assignment of
Leases on the Properties and the other Assets in which a Lien or security
interest is granted to Lender, subject only to Permitted Encumbrances, in each
case against the claims of all Persons whomsoever. Borrower shall reimburse
Lender for any damages, losses, and reasonable out-of-pocket costs and expenses
(including reasonable attorneys' fees and court costs) incurred by Lender if an
interest in any Individual Property, other than as permitted hereunder, is
claimed by another Person.
6.1.12 ESTOPPEL STATEMENT. Borrower, within twenty (20) days after
------------------
request from Lender, shall from time to time furnish to the requesting party a
statement, duly acknowledged and certified to Lender and to any other Person
designated by Lender, setting forth (a) the amount then owing by Borrower in
respect of the Indebtedness, (b) the date through which interest on the
Applicable Loan has been paid, (c) any then known offsets, counterclaims,
credits or defenses to the payment of Borrower's obligations under the Loan
Documents, and (d) whether any written notice of default from Lender to Borrower
is then out standing, and acknowledging that this Agreement and the other Loan
Documents have not been modified or, if modified, giving the particulars of such
modification.
6.1.13 LOAN PROCEEDS. Borrower shall use the proceeds of the
-------------
Revolving Loans only for the purposes set forth in Section 2.2.
-----------
6.1.14 ANNUAL OPERATING BUDGET. Borrower has submitted prior to the
-----------------------
Closing Date, 1996 Annual Operating Budgets for each Individual Property and a
1996 Annual Aggregate Operating Budget for the Properties. Borrower shall
prepare and deliver to Lender, within 60 days prior to the commencement of each
calendar year, an annual operating budget in respect of each Individual Property
for such ensuing calendar year (as to each Individual Property, its "ANNUAL
OPERATING BUDGET" for such calendar year), and a master operating budget for all
of the Properties for such ensuing calendar year, based upon the Annual
Operating Budgets for such ensuing calendar year and upon the proposed dividends
to be made by Borrower in accordance with Section 7.1.8 (each an "AGGREGATE
-------------
ANNUAL OPERATING BUDGET" for such calendar year), which budgets shall be
approved or disapproved by Lender in writing within thirty (30) days of receipt
thereof (such approval not to be unreasonably withheld or delayed). If Lender
does not approve or disapprove such Annual Operating Budgets and Aggregate
Annual Operating Budget (or portion thereof as to which Lender has not
responded) within such 30-day period, Borrower shall deliver a second notice to
Lender requesting such approval or disapproval at the expiration of such 30-day
period and, if Lender does not render its approval or disapproval within fifteen
(15) days of its receipt of such second notice, the Annual Operating Budgets and
Aggregate Annual Operating Budget shall be deemed disapproved upon expiration of
such second 15-day period. If Lender disapproves any Annual Operating Budget or
the Aggregate Annual Operating
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Budget, Lender shall specify the reasons for such disapproval to Borrower, and
Borrower shall promptly resubmit such disapproved budget to Lender for review
and approval in accordance with the foregoing provisions of this Section. Each
Annual Operating Budget shall reflect (i) projected Operating Expenses
(projected on a cash basis in all instances other than with respect to Basic
Carrying Costs) for such Individual Property for such ensuing calendar year,
(ii) projected Structural Costs for such Individual Property for such ensuing
calendar year (together with a three-year prospective projection for such
Structural Costs), (iii) projected tenant improvements and brokerage commissions
for such Individual Property for such ensuing calendar year and (iv) Borrower's
projected dividend payments for such ensuing calendar year. The Aggregate Annual
Operating Budget for each calendar year shall include annual aggregate line
items for Tenant Capital Expenses at all Properties, based upon the projections
for such items contained in the Annual Operating Budget for each Individual
Property, together with projected general administrative expenses of Borrower
for such ensuing calendar year. "General administrative expenses," for purposes
of this Section, shall include all items other than Property Expenses included
in an Annual Operating Budget approved in accordance with this Agreement. The
aggregate amount of the items for all of the Properties contained in the
Aggregate Annual Operating Budget may be increased by 5% by Borrower without
Lender's prior approval on a monthly year-to-date basis; provided, that Borrower
--------
may, prior to obtaining Lender's consent, incur expenses in excess of the
foregoing amount for the purpose of effecting emergency repairs necessary to
preserve the value of any Individual Property or other Assets of Borrower.
Borrower shall be deemed to be in compliance with any Annual Operating Budget as
long as the Aggregate Annual Operating Budget is not increased other than as
provided in this Section. Operating Expense Disbursement Requests and Structural
Cost Disbursement Requests delivered by Borrower to Lender pursuant to Section
-------
3.1 shall be based upon the then-effective Aggregate Annual Operating Budget
- ---
approved by Lender in accordance with this Section. During any period in any
calendar year in which Borrower is awaiting Lender's approval of the Annual
Operating Budgets and/or the Aggregate Annual Operating Budget for such calendar
year, Borrower shall operate the Properties based upon the Aggregate Annual
Operating Budget last approved by Lender, less any non-recurring capital items
included therein.
6.1.15 CONFIRMATION OF REPRESENTATIONS. Borrower shall deliver, in
-------------------------------
connection with any Conveyance of the Applicable Loan or any portion thereof,
one or more Officer's Certificates certifying as to the accuracy in all material
respects of all representations made by Borrower in the Loan Documents as of the
date of the closing of such Conveyance of the Applicable Loan or portion
thereof, or as to any changes in such representations, if applicable, and
certificates of the relevant Governmental Authorities in all relevant
jurisdictions indicating the good standing and qualification of Borrower as of
the date of such Conveyance of the Applicable Loan or portion thereof.
6.1.16 NO JOINT ASSESSMENT. Borrower shall not suffer, permit or
-------------------
initiate the joint assessment of any Individual Property with any other real
property constituting a tax lot separate from such Individual Property.
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6.1.17 LEASING MATTERS. Borrower shall not enter into, modify or
---------------
terminate Leases at the Properties other than as permitted pursuant to this
Section 6.1.17. Provided that no Event of Default has occurred and is
- --------------
continuing, Borrower shall have the right to terminate existing Leases at the
Properties in accordance with their respective terms upon a default by the
tenant thereunder, and prior to any such termination, Borrower shall notify
Lender with respect thereto. Provided that no Event of Default has occurred and
is continuing, Borrower shall also have the right to enter into Leases at the
Properties in the ordinary course of business on commercially reasonable terms,
to modify Leases at the Properties on commercially reasonable terms and/or to
terminate non-defaulted Leases at the Properties if Borrower determines that
such termination is prudent and commercially reasonable; provided, however, that
-------- -------
with respect to the termination of a non-defaulted Lease covering more than
5,000 rentable square feet of any Individual Property and with more than 18
months remaining in its term, or the modification of a Lease covering more than
5,000 rentable square feet of any Individual Property and with more than 18
months remaining in its term, at the time of and after giving effect to such
modification or termination on a pro forma basis for purposes of calculating the
pro forma Trailing 12-Month Net Operating Income, as the case may be, the pro
forma Trailing 12-Month Net Operating Income of the related Individual Property
shall be not less than the Net Operating Income of the related Individual
Property for the most recent twelve-month period as reflected in the audited
financial statements for such 12-month period. Borrower shall give notice
quarterly (and copies) to Lender of any new Lease, modification of a Lease or
termination of a Lease. If Borrower desires to amend a Lease with more than 18
months remaining in its term or to terminate a non-defaulted Lease with more
than 18 months remaining in its term, and if the Net Operating Income test set
forth in the preceding sentence will not be satisfied after giving effect to
such amendment or termination, Lender shall render its approval or disapproval
of such amendment or termination (which approval shall not be unreasonably
withheld or delayed) within ten (10) days of its receipt of a written request
therefor from Borrower. If Lender does not respond within such 10-day period,
Borrower shall submit a second written request to Lender at the expiration of
such 10-day period. If Lender does not respond within seven (7) days after
receipt of such second written request, Lender shall be deemed to have
disapproved such amendment or termination, and, upon request by Borrower, Lender
shall state the reasons for such disapproval. Borrower (A) shall observe and
perform the obligations imposed upon the lessor under the Leases in a
commercially reasonable manner; (B) shall enforce the terms, covenants and
conditions contained in the Leases upon the part of the lessee thereunder to be
observed or performed in a commercially reasonable manner; (C) shall not collect
any of the rents more than one (1) month in advance (other than security
deposits) unless deposited in the Cash Collateral Account and property
identified as Prepaid Rents to the Cash Collateral Bank and to Lender; (D) shall
not execute any other assignment of lessor's interest in the Leases or the
Property Income (except as contemplated by the Loan Documents); (E) shall not
materially alter, modify or change the terms of the Leases in a manner
inconsistent with the provisions of the Loan Documents; (F) shall execute and
deliver at the request of Lender all such further assurances, confirmations and
assignments in connection with the Leases as Lender shall from time to time
reasonably require; and (G) shall deliver to Lender prompt written notice of the
commencement of any material action or material legal proceeding by or against
any tenant, together with copies of all documentation relating thereto
reasonably requested by Lender. Borrower shall maintain all tenant security
deposits delivered under Leases in segregated trust accounts (or as otherwise
required by applicable Legal Requirements).
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Provided that no Event of Default has occurred and is continuing,
Lender agrees to enter into subordination, non-disturbance and attornment
agreements in form and substance reasonably satisfactory to Lender, from time to
time at the request of Borrower, with tenants under Leases entered into in
accordance with the terms of the Loan Documents. Borrower shall submit any such
agreement (together with the proposed Lease to which such agreement relates) to
Lender not less than fifteen (15) days prior to the date upon which Borrower
desires to execute and deliver the relevant Lease, and Lender shall, within
fifteen (15) days of its receipt of any such agreement, approve or disapprove
the same (indicating, if relevant, the reasons for any disapproval).
6.1.18 PRINCIPAL PLACE OF BUSINESS. Borrower shall not change its
---------------------------
principal place of business set forth in the first Paragraph hereof, establish
any new principal place of business or discontinue such existing principal place
of business without first giving Lender fifteen (15) days' prior written notice
thereof.
6.1.19 ATTORNMENT. Borrower covenants and agrees to use reasonable,
----------
diligent, good faith efforts to cause all existing tenants at each Individual
Property who are not required to attorn to a successor landlord (whether
succeeding by voluntary or involuntary transfer) either by the terms of their
respective Leases or under applicable Legal Requirements to agree in writing to
such attornment. All future Leases shall provide for such attornment by the
tenant thereunder.
6.1.20 TAXES AND OTHER LIABILITIES. Borrower shall pay and discharge
---------------------------
when due any and all indebtedness, obligations, assessments and real and
personal taxes, other than Permitted Encumbrances, including, but not limited
to, federal and state income taxes, except such as it may in good faith contest
and as to which adequate reserves are maintained in accordance with GAAP.
6.1.21 TAX RETURNS. Within ten (10) days of Lender's request
-----------
request therefor, Borrower shall furnish Lender with copies of federal income
tax returns filed by Borrower.
6.1.22 1413 RESEARCH BOULEVARD PROPERTY REQUIREMENTS. Borrower shall
---------------------------------------------
diligently pursue to completion the matters listed in Section 4.1.22(a) of this
-----------------
Agreement.
6.1.23 SPECIAL PURPOSE COVENANTS. Borrower shall:
-------------------------
(i) maintain its records and books of account separate from
those of any other Person;
(ii) not commingle its assets and funds with those of any
other Person;
(iii) conduct its own business in its own name;
(iv) maintain separate financial statements (unless otherwise
required by applicable law to establish or maintain Borrower's
qualification as a qualified real estate investment trust subsidiary under
the Code, in which case Borrower's relevant financial information shall be
separately stated in footnotes to the applicable financial statements);
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<PAGE>
(v) pay its own liabilities out of its own funds;
(vi) observe all corporate formalities;
(vii) maintain an arm's length relationship with its Affiliates;
(viii) pay the salaries of its own employees;
(ix) not guarantee or become obligated for the debts of any
other Person or hold out its credit as being available to satisfy the
obligations of others;
(x) allocate fairly and reasonably any overhead for shared
office space;
(xi) use separate stationery, invoices and checks;
(xii) not pledge its assets for the benefit of any other Person
or make any loans or advances to any Person;
(xiii) hold itself out as a separate entity;
(xiv) not engage in nonexempt prohibited transaction described
in Section 406 of the Employee Retirement Income Security Act of 1974, as
amended, or Section 4975 of the Internal Revenue Code of 1986, as amended;
(xv) not acquire obligations or securities of its stockholders
or Affiliates;
(xvi) correct any known misunderstanding regarding its separate
identity; and
(xvii) maintain adequate capital in light of its contemplated
business operations.
6.1.24 INTEREST RATE CAP AGREEMENT.
---------------------------
(i) At all times while Revolving Loans are outstanding,
Borrower shall maintain one or more Interest Rate Cap Agreements providing
for monthly payments to Borrower equal to the product of (x) the excess of
one-month LIBOR over 8.0% per annum and (y) a notional amount not less than
the aggregate principal balance of all Revolving Loans then outstanding at
the relevant time of determination. Borrower shall not be required to
maintain any Interest Rate Cap Agreement in respect of the Converted Fixed
Rate Loan, and on the Conversion Date, upon the conversion of Revolving
Loans to the Converted Fixed Rate Loan, Lender shall release its security
interest in all Interest Rate Cap Agreements and cap confirmations then
outstanding and return originals of the same to Borrower.
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(ii) Within ten (10) Business Days after each advance of a
Revolving Loan to Borrower, Borrower shall provide to Lender an executed
original of each applicable Interest Rate Cap Agreement and cap
confirmation that have not theretofore been delivered to Lender.
(iii) If the long-term debt obligations of the counterparty to
any Interest Rate Cap Agreement are at any time downgraded to a rating
below "AA" by a Rating Agency, and the underwriting policies applied by a
Rating Agency in the rating of commercial mortgage-backed securities rated
"AAA" and backed by a loan similar to the Applicable Loan would require a
borrower to provide an interest rate cap agreement with a counterparty
rated "AA" or better by such Rating Agency, then Borrower shall promptly
deliver to Lender a fully executed original counterpart of each Interest
Rate Cap Agreement and cap confirmation meeting such Rating Agency
requirements and otherwise reasonably satisfactory to Lender, an Assignment
of Interest Rate Cap Agreement duly executed by Borrower, a consent duly
executed by the counterparty to the Interest Rate Cap Agreement
substantially in the form attached to the Assignment of Interest Rate Cap
Agreement as Exhibit B thereto and evidence reasonably satisfactory to
Lender that Lender has a first priority, perfected security interest in the
Interest Rate Cap Agreement securing the Indebtedness. If Borrower shall
have satisfied the provisions of this Section 6.1.24 in respect of the
--------------
replacement Interest Rate Cap Agreements and cap confirmations, then Lender
shall promptly release its security interest in the prior Interest Rate Cap
Agreements and cap counterparts and return the originals of the same to
Borrower.
VII NEGATIVE COVENANTS
------------------
SECTION 7.1 BORROWER NEGATIVE COVENANTS. From the date hereof and
-------- ---------------------------
until payment in full of all incurred Indebtedness, the performance of all other
obligations of Borrower and HSP under the Loan Documents and the termination of
(x) all commitments of Lender to make Revolving Loans to Borrower and (y) any
obligation of Lender to convert Revolving Loans to the Converted Fixed Rate
Loan, Borrower covenants and agrees with Lender that it will not do or permit,
directly or indirectly, any of the following:
7.1.1 CHANGE IN BUSINESS. Borrower shall not make any material
------------------
change in the scope or nature of its business, purposes or operations or
undertake or participate in activities other than the continuance of its present
and proposed business.
7.1.2 DISSOLUTION; MERGER; ETC. Neither Borrower nor HSP shall
-------------------------
dissolve, terminate, liquidate, merge with or consolidate into another Person;
provided, that HSP may be merged with any Person such that either such Person
- --------
or HSP survives the merger, if contemporaneously with such merger, (a) HSP or
--
such other Person, as applicable, shall execute and deliver to Lender amendments
to the Loan Documents to which HSP is a party as reasonably required by Lender
to reflect such merger, (b) if such other Person survives the merger, such other
Person expressly assumes all of HSP's obligations under the Loan Documents to
which HSP is a party, including any obligations that may have arisen prior to
the date of such merger, (c) Lender shall have received appropriate legal
opinions (similar to those received in
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<PAGE>
connection with the origination of the Applicable Loan and the conversion of
Revolving Loans to the Converted Fixed Rate Loan), each in form and substance
satisfactory to Lender in its sole discretion, in connection with the amendments
to the Loan Documents and (d) Borrower or HSP shall pay Lender's reasonable
costs and expenses incurred in connection with such merger, including reasonable
attorneys' fees and expenses, and no Default or Event of Default exists
immediately prior to such merger or after giving effect to such merger.
7.1.3 ASSETS. Borrower shall not acquire any business or
------
property from, or capital stock or other interest in, or be a party to the
acquisition of, any Person except for purchases to be used in the ordinary
course of business permitted under Section 6.1.10.
--------------
7.1.4 TRANSFERS OF PROPERTIES AND ASSETS. Except for Permitted
----------------------------------
Transfers, Borrower shall not, without the prior written consent of Lender,
Transfer any Individual Property or portion thereof or any of Borrower's other
material Assets, or the Property Income or any other revenues therefrom or the
proceeds thereof, or permit or suffer any such action to be taken. The following
shall constitute "PERMITTED TRANSFERS":
(i) Permitted Encumbrances;
(ii) the sale, assignment, transfer or other disposition of,
directly or indirectly, (x) any interest in Equipment or other Personalty
as from time to time may become worn or obsolete, provided that either (1)
--------
such Equipment or other Personalty shall be replaced with other Equipment
or other Personalty with a value at least equal to that of the replaced
Equipment or other Personalty and free from any security interest or lien
other than the Liens of the Mortgage, or (2) such Equipment or other
Personalty is not material in its use to the value and operation of the
relevant Individual Property or the operation or value of Borrower's or
HSP's business, or (y) any interest in Equipment or other Personalty, to
the extent (and only to the extent) that (1) such Transfer is required to
establish or maintain HSP's or Holdings' qualification as a real estate
investment trust under the Code or Borrower's qualification as a qualified
real estate investment trust subsidiary under the Code, (2) the aggregate
fair market value, as reasonably determined by Lender, of all such
Transfers during any twelve (12) month period does not exceed One Hundred
Thousand Dollars ($100,000), and (3) the Transfers will not adversely
affect Borrower's ability to operate the Properties or adversely affect
Borrower's ability to meet its obligations under any Leases; and
(iii) transfers permitted pursuant to Section 3.3.
-----------
7.1.5 LIENS. Borrower shall not, without the prior written
-----
consent of Lender, create, incur, assume or suffer to exist any Lien on any
portion of any Individual Property or any of its Assets or permit any such
action to be taken, except the following (collectively, "PERMITTED
ENCUMBRANCES"):
(i) Liens created by or expressly permitted pursuant to the Loan
Documents;
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(ii) Liens for Impositions not yet due or delinquent or which are
being diligently contested in good faith and by appropriate proceedings in
accordance with the requirements of the Mortgage and Liens arising out of
judgments or awards with respect to which appeals or other proceedings for
review are being prosecuted diligently and in good faith and for the
payment of which adequate reserves have been provided as required by GAAP
or other appropriate provisions satisfactory to Lender have been made so
long as such proceedings have the effect of staying the execution of such
judgments or awards;
(iii) carriers', warehousemen's, mechanic's, materialmen's,
repairman's and other similar Liens and Liens for workers' compensation,
unemployment insurance and similar programs, in each case arising in the
ordinary course of business and which are being diligently contested in
good faith and by appropriate proceedings in accordance with the
requirements of the Mortgage;
(iv) zoning restrictions, easements, rights-of-way, restrictions on
use of real property and other similar Liens (including creation or
modification of any Property Agreement in accordance with the applicable
provisions of the Loan Documents) incurred or entered into in the ordinary
course of business which do not, and could not reasonably be expected to,
individually or in the aggregate, (A) materially and adversely affect the
marketability of title to such Individual Property, (B) materially detract
from the value of the portion of the affected Individual Property subject
thereto, (C) materially interfere with the ordinary operation and use of,
or the ordinary conduct of the business on, the portion of the affected
Individual Property subject thereto, (D) interfere with the validity,
enforceability or priority of the Liens created by the Loan Documents, or
(E) materially and adversely affect Borrower's ability to meet its payment
obligations in respect of the Indebtedness;
(v) rights of tenants, as tenants only, under Leases in effect on
the date hereof and identified in the Rent Roll previously delivered to
Lender and under future Leases entered into pursuant to and in accordance
with Section 6.1.17;
--------------
(vi) the Liens listed as exceptions to title on Schedule B of the
Title Insurance Policy;
(vii) Liens (other than mortgages, deeds of trust, deeds to secure
debt and similar security documents) securing obligations permitted to be
incurred under the Loan Documents up to a maximum aggregate amount of
$50,000 and that could not reasonably be expected to have a Material
Adverse Effect; and
(viii) such other title and survey exceptions as Lender has approved
or may approve in writing, in Lender's sole discretion.
7.1.6 SUBSIDIARIES. Borrower shall not (a) create or maintain any
------------
Subsidiaries or (b) be a general or limited partner in any partnership.
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7.1.7 DEBT. Without the prior written consent of Lender, Borrower
----
shall not create, incur or assume any Debt other than the Indebtedness or
unsecured, short term trade indebtedness incurred in the ordinary course of
operating the Properties, and shall not cause, permit or suffer to occur any
monetary default with respect to any Debt of Borrower.
7.1.8 DIVIDENDS. Borrower shall not authorize, declare or make
---------
any dividend (in cash, securities or any other form of property) on, or other
payment or distribution on account of, any shares of any class of Borrower's
capital stock for so long as the Converted Fixed Rate Loan or any Indebtedness
in respect thereof remains outstanding; provided, however, that Borrower may
-------- -------
declare and make to HSP in an amount necessary for HSP to make dividend payments
to Holdings sufficient to allow Holdings to make (x) dividend payments on
Holdings' Series A Preferred Stock, par value $.01 per share, and Holdings'
Series B Preferred Stock, par value $.01 per share, (y) regular interest
payments on Holdings' Convertible Debentures and (z) dividend payments necessary
to establish or maintain Holdings' status as a real estate investment trust
under the Code, payments of taxes due and payable by the consolidated group of
Holdings, HSP and Borrower, payments of general corporate, operating and
administrative expenses incurred by HSP in the ordinary course of business,
dividend payments necessary to establish or maintain HSP's status as a real
estate investment trust under the Code and dividends on HSP's Series T Preferred
Stock, Series U Preferred Stock, any Series V Preferred Stock and any Common
Stock; provided, further, however that no dividends may in any event be made if
-------- ------- -------
on the date of such payment, an Event of Default shall have occurred and be
continuing (either before or after giving effect to such payment).
7.1.9 INVESTMENTS. Borrower shall not make or permit to remain
-----------
outstanding any Investment at any time, except (a) Investments in certificates
of deposits issued by, and other deposits with, commercial banks organized under
the laws of the United States or a State thereof having capital of at least One
Hundred Million Dollars ($100,000,000); (b) Investments in short term marketable
obligations of the United States of America and in open market commercial paper
given the highest credit rating by a national credit agency and maturing not
more than one year from the creation thereof; (c) endorsements of negotiable
instruments in the ordinary course of business; (d) Investments in HSP to the
extent Borrower would be permitted at such time to pay a dividend to HSP
pursuant to Section 7.1.8 (provided that the sum of the amount of any such
------------- --------
Investment and the amount of any dividend then paid does not exceed the total
amount of the dividend that is permitted to be paid to HSP pursuant to Section
-------
7.1.8 hereof) and (e) Permitted Investments.
- -----
7.1.10 LEASES. Borrower shall not pay, in an aggregate amount in any
------
fiscal year (commencing with the current fiscal year), lease obligations in
excess of $100,000; as used in this paragraph, the term "lease" means an
operating lease that is reflected as such on a consolidated balance sheet (and
notes thereto) of Borrower and should be so reflected under GAAP.
7.1.11 STOCK. Borrower shall not issue or permit the issuance of any
-----
shares of any class of capital stock of Borrower. Borrower shall not redeem,
purchase, retire or otherwise acquire for value any shares of any class of
capital stock of Borrower.
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7.1.12 SALE-LEASEBACKS. Borrower shall not enter into any transaction
---------------
or arrangement with any Person whereby Borrower shall sell or transfer any of
its Assets and then or thereafter rent or lease back the same assets which it
intends to use for substantially the same purposes as the Assets sold or
transferred.
7.1.13 AFFILIATE TRANSACTIONS. Borrower shall not enter into, or be a
----------------------
party to, any transaction with an Affiliate of Borrower, HSP or Holdings or with
an Affiliate of any of the shareholders of Borrower, HSP or Holdings, except in
the ordinary course of business and on terms which are no less favorable to
Borrower or such Affiliate than would be obtained in a comparable arm's-length
transaction with an unrelated third party, except as part of the AEW Equity
Placement, and as described on Schedule IX. Any new transactions with Affiliates
-----------
entered into after the Closing Date (if any) shall be disclosed to Lender
quarterly in an Officer's Certificate of Borrower.
7.1.14 DEBT CANCELLATION. Borrower shall not cancel or otherwise
-----------------
forgive or release any material claim or Debt (other than termination of Leases
or property management agreements in accordance herewith) owed to Borrower by
any Person, except for adequate consideration and in the ordinary course of
Borrower's business.
7.1.15 MANAGEMENT OF PROPERTIES. Except as provided in this Agreement
------------------------
in respect of engaging or replacing any permitted property manager, Borrower
shall not, without the prior written consent of Lender, enter into any
management agreement with respect to any Individual Property or terminate any
management agreement relating to any Individual Property or otherwise replace
any property management company at any Individual Property.
7.1.16 ZONING. Borrower shall not (A) initiate or consent to any
------
adverse zoning reclassification of any portion of any Individual Property, (B)
seek any variance under any existing zoning ordinance if such variance could
reasonably be expected to have a material adverse effect on the value of such
Individual Property, its intended use or the security afforded to Lender under,
or the priority of, any of the Loan Documents, or (C) after the date hereof, use
or permit the use of any portion of any Individual Property in any manner that
could result in such use becoming a non-conforming use under any zoning
ordinance or any other applicable land use law, rule or regulation, without the
prior consent of Lender in each instance, which consent shall not be
unreasonably withheld or delayed.
7.1.17 BORROWER'S ORGANIZATIONAL DOCUMENTS; PROPERTY AGREEMENTS.
--------------------------------------------------------
Borrower shall not enter into, suffer or permit any amendment, restatement or
other modification of any of Borrower's Organizational Documents without the
prior written consent of Lender if (i) such amendment, restatement or
modification could reasonably be expected to have a Material Adverse Effect, or
(ii) such amendment, restatement or modification violates (or would cause the
violation of) any term of any Loan Document. Borrower shall not enter into,
suffer or permit the creation of, or the amendment, restatement or modification
of, any Property Agreement without the prior written consent of Lender if (A)
such creation, amendment, restatement or modification could reasonably be
expected to have a Material Adverse Effect, or (B) such amendment, restatement
or modification violates (or would cause the violation of) any term of any Loan
Document. Whether or not Lender's consent is required in respect of the creation
of any Property Agreement
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or the modification of any of Borrower's Organizational Documents or Property
Agreement as aforesaid, Borrower shall give prompt notice (and copies) thereof
to Lender.
7.1.18 HSP'S ORGANIZATIONAL DOCUMENTS; SERIES V STOCK PURCHASE
-------------------------------------------------------
AGREEMENT; STOCKHOLDERS AGREEMENT. Borrower shall provide Lender with prompt
- ---------------------------------
notice of (and copies of) any modification of the Series V Stock Purchase
Agreement, the Stockholder's Agreement and any of HSP's Organizational
Documents.
VIII. DEFAULTS
--------
SECTION 8.1 EVENT OF DEFAULT. In case of the occurrence of any of
-------- ----------------
the following events (each of which is herein sometimes called an "EVENT OF
DEFAULT"):
(i) if Borrower fails to make any payment (from funds on
deposit in the Cash Collateral Account or otherwise) of interest or
principal in respect of the Applicable Loan on the due date of such
payment, except where sufficient funds to make such payment are on deposit
in the Cash Collateral Account or the Debt Service Sub-Account as required
by this Agreement and the failure to make such payment arises out of (A)
the failure of Lender to direct the Sweep Bank or the Cash Collateral Bank,
as the case may be, to apply such deposits in accordance with the terms of
this Agreement, or (B) the failure of the Sweep Bank or the Cash Collateral
Bank, as the case may be, to apply such deposits as directed by Lender in
accordance with the terms of this Agreement;
(ii) except as provided in clause (iii) below, if Borrower
------------
fails to deposit in the Debt Service Sub-Account, the Basic Carrying Costs
Sub-Account or the Structural Costs Sub-Account the amount of any shortfall
in any such Sub-Account within three (3) Business Days after receipt of
notice thereof from Lender in accordance with Section 3.1.7;
-------------
(iii) if Borrower fails to deposit when due in the Capital
Event Sub-Account or the Loss Proceeds Sub-Account, as applicable, (a) any
Loss Proceeds in connection with a Casualty or Condemnation or (b) any
amounts required to be deposited by Borrower pursuant to Sections
--------
3.2.2(d)(i)(A) or 3.2.2(d)(i)(D);
-------------- --------------
(iv) if Borrower fails to make any payment in respect of Basic
Carrying Costs (other than the Permitted Encumbrances) to the Person
entitled thereto prior to the date upon which such payment would become
delinquent and such failure continues for three (3) Business Days;
(v) if Borrower fails to pay any other amount payable by
Borrower pursuant to this Agreement (including Section 9.13) or any other
------------
Loan Document when due and such failure continues for ten (10) Business
Days after Lender delivers written notice thereof to Borrower;
(vi) HSP shall cease to own 100% of the outstanding stock of
Borrower;
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(vii) (a) if J. Sudarsky shall hold at any time beneficial and
record ownership, directly or indirectly, of less than eighty percent (80%)
of the voting stock of Holdings (or any successor to Holdings by merger or
consolidation), held by J. Sudarsky on the Closing Date, as adjusted for
stock splits and stock dividends; or (b) J. Sudarsky shall hold at any time
beneficial and record ownership, directly or indirectly, of less than
eighty percent (80%) of the aggregate voting stock and Convertible
Securities of Holdings (or any successor to Holdings by merger or
consolidation), held by J. Sudarsky on the Closing Date, as adjusted for
stock splits and stock dividends; or (c) J. Marcus shall at any time hold
beneficial and record ownership, directly or indirectly, of less than
eighty percent (80%) of the voting stock of Holdings (or any successor to
Holdings by merger or consolidation) held by J. Marcus on the Closing Date,
as adjusted for stock splits and stock dividends; or (d) J. Marcus shall at
any time hold beneficial and record ownership, directly or indirectly, of
less than eighty percent (80%) of the aggregate voting stock and
Convertible Securities of Holdings (or any successor to Holdings by merger
or consolidation) held by J. Marcus on the Closing Date, as adjusted for
stock splits and stock dividends; provided, that any matter described in
--------
any of clauses (a) through (d) above shall not constitute an Event of
Default hereunder to the extent the divestment of securities giving rise to
such matter occurs (i) in connection with the death or disability of J.
Sudarsky or J. Marcus, as the case may be, or (ii) without the consent or
acquiescence of AEW (it being understood that the a divestment of
securities by J. Sudarsky or J. Marcus made following the termination of
the employment of J. Sudarsky or J. Marcus, as the case may be, for
material breach of duty to HSP or Holdings shall not be deemed to have been
made with the consent or acquiescence of AEW hereunder) if, within thirty
(30) days after written notice from Lender to Borrower of such matter
described in any of clauses (a) through (d) above, AEW obtains control over
HSP (provided, that if AEW is unable, in the exercise of reasonable
--------
diligence, to obtain such control within such thirty (30) day period, such
period shall be extended for an additional period of forty-five (45) days
for AEW to obtain control of HSP, provided that AEW commences the actions
--------
necessary to obtain such control promptly (and in any event within the
initial 30-day cure period) and thereafter diligently prosecutes such
actions to completion). For purposes of this clause (vii), (I) "beneficial
------------
ownership" shall include, among other things, all shares of stock that a
Person has the vested right to acquire, whether such right is exercisable
immediately or only after the passage of time; and (II) any voting stock or
Convertible Securities of HSP held by a trust for the benefit of the
parents, siblings and/or children of J. Marcus or J. Sudarsky, as the case
may be, shall be deemed to be voting shares or Convertible Securities held
by J. Marcus or J. Sudarsky, respectively;
(viii) (I) beneficial or record ownership of any of the voting
stock (including the Common Stock) of HSP (or any successor to HSP by
merger or consolidation) or any of the Series V Preferred Stock of HSP (or
any successor to HSP by merger or consolidation) shall be transferred,
directly or indirectly, to any Person other than a member of the Extended
AEW Group, a member of the Management Group or any other Person who holds
the stock of Holdings on the Closing Date; provided, that
--------
(a) no such transfer shall constitute an Event of Default hereunder if
Lender has, in Lender's sole discretion, given Lender's prior written
consent to such transfer;
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(b) no such transfer occurring after the date Lender has provided
Borrower with notice of any proposed securitization of the Applicable
Loan shall constitute an Event of Default hereunder if (x) the
transferee is an Eligible Transferee and (y) prior to such transfer,
written confirmation shall have been obtained from the Rating Agency
that the transfer will not result in a downgrade, withdrawal or
qualification of the ratings then assigned to the securities issued in
connection with the securitization of the Applicable Loan;
(c) no such transfer occurring on or prior to the date Lender has
provided Borrower with notice of any proposed securitization of the
Applicable Loan shall constitute an Event of Default hereunder if (x)
the transferee is an Eligible Transferee, (y) Lender has given its
prior written consent to the transfer, which consent shall not be
unreasonably withheld or delayed, and (z) the Rating Agency shall have
confirmed to Lender that such transfer would not adversely affect the
rating issued by the Rating Agency in connection with a future
securitization;
(d) no such transfer shall constitute an Event of Default hereunder if
such transfer is made pursuant to an initial public offering of the
stock of Borrower, HSP or Holdings (or any successor to any of the
foregoing by merger or consolidation) that does not violate the
provisions of clause (xiii) below;
-------------
(e) no such transfer shall constitute an Event of Default hereunder
if, after giving effect to such transfer, the Management Group and/or
the Extended AEW Group (including any transferee that is an Eligible
Transferee) hold at least sixty percent (60%) of the issued and
outstanding stock of HSP; and
(f) the following shall not constitute Events of Default hereunder:
(x) the transfer of the Series U Preferred Stock or Series T Preferred
Stock of HSP, which stock is described on Schedule VI, and (y) the
-----------
conversion of Series V Preferred Stock of HSP to Common Stock in
accordance with the Series V Stock Purchase Agreement, the
Stockholders Agreement and the HSP Articles.
For purposes of this clause (viii), "beneficial ownership" shall include,
-------------
among other things, all shares of stock that a Person has the vested right
to acquire, whether such right is exercisable immediately or only after the
passage of time;
(ix) any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), other than the Management Group or the Extended AEW Group,
shall control HSP (or any successor to HSP by merger or consolidation);
provided that no such control shall constitute an Event of Default
--------
hereunder if such control is gained pursuant an initial public offering of
the stock of Borrower, HSP or Holdings (or any successor to any of the
foregoing by merger or consolidation) that does not violate the provisions
of clause (xiii) below. For purposes of this clause (ix), "control" of HSP
------------- -----------
means the power of any Person (including for such purpose, Affiliates of
such Person), directly or indirectly, to direct or cause the direction
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<PAGE>
of the management and policies of HSP, whether by stock ownership, contract
or otherwise;
(x) J. Sudarsky and J. Marcus or either of them, shall cease
at any time to, directly or indirectly, manage and control the business and
affairs of Borrower, HSP and Holdings (or any successor to the foregoing by
merger or consolidation); provided, that any such cessation of management
--------
control shall not constitute an Event of Default hereunder if such
cessation occurs (i) as a result of with the death or disability of J.
Sudarsky or J. Marcus, as the case may be, or (ii) without the consent or
acquiescence of AEW (it being understood that the termination of the
employment of J. Sudarsky or J. Marcus, as the case may be, for material
breach of duty to HSP or Holdings shall not be deemed to have been made
with the consent or acquiescence of AEW hereunder) if, within thirty (30)
days after written notice from Lender to Borrower of such cessation, AEW
obtains control over HSP and causes HSP to engage, an individual to perform
the management role of J. Marcus or J. Sudarsky, as the case may be, and
Lender shall given its prior written approval to such engagement of such
individual in the exercise of Lender's reasonable business judgment
(provided, that if AEW is unable, in the exercise of reasonable diligence,
--------
to obtain such control and to cause HSP so to engage such an individual
within such thirty (30) day period, such period shall be extended for an
additional period of forty-five (45) days for AEW to obtain control of HSP,
provided that AEW commences the actions necessary to obtain such control
--------
and to cause HSP so to engage such an individual promptly (and in any event
within the initial 30-day cure period) and thereafter diligently prosecutes
such actions to completion);
(xi) the nominees of either or both the Management Group
and/or the Extended AEW Group (or the permitted transferees of either of
the foregoing) shall at any time fail to constitute a majority of the board
of directors of Borrower;
(xii) AEW ceases to be managed by a reputable national
institutional real estate investor or advisor or a majority of the direct
or indirect ownership interests in AEW are not at any time held by
institutional investors with substantial assets;
(xiii) all incurred Indebtedness and other obligations of
Borrower and HSP (or any successor to either of the foregoing by merger or
consolidation) under the Loan Documents shall not have been paid and
performed in full within ninety (90) days after the occurrence of an
initial public offering of the stock of Borrower, HSP or Holdings (or any
successor to any of the foregoing by merger or consolidation); provided,
--------
that any such failure to pay all incurred Indebtedness following an initial
public offering shall not constitute an Event of Default hereunder if such
initial public offering (x) occurs after the date of securitization of the
Applicable Loan, and (y) has been approved by the applicable Rating
Agencies without any downgrading of the rating of the Applicable Loan;
(xiv) a material default shall occur and be continuing after
the expiration of any applicable grace and cure period under any document
or instrument evidencing Debt incurred by Borrower or HSP aggregating Fifty
Thousand Dollars ($50,000) or more under any indenture, agreement or other
instrument under which such Debt may be issued,
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<PAGE>
or any event shall occur and be continuing after the expiration of any
applicable grace and cure period under any of the foregoing which would
permit any holder or holders of the Debt outstanding thereunder to declare
the same due and payable before its stated maturity, whether or not such
acceleration occurs;
(xv) if any representation or warranty made by Borrower herein
or in any other Loan Document, or by HSP in any Loan Document, or in any
report, certificate, financial statement or other instrument, agreement or
document furnished by Borrower to Lender in connection with this Agreement
or any other Loan Document, shall be inaccurate or misleading in any
material respect as of the date such representation or warranty was made or
deemed made;
(xvi) if a Bankruptcy with respect to Borrower or HSP shall
occur;
(xvii) if Borrower attempts to assign its respective rights
under this Agreement or any of the other Loan Documents or any interest
herein or therein without the prior written consent of Lender;
(xviii) if Borrower breaches any of its respective affirmative or
negative covenants contained in Sections 6.1.23, 6.1.24(ii), 7.1.2, 7.1.4,
-------- ------ ---------- ----- -----
7.1.5, 7.1.7, 7.1.8, 7.1.11, 7.1.12 or 7.1.13;
----- ----- ----- ------ ------ ------
(xix) except as otherwise provided in this Section 8.1, if
-----------
Borrower shall continue to be in default under any of the other terms,
covenants or conditions of this Agreement or any other Loan Document for
ten (10) Business Days after written notice to Borrower from Lender, in the
case of any default which can be cured by the payment of a sum of money, or
for thirty (30) days after written notice from Lender in the case of any
other default (provided, that in respect of defaults that by their nature
--------
cannot be cured within such 30-day period, Borrower shall have an
additional period of forty-five (45) days in which to complete the cure of
such default, provided that Borrower commences to cure such default
--------
promptly (and in any event within the initial 30-day cure period) and
thereafter diligently prosecutes such cure to completion), or if HSP shall
continue to be in default of any of the terms, covenants or conditions of
the HSP Guaranty or the HSP Security Agreement for thirty (30) days after
written notice from Lender (provided, that in respect of defaults that by
--------
their nature cannot be cured within such 30-day period, HSP shall have an
additional period of forty-five (45) days in which to complete the cure of
such default, provided that HSP commences to cure such default promptly
--------
(and in any event within the initial 30-day cure period) and thereafter
diligently prosecutes such cure to completion);
(xx) if (A) the Policies (or any of them) required to be
procured and maintained by Borrower pursuant to Section 3.2 lapse without
-----------
having been renewed prior to the last day of the term thereof or for any
reason are or become unenforceable against the insurer(s) thereunder, or
(B) Borrower fails to comply with the other requirements set forth in
Section 3.2 in respect of the Policies (or any of them) and such failure to
-----------
comply
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<PAGE>
under this clause (B) continues for thirty (30) days after written notice
from Lender to Borrower;
(xxi) if at any time after the execution and delivery thereof,
(i) the HSP Guaranty for any reason (other than payment in full of all
incurred Indebtedness, the performance of all other obligations of Borrower
and HSP under the Loan Documents and the termination of (x) all commitments
of Lender to make Revolving Loans to Borrower and (y) and obligation of
Lender to convert Revolving Loans to the Converted Fixed Rate Loan) shall
cease to be in full force and effect (other than in accordance with its
terms) or shall be declared to be null and void, or (ii) any Loan Document
shall cease to be in full force and effect (other than by reason of a
release of Collateral thereunder in accordance with the terms hereof or
thereof, the satisfaction in full of the Obligations or any other
termination of such Loan Document in accordance with the terms hereof or
thereof) or shall be declared null and void, or Lender shall not have or
shall cease to have a valid and perfected first priority Lien (subject to
the Permitted Encumbrances) in the Properties or any other material
Collateral purported to be covered thereby, in each case for any reason
other than the failure of Lender to take any action within its control;
(xxii) if any money judgment, writ or warrant of attachment or
similar process not adequately covered by insurance as to which a solvent
and unaffiliated insurance company has acknowledged coverage shall be
entered or filed against Borrower or any of its assets and shall remain
undischarged, unvacated, unbonded or unstayed for a period of seventy-five
(75) days (or in any event later than five days prior to the date of any
proposed sale thereunder);
(xxiii) if any money judgment, writ or warrant of attachment or
similar process involving (i) in any individual case an amount in excess of
$75,000 or (ii) in the aggregate at any time an amount in excess of
$250,000 (in either case not adequately covered by insurance as to which a
solvent and unaffiliated insurance company has acknowledged coverage) shall
be entered or filed against HSP or any of its assets and shall remain
undischarged, unvacated, unbonded or unstayed for a period of seventy-five
(75) days (or in any event later than five days prior to the date of any
proposed sale thereunder);
(xxiv) if any public utilities necessary to the full use and
enjoyment of any Individual Property are discontinued or disconnected, and
such utilities are not reestablished or reconnected within fifteen (15)
days after the initial discontinuance or disconnection thereof; provided,
--------
that the 15-day cure period in the preceding clause shall be tolled during
any period for which rental loss insurance proceeds have been paid to
Borrower in an amount equal to the aggregate amount of all rents and
additional rents payable during such period by all of the tenants under the
Leases affected by such discontinuance or disconnection;
(xxv) if any Reportable Event occurs that is reasonably likely
to result in the termination of any Pension Plan by the PBGC or the
appointment of a trustee to administer any Pension Plan, or any Pension
Plan shall be terminated within the meaning
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<PAGE>
of Title IV of ERISA or a trustee shall be appointed to administer any
Pension Plan and, if such Pension Plan were terminated, the plan would not
be sufficient for benefit liabilities for purposes of ERISA (S)
4041(b)(1)(D); or
(xxvi) if at any time after the Conversion Date, Borrower's
organizational documents shall (x) fail to contain the restrictions set
forth in Section 6.1.23, or (y) fail to provide that the unanimous vote of
--------------
all directors of Borrower, which vote must include the vote of one (1)
Independent Director, is necessary to do any of the following: (v) amend,
alter, change or repeal the provisions of Borrower's Organizational
Documents providing for restrictions similar to the provisions of Section
-------
6.1.23; (w) dissolve or liquidate, in whole or in part, consolidate or
------
merge with or into any other Person or convey, sell or transfer all or
substantially all of the assets of Borrower to any Person (other than any
Transfer of Borrower's assets that constitutes an Asset Sale and is made in
accordance with Section 3.3); (x) approve any act by Borrower as a result
-----------
of which Borrower would be dissolved; (y) engage in any business or
activity other than the business activities in which Borrower engages as of
the date of this Agreement; (d) incur or assume any indebtedness, except
such indebtedness as may be incurred or assumed in the ordinary course of
conducting its business; and (z) institute any Bankruptcy Action,
then and in every such Event of Default (other than an Event of Default
described in clause (xvi) above) and at any time thereafter during the
------------
continuance thereof, Lender may, subject to the requirements of applicable law,
in addition to any other rights or remedies available to it pursuant to this
Agreement and the other Loan Documents or at law or in equity, take such action,
without notice or demand, that Lender deems advisable to protect and enforce its
rights against Borrower and in and to all or any of the Properties and/or the
Account Collateral, including declaring the outstanding Indebtedness or any
portion thereof to be immediately due and payable, and may enforce or avail
itself of any or all rights or remedies provided in the Loan Documents,
including all rights or remedies available at law or in equity; and upon any
Event of Default described in clause (xvi) above, subject to the requirements of
------------
applicable law, the outstanding Indebtedness and all other obligations of
Borrower hereunder and under the other Loan Documents shall immediately and
automatically become due and payable, without notice or demand, and Borrower
hereby expressly waives any such notice or demand, anything contained herein or
in any other Loan Document to the contrary notwithstanding.
SECTION 8.2 REMEDIES. (a) Upon the occurrence and during the
----------- --------
continuance of an Event of Default, all or any one or more of the rights,
powers, privileges and other remedies available to Lender under this Agreement
or any of the other Loan Documents or at law or in equity may be exercised by
Lender at any time and from time to time, whether or not all or any of the
outstanding Indebtedness shall be declared due and payable, and whether or not
Lender shall have commenced any foreclosure proceeding or other action for the
enforcement of its rights and remedies under any of the Loan Documents with
respect to all or any of the Collateral.
(b) If Lender forecloses its Lien on the Pledged Shares, Lender shall
foreclose its Lien on all (but not less than all) of the Pledged Shares.
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(c) Nothing contained herein or in any other Loan Document shall be
construed as requiring Lender to resort to any Individual Property for the
satisfaction of any of the outstanding Indebtedness in preference or priority to
any other Individual Property or in preference or priority to any other asset of
Borrower, and Lender may seek satisfaction out of all of the Properties and
other assets of Borrower or any one or part thereof, in its absolute discretion
in respect of the Indebtedness.
SECTION 8.3 REMEDIES CUMULATIVE. The rights, powers and remedies of
----------- -------------------
Lender under this Agreement shall be cumulative and not exclusive of any other
right, power or remedy which Lender may have against Borrower pursuant to this
Agreement or the other Loan Documents, or existing at law or in equity or
otherwise. Lender's rights, powers and remedies shall be concurrent and may be
pursued independently, singly, successively, together or otherwise, at such time
and in such order as Lender may determine, to the fullest extent permitted by
law, without impairing or otherwise affecting the other rights and remedies of
Lender permitted by law, equity or contract or as set forth herein or in the
other Loan Documents. No delay or omission to exercise any remedy, right or
power accruing upon an Event of Default shall impair any such remedy, right or
power or shall be construed as a waiver thereof, but any such remedy, right or
power may be exercised from time to time and as often as may be deemed
expedient. A waiver of one Default or Event of Default shall not be construed to
be a waiver of any subsequent Default or Event of Default or to impair any
remedy, right or power consequent thereon.
SECTION 8.4 CURE OF INDIVIDUAL PROPERTY DEFAULTS. Prior to the
----------- ------------------------------------
Conversion Date, if an Individual Property Default shall have occurred and be
continuing, Borrower may cure such Individual Property Default (i) by paying to
Lender in cash the greater of (x) the Minimum Release Price in respect of such
Individual Property, and (y) the amount (if any) required to be prepaid so that
the outstanding principal amount of the Revolving Loans does not exceed the
Borrowing Base then in effect (after giving effect to the proposed release),
each of the foregoing in payment of principal of the Revolving Loans, and (z)
any other amount due to Lender under Section 3.3, and (ii) otherwise satisfying
-----------
all provisions of Section 3.3 (except the provisions of Section 3.3 prohibiting
---------- ------ -----------
the applicable Individual Property Default). Notwithstanding the foregoing, (1)
Borrower shall only have the right to cure an Individual Property Default as
provided in this Section 8.4 within five (5) Business Days after Borrower
-----------
obtains actual knowledge of the existence of such Individual Property Default
and (2) nothing in this Section 8.4 (including any proposed cure of the
-----------
applicable Individual Property Default) shall limit or impair any of Lender's
rights, powers, privileges and other remedies with respect to such Individual
Property Default prior to any cure by Borrower, or with respect to any other or
subsequent Individual Property Default, Default or Event of Default.
IX. MISCELLANEOUS
-------------
SECTION 9.1 SURVIVAL. This Agreement and all covenants, agreements,
----------- --------
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Applicable Loan and
the execution and delivery to Lender of the Promissory Note, and shall continue
in full force and effect so long as all or any of the Indebtedness is
outstanding and unpaid. All covenants, promises and agreements in this
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Agreement contained, by or on behalf of Borrower, shall inure to the benefit of
the respective legal representatives, successors and assigns of Lender.
SECTION 9.2 LENDER'S DISCRETION. Whenever pursuant to this
----------- -------------------
Agreement or any other Loan Document, Lender exercises any right given to it to
approve, disapprove, make a determination, exercise discretion or consent, or
any arrangement or term is to be satisfactory to Lender, the decision of Lender
to approve, disapprove, make a determination, exercise discretion or consent, or
to decide whether arrangements or terms are satisfactory or not satisfactory
shall (except as otherwise specifically herein provided) be in the sole
discretion of Lender and shall be final and conclusive.
SECTION 9.3 GOVERNING LAW. (a) The proceeds of the Promissory Note
----------- -------------
delivered pursuant hereto will be disbursed from the State of New York, which
State the parties agree has a substantial relationship to the parties and to the
underlying transaction embodied hereby, and in all respects, including matters
of construction, validity and performance, this Agreement and the obligations
arising hereunder shall be governed by, and construed in accordance with, the
laws of the State of New York applicable to contracts made and performed in such
State and any applicable law of the United States of America, except that at all
times the provisions for the creation, perfection, and enforcement of the Liens
and security interests created pursuant hereto and pursuant to the other Loan
Documents shall, to the extent required by applicable law, be governed by and
construed according to the law of the State in which the property encumbered by
such Lien or security interest is located, it being understood that, to the
fullest extent permitted by law of such State, the law of the State of New York
shall govern the validity and the enforceability of all Loan Documents and all
of the Indebtedness or obligations arising hereunder or thereunder. To the
fullest extent permitted by law, Borrower hereby unconditionally and irrevocably
waives any claim to assert that the law of any other jurisdiction governs this
Agreement and the Promissory Note. Lender and Borrower hereby agree, in
accordance with (S) 5-1401 of the New York General Obligations Law, that this
Agreement and the Promissory Note shall be governed by and construed in
accordance with the laws of the State of New York.
(b) To the extent permitted by applicable law, any legal suit, action
or proceeding against Lender or Borrower arising out of or relating to this
Agreement shall be instituted in any federal or state court in New York, New
York (County of New York), pursuant to (S) 5-1402 of the New York General
Obligations Law, and Borrower waives any objection which it may now or hereafter
have to the laying of venue of any such suit, action or proceeding, and Borrower
hereby irrevocably submits to the jurisdiction of any such court in any suit,
action or proceeding. Borrower does hereby agree to accept and acknowledge
service of any and all process which may be served in any such suit, action or
proceeding in any federal or state court in New York, New York at Borrower's
address as set forth in the preamble of this Agreement, and agrees that service
of process upon Borrower at said address and written notice of said service of
Borrower mailed or delivered to Borrower in the manner provided herein shall be
deemed in every respect effective service of process upon Borrower, in any such
suit, action or proceeding in the State of New York. Lender shall mail or
deliver in the manner provided above courtesy copies of any such service upon
Borrower to Health Science Properties, Inc., 9737 Aero Drive, Suite 140, San
Diego, CA 92123; provided, however, that the failure of delivery and/or receipt
-------- -------
of such courtesy
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copies shall not impair the effectiveness of any such service. Borrower (i)
shall give prompt notice to Lender of any changed address of Borrower, and (ii)
may, at any time and from time to time designate an authorized agent for
acceptance of service of process with an office in New York, New York (which
office shall be designated as the address for service of process).
SECTION 9.4 MODIFICATION, WAIVER IN WRITING. No modification,
----------- -------------------------------
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, or of the Promissory Note, or of any other Loan Document, nor consent
to any departure by Borrower therefrom, shall in any event be effective unless
the same shall be in a writing signed by the party against whom enforcement is
sought, and then such waiver or consent shall be effective only in the specific
instance, and for the purpose, for which given. Except as otherwise expressly
provided herein, no notice to or demand on Borrower shall entitle Borrower to
any other or future notice or demand in the same, similar or other
circumstances.
SECTION 9.5 DELAY NOT A WAIVER. Neither any failure nor any delay on
----------- ------------------
the part of Lender in insisting upon strict performance of any term, condition,
covenant or agreement, or exercising any right, power, remedy or privilege
hereunder, or under the Promissory Note or under any other Loan Document, or any
other instrument given as security therefor, shall operate as or constitute a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege. In particular, and not by way of limitation, by accepting payment
after the due date of any amount payable under this Agreement, the Promissory
Note or any other Loan Document, Lender shall not be deemed to have waived any
right either to require prompt payment when due of all other amounts due under
this Agreement, the Promissory Note or the other Loan Documents, or to declare a
default for failure to effect prompt payment of any such other amount.
SECTION 9.6 NOTICES. All notices, consents, approvals and requests
----------- -------
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid, (b) expedited
prepaid delivery service, either commercial or United States Postal Service,
with proof of attempted delivery, or (c) (except in respect of Completed Loan
Requests) telecopier (with answer back acknowledged), addressed if to Lender at
its address set forth on the first page hereof, and if to Borrower at its
address set forth on the first page hereof, or at such other address as shall be
designated from time to time by either party hereto, as the case may be, in a
written notice to the other party hereto in the manner provided for in this
Section. A courtesy copy of all notices, consent, approvals and requests
directed to Borrower (other than statements setting forth the monthly amount
payable under the Promissory Note) shall be delivered to Health Science
Properties, Inc., 9737 Aero Drive, Suite 140, San Diego, CA 92123 and to
Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Suite 3400, Los
Angeles, California 90071, Attn: Rand S. April; provided, that Lender's
--------
failure to deliver a courtesy copy of any notice, consent, approval or request
hereunder shall not impair the sufficiency or effectiveness of any notices,
consents, approval or requests delivered by Lender to Borrower or any other
Person hereunder or under any of the other Loan Documents. Lender's telecopy
number is (212) 713-7947; Borrower's telecopy number is (818) 578-0770. A notice
shall be deemed to have been given: in the case of hand delivery, at the time of
delivery; in the case of registered or certified mail, when delivered or the
first attempted delivery on a Business Day; in the case of expedited
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prepaid delivery, upon the first attempted delivery on a Business Day; or if
telecopied, upon receipt.
SECTION 9.7 TRIAL BY JURY. BORROWER AND LENDER EACH HEREBY AGREES
----------- -------------
TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
LENDER/BORROWER RELATIONSHIP BETWEEN THEM. The scope of this waiver is intended
to encompass any and all disputes that may be filed in any court and that relate
to the subject matter of this transaction, including contract claims, tort
claims, breach of duty claims, and all other common laws and statutory claims.
Borrower and Lender each acknowledges that this waiver is a material inducement
to enter into this Agreement, and that each will continue to rely on the waiver
in their related future dealing. Borrower warrants and represents that it has
reviewed this waiver with its legal counsel, and that it knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THE LOAN FACILITY OR THE ENVIRONMENTAL INDEMNITY. In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the court.
SECTION 9.8 HEADINGS. The Article and/or Section headings and the
----------- --------
Table of Contents in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
SECTION 9.9 SEVERABILITY. If any provision of this Agreement or any
----------- ------------
of the other Loan Documents or the application thereof to any Person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, then neither the remainder of this Agreement or the other Loan
Documents nor the application of such provision to other Persons or
circumstances nor the other instruments referred to hereinabove shall be
affected thereby, but rather shall be enforced to the greatest extent permitted
by applicable Legal Requirements.
SECTION 9.10 PREFERENCES. To the extent Borrower makes a payment or
------------ -----------
payments to Lender for Borrower's benefit, which payment or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver 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 proceeds received, the obligations
hereunder or under any other Loan Document or part thereof intended to be
satisfied shall be revived and continue in full force and effect, as if such
payment or proceeds had not been received by Lender.
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SECTION 9.11 WAIVER OF NOTICE. Borrower hereby expressly waives the
------------ ----------------
right to receive any notices of any nature whatsoever from Lender except with
respect to matters for which this Agreement or the other Loan Documents
specifically and expressly provide for the giving of notice by Lender to
Borrower and except with respect to matters for which Borrower is not, pursuant
to applicable laws, permitted to waive. To the maximum extent permitted by
applicable laws, Borrower hereby expressly waives the right to receive any
notice from Lender with respect to any matter for which this Agreement or the
other Loan Documents do not specifically and expressly provide for the giving of
notice by Lender to Borrower.
SECTION 9.12 REMEDIES OF BORROWER. In the event that a claim or
------------ --------------------
adjudication is made that Lender or its agents, including Servicer, have acted
unreasonably or unreasonably delayed acting in any case where by law or under
this Agreement or the other Loan Documents, Lender or such agent, as the case
may be, has an obligation to act reasonably or promptly, Borrower agrees that
neither Lender nor its agents shall be liable for any monetary damages, and
Borrower's sole remedies shall be limited to commencing an action seeking
injunctive relief or declaratory judgment. The parties hereto agree that any
action or proceeding to determine whether Lender has acted reasonably shall be
determined by an action seeking declaratory judgment.
SECTION 9.13 EXPENSES; INDEMNITY. (a) Borrower covenants and agrees
------------ -------------------
to reimburse Lender upon receipt of written notice from Lender for all loss,
damage, liability or reasonable out-of-pocket expense or cost (including
reasonable attorneys' fees and disbursements in connection with any then pending
or potential suit, action, proceeding, appellate proceeding or post-judgment
action and all required service or use taxes) incurred by Lender in connection
with the preparation, negotiation, execution and delivery of this Agreement and
the other Loan Documents and the consummation of the transactions contemplated
hereby and thereby (subject to the provisions of Section 4.2.25) and all the
--------------
reasonable costs of obtaining all opinions of counsel (including any opinions
reasonably requested by Lender as to any legal matters arising under this
Agreement or the other Loan Documents or with respect to the Properties or the
Account Collateral); the negotiation, preparation, execution and delivery of any
consents, amendments, waivers or other modifications to this Agreement or the
other Loan Documents, and any other documents or matters if requested by
Borrower (including reasonable attorney's fees and expenses); the filing and
recording fees and expenses, title insurance and reasonable fees and expenses of
counsel for providing to Lender all required legal opinions, and other similar
expenses incurred in creating and perfecting Liens in favor of Lender pursuant
to this Agreement or the other Loan Documents; enforcing or preserving any
rights in response to third party claims or prosecuting or defending any action
or proceeding or other litigation, in each case against, under, affecting or
relating to Borrower, this Agreement or the other Loan Documents, the
Properties, the Account Collateral, or any other security given for the
Applicable Loan; and enforcing any obligations of, or paying or performing any
defaulted obligations of, or collecting any payments due from, Borrower under
this Agreement or the other Loan Documents or with respect to the Properties or
the Account Collateral or in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement in the nature of a "work-
out" or of any insolvency, bankruptcy, rehabilitation or similar proceedings in
respect of Borrower or HSP or any of their respective successors, or an
assignment by any of the foregoing for the benefit of its creditors; provided,
--------
however, that Borrower shall not be liable for the payment of
- -------
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any costs and expenses described in clauses (i) through (v) above to the extent
----------- ---
the same arise by reason of the gross negligence, illegal acts, fraud or willful
misconduct of Lender, its agents, officers, directors, contractors or employees.
(b) In addition to but without duplication of the payment of expenses
pursuant to Section 9.13(a) above or the indemnification provided for in the
---------------
Environmental Indemnity, whether or not the transactions contemplated hereby
shall be consummated, Borrower agrees to indemnify, pay and hold harmless the
Indemnitees, and each of them, from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgements, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including
the reasonable fees and disbursements of counsel for such Indemnitee in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated a
party thereto), that may be imposed on, incurred by, or asserted against such
Indemnitee in any manner relating to or arising out of (i) any breach by
Borrower of its obligations under, or any material misrepresentation by Borrower
contained in this Agreement, or (ii) the use or intended use of the proceeds of
the Applicable Loan (collectively, the "INDEMNIFIED LIABILITIES"); provided,
--------
however, that Borrower shall not have any obligation to an Indemnitee hereunder
- -------
to the extent that such Indemnified Liabilities arise from gross negligence,
illegal acts, fraud or willful misconduct of such Indemnitee, its agents,
officers, directors, contractors or employees. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it violates any law or public policy,
Borrower shall contribute the maximum portion that it is permitted to pay and
satisfy under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.
(c) Borrower hereby acknowledges and agrees that each Indemnitee
(other than Lender) is an intended third-party beneficiary of this Section 9.13.
------------
Promptly after receipt by an Indemnitee of notice of any claim or the
commencement of any action for which indemnity may be sought against Borrower
under this Agreement or any other Loan Document, such Indemnitee shall notify
Borrower in writing of the receipt of such claim. Borrower shall be entitled to
assume the defense of any claim with counsel reasonably satisfactory to such
Indemnitee, and after notice from Borrower to such Indemnitee of its election so
to assume and actual assumption of the defense thereof with counsel reasonably
satisfactory to such Indemnitee, Borrower shall not be liable to such Indemnitee
under any indemnity agreement set forth herein or in any other Loan Document for
any legal or other expense subsequently incurred by such Indemnitee in
connection with the defense thereof other than reasonable fees and expenses of
separate counsel retained by such Indemnitee if (a) Borrower and such Indemnitee
shall have agreed to the retention of such counsel or (b) such Indemnitee shall
have reasonably concluded that representation of Borrower and such Indemnitee by
the same counsel would be inappropriate due to actual or potential conflicting
interests between them. Borrower shall have no liability for any settlement of
any action or claim effected without its consent, but if settled with such
consent or if there be a final judgment for the plaintiff not stayed by appeal,
Borrower agrees to indemnify the Indemnitee from and against any loss or
liability required to be paid by the Indemnitee by reason of such settlement or
judgment if and to the extent required by, and subject to the limitations of,
the terms of this Agreement. Borrower agrees to
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consult in advance with Lender with respect to the terms of any proposed waiver,
release or settlement of any claim, liability, proceeding or other action
against Borrower to which any Indemnitee may also be subject, and to use
reasonable efforts to afford Lender and any such Indemnitee the opportunity to
join in such waiver, release or settlement.
SECTION 9.14 EXHIBITS, SCHEDULES INCORPORATED. The Exhibits and
------------ --------------------------------
Schedules annexed hereto are hereby incorporated herein as a part of this
Agreement with the same effect as if set forth in the body hereof.
SECTION 9.15 NO JOINT VENTURE OR PARTNERSHIP. Borrower and Lender
----------- -------------------------------
intend that the relationships created hereunder and under the other Loan
Documents be solely that of borrower and lender. Nothing herein or therein is
intended to create a joint venture, partnership, tenancy-in-common, or joint
tenancy relationship between Borrower and Lender nor to grant Lender any
interest in the Properties other than that of mortgagee or lender.
SECTION 9.16 PUBLICITY. Upon the closing of the origination,
------------ ---------
purchase, sale, resale or securitization of the Properties or the Loan Facility,
Lender and its Affiliates shall be entitled, but not required, to advertise such
origination, purchase, sale, resale or securitization from time to time in media
selected by Lender or its Affiliates at their expense, provided in each case,
--------
such advertisement is approved by Borrower (such approval not to be unreasonably
withheld or delayed) and complies with applicable securities laws. Unless
otherwise required by law, Borrower and its Affiliates shall not advertise the
origination, purchase, sale, resale or securitization of the Properties or the
Loan Facility prior to the closing of the resale or securitization of the Loan
Facility by Lender. Upon the closing of the origination, purchase, sale, resale
or securitization of the Properties and the Loan Facility by Lender, Borrower
shall be entitled, but not required, to advertise the same from time to time in
media selected by Borrower at its expense, provided that Borrower's
--------
advertisements shall include a disclosure, in each case approved in writing by
Lender, that Lender originated the Applicable Loan.
SECTION 9.17 WAIVER OF MARSHALLING OF ASSETS. To the fullest extent
------------ -------------------------------
Borrower may legally do so, Borrower waives all rights to a marshalling of the
assets of Borrower, Borrower's partners, if any, and others with interests in
Borrower, and of the Properties, or to a sale in inverse order of alienation in
the event of foreclosure of the interests hereby created, and agrees not to
assert any right under any laws pertaining to the marshalling of assets, the
sale in inverse order of alienation, homestead exemption, the administration of
estates of decedents, or any other matters whatsoever to defeat, reduce or
affect the right of Lender under the Loan Documents to a sale of or realization
upon the Properties, the Account Collateral or any portion thereof for the
collection of the outstanding Indebtedness without any prior or different resort
for collection, of the right of Lender or any deed of trust trustee to the
payment of the outstanding Indebtedness out of the net proceeds of the sale of
the Properties, the Account Collateral or any portion thereof in preference to
every other claimant whatsoever.
SECTION 9.18 WAIVER OF COUNTERCLAIM. Borrower hereby agrees that it
------------ ----------------------
will not assert or impose a counterclaim in any action or proceeding brought
against it by Lender or Lender's agents in respect of the Applicable Loan or the
transactions contemplated by the Loan Documents, provided that Borrower may
--------
assert or impose any compulsory counterclaim in any
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such action or proceeding or any other claim which by law may not be asserted or
imposed in a separate action or proceeding. This Section 9.18 does not waive or
------------
impair the rights of Borrower to assert or impose a claim in a separate action
or proceeding.
SECTION 9.19 CONFLICT; CONSTRUCTION OF DOCUMENTS. In the event of
------------ -----------------------------------
any conflict between the provisions of this Agreement and any of the other Loan
Documents, the provisions of this Agreement shall control, other than a conflict
with the HSP Guaranty, in which case the provisions of the HSP Guaranty shall
control. The parties hereto acknowledge that they were represented by counsel in
connection with the negotiation and drafting of the Loan Documents and other
documents and instruments executed and delivered in connection therewith and
that such Loan Documents and other documents and instruments (including the
Environmental Indemnity) shall not be subject to the principle of construing
their meaning against the party which drafted the same.
SECTION 9.20 BROKERS AND FINANCIAL ADVISORS. Borrower hereby
------------ ------------------------------
represents that it has dealt with no financial advisors, brokers, underwriters,
placement agents, agents or finders in connection with the transactions
contemplated by this Agreement. Borrower hereby agrees to indemnify and hold
harmless Lender and its Affiliates and their respective agents, representatives
and employees from and against any and all claims, liabilities, costs and
expenses of any kind in any way relating to or arising from a claim by any
Person that such Person acted on behalf of Borrower or its Affiliates in
connection with the transactions contemplated herein. The provisions of this
Section 9.20 shall survive the expiration and termination of this Agreement and
- ------------
the repayment of the Indebtedness.
SECTION 9.21 PRIOR AGREEMENTS. This Agreement and the other Loan
------------ ----------------
Documents contain the entire agreement of the parties hereto and thereto in
respect of the transactions contemplated hereby and thereby, and all prior
agreements among or between such parties, whether oral or written, are
superseded by the terms of this Agreement and the other Loan Documents.
SECTION 9.22 MAXIMUM RATE OF INTEREST. This Agreement, the Promissory
------------ ------------------------
Note and the other Loan Documents are subject to the express condition that at
no time shall Borrower be obligated or required to pay interest on the
Applicable Loan at a rate that could subject Lender to either civil or criminal
liability as a result of being in excess of the highest lawful rate permitted
under applicable usury law to be charged to Maker (the "MAXIMUM RATE"). If, by
the terms of this Agreement, the Promissory Note or any of the other Loan
Documents, Borrower is at any time required or obligated to pay interest on the
Applicable Loan at a rate in excess of such Maximum Rate, the rate of interest
applicable to the Applicable Loan 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
deemed to have been the result of a mistake on the part of both Borrower and
Lender, and Lender shall promptly credit such excess (to the extent only of such
interest payments in excess of the Maximum Rate) against the unpaid principal
amount of the Applicable Loan to which such excess may lawfully be credited, and
any portion of such excess payments not capable of being so credited shall be
refunded to Borrower or otherwise disposed of as directed by the order of a
court of competent jurisdiction.
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SECTION 9.23 RESTATEMENT. This Agreement amends, restates and
------------ -----------
supersedes the First Restated Loan Agreement. All references in the Loan
Documents or any other document or instrument executed or delivered in
connection therewith to the Loan Agreement shall hereafter be deemed to be
references to this Agreement. It is the intention of the parties hereto that
this Agreement shall not constitute a novation or discharge of the indebtedness
evidenced by the Original Note, the First Restated Note, the Original Loan
Agreement or the First Restated Loan Agreement, nor shall this Agreement affect
or impair the priority of the Liens created by the Mortgage or Assignment of
Leases in respect of the 1413 Research Boulevard Property, it being the
intention of the parties hereto to preserve all Liens (other than any Liens or
pledges of the HSP stock, rights in connection with the Holdings Guaranty and
the Holdings Pledge, all of which have been released) securing payment of the
Indebtedness, which Liens are acknowledged by Borrower to be valid and
subsisting against the Collateral in respect of the 1413 Research Boulevard
Property. HSP, the borrower under the Original Loan Agreement and the First
Restated Loan Agreement, shall be liable under this Agreement for obligations
arising from and after the date hereof only as a guarantor pursuant to and in
accordance with the HSP Guaranty.
SECTION 9.24 COUNTERPARTS. This Agreement and any amendments,
------------ ------------
waivers, consents or supplements hereto or in connection herewith may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
SECTION 9.25 APPLICATION OF PAYMENTS. Except as otherwise provided in
------------ -----------------------
this Agreement and the other Loan Documents, each and every payment made by
Borrower or HSP to Lender in accordance with the terms of this Agreement and the
other Loan Documents and all other proceeds received by Lender with respect to
the Indebtedness shall be applied in the following order of priority: (i) to pay
the costs and expenses (including costs pursuant to Section 2.6.6) of Lender for
-------------
which Lender is entitled to reimbursement from Borrower under this Agreement or
the other Loan Documents, and that have not previously been reimbursed by
Borrower, together with accrued interest thereon (if any); then (ii) to pay the
----
Prepayment Premium (if applicable); then (iii) to pay accrued interest on the
----
Applicable Loan, including interest accrued at the Default Rate; and then (iv)
----
to reduce the outstanding principal amount of the Applicable Loan.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized representatives, all as of the day and
year first above written.
LENDER:
PAINEWEBBER INCORPORATED,
a Delaware corporation
By: /s/ Kevin D. Cox
-------------------------------
Name: Kevin D. Cox
Title: Vice President
BORROWER:
HSP-QRS CORP.,
a Maryland corporation
By: /s/ Joel S. Marcus
-------------------------------
Name: Joel S. Marcus
Title: Chief Operating Officer
S-1
<PAGE>
EXHIBIT 10.18
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT
This FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment") is made as of January 13, 1997 by and between PAINEWEBBER
INCORPORATED, a Delaware corporation, as original lender ("PaineWebber"), PAINE
WEBBER REAL ESTATE SECURITIES INC. a Delaware corporation, as noteholder
("PWRESI") and HSP-QRS CORP., a Delaware corporation, as borrower ("Borrower").
R E C I T A L S:
WHEREAS, Health Science Properties, Inc., a Maryland corporation ("HSP")
and PaineWebber entered into that certain Loan Agreement dated as of July 2,
1996 (the "Original Loan Agreement");
WHEREAS, PaineWebber's interest under the Original Loan Agreement and
the loan documents related thereto has been purchased by PWRESI, and thereafter,
PWRESI's interest under the Original Loan Agreement and the loan documents
related thereto has been purchased by PaineWebber;
WHEREAS, HSP and PaineWebber have amended and restated the Original Loan
Agreement in its entirety to, inter alia, modify the credit facility provided
therein, and to increase the maximum aggregate principal amount available under
such credit facility to $75,000,000.00, pursuant to that certain Amended and
Restated Loan Agreement dated as of September 9, 1996 between HSP and
PaineWebber (the "First Restated Loan Agreement"), all upon the terms and
conditions more particularly set forth therein;
WHEREAS, HSP has assigned to Borrower it rights under the First Restated
Loan Agreement and the loan documents related thereto, and Borrower has assumed
HSP's obligations thereunder;
WHEREAS, PaineWebber and Borrower have further amended and restated the
First Restated Loan Agreement, and modified the credit facility provided
therein, pursuant to and in accordance with the terms of that certain Second
Amended and Restated Loan Agreement dated as of September 9, 1996 between
Borrower and PaineWebber (the "Existing Loan Agreement"; as amended hereby, and
as the same may hereafter be amended, restated, supplemented or otherwise
modified from time to time, the "Loan Agreement"; capitalized terms used herein
without definition have the respective meanings assigned thereto in the
Existing Loan Agreement);
WHEREAS, PaineWebber's interest under the Existing Loan Agreement and
the loan documents related thereto has been purchased by PWRESI;
<PAGE>
WHEREAS, Paine Webber Real Estate Holdings Inc., a Delaware corporation
("HOLDINGS") and PW Realty Partners, LLC, a Delaware limited liability company
("PARTNERS"; together with Holdings, collectively, "SELLER"), as seller, and
Borrower, as buyer, have entered into that certain Agreement for Sale and
Purchase of Membership Interests dated as of the date hereof (the "PURCHASE
AGREEMENT"), pursuant to which Seller has agreed to sell to Borrower, and
Borrower has agreed to buy from Seller, all of the membership interests in PW
Acquisitions I, LLC, a Delaware limited liability company ("LLC"), on the terms
and conditions set forth therein;
WHEREAS, the parties hereto desire to amend the Existing Loan Agreement
to terminate Lender's commitment to make any Revolving Loans from and after the
date hereof, subject to and in accordance with the terms of this Amendment;
NOW, THEREFORE, in consideration of the matters described in the
foregoing recitals, and the mutual covenants and agreements contained herein and
for $10.00 in hand paid and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
bound hereby, the parties hereto hereby agree as follows:
1. REDUCTION OF MAXIMUM COMMITMENT AMOUNT. Effective as of the date
hereof, the "Maximum Commitment Amount", as defined in Section 1.1 of the
Existing Loan Agreement, shall mean Forty-Four Million Four Hundred Thousand
Dollars ($44,400,000.00).
2. TERMINATION OF OBLIGATION TO PAY FACILITY FEES. Notwithstanding
anything to the contrary contained in the Existing Loan Agreement, including
without limitation Section 2.1.5 thereof, Borrower shall have no obligation to
pay to Lender, and Lender shall have no right to receive from Borrower, the
facility fees specified in Section 2.1.5 of the Existing Loan Agreement accruing
from and after the date of this Amendment.
3. LENDER'S CONSENT. Lender hereby consents to Borrower entering into
the Purchase Agreement and the Management Agreement, and consummating the
transactions contemplated thereby, and Lender hereby acknowledges and agrees
that entering into such agreements, performing the obligations of Borrower
thereunder, and consummating the transactions contemplated thereby will not
constitute a default under any provision of the Agreement, including without
limitation, sections 7.1.1, 7.1.3, 7.1.6, 7.1.7, 7.1.12, 7.1.14 or 7.1.15.
4. AMENDMENT TO SECTION 3.6.4: "BACK-END FEE". Clauses (I)(a) and (I)(b)
of Section 3.6.4(i) are hereby amended to read as follows:
(I)(a) if the Refinancing occurs on or prior to the second anniversary of
the Closing Date, Eight Hundred Eight-Eight Thousand Dollars
($888,000.00)(i.e., two percent (2%) of $44,400,000.00); or (b) if the
Refinancing occurs after the
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second but on or prior to the third anniversary of the Closing Date, Four
Hundred Forty-Four Thousand Dollars ($444,000.00)(i.e., one percent (l%)
of $44,400,000.00),
5. AMENDMENT TO SECTION 8.1: "EVENT OF DEFAULT". The following are
hereby added as new clauses (xxvii) and (xxviii) to the definition of "Event of
Default" set forth in Section 8.1 of the Existing Loan Agreement:
(xxvii) if Borrower shall default in the performance of any of its
obligations under the Purchase Agreement, including without limitation
Borrower's obligation to pay the entire Purchase Price (as defined in the
Purchase Agreement) on the Closing Date (as defined in the Purchase Agreement);
or
(xxviii) if an Event of Default shall occur under, and as defined in,
that certain Management Agreement dated as of January 13, 1997, as the same may
be amended, restated, supplemented or otherwise modified from time to time (as
amended, restated, supplemented or otherwise modified from time to time, the
"MANAGEMENT AGREEMENT"),
6. MODIFICATION, WAIVER IN WRITING. No modification, amendment,
extension, discharge, termination or waiver of any provision of this Amendment,
or of the Loan Agreement, the Promissory Note, or of any other Loan Document,
nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in a writing signed by the party against whom
enforcement is sought, and then such waiver or consent shall be effective only
in the specific instance, and for the purpose, for which given. Except as
otherwise expressly provided herein, no notice to or demand on Borrower shall
entitle Borrower to any other or future notice or demand in the same, similar or
other circumstances.
7. HEADINGS. The Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
8. CONSTRUCTION. Each party hereto hereby acknowledges that (i) it is of
equal bargaining strength with the other party, and (ii) any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not apply in the interpretation of this Amendment, any
portion hereof or any amendments hereto.
9. BROKERS AND FINANCIAL ADVISORS. Borrower hereby represents that it
has dealt with no financial advisors, brokers, underwriters, placement agents,
agents or finders in connection with this Amendment for which a fee or
commission is owing. Borrower hereby agrees to indemnify and hold harmless
Lender and its Affiliates and their respective agents, representatives and
employees from and against any and all claims,
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liabilities, costs and expenses of any kind in any way relating to or
arising from a claim by any Person that such Person acted on behalf of Borrower
or its Affiliates in connection with the transactions contemplated herein. The
provisions of this Section shall survive the expiration and termination of the
Loan Agreement and the repayment of the Indebtedness.
10. PRIOR AGREEMENTS. This Amendment and the Existing Loan Agreement, as
amended hereby, and the other Loan Documents contain the entire agreement of
the parties hereto and thereto in respect of the transactions contemplated
hereby and thereby, and all prior agreements among or between such parties,
whether oral or written, are superseded by the terms of the Existing Loan
Agreement, as amended by this Amendment, and the other Loan Documents.
11. RATIFICATION. The Existing Loan Agreement, as amended hereby, is
hereby ratified and confirmed by the parties hereto.
12. GOVERNING LAW. The laws of the State of New York shall govern the
interpretation and validity enforcement of this Amendment, without regard to
conflicts of law principles.
13. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
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4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized representatives as of the day and year first
above written.
PAINEWEBBER INCORPORATED,
a Delaware corporation
By: /s/ Kevin D. Cox
-----------------
Kevin D. Cox
Vice President
PAINE WEBBER REAL ESTATE SECURITIES INC.,
a Delaware corporation
By: /s/ Kevin D. Cox
-----------------
Kevin D. Cox
Vice President
HSP-QRS CORP.,
a Maryland corporation
By: /s/ Joel S. Marcus
------------------
Name: Joel S. Marcus
Title:
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EXHIBIT 10.19
AMENDED AND RESTATED
PROMISSORY NOTE
$75,000,000 New York, New York
As of September 9, 1996
FOR VALUE RECEIVED, HEALTH SCIENCE PROPERTIES, INC., a Maryland
corporation (together with its permitted successors and assigns, "BORROWER"),
hereby promises to pay to the order of PAINEWEBBER INCORPORATED, a Delaware
corporation (together with its successors and assigns, "Lender"), in lawful
money of the United States of America in immediately available funds, at
Lender's offices located at 1285 Avenue of the Americas, New York, NY 10019,
attention: William W. Evans III, or at such other place in the United States
as Lender may from time to time designate in writing for such purpose, on or
before the Maturity Date the principal sum of SEVENTY-FIVE MILLION DOLLARS
($75,000,000), or, if less, the then unpaid principal amount of the
Applicable Loan shown on the Note Record attached hereto (and any
continuations thereof) made to Borrower by Lender pursuant to the Amended and
Restated Loan Agreement dated and effective as of September 9, 1996, by and
between Borrower and Lender (as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time, the "LOAN AGREEMENT").
Capitalized terms not otherwise defined in this Promissory Note shall have
the meanings ascribed to such terms in the Loan Agreement.
Borrower promises also to pay interest on the unpaid principal
amount of the Applicable Loan in like money at said office from the Closing
Date until paid at the rates and at the times provided in Sections 2.5 and
2.6 of the Loan Agreement. In addition, Borrower promises to pay installments
of principal on the Converted Fixed Rate Loan in like money at said office
from the Conversion Date until paid at the rates and at the times provided in
Section 2.4 of the Loan Agreement.
This Promissory Note amends, restates and supersedes that certain
Promissory Note dated as of July 2, 1996 from Borrower, in favor of Lender,
in the principal amount of $15,900,000 (the "ORIGINAL NOTE"), and continues
to evidence without interruption or novation all indebtedness evidenced by
the Original Note that remains outstanding pursuant to Section 2.1.2 of the
Loan Agreement. The Original Note, as
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so assigned, assumed, modified, amended and restated, is hereby ratified and
confirmed in all respects by Borrower.
This Promissory Note is the Promissory Note referred to in, and
evidences indebtedness incurred under, the Loan Agreement and is entitled to
the benefits thereof and of the other Loan Documents, to which reference is
made for (i) a description of the security for this Promissory Note and (ii)
a statement of the terms and conditions on which the Borrower is permitted
and required to make prepayments and repayments of principal of the
indebtedness evidenced by the Promissory Note and on which such indebtedness
may be declared to be immediately due and payable and (iii) a statement of
the terms and conditions pursuant to which Revolving Loans may be converted
to the Converted Fixed Rate Loan.
Upon the occurrence and during the continuance of an Event of
Default, the principal of and accrued interest on this Promissory Note may
be, or be declared to be, due and payable in the manner and with the effect
provided in the Loan Agreement.
Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Promissory Note, except as expressly otherwise
provided in any of the Loan Documents.
Borrower, to the extent permitted by applicable law, also hereby
waives and releases all benefit that might accrue to Borrower by virtue of
any present or future laws exempting the 1413 Research Boulevard Property,
the other Individual Properties, the Assets, or any other property, real or
personal, or any part of the proceeds arising from any sale of any of the
foregoing, from attachment, levy, or sale under execution, or providing for
any stay of execution to be issued on any judgment recovered on this
Promissory Note (excepting only any stay of execution) or in any action to
foreclose the Mortgage encumbering the 1413 Research Boulevard Property
and/or any other Individual Properties, exemption from civil process, or
extension of time for payment; and Borrower agrees that any real estate that
may be levied upon or pursuant to a judgment obtained by virtue of this
Promissory Note, or any writ of execution issued thereon, may be sold upon
any such writ in whole or in part.
The proceeds of this Promissory Note have been and will be disbursed
in the State of New York, which State the parties agree has a substantial
relationship to the parties and to the underlying transaction embodied
hereby, and in all respects, including matters of construction, validity and
performance. THIS PROMISSORY
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NOTE AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE
WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO CONFLICT OF LAW PRINCIPLES. To the fullest extent permitted by law,
Borrower hereby unconditionally and irrevocably waives any claim to assert
that the law of any other jurisdiction governs this Promissory Note, and
Lender and Borrower hereby agree, in accordance with SS 5-1401 of the New
York General Obligations Law, that this Promissory Note shall be governed by
and construed in accordance with the laws of the State of New York.
It is the intention of Borrower and Lender that no provision of this
Promissory Note or any other Loan Document shall require the payment of
interest or permit the charging or collection of interest in excess of the
maximum rate permitted by applicable law. Notwithstanding anything to the
contrary contained herein or in any other Loan Document, Borrower shall not
be obligated to make any payment hereunder or under any other Loan Document
to the extent (but only to the extent) that such payment would result in the
payment of interest at a rate in excess of the maximum rate permitted by
applicable law. Any amounts contracted for, chargeable or receivable under
this Promissory Note or any other Loan Document which exceed the maximum
amount permitted by applicable law shall be deemed a mistake and cancelled
automatically. Any monies collected by Lender that constitute interest in
excess of the maximum amount of interest permitted by applicable law shall,
at the option of Lender, be applied to the principal balance hereof or repaid
to Borrower. Any such prepayment of principal made pursuant to the preceding
sentence shall be made without premium or penalty of any kind.
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<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have caused this Promissory
Note to be executed and delivered by their respective duly authorized
representatives as of the day and year first written above.
BORROWER:
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation
By: /s/ Joel S. Marcus
------------------------------
Name: Joel S. Marcus
Title: Chief Operating Officer
LENDER:
PAINEWEBBER INCORPORATED,
a Delaware corporation
By: /s/ Kevin D. Cox
------------------------------
Name: Kevin D. Cox
Title: Vice President
This note has been amended and restated in its entirety by that certain
Second Amended and Restated Promissory Note dated as of September 9, 1996
between HSP-QRS Corp., as maker, and PaineWebber Incorporated, as payee.
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<PAGE>
Exhibit 10.20
UNSECURED LINE OF CREDIT LOAN AGREEMENT
dated as of January 24, 1997
By and Between
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland Corporation
As Borrower
and
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
As Bank
<PAGE>
1. LINE OF CREDIT AMOUNT AND TERMS ............................ 1
1.1 Line of Credit Amount ............................... 1
1.2 Availability Period ................................. 1
1.3 Interest Rate ....................................... 1
1.4 Loan Documents ...................................... 1
2. FEES, EXPENSES ............................................. 2
2.1 Fees ................................................ 2
2.2 Expenses and Costs .................................. 2
3. DISBURSEMENTS, PAYMENTS AND COSTS .......................... 2
3.1 Requests for Credit ................................. 2
3.2 Disbursement and Payment Records .................... 3
3.3 Telephone and Telefax Authorization ................. 3
3.4 Direct Debit ........................................ 3
3.5 Banking Days ........................................ 4
4. CONDITIONS ................................................. 4
4.1 Authorizations ...................................... 4
4.2 Governing Documents; Good Standing Certificates ..... 4
4.3 Loan Documents ...................................... 4
4.4 Legal Opinion ....................................... 4
4.5 Payment of Fees ..................................... 4
4.6 Other Items ......................................... 4
5. REPRESENTATIONS AND WARRANTIES ............................. 5
5.1 Organization of Borrower; Good Standing ............. 5
5.2 Authorization; Enforceable Agreement ................ 5
5.3 Financial Information ............................... 5
5.4 Lawsuits ............................................ 6
5.5 Title to Assets ..................................... 6
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Table of Contents
5.6 Permits, Franchises ................................. 7
5.7 Income Tax Returns .................................. 7
5.8 ERISA Plans ......................................... 8
5.9 Other Obligations ................................... 8
5.10 Event of Default .................................... 8
5.11 Location of Borrower ................................ 8
6. COVENANTS .................................................. 8
6.1 Use of Proceeds ..................................... 9
6.2 Financial Information ............................... 9
6.3 Other Information ................................... 9
6.4 Financial Covenants ................................. 10
6.10 Keeping Guarantor Informed .......................... 12
6.11 Notices to Bank ..................................... 13
6.12 Audits; Books and Records ........................... 13
6.14 Compliance with Laws ................................ 13
6.15 Preservation of Rights .............................. 14
6.16 Insurance ........................................... 14
6.17 ERISA Plans ......................................... 14
6.18 Additional Negative Covenants ....................... 14
6.19 Cooperation ......................................... 15
7. COLLATERAL ................................................. 15
8. DEFAULT .................................................... 15
8.1 Failure to Pay ...................................... 15
8.2 False Information ................................... 15
8.3 Bankruptcy .......................................... 15
8.4 Receivers ........................................... 16
8.5 Change of Management ................................ 16
8.6 Judgments ........................................... 16
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Table of Contents
8.7 ERISA Plans ......................................... 16
8.8 Government Action ................................... 16
8.9 Material Adverse Change ............................. 17
8.10 Default under Related Documents ..................... 17
8.11 Other Breach Under This Agreement ................... 17
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS .................... 17
9.1 Remedies ............................................ 17
9.2 California Law ...................................... 17
9.3 Arbitration ......................................... 17
9.4 Presentment, Demands and Notice ..................... 18
9.5 Indemnification ..................................... 18
9.6 Attorneys' Fees ..................................... 19
9.7 Notices ............................................. 19
9.8 Multiple Borrowers. Intentionally Deleted .......... 19
9.9 General Partners. Intentionally Deleted ............ 19
9.10 Successors and Assigns .............................. 19
9.11 No Third Parties Benefited .......................... 19
9.12 Integration; Relation to Any Loan Commitment;
Headings ............................................ 19
9.13 Interpretation ...................................... 20
9.14 Severability; Waivers; Amendments ................... 20
9.15 Confidentiality ..................................... 20
9.16 Counterparts ........................................ 20
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<PAGE>
LINE OF CREDIT LOAN AGREEMENT
(Unsecured)
This line of credit loan agreement (the "Agreement") dated as of January
24, 1997, by and between Bank of America National Trust and Savings Association
(the "Bank") and Health Science Properties Inc., a Maryland Corporation (the
"Borrower").
Bank has agreed to provide this line of credit to Borrower on the terms and
conditions set forth herein. This line of credit is revolving and is unsecured.
1. LINE OF CREDIT AMOUNT AND TERMS.
1.1 Line of Credit Amount.
(a) During the Availability Period described below, the Bank will
provide a line of credit (also referred to as the "Loan") to the Borrower. The
amount of the line of credit is Two Million Five Hundred Thousand Dollars
($2,500,000.00) (the "Commitment" or the "Maximum Loan Amount").
(b) This is a revolving line of credit. During the Availability
Period, the Borrower may request advances for the amount of the available line
of credit or less, may repay principal amounts, and may reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of the line of credit to exceed the Commitment.
1.2 Availability Period.
The line of credit is available (the "Availability Period") between
the date of this Agreement and December 31, 1997 (the "Expiration Date") unless
there is an Event of Default. If there is an Event of Default, then in addition
to the Bank's other remedies, the Bank may terminate the Availability Period and
may require the Borrower to repay any amounts outstanding under the line of
credit immediately.
1.3 Interest Rate.
Borrower is executing a promissory note (the "Note") in the amount of
the Commitment evidencing the Loan and payable to the Bank. The Note sets forth
the interest rate and certain other terms and conditions applicable to the Loan.
1.4 Loan Documents.
The "Loan Documents" are defined as the documents indicated below,
each dated as of the date of this Agreement unless indicated otherwise. A
capitalized term used in this Agreement but not defined herein has the meaning
given in the other Loan Documents.
(a) This Agreement
(b) The Note
(c) Payment Guaranty ("Guaranty") executed by Health Science
Properties Holding Corporation as Guarantor.
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(d) Corporate Resolution to:
(i) borrow; and
(ii) execute Payment Guaranty, as to the Guaranty
certified by the Corporate Secretary of the corporation. The Corporate
Resolution shall also contain a Certificate of Incumbency for the authorized
signing officers, containing their specimen signatures and certified by the
Corporate Secretary.
2. FEES, EXPENSES
2.1 Fees.
(a) Loan fee. The Borrower agrees to pay a fee of Twelve Thousand
Five Hundred and 00/100 Dollars ($12,500.00) due on the date of delivery of the
signed Loan Documents.
(b) Unused Commitment fee. From and after the date Bank is required
to extend any credit to Borrower as more specifically described herein, Borrower
shall pay a fee calculated at 0.25% per year on any difference between the
Commitment and the amount of credit it actually uses, determined by the weighted
average Loan balance maintained during the specified period, from the date
hereof, until the next following April 1 and during each subsequent three month
period commencing on the first calendar day of each July, October, and November
thereafter, and on the Expiration Date.
2.2 Expenses and Costs.
(a) Borrower shall pay all reasonable costs and expenses incurred by
Bank in connection with the making, disbursement and administration of the Loan,
and in the exercise of any of Bank's rights or remedies under the Loan
Documents. Such costs and expenses include reasonable legal fees and expenses of
Bank's counsel and any other reasonable fees and costs for services, regardless
of whether such services are furnished by Bank's employees or by independent
contractors. Borrower acknowledges that the other fees payable to Bank do not
include amounts payable by Borrower under this Section 2.2.
(b) The Borrower agrees to indemnify the Bank from and hold it
harmless against any transfer or documentary taxes, assessments or charges
imposed by any governmental authority by reason of the execution, delivery and
performance of the Loan Documents. Borrower's obligations under this Section 2.2
shall survive payment of the Loan and assignment of any rights hereunder.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 Requests for Credit.
(a) Borrowing Notice. Each request for an advance shall be made upon
the irrevocable written notice of Borrower in a manner reasonably acceptable to
the Bank (including notice via facsimile confirmed by a mailed copy) in the form
of a Borrowing Notice (attached hereto as Exhibit A).
(i) Each Borrowing Notice shall contain a certification from
Jerry Sudarsky or Joel Marcus or another authorized officer of the
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Borrower that (A) no Event of Default, after giving effect to the requested
borrowing, will exist, (B) the aggregate outstanding balance of the line of
credit after giving effect to the requested borrowing will not exceed the
Commitment and setting forth the basis for such calculation, and (C) the
proceeds from the requested borrowing will be used only for purposes permitted
under the Agreement.
(ii) Each Borrowing Notice shall be submitted to and received by
Bank on the dates and at the times set forth in Exhibit A to the Note.
3.2 Disbursement and Payment Records.
Each disbursement by the Bank and each payment by the Borrower will be
evidenced by records kept by the Bank.
3.3 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for advances
or repayments (or for the designation of any optional interest rates that may be
permitted by the Note) given by any one of the individuals authorized to sign
loan documents on behalf of the Borrower, or any other individual designated by
any one of such authorized signers.
(b) Advances will be deposited in Borrowers account number _________,
or such other of the Borrower's accounts with the Bank as designated in writing
by the Borrower.
(c) The Borrower indemnifies and releases the Bank (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone or telefax instructions Bank
reasonably believes are made by any individual authorized by the Borrower to
give such instructions other than if such loss results from the gross
negligence, willful misconduct or bad faith of the Bank or its officers or
employees. This indemnity and release shall survive this Agreement's
termination.
3.4 Direct Debit.
(a) Borrower agrees that payments due on the Note and any fees owed
hereunder will be deducted automatically on the due date from account number
____________ maintained by Borrower at the Bank (the "Account"). If a due date
does not fall on a Banking Day, Bank will debit the Account on the first Banking
Day following the due date.
(b) Borrower will maintain sufficient funds in the Account on the
dates Bank enters debits authorized by this Agreement. If there are insufficient
funds in the Account on the date Bank enters any debit authorized by this
Agreement, without limiting Bank's other remedies in such event, the debit will
be reversed.
(c) Either Borrower or Bank may terminate this direct debit
arrangement at any time by providing prior written notice to the other.
(d) Approximately five (5) days prior to each due date, the Bank will
mail to the Borrower a statement of the amounts that will be due on that due
date (the "Billed Amount"). The calculation will be made on the assumptions that
no new extensions of credit or payments will be made between the date of the
billing statement and the due date and that there will be no
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changes in the applicable interest rate. The Bank will debit the Account for the
Billed Amount, regardless of the actual amount due on that date (the "Accrued
Amount"). If the Billed Amount debited to the Account differs from the Accrued
Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following due date will be increased by the amount of the
discrepancy. The Borrower will not be in default by reason of such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following due date will be decreased by the amount of the
discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based on
the actual amount of principal outstanding without compounding. The Bank will
not pay the Borrower interest on any overpayment.
3.5 Banking Days.
A Banking Day is defined in the Note. All payments and disbursements
which would be due on a day which is not a Banking Day will be due on the next
Banking Day. All payments received on a day which is not a Banking Day will be
applied to the Loan on the next Banking Day.
4. CONDITIONS
The Bank must receive the following items, in form and content reasonably
acceptable to the Bank, before it is first required to extend any credit to the
Borrower under this Agreement:
4.1 Authorizations.
Evidence that the execution, delivery and performance by the Borrower
of the Loan Documents have been duly authorized.
4.2 Governing Documents; Good Standing Certificates.
A copy of the Borrower's and of any Guarantor's charter. Certificate
of good standing for the Borrower from the state where formed and from any other
state in which the Borrower is required to qualify to conduct its business
unless failure to qualify would not have a material adverse effect on Borrower.
4.3 Loan Documents.
Duly executed Loan Documents.
4.4 Legal Opinion.
A written opinion from the Borrower's legal counsel which is
reasonably acceptable to the Bank.
4.5 Payment of Fees.
Payment of all accrued and unpaid expenses incurred by the Bank as
provided for by the Loan Documents.
4.6 Other Items.
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Any other documents and other items Bank may reasonably require as
conditions precedent to this Agreement.
5. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in
full, the Borrower makes the following representations and warranties except as
otherwise disclosed to the Bank in the disclosure schedule attached hereto (the
"Disclosure Schedule"). Each request for an extension of credit constitutes a
renewed representation and warranty subject to the Disclosure Schedule.
5.1 Organization of Borrower; Good Standing.
The Borrower is duly formed and existing under the laws of the state
where organized. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with any
fictitious name statute unless failure to so comply would not have a material
adverse effect on Borrower.
5.2 Authorization; Enforceable Agreement.
This Agreement and the other Loan Documents are within the Borrower's
powers, have been duly authorized, and do not conflict with any of its
organizational documents. To the best of Borrower's knowledge the Loan Documents
do not conflict with any laws, agreements, or obligations by which the Borrower
is bound. This Agreement is a legal, valid and binding agreement of the
Borrower, enforceable against the Borrower in accordance with its terms, and any
instrument or document required hereunder, when executed and delivered, will be
similarly legal, valid, binding and enforceable.
5.3 Financial Information.
(a) The balance sheet of the Borrower as of November 30, 1996, and
the related profit and loss statement for the period ended on that date, a copy
of which have been previously delivered to Bank by the Borrower, and all other
financial statements and data submitted in writing by the Borrower to the Bank
in connection with the request for the Loan are true and correct in all material
respects. Said balance sheet and profit and loss statement present fairly, in
all material respects, the financial condition of the Borrower as at the date
thereof and the results of the operations of the Borrower for the period covered
thereby, and have been prepared in accordance with generally accepted accounting
principles ("GAAP") on a basis consistently applied, subject to year-end
adjustments consisting only of normal recurring accruals and the absence of
notes required by GAAP. Except as to the "PaineWebber Acquisition" more
specifically described in (i) herein below, the Borrower has no knowledge of any
liabilities, contingent or otherwise, not reflected in said balance sheet other
than liabilities that would be set forth in notes thereto prepared in accordance
with GAAP. Borrower has not entered into any material commitments or material
contracts which are not reflected in said balance sheet which may have a
materially adverse effect upon its financial condition, operations or business
as now conducted. Since said date there have been no changes in the assets or
liabilities or financial condition of the Borrower other than changes in the
ordinary course of business, and no changes have been materially adverse
changes.
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(i) the PaineWebber Acquisition refers to contractual agreements
with PaineWebber Incorporated and certain affiliates thereof (collectively,
"PaineWebber") concerning the properties commonly known as 1550 Gude Drive,
Rockville, Maryland, 1330 Piccard Drive, Rockville, Maryland and 14225 Newbrook
Drive, Chantilly, Virginia, which properties must be purchased by Borrower upon
the occurrence of certain events. Copies of said contractual agreements shall be
furnished to Bank upon request.
(b) All financial and other information that has been or will be
supplied to the Bank, including the financial statements of the Borrower and any
Guarantor, is, to the best of Borrower's knowledge:
(i) sufficiently complete to give the Bank accurate knowledge of
the subject's financial condition;
(ii) in form and content as required by the Bank;
(iii) in compliance with any government regulations that apply;
and
(iv) does not fail to state any material facts necessary to make
the information contained therein not misleading.
All such information was, to the best of Borrower's knowledge, and will be,
prepared in accordance with GAAP unless otherwise noted.
5.4 Lawsuits.
There is no lawsuit, arbitration, claim or other dispute pending or to
Borrower's knowledge, threatened against the Borrower which, if lost, would
materially impair the Borrower's financial condition or ability to repay the
Loan, except as has been previously disclosed in writing to the Bank.
5.5 Title to Assets.
The Borrower has good and clear title to its assets, and the same are
not subject to any mortgages, deeds of trust, pledges, security interests or
other encumbrances other than Permitted Liens. Permitted Liens shall mean:
a.) Mortgages and liens existing on the date hereof, or any mortgage or
lien which replaces an existing mortgage or other lien;
b.) Carriers', warehousemen's, mechanics', landlords', materialmen's
suppliers', and other like liens and charges arising by operation of law or in
the ordinary course of business, so long as such obligations are not overdue or
are the subject of a Permitted Protest. Permitted Protest is defined in Section
6.6 below.
c.) Liens for unpaid taxes, assessments and government charges that either
(i) are not yet due and payable or (ii) are the subject of a Permitted Protest;
d.) Liens arising in connection with worker's compensation, unemployment
insurance, appeal and release bonds and progress payments under government
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<PAGE>
contracts, so long as such obligations are not overdue or are the subject of a
Permitted Protest;
e.) The, (i) giving, simultaneously with or within (90) days after the
acquisition or construction of real property or tangible personal property, of
any purchase money lien on real property or tangible personal property hereafter
acquired or constructed and not heretofore owned by Borrower, or (ii) the
acquiring hereafter of real property or personal tangible property not
heretofore owned by Borrower subject to any then existing lien (whether or not
assumed) or (iii) any mortgage or lien which replaces such mortgage or lien;
f.) Judgment liens (in an aggregate amount not to exceed $500,000) in
existence 60 days after the entry thereof or the payment of which is covered in
full by insurance;
g.) Pledges or deposits in the ordinary course of business to secure lease
or similar obligations;
h.) Liens to secure the performance of public statutory obligations that
are not delinquent, performance bonds or other obligations of a like nature
(other than for borrowed money);
i.) Easements, rights-of-way, restrictions, minor defects or irregularities
in title and other similar encumbrances;
j.) Interests or title of lessors or lessees under operating leases and
subleases;
k.) Liens on the equipment and general assets (other than real property) of
Borrower to secure Borrower's obligation with respect to indebtedness in a
principal amount not to exceed $500,000 incurred in connection with the
replacement of the heating, ventilation and air conditioning (HVAC) system
located at the 10933 N. Torrey Pines Road property in San Diego, California or
any refinancing of said indebtedness;
l.) With respect to any real property, easements, rights of way, zoning and
similar covenants and restrictions, and similar encumbrances that do not
materially interfere with or impair the use of or operation thereof by Borrower;
m.) Other liens not to exceed $100,000 in the aggregate at any time;
provided that such liens could not reasonably be expected to have a material
adverse effect on the business, operations or financial condition of Borrower.
5.6 Permits, Franchises.
The Borrower possesses all material permits, franchises, contracts and
licenses required and all trademark rights, trade name rights, and fictitious
name rights necessary to enable it to conduct the business in which it is now
engaged.
5.7 Income Tax Returns.
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<PAGE>
To the best of Borrower's knowledge, Borrower has filed all tax
returns and reports required to be filed and, unless specifically included as a
Permitted Lien or unless the same is the subject of a Permitted Protest, has
paid all applicable federal, state and local franchise, income and property
taxes which are due and payable. The Borrower has no knowledge of any pending
assessments or adjustments of its income taxes or property taxes for any year,
except as have been disclosed in writing to the Bank. Borrower is not a "foreign
person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code of
1986, as amended (the "Code").
5.8 ERISA Plans.
(a) As used herein, (i) "Code" means the Internal Revenue Code of
1986, as amended; (ii) "ERISA" means the Employee Retirement Income Act of 1974,
as amended; (iii) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to ERISA; and (iv) "Plan" means any employee pension
benefit plan maintained or contributed to by the Borrower and insured by the
PBGC.
(b) The Borrower has fulfilled its obligations, if any, under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code, and has not incurred any material liability with respect
to any Plan under Title IV of ERISA.
(c) No reportable event has occurred under Section 4043(b) of ERISA
for which the PBGC requires 30 day notice. No action by the Borrower to
terminate or withdraw from any Plan has been taken and no notice of intent to
terminate a Plan has been filed under Section 4041 of ERISA. No material
proceeding has been commenced with respect to a Plan under Section 4042 of
ERISA, and no event has occurred or condition exists which might constitute
grounds for the commencement of such a proceeding.
5.9 Other Obligations.
The Borrower is not in material default on any obligation for borrowed
money, any purchase money obligation or any other material lease, commitment,
contract, instrument or obligation, except as has been previously disclosed in
writing to the Bank.
5.10 Event of Default.
There is no event which is, or with notice or lapse of time or both
would be, a default under the Loan Documents.
5.11 Location of Borrower.
The Borrower's place of business (or, if the Borrower has more than
one place of business, its chief executive office) is located at the address
listed under the Borrower's signature on this Agreement, 251 South Lake Avenue,
Suite 700, Pasadena, CA 91101.
6. COVENANTS
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The Borrower agrees, so long as credit is available under this
Agreement and until the Bank is repaid in full under this Agreement:
6.1 Use of Proceeds.
To use the proceeds of the Loan only for working capital purposes.
6.2 Financial Information.
To provide the following financial information and statements and
such additional information as reasonably requested by the Bank from time to
time:
(a) As soon as available but not later than 120 days after the
Borrower's and the Guarantor's fiscal year end, the Borrower's and the
Guarantor's annual financial statements including balance sheet, income
statement and statement of cash flows. These financial statements must be
audited and accompanied by the unqualified opinion of a nationally recognized
independent public accountant firm ("CPA"). The statements shall be prepared
with consolidating schedules.
(b) As soon as available but not later than 60 days after the
quarterly period's end, the Borrower's and the Guarantor's quarterly financial
statements, including balance sheet, income statement and statement of cash
flows. These financial statements may be Borrower and Guarantor prepared and
certified by its chief operating officer. The statements shall be prepared with
consolidating schedules.
(c) Copies of the Borrower's Form 10-K Annual Report, Form 10-Q
Quarterly Report and Form 8-K Current Report within 15 days after the date of
filing with the Securities and Exchange Commission if at any time during the
term of the Loan Borrower should become a publicly traded company, subject to
the reporting requirements of the Securities Exchange Act of 1934.
(d) Concurrently with the financial statements required pursuant to
Section 6.1 (a) and (b) a compliance certificate in the form of Exhibit B to the
Agreement ("Compliance Certificate") executed by the chief operating officer of
the Borrower demonstrating compliance, in all material respects, with all
financial and any other covenants. Notwithstanding anything to the contrary
contained herein and without limiting Bank's other rights and remedies, if such
certificate is not provided on the due date therefor, Borrower shall be
prohibited from any further borrowing under the line of credit until such
certificate is provided.
6.3 Other Information.
To provide the Bank:
(a) Promptly after the same are sent or released, copies of all
reports generally made available to stockholders, proxy statement and financial
statements which Borrower sends to its shareholders, and copies of all press
releases made by Borrower and, promptly after the same are filed, copies of all
financial statements and regular, periodical or special reports which Borrower
may make to or file with any governmental authority.
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<PAGE>
(b) Promptly after the same are received, copies of all reports
which the independent certified public accountants of Borrower deliver to it.
(c) Such additional financial and other information as Bank may
reasonably request from time to time.
6.4 Financial Covenants.
Unless the context otherwise clearly requires, all accounting terms
not expressly defined herein shall be construed, and all financial computations
required under this Agreement shall be made, in accordance with GAAP, as in
effect on the date hereof.
(a) Tangible Net Worth. To maintain on a consolidated basis tangible
net worth equal to at least Thirty Four Million Dollars ($34,000,000.00).
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, deferred research and development costs, deferred marketing
expenses, and other like intangibles, and monies due from officers of the
Guarantor, and officers, directors or shareholders of the Borrower) less total
liabilities including accrued and deferred income taxes and any reserves against
assets. Excluded from intangible assets shall be prepaid leasing costs, leasing
commissions, prepaid offering costs,
"Total Liabilities" means the sum of current liabilities plus long term
liabilities and shall include all GAAP liabilities except due from Guarantor or
HSP-QRS Corp.
(b) Total Liabilities plus Specified Contingent Liabilities to Gross
Asset Value. To maintain on a consolidated basis a ratio of Total Liabilities
plus Specified Contingent Liabilities to Gross Asset Value not exceeding
0.80:1.0.
"Specified Contingent Liabilities" means the sum of all stand-by letters of
credit counted at 50% of face value (unless drawn), all guaranties of
indebtedness not otherwise counted, and capital lease obligations.
"Gross Asset Value" means cash or cash equivalents plus the fair market value of
the income producing real estate assets, as determined by taking the most recent
quarter's EBITDA annualized, (adjusting for new property that has not been owned
for the full quarter by annualizing "owned to date" NOI) and dividing by the
capitalization rate of 11.5%.
(c) EBITDA less Reserves to Fixed Charges. To maintain on a
consolidated basis a ratio of EBITDA less Reserves to Fixed Charges of at least
1.05:1.00.
"EBITDA" means earnings before extraordinary items, valuation adjustments,
interest, income taxes, non cash compensation expense associated with stock
grants or stock options, and depreciation and amortization over the preceding
twelve month period.
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<PAGE>
"Reserves" is defined as 2.5% of property revenue.
"Fixed Charges" means interest incurred, preferred and common dividends and
scheduled principal amortization paid, (excluding balloon payments) over the
preceding twelve month period.
(d) EBITDA to Interest Incurred. To maintain on a consolidated basis
an EBITDA to Interest Expense of at least 1.70:1.00.
"Interest Incurred" means the sum of all interest incurred, whether expensed or
capitalized (and not previously counted), over the preceding twelve month
period.
(e) Distributions to Shareholders. Distributions to Shareholders not
to exceed the greater of (i) 95% of Funds From Operations, or (ii) the minimum
amount necessary to retain REIT status.
"Distributions to Shareholders" means all dividends paid over the preceding
twelve-month period to either preferred or common stockholders of Health Science
Properties, Inc.
"Funds from Operations" (FF0) shall be defined in accordance with the FF0 White
Paper prepared in March 1995 by the National Association of Real Estate Trusts
(the "White Paper") and shall mean the Borrower's net income (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring and sales of property plus depreciation and
amortization relating to real property (including real property depreciation,
depreciation of trade fixtures and tenant improvements attached or held at the
real property, amortization of capitalized leasing expenses, including leasing
commissions, tenant allowances or improvements, and the like), and after
adjustments for unconsolidated entities in which the REIT holds an interest, and
unusual items of expenses, along with significant non-recurring items of expense
that materially distort the comparative measurement of the Borrower's
performance over time, all over the proceeding twelve month period. The income
from unconsolidated entities will be adjusted to reflect FF0 on the same basis.
6.5 REIT Status.
At all times, Borrower will use its best efforts to meet all of the
applicable requirements set forth in the Code to be eligible for REIT status.
Borrower maintains at all times records which disclose the actual ownership of
its capital stock as required under the Code. Borrower will at all relevant
times use its best efforts to meet all of the asset and income tests for REIT
status. In the event of an occurrence of any breach under the Loan Documents,
Borrower shall make only the minimum distributions to shareholders required
under the Code to maintain its REIT status.
6.6 Taxes and Other Liabilities.
To pay and discharge, before the same become delinquent and before
penalties accrue thereon, all material taxes, assessments and governmental
charges upon or against it or any of its properties, and all its other
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<PAGE>
material liabilities at any time existing, except to the extent and so long as
the same are the subject of a Permitted Protest. A Permitted Protest shall exist
so long as:
a.) such Permitted Protest is being contested in good faith and by
appropriate proceedings and in such manner as not to cause any materially
adverse effect to Borrower's financial condition or the loss of any material
right of redemption from any sale thereunder ("Permitted Protest"); and
b.) Borrower shall have set aside on its books, reserves in accordance
with GAAP.
6.7 Other Unsecured Debts.
Not to have outstanding or incur any unsecured indebtedness other
than to the Bank, or become liable for the debts of others without the Bank's
written consent. This requirement does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit
incurred in the ordinary course of business;
(b) Endorsing negotiable instruments received in the usual course of
business;
(c) Additional debt for the acquisition of fixed or capital assets
to the extent permitted elsewhere in this Agreement.
(d) Unsecured indebtedness existing on the date hereof.
(e) Unsecured indebtedness between the Borrower and Health Science
Properties Holding Corporation or any of its direct or indirect subsidiaries.
6.8 Loans to Officers.
Not to make any loans, advances or other extensions of credit to any
of the Borrower's executives, officers, directors, shareholders, members or
partners (or any relatives of any of the foregoing) other than in accordance
with stock option and other similar plans in effect on the date hereof.
6.9 Change of Ownership.
Not to cause, permit, or suffer any material change, direct or
indirect, in the Borrower's capital ownership other than the changes necessary
to maintain REIT status; provided, that nothing contained in this Agreement
shall prohibit Borrower from merging with or into Health Science Properties
Holding Corporation (or any other entity if Borrower shall be the surviving
entity) or consummating an initial public offering of its (or its successors)
common stock. Nor shall this Agreement prohibit the Borrower from issuing stock
options or grants under its stock option plan.
6.10 Keeping Guarantor Informed.
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<PAGE>
To keep any Guarantor informed of Borrower's financial condition and
business operations and all other circumstances which may affect Borrower's
ability to pay or perform its obligations under the Loan Documents.
6.11 Notices to Bank.
To promptly notify the Bank in writing of:
(a) any Event of Default hereunder or any event which would become
an Event of Default hereunder upon the giving of notice, the lapse of time, or
both;
(b) any lawsuit or arbitration over Fifty Thousand Dollars ($50,000)
against the Borrower (or any Guarantor);
(c) any material dispute between the Borrower (or any Guarantor) and
any government authority;
(d) any material adverse change in the Borrower's (or any
Guarantor's) financial condition or operations; and
(e) any change in the Borrower's name or trade name, legal
structure, or place of business, (or chief executive office if the Borrower has
more than one place of business).
6.12 Audits; Books and Records.
To maintain adequate books and records and to allow the Bank and its
agents to inspect the Borrower's properties and examine, audit and make copies
of books and records at any reasonable time upon reasonable prior notice. If any
of the Borrower's properties, books or records are in the possession of a third
party, the Borrower hereby authorizes that third party to permit the Bank or its
agents to have reasonable access upon prior notice to perform inspections or
audits and to respond to the Bank's requests for information concerning such
properties, books and records.
6.13 Corporate Existence; REIT Status.
Borrower shall, and shall use its best efforts to cause each of its
subsidiaries to, preserve and maintain its corporate existence and all of its
rights, privileges and franchises necessary or desirable in the normal course of
its business. Borrower shall, from and after the first date it qualifies as a
REIT, (the "REIT Date"), use its best efforts to preserve and maintain its
status as a REIT. Borrower shall promptly notify Bank of the occurrence of the
REIT Date and, prior to such occurrence, from time to time shall keep Bank
informed as to the timing of any election by Borrower to be treated as a REIT.
6.14 Compliance with Laws.
To comply, in all material respects, with the applicable laws
(including any fictitious name statute), regulations, and orders of any
government body with authority over the Borrower's business.
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<PAGE>
6.15 Preservation of Rights.
To maintain and preserve in all material respects all applicable
rights, privileges, and franchises the Borrower now has.
6.16 Insurance.
Borrower shall maintain insurance with respect to its business and
property with responsible insurance companies reasonably satisfactory to Bank in
such amounts and against such risks (including loss of use and occupancy) as is
customarily carried by owners of similar businesses and properties, and it will
furnish to Bank, upon request therefor, full information as to the insurance
carried, provided that nothing in this Section shall require Borrower to
maintain loss of use and occupancy coverage with respect to any of its
businesses or properties which are not so covered as of the date of this
Agreement.
Upon the request of the Bank, Borrower shall deliver to the Bank a
copy of each insurance policy, or, if permitted by the Bank, a certificate of
insurance listing all insurance in force.
6.17 ERISA Plans.
To give prompt written notice to the Bank of the occurrence of any
reportable event under Section 4043(b) of ERISA for which the PBGC requires 30
day notice; any action by the Borrower to terminate or withdraw from a Plan or
the filing of any notice of intent to terminate under Section 4041 of ERISA; any
notice of noncompliance made with respect to a Plan under Section 4041(b) of
ERISA; or the commencement of any proceeding with respect to a Plan under
Section 4042 of ERISA.
6.18 Additional Negative Covenants.
Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from
the Borrower's present business;
(b) liquidate or dissolve the Borrower's business;
(c) enter into any consolidation, merger, pool, syndicate, or other
combination; provided that nothing in this Agreement shall prohibit Borrower
from merging with or into Health Science Properties Holding Corporation (or any
other entity if Borrower shall be the surviving entity) or consummating an
initial public offering of its (or its successor) common stock;
(d) lease, or dispose of all or a substantial part of the Borrower's
business or the Borrower's assets except in the ordinary course of the
Borrower's business;
(e) acquire or purchase a business or its assets;
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<PAGE>
(f) sell or otherwise dispose of any assets for less than fair
market value or enter into any sale and leaseback agreement covering any of its
fixed or capital assets other than in the ordinary course of business.;
(g) suspend its business activity for more than two business days;
(h) use any proceeds of the Loan, directly or indirectly, to
purchase or carry, or reduce or retire any loan incurred to purchase or carry
any "Margin Stock" (within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System) or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock;
(i) use any proceeds of the Loan for personal, family, household or
other consumer purposes.
6.19 Cooperation.
To take any action reasonably requested by the Bank to carry out the
intent of the Loan Documents.
7. COLLATERAL.
This line of credit is unsecured.
8. DEFAULT
If any of the following events occurs (an "Event of Default"), the Bank
may declare the Borrower in default, stop making any additional credit available
to the Borrower, and require the Borrower to repay its entire debt immediately
and without prior notice. However, if a bankruptcy petition is filed with
respect to the Borrower, the entire debt outstanding under this Agreement shall
automatically be due immediately.
8.1 Failure to Pay.
The Borrower fails to make a payment of principal or interest due
under the Loan Documents and does not cure such failure within fifteen (15) days
after the date such payment was due.
8.2 False Information.
The Borrower has given the Bank materially false or materially
misleading information or representations.
8.3 Bankruptcy.
The Borrower or any Guarantor files a bankruptcy petition or makes a
general assignment for the benefit of creditors, or a bankruptcy petition is
filed against the Borrower or any Guarantor. The default will be deemed cured if
any bankruptcy petition filed against the Borrower or any Guarantor is dismissed
within a period of 45 days after the filing; provided, however, that
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<PAGE>
the Bank will not be obligated to extend any additional credit to the Borrower
during that period.
8.4 Receivers.
A receiver or similar official is appointed for the Borrower's or
any Guarantor's business (or any general partner or majority shareholder of
either), or the business is terminated.
8.5 Change of Management.
Borrower fails to employ at all times in the capacity as each
currently holds or in a more senior position, at least one of either Joel Marcus
or Jerry Sudarsky and said Joel Marcus or Jerry Sudarsky is not replaced within
thirty (30) days by someone satisfactory to the Bank as being a comparable
substitute.
Dissolution, termination or liquidation of Guarantor, except as
allowed in Section 6.9 above.
8.6 Judgments.
Any judgment or arbitration award is entered against the Borrower or
any Guarantor, and the same is not released, discharged or bonded against
pending appeal before thirty (30) days of the date it first arises, or the
Borrower or any Guarantor enters into any settlement agreement with respect to
any litigation, claim or arbitration, in an aggregate amount of Five Hundred
Thousand and 00/100 Dollars ($500,000.00) or more.
8.7 ERISA Plans.
The occurrence of any of the following event(s) with respect to the
Borrower, provided such event(s) could reasonably be expected, in the judgment
of the Bank, to subject the Borrower to any tax, penalty or liability (or any
combination of the foregoing) which in the aggregate could have a material
adverse effect on the financial condition of the Borrower with respect to a
Plan:
A reportable event occurs with respect to a Plan which in the reasonable
judgment of the Bank may result in the termination of such Plan for purposes of
ERISA.
Any Plan termination (or commencement of proceedings to terminate a Plan) or the
Borrower's full or partial withdrawal from a Plan.
8.8 Government Action.
Any government authority takes material action that the Bank
believes materially adversely affects the Borrower's or any Guarantor's
financial condition or ability to repay the Loan.
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<PAGE>
8.9 Material Adverse Change.
A material adverse change occurs in the Borrower's or any
Guarantor's financial condition, properties or prospects, or ability to repay
the Loan.
8.10 Default under Related Documents.
Any guaranty, or other document required by this Agreement is
materially breached, violated or is no longer in effect.
8.11 Other Breach Under This Agreement.
The Borrower fails to meet the conditions of or fails to materially
perform any obligation under any term of this Agreement not specifically
referred to in this Article. If, in the Bank's opinion, the breach is capable of
being remedied, the breach will not be considered an Event of Default under this
Agreement for a period of thirty (30) days after the date on which the Bank
gives written notice of the breach to the Borrower; provided, however, that the
Bank will not be obligated to extend any additional credit to the Borrower
during that period.
8.12 Cross-Default
Any material default occurs under any agreement in connection with
any credit the Borrower has obtained from the Bank or any other creditor or
which the Borrower has guaranteed.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 Remedies.
If an Event of Default occurs under the Loan Documents, Bank may
exercise any right or remedy which it has under any of the Loan Documents or
which is otherwise available at law or in equity. All of Bank's rights and
remedies shall be cumulative. If an Event of Default occurs, at Bank's option,
exercisable in its sole discretion, all of Borrower's obligations under the Loan
Documents will become immediately due and payable without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind or character.
9.2 California Law.
This Agreement is governed by California law but without regard to
the choice of law rules of California.
9.3 Arbitration.
(a) Mandatory Arbitration. Except as provided below, any controversy
or claim between or among the parties, arising out of or relating to this
Agreement or the other Loan Documents and any claim based on or arising from an
alleged tort, shall at the request of any party be determined
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<PAGE>
by arbitration. The arbitration shall be conducted in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The arbitrator(s) shall give effect to statutes
of limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the
arbitration award may be entered into any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(b) Provisional Remedies, Self-Help and Foreclosure. No provision of
this Agreement shall limit the right of any party to this Agreement to exercise
self-help remedies such as setoff, or obtaining provisional or ancillary
remedies from a court of competent jurisdiction before, after, or during the
pendency of any arbitration or other proceeding. The exercise of a remedy does
not waive the right of either party to resort to arbitration.
9.4 Presentment, Demands and Notice.
The Bank shall be under no duty or obligation to make or give any
presentment, demands for performances, notices of nonperformance, protests,
notices of protest or notices of dishonor in connection with any obligation or
indebtedness under the Loan Documents.
9.5 Indemnification.
Borrower shall indemnify, save, and hold harmless the Bank and its
directors, officers, agents and employees (collectively the "Indemnitees") from
and against:
(a) Any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, charges, expenses or
disbursements (including reasonable attorneys' fees) of any kind with respect to
the execution, delivery, enforcement, performance and administration of this
Agreement and the other Loan Documents, and the transactions contemplated
hereby, and with respect to any investigation, litigation or proceeding related
to this Agreement, the other Loan Documents, the Loan or the use of the proceeds
thereof, whether or not any Indemnitee is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided, that Borrower shall have
no obligation hereunder to any Indemnitee with respect to Indemnified
Liabilities arising from the gross negligence, willful misconduct or bad faith
of such Indemnitee.
(b) Any and all writs, subpoenas, claims, demands, actions, or
causes of action that are served on or asserted against any Indemnitee (if
directly or indirectly related to a writ, subpoena, claim, demand, action, or
cause of action against Borrower or any affiliate of Borrower); and any and all
liabilities, losses, costs, or expenses (including attorneys' fees) that any
Indemnitee suffers or incurs as a result of any of said matters.
- 18 -
<PAGE>
The obligations of the Borrower under this section shall survive
payment of the Loan and assignment of any rights hereunder.
9.6 Attorneys' Fees.
In the event of a lawsuit or arbitration proceeding, including any
tort proceeding, between or among the parties hereto, the prevailing party is
entitled to recover costs and reasonable attorneys' fees (including any
allocated costs of in-house counsel) incurred in connection with the lawsuit or
arbitration proceeding, as determined by the court or arbitrator.
9.7 Notices.
All notices required under this Agreement shall be personally
delivered or sent by registered or certified mail, postage prepaid, or facsimile
transmission to the addresses on the signature page of this Agreement, or to
such other addresses as the Bank and the Borrower may specify from time to time
in writing. Notices shall be effective upon receipt or when proper delivery is
refused.
9.8 Multiple Borrowers. Intentionally Deleted.
9.9 General Partners. Intentionally Deleted.
9.10 Successors and Assigns.
This Agreement is binding on the Borrower's and the Bank's
successors and assignees. The Borrower agrees that it may not assign this
Agreement or the other Loan Documents without the Bank's prior consent. The Bank
may sell participations in or assign this Loan, and may provide financial
information about the Borrower to actual or potential participants or assignees,
without consent of Borrower.
9.11 No Third Parties Benefited.
This Agreement is made and entered into for the sole protection and
benefit of Bank and Borrower and their successors and assigns. No trust fund is
created by this Agreement and no other persons or entitles shall have any right
of action under this Agreement or any right to the Loan funds.
9.12 Integration; Relation to Any Loan Commitment; Headings.
The Loan Documents (a) integrate all the terms and conditions in or
incidental to this Agreement, (b) supersede all oral negotiations and prior
writings with respect to their subject matter, including any loan commitment to
Borrower, and (c) are intended by the parties as the final expression of the
agreement with respect to the terms and conditions set forth in those documents
and as the complete and exclusive statement of the terms agreed to by the
parties. No representation, understanding, promise or condition shall be
enforceable against any party unless it is contained in the Loan Documents. If
there is any conflict between the terms, conditions and provisions of this
Agreement and those of any other agreement or instrument, including any other
Loan Document, the terms, conditions and provisions of this Agreement shall
prevail. Headings and captions are for reference only and shall not affect
- 19 -
<PAGE>
the interpretation or meaning of any provisions of this Agreement. The exhibits
to this Agreement are hereby incorporated in this Agreement.
9.13 Interpretation.
(a) Time is of the essence in the performance of this Agreement by
Borrower.
(b) The word "include(s)" means "include(s), without limitation,"
and the word "including" means "including but not limited to." No listing of
specific instances, items or matters in any way limits the scope or generality
of any language of this Agreement.
9.14 Severability; Waivers; Amendments.
This Agreement may not be modified or amended except by a written
agreement signed by the parties. Any consent or waiver under this Agreement must
be in writing. If any part of this Agreement is not enforceable, the rest of the
Agreement may be enforced. If the Bank waives a default, it may enforce a later
default. No waiver shall be construed as a continuing waiver. No waiver shall be
implied from Bank's delay in exercising or failure to exercise any right or
remedy against Borrower. Consent by Bank to any act or omission by Borrower
shall not be construed as a consent to any other or subsequent act or omission
or as a waiver of the requirement for Bank's consent to be obtained in any
future or other instance. The Bank retains all of its rights and remedies, even
if it makes an advance after a default.
9.15 Confidentiality.
Bank agrees that any information provided to Bank in connection
herewith shall be treated by Bank in a confidential manner, and shall not be
disclosed by it to persons who are not parties to the Loan Documents; except:
(a) to counsel for and other advisors, accountants, and auditors to Bank; (b) as
may be required by statute, decision, or judicial or administrative order, rule,
or regulation or governmental or regulatory authority to which Bank is or may
become subject; (c) as may be agreed to in advance; (d) as to any such
information that is or becomes generally available to the public (other than as
a result of prohibited disclosure by Bank or becomes available on a
non-confidential basis from a third party); (e) to any person and in any
proceeding necessary in Bank's reasonable judgment to protect Bank's interest in
connection with any claim or dispute involving Bank; and (f) in connection with
any assignment, prospective assignment, sale, prospective sale, participation or
prospective participation, or pledge or prospective pledge of Bank's interests
under this Agreement, provided that any such counsel, advisors, accountants,
auditors and any such assignee, prospective assignee, purchaser, prospective
purchaser, participant, prospective participant, pledgee, or prospective pledgee
shall have agreed in writing to take its interest under the Loan Documents
subject to the terms hereof. The provisions of the Section 9.15 shall survive
for two years after the full and final repayment of the Loan.
- 20 -
<PAGE>
9.16 Counterparts.
This Agreement may be executed in counterparts each of which, when
executed, shall be deemed an original, and all such counterparts shall
constitute one and the same agreement.
This Agreement is executed as of the date stated at the top of the first page.
Bank of America National Health Science Properties, Inc.,
Trust and Savings Association a Maryland Corporation
By /s/ Carol Settles By /s/ Joel S. Marcus
----------------------------- -----------------------------
Title VP Title Vice Chairman/COO
-------------------------- --------------------------
By By /s/ Jerry Sudarsky
----------------------------- -----------------------------
Title Title Chairman/CEO
-------------------------- --------------------------
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent:
Bank of America NT & SA 251 South Lake Avenue
CRESG/National Accounts, LA #1357 Suite 700
555 South Flower Street, 6th Floor Pasadena, CA 91101
Los Angeles, CA 90071
- 21 -
<PAGE>
EXHIBIT A to Unsecured Line of Credit Loan Agreement
BORROWING NOTICE
_________________, 199___
Bank of America National Trust
and Savings Association
CRESG National Accounts #1357
555 South Flower Street, 6th Floor
Los Angeles, CA 90071
Re: Line of Credit Loan Agreement dated as of January 24, 1997 (the
"Agreement") between BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("Bank") and HEALTH SCIENCE PROPERTIES, INC., a Maryland
corporation ("Borrower")
Dear Sir or Madam:
Reference is made to the Agreement. Capitalized terms used in this
Borrowing Notice without definition have the meanings specified in the
Agreement.
Pursuant to the Agreement, notice is hereby given that the Borrower
desires that the Bank make the advance described in attached Schedule 1 (the
"Advance"). The Borrower hereby certifies that:
(1) Commitment. To the best of Borrower's knowledge, the outstanding
amount of the Line of Credit shall not, after giving effect to the making of the
Advance, exceed the Commitment;
(2) Representations and Warranties. To the best of Borrower's
knowledge, all representations and warranties of the Borrower contained in the
Agreement and the other Loan Documents are true and correct as of the date
hereof and shall be true and correct on the date of the Advance, both before and
after giving effect to the Advance; provided, however, that the representations
and warranties of the Borrower set forth in the Agreement regarding financial
statements shall be deemed to be made with respect to the financial statements
most recently delivered to the Bank pursuant to the Agreement;
(3) No Event of Default. To the best of Borrower's knowledge no
Event of Default exists as of the date hereof or will result from the making of
the Advance or would result after notice or passage of time;
(4) Use of Proceeds. The proceeds of the Advance will be used only
as permitted by the Agreement;
(5) No Material Adverse Effect. To the best of Borrower's knowledge,
no act, omission, change or event which would have a material adverse effect on
the Borrower has occurred since the Date of the Agreement.
1
<PAGE>
(6) Other Conditions. Enclosed are the documents and information
required under the Agreement by Bank as a condition to this Advance.
HEALTH SCIENCE PROPERTIES, INC.
By: _____________________________
Its: ____________________________
By: _____________________________
Its: ____________________________
2
<PAGE>
Schedule 1
to Borrowing Notice
REQUESTED LOAN
Amount of Requested Advance: $____________________
Designation of Interest Rate:
(Portion of requested advance to be funded at a Reference-based Rate and/or a
Libor Alternative.)
(1) Reference based Rate advance: $____________________
Requested Reference based Rate borrowing date: ____________________
(must be a Banking Day)
(2) Libor Alternative advance:
Amount: (Must be at least $500,000.00) $____________________
Requested Libor Alternative advance
borrowing date:............................... ____________________
(must be a Banking Day at least three (3)
Banking Days after date of this notice)
Contract Rate Period: ____________________
(1,2,3 OR 6 months but not beyond the Maturity date)
1
<PAGE>
EXHIBIT B to Unsecured Line of Credit Loan Agreement
COMPLIANCE CERTIFICATE
____________, 1997
Bank of America National Trust and
Savings Association
Re: Unsecured Line of Credit Loan Agreement, dated as of January 24,
1997 (the "Loan Agreement"), by and between HEALTH SCIENCES
PROPERTIES, INC., a Maryland corporation (the "Borrower"), BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking
association, (the "Bank")
Ladies and Gentlemen:
Reference is made to the Loan Agreement. Each initially capitalized term
not defined in this Compliance Certificate (including the schedules and other
attachments hereto, this "Certificate") shall have the meaning ascribed to such
term in the Loan Agreement.
Pursuant to Section 6 of the Loan Agreement, the Borrower hereby certifies
to the Bank that, to the best of the undersigned's knowledge after diligent
inquiry, the information furnished in the attached schedules, including, without
limitation, each of the calculations in attached Schedule 1 and the related
attachments with respect to the covenants of the Borrower in Section 6.4 of the
Loan Agreement is true, correct and complete in all material respects as of the
last day of the fiscal period subject to the financial statements being
delivered to the Bank pursuant to Section 6.2 of the Loan Agreement together
with this Certificate (such statements the "Financial Statements" and the
periods covered thereby the "Reporting Periods") and for such Reporting Period.
The Borrower hereby further certifies to Bank that, to the best of the
Borrower's knowledge after diligent inquiry:
(1) Review of Financial Condition. The undersigned has reviewed the terms
of the Loan Agreement, including, without limitation, the representations and
warranties set forth in Section 5 thereof and the covenants set forth in Section
6.4 thereof, and has made, or caused to be made under his or her supervision, a
review in reasonable detail of the transactions and condition of the Borrower,
the Guarantor, and its respective Subsidiaries during the Reporting Periods. The
Financial Statements accurately present in all material respects the financial
position of the Borrower, the Guarantor, and its respective Subsidiaries as of
the date thereof and for the Reporting Periods covered thereby.
(2) Representations and Warranties. The representations and warranties of
the Borrower, the Guarantor, and its respective Subsidiaries contained in the
Loan Documents are true and correct in all material respects as of the date
hereof and were true and correct at all times during the Reporting Periods;
<PAGE>
HEALTH SCIENCES PROPERTIES, INC.
Compliance Certificate - Page 2
(3) Covenants. During the Reporting Period, the Borrower, the Guarantor,
and its respective Subsidiaries observed and performed in all material respects
all of their respective covenants and other agreements under the Loan Documents,
and satisfied each of the conditions contained therein to be observed, performed
or satisfied by the Borrower, the Guarantor, and its respective Subsidiaries.
No Default; Event of Default. No Default or Event of Default exists as
of the date hereof or existed at any time during the Reporting Period.
IN WITNESS WHEREOF, this Certificate is executed by the undersigned this
24th day of January, 1997.
By: Health Science Properties, Inc.,
a Maryland Corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
<PAGE>
HEALTH SCIENCES PROPERTIES, INC.
Compliance Certificate - Page 3
Schedule 1
to Compliance Certificate
COVENANT COMPLIANCE
As of______________________, 199__
and for the period from _______________, 199__
to ______________, 199__
I. Financial Covenants
A. Tangible Net Worth (Section 6.4(a)) as of ____________, 199__ is
_____________. Net Worth to be at least $34,000,000 at any time
B. Total Liabilities to Gross Asset Value (Section 6.4(b)) as of
_____________, 199__ must not exceed 0.80:1.00 at any time
Gross Asset Value:
EBITDA of the Company,
and its Subsidiaries for the
end of the most recent
quarter (except NOI from
those properties which were
owned less than one full
quarter) (B-1) $________
Annualization of(B-1)[B-1)
x4] (B-2) $________
Item (B-2) capitalized at the
cap rate of ll.5% (B-3) $________
Partial quarter NOI* pro-
rated on a 30 day basis (B-4) $________
Item (B-4) annualized by
multiplying by 12 (B-5) $________
<PAGE>
HEALTH SCIENCES PROPERTIES, INC.
Compliance Certificate - Page 4
Item (B-5) capitalized at the
cap rate of ll.5% (B-6) $________
All cash (including Restricted
Cash) and the fair market
value of all Cash Equivalents
held as of the last day of such
quarter (B-7) $________
Total Gross Asset Value [sum
of Items (B-3), (B-6) and
(B-7)] (B-8) $________
Total Liabilities plus Specified
Contingent Liabilities of the
Company, and its Respective
Subsidiaries on a consolidated
basis (A) $________
Leverage based on GAV,
divide Item (A) by Item (B-8) (B) ________
Covenant compliance? (Item
(B) must not exceed 80% (C) ________ (yes or no)
*NOI is defined as revenue generated from property, less operating
expenses, excluding depreciation and financing costs
C. Interest Coverage Ratio (Section 6.4(d)) for the period from
_____________, 199__ to ________, 199__
[to be at least 1.70:1.00 for any fiscal quarter or year end]
Net Income (or Net
Loss)(without giving effect
to extraordinary gains or
losses) for the preceding 12
month period (D-1) $________
Interest Expense over the
preceding 12 month period (D-2) $________
Valuation adjustments for
the preceding 12 month (D-3) $________
period
<PAGE>
HEALTH SCIENCES PROPERTIES, INC.
Compliance Certificate - Page 5
Depreciation and
amortization expenses
over the preceding 12
month period (D-4) $________
Income Tax expense over
the preceding 12 month
period (D-5) $________
Compensation expense
associated with stock
agreements and stock options (D-6) $________
EBITDA [sum of Items (D-1)+(D2)+(D3)+(D4)+(D5)+D6] (D-7) $________
Interest Incurred (D-8) $________
EBITDA to Interest Incurred
[(D-7) divided by (D-8)] (D-9) $________
Covenant compliance - is
(D-9) >= 1.70 (H) ________ (yes or no)
D. EBITDA Less Reserves to Fixed Charges (Section 6.4(c)) for the
period from _________, 199__ to _______, 199__ to be at least
1.05:1.00
EBITDA (D-7) $________
Revenues from Real Estate
properties over preceding (E-1) $________
l2month period
Reserves = (E-1) * 2.5% (E-2) $________
Interest Incurred (D-2) $________
Preferred and common
dividends paid or accrued
(if not already counted)
over the preceding 12
month period (E-4) $________
<PAGE>
HEALTH SCIENCES PROPERTIES, INC.
Compliance Certificate - Page 6
Scheduled principal
amortization paid or
accrued over the preceding
12 month period (E-5) $________
Fixed Charges [sum of Items
(D-2)+(E-4)+(E-5)] (E-6) $________
EBITDA Less Reserves to
Fixed Charges [Item (D6)
minus (E-2) divided by (E-6)] (F) ________
Covenant Compliance? (Item
(F) must to be at least
1.05:1.00) (R) ________ (yes or no)
E. Distributions (Section 6.4) for the period from
__________, 199__ to ___________, 199__ (four consecutive quarters)
[not to exceed 95% of Funds From Operations]
Net income (D-1) $________
Real estate depreciation and other
adjustments to FF0 as defined in
6.4 (e) over the preceding 12
month period (F-3) $________
Funds From Operations (FFO) (D-1)
minus (D-3) (F-4) $________
Distributions as defined in Section
6.4(e) of the Loan Agreement (G) $________
Distributions (G) divided by FF0
(F-4) (F-5) ________
Distributions shall not exceed 95% of
FF0 (Item (F-5) (U) ________ (yes or no)
<PAGE>
HEALTH SCIENCES PROPERTIES, INC
Compliance Certificate - Page 7
F. REIT Status (Section 6.5)
At all relevant times, Borrower has met all of the applicable requirements
set forth in the in the Internal Revenue Code to be eligible for REIT
status __________(yes or no)
G. Change of Management (Section 6.20)
Borrower shall at all times have at least one of either Joel Marcus or
Jerry Sudarsky employed by the Borrower in the capacity as each held as of
12/20/96 or a more senior capacity. __________(yes or no)
<PAGE>
Exhibit 10.21
Loan Identification No.: EE032
PROMISSORY NOTE
$2,500,000.00 January 24, 1997 Los Angeles, California
Interest Rates Available (see attached Exhibit A):
(a) Reference Rate plus the Reference Rate Margin;
(b) LIBOR Rate plus the Libor Margin;
Maturity Date: December 31, 1997 (see Section 5 below).
- --------------------------------------------------------------------------------
1. FOR VALUE RECEIVED, HEALTH SCIENCE PROPERTIES, INC., a Maryland
corporation ("Borrower") promises to pay to the order of BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank") at Bank's Commercial Real Estate
Services Group Office in Los Angeles, California, or at such other place as Bank
from time to time may designate, the principal sum of TWO MILLION FIVE HUNDRED
THOUSAND Dollars ($2,500,000.00) (the "Maximum Loan Amount"), or so much of that
sum as may be advanced under this promissory note ("Note"), plus interest as
specified in this Note. This Note evidences a revolving line of credit loan
("Loan") from Bank to Borrower and is one of several Loan Documents, as defined
and designated in a line of credit loan agreement ("Loan Agreement") dated the
date hereof, between Bank and Borrower.
2. The principal sum outstanding from time to time under this Note shall
bear interest in accordance with the formulas set forth in Exhibit A. Interest
shall be calculated on the basis of a 360-day year and actual days elapsed,
which results in more interest than if a 365-day year were used.
3. (a) Accrued interest shall be payable on the first day of each month in
arrears, on any portion of the Loan bearing interest at the Reference-based
Rate, and on any Rate Portion having a Rate Period longer than one month. (As
used here, the terms "Reference-based Rate," "Rate Portion" and "Rate Period"
have the meanings given to them in Exhibit A.) In addition, all interest accrued
on any Rate Portion, regardless of its length, shall be due and payable on the
last day of the applicable Rate Period and with any prepayment.
-1-
<PAGE>
(b) Until directed otherwise, all payments shall be made in
accordance with Section 3.4 of the Loan Agreement.
4. For purposes of this Note, "interest" shall include any and all
interest payable as provided in this Note.
5. All principal and all accrued and unpaid interest shall be due and
payable no later than December 31, 1997. Some or all of the Loan Documents,
including the Loan Agreement, contain provisions for the acceleration of the
maturity of this Note.
6. Bank shall not be required to make any advance if that would cause the
outstanding principal of this Note to exceed the Maximum Loan Amount.
7. Borrower may prepay some or all of the principal under this Note, on
the terms and subject to the conditions set forth in Exhibit B.
8. If Bank has not received the full amount of any monthly payment, other
than the final principal payment, by the end of 10 calendar days after the date
it is due, Borrower shall pay a late charge to Bank in the amount of six percent
(6%) of the overdue payment; Borrower shall pay this late charge only once on
any particular late payment.
9. From and after maturity of this Note (whether upon scheduled maturity,
by acceleration or otherwise), all sums then due and payable under this Note,
including all principal and all accrued and unpaid interest, shall bear interest
until paid in full at an annual rate (the "Default Rate") of three percent (3%)
in excess of the higher of (i) the Reference-based Rate or (ii) the interest
rate which would otherwise be applicable under the provisions of Exhibit A;
provided, however, that if at the time of maturity different portions of the
Loan are bearing interest at different rates in accordance with Exhibit A, the
Default Rate shall be calculated separately as provided above with respect to
each Rate Portion and with respect to any portion of the Loan then bearing
interest at the Reference-based Rate.
10. If any of the following "Events of Default" occur, any obligation of
the holder to make advances under this Note and any right of Borrower to
designate an interest rate other than the Reference-based Rate shall terminate,
and at the holder's option, exercisable in its sole discretion, all sums of
principal and interest under this Note shall become immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or other notices or demands of any kind or character:
-2-
<PAGE>
(a) Borrower fails to perform any obligation under this Note to pay
principal or interest, and does not cure that failure within fifteen (15) days
after the date when due; or
(b) Borrower fails to perform any other obligation under this Note
to pay money, and does not cure that failure within fifteen (15) days after
written notice from Bank; or
(c) Under any of the Loan Documents, an Event of Default (as defined
in that document) occurs, except as provided in Section 11 below.
11. It shall be an "Event of Default" under this Note if Borrower becomes
the subject of any bankruptcy or other voluntary or involuntary proceeding, in
or out of court, for the adjustment of debtor-creditor relationships
("Insolvency Proceeding"). If that happens, any obligation of the holder to make
advances under this Note and any right of Borrower to designate an interest rate
other than the Reference-based Rate shall terminate, and all sums of principal
and interest under this Note shall automatically become immediately due and
payable without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor, or other notices or demands of any kind or
character.
12. All amounts payable under this Note are payable in lawful money of the
United States during normal business hours on a Banking Day, as defined in
Article IV of Exhibit A. Checks constitute payment only when collected.
13. If any lawsuit, reference or arbitration is commenced which arises out
of or relates to this Note, the Loan Documents or the Loan, the prevailing party
shall be entitled to recover from each other party such sums as the court,
referee or arbitrator may adjudge to be reasonable attorneys' fees in the
action, reference or arbitration, in addition to costs and expenses otherwise
allowed by law. In all other situations, including any matter arising out of or
relating to any Insolvency Proceeding, Borrower agrees to pay all of Bank's
costs and expenses, including reasonable attorneys' fees, which may be incurred
in enforcing or protecting Bank's rights or interests. From the time(s) incurred
until paid in full to Bank, all such sums shall bear interest at the Default
Rate.
14. Whenever Borrower is obligated to pay or reimburse Bank for any
attorneys' fees, those fees shall include the allocated costs for services of
in-house counsel.
15. This Note is governed by the laws of the State of California, without
regard to the choice of law rules of that State.
-3-
<PAGE>
16. Borrower agrees that the holder of this Note may accept additional or
substitute security for this Note, or release any security or any party liable
for this Note, or extend or renew this Note, all without notice to Borrower and
without affecting the liability of Borrower.
17. If Bank delays in exercising or fails to exercise any of its rights
under this Note, that delay or failure shall not constitute a waiver of any of
Bank's rights, or of any breach, default or failure of condition of or under
this Note. No waiver by Bank of any of its rights, or of any such breach,
default or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by Bank. All of Bank's remedies in
connection with this Note or under applicable law shall be cumulative, and
Bank's exercise of any one or more of those remedies shall not constitute an
election of remedies.
18. This Note inures to and binds the heirs, legal representatives,
successors and assigns of Borrower and Bank; provided, however, that Borrower
may not assign this Note or any Loan funds, or assign or delegate any of its
rights or obligations, without the prior written consent of Bank in each
instance. Bank in its sole discretion may transfer this Note, and may sell or
assign participations or other interests in all or part of the Loan, on the
terms and subject to the conditions of the Loan Documents, all without the
consent of Borrower. Also without the consent of Borrower, Bank may disclose to
any actual or prospective purchaser of any securities issued or to be issued by
Bank, and to any actual or prospective purchaser or assignee of any
participation or other interest in this Note, the Loan or any other loans made
by Bank to Borrower (whether evidenced by this Note or otherwise), any financial
or other information, data or material in Bank's possession relating to
Borrower, the Loan or the Property, including any improvements on it. If Bank so
requests, Borrower shall sign and deliver a new note to be issued in exchange
for this Note.
19. As used in this Note, the terms "Bank," "holder" and "holder of this
Note" are interchangeable. As used in this Note, the word "include(s)" means
"include(s), without limitation," and the word "including" means "including, but
not limited to." Exhibits A and B, are attached to this Note and are
incorporated in this Note by this reference.
20. Bank agrees that any information provided to Bank in connection
herewith shall be treated by Bank in a confidential manner, and shall not be
disclosed by it to persons who are not parties to the Loan Documents; except:
(a) to counsel for and other advisors, accountants, and auditors to Bank; (b) as
may be required by statute, decision, or judicial or administrative order, rule,
or regulation or governmental or regulatory authority to which Bank is or may
become subject; (c) as may be
-4-
<PAGE>
agreed to in advance; (d) as to any such information that is or becomes
generally available to the public (other than as a result of prohibited
disclosure by Bank or becomes available on a non-confidential basis from a third
party); (e) to any person and in any proceeding necessary in Bank's reasonable
judgment to protect Bank's interest in connection with any claim or dispute
involving Bank, and (f) in connection with any assignment, prospective
assignment, sale, prospective sale, participation or prospective participation,
or pledge or prospective pledge of Bank's interests under this Agreement,
provided that any such counsel, advisors, accountants, auditors and any such
assignee, prospective assignee, purchaser, prospective purchaser, participant,
prospective participant, pledgee, or prospective pledgee shall have agreed in
writing to take its interest under the Loan Documents subject to the terms
hereof. The provisions of this Section 21 shall survive for two years after the
full and final repayment of the Loan.
21. If more than one person or entity are signing this Note as Borrower,
their obligations under this Note shall be joint and several. If Borrower is a
partnership, Borrower and each of Borrower's constituent general partners shall
be jointly and severally liable to Bank for Borrower's obligations under this
Note.
22. Borrower has caused this Note to be executed by its officers, who were
duly authorized and directed to do so by a resolution of its Board of Directors
which was duly passed and adopted by the requisite number of members of the
Board at a meeting which was duly called, noticed, and held.
Borrower: Mail Address:
HEALTH SCIENCE PROPERTIES, INC. 251 South Lake Avenue
a Maryland corporation Suite 700
Pasadena, CA 91101
Telephone No.:
818-578-0777
By: /s/ J. M. Sudarsky
---------------------------
Name: Jerry M. Sudarsky
Title: Chairman/CEO
By: /s/ Joel S. Marcus
---------------------------
Name: JOEL S. MARCUS
Title: Vice Chairman/COO
-5-
<PAGE>
Borrower: HEALTH SCIENCE PROPERTIES, INC.
Loan Identification No.: EE032
EXHIBIT A TO PROMISSORY NOTE
INTEREST RATES
I. Available Interest Rates
On and subject to the terms and conditions of this Exhibit A, Borrower may
choose to have all or portions of the principal balance of the Loan bear
interest at any one of the following rates:
1.1 Reference Rate plus the Reference Rate Margin herein described (the
"Reference-based Rate");
1.2 LIBOR Rate plus the Libor Margin herein described (the "LIBOR
Alternative");
"Reference Rate Margin" and the "Libor Margin" mean, with respect to each
advance, the respective percentages per annum, at any point in time, based on
the range into which a calculation of the ratio of Borrower's Liabilities to
Gross Asset Value (the "LIAB/GAV Calculation") then falls, in accordance with
the table set forth below. LIAB/GAV Calculation shall be determined by Borrower
and set out in each Compliance Certificate, provided, however, that the
representation of the LIAB/GAV Calculation on each Borrowing Notice shall be
deemed to be made with respect to the Compliance Certificate most recently
delivered to Bank pursuant to Section 6.2 of the Agreement.
Liabilities to Reference Rate Libor
Gross Asset Value Margin Margin
- ----------------- ------ ------
Less than .75:1 1.00 percent per year 2.5 percent per year
.75 to .80:1 1.25 percent per year 2.75 percent per year
The terms used above are defined in Article II of this Exhibit A. The
Reference-based Rate is a variable rate. Each rate other than the
Reference-based Rate (a "Contract Rate") may be fixed by agreement between
Borrower and Bank as to a given principal amount (the "Rate Portion") during a
given period of time (the "Rate Period").
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II. Interest Rate Definitions
2.1 Reference Rate
"Reference Rate" means the per annum rate of interest publicly
announced from time to time by Bank at San Francisco, California, as its
Reference Rate. The Reference Rate is set by Bank based on various factors,
including Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing loans. Bank may price
loans at, above or below the Reference Rate. Any change in the Reference Rate
shall take effect on the day specified in the public announcement of such
change.
Each request for a Reference-based Rate advance shall be received by
Bank no later than 11:00 a.m. San Francisco time on any Banking Day.
2.4 LIBOR Alternative
(a) With respect to a given Rate Period and Rate Portion where
interest is calculated based on the LIBOR Alternative, "LIBOR Rate" means the
per annum rate of interest, rounded upward, if necessary, to the nearest 1/100th
of one percent, determined by the following formula:
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00 - Reserve Percentage)
All figures used in this calculation shall be determined by Bank as of the day
when Bank delivers the binding rate quote to Borrower.
(b) For purposes of this formula, the following definitions shall
apply:
(i) "London Inter-Bank Offered Rate" means the per annum rate
of interest, rounded upward, if necessary, to the nearest 1/16th of one
percent (0.0625%), at which Bank's London branch, London, England, would
offer U.S. dollar deposits in amounts and for periods comparable to those
of the applicable Rate Portion and Rate Period to major banks in the
London U.S. dollar inter-bank market at approximately 11:00 a.m., London
time, the first Banking Day after Borrower's rate election.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency Liabilities,
as defined in
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Federal Reserve Board Regulation D. The Reserve Percentage shall be
expressed in decimal form and rounded upward, if necessary, to the nearest
1/100th of one percent, and shall include marginal, emergency,
supplemental, special and other reserve percentages.
(c) So long as no Event of Default is continuing, Borrower may elect
a LIBOR Alternative no later than 9:30 a.m., San Francisco time, on any Banking
Day. The applicable Rate Period shall begin on the third Banking Day after
Borrower's rate election.
(d) From time to time, Bank in its sole discretion may determine
that:
(i) It is illegal for Bank to offer the LIBOR Alternative, or
to obtain funds in the London U.S. dollar inter-bank market in amounts and
for periods comparable to those of the requested Rate Portion and Rate
Period (a "LIBOR Illegality"); or
(ii) U.S. dollar deposits are not available in the London U.S.
dollar inter-bank market in amounts and for periods comparable to those of
the requested Rate Portion and Rate Period; or
(iii) The LIBOR Alternative does not accurately reflect the
costs associated with the requested Rate Portion and Rate Period.
In any such event, Bank shall have no obligation to honor Borrower's election of
a LIBOR Alternative for any new Rate Portion and Rate Period. If Bank in its
sole discretion should determine that any LIBOR Illegality has occurred and is
continuing, any existing Rate Portion bearing interest at the LIBOR Alternative
shall automatically bear interest at the Reference-based Rate until Borrower
makes a valid election of a new Contract Rate and a new Rate Period for that
portion. Borrower shall not be obligated to pay any Prepayment Premium (as
defined in Exhibit B) if any existing Rate Period is interrupted because of a
LIBOR Illegality. No validly existing Rate Period or Rate Portion shall be
affected by the occurrence of any event or condition described in clauses (ii)
or (iii) above.
III. Election of Contract Rates
3.1 Requests for Contract Rate Quotes
From time to time, Borrower may request Bank to quote a given
Contract Rate. Such a request shall be made by
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Borrower in writing or by a telephone call to a Bank officer in the unit
specified in Section 1 of the Note as the place where payments are to be made.
3.2 Contract Rate Election Procedures
In response to Borrower's request, Bank shall provide an indicative
rate quote for a given LIBOR Alternative or a binding rate quote for any other
specified Contract Rate. Based on such information, Borrower may elect that
LIBOR Alternative or other Contract Rate within the time specified above,
together with the associated Rate Period and Rate Portion; provided, however,
that Borrower may not select a Rate Period that extends beyond the maturity date
of this Note (the "Maturity Date"). Such an election by Borrower shall be
irrevocable, whether it is made in writing or by telephone.
Borrower understands that any election of a LIBOR Alternative shall
be made based on an indicative rate quote only, and that such election shall
become irrevocable one Banking Day before Bank will be able to provide the
binding rate quote. Bank shall not be bound by any indicative rate quote or
other preliminary information that it may give Borrower concerning a particular
LIBOR Alternative before it delivers the binding rate quote.
3.3 Confirmation of Contract Rate Elections
Bank's written confirmation of Borrower's Contract Rate elections is
not necessary or required. However, if Bank so chooses and at Bank's sole
option, Bank may confirm from time to time any election by Borrower of a
Contract Rate by a written notice. The notice shall be in such form as Bank may
deem appropriate but it shall indicate on its face that it is a confirmation of
Borrower's interest rate election (such as being titled "Contract Rate Notice").
Bank shall have no obligation to provide any contract rate notice to Borrower.
If Bank fails to send such notice to Borrower or if Bank chooses not to send
such notice to Borrower, that shall not affect any Contract Rate or Rate Period
placed in effect or the effectiveness of any act performed by Bank in response
to a telephonic interest rate election by Borrower.
3.4 Effect of Nonelection
If Borrower does not specify a Contract Rate for any portion of the
Loan, or if for any such portion a Contract Rate cannot be selected or
maintained (for example, because an Event of Default is continuing or because
the minimum portion size requirement has not been met), that portion shall bear
interest
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at the Reference-based Rate until Borrower makes a valid election of a different
interest rate. After any Rate Period expires, the applicable Rate Portion shall
bear interest at the Reference-based Rate until Borrower makes a valid election
of a new Contract Rate and a new Rate Period for that portion.
3.5 Minimum Rate Portion Size
Borrower may select a Contract Rate, each of which shall be in an
aggregate minimum principal amount of $500,000 or any multiple of $100,000 in
excess thereof.
3.6 Durations of Rate Periods
For each contract Rate, Borrower may select Rate Periods of one,
two, three, or six months, but not extending beyond the Maturity Date. The last
day of a Rate Period for a LIBOR Alternative shall be determined by Bank in
accordance with the practices of the London U.S. dollar inter-bank market.
3.7 Limitation on Number of Rate Portions
At any given time, Borrower may have no more than five portions of
the Loan bearing interest at different Contract Rates or for different Rate
Periods.
3.8 Authorized Persons
Borrower hereby designates Joel Marcus or Jerry Sudarsky or such
other representative of Borrower as may be designated in writing by Borrower
from time to time, as being authorized to make interest rate elections on
Borrower's behalf in writing or by telephone. Bank shall be entitled to rely on
telephonic or written directions from such persons until this authorization is
revoked by Borrower in writing.
IV. Definitions
All capitalized terms used in this Exhibit A without definition shall have
the meanings given them in the note. Except for purposes of the LIBOR
Alternative, "Banking Day" means a day other than a Saturday or Sunday, on which
banks are open for business in New York, New York and Bank is open for business
in San Francisco, California. For purposes of the LIBOR Alternative, "Banking
Day" means a day other than a Saturday or Sunday, on which banks are open for
business in London, England and New York, New York and Bank is open for business
in San Francisco, California.
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Borrower: HEALTH SCIENCE PROPERTIES, INC.
Loan Identification No.: EE032
EXHIBIT B TO PROMISSORY NOTE
PREPAYMENT TERMS
All capitalized terms used in this Exhibit B without definition shall have
the meanings given them in the attached Note and Exhibit A.
1. Prepayment Premium
Each prepayment of all or part of a Rate Portion bearing interest at
a Contract Rate, whether voluntary, by reason of acceleration, a credit bid at
foreclosure or otherwise, shall be accompanied by all interest accrued on the
prepaid principal amount, plus a premium ("Prepayment Premium") calculated as
provided below. Bank shall submit a certificate to Borrower setting forth its
determination of any Prepayment Premium, which shall be conclusive and binding
in the absence of manifest error. Bank reserves the right to provide interim
calculations of such Prepayment Premium in any notice of default or notice of
sale for informational purposes but the exact amount of such Prepayment Premium
shall be calculated only upon the actual prepayment of such Rate Portion as
aforesaid.
2. LIBOR Alternative Premium
The Prepayment Premium for the LIBOR Alternative shall be the sum
of:
(a) $250; and
(b) the amount, if any, by which X exceeds Y,
where:
(i) X equals the additional interest that would have accrued
on the principal amount prepaid at the LIBOR Rate without any spread, if
that amount had remained outstanding until the last day of the applicable
Rate Period, and
(ii) Y equals the interest that Bank could recover by placing
the prepaid funds on deposit in the London U.S. dollar inter-bank market
for a period beginning on the day of the prepayment and ending on the last
day of the
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applicable Rate Period, or for a comparable period for which an
appropriate rate quote may be obtained; and
(c) an amount equal to all costs and expenses which Bank reasonably
expects to incur in liquidation and reinvestment of the prepaid funds.
3. Notice of Prepayment
Borrower shall give Bank irrevocable written notice of Borrower's
intention to make any prepayment, specifying the date and amount of the
prepayment. The notice must be received by Bank at least five (5) Banking Days
in advance of the prepayment. Borrower understands that Bank may incur costs and
expenses, suffer losses or make payments in reliance upon Borrower's delivery to
Bank of such a written notice of prepayment. If Borrower subsequently fails to
make the prepayment as specified in such notice and as required hereunder, then,
upon demand by Bank, Borrower shall pay or reimburse Bank for all such costs,
expenses, losses and payments.
4. Borrower's Waiver
By its signature below, Borrower expressly waives any right to
prepay any Rate Portion except on the express terms of this Exhibit B. If the
maturity of this Note is accelerated by reason of any Event of Default, Bank may
require payment of the Prepayment Premium as a condition of accepting any such
tender.
5. Borrower's Acknowledgment
Borrower acknowledges that prepayment of the Loan may result in
Bank's incurring additional costs, expenses and liabilities. Borrower therefore
agrees to pay the Prepayment Premium described above, and further agrees that
the Prepayment Premium represents a reasonable estimate of the prepayment costs,
expenses and liabilities of Bank. By its signature below, Borrower acknowledges
that it is a knowledgeable real estate developer or investor and fully
understands the effect of the waiver contained in this Exhibit B. Borrower
agrees that Bank's
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willingness to offer Contract Rates to Borrower is sufficient and independent
consideration for this waiver, and Borrower understands that Bank would not
offer Contract Rates to Borrower absent this waiver.
HEALTH SCIENCE PROPERTIES, INC.
a Maryland corporation
By: /s/ J. M. Sudarsky Dated: January 24, 1996
---------------------------
Name: Jerry M. Sudarsky
Title: Chairman / CEO
By: /s/ Joel S. Marcus Dated: January 24, 1996
---------------------------
Name: JOEL S. MARCUS
Title: Vice Chairman / COO
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<PAGE>
BANK AUDI
[LOGO] CALIFORNIA
EXHIBIT 10.22
LOAN AGREEMENT
November 23, 1994
Health Science Properties, Inc.
251 S. Lake Avenue, #535
Pasadena, CA 91101
Loan #1768
Dear Sirs,
Bank Audi (California) (the "Bank") is pleased to advise Health Science
Properties, Inc., a Maryland Corporation (hereinafter called the "Borrower") of
its agreement to grant the Borrower a loan in the amount of FIVE HUNDRED
THOUSAND AND NO/100 Dollars ($500,000.00) (the "Loan") to be used as set forth
below. This Loan is subject to the following terms and conditions:
ARTICLE I "THE LOAN"
1.1 THE LOAN The Bank hereby agrees to grant a Loan to the Borrower and
--------
the Borrower hereby agrees to borrow from the Bank an amount not to exceed at
any time the sum of FIVE HUNDRED THOUSAND AND NO/100 Dollars ($500,000.00) to be
used for upgrading the HVAC System at the 10933 N. Torrey Pines Road property,
in San Diego, California (the "HVAC System").
1.2 THE NOTE The Loan shall be evidenced by a note signed by the Borrower
--------
(the "Note") payable to the order of the Bank. This Note and the books of the
Bank shall constitute sufficient evidence of the indebtedness of the Borrower to
the Bank.
1.3 INTEREST Interest shall be payable on the outstanding principal
--------
balance of the Loan at a rate per annum equal to ONE AND ONE HALF OF ONE percent
(1.5%) above the rate announced by the Bank from time to time as its prime rate,
calculated on the basis of actual days elapsed in a year of 360 days. Interest
shall accrue during the course of the month and shall be charged monthly in
arrears to the Borrower's account on the first banking day of each month,
pending reimbursement by the Borrower.
<PAGE>
BANK AUDI
[LOGO] CALIFORNIA
1.4 PENALTY INTEREST After default or maturity, or if any payment is
----------------
overdue more than five (5) business days, an additional charge will be due by
Borrower. Principal and past-due interest shall bear interest at the Applicable
Rate plus FIVE PERCENT (5%) per annum.
1.5 MATURITY AND PREPAYMENT The outstanding principal balance of the Loan
-----------------------
plus any accrued interest, shall be payable in full on or before the 1st day of
November, 1997 unless renewed at the mutual option of the Borrower and the Bank.
There will be no penalties or premium payable in the event of prepayment of all
or any part of the Note.
1.6 CLOSING FEES As consideration for granting this facility, the
------------
Borrower shall pay a closing fee of SEVEN THOUSAND FIVE HUNDRED AND NO/100
Dollars ($7,500.00) being ONE AND ONE HALF OF ONE percent (1.5%) of the total
Loan amount. The fee shall be payable upon execution of this Agreement.
1.7 LEGAL FEES Borrower shall pay legal fees in an amount of FIVE HUNDRED
----------
AND NO/100 Dollars ($500.00). The fee shall be payable upon execution of
this Agreement.
1.8 SPECIAL CONDITIONS
------------------
A - Bank maintains the right, at will, to verify and inspect the
Collateral as described in section 2.1 below, to conduct audits
or hire auditing firms, to inspect the books and records of
Borrower and to make copies thereof or extracts therefrom, each
at reasonable times and in a reasonable manner at the reasonable
expense of Borrower.
B - Bank reserves the right to cancel the Loan with a 14 day prior
written notice, if the net equity of Borrower falls below $15
million.
1.9 REPAYMENT SCHEDULE The Loan shall be payable according to the
------------------
following schedule:
- Principal payment of $5,000.00 per month, plus accrued interest,
payable in arrears on the first banking day of each month.
- Balance at maturity.
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BANK AUDI
[LOGO] CALIFORNIA
ARTICLE II: "SECURITY"
2.1 COLLATERAL As security for this facility, the Borrower shall grant to
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the Bank the following Collateral (the "Collateral"):
- UCC-1 and security interest in the HVAC System as evidenced by a
Security Agreement of even date herewith.
ARTICLE III "CONDITIONS TO CREDIT"
3.1 DOCUMENTS The Bank's Agreement to lend, contained herein, shall be
---------
effective only upon receipt by the Bank of the following duly executed
documents in a form reasonably satisfactory to the Bank: this Agreement,
Promissory Note, Security Agreement, UCC filing, Corporate Resolution to
Borrow, and any and all other documents which shall be reasonably required
by the Bank's counsel to secure the Bank's interest.
ARTICLE IV "REPRESENTATION8 AND WARRANTIES"
The Borrower represents and warrants the following:
l) That during the term of this Agreement, the provisions herein shall
continue to be true and correct in all material respects;
2) That all due taxes of the Borrower have been paid except where the failure
to pay such taxes could not reasonably be expected to have a material
adverse effect or except for such taxes as it may in good faith contest or
reserve;
3) That, as of the date hereof, no legal or court action which could
reasonably be expected to have a material adverse effect is in force or
pending.
ARTICLE V "AFFIRNATIVE COVENANTS"
During the term of this Agreement, and so long as any indebtedness of the
Borrower to the Bank shall remain unpaid, including any indebtedness for fees
and expenses provided for hereunder, the Borrower undertakes to:
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BANK AUDI
[LOGO] CALIFORNIA
1) Utilize the funds available under the Loan for upgrading the HVAC System.
2) Provide Bank with quarterly financial statement for each of its first three
quarters, which shall include Balance Sheet and Profit and Loss account.
Statements shall be certified by an authorized officer of the Borrower, and
remitted to the Bank at the latest 45 business days after the end of such
quarter.
3) Provide Bank with audited financial statements at the latest 90 business
days after Borrower's fiscal year end.
ARTICLE VI "NEGATIVE COVENANTS"
During the term of this Agreement, and so long as any indebtedness of the
Borrower to the Bank shall remain unpaid, including any indebtedness for fees
and expenses provided for hereunder, the Borrower shall not consensually
encumber or grant any other consensual liens on the Collateral.
ARTICLE VII "EVENTS OF DEFAULT"
7.1 Upon the occurrence of any of the events set out below, the Bank at
its sole discretion may by notice in writing to the Borrower demand immediate
repayment of all amounts outstanding under the Loan plus accrued interest and
any fees and expenses provided for hereunder and the Loan shall thereupon
terminate, that is to say:
a) If the Borrower fails to pay any sum due from it hereunder on the due
date and fails to pay the same within fourteen days thereafter, or
b) If any representation or warranty made by the Borrower under or in
connection with this Agreement proves to have been incorrect in any material
respect when made, or
c) If the Borrower fails to perform or observe in any material respect any
other term, covenant or agreement hereunder on its part to be performed or
observed and any such failure remains unremedied for 30 days after written
notice thereof shall have been given to the Borrower by the Bank, or
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BANK AUDI
[LOGO] CALIFORNIA
d) If any Borrowed money (which expression shall include any obligation or
liability under guarantee, indemnity, bond or instrument of suretyship and all
liabilities in respect of all acceptance bills, notes, bonds and discounted
instruments) of the Borrower in a principal amount in excess of $500,000.00 is
not paid when due or within 14 days of becoming due or if the Borrower commits
any material breach of or makes a material default in the observance of any
term, condition, undertaking or covenant contained in any agreement present or
future for Borrowed money such that any party thereto has to declare or
otherwise causes any money payable thereunder to become due prior to its stated
maturity or to call for payment of the deposit of cash or security thereunder,
and within any grace period permitted by the relevant agreement, such breach or
default is not remedied (if capable of remedy) or is not waived in writing by
the said party, or
e) If any judgment or order for the payment of money in an amount which
materially affects the Borrower's financial condition or ability to meet its
obligations hereunder in the normal course shall be rendered against the
Borrower, or
f) If control of the Borrower is acquired by any person or company or
group of connected persons not having control of it at the date hereof, where
"control" means the power of any person or company or group of connected persons
to control the composition of the Board of Directors or otherwise secure by any
way that its affairs are conducted in accordance with the wishes of that person
or company or group of connected persons.
7.2 Upon the occurrence of any of the events set out below the Loan shall
terminate forthwith automatically and the Borrower shall forthwith without any
further notice or demand pay to the Bank all amounts outstanding under the Loan
plus accrued interest and any fees and expenses provided for hereunder, that is
to say:
a) If a petition is presented or an order made or a resolution passed for
winding-up the Borrower or if a notice is issued convening a meeting for the
purpose of passing any such resolution or if the Borrower ceases to carry on its
business or any substantial part thereof in the normal course or becomes unable
to pay its debts as and when they fall due or stops payment or,
b) If an encumbrancer shall take possession or a receiver, trustee or
similar officer shall be appointed of the whole or any part of the undertaking,
property or assets of the Borrower, or
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BANK AUDI
[LOGO] CALIFORNIA
c) If a notice is issued convening a meeting of or the Borrower enters
into any agreement with its creditors or agrees or declares a moratorium in
respect of any of its debts or interests.
7.3 The Borrower shall immediately notify the Bank in writing of the
occurrence of any event specified in sub-clauses 7.1 or 7.2 above and of the
occurrence of any event which with the lapse of time will constitute such an
event.
ARTICTE VIII "EXPENSES"
The Borrower shall reimburse the 8ank or the Bank shall debit the
Borrower's account for all of its reasonable out-of-pocket expenses including,
but not limited to, reasonable attorney's fees, including actual reasonable
attorney's fees incident to the enforcement of any provision of this Agreement,
UCC filing, messenger fees, etc.
ARTICLE IX "MISCELLANEOUS"
9.1 SUCCESSORS AND ASSIGNS The Borrower, and the Bank shall include the
----------------------
legal representatives or assigns of those parties.
9.2 GOVERNING LAW This Agreement, the transaction described herein and
-------------
obligations of the Bank and the Borrower hereunder, shall be construed and
interpreted in accordance with the laws of the State of California.
9.3 COURSE DEALING Any delay or failure by the Bank at any time or times
--------------
in enforcing its rights under the provisions set forth in this Agreement in
strict accordance with their terms shall not be construed as having created a
course of dealing or performance modifying or waiving the specific provisions of
this Agreement.
9.4 OTHER ACTS The Borrower shall execute and deliver, or cause to be
----------
delivered to the Bank all further documents and perform all other acts and
things which the Bank deems reasonably necessary or appropriate to protect the
indebtedness of the Borrower to the Bank.
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BANK AUDI
[LOGO] CALIFORNIA
9.5 NOTICE The address for service of process upon the Borrower is:
------
251 S. Lake Avenue, #535
Pasadena, CA 91101
9.6 CREDIT INQUIRIES The Bank shall have the right at any time, to make
----------------
all credit inquiries it reasonably deems necessary and obtain all credit
information it reasonably considers relevant, at its sole and absolute
discretion.
This Agreement shall not be changed or altered in any way by the Borrower
or the Bank. Any change or alteration to this Agreement without prior and
express agreement of the Borrower and the Bank will render this Agreement null
and void.
The Bank's commitment shall remain open until November 30, 1994 and shall
take effect upon your signing this Agreement and the Note and returning them to
us. Funds shall be disbursed upon full execution and delivery to the Bank of all
documents necessary to secure the Collateral in a form reasonably satisfactory
to the Bank's counsel.
We would like to add that Bank Audi (California) is delighted to have had
an opportunity to be of service to you and we look forward to a mutually
rewarding relationship.
Accepted and agreed to this Very truly yours,
23rd day of November, 1994 Bank Audi (California)
Health Science Properties, Inc.
a Maryland Corporation By: /s/ Concetta Smarius
-----------------------------
By: /s/ Joel Marcus
-----------------------------
Joel Marcus, Vice Chairman
By: /s/ Hala El-Oraby
-----------------------------
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Exhibit 10.23
BANK AUDI
[LOGO] CALIFORNIA
PROMISS0RY NOTE
($500,000.00) November 23, 1994
FOR VALUE RECEIVED,
Health Science Properties, Inc., a Maryland Corporation (hereinafter
called the "Borrower") promises to pay to the order of Bank Audi (California), a
California State chartered bank (hereinafter called the "Bank"), at the Bank's
office located at 444 South Flower Street, 14th Floor, Los Angeles, California
90071, or at such other place as the Bank may from time to time designate in
writing, in lawful money of the United States of America, the lesser of, (i) the
principal sum of FIVE HUNDRED THOUSAND AND NO/100 Dollars ($500,000.00), or (ii)
the aggregate unpaid principal amount of all advances made pursuant to the
Agreement (as defined below) on or before November 1, 1997. Interest shall be
payable from the date hereof on the principal amount remaining unpaid from time
to time at the fluctuating rate per annum equal to ONE AND ONE HALF OF ONE
percent (1.5%) above the rate announced by the Bank from time to time as its
prime rate (hereinafter called "Applicable Rate"). Such interest shall be
payable monthly in arrears on the first banking day of each month during the
time this Note is outstanding and on the date of payment of this Note.
Interest on this Note shall accrue during the course of the month and
shall be calculated on the basis of actual days elapsed in a year of 360 days.
If this Note is collected by suit through probate or bankruptcy court, or
any other judicial proceedings, or if this Note is not paid at maturity, however
such maturity may be brought about, and is placed in the hands of an attorney
for collection, then the Borrower promises to pay all reasonable fees and costs
incurred in connection with such collection.
This Note is being issued pursuant to and in full accordance with, and is
entitled to the benefits and subject to the provisions of the Agreement between
the Bank and the Borrower dated the 23rd day of November, 1994 (the
"Agreement"), and implementing and supplementing agreements, as the same may be
amended, modified or supplemented from time to time. Reference is hereby made to
the Agreement for the description of the provisions, among others with respect
to the rights, duties and obligations of the Borrower and the rights and
remedies of the Bank.
<PAGE>
BANK AUDI
[LOGO] CALIFORNIA
This Note is secured by a UCC-1 and security interest in Borrower's HVAC
System located at 10933 N. Torrey Pines Road, La Jolla, California as evidenced
by a security agreement of even date herewith.
I. Upon the occurrence of any of the events set out below, the Bank at its
sole discretion may by notice in writing to the Borrower demand immediate
repayment of all amounts outstanding under the Loan plus accrued interest
and any fees and expenses provided for hereunder and the Loan shall there
upon terminate, that is to say:
a) If the Borrower fails to pay any sum due from it hereunder on the due
date and fails to pay the same within fourteen days thereafter, or
b) If any representation or warranty made by the Borrower under or in
connection with this Agreement proves to have been incorrect in any material
respect when made, or
c) If the Borrower fails to perform or observe in any material respect any
other term, covenant or Agreement hereunder on its part to be performed or
observed and any such failure remains unremedied for 30 days after written
notice thereof shall have been given to the Borrower by the Bank, or
d) If any Borrowed money (which expression shall include any obligation or
liability under guarantee, indemnity, bond or instrument of suretyship and all
liabilities in respect of all acceptance bills, notes, bonds and discounted
instruments) of the Borrower in a principal amount in excess of $500,000.00 is
not paid when due or within 14 days of becoming due or if the Borrower commits
any material breach of or makes a material default in the observance of any
term, condition, undertaking or covenant contained in any Agreement present or
future for Borrowed money such that any party thereto has to declare or
otherwise causes any money payable thereunder to become due prior to its stated
maturity or to call for payment of the deposit of cash or security thereunder,
and within any grace period permitted by the relevant Agreement, such breach or
default is not remedied (if capable of remedy) or is not waived in writing by
the said party, or
e) If any judgment or order for the payment of money in an amount which
materially affects the Borrower's financial condition or ability to meet its
obligations hereunder in the normal course shall be rendered against the
Borrower, or
-2-
<PAGE>
BANK AUDI
[LOGO] CALIFORNIA
f) If control of the Borrower is acquired by any person or company or
group of connected persons not having control of it at the date hereof, where
"control" means the power of any person or company or group of connected persons
to control the composition of the Board of Directors or otherwise secure by any
way that its affairs are conducted in accordance with the wishes of that person
or company or group of connected persons.
II. Upon the occurrence of any of the events set out below the Loan shall
terminate forthwith automatically and the Borrower shall forthwith
without any further notice or demand pay to the Bank all amounts
outstanding under the Loan plus accrued interest and any fees and
expenses provided for hereunder, that is to say:
a) If a petition is presented or an order made or a resolution passed for
--
winding-up the Borrower or if a notice is issued convening a meeting for the
purpose of passing any such resolution or if the Borrower ceases to carry on its
business or any substantial part thereof in the normal course or becomes unable
to pay its debts as and when they fall due or stops payment or,
b) If an encumbrancer shall take possession or a receiver, trustee or
similar officer shall be appointed of the whole or any part of the undertaking,
property or assets of the Borrower, or
c) If a notice is issued convening a meeting of or the Borrower enters
into any Agreement with its creditors or agrees or declares a moratorium in
respect of any of its debts or interests.
III. The Borrower shall immediately notify the Lender in writing of the
occurrence of any event specified in sub-clauses I or II above and of the
occurrence of any event which with the lapse of time will or may
constitute such an event.
After default or maturity, or if any payment is overdue more than five
(5) business daysf an additional charge will be due by Borrower. Principal and
past-due interest shall bear interest at the Applicable Rate plus FIVE PERCENT
(5%) per annum.
The Borrower shall have the right, at any time or from time to time,
without penalty or premium, to prepay all or part of the unpaid principal amount
of the advances outstanding under this Note. The Borrower hereby waives
presentment, protest, demand of payment and notice of non-payment or protest on
this Note.
-3-
<PAGE>
BANK AUDI
[LOGO] CALIFORNIA
This Note shall be governed by and construed in accordance with the laws
of the State of California.
IN WITNESS WHEREOF, the Borrower has signed this Note as of the 23rd day
of November, 1994.
Borrower
Health Science Properties, Inc.,
a Maryland Corporation
By: /s/ Joel Marcus
----------------------------------
Joel Marcus, Vice Chairman
-4-
<PAGE>
EXHIBIT 10.24
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and entered into
---------
as of this 13th day of January, 1997, by and between PW ACQUISITIONS I, LLC, a
Delaware limited liability company ("Owner"), and HSP-QRS CORP., a Maryland
-----
corporation ("Manager").
-------
W I T N E S S E T H:
WHEREAS, Owner is Owner of the Property (as hereinafter defined)
located at 14225 Newbrook Drive, Chantilly, Virginia; and
WHEREAS, Owner desires to engage Manager in the management, operation
and maintenance of the Property, and Manager desires to accept such engagement,
all upon the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Certain Definitions. The following terms shall have the following
-------------------
meanings when used in this Agreement:
"Affiliate" means, as to any Person, any other Person that, directly
---------
or indirectly, is in control of, is controlled by, or is under common control
with, such Person or is a director or officer of such Person. For purposes of
this definition, "control" of a Person means the power, directly or indirectly,
(i) to vote nine and eight-tenths percent (9.8%) or more of the securities
having ordinary voting power for the election of directors of such Person or
(ii) to direct or cause the direction of the management and policies of such
Person, whether by ownership of partnership interests, stock ownership, contract
or otherwise.
"Annual Operating Budget" has the meaning specified in Section 9.5.
----------------------- -----------
"Auditor" means Ernst & Young, any other "Big 6" accounting firm or
-------
any other independent CPA selected by Manager and satisfactory to Owner.
"Bank" means LaSalle National Trust, N.A., or any other bank
----
subsequently designated by Owner.
1
<PAGE>
"Basic Carrying Costs" means, for any period, the sum of (i)
--------------------
Impositions and (ii) insurance premiums associated with the Property for such
period.
"Capital Event Proceeds" means, (i) Loss Proceeds in respect of a
----------------------
Casualty or Condemnation of all or any portion of the Property, or (ii) proceeds
from any Leases entered into other than in the ordinary course of business
(including Leases that were entered into other than in accordance with the
provisions of Article 13) which either (x) provide, in effect, for payment of
rent on a significantly accelerated basis as compared to a lease at market rates
and terms or (y) are essentially financing vehicles.
"Casualty" means any material damage to, or loss or destruction of,
--------
all or any material part of the Property, whether or not such damage, loss or
destruction is insured or insurable.
"Casualty Insurance Proceeds" means insurance proceeds paid or payable
---------------------------
in respect of a Casualty.
"CERCLA" means the Comprehensive Environmental Response, Compensa tion
------
and Liability Act (42 U.S.C. (S) 9601 et seq.), as heretofore or hereafter
amended or supplemented from time to time, including the Superfund Amendments
and Reauthorization Act of 1986.
"Code" means the Internal Revenue Code of 1986, as amended, and as it
----
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form
"Commencement Date" means the date hereof.
-----------------
"Condemnation" means any actual or threatened taking, condemnation,
------------
eminent domain or other similar proceeding relating to all or any material
portion of the Property.
"Condemnation Proceeds" means any and all award proceeds and other
---------------------
compensation payable in respect of a Condemnation.
"Employee Benefit Plan" has the meaning assigned to the term "employee
---------------------
benefit plan" in Section 3(3) of ERISA, which is or was maintained or
contributed to by Borrower or a Related Person to Borrower.
"Environmental Claim" means any allegation, notice of violation,
-------------------
claim, demand, abatement order or other order or direction (conditional or
otherwise) by any Governmental Authority or any Person for any damage, including
personal injury (including sickness, disease or death), tangible or intangible
property damage, contribution, indemnity, indirect or consequential damages,
damage to the environment, nuisance, pollution,
2
<PAGE>
contamination or other adverse effects on the environment, removal, cleanup or
remedial action or for fines, penalties or restrictions, in each case relating
to, resulting from or based upon (i) the existence or occurrence, or the alleged
existence or occurrence, of a Hazardous Materials Activity or (ii) the
violation, or alleged violation, of any Environmental Laws in connection with
the Property or any portion thereof.
"Environmental Laws" means any and all current or future statutes,
------------------
ordinances, orders, rules, regulations, guidance documents, judgments,
governmental authorizations or any other requirements of Governmental
Authorities relating to (i) environmental matters, (ii) the generation, use,
storage, transportation or disposal of Hazardous Materials, or (iii)
occupational safety and health, industrial hygiene or the protection of human,
plant or animal health or welfare, in any manner applicable to Manager or the
Property, including the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. (S) 9601 et seq.), the Hazardous Materials
-- ---
Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and
-- ---
Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution Control
-- ---
Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et
-- --- --
seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the
- --- -- ---
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S)136 et seq.),
-- ---
the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), the Oil
-- ---
Pollution Act (33 U.S.C. (S) 2701 et seq.) and the Emergency Planning and
------
Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), each as amended or
-- ---
supplemented, any analogous present or future state or local statutes or laws,
and any regulations promulgated pursuant to any of the foregoing.
"Environmental Matter" means any of the following:
--------------------
(i) a Hazardous Materials Activity; or
(ii) the violation or alleged violation of any Environmental Law
with respect to the Property or any portion thereof; or
(iii) the failure or alleged failure to obtain or to abide by
the terms or conditions of any permit or approval required under
any Environmental Law with respect to the Property or any portion
thereof.
A condition or event described above shall be deemed to be an Environmental
Matter regardless of whether or not any Governmental Authority has taken
any action in connection with such condition or event.
"Environmental Representations" means the "Environmental
-----------------------------
Representations" as defined in that certain Agreement and Certificate of
Representations and Warranties made by Manager for the benefit of Owner with
respect to the Property.
"Equipment" means all "equipment," as such term is defined in Article
---------
9 of the UCC, now owned or hereafter acquired by Owner or Manager, which is used
at or in
3
<PAGE>
connection with the Property or is located thereon or therein (including all
machinery, equipment, furnishings, and electronic data-processing and other
office equipment now owned or hereafter acquired by Owner or Manager, and any
and all additions, substitutions and replacements of any of the foregoing),
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
the same may from time to time be amended or supplemented, including any rules
or regulations issued in connection therewith.
"Event of Default" as the meaning specified in Section 15.1.
---------------- -------------
"Fiscal Year" means each twelve month period commencing on January 1
-----------
and ending on December 31 during each year of the term of this Agreement.
"GAAP" means generally accepted accounting principles in the United
----
States of America as of the date of the applicable financial report.
"Governmental Authority" means any legislative body, court, board,
----------------------
agency, commission, office or authority of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence.
"Hazardous Materials" means (i) any chemical, material or substance at
-------------------
any time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely
hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic
pollutant", "contaminant", "restricted hazardous waste", "infectious waste",
"toxic substances", or any other term or expression intended to define, list or
classify substances by reason of properties harmful to health, safety or the
indoor or outdoor environment (including harmful properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive
toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (iv) any flammable substances or
explosives; (v) any radioactive materials; (vi) any asbestos-containing
materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment
which contains any oil or dielectric fluid containing polychlorinated biphenyls;
(ix) pesticides; and (x) any other chemical, material or substance, exposure to
which is prohibited, limited or regulated by any Governmental Authority or which
may or could pose a hazard to the health and safety of the owners, occupants or
any Persons in the vicinity of the Property or to the indoor or outdoor
environment.
"Hazardous Materials Activity" means any storage, holding, existence,
----------------------------
release, spill, leaking, pumping, pouring, injection, escaping, deposit,
disposal, dispersal, leaching,
4
<PAGE>
migration, use, treatment, emission, discharge, dumping, generation, processing,
abatement, removal, disposition, handling or transportation of any Hazardous
Material from, under, into or on the Property, including the discharge of any
Hazardous Material emanating from the Property through the air, soil, surface
water, groundwater or property and also including the abandonment or disposal of
any barrels, containers and other closed receptacles containing any Hazardous
Material from or on the Property, in each case whether sudden or non-sudden,
accidental or non-accidental.
"HSP" means Health Science Properties, Inc., a Maryland corporation,
---
the beneficial and record owner of all of the issued and outstanding stock of
Manager.
"Impositions" means all real estate and personal property taxes,
-----------
water, sewer and vault charges and all other taxes, levies, assessments and
other similar charges, general and special, ordinary and extraordinary, foreseen
and unforeseen, of every kind and nature whatsoever, which at any time prior to,
at or after the execution hereof may be assessed, levied or imposed by a
Governmental Authority upon or with respect to the Property or the Property
Income or the ownership, use, occupancy or enjoyment thereof, and any interest,
costs or penalties with respect to any of the foregoing.
"Improvements" means any and all buildings, structures, utility sheds,
------------
workrooms, air conditioning towers, open parking areas, and all other structures
and improvements of every kind whatsoever, and any and all additions,
alterations, betterments or appurtenances thereto, and all renewals,
substitutions or replacements now or at any time owned, or hereafter acquired by
Owner or Manager and situated, placed or constructed on, over or under the
Property or any part thereof.
"Indemnified Liabilities" has the meaning specified in Section 18.1.
----------------------- ------------
"Indemnitees" means, collectively, Owner and its successors and
-----------
assigns, and its and their respective officers, directors, agents acting in
their capacity as agent, employees, parents and Affiliates.
"Insurance Requirements" means, with respect to the Property, all
----------------------
material terms of any insurance policy required pursuant to this Agreement, all
material requirements of the issuer of any such policy, and all material
regulations and then current standards applicable to or affecting the Property
or any part thereof or any use or condition thereof, which may, at any time, be
recommended by the Board of Fire Underwriters, if any, having jurisdiction over
the Property, or such other body exercising substantially similar functions.
"Lease" means any lease or ground lease, any sublease or subsublease,
-----
license, concession or other agreement (whether written or oral and whether now
or hereafter in effect) pursuant to which Owner holds the interest of lessor,
sublessor, subsublessor or licensor, as the case may be, and pursuant to which
any Person is granted a possessory
5
<PAGE>
interest in, or right to use or occupy all or any portion of the Property
(including any use or occupancy arrangements created pursuant to Section 365(d)
of the Bankruptcy Code or otherwise in connection with the commencement or
continuance of any bankruptcy, reorganization, arrangement, insolvency,
dissolution, receivership, or similar proceedings, or any assignment for the
benefit of creditors, in respect of any tenant or occupant of any portion of the
Property), and every modification, amendment or other agreement relating to such
lease, ground lease, sublease, subsublease, license, concession or other
agreement entered into in connection therewith, and every guarantee of the
performance and observance of the covenants, conditions and agreements to be
performed and observed by the other party or parties thereto.
"Legal Requirements" means all federal, state, county, municipal and
------------------
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions of any Governmental Authority (including, but
not limited to, ERISA with respect to any Employee Benefit Plans and
Environmental Laws with respect to the Property) affecting, as the context
requires, Owner (but only to the extent related to Owner's ownership of the
Property and not resulting from or relating to Owner's negligence or wilful
misconduct), Manager or the Property, or any part thereof, including the
construction, use, alteration, maintenance, management, occupancy or operation
of the Property, or any part thereof, whether now or hereafter enacted and in
force, and all permits, licenses, authoriza tions and regulations relating
thereto, and all covenants, agreements, restrictions and encumbrances contained
in any instruments at any time in force to which Owner (but only to the extent
related to Owner's ownership of the Property and not resulting from or relating
to Owner's negligence or wilful misconduct) or Manager is a party or which
otherwise affect Owner (but only to the extent related to Owner's ownership of
the Property and not resulting from or relating to Owner's negligence or wilful
misconduct), Manager or the Property or any part thereof, including any of the
foregoing which may (i) require repairs, modifications or alterations in or to
the Property or any part thereof, or (ii) in any way limit the use and enjoyment
thereof.
"Loss Proceeds" means Casualty Insurance Proceeds and/or Condemnation
-------------
Proceeds, as the context may require.
"Management Fee" means the aggregate amount of fees payable by
--------------
tenants, subtenants or occupants of the Property under the terms of their
respective Leases for services in connection with the Property rendered by or on
behalf of Manager including, without limitation, tenant improvement plan review,
assignment and subletting review, administrative or managerial services, but
excluding (i) fixed or basic rent; (ii) rent escalations based upon operating
expenses, taxes, porter's wages or the consumer price index or any similar rent
escalations; (iii) rent or other charges payable for electric supply or
services; (iv) any fees or charges payable on account of any services provided
at Owner's expense, except to the extent paid for by Manager; (v) any fees or
charges that are the equivalent of any such rent described in clauses (i)
through (iii) above; or (vi) any fees or charges due and payable by such
tenants, subtenants or occupants directly to third parties for
6
<PAGE>
services rendered by such third parties.
"Material Adverse Effect" means any circumstance, act, condition or
-----------------------
event of whatever nature (including any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding), whether singly or in
conjunction with any other event or events, act or acts, condition or
conditions, or circumstance or circumstances, whether or not related, that (i)
results in a materially adverse change in or has a materially adverse effect
upon the business, operations or condition (financial or otherwise) of Manager
or the Property, or (ii) results in the material impairment of the ability of
Manager to perform the obligations of Manager under this Agreement or of Manager
or HSP to perform their obligations under the Purchase Agreement or of Owner's
ability to exercise any material rights or remedies hereunder or thereunder.
"Major Casualty/Condemnation" has the meaning specified in Section
--------------------------- -------
13.2.
- -----
"Net Operating Income" means, with respect to the Property for any
--------------------
period, the Property Income minus the Operating Expenses for such period.
"Officer's Certificate" means a certificate delivered to Owner by
---------------------
Manager which is signed by an authorized officer of Manager.
"Operating Expenses" means for any calendar month the sum of:
------------------
(i) all expenses paid in the ordinary course of owning, maintaining
and operating the Property as a commercial project (including real estate
taxes and other Impositions (or a reasonable accrual therefor), ground
rents, reasonable accounting and audit expenses, insurance premiums and
management fees, inclusive (without double counting) of payments into
reserves for Basic Carrying Costs); but excluding, however, Tenant Capital
--------- -------
Expenses for the Property, and non cash items such as depreciation; and
(ii) the greater of (x) amounts actually expended on capital
improvements (including Tenant Capital Expenses) during such calendar month
and (y) an amount equal to thirty-five cents ($0.35) per square foot per
annum multiplied by the aggregate gross square footage of the Improvements
multiplied by one-twelfth (1/12th).
"Person" means any individual, corporation, general partnership,
------
limited partnership, limited liability company, limited liability partnership,
joint venture, estate, trust, unincorporated association, or other organization,
whether or not a legal entity, any federal, state, county or municipal
government or any bureau, department or agency thereof and any fiduciary acting
in such capacity on behalf of any of the foregoing.
"Property" means the real property described on Exhibit A attached
-------- ---------
hereto and
7
<PAGE>
all improvements, fixtures and appurtenances and all alterations, replacements,
additions and substitutions therefor now or hereafter located thereon and owned
by Owner.
"Property Account" means an account established by Manager for the
----------------
operation of the Property.
"Property Income" means all rents, income, issues, profits and other
---------------
benefits now or hereafter received or collected by or on behalf of Owner in
connection with the use, occupancy, management, leasing, operation or enjoyment
of the Property or the Equipment related to the Property or under or in
connection with any Leases related to the Property including all income received
from tenants, transient guests, lessees, licensees and concessionaires and other
Persons occupying space at the Property and/or rendering services to the
Property's tenants; excluding, however, (i) tenant security deposits (unless and
--------- -------
until the same are forfeited by the related tenant), and (ii) Capital Event
Proceeds, including Loss Proceeds; provided, however, that proceeds of rental
-------- -------
loss insurance policies and Condemnation Proceeds on account of lost rental
income relating to temporary condemnations shall be retained in the Sweep
Account pursuant to Section 7.1.2 or Section 7.1.3, as the case may be, and
------------- -------------
shall, for purposes of calculating Net Operating Income, constitute Property
Income only to the extent transferred to the Property Account during the
relevant calculation period pursuant to Section 7.1.2 or Section 7.1.3, as the
------------- -------------
case may be.
"Property Standards" means the operation and maintenance of the
------------------
Property as an office property with significant laboratory component, in
accordance with professional management applicable to comparable, similarly
situated, institutionally owned properties.
"Purchase Agreement" means that certain Agreement for Sale and
------------------
Purchase of Membership Interests dated as of January 13, 1997, by and among
PaineWebber Real Estate Holdings Inc., a Delaware corporation, and PW Realty
Partners LLC, a Delaware limited liability company, as seller, and Manager and
HSP, as buyer.
"Related Person" means, with respect to any Person, any corporation or
--------------
any trade or business (whether or not incorporated) which, together with such
Person, is under common control as described in Sections 414(b) and (c) of the
Code or is a member of an affiliated service group as described in Sections
414(m) or (o) of the Code.
"Rent Roll" means a rent roll for the Property specifying with respect
---------
to each Lease (i) name of tenant, (ii) rentable square feet, (iii) lease term
commencement date, (iv) lease term termination date, (v) initial monthly base
rent, (vi) initial annual rent per square foot, (vii) effective dates of rent
adjustments, (viii) adjusted monthly base rent, (ix) adjusted rent per square
foot, (x) material terms of any free rent, (xi) material terms of Consumer Price
Index adjustments or expense stop increases, (xii) contingent or absolute
liabilities for unpaid brokerage commissions or finder's fees in connection with
the Leases, and (xiii) security deposits.
8
<PAGE>
"Rents" means all rents, issues, revenues, income, proceeds, profits,
-----
royalties, security (including all oil and gas or other hydrocarbon substances,
earnings, receipts, revenues, accounts, accounts receivable, but specifically
excluding all security deposits and other deposits) and income, including fixed,
additional and percentage rents, operating expense reimbursements,
reimbursements for increases in Taxes, sums paid by tenants to Owner to
reimburse Owner for amounts originally paid or to be paid by Owner or Owner'
agents or Affiliates for which such tenants were liable, as, for example, tenant
improvements costs in excess of any work letter, lease takeover costs, moving
expenses and tax and operating expense pass-throughs for which a tenant is
solely liable, parking, maintenance, common area, tax, insurance, utility and
service charges and contributions, proceeds of sale of electricity, gas,
heating, air-conditioning and other utilities and services, deficiency rents and
liquidated damages, and other benefits now or hereafter derived from any portion
of the Property or the use, enjoyment, development, operation, ownership or
occupancy thereof (including any payments received pursuant to Section 502(b) of
the Bankruptcy Code or otherwise in connection with the commencement or
continuance of any bankruptcy, reorganization, arrangement, insolvency,
dissolution, receivership or similar proceedings, or any assignment for the
benefit of creditors, in respect of any tenant or other occupants of any portion
of the Property and all claims as a creditor in connection with any of the
foregoing) and all cash or security deposits, advance rentals, and all deposits
or payments of a similar nature relating thereto, now or hereafter, including
during any period of redemption, derived from the Property and all proceeds from
the cancellation, surrender, sale or other disposition of any Lease and other
benefits paid or payable and to become due or payable to Owner in respect of the
use, occupation, enjoyment, development, operation or ownership of any portion
or portions of the Property pursuant to any Lease.
"Structural Costs" means, with respect to the Property for any
----------------
calendar month, the aggregate cost of deferred maintenance, required
environmental remediation, capital repairs and other capital expenditures to be
effected at the Property during such month, as set forth in the Annual Operating
Budget in effect for such calendar month.
"Sweep Account" has the meaning specified in Section 7.1.
------------- ------------
"Tax" means any present or future tax, levy, impost, duty, charge,
---
fee, deduction or withholding of any nature and whatever called, by whomsoever,
on whomsoever and wherever imposed, levied, collected, withheld or assessed.
"Tenant Capital Expenses" means costs incurred by Owner or Manager in
-----------------------
respect of (i) tenant improvements under and pursuant to Leases, (ii) tenant
concessions under and pursuant to Leases that are in effect on the date hereof
or that are entered into in accordance with this Agreement (including Article
10) and (iii) leasing and brokerage commissions in connection with Leases.
"Term" has the meaning specified in Section 3.1 hereof.
---- -----------
9
<PAGE>
"Trailing 12-Month Net Operating Income" means, as of any date and
--------------------------------------
with respect to the Property, the Net Operating Income of the Property for the
immediately preceding twelve full calendar months.
ARTICLE 2
ENGAGEMENT OF MANAGER
---------------------
2.1 Engagement of Manager. Owner hereby engages Manager as manager and
---------------------
operator of the Property, and grants Manager the exclusive authority to manage,
control and operate the Property on behalf of Owner, upon the terms and
conditions of this Agreement, and each party undertakes and agrees to perform
all of the terms, covenants and conditions required of it by, and to comply with
all of, the provisions of this Agreement.
ARTICLE 3
TERM
----
3.1 Term. The term of this Agreement (the "Term") shall commence on the
---- ----
Com mencement Date hereof and, unless otherwise terminated or extended pursuant
to the terms hereof, shall expire on the Closing Date (as defined in the
Purchase Agreement).
ARTICLE 4
AUTHORITY AND DUTIES OF MANAGER
-------------------------------
4.1 Operation of the Property. Manager shall operate the Property in a
-------------------------
manner and at a level consistent with the Property Standards, to the extent
Owner does not impair Manager's ability to maintain the Property in such manner
or at such level, whether by withholding sufficient funds in contravention of
the terms hereof, failing to perform the obli gations imposed on Owner pursuant
to this Agreement or otherwise.
4.2 Manager's Control and Discretion. Subject to and to the extent
--------------------------------
consistent with the terms of this Agreement, Manager shall have the exclusive
right to manage, operate and maintain the Property, including without
limitation, the control and discretion to operate the Property for all customary
purposes and the authority to do the following in the name and for the account
of Owner (except as otherwise provided herein):
4.2.1 Retain such employees as Manager shall require. All such
employees shall be employees of Manager and not of Owner, and Manager shall be
solely responsible for all matters pertaining to the employment, supervision,
compensation, promotion and discharge of such employees, provided that all wages
and benefits payable to on-site employees up to the level of property manager
and all local, state and federal taxes and assessments (including Social
Security taxes, unemployment insurance and workers'
10
<PAGE>
compensation insurance) incident to the employment of such employees shall be
paid out of Property Income as and to the extent provided in the applicable
Annual Operating Budget.
4.2.2 Retain, on behalf of Owner and subject to the limitations of
Section 17.2 hereof, such agents and contractors, including, without limitation,
- ------------
sub-managers, as Manager shall require.
4.2.3 Determine and implement, all labor policies, including, without
limitation, wage and salary rates and terms, fringe benefits, pension,
retirement, bonus and employee benefit plans, collective bargaining agreements
and the hiring and discharge of all employees and personnel of the Property.
4.2.4 Supervise and maintain accurate books and records as described
in Section 8.1.1 hereof, including, without limitation, the books of account and
-------------
accounting procedures of the Property.
4.2.5 Negotiate and enter into leases, subleases, licenses and
concession agreements for space and services at the Property in the name of
Owner.
4.2.6 Make or cause to be made all repairs and replacements to the
Property which Manager deems necessary or advisable so that it shall be
adequately maintained and furnished at a level consistent with the Property
Standards.
4.2.7 Subject to the limitations contained in Section 17.2 hereof,
------------
negotiate and enter into service contracts which Manager deems necessary or
advisable for operating the Property, including, without limitation, contracts
for electricity, gas, telephone, security, trash removal, extermination and
other services which Manager deems advisable; provided, however, that any such
-------- -------
service contracts shall be terminable by Owner or Manager without cause at any
time upon not more than thirty (30) days' notice to the applicable service
provider.
4.2.8 Obtain necessary supplies and equipment for the operation of
the Property.
4.2.9 Hire on behalf of Owner such persons or organizations as
independent contractors as Manager may deem necessary or advisable to provide
advice with respect to Manager's performance hereunder, including, without
limitation, attorneys, accountants and other professionals and specialists.
4.2.10 Review any existing leases, licenses and concessions
agreements for the Property and make changes as Manager deems appropriate.
4.2.11 Pay any claim out of the Property Account, whether for taxes,
Impositions or otherwise, asserted against Owner or against the Property.
11
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4.2.12 Institute any necessary or desirable legal actions or
proceeding to collect charges or other income of the Property or to evict or
dispossess non-paying or legally undesirable persons in possession, or cancel or
terminate or sue for damages under any agreement relating to the operation of
the Property other than this Agreement.
4.2.13 Pay on behalf of Owner from the Property Account all Operating
Expenses.
4.2.14 Do all other things necessary or desirable for the proper
operation of the Property, including, without limiting the foregoing, the
purchase of all inventories, supplies and provisions.
4.3 Compliance With Laws. Manager shall comply in all material respects
--------------------
with all Legal Requirements, including, without limitation, Board of Fire
Underwriters, state and federal wage withholding requirements and the
requirements of insurance companies covering any of the risks against which the
Property is insured. Manager shall notify Owner in writing of any material
allegations of non-compliance with, or violations of, any Legal Requirements.
4.4 Right of Contest. Manager may in good faith by means of an
----------------
appropriate proceeding contest the validity, applicability or amount of any
Legal Requirements so long as (a) Manager has notified Owner before the date on
which the obligation relating to such Legal Requirement is due of its intent to
contest such Legal Requirement (but it shall not constitute a default hereunder
or otherwise impair Manager's right to contest such Legal Requirements if
Manager shall have failed to so notify Owner but shall otherwise diligently
contest the validity, applicability or amount of a Legal Requirement in
accordance with the other requirements hereof in good faith), (b) reserves in an
amount reasonably satisfactory to Owner shall have been established during the
pendency of such contest, (c) no imminent risk of sale, forfeiture or loss of
any interest in or to the Property or any part thereof arises, in Owner's
reasonable judgment, during the pendency of such contest, and (d) such contest
does not have, and could not reasonably be expected to have, a material adverse
effect on the Property. In such event, Manager shall indemnify and save
harmless Owner and its employees from any and all loss, cost, damage, claim or
expense (including, without limitation, reasonable out-of pocket attorneys' fees
and disbursements) arising as a result thereof.
4.5 Conferences with Owner. With reasonable prior notice, from time to
----------------------
time, Manager shall meet with Owner and/or Owner's agents, employees and
representatives at such time and place (via teleconference or in person) as
shall be reasonably requested by Owner in order to review the operations of the
Property, including, but not limited to, marketing and leasing strategies, and
to consider such other issues in connection with the Property as Owner may
raise. Manager shall keep Owner advised of any and all necessary or desirable
changes of a material nature relating to the performance of Manager's duties
hereunder or the operation of the Property. Manager shall use diligent efforts
to implement
12
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all directions of Owner regarding the operation, leasing, maintenance and repair
of the Property, all to the extent consistent with the Annual Operating Budget
and the terms of this Agreement.
4.6 Fiduciary Obligations. Manager shall act in a fiduciary capacity with
---------------------
respect to the proper protection of and accounting for the Property and Owner's
assets related thereto. In such fiduciary capacity, Manager shall deal at arms
length with all third parties for the account of Owner.
4.7 Co-operation. Each party hereto shall cooperate fully with the other
------------
party hereto with respect to any proceedings before any court, board or other
Governmental Authority which may in any way materially and adversely affect the
rights of Owner or Manager hereunder or with respect to the Property. Manager
and Owner shall cooperate in obtaining the benefits of any Condemnation
Proceeds, Casualty Insurance Proceed or other insurance proceeds lawfully or
equitably payable in connection with the Property.
ARTICLE 5
AUTHORITY OF OWNER
------------------
5.1 Inspection of the Property. Owner and its representatives may at any
--------------------------
time, enter in and upon the Property to examine the condition thereof or for any
other reason; provided, however, that such entry shall be subject to the rights
-------- -------
of tenants of the Property and shall be consistent with applicable Legal
Requirements.
ARTICLE 6
MANAGEMENT FEE; EXPENSES.
-------------------------
6.1 Management Fee. Manager shall have the right to collect and receive
---------------
the Management Fee pursuant to the terms of Section 7.3; provided, however,
----------- -------- -------
that Manager shall not be entitled to collect and receive the Management Fee to
the extent that the amount of such Management Fee, together with the amount of
other non-qualifying income of Manager and HSP under section 856(c) (2) of the
Code, exceeds five percent (5%) of the gross income of HSP in any given year.
6.2 Expenses. Manager shall cause to be paid on behalf of Owner from the
---------
Property Account, to the extent consistent with the then applicable Annual
Operating Budget, all costs and expenses incurred by Manager connected with or
related to the performance of Manager's duties and obligations hereunder,
including, without limitation: (i) all out-of-pocket expenses of Manager to the
extent incurred by Manager directly from the performance of Manager's duties and
obligations hereunder, (ii) extraordinary types of expenses for projects such as
labor negotiations, renovation or rehabilitation programs and special market,
environmental, engineering or other studies, (iii) supervisory and man agement
services with respect to the Property to be rendered by the personnel and staff
of Manager, and (iv) engagement of outside professionals; provided, however,
-------- -------
that such
13
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expenses shall be payable form the Property Account only to the extent
consistent with the then applicable Annual Operating Budget.
6.3 Non-Reimbursable Costs. Notwithstanding anything to the contrary set
----------------------
forth in Section 6.2, the following costs and expenses incurred by or on behalf
-----------
of Manager in connection with the Property shall be at the sole cost and expense
of Manager and shall not be reimbursed by Owner or included in the Annual
Operating Budget:
6.3.1 costs of forms, papers, ledgers and other supplies and
equipment used in Manager's office, unless such materials are required for the
performance of Manager's duties hereunder, are purchased for and used
exclusively in connection with the operation of the Property (and any other
properties managed by Manager on behalf of Owner) and the performance of
Manager's duties in connection therewith and are not suitable for any other use;
6.3.2 costs attributable to losses arising from the negligence or
wilful misconduct of Manager or its officers, directors, agents, employees or
contractors;
6.3.3 costs relating to the formation, administration or operation of
Manager, including general accounting, office administration, gross salary and
wages, benefits, payroll taxes and insurance (including, without limitation,
unemployment insurance and workers' compensation insurance) of any employee of
Manager at a level higher than property manager, and all other general overhead
expenses of Manager, training expenses (other than for on-site employees of the
Property) and income or franchise taxes;
6.3.4 costs of all bonuses or other incentives paid by Manager to its
employees at a level higher than property manager;
6.3.5 amounts paid to Affiliates of Manager in excess of the charges
that would have been incurred in an arms-length transaction with an unrelated
third party;
6.3.6 costs that would not have been incurred but for a default in
the performance by Manager of its obligations hereunder;
6.3.7 any other costs or expense expressly provided to be at
Manager's expense under the terms of this Agreement; and
6.3.8 any other costs or amounts not included in the Annual Operating
Budget and not otherwise consented to by Owner (which consent shall not be
unreasonably withheld or delayed) or otherwise provided for under the terms of
this Agreement.
Manager shall not collect or charge any undisclosed fee, rebate, discount or
commission relating to the operation or purchase of supplies and/or services for
the Property.
14
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ARTICLE 7
FLOW OF FUNDS
-------------
7.1 Sweep Account. Owner has established with the Bank, in the name
-------------
of Owner, a trust account (the "Sweep Account") for the purposes specified
-------------
herein. The Sweep Account shall be under the sole dominion and control of
Owner, and Owner shall have the sole right to exercise all rights with respect
to the funds on deposit therein from time to time in accordance herewith;
provided, however, that Owner shall direct the Bank to disburse the amounts in
- -------- -------
the Sweep Account in accordance with Section 7.2.
-----------
7.1.1 Property Income; Rents. Owner and Manager shall cause all
----------------------
tenants at the Property to make Rent payments directly into the Sweep Account,
either by wire transfer or by check delivered to the Bank in accordance with its
instructions for deposit into the Sweep Account. Manager shall collect (or
cause to be collected), on behalf of Owner, all of the other Property Income
from the Property and shall deposit such Property Income (other than tenant
security deposits, which shall be held by Manager in a segregated bank account),
immediately upon receipt thereof by Manager, directly into the Sweep Account.
7.1.2 Casualty Insurance Proceeds. Owner and Manager shall cause all
---------------------------
Casualty Insurance Proceeds received with respect to the Property to be paid
directly to the Bank, on behalf of Owner. If any such Casualty Insurance
Proceeds are remitted to Manager, the same shall be received in trust for Owner,
shall be segregated from other funds of Manager, shall be paid directly to the
Bank and shall be forthwith paid into the Sweep Account. Owner and Manager
hereby authorize and direct any affected insurance company to make payment of
Casualty Insurance Proceeds with respect to the Property directly into the Sweep
Account. Any Casualty Insurance Proceeds which are not applied towards the
restoration of the Property shall constitute Property Income.
7.1.3 Condemnation Proceeds. Owner and Manager shall cause all
---------------------
Condemnation Proceeds received with respect to the Property to be paid directly
to the Bank, on behalf of Owner. If any Condemnation Proceeds are remitted to
Manager, the same shall be received in trust for Owner, shall be segregated from
other funds of Manager, shall be paid directly to the Bank and shall be
forthwith paid into the Sweep Account. Any Condemnation Proceeds which are not
applied towards the restoration of the Property shall constitute Property
Income.
7.2 Disbursement of Sweep Account Funds. Provided that no Event of
-----------------------------------
Default has occurred and is continuing, Owner shall, no less frequently than on
a monthly basis, make disbursements to the Property Account of amounts on
deposit in the Sweep Account within three (3) business days after receipt by
Owner of an Officer's Certificate from Manager requesting a disbursement from
the Sweep Account (each a "Disbursement Request") for payment of Operating
Expenses, Tenant Capital Expenses, the Management Fee and other expenses
pursuant to the Annual Operating Budget coming due for such month, together with
a reasonable working capital reserve as may be mutually agreeable to
15
<PAGE>
Owner and Manager. The Disbursement Request (i) shall set forth the amount of
the disbursement requested for such calendar month, together with receipts,
invoices and other evidence thereof reasonably satisfactory to Owner, and (ii)
shall certify that (x) the amounts requested are required to pay an expense
included in the Annual Operating Budget or are otherwise payable pursuant to the
terms hereof, and (y) all material Operating Expenses theretofore coming due and
for which Owner has disbursed funds to the Property Account have been paid. In
addition to the monthly Disbursement Requests, Manager may from time to time
request additional disbursements from the Sweep Account (each a "Special
Disbursement Request") for payment of extraordinary Operating Expenses, Tenant
Capital Expenses and other expenses which have been approved by Owner pursuant
hereto but which have not theretofore been disbursed to the Property Account by
Owner. The Special Disbursement Request (i) shall set forth the amount of the
special disbursement requested, together with receipts, invoices and other
evidence thereof reasonably satisfactory to Owner, and (ii) shall certify that
(x) the amounts requested are required to pay an expense necessary for the
operation and maintenance of the Property in accordance with the Property
Standards, and (y) all material Operating Expenses theretofore coming due and
for which Owner has disbursed funds to the Property Account have been paid.
Owner shall disburse funds to the Property Account within three (3) business
days after the approval of a Special Disbursement Request, which approval shall
not be unreasonably withheld or delayed.
7.3 Property Account. All funds on deposit in the Property Account
-----------------
shall be the property of Owner. Manager shall use the amounts deposited in the
Property Account for (i) payment to Manager of the Management Fee, (ii)
retention of reserves for Basic Carrying Costs, Structural Costs and deferred
maintenance in amounts specified in the applicable Annual Operating Budget,
(iii) payment of Operating Expenses, Tenant Capital Expenses for the Property
and such other expenses as are payable pursuant to Section 6.2 hereof, and (iv)
from time to time, payment to Owner of amounts not required, in Manager's
reasonable discretion, for payment of the expenses set forth in clauses (i),
(ii) and (iii), above.
7.4 Security Deposits. Manager shall maintain all tenant security
-----------------
deposits (unless and until the same are forfeited by the related tenant) in a
segregated bank account established by Manager for the maintenance of security
deposits, and all funds on deposit therein shall, subject to the rights of the
related tenants, be the property of Owner.
ARTICLE 8
REPORTING
---------
8.1 Financial Reporting.
-------------------
8.1.1 Books and Records. Manager will keep and maintain or will
-----------------
cause to be kept and maintained on a calendar year basis, in accordance with
GAAP (or such other accounting basis reasonably acceptable to Owner), proper and
accurate books, records and accounts reflecting all items of income and expense
in connection with the operation by
16
<PAGE>
Manager of the Property and in connection with any services, equipment or
furnishings provided in connection with the operation of the Property by
Manager, whether such income or expense be realized by Manager or by any other
Person whatsoever (provided, however, that Owner shall promptly provide Manager
with such additional information as Manager may reasonably require regarding any
income or expense which Owner receives or incurs independent of Manager, in
order to enable Manager to prepare any statements or reports required pursuant
to this Section 8.1). During the Term of this Agreement and for three (3) years
thereafter, Owner or Owner's employees or appointees shall have the right from
time to time at all times upon reasonable notice to examine such books, records
and accounts maintained for Owner by Manager, and to perform additional audit
tests thereon, at the office of Manager or other Person maintaining such books,
records and accounts and to make such copies or extracts thereof as Owner shall
desire. Manager shall, within a reasonable period of time, correct any
discrepancies revealed by Owner's examination and audit. Any and all audits
conducted by Owner or Owner's employees or appointees shall be at the sole
expense of Owner; provided, however, that if an audit reveals fraudulent or
-------- -------
intentional errors in record keeping or any fraudulent or intentional
misappropriations of funds by Manager, or if an audit of any quarterly or annual
statement prepared by Manager and submitted to Owner as required hereby reveals
that the annual or quarterly net cash flow, as applicable, for the Property was
underreported by the greater of $20,000 or more than four percent (4%) for such
period, then the cost of the audit shall be borne by Manager.
8.1.2 Annual Financial Statements. Manager will furnish to Owner
---------------------------
annually, within ninety (90) days after the close of each calendar year, (i)
financial statements showing all Property Income and Operating Expenses for the
Property for such calendar year, (ii) a balance sheet and income statement for
Owner for such calendar year, and (iii) a calculation of the Net Operating
Income of the Property as at the end of the preceding calendar year, such
calculation to be made based upon the definition of "Net Operating Income" set
forth in this Agreement, all prepared and audited by an Auditor, and certified
by such Auditor to have been prepared in accordance with GAAP consistently
applied, and accompanied by the unqualified opinion of such Auditor. Together
with such calculation of Net Operating Income in each year, Manager shall
furnish to Owner an Officer's Certificate certifying as of the date thereof that
such financial statements have been prepared in accordance with GAAP
consistently applied and that those financial statements fairly present in all
material respects the financial condition and results of operations of the
Property, as at the end of, and for, such calendar year.
8.1.3 Quarterly Financial Statements. Manager will furnish to Owner
------------------------------
quarterly, within forty-five (45) days after the close of each of the first
three quarterly periods in each calendar year (i) financial statements showing
all Property Income and Operating Expenses for the Property for such quarterly
period, (ii) a balance sheet and income statement for Owner for such quarterly
period, and (ii) an Officer's Certificate stating that all such financial
statements have been prepared in accordance with GAAP consistently applied, and
that those financial statements fairly present, in all material respects, the
financial condition and results of the operation of the Property for and at the
17
<PAGE>
end of such period, and that operating expenses with respect to the Property
which have accrued as of the last day of the immediately preceding quarter have
been fully paid or other wise provided for in its accounts. Manager shall also
include with the foregoing certificate, monthly breakdowns for each month in
such quarter. Manager shall prepare and deliver with the certificate described
above, a calculation of net income calculated in accordance with GAAP and Net
Operating Income of the Property as of the end of the period covered by such
certificate, such calculation to be based upon the definition of "Net Operating
Income" set forth in this Agreement.
8.1.4 Property Cash Flow Statements. Manager will furnish to Owner
-----------------------------
monthly a true, complete and correct cash flow statement with respect to the
Property as at the end of the second preceding month in the form attached hereto
as Exhibit B and made a part hereof, showing (x) all cash receipts of any kind
---------
whatsoever and all cash payments and disbursements, and (y) year-to-date
summaries of such cash receipts, payments and disbursements, together with a
certification of Manager stating that (a) such cash flow statement is true,
complete and correct in all material respects and (b) all Operating Expenses
with respect to the Property which have accrued and have been billed as of the
last day of the second month preceding the delivery of such cash flow statement
have been fully paid or otherwise provided for.
8.2 Rent Roll. Manager will furnish to Owner at the close of each
---------
quarterly period of each calendar year, a true, complete and correct Rent Roll
for Property, accompanied by an Officer's Certificate dated as of the date of
the delivery of such Rent Roll, certifying that such Rent Roll is true, correct
and complete in all material respects as of its date.
8.3 Material Adverse Effect. Manager will furnish to Owner prompt
-----------------------
written notice of any known condition or event which could reasonably be
expected to have a Material Adverse Effect.
8.4 Litigation. Each party hereto shall furnish to the other prompt
----------
written notice of any actual or known threatened claims, litigation, suits,
proceedings or disputes against or affecting any party hereto or the Property,
which could reasonably be expected to have a Material Adverse Effect, or any
material labor controversy resulting in or threatening to result in a strike
against either party hereto or the Property or any proposal by any public
authority which could reasonably be expected to result in the acquisition of any
of the material assets or business of either party hereto or the Property.
8.5 Additional Information. Manager will furnish to Owner from time
----------------------
to time such other information regarding the financial condition, operations,
business or prospects of Manager or the Property as Owner may reasonably
request.
18
<PAGE>
8.6 Annual Operating Budget. Manager shall prepare and deliver to
-----------------------
Owner, within thirty (30) days prior to the commencement of each calendar year,
an annual operating budget in respect of the Property for such ensuing calendar
year (the "Annual Operating Budget"), which budget shall be approved or
-----------------------
disapproved by Owner in writing within thirty (30) days of receipt thereof (such
approval not to be unreasonably withheld or delayed). If Owner does not approve
or disapprove the Annual Operating Budget (or portion thereof as to which Owner
has not responded) within such 30-day period, Manager shall deliver a second
notice to Owner requesting such approval or disapproval at the expiration of
such 30-day period and, if Owner does not render its approval or disapproval
within fifteen (15) days of its receipt of such second notice, the Annual
Operating Budget shall be deemed disapproved upon expiration of such second 15-
day period. If Owner disapproves the Annual Operating Budget, Owner shall
specify the reasons for such disapproval to Manager, and Manager shall promptly
resubmit such disapproved budget to Owner for review and approval in accordance
with the foregoing provisions of this Section. The Annual Operating Budget
shall reflect (i) projected Operating Expenses (projected on a cash basis in all
instances other than with respect to Basic Carrying Costs) for the Property for
such ensuing calendar year, (ii) projected Structural Costs for the Property for
such ensuing calendar year (together with a three-year prospective projection
for such Structural Costs), (iii) projected tenant improvements and brokerage
commissions for the Property for such ensuing calendar year, and (iv) projected
general administrative expenses to be incurred by Manager as a direct result of
its performance of its obligations under this Agreement, or otherwise relating
exclusively to the Property, for such ensuing calendar year. The aggregate
amount of the items for the Property contained in the Annual Operating Budget
may be increased by 5% by Manager without Owner's prior approval on a monthly
year-to-date basis; provided, that Manager may, prior to obtaining Owner's
--------
consent, incur expenses in excess of the foregoing amount for the purpose of
effecting emergency repairs necessary to preserve the value of the Property.
During any period in any calendar year in which Manager is awaiting Owner's
approval of the Annual Operating Budget for such calendar year, Manager shall
operate the Property based upon the Annual Operating Budget last approved by
Owner, less any non-recurring capital items included therein. Manager shall
submit the 1997 Annual Operating Budget for the Property for approval by Owner
no later than thirty (30) days following the Commencement Date. Until such time
as an Annual Operating Budget for calendar year 1997 shall have been approved by
Owner in accordance with the foregoing, the incurrence and payment of expenses
(other than expenses for Basic Carrying Costs and the Management Fee) in excess
of $5,000 in the aggregate per month shall be subject to the prior approval of
Owner, which approval shall not be unreasonably withheld or delayed.
8.7 Tax Returns. Manager shall cause to be prepared all tax returns
-----------
to be filed by Owner, and Manager shall deliver each such return to Owner for
its approval and signature at least five (5) business days prior to the last
date on which such return may be filed without penalty. Owner shall promptly
provide to Manager or Manager's appointee all information necessary for
completion of such returns. All costs incurred by Manager in the preparation
and filing of all such tax returns shall be paid from the Property Account as an
Operating Expense.
19
<PAGE>
ARTICLE 9
LEASING
-------
Manager shall not enter into, modify or terminate Leases at the
Property other than as permitted pursuant to this Article 9. Provided that no
Event of Default has occurred and is continuing, Manager shall have the right to
terminate existing Leases at the Property in accordance with their respective
terms upon a default by the tenant thereunder, and prior to any such
termination, Manager shall notify Owner with respect thereto. Provided that no
Event of Default has occurred and is continuing, Manager shall also have the
right to enter into Leases at the Property in the ordinary course of business on
commercially reasonable terms to the extent consistent with a leasing plan
prepared by Manager and approved by Owner (the "Leasing Plan"), to modify Leases
at the Property on commercially reasonable terms consistent with the Leasing
Plan and/or to terminate non-defaulted Leases at the Property if Manager
determines that such termination is prudent and commercially reasonable and
consistent with the Leasing Plan; provided, however, that with respect to the
-------- -------
termination of a non-defaulted Lease covering more than 5,000 rentable square
feet of the Property and with more than 18 months remaining in its term, or the
modification of a Lease covering more than 5,000 rentable square feet of the
Property and with more than 18 months remaining in its term, at the time of and
after giving effect to such modification or termination on a pro forma basis for
purposes of calculating the pro forma Trailing 12-Month Net Operating Income, as
the case may be, the pro forma Trailing 12-Month Net Operating Income of the
Property shall be not less than the Net Operating Income of the Property for the
most recent twelve-month period as reflected in the audited financial statements
for such 12-month period. Manager shall give notice quarterly (and copies) to
Owner of any new Lease, modification of a Lease or termination of a Lease. If
Manager desires to amend a Lease with more than 18 months remaining in its term
or to terminate a non-defaulted Lease with more than 18 months remaining in its
term, and if the Net Operating Income test set forth in the preceding sentence
will not be satisfied after giving effect to such amendment or termination,
Owner shall render its approval or disapproval of such amendment or termination
(which approval shall not be unreasonably withheld or delayed) within ten (10)
days of its receipt of a written request therefor from Manager. If Owner does
not respond within such 10-day period, Manager shall submit a second written
request to Owner at the expiration of such 10-day period. If Owner does not
respond within seven (7) days after receipt of such second written request,
Owner shall be deemed to have disapproved such amendment or termination, and,
upon request by Manager, Owner shall state the reasons for such disapproval.
Manager (A) shall enforce the terms, covenants and conditions contained in the
Leases upon the part of the lessee thereunder to be observed or performed in a
commercially reasonable manner; (B) shall not collect any of the rents more than
one (1) month in advance (other than security deposits) unless deposited in the
Sweep Account and property identified as prepaid rents to the Bank and to Owner;
(C) shall not execute any other assignment of lessor's interest in the Leases or
the Property Income; and (D) shall deliver to Owner prompt written notice of the
commencement of any material action or material legal proceeding by or against
any tenant, together with copies of all documentation
20
<PAGE>
relating thereto reasonably requested by Owner. Manager shall maintain all
tenant security deposits delivered under Leases in segregated trust accounts (or
as otherwise required by applicable Legal Requirements).
ARTICLE 10
INSURANCE
---------
10.1 Insurance.
---------
10.1.1 Manager shall, in the name of and on behalf of Owner, keep the
Property insured during the entire term of this Agreement for the mutual benefit
of Manager and Owner against loss or damage by fire and against loss or damage
by other risks and hazards covered by a standard ``All-Risk'' extended coverage
policy, including riot and civil commotion, vandalism, malicious mischief,
burglary and theft, and otherwise satisfying the Insurance Requirements. Such
insurance shall be in an amount at least equal to the then full replacement cost
of the Improvements and Equipment, without deduction for physical depreciation,
and such that the insurer would not deem Owner a co-insurer under said policies.
The policies of insurance carried in accordance with this Section shall contain
the ``Replacement Cost Endorsement'' with a waiver of depreciation.
10.1.2 Manager shall, in the name of and on behalf of Owner, for the
mutual benefit of Manager and Owner, also obtain and maintain during the entire
term of this Agreement the following policies of insurance:
a. flood insurance if any part of the Property is located in an area
identified by the Federal Emergency Management Agency as an area having special
flood hazards and in which flood insurance has been made available under the
National Flood Insurance Act of 1968 (and any amendment or successor act
thereto) in an amount at least equal to the maximum limit of coverage available
under said Act with respect to the Improvements and Equipment located on the
Property;
b. broad-form commercial general liability insurance (including
protective liability coverage on operations of independent contractors engaged
in construction, blanket contractual liability insurance and garage liability
insurance, with the exclusion for explosion, collapse and underground property
damage removed) written on a per-occurrence basis with limits reasonably
satisfactory to Owner;
c. rental loss insurance covering risk of loss due to the occurrence
of any of the hazards covered by the insurance described in paragraph 10.1.1
above, in an amount equal to the aggregate amount of all rents and additional
rents payable by all of the tenants under the Leases (whether or not such Leases
are terminable in the event of a fire or casualty), for a period of at least
eighteen (18) months after the date of occurrence of the hazard in question;
21
<PAGE>
d. insurance against loss or damage from explosion of steam boilers,
air conditioning equipment, high pressure piping, machinery and equipment,
pressure vessels or similar apparatus now or hereafter installed in the
Improvements;
e. in the event the Property is located in an area at high risk for
earthquakes, as reasonably determined by Owner, and at the reasonable discretion
of Owner, earthquake insurance on such basis and in such amounts as Owner may
reasonably require, to the extent such insurance continues to be generally
available at commercially reasonable premiums;
f. such insurance coverage with respect to environmental liabilities
associated with the Property as reasonably required by Owner, to the extent such
insurance continues to be generally available at commercially reasonable
premiums; and
g. such other or additional insurance as may be required by Owner
from time to time (including adjustments to the insurance coverages required
pursuant to clauses (a ) through (f ) above) against hazards that at the time
---------------------------
are commonly insured against and in such amounts as are generally available at
commercially reasonable premiums and are generally required by institutional
lenders for properties and assets comparable to the Property.
10.1.3 All policies of insurance (the ``Policies'') required pursuant
---------
to this Section 10.1 (i) shall name Owner as the Person to which all payments
------------
made by such insurance company shall be paid; (ii) shall be maintained
throughout the term of this Agreement; (iii) shall be delivered to Owner (or
Owner shall receive original certificates of insurance and certified copies of
all Policies); (iv) shall contain such provisions as Owner shall reasonably
require, including endorsements providing that neither Manager, Owner nor any
other party shall be a co-insurer under said Policies and that Owner and Manager
shall receive at least thirty (30) days' prior written notice of any material
modification thereto or cancellation thereof; and (v) shall be reasonably
satisfactory in form and substance to Owner and Manager, including as to
amounts, form, deductibles, loss payees, and insureds. Each of such Policies
shall name Owner and Manager as an insured thereunder. Not later than thirty
(30) days prior to the expiration date of each Policy, Manager will deliver to
Owner evidence of the renewal thereof satisfactory to Owner.
10.1.4 All Policies required pursuant to this Section 10.1 shall be
------------
issued by insurers authorized to issue insurance in the State in which the
Property is located and which insurers shall be rated ``A'' or better by the
Rating Agency and AX or better by A.M. Best's, or shall be approved in writing
by Owner.
10.1.5 The insurance required by this Agreement, at the option of
Manager, may be effected by blanket and/or umbrella Policies covering the
Property and other properties owned and/or managed by Manager or its Affiliates;
provided, however,
- -------- -------
22
<PAGE>
that, in each case, the Policies otherwise comply with the provisions of this
Agreement and allocate to the Property, from time to time, the coverage
specified in this Agreement without possibility of reduction or co-insurance by
reason of, or damage to, any other property named therein. If the insurance
required by this Agreement shall be effected by such blanket or umbrella
Policies, Manager shall furnish to Owner original policies, or certified copies
together with the certificates described in Section 10.1.3, with schedules
--------------
attached thereto showing the amount of the insurance provided under such
Policies which is applicable to the Property.
10.2 Cost of Coverage. The cost of any premium and deductibles
----------------
incurred in complying with the terms of this Article 10 shall be treated as an
Operating Expense hereunder.
ARTICLE 11
TAXES, IMPOSITIONS AND CHARGES
------------------------------
11.1 Taxes. Manager, on behalf of Owner, shall pay from the Property
-----
Account when and as the same are due and payable (unless same are contested by
Manager in accordance with Section 11.3), in the name and for the account of
------------
Owner in such installments as permitted by law, all water charges, real estate
taxes, use and sales taxes, personal property taxes, employment, payroll,
withholding, social security or similar taxes, historic or landmark district
assessments and betterment assessments levied or assessed on or against the
Property or any portion thereof by any taxing authority for any fiscal period of
the taxing authority (collectively, "Taxes"), all or any part of which period is
-----
included in the Term of this Agreement. The portion of any such amount so paid
shall be treated as an Operating Expense hereunder.
11.2 Impositions and Charges. Manager, on behalf of Owner, shall pay
-----------------------
from the Property Account and discharge, or cause to be paid and discharged,
when and as the same are due and payable (unless same are contested by Manager
in accordance with Section 11.3), in the name of and for the account of Owner,
------------
all Impositions as well as all lawful claims for labor, materials and supplies
or otherwise, which could become a lien on the Property (collectively,
"Claims").
------
11.3 Right of Contest. Manager may in good faith, and shall at
----------------
Owner's request, by means of an appropriate proceeding contest the validity,
applicability or amount of any Taxes, Impositions or Claims so long as (a)
Manager has notified Owner before the date on which the Tax, Imposition or Claim
becomes delinquent of its intent to contest such Tax, Imposition or Claims (but
it shall not constitute a default hereunder or otherwise impair Manager's right
to contest any such Taxes, Impositions or Claims if Manager shall have failed to
so notify Owner but shall otherwise diligently contest the validity,
applicability or amount of such Tax, Imposition or Claim in accordance with the
other requirements hereof in good faith), (b) reserves in an amount reasonably
satisfactory to Owner shall have been
23
<PAGE>
established during the pendency of such contest, (c) no imminent risk of sale,
forfeiture or loss of any interest in or to the Property or any part thereof
arises, in Owner's reasonable judgment, during the pendency of such contest, and
(d) such contest does not have, and could not reasonably be expected to have, a
material adverse effect on the Property.
ARTICLE 12
MAINTENANCE AND REPAIRS
-----------------------
Manager shall, from time to time on behalf of Owner, cause such
repairs and mainte nance to be performed as Manager deems necessary or advisable
to keep the Property in good operating condition consistent with the Property
Standards and the requirements of any Leases (and the cost of any such repairs
or maintenance shall be paid on behalf of Owner from the Property Account,
subject to the provisions of Section 18.1, by Manager ).
------------
ARTICLE 13
CASUALTY AND CONDEMNATION
-------------------------
13.1 Notice to Owner. Manager shall give prompt written notice to
----------------
Owner of any Casualty at or Condemnation of the Property or any part thereof and
shall deliver to Owner copies of any and all papers served in connection with
such proceedings.
13.2 Settlement of Claims. Upon the occurrence of (x) any Casualty at
---------------------
or Con demnation of the Property or any part thereof during the existence of an
Event of Default hereunder, or (y) any the occurrence of any Casualty at or
Condemnation of the Property or any part thereof affecting seventeen and one-
half percent (17.5%) or more of the total square footage of the Improvements
included in the Property (a "Major Casualty/Condemnation"), Owner alone shall
---------------------------
have the right, in its sole and absolute discretion, to settle, adjust or
compromise any claim (i) under any related policy of insurance or (ii) in
connection with a Condemnation thereof. In all other cases, Owner and Manager
shall consult and cooperate with each other and each shall be entitled to
participate in all meetings and negotiations with respect to the settlement of
such claim. Any adjustment or settlement by Manager of any claim shall be
subject to the prior approval of Owner.
13.3 Total Destruction. If the Property shall be totally or
-----------------
substantially destroyed by fire or other casualty, either party shall have the
option to terminate this Agreement by notice served upon the other party within
one hundred twenty (120) days after such fire or other casualty. Any such
notice of termination shall become effective thirty (30) days after the giving
of the same.
13.4 Total Taking. If all of the Property shall be taken or
------------
condemned in any eminent domain, condemnation or like proceeding by any
competent authority, or if such a portion thereof shall be taken or condemned as
to make it imprudent or unreasonable, in the reasonable opinion of Owner or
Manager, to use the remaining portion as the Property in the
24
<PAGE>
same manner as immediately preceding such taking or condemnation, then, in
either event, at the option of either party, this Agreement shall cease and
terminate as of the date upon which the parties shall be required to surrender
possession.
ARTICLE 14
ENVIRONMENTAL OBLIGATIONS
-------------------------
14.1 Covenants of Manager. Manager covenants
--------------------
and agrees that, with respect to the Property:
14.1.1 Manager shall comply in all material respects with the
requirements of all Environmental Laws and shall exercise commercially
reasonable efforts to cause all tenants and other occupants of the Property to
comply with the requirements of all Environmental Laws, unless the failure to so
comply could not reasonably be expected to have a Material Adverse Effect.
14.1.2 Manager shall promptly (and in any event within ten (10) days
after receipt thereof) forward to Owner copies of all orders, pleadings,
citations, indictments, complaints, consents, notices, permits and reports
received by it in connection with any Hazardous Materials Activity or the
release of any Hazardous Materials in violation of Environmental Laws or
otherwise alleging a violation of Environmental Laws or other matters relating
to any Environmental Law, as they may affect the Property.
14.1.3 Manager shall promptly advise Owner in writing and in
reasonable detail of (i) any Hazardous Materials Activity known to Manager to be
required to be reported to any Governmental Authority under any applicable
Environmental Laws; (ii) any material remedial action taken by Manager or of
which Manager becomes aware with respect to any other Person in response to (x)
the presence, storage, use, disposal or transportation of any Hazardous
Materials or any Hazardous Materials Activity at, in, on, under, from or about
the Property in violation of any applicable Environmental Laws, or (y) any
Environmental Claim of which it becomes aware; (iii) any Environmental Matter in
violation or alleged violation of Environmental Law of which it becomes aware
which could reasonably be expected to have a Material Adverse Effect; (iv) any
material change in the use or occupancy of the Property or any portion thereof,
including such information as Owner shall reasonably require regarding the
business and operations of any new tenant or occupant of the Property, or any
material change in the business or operations of any existing tenant or occupant
of the Property or any portion thereof; or (v) the discovery by Manager of any
event or situation which renders any of the Environmental Representations
inaccurate in any material respect (if such Environmental Representation has
been made at the time of such discovery).
14.1.4 If Owner reasonably believes that an event or situation exists
which could reasonably be expected to have a Material Adverse Effect, then at
the written request
25
<PAGE>
of Owner, Manager shall (i) within forty-five (45) days after the receipt of a
written request from Owner submit a preliminary written environmental plan
(which plan shall be subject to Owner's reasonable approval) which (A) after
reasonable investigation and description of such event or situation, identifies
the action, if any, that Manager proposes to take, or to cause to be taken, with
respect to such event or situation, including, without limitation, the giving of
notice to and receipt (or expected receipt) of approval from appropriate
Governmental Authorities, if such notice or approval is required by applicable
Environmental Laws, and (ii) as soon as practicable thereafter using diligent
efforts to prepare the same (unless such plan has not identified any material
noncompliance with Environmental Laws, in which case this clause (ii) shall not
apply), submit a written environmental site assessment or environmental audit
report prepared by an environmental engineering firm selected by Manager and
reasonably acceptable to Owner which sets forth a reasonably detailed
description of such event or situation and the action that should be taken with
respect thereto, including, without limitation, any proposed clean-up,
remediation, removal or other response action, the estimated cost and time of
completion, the Governmental Authorities contacted, the Governmental Authorities
claiming jurisdiction, if any, the approvals required from any Governmental
Authority and the estimated time to obtain such approvals, and such additional
data, instruments, documents, agreements or other materials or information as
Owner may reasonably request. Manager shall promptly following delivery of the
environmental report and other materials specified in clause (ii) above,
commence such action or work, or cause such action or work to be commenced,
shall diligently and continuously pursue such action or work to completion, or
shall cause such action or work to be diligently and continuously pursued to
completion, and shall report to Owner monthly after commencement of such action
or work on the status thereof.
14.1.5 Manager shall promptly take, or cause to be taken, any and all
action in connection with the presence, storage, use, disposal or transportation
of any Hazardous Materials or any Hazardous Materials Activity at, in, on,
under, from or about the Property in order to comply in all material respects
with all applicable Environmental Laws and permits, authorizations, orders and
requirements of Governmental Authorities. In the event Manager undertakes, or
causes to be undertaken, any remedial action with respect to any Hazardous
Materials on, under or about the Property, such remedial action shall be conduct
ed and completed in compliance in all material respects with all applicable
Environmental Laws, and in accordance with the policies, orders and directives
of all Governmental Authorities except when, and only to the extent that,
liability for such presence, storage, use, disposal or transportation of any
Hazardous Materials or Hazardous Materials Activity is being contested in good
faith by Manager or Owner by appropriate proceedings.
14.2 Rights of Owner to Remediate. In the event Manager shall fail
----------------------------
to comply with Section 14.1, Owner may, after delivery of written notice to
-------------
Manager describing in reasonable detail such failure to comply, give such
notices and/or cause such work to be per formed at the Property and/or take any
and all other actions as shall be reasonably necessary or advisable in order to
perform clean-up, remediation, removal or mitigation of the condition created or
arising from any Hazardous Materials Activity or the release of any
26
<PAGE>
Hazardous Materials.
14.3 Environmental Indemnity. Subject to the limitations set forth
-----------------------
in Section 14.4 below, Manager shall, at its sole cost and expense, at all times
------------
defend (with counsel reason ably acceptable to the Owner), indemnify and hold
harmless the Indemnitees, and each of them, against and from any and all
Environmental Expenses (as hereinafter defined) and all other claims (including,
without limitation, Environmental Claims), suits, actions, debts, damages,
losses, liabilities, obligations, judgments, charges, fines, penalties,
encumbrances, liens, and costs and expenses (including, without limitation,
reasonable out-of-pocket attorneys' fees and expenses) (each individually, an
"Environmental Loss"), of any nature whatsoever and related to an Environmental
- -------------------
Matter, whether direct, indirect or consequential (other than lost profits or
the diminution in value of the Property), and whether based on any federal,
state, local or foreign laws, statutes, rules or regulations (including
Environmental Laws), on common law or equitable cause or contract or otherwise
(collectively, the "Indemnified Expenses") suffered or incurred by Owner and
--------------------
arising out of or relating to any Environmental Matter. "Environmental
-------------
Expenses" means all of the following: (a) costs incurred in accordance with this
Article 14 and in good faith in connection with the investigation, inspection,
monitoring, studying, sampling, testing, clean-up, containment, remediation
and/or removal of all Hazardous Materials, costs incurred in good faith to
mitigate damages, closure costs, costs incurred in good faith for restoration,
and all other costs of responding to any Environmental Matter incurred in good
faith; (b) costs incurred in accordance with this Article 14 and in good faith
to cure, remediate or otherwise address any violations of Environmental Laws;
(c) damages for personal injury or death, property loss, or other loss resulting
from any Environmental Matter; (d) civil and criminal judgments, fines and
penalties resulting from any Environmental Matter; (e) costs incurred in
accordance with this Article 14 and in good faith to remove any liens imposed by
law or otherwise in favor of any violations of Environmental Laws; (f) damages
for personal injury or death, property loss, or other loss resulting from any
Environmental Matter; (g) civil and criminal judgments, fines and penalties
resulting from any Environmental Matter; (h) costs incurred in accordance with
this Article 14 and in good faith to remove any liens imposed by law or
otherwise in favor of any Governmental Authority in connection with any
Environmental Matter; (i) reasonable out-of-pocket attorneys', accountants',
consultants', and experts' fees and disbursements, administrative costs, forum
costs and other reasonable out-of-pocket expenses (including any such reasonable
fees, disbursements, costs and expenses incurred as a result of the supported or
alleged presence of Hazardous Materials or the assertion of groundless, false,
or fraudulent claims, demands or proceedings) incurred in good faith in
connection with any Environmental Matter; (j) third party claims for injury to,
destruction of, or loss of, natural resources; (k) consequential and punitive
damages resulting from any Environmental Matter; (l) sums paid in good faith and
any other liability to any Govern mental Authority, or any other Person for any
costs or expenses described above; (m) sums paid in good faith in satisfaction
of judgments resulting from any Environmental Matter; (n) settlement costs
incurred in good faith resulting from any Environmental Matter; and (o) all
other costs and expenses of any kind or nature, whether similar or dissimilar to
the foregoing, incurred in good faith and resulting from any Environmental
Matter.
27
<PAGE>
Notwithstanding anything to the contrary contained in the foregoing, the costs
and expenses described in clauses (a), (b), (e), (i) and (o) shall be deemed
"Environmental Expenses" hereunder only if incurred (1) in connection with a
- -----------------------
claim or demand asserted against an Indemnitee, (2) after the occurrence and
during the continuance of an Event of Default, (3) in connection with the
performance by an Indemnitee of any of Manager's obligations under this Article
14 after Manager shall have failed to perform such obligation when such
performance was due, or (4) otherwise in connection with the performance of any
action that Manager is expressly permitted to perform pursuant to the terms of
this Article 14. Notwithstanding anything to the contrary contained in the
foregoing, the costs and expenses described in clause (k) above shall be deemed
"Environmental Expenses" hereunder only if incurred (x) with the consent of
----------------------
Manager or (y) after the occurrence and during the continuance of an Event of
Default, or (z) if Manager shall default in the performance of its obligation
to defend, indemnify and hold an Indemnitee harmless as provided herein, and
such default shall continue for 10 Business Days after written demand therefor
is given to Manager.
If Manager shall fail to perform the obligation to defend any
Indemnitee hereunder after written request therefor by such Indemnitee, such
Indemnitee may so perform, at its option and without relieving Manager of its
obligations hereunder, but all reasonable costs and expenses so incurred by such
Indemnitee shall be reimbursed by Manager, including reasonable fees and
disbursements of counsel. Except as set forth in Section 14.4 below, the
------------
foregoing indemnity shall survive any conveyance of the Property, or any portion
thereof. The foregoing agreement by Manager to indemnify shall apply regardless
of whether or not any Environmental Matter is the fault of Manager or any other
Person (subject to the provisions of Section 14.4 below), and regardless of
------------
whether or not any Environmental Matter had been disclosed to Owner and whether
or not Owner has actual or constructive knowledge of such Environmental Matter
from any other source.
14.4 Limitation on Indemnity. Notwithstanding anything to the
-----------------------
contrary contained in this Article 14:
14.4.1 Manager shall not be liable hereunder to Owner to the extent
(but only to the extent) of that portion of any Indemnified Expenses which is
attributable to the affirmative act or negligence or willful misconduct of Owner
or its agents or any predecessor-in-interest of Owner, on or in connection with
the Property which causes the introduction or release of a Hazardous Materials
at the Property; and
14.4.2 Manager shall not be liable for Environmental Losses relating
to or arising out of any Hazardous Materials Activity which occurs after the
date of termination of this Agreement, except to the extent such Environmental
Losses arise out of or as a result of (a) the existence or occurrence at any
time prior to the termination of this Agreement of any Hazardous Materials
Activity, (b) any violation, prior to such termination date, of any applicable
Environmental Laws relating to the Property or to the ownership, use, occupancy
or operation thereof, (c) any investigation, inquiry, order, hearing, action or
other
28
<PAGE>
proceeding by or before any Governmental Authority in connection with any
Hazardous Materials Activity prior to such termination date, (d) any
Environmental Claim relating to the Property prior to such termination date, or
(e) the breach of any covenant set forth in this Article 14 or the inaccuracy of
any of the Environmental Representations.
14.5 Cost of Compliance. Any costs and expenses incurred by Manager
------------------
in complying with the terms of Section 14.1 shall be treated as an Operating
------------
Expense hereunder.
14.6 Survival. Manager's obligations under Section 14.3 shall
-------- ------------
survive the termination of this Agreement.
ARTICLE 15
EVENT OF DEFAULT
----------------
15.1 Event of Default. If one or more of the following events shall
----------------
occur, such event(s) shall be deemed to constitute an "Event of Default"
----------------
hereunder:
15.1.1 If Manager shall make a general assignment for the benefit of
creditors or acknowledges in writing that it generally cannot pay its debts as
they become due; or
15.1.2 If Manager's interest under this Agreement shall be taken on
execution of a judgment; or
15.1.3 If Manager files a petition for adjudication as a bankrupt,
for reorganization or for an arrangement under any bankruptcy or insolvency law,
or if any involuntary petition under such law is filed against Manager and not
dismissed within ninety (90) days thereafter; or
15.1.4 If Manager assigns this Agreement in violation of Article 17;
or
15.1.5 If there is a material default by Manager under this Agreement
which is not cured within thirty (30) days after receipt of written notice from
Owner specifying such default, or, with respect to a material default which is
not susceptible to cure within thirty (30) days but which may be cured within a
discrete period of time, Manager shall not have commenced such cure within said
thirty (30) day period, shall not thereafter diligently prosecute such cure to
completion or shall not have completed such cure within ninety (90) days; or
15.1.6 If an Event of Default occurs under that certain Second
Amended and Restated Loan Agreement dated and effective as of September 9, 1996,
by and between HSP-QRS Corp., as borrower, and PaineWebber Incorporated, as
lender (as "Event of Default" is defined therein); or
29
<PAGE>
15.1.7 If an Event of Default occurs under the Purchase Agreement (as
"Event of Default" is defined therein).
ARTICLE 16
TERMINATION OF AGREEMENT
------------------------
16.1 Termination of Agreement by Owner. Owner may terminate this
----------------------------------
Agreement by written notice to Manager only upon the occurrence of an Event of
Default and the expiration of any applicable cure periods.
16.2 Manager's Rights Upon Termination. Subject to any claims or
---------------------------------
off-sets which Owner may have, upon termination of this Agreement pursuant to
the terms hereof, Manager shall be entitled to receive the following sums: (i)
reimbursement from the Property Account of all expenses incurred prior to
termination with respect to the Property to the extent Manager is permitted to
obtain reimbursement from the Property or Owner under this Agree ment; and (ii)
payment of all of the Management Fees to which it would be entitled through the
date of termination (and nothing herein shall be construed as entitling Manager
to any Management Fees which may otherwise accrue for any period following the
date of termination). Upon termination of this Agreement, Manager shall render
a final accounting within sixty (60) days after the end of the month of
termination, regardless of the reason for such termination and Owner shall
provide Manager with access to the necessary accounting records in order to
enable Manager to prepare such final accounting.
ARTICLE 17
ASSIGNMENT AND TRANSFER
-----------------------
17.1 Binding on Successors and Assigns. Except as otherwise
---------------------------------
expressly provided herein, the terms, covenants and conditions under this
Agreement required to be performed and observed by Manager or Owner shall be
binding upon Manager or Owner, as the case may be, and their respective
successors and assigns and shall inure to the benefit of Owner or Manager, as
the case may be, and their respective permitted successors and assigns.
17.2 Assignment by Manager. Manager shall not, without the prior
---------------------
written consent of Owner, (a) directly or indirectly assign or transfer, whether
voluntarily or by operation of law this Agreement or any interest therein, or
(b) delegate all or substantially all of Manager's duties hereunder to a third
party not an Affiliate of Manager for a fee in excess of the Management Fee;
provided, however, that Manager may, without the prior written consent of Owner,
- -------- -------
assign this Agreement to (i) an Affiliate, parent or subsidiary of Manager, or
(ii) to an entity not constituting a qualified real estate investment trust
subsidiary under the Code but in which HSP owns at least fifty percent (50%) of
the non-voting securities. In addition, and without limiting the foregoing,
Owner acknowledges that (x) Manager and HSP are parties to an Administrative
Services Agreement pursuant to which some or all of
30
<PAGE>
Manager's duties hereunder will be performed by HSP, and (y) a substantial
portion of Manager's duties hereunder may be undertaken by tenants of the
Property pursuant to the terms of their respective Leases, and Owner consents to
such arrangements.
17.3 Transfer by Owner. Owner shall not directly or indirectly
-----------------
assign, transfer or encumber whether voluntarily or by operation of law all or
any portion of the Property or any interest therein, without the prior written
consent of Manager, other than a transfer or encumbrance subordinate and subject
to in all respect this Agreement, the Purchase Agreement and all related
documents, and provided that in connection with any such subordinate transfer or
encumbrance, (i) the proposed transferee is permitted pursuant to the Purchase
Agreement, and (ii) the proposed transferee agrees in writing to be bound by all
of the terms of this Agreement and the Purchase Agreement.
17.4 No Third Party Beneficiaries. Except as provided by the terms
----------------------------
of Section 14.3, nothing in this Agreement, express or implied, shall confer
------------
upon any person or entity, other than the parties hereto and their authorized
successors and assigns, any rights or remedies under or by reason of this
Agreement.
17.5 Continuing Liability. All references to "Owner" and "Manager"
--------------------
throughout this Agreement shall include and apply to their respective successors
and permitted assigns; provided, however, that no assignment of this Agreement
-------- -------
shall relieve the assignor of its obligations and liabilities under this
Agreement.
ARTICLE 18
INDEMNITIES
-----------
18.1 Indemnification of Owner. Manager shall indemnify, defend,
-------------------------
protect, hold and save harmless the Indemnitees from and against any and all
liability, claim, loss, damage, cost or expense (collectively, "Indemnified
-----------
Liabilities") (including, without limitation, reasonable out-of-pocket
- -----------
attorneys' fees and disbursements) in connection with or related to any breach
or default by Manager under this Agreement, Manager's negligence, willful
misconduct or fraud, or any acts of Manager outside the scope of Manager's
authority hereunder; provided, however, that Manager shall not have any
-------- -------
obligation to any Indemnitee hereunder to the extent that such Indemnified
Liabilities arise from gross negligence, illegal acts, fraud or willful
misconduct of such Indemnitee, its agents, officers, directors, con tractors or
employees. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it
violates any law or public policy, Manager shall contribute the maximum portion
that it is permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitee or any of
them.
31
<PAGE>
Promptly after receipt by an Indemnitee of notice of any claim or the
commencement of any action for which indemnity may be sought against Manager
under this Agreement, such Indemnitee shall notify Manager in writing of the
receipt of such claim. Manager shall be entitled to assume the defense of any
claim with counsel reasonably satisfactory to such Indemnitee, and after notice
from Manager to such Indemnitee of its election so to assume and actual
assumption of the defense thereof with counsel reasonably satisfactory to such
Indemnitee, Manager shall not be liable to such Indemnitee under any indemnity
agreement set forth herein for any legal or other expense subsequently incurred
by such Indemnitee in connection with the defense thereof other than reasonable
fees and expenses of separate counsel retained by such Indemnitee if (a) Manager
and such Indemnitee shall have agreed to the retention of such counsel or (b)
such Indemnitee shall have reasonably concluded that representation of Manager
and such Indemnitee by the same counsel would be inappropriate due to actual or
potential conflicting interests between them. Manager shall have no liability
for any settlement of any action or claim effected without its consent, but if
settled with such consent or if there be a final judgment for the plaintiff not
stayed by appeal, Manager agrees to indemnify the Owner from and against any
loss or liability required to be paid by the Owner by reason of such settlement
or judgment if and to the extent required by, and subject to the limitations of,
the terms of this Agreement. Manager agrees to consult in advance with Owner
with respect to the terms of any proposed waiver, release or settlement of any
claim, liability, proceeding or other action against Manager to which any
Indemnitee may also be subject, and to use reasonable efforts to afford Owner
and any such Indemnitee the opportunity to join in such waiver, release or
settlement.
18.2 Indemnification of Manager. Owner shall indemnify, defend,
---------------------------
protect, hold and save harmless Manager and its Affiliates from and against any
and all liability, claim, loss, damage, cost or expense (including, without
limitation, reasonable out-of-pocket attorneys' fees and disbursements)
sustained or incurred by, or asserted against, Manager or its Affiliates by
reason of or arising out of the performance of Manager's duties within the scope
of, and in accordance with the terms of, this Agreement, other than any such
liability, claim, loss, damage, cost or expense sustained, incurred or asserted
by reason of or arising out of any matter within the scope of Manager's
indemnification of Owner under Section 18.1. To the extent that the undertaking
to indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, Owner shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all liability, claim, loss,
damage, cost or expense incurred by Manager or its Affiliates or any of them.
Promptly after receipt by Manager or its Affiliates of notice of any
claim or the commencement of any action for which indemnity may be sought
against Owner under this Agreement, such Person shall notify Owner in writing of
the receipt of such claim. Owner shall be entitled to assume the defense of any
claim with counsel reasonably satisfactory to such Person, and after notice from
Owner to such Person of its election so to assume and actual assumption of the
defense thereof with counsel reasonably satisfactory to such Person, Owner shall
not be liable to such Person under any indemnity agreement set forth herein for
32
<PAGE>
any legal or other expense subsequently incurred by such Person in connection
with the defense thereof other than reasonable fees and expenses of separate
counsel retained by such Person if (a) Owner and such Person shall have agreed
to the retention of such counsel or (b) such Person shall have reasonably
concluded that representation of Owner and such Person by the same counsel would
be inappropriate due to actual or potential conflicting interests between them.
Owner shall have no liability for any settlement of any action or claim effected
without its consent, but if settled with such consent or if there be a final
judgment for the plaintiff not stayed by appeal, Owner agrees to indemnify
Manager and its Affiliates from and against any loss or liability required to be
paid by the Manager or its Affiliates by reason of such settlement or judgment
if and to the extent required by, and subject to the limitations of, the terms
of this Agreement. Owner agrees to consult in advance with Manager with respect
to the terms of any proposed waiver, release or settlement of any claim,
liability, proceeding or other action against Owner to which Manager or any of
its Affiliates may also be subject, and to use reasonable efforts to afford
Manager and any such Affiliates the opportunity to join in such waiver, release
or settlement.
ARTICLE 19
MISCELLANEOUS
-------------
19.1 Notices. All notices, demands, offers, elections or other
-------
communications required or permitted by this Agreement shall be in writing and
shall be delivered by hand or by facsimile or deposited in the U.S. mail, by
registered or certified mail, postage prepaid, or overnight courier, with return
receipt requested and addressed to the addresses set forth below or such other
address as, from time to time, shall be supplied by either party to the other by
like notice, with a copy of each notice to each party's attorney set forth below
and shall be deemed to have been given or delivered on the earlier of the date
of the delivery or two business days after the date of the mailing.
If to Owner: PW ACQUISITIONS I, LLC
c/o PaineWebber Real Estate Securities, Inc.
1285 Avenue of the Americas, 19th Floor
New York, NY 10019
Attn: William W. Evans, III
Telephone: 212-713-7906
Telecopy: 212-713-7949
With a copy to: O'MELVENY & MYERS LLP
153 East 53rd Street
New York, NY 10022
Attn: Robert S. Insolia, Esq.
Telephone: 212-326-2000
Telecopy: 212-326-2061
33
<PAGE>
If to Manager: HSP-QRS CORP.
251 South Lake Avenue, Suite 700
Pasadena, CA 91101
Attn: Mr. Joel S. Marcus
Telephone: 818-578-0777
Telecopy: 818-578-0770
With a copy to: HSP-QRS CORP.
11440 West Bernardo Court, Suite 170
San Diego, CA 92127
Attn: Gary A. Kreitzer, Esq.
Telephone: 619-592-6801
Telecopy: 619-592-6814
With a copy to: SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Rand S. April, Esq.
Telephone: 213-687-5060
Telecopy: 213-687-5600
19.2 Governing Law. This Agreement is being executed and delivered
-------------
in the State of New York and shall be governed by and construed and interpreted
in accordance with the laws of the State of New York without regard to
principles of conflicts of law.
19.3 Captions. The captions and headings throughout this Agreement;
--------
and its table of contents are for convenience and reference only, and they shall
in no way be held or deemed to define, modify or add to the meaning, scope or
intent of any provision of this Agreement.
19.4 Consents. Except as otherwise expressly provided therein,
--------
whenever in this Agreement the consent, determination, decision or approval of
Owner or Manager is required, such consent, determination, decision or approval
shall be in the sole discretion of such party and shall be in writing, signed by
a duly authorized officer or agent of the party granting such consent or giving
such approval. Whenever in this Agreement consent or approval is required, the
failure to respond within ten (10) days (unless different time periods are
specified herein) of the receipt of the written request for such consent or
approval shall be conclusively deemed to constitute disapproval.
19.5 Manager as Agent. Manager will perform all of its duties
----------------
hereunder as agent for Owner, and nothing herein contained shall constitute or
be construed to be or create a co-partnership, joint venture, trustee, or
landlord/tenant relationship between Owner and Manager with respect to the
management of the Property as provided for in this Agreement.
34
<PAGE>
19.6 No Waiver. No assent, expressed or implied, by Owner or Manager
---------
to any breach of or default in any term, covenant or condition which this
Agreement requires to be performed or observed by the other party shall
constitute a waiver of or assent to any succeeding breach of or default in the
same or any other term, covenant or condition hereof.
19.7 Severability. In the event that any one or more of the phrases,
------------
sentences, clauses or paragraphs contained in this Agreement shall be declared
invalid by a final and unappealable order, decree or judgment of any court, this
Agreement shall be construed as if it did not contain such phrases, sentences,
clauses or paragraphs.
19.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto relating to the management of the Property,
superseding all prior agreements or undertakings, oral or written related to
such management. Manager and Owner each acknowledge that they have entered into
the Purchase Agreement relating to Manager's purchase of the ownership interests
in Owner. Owner has not relied on any projection of earnings, statements as to
the possibility of future success or other similar matter which may have been
prepared by Manager, and understands that no representations, warranties or
guaranties are, have been or will be made or implied by Manager as to the future
financial success of the Property. No course of prior dealings among the
parties hereto and no parol or extrinsic evidence of any nature, shall be used
or be relevant to supplement, explain or modify any term used herein. If there
is any conflict between the terms and provisions of this Agreement and any other
prior agreement, document, or instru ment, the terms and provisions of this
Agreement shall control. This Agreement has been fully reviewed and negotiated
between the parties and their respective counsel and no uncer tainty or
ambiguity in any term or provision of this Agreement shall be construed strictly
against Manager or Owner under any rule of construction or otherwise.
19.9 Supplemental Agreements. Owner and Manager shall execute and
-----------------------
deliver all other appropriate supplemental agreements and other instruments, and
take any other action necessary to make this Agreement fully and legally
effective, binding and enforceable as between them and as against third parties,
including Owners's filing in appropriate governmental offices pursuant to any
statute, ordinance, rule or regulation requiring such filing by persons or
entities doing business in a name other than their own, of a certificate or
similar document indicating that Owner is engaging in the Property business at
the Property under the name of the Property. Failure to execute such
supplemental agreements shall not affect the validity of this Agreement and this
Agreement shall continue to be a valid and binding obligation of the parties
hereto irrespective thereof.
19.10 Estoppel Certificates. Manager and Owner each agree, at any
---------------------
time and from time to time, upon not less than thirty (30) days' prior notice by
the other party hereto, to provide a statement in writing certifying that this
Agreement is unmodified and in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), and stating whether or not to the knowledge of the signer of
such certificate, there exists any default in the performance of any obligation
35
<PAGE>
contained in this Agreement, and if so, specifying each such default of which
the signer may have knowledge, it being intended that any such statement
delivered pursuant hereto may be relied upon by Manager, Owner, any proposed
assignee or transferee of Owner or the holder of any mortgage or any prospective
mortgage in respect of any mortgage placed, or about to be placed, on the
Property, as the case may be.
19.11 No Oral Modification. This Agreement may not be modified,
--------------------
amended, surrendered or changed, except by a written instrument signed by the
party against whom such modification, amendment, surrender or change shall be
sought.
19.12 Force Majeure. Notwithstanding anything to the contrary
-------------
contained in this Agreement, in the event that Manager or Owner shall be delayed
or hindered in or prevented from the performance of any act required under this
Agreement by reason of strikes, lock-outs, labor troubles, accidents, inability
to procure materials, governmental restriction, regulation or control, failure
of power, water, fuel, electricity or other utilities, riots, insurrection,
civil commotion, enemy or terrorist action, war, acts of God, fire or other
casualty or any other reason not the fault of Manager or not within Manager's
reasonable control or anticipation (collectively, "Force Majeure"), then the
performance of such act shall be excused for the period of delay, and the period
for the performance of any such act shall be extended for a period equivalent to
the period of such delay.
19.13 Counterparts. This Agreement may be executed in any number of
------------
counter parts, each of which, shall be deemed to be an original, but all of
which taken together shall constitute but one and the same instrument.
19.14 TRIAL BY JURY. MANAGER AND OWNER EACH HEREBY AGREES TO WAIVE
-------------
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND THE OWNER/MANAGER RELATIONSHIP BETWEEN
THEM. The scope of this waiver is intended to encompass any and all disputes
that may be filed in any court and that relate to the subject matter of this
transaction, including contract claims, tort claims, breach of duty claims, and
all other common laws and statutory claims. Manager and Owner each acknowledges
that this waiver is a material inducement to enter into this Agreement, and that
each will continue to rely on the waiver in their related future dealing.
Manager warrants and represents that it has reviewed this waiver with its legal
counsel, and that it knowingly and voluntarily waives its jury trial rights
following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
36
<PAGE>
19.15 Further Actions. Each of the parties hereto agrees to execute
---------------
and deliver such other instruments and documents and take such further actions
as the other party may reasonably request in order to implement or effect the
intent and purposes of this Agreement and Manager shall reasonably cooperate
with Owner upon a termination of this Agreement in order to effect a smooth
transition of the management of the Property.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
OWNER:
PW ACQUISITIONS I, LLC,
a Delaware limited liability company
By: PW Realty Partners, LLC,
a Delaware limited liability company
Its: Managing Member
By: PW Acquisitions Corp.,
a Delaware corporation
Its: Managing Member
By: _____________________
Kevin D. Cox
Vice President
MANAGER:
HSP-QRS CORP.,
a Maryland corporation
By: ____________________________________
Its:
37
<PAGE>
EXHIBIT A
---------
"LEGAL DESCRIPTION OF THE PROPERTY"
38
<PAGE>
EXHIBIT B
---------
"FORM OF PROPERTY CASH FLOW STATEMENT"
39
<PAGE>
EXHIBIT 10.25
AGREEMENT FOR SALE AND PURCHASE
OF MEMBERSHIP INTERESTS
BY AND BETWEEN
PAINEWEBBER REAL ESTATE HOLDINGS INC. AND
PW REALTY PARTNERS LLC, COLLECTIVELY, AS SELLER
AND
HEALTH SCIENCE PROPERTIES, INC. AND
HSP-QRS CORP., COLLECTIVELY, AS BUYER
Dated as of January 13, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
SECTION 1 DEFINITIONS........................................................ 2
SECTION 2 ASSIGNMENT OF PURCHASE CONTRACTS; EXECUTION OF MANAGEMENT
AGREEMENTS......................................................... 11
2.1 Assignment; Reimbursement of Deposits.............................. 11
2.2 Subsequent Assignments............................................. 11
2.3 Cash Flow Deficit.................................................. 12
3.1 Transferred Interest............................................... 12
3.2 Closing............................................................ 12
3.3 Place of Closing................................................... 12
3.4 Purchase Price..................................................... 12
3.5 Computations....................................................... 14
3.6 Closing Costs...................................................... 14
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SELLER........................... 14
4.1 Valid Existence of Seller.......................................... 15
4.2 Authority.......................................................... 15
4.3 No Conflicts....................................................... 15
4.4 Transferred Interest............................................... 16
4.5 Employees.......................................................... 16
4.6 Taxes.............................................................. 16
4.7 Partnership........................................................ 16
SECTION 5 REPRESENTATIONS AND WARRANTIES OF BUYER............................ 17
5.1 Valid Existence of Buyer........................................... 17
5.2 Authority.......................................................... 17
5.3 No Conflicts....................................................... 17
SECTION 6 ADDITIONAL COVENANTS OF SELLER..................................... 18
6.1 Operations During Contract Period.................................. 18
6.2 Transfers and Encumbrances of Transferred Interest and
Properties......................................................... 19
6.3 Additional Covenants............................................... 19
6.4 Covenant as to Managing Member of the LLC.......................... 20
7.1 Conditions Precedent to Seller Closing Obligations................. 20
7.2 Seller's Closing Deliveries........................................ 21
SECTION 8 BUYER'S CLOSING OBLIGATIONS; CONDITIONS PRECEDENT.................. 22
8.1 Conditions Precedent to Buyer's Closing Obligations................ 22
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
8.2 Buyer's Closing Deliveries....................................... 22
8.3 Payment of Purchase Price........................................ 23
SECTION 9 DEFAULT.......................................................... 23
SECTION 10 BROKER'S COMMISSION.............................................. 24
SECTION 11 ADDITIONAL AGREEMENTS............................................ 24
11.2 Acquisition Fee.................................................. 25
11.3 Reconstitution of Contributions.................................. 25
11.4 Interest Rate Cap Agreement...................................... 25
SECTION 12 MISCELLANEOUS.................................................... 26
12.1 Appraisal Procedure.............................................. 26
12.2 Entire Agreement................................................. 26
12.3 Counterparts..................................................... 26
12.4 Time of the Essence.............................................. 26
12.5 Notices.......................................................... 26
12.6 Further Assurances............................................... 28
12.7 No Representations Except as Set Forth Herein.................... 28
12.8 "As Is" Basis.................................................... 28
12.9 Severability of Provisions....................................... 28
12.10 Construction..................................................... 28
12.11 Governing Law.................................................... 28
12.12 Expenses; Indemnity.............................................. 28
12.13 Successors and Assigns........................................... 31
12.14 Exhibits, Schedules and Section References....................... 31
12.15 No Partnership between Seller and Buyer.......................... 31
12.16 WAIVER OF TRIAL BY JURY.......................................... 31
</TABLE>
EXHIBITS
Exhibit A - [Intentionally Omitted]
Exhibit B - Form of Contract Assignment
Exhibit C - Form of Management Agreement
Exhibit D - Due Diligence Documents
Exhibit E - Form of Assignment and Assumption Agreement
Exhibit F - Form of Certificate of Non-Foreign Status
Exhibit G - Form of Amendment to Existing Loan Agreement
Exhibit H - Legal Description of Initial Property
<PAGE>
AGREEMENT FOR SALE AND PURCHASE
OF MEMBERSHIP INTERESTS
This AGREEMENT FOR SALE AND PURCHASE OF MEMBERSHIP INTERESTS (this
"AGREEMENT") is made and entered into as of the 13th day of January, 1997 by and
between PAINE WEBBER REAL ESTATE HOLDINGS INC., a Delaware corporation
("HOLDINGS") and PW REALTY PARTNERS, LLC, a Delaware limited liability company
("PARTNERS"; and together with Holdings, collectively, "SELLER") and HSP-QRS
CORP., a Maryland corporation ("HSP-QRS"), and HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation ("HSP"; and together with HSP-QRS, collectively,
"BUYER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Holdings is the holder of a 1% non-managing membership
interest (the "HOLDINGS INTEREST") in PW Acquisitions I, LLC, a Delaware limited
liability company (the "LLC"); and
WHEREAS, Partners is the holder of a 99% managing membership interest
(the "PARTNERS INTEREST", and together with the Holdings Interest, the
"TRANSFERRED INTEREST") in the LLC; and
WHEREAS, HSP and the LLC have entered into that certain contract
assignment dated the date hereof, pursuant to which HSP has assigned to the LLC
its rights as purchaser under a certain contract for the purchase of real
property, and the LLC has assumed all obligations under such contract, all on
the terms and conditions set forth therein; and
WHEREAS, pursuant to and in accordance with the terms hereof, Buyer
may hereafter assign to the LLC its rights under certain contracts for the
purchase of real property, and the LLC may, pursuant to such contracts or
otherwise, hereafter purchase real property identified by Buyer; and
WHEREAS, upon any such purchase of real property by the LLC, HSP-QRS
and the LLC expect to enter into a management agreement with respect to such
property pursuant to which, subject to the terms and conditions set forth
therein, HSP-QRS will agree to manage such property during the Contract Period
(as defined herein); and
WHEREAS, Holdings desires to sell to Buyer, and Buyer desires to
purchase from Holdings, all of Holdings' right, title and interest in and to the
Holdings Interest; and Partners desires to sell to Buyer, and Buyer desires to
purchase from Partners, all of Partners'
<PAGE>
right, title and interest in and to the Partners Interest, in each case on the
terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto do hereby mutually covenant and
agree as follows:
SECTION 1 DEFINITIONS
CERTAIN DEFINITIONS. In addition to such other terms as are elsewhere
-------------------
defined herein, as used in this Agreement, the following terms shall have the
following meanings, unless the context requires otherwise:
"ACQUISITION FEE" has the meaning specified in Section 11.2 hereof.
------------
"ADDITIONAL PURCHASE PRICE" has the meaning specified in Section 11.1
------------
hereof.
"ADJUSTED EURODOLLAR RATE" means the Eurodollar Rate plus two and
----
fifty one-hundredths (2.50) percentage points.
"AFFILIATE" means with respect to any Person, any other Person that,
directly or indirectly, is controlled by, or is under common control with, such
Person or is a director or officer of such Person. For purposes of this
definition, "control" of a Person means the power, directly or indirectly, (i)
to vote nine and eight-tenths percent (9.8%) or more of the securities having
ordinary voting power for the election of directors of such Person or (ii) to
direct or cause the direction of the management and policies of such Person,
whether by ownership of partnership interests, stock ownership, contract or
otherwise.
"AGGREGATE PROPERTY VALUE" means the aggregate fair market value of
the Properties determined by applying the IPO Multiple to the "Funds from
Operations generated by the Properties" (as herein defined), it being understood
that Buyer currently intends to raise the funds necessary to effect the
transactions contemplated hereby through an IPO. Notwithstanding the foregoing,
if, on the Closing Date, a preliminary prospectus with respect to an IPO has not
been printed and broadly distributed to prospective investors or a registration
statement with respect to an IPO has not been declared effective by the
Securities and Exchange Commission, then (A) in the event of a Closing pursuant
to which some or all of the Properties are sold to a Person other than HSP or an
Affiliate thereof, "AGGREGATE PROPERTY VALUE" shall mean the amount of
consideration (net of actual, reasonable and customary out-of-pocket transaction
costs incurred in connection with such third-party sale) paid by such Person for
such Properties; and (B) otherwise, "AGGREGATE PROPERTY VALUE" shall mean the
aggregate fair market value of the Properties as determined pursuant to the
Appraisal Procedure. "FUNDS FROM OPERATIONS GENERATED BY THE PROPERTIES" shall
equal total gross revenues (including, without limitation, rents, recoveries,
expense reimbursements and management fees to be paid to Buyer) expected to be
generated by the Properties in calendar year 1997, or such later twelve month
period as is, or
2
<PAGE>
is expected to be, utilized in the "Distribution" or"Distribution Policy"
section of the final prospectus for the IPO less the sum of (I) direct property
operating expenses expected for the same period, excluding interest expense,
management fees, depreciation, amortization, capital expenditures and capital
reserves; and (II) a general and administrative expense allocation equal to 2.5%
of total revenues. Consistent with the foregoing definition, revenue and expense
amounts utilized in the calculation of "Funds from Operations generated by the
Properties" shall be determined in accordance with GAAP.
"APPRAISAL PROCEDURE" means the procedure described in Section 12.1
------------
hereof.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" means, for Seller, the
Assignment of Membership Interest, dated as of the Closing Date, between Seller
and Buyer, by which Seller shall assign its Transferred Interest to Buyer,
subject to the terms and conditions of this Agreement.
"BANKRUPTCY ACTION" means, with respect to a Buyer or Seller, as
applicable, (i) commencing any case, proceeding or other action seeking
protection for such Person as a debtor under any existing or future law of any
jurisdiction relating to bankruptcy, insolvency, reorganization or relief of
debtors, (ii) consenting to the entry of an order for relief in or institution
of any case, proceeding or other action brought by any third party against such
Person as a debtor under any existing or future law of any jurisdiction relating
to bankruptcy, insolvency, reorganization or relief of debtors, (iii) filing an
answer in any involuntary case or proceeding described in clause (ii) above
admitting the material allegations of the petition therein or otherwise failing
to contest any such involuntary case or proceeding, (iv) seeking or consenting
to the appointment of a receiver, liquidator, assignee, trustee, sequestrator,
custodian or any similar official for such Person or for a substantial portion
of its properties, (v) making any general assignment for the benefit of the
creditors of such Person, or (vi) admitting in writing the inability of such
Person generally to pay its debts as they mature or that such Person generally
is not paying its debts as they become due.
"BASIC RETURN" has the meaning specified in Section 3.4.
-----------
"BUSINESS DAY" means all days other than Saturday, Sunday and legal
holidays under the laws of the State of New York, or which is a day on which
banking institutions located in the State of New York are authorized or required
by law or other governmental action to close.
"BUYER" has the meaning specified in the Preamble to this Agreement.
"BUYER CONDITIONS PRECEDENT" has the meaning specified in Section 8.1.
-----------
"CAPITAL LEASE", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
3
<PAGE>
"CASH FLOW DEFICIT" means the amount, if any, by which cash receipts
from the Properties for any period are insufficient to pay the sum of (A) all
costs and expenses (when due and payable without penalty) of maintaining and
operating the Properties consistent with the Property Standard (as defined in
the Management Agreement) and (B) the Basic Return for such period.
"CLASS A CONTRIBUTION" means 73.65% of all Contributed Amounts.
"CLASS B CONTRIBUTION" means 26.35% of all Contributed Amounts, and
any contribution made by Seller in respect of a Cash Flow Deficit.
"CLOSING" has the meaning specified in Section 3.2.
-----------
"CLOSING DATE" has the meaning specified in Section 3.2.
-----------
"CLOSING DOCUMENTS" means this Agreement, an Assignment and Assumption
Agreement by Seller, and the other certificates and agreements executed by any
of Buyer, Seller and/or the LLC, as applicable, in connection with the sale of
the Transferred Interests.
"CODE" means the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"CONTRACT ASSIGNMENT" means one or more contract assignments,
substantially in the form of Exhibit B hereto, by and between any Buyer and the
LLC, pursuant to which such Buyer assigns all of its rights, title and interest
in and to, and the LLC assumes all obligations under the Initial Sales Contract
and one or more other Sales Contracts, subject to the terms and conditions set
forth therein.
"CONTRACTS" means all outstanding management, operating, maintenance,
repair, service, pest control and supply contracts (including, without
limitation, janitorial, elevator, scavenger and landscaping agreements),
equipment rental agreements (including but not limited to equipment leases and
conditional sales agreements), all contracts for repair or capital replacement
to be performed at a Property, and any other contracts relating to or affecting
a Property (other than Leases), in each case to which the LLC or Buyer is a
party.
"CONTRACT PERIOD" means the period from and after the date hereof
through the earlier of (A) the Closing Date, or (B) the date the obligations of
Buyer and Seller to purchase and sell the Transferred Interests are terminated,
either pursuant to the terms hereof or by mutual agreement.
"CONTRIBUTED AMOUNTS" means all amounts contributed to the LLC by
Seller (including any permitted successor thereto) in connection with the
acquisition of the Properties (such contributions to include all amounts
necessary to pay the Acquisition Fees payable to Seller
4
<PAGE>
pursuant hereto and any reasonable out-of-pocket legal fees (subject to the cap
contained in Section 12.12) incurred by Seller or the LLC in connection with the
-------------
acquisition of the Properties), excluding amounts contributed to eliminate Cash
Flow Deficits (which shall be Class B Contributions hereunder).
"EURODOLLAR RATE" means, for any period, (i) the rate per annum
appearing on Telerate page 3750 (or such display substituted therefor as is then
customarily used to quote the London interbank offering rate as determined by
Seller in its reasonable discretion) as of approximately 11:00 a.m. (London
time) on the Rate Determination Date for such period (assuming, in the case of
any period of under thirty (30) days, a period of thirty (30) days), or (ii) if
on the Rate Determination Date for any period no such rate appears on Telerate
page 3750 (or such display substituted therefor as is then customarily used to
quote the London interbank offering rate as determined by Seller in its
reasonable discretion), a rate determined by Seller as the arithmetic mean
(rounded upwards as aforesaid) of the rates quoted at approximately 11:00 a.m.,
London time, on such period Rate Determination Date by four major banks, as
selected by Seller, in the London interbank market, to prime banks in the London
interbank market for U.S. Dollar deposits commencing on the first day of such
period with a maturity date corresponding to the last day of such period
(assuming, in the case of any period of under thirty (30) days, a period of
thirty (30) days) and in a principal amount equal to an amount that is
representative for a single transaction in such market at such time; it being
understood that Seller will request the principal London office of each of such
four major banks to provide a quotation of its respective rate in accordance
with the foregoing, and if at least two such quotations are provided, the
Eurodollar Rate for such period will be the arithmetic mean of such quotations,
and if fewer than two quotations are provided as requested, the Eurodollar Rate
for such period will be the arithmetic mean of the rates quoted by such major
banks in New York City as shall be selected by Seller, as of approximately 11:00
a.m., New York City time, on the first Business Day of the period for loans in
U.S. Dollars to leading European banks with a maturity date corresponding to the
last day of such period (assuming, in the case of any period of under thirty
(30) days, a period of thirty (30) days) commencing on the first day of such
period in a principal amount equal to an amount that is representative for a
single transaction in such market at such time.
"EVENT OF DEFAULT" means the occurrence of any of the following: (i)
if any representation or warranty made by Buyer herein or in any Related
Document, or in any report, certificate, financial statement or other
instrument, agreement or document furnished by Buyer to Seller in connection
with this Agreement or any of the Related Documents or any of the Properties
being inaccurate or misleading in any material respect as of the date such
representation or warranty is made or deemed made; (ii) if Buyer shall fail to
close the transactions contemplated hereby on the Closing Date upon the
satisfaction or waiver of all conditions precedent to Buyer's obligation to
close hereunder; (iii) if Buyer shall continue to be in default under any of the
other terms, covenants or conditions of this Agreement or any other Related
Document for ten (10) Business Days after written notice to Buyer from Seller,
in the case of any default which can be cured by the payment of a sum of money,
or for thirty (30) days after written notice to Buyer from Seller in the case of
any other default (unless during such thirty (30) day period Buyer shall have
commenced to cure such default, and such default is not capable of being cured
within such
5
<PAGE>
thirty (30) day period, in which case an Event of Default shall be deemed to
have occurred if Buyer shall continue to be in default for ninety (90) days
after such written notice); (iv) the occurrence of any Cash Flow Deficit in any
calendar month (including for this purpose any Cash Flow Deficit, even if such
Cash Flow Deficit shall have been eliminated through a Class B Contribution by
Seller), unless with respect to such Cash Flow Deficit Buyer shall have caused
the Closing Date to be adjourned as described in Section 3.2 hereof; or (v) if
any "Event of Default" as defined in the Existing Loan Agreement or any Related
Document shall occur.
"EXISTING LOAN" means the transactions effected pursuant to the
Existing Loan Agreement.
"EXISTING LOAN AGREEMENT" means that certain Second Amended and
Restated Loan Agreement dated as of September 9, 1996 between HSP-QRS Corp., as
Borrower, and PaineWebber Incorporated, as Lender, as amended by that certain
First Amendment to Second Amended and Restated Loan Agreement dated as of even
date herewith, and as the same may hereafter be amended, restated, supplemented
or otherwise modified from time to time.
"GAAP" means generally accepted accounting principles set forth in
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, in each case as the same are applicable to the circumstances as of
the date of determination.
"GOVERNMENTAL AUTHORITY" means any and all governmental or quasi-
governmental bodies, agencies, bureaus, departments, boards, commissions,
instrumentalities or other entities having or asserting jurisdiction over the
LLC, Seller, Buyer, any Affiliate of Seller or Buyer, or any Property.
"HSP" means Health Science Properties, Inc., a Maryland corporation,
or any successor thereto.
"HSP APPROVED EXPENSES" means the expenses incurred by HSP (or any
Affiliate) and approved by Seller (such approval not to be unreasonably
withheld) with respect to diligence on the Properties or legal fees related to
the acquisition of the Properties by the LLC, including, without limitation, the
legal fees of Skadden, Arps, Slate, Meagher & Flom LLP in connection with such
acquisition.
"IMPROVEMENTS" means all buildings and other improvements located on
any Property.
"INDEBTEDNESS", as applied to any Person, means (i) all indebtedness
for borrowed money to the extent such indebtedness is fully recourse to the
assets of that Person, (ii) that portion of obligations with respect to Capital
Leases that is properly classified as a liability
6
<PAGE>
on a balance sheet in conformity with GAAP, (iii) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money, (iv) any obligation owed for all or any part of
the deferred purchase price of property or services, which purchase price is (a)
due more than six months from the date of incurrence of the obligation in
respect thereof or (b) evidenced by a note or similar written instrument (and in
any event including, in the case of Buyer, its obligations hereunder), and (v)
all indebtedness secured by any Lien on any property or asset owned or held by
that Person to the extent that the indebtedness secured thereby is fully
recourse to the assets of that Person.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section 12.12.
-------------
"INDEMNITEES" means, collectively, Seller and its successors and
assigns, and its and their respective officers, directors, agents, employees and
Affiliates.
"INITIAL PROPERTY" means the parcel or parcels of real property
described on Exhibit I hereto, together with all buildings and improvements
located thereon.
"INITIAL SALES CONTRACT" means that certain Purchase and Sale
Agreement and Joint Escrow Instructions dated November 27, 1996 by and between
HSP and American Medical Laboratories, Inc. (as amended).
"INTEREST RATE CAP AGREEMENT" means a written interest rate cap
agreement between the LLC and a counterparty, the long-term debt obligations of
which counterparty are rated "AA" or better by the Rating Agencies and which
counterparty is otherwise reasonably acceptable to Seller, which agreement (i)
provides for a "strike price" based on one-month LIBOR of 8.0% per annum, (ii)
provides for monthly payments to the LLC equal to the product of (x) the excess
of one-month LIBOR over 8.0% per annum and (y) a notional amount not less than
the aggregate Class A Contributions therefore made at the relevant time of
determination, (iii) expires on or after the earlier to occur of the third
anniversary of the date hereof or the Closing Date, and (iv) is otherwise in
form and substance reasonably acceptable to Seller.
"IPO MULTIPLE" means the multiple determined by dividing Equity Market
Capitalization by Total Funds from Operations. For this purpose, "Equity Market
Capitalization" shall equal the public offering price per share in the IPO
multiplied by total shares and operating partnership units to be outstanding
immediately following the IPO, in each case as disclosed in the final prospectus
for the IPO, and in each case assuming no exercise of the underwriter's over-
allotment option. Total Funds from Operations shall equal Funds from Operations
for calendar year 1997 or, if applicable, for a later twelve month period, as
such amount is disclosed in the "Distributions" or "Distribution Policy" section
of the final prospectus for the IPO. If a final prospectus is not available on
the Closing Date, then the IPO Multiple shall be determined in the above manner,
utilizing, in lieu of the final prospectus, the latest version of the
preliminary prospectus which has been printed and broadly distributed to
prospective investors and, in lieu of the public offering price per share, the
mid-point of the filing range from such preliminary prospectus shall be
utilized.
7
<PAGE>
"IPO" means an initial public offering of the common stock of HSP, its
parent, or any direct or indirect subsidiary of HSP or its parent (or any
successor to the foregoing by merger or consolidation with any Person that is an
Affiliate of HSP prior to giving effect to such merger or consolidation).
"LEASE(S)" means the leases, rental contracts, licenses, concessions
and other agreements (whether written or oral) pursuant to which any Person is
granted a possessory interest in, or the right or use or occupy, all or any
portion of any Property, and any and all amendments, supplements or
modifications thereto or other agreements relating thereto.
"LEGAL REQUIREMENTS" means all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions of any Governmental Authority affecting any
partnership, the LLC (but only to the extent relating to the LLC's ownership of
the Properties and not resulting from or relating to the LLC's negligence or
willful misconduct) or any Property or any part thereof (including the
construction, use, alteration, maintenance, management, occupancy or operation
of any Improvements, or any part thereof), whether now or hereafter enacted and
in force, and all permits, licenses, authorizations and regulations relating
thereto, and all covenants, agreements, restrictions and encumbrances contained
in any instruments at any time in force affecting the Property or any part
thereof, including any of the foregoing which may (i) require repairs,
modifications or alterations in or to the applicable Property or any part
thereof, or (ii) in any way limit the use and enjoyment thereof.
"LIEN" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.
"LLC" has the meaning set forth in the recitals hereto.
"LONDON BANKING DAY" means a day on which trading in U.S. Dollar
deposits is carried on in the London interbank market.
"MAI" has the meaning specified in Section 12.1.
------------
"MANAGEMENT AGREEMENT" means, collectively, all management agreements
by and between the Manager and the LLC, pursuant to which the Manager is
appointed to manage a Property prior to Closing, subject to the terms and
conditions set forth herein and therein, the form of which is attached as
Exhibit C hereto.
"MANAGER" means HSP-QRS (or its permitted successor), in its capacity
as Manager under the Management Agreements.
8
<PAGE>
"NET WORTH TEST" means, as of any date of determination, based on
HSP's then most recent quarterly or annual financial statements, that (i) the
net worth of HSP, determined in accordance with GAAP as in effect on the date
hereof, shall not be less than $35,000,000.00, and (ii) the ratio of (a) all
---
Indebtedness of HSP and its subsidiaries, determined on a consolidated basis, to
(b) the net worth of HSP, determined in accordance with GAAP as in effect on the
date hereof, shall not exceed 2.5:1.0 (it being understood and agreed that, to
the extent that the LLC shall acquire Properties with aggregate purchase prices
in excess of $52,000,000.00, Buyer and Seller shall negotiate in good faith to
modify the aforesaid ratio in light of the aggregate Indebtedness of HSP and its
subsidiaries, determined on a consolidated basis, at such time).
"OBLIGATIONS" means any and all obligations and liabilities of HSP and
HSP-QRS hereunder or under any Related Document, including without limitation
any obligations or liabilities under any representations or warranties contained
herein or therein.
"PAINEWEBBER" means PaineWebber Incorporated, a Delaware corporation.
"PERSON" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or government (whether
territorial, national, federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"PROPERTIES" means, collectively, each parcel of real property
acquired by the LLC in accordance with the terms hereof, together with all
buildings and improvements located thereon.
"PURCHASE PRICE" has the meaning specified in Section 3.4 hereof.
-----------
"RATE DETERMINATION DATE" means the second London Banking Day prior to
the first day of the period for which the Eurodollar Rate is being determined.
"RATING AGENCY" means, collectively, any two of (i) Moody's Investors
Service, (ii) Standard & Poors Rating Services, (iii) Fitch Investors Services,
L.P. and (iv) Duff & Phelps Credit Rating Co., as shall be designated by Seller
in its sole discretion.
"RELATED DOCUMENTS" means (i) each Contract Assignment, Management
Agreement, Interest Rate Cap Agreement and assignment thereof (and each consent
by the counterparty thereto to such assignment), in each case executed pursuant
to the acquisition of a Property by the LLC as described herein, together with
any other documents or instruments delivered to Seller in connection with the
acquisition of any Property, and (ii) each of the Closing Documents.
9
<PAGE>
"SALES CONTRACTS" means, collectively, (i) the Initial Sales Contract
and (ii) any other agreement for the purchase and sale of a Property hereafter
assigned by Buyer to the LLC pursuant hereto.
"SELLER" has the meaning specified in the Preamble to this Agreement.
"SELLER CONDITIONS PRECEDENT" has the meaning specified in Section
-------
7.1.
- ---
"SUBORDINATE RETURN" has the meaning specified in Section 3.4.
-----------
"TAX" or "TAXES" means all Federal, state, local and foreign taxes,
assessments, and governmental charges (whether imposed directly or through
withholdings), including any interest, penalties or additions to tax applicable
thereto.
"TAX RETURNS" means all Federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amendments thereto.
"TITLE COMPANY" means Chicago Title Insurance Company or such other
title insurance company as shall be acceptable to Buyer.
"TRANSACTIONS" means the consummation of the transactions contemplated
hereunder, the conveyance of each of the Transferred Interest by Seller to Buyer
and the entering into of the Closing Documents and the transactions contemplated
thereby.
"TRANSFERRED INTEREST" has the meaning specified in the Recitals
hereof.
SECTION 2 ASSIGNMENT OF PURCHASE CONTRACTS; EXECUTION OF
----------------------------------------------
MANAGEMENT AGREEMENTS.
---------------------
2.1 ASSIGNMENT; REIMBURSEMENT OF DEPOSITS. Concurrently herewith,
-------------------------------------
(i) the LLC and Buyer are executing the Contract Assignment with respect to the
Initial Property, pursuant to which HSP is assigning to the LLC all of its
right, title and interest in and to, and the LLC is assuming all obligations
under, the Initial Sales Contract with respect to such Property, and Buyer is
making certain representations with respect to such Property, and immediately
thereafter (ii) the LLC is paying to HSP (or instructing the Title Company to
return to HSP) $200,000, plus the interest accrued thereon in accordance with
the Initial Sales Contract, in immediately available funds, as return of
deposits previously made by HSP pursuant to the Initial Sales Contract, (iii)
Seller is contributing that portion of the Contributed Amounts required to
consummate the transactions described in the Initial Sales Contract and pay all
approved expenses related thereto, and (iv) a Management Agreement is being
executed with respect to such Property.
10
<PAGE>
2.2 SUBSEQUENT ASSIGNMENTS. At any time on or after the date
----------------------
hereof and prior to the Closing Date, any Buyer may provide Seller with a
written notice that it desires the LLC to purchase a Property, such notice to
include a description of such Property, the terms of such purchase (together
with a copy of any Sales Contract entered into with respect to such Property)
and any other information that may be requested by Seller. If Seller
determines, in its sole discretion, that such Property satisfies its
underwriting criteria, then, on a date specified by such Buyer in its notice
(which, unless the parties otherwise agree, shall be no earlier than fifteen
(15) Business Days after receipt by Seller of all of the items set forth on
Exhibit D hereto with respect to such Property), (i) such Buyer will execute
- ---------
a Contract Assignment pursuant to which it will assign to the LLC, and the LLC
will assume the obligations of such Buyer under, any Sales Contract previously
executed by such Buyer with respect to such Property, and shall make certain
representations with respect to such Property, (ii) the LLC shall pay to such
Buyer, in immediately available funds, an amount equal to any deposits
previously made by such Buyer (plus the interest accrued thereon in accordance
with the applicable Sales Contract) pursuant to such Sales Contract, (iii) a
Management Agreement shall be executed and delivered by the LLC and the Manager
with respect to such Property, (iv) Seller will contribute a Contributed Amount
sufficient to permit the LLC to acquire such Property and pay all approved
expenses related thereto (including, without limitation, the Acquisition Fee
described herein) and (v) provided all applicable conditions have been satisfied
under such Sales Contract and no Event of Default shall have occurred and be
continuing, Seller shall cause the LLC to acquire such Property in accordance
with the terms approved by Seller; provided, however, that in no event shall the
-------- -------
Contributed Amounts exceed $112 million in the aggregate. In the event the
Initial Sales Contract or any other Sales Contract is assigned to the LLC and,
for any reason, the Property is not acquired by the LLC, such Sales Contract
shall be re-assigned by the LLC to Buyer without representation or warranty, and
Buyer shall repay to the LLC any amount previously paid with respect to any
deposit pursuant thereto.
2.3 CASH FLOW DEFICIT. Seller may, but shall not be obligated to,
-----------------
make a contribution to the LLC to eliminate any Cash Flow Deficit. Any such
contribution shall be a Class B Contribution.
SECTION 3 ACQUISITION OF TRANSFERRED INTERESTS.
-------------------------------------
3.1 TRANSFERRED INTEREST. Subject to the terms and conditions set
--------------------
forth herein, Seller agrees to sell to Buyer, and Buyer agrees to purchase from
Seller, all right, title and interest in and to the Transferred Interest,
including without limitation all distributions or other amounts receivable in
respect of the Transferred Interest, other than distributions or other amounts
(if any) that were treated as having been received by Seller in calculating the
Purchase Price.
3.2 CLOSING. The consummation of the Transactions, including,
-------
without limitation, the execution and delivery of all Closing Documents and the
payment of the Purchase Price (such consummation being herein referred to as the
"CLOSING") shall occur on September 30, 1998, or on such earlier date as (i) HSP
shall specify in writing on thirty (30) days written notice (which date shall
not be prior to May 31, 1997); (ii) HSP, its parent or
11
<PAGE>
any direct or indirect subsidiary of HSP or its parent shall first deliver stock
to underwriters in connection with an IPO; or (iii) thirty (30) days after the
date there first shall have occurred an Event of Default; provided, that if the
--------
thirty (30) day period described under this clause (iii) shall expire prior to
May 31, 1997, then, solely at the discretion of Seller, the consummation of the
Transactions may be delayed until May 31, 1997; and provided, further, that if
--- -------- -------
the event as a result of which this clause (iii) becomes operative is a result
of a Cash Flow Deficit, and at such time Buyer satisfies the Net Worth Test,
then Buyer shall have the right to adjourn the Closing to the date on which the
Closing Date would have occurred but for such Cash Flow Deficit, upon payment to
Seller within such thirty day period of an amount equal to the amount of such
Cash Flow Deficit (the earliest of such dates being referred to herein as the
"CLOSING DATE").
3.3 PLACE OF CLOSING. The Closing shall take place at the offices
----------------
of O'Melveny & Myers LLP, 153 East 53rd Street, New York, New York 10022.
3.4 PURCHASE PRICE. The "Purchase Price" shall be an amount equal
--------------
to the excess of:
1. the sum of:
(i) The Class A Contributions; plus
(ii) The Class B Contributions; plus
(iii) the sum of --
A. a return on the Class A Contributions equal,
on an annualized basis, to the Adjusted
Eurodollar Rate, as adjusted from time to
time, from the dates such contributions are
made through the dates such contributions
are returned either through distributions
(or other payments from the LLC, except as
provided below) or through payment of the
Purchase Price (the "BASIC RETURN"); plus
B. a return on the Class B Contributions equal,
on an annualized basis, to fifteen percent
(15%), compounded annually, from the dates
such contributions are made through the
dates such contributions are returned,
either through distributions (or other
payments from the LLC, except as provided
below) or through payment of the Purchase
Price (the "SUBORDINATE RETURN"); plus
12
<PAGE>
C. fifty percent (50%) of the excess of the
Aggregate Property Value on the Closing Date
over the sum of the (I) HSP Approved
Expenses and (II) the sum of the Class A
Contributions, the Class B Contributions,
the Basic Return and the Subordinate
Return, but only to the extent that Seller
shall not have received any of such amounts
prior to the Closing Date; plus
D. the Additional Purchase Price, if any,
payable in accordance with the terms of
Section 11.1 hereof;
------------
over all distributions or payments (other than payments
----
expressly provided for herein including, without limitation, the Acquisition
Fee, or payments made on terms no less favorable to the LLC than would be
charged by an unrelated party, but including any payments made by Buyer to
adjourn the Closing in accordance with Section 3.2 hereof) to Seller or its
-----------
Affiliates from the LLC (as certified by Seller on the Closing Date), such
amounts to be applied first against the Basic Return, then against the
Subordinate Return, then against the Class B Contributions, then against the
Class A Contributions. The Purchase Price will be allocated among the Persons
who collectively comprise Seller pro rata in proportion to their respective
--- ----
percentage interests in the LLC.
It is understood and agreed that in calculating the Basic Return and
the Subordinated Return hereunder, (i) the fact that Seller may from time to
time borrow, finance or leverage the funds invested as Class A Contributions or
Class B Contributions shall not affect either the characterization or
calculation of such amount (i.e., neither the receipt of the proceeds of any
such financing nor the payment of any debt service or costs related to such
financing shall be taken into account); and (ii) all items of investment/expense
and receipt shall be deemed to have been invested/expended or received on the
last day of the calendar month in which they occur.
3.5 COMPUTATIONS. The Basic Return shall be computed on the basis
------------
of a 360-day year, for the actual number of days elapsed in the period during
which it accrues. The Subordinate Return shall be computed on the basis of a
365-day year, for the actual number of days elapsed in the period during which
it accrues. In computing the Basic Return and the Subordinate Return for any
period, the first day and the last day of such period shall be included.
3.6 CLOSING COSTS; TRANSFER TAXES. With respect to each closing of
-----------------------------
a Property hereunder, Seller shall contribute a Contributed Amount with respect
to, and the LLC shall pay, all filing fees, recording fees, escrow fees, the
cost of any title policies or surveys, all documentary, stamp and/or transfer
taxes, counsel fees of the LLC and Seller (subject to the cap contained in
Section 12.12) and all other closing costs payable by the LLC pursuant to the
- -------------
Sales
13
<PAGE>
Contract, in each case unless such amounts are paid directly by Buyer. With
respect to the transfer of the Transferred Interest to Buyer on the Closing
Date, the LLC shall pay all filing fees, recording fees, the cost of any title
policies or surveys and all documentary, stamp and/or transfer taxes. With
respect to the transfer of the Transferred Interest to Buyer on the Closing
Date, each party shall bear the expense of its own counsel.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SELLER.
-----------------------------------------
Each Seller hereby jointly and severally represents and warrants to
Buyer that the following matters are true and correct as of the execution of
this Agreement and will also be true and correct as of the Closing Date:
4.1 VALID EXISTENCE OF SELLER AND THE LLC. Holdings (a) is a
-------------------------------------
corporation duly formed or organized under the laws of Delaware, (b) is duly
qualified to transact business in each jurisdiction where it is required to be
so qualified in connection with its business and operations, and (c) is
authorized to transact the business that it presently conducts. Partners (a) is
a limited liability company duly formed or organized under the laws of Delaware,
(b) is duly qualified to transact business where it is required to be so
qualified in connection with its business and operations, and (c) is authorized
to transact the business that it presently conducts. The LLC (a) is a limited
liability company duly formed or organized under the laws of Delaware, (b) is
duly qualified to transact business in each jurisdiction in which a Property is
located, and (c) is authorized to transact business that it presently conducts.
4.2 AUTHORITY. Each Seller and the LLC has all requisite corporate
---------
or limited liability company power and authority to (a) execute and deliver the
Related Documents to which it is a party and (b) perform all of its obligations
that arise under the Related Documents to which it is a party. The Related
Documents to which such Person is a party have been, or at the appropriate time
will be, duly executed and delivered by it and constitute, or upon such
execution and delivery will constitute, the legal, valid and binding act or
obligation of such Person, enforceable against such Person in accordance with
their respective terms, subject to the limitations imposed by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the enforcement of creditors rights generally and by general
principles of equity. No consent, approval of, order or authorization of, or
registration or filing with, any Governmental Authority is required to be
obtained by either Seller or the LLC to enter into the Related Documents,
consummate the Transactions, or to perform fully all of the obligations of such
Person under the Related Documents, other than such consents or approvals,
orders, authorizations, registrations or filings that have been obtained by such
Person.
4.3 NO CONFLICTS. With respect to the execution and delivery of
------------
this Agreement and the Related Documents by each Seller and the LLC, and the
consummation of the Transactions by each Seller and the LLC, neither the
execution nor the delivery of this Agreement
14
<PAGE>
and the Related Documents by each Seller and the LLC, nor the consummation of
the Transactions by each Seller and the LLC, will:
(i) conflict with, or result in a breach or violation of, the terms,
conditions or provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of such Person pursuant to the terms of any indenture,
mortgage, lease, pledge or security agreement, nor result in a violation or
breach of, or constitute a default under any term or provision of any other
agreement, lease, instrument or contract to which such Person is a party,
or by which such Person is subject or bound, or
(ii) constitute a violation of any charter document of such Person
or any applicable Legal Requirements to which such Person or any of its
property is subject.
4.4 TRANSFERRED INTEREST. (a) Seller is, and at all times during
--------------------
which the LLC has been in existence has been, the sole owner of the Transferred
Interest and has good, valid and marketable title to the Transferred Interest,
free and clear of any and all liens, claims, options, restrictions or
encumbrances (other than as permitted hereunder). Seller has not sold or
otherwise transferred all or any portion of the Transferred Interest to any
other Person (other than as permitted hereunder). The sole business of the LLC
is and has been to acquire and operate the Properties in accordance with this
Agreement and the Related Documents. No Person other than Seller has been
admitted as a member of the LLC (other than as permitted hereunder).
(b) Upon delivery to Buyer at the Closing of documents evidencing the
assignment of the Transferred Interest, duly executed by each Seller for
transfer to Buyer, Seller will transfer to Buyer the Transferred Interest (which
shall constitute 100 percent of the ownership interest in the LLC) free and
clear of any security interest, pledge, claim, lien, charge, encumbrance or
other rights or interests of any other Person. Upon such transfer, Buyer will
be vested with full right and title to the Transferred Interest. Upon such
transfer, the Transferred Interest will not be subject to, or bound or affected
by, any proxies, voting agreements or other restrictions on the incidents of
ownership thereof. Upon such transfer, the LLC will not have any outstanding
subscriptions, options, convertible securities, warrants, calls or other
agreements or commitments obligating it to issue additional member interests or
any other interest in the LLC whatsoever, and the LLC's title to the Properties
will be free of any encumbrances created by or through Seller or the LLC.
4.5 EMPLOYEES. The LLC has never had and currently has no employees.
---------
4.6 TAXES. The LLC has executed, or will execute, all Tax Returns
-----
properly and timely prepared by the Manager pursuant to the Management
Agreement, and has or will cause the amounts shown to be due on such Tax Returns
to be paid, to the extent cash flow from the Properties is available for such
purpose.
15
<PAGE>
4.7 PARTNERSHIP. The LLC qualifies as a partnership for Federal
-----------
income tax purposes, and would so qualify under Federal income tax law as it
existed prior to the promulgation of Treasury Decision 8697 on December 17,
1996.
The representations and warranties made in this Agreement by Seller
shall be deemed remade by Seller as of the Closing Date with the same force and
effect as if in fact made at that time. All representations and warranties made
in this Section 4 shall not merge into any instrument or conveyance delivered at
---------
the Closing but shall survive the Closing.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
Each Buyer jointly and severally represents and warrants to Seller
that the following matters are true and correct as of the execution of this
Agreement and will also be true and correct as of the Closing Date:
5.1 VALID EXISTENCE OF BUYER. Each Buyer (a) is a corporation duly
------------------------
incorporated and validly existing under and by virtue of the laws of the State
of Maryland, and is in good standing with the State Department of Assessments
and Taxation of Maryland, and (b) is authorized to transact the business that it
presently conducts. There is no bankruptcy, arrangement, reorganization or
similar proceeding pending against either Buyer that was instituted by such
Person, and, to the best of each Buyer's knowledge, there is no bankruptcy,
arrangement, reorganization or similar proceeding pending against either Buyer
that was instituted by any other Person.
5.2 AUTHORITY. Each Buyer has all requisite corporate power and
---------
authority to (a) execute and deliver the Closing Documents to which it is a
party and (b) perform all of its obligations that arise under the Closing
Documents. The Closing Documents to which each Buyer is a party have been, or at
the appropriate time will be, duly executed and delivered and constitute, or
upon such execution and delivery will constitute, the legal, valid and binding
act or obligation of such Buyer, enforceable against such Person in accordance
with their terms, subject to the limitations imposed by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
enforcement of creditors' rights generally and by general principles of equity.
No consent or approval of any Governmental Authority is required to be obtained
by either Buyer to enter into the Closing Documents, consummate the
Transactions, or to perform fully all of the obligations of such Person under
the Closing Documents, other than consents or approvals which have been obtained
by such Person.
5.3 NO CONFLICTS. With respect to the execution and delivery of
------------
this Agreement by each Buyer and the consummation of the Transactions, neither
the execution nor the delivery of this Agreement such Person, nor the
consummation of the Transactions, will:
(a) conflict with, or result in a breach or violation of, the
terms, conditions or provision of, or constitute a default under, or result
in the creation or imposition of any
16
<PAGE>
lien, charge or encumbrance upon any property or assets of such Person
pursuant to the terms of any indenture, mortgage, lease, pledge or security
agreement (other than the Existing Loan Agreement), nor result in a
violation or breach of, or constitute a default under any term or provision
of any other agreement, lease, instrument or contract to which such Person
is a party, or by which such Person is subject or bound, or
(b) constitute a violation of any charter document of such
Person or any applicable Legal Requirements to which such Person or any of
its property is subject or bound.
SECTION 6 ADDITIONAL COVENANTS OF SELLER.
------------------------------
6.1 OPERATIONS DURING CONTRACT PERIOD. Seller agrees that, unless
---------------------------------
otherwise agreed between Seller and Buyer, during the Contract Period Seller
will cause the LLC not to directly or indirectly:
(a) amend the organizational documents of the LLC (other than
to admit a Member as permitted hereunder);
(b) engage in any business other than the acquisition and
operation of the Properties;
(c) so long as the Management Agreement shall remain in
effect, incur any liabilities or obligations in connection
with the operation of the Properties or enter into, amend
or terminate any contracts, in each case, other than (i)
as contemplated by the Management Agreement or (ii) as may
be permitted under Section 6.2 hereof;
-----------
(d) incur any liabilities or obligations other than in
connection with the operation of the Properties, except as
may be permitted under Section 6.2 hereof;
-----------
(e) perform any act, or omit to perform any act within its
reasonable control, that will cause a breach of any
representation, warranty or obligation contained in this
Agreement;
(f) dissolve, liquidate or undertake any Bankruptcy Action; or
(g) make any payment to an Affiliate (other than as expressly
contemplated herein, including without limitation, Section
-------
11.2 hereof, or on terms no less favorable to the LLC than
----
would be charged by an unrelated party), or enter into any
agreement or arrangement with an Affiliate, other than any
such agreement or
17
<PAGE>
arrangement which is on terms no less favorable to the LLC
than would be charged by an unrelated party and is
terminated on or before the Closing Date.
6.2 TRANSFERS AND ENCUMBRANCES OF TRANSFERRED INTEREST AND
------------------------------------------------------
PROPERTIES. Seller shall not, nor shall it permit the LLC to, sell, transfer,
- ----------
dispose of or encumber all or any part of the Transferred Interest or the
Properties, or admit additional members to the LLC, except (i) to Buyer, (ii) as
described in this Section 6.2 or (iii) as otherwise agreed to by the parties.
-----------
Notwithstanding anything in this Agreement to the contrary, prior to the Closing
Date Seller shall be permitted, at its expense, to (i) sell, transfer or
otherwise dispose of all or any part of the Transferred Interest, (ii) cause
additional members to be admitted as members of the LLC or (iii) cause the LLC
to encumber all or any part of the Properties, in each case on terms subject and
subordinate in all respects to the terms hereof; provided, however, that (a)
-------- -------
Seller shall not take any of the foregoing actions if, as a result of such
action, the LLC is no longer an Affiliate of PaineWebber; (b) any lien on or
encumbrance of the Transferred Interest or the Properties permitted hereunder
shall expressly state that such lien or encumbrance is subject to and
subordinate in all respects to the terms hereof and shall be discharged by
Seller in full on or prior to the Closing Date, and in connection with such lien
or encumbrance, the secured party shall agree not to consummate any remedies
against the Properties during the Contract Period, (c) no encumbrance or lien on
the Properties shall secure indebtedness in excess of 100% of the purchase price
of such Properties, and (d) as a condition precedent to any sale, transfer or
other disposition of all or any part of the Transferred Interest (including by
way of foreclosure), the Person to whom Seller shall sell, transfer or otherwise
dispose of the Transferred Interest or such new member shall execute and deliver
to Buyer this Agreement, and shall thereafter be and become a "Seller" for all
purposes hereof.
6.3 ADDITIONAL COVENANTS. Seller agrees that, unless otherwise
--------------------
agreed between Seller and Buyer, during the Contract Period Seller will:
(a) not undertake any Bankruptcy Action;
(b) cause the LLC to make monthly distributions of any cash on hand
not reasonably necessary for the operation of the business of the LLC until
such time as the Contributed Amounts have been repaid in full, and
thereafter cause the LLC to distribute no more than 50 percent of its cash
on hand for the remainder of the Contract Period;
(c) consent to any transfer of the Transferred Interest to Buyer in
accordance with the terms hereof; and
(d) for its taxable year ending December 31, 1997, not cause the
LLC to make an election under Section 754 of the Code without Buyer's
consent (such consent not to be unreasonably withheld or delayed).
18
<PAGE>
SECTION 7 SELLER'S CLOSING OBLIGATIONS; CONDITIONS PRECEDENT.
--------------------------------------------------
7.1 CONDITIONS PRECEDENT TO SELLER CLOSING OBLIGATIONS. The
--------------------------------------------------
obligations of Seller to close the transactions contemplated hereby shall be
subject to the prior or concurrent satisfaction of the following conditions
precedent (the "SELLER CONDITIONS PRECEDENT");
(a) Buyer shall have delivered or caused to be delivered the funds
and documents described in Section 8.2 hereto as and when specified
-----------
therein.
(b) Buyer shall have performed, satisfied and complied with all
covenants, agreements and conditions required by this Agreement and the
Related Documents to be performed, satisfied or complied with by Buyer on
or before the Closing Date.
(c) Buyer's representations and warranties set forth herein and in
the Related Documents shall be true and correct as of the date of this
Agreement and as of the Closing Date as if made on the Closing Date.
(d) No Event of Default shall have occurred and be continuing.
(e) No temporary restraining order or preliminary or permanent
injunction of any court or administrative agency of competent jurisdiction
prohibiting the purchase and sale of the Transferred Interest shall be in
effect.
(f) All necessary consents, approvals and waivers from third
parties and governmental authorities shall have been obtained, except where
the failure to obtain any such consent, approval or waiver would not have a
material adverse effect on the business, financial condition or results of
operations of the LLC or the Seller.
(g) No Buyer shall have undertaken any Bankruptcy Action.
(h) The name of the LLC shall have been changed so that it does not
contain "PW", "PaineWebber", or any derivative of either of the foregoing, and
all filings necessary to effect such change in each jurisdiction where the LLC
is qualified to do business shall have been completed at Buyer's expense.
7.2 SELLER'S CLOSING DELIVERIES. On or before the Closing, Seller
---------------------------
shall deliver or cause to be delivered to Buyer the following, in form and
substance acceptable to Buyer:
(a) An Assignment and Assumption Agreement, substantially in the
form of Exhibit E attached hereto executed by Seller.
---------
19
<PAGE>
(b) A Certification of Nonforeign Status of Seller, substantially
in the form of Exhibit F attached hereto ("CERTIFICATE OF NONFOREIGN
---------
STATUS"), executed by Seller;
(c) A Certificate, prepared as of the Closing Date, restating the
representations and warranties of Seller through the Closing Date;
(d) Good standing certificates and certified copies of all filed
organizational documents for Seller and the LLC;
(e) Certified corporate resolutions and incumbency certificate of
Seller confirming its authority to enter into and perform under this
Agreement;
(f) Any books and records of the LLC in the nature of minute books,
stock books, stock ledgers or corporate seals;
(g) Any other documents, instruments or agreements reasonably
necessary in connection with the transactions contemplated by this
Agreement, including without limitation (i) any statements of partnership,
or amendments or modifications thereto, or fictitious business name
statements, or amendments or modifications thereto, that may be reasonably
necessary to file or record in any state or any political subdivision
thereof, (ii) evidence of satisfaction of the conditions contained in
Section 8.1 hereof and (iii) such statements or affidavits as may be
-----------
reasonably required by the Title Company relating solely to matters
affecting or potentially affecting title created by or through Seller in
order to issue a date down endorsement and a non-imputation endorsement to
the LLC's title insurance policies; and
(h) if requested by Buyer and reasonably required in connection
with an IPO, a legal opinion or opinions in form and substance reasonably
acceptable to Buyer with respect to the due formation of the LLC and the
holding by Seller of title to the Transferred Interest free and clear of
liens and other encumbrances.
SECTION 8 BUYER'S CLOSING OBLIGATIONS; CONDITIONS PRECEDENT.
-------------------------------------------------
8.1 CONDITIONS PRECEDENT TO BUYER'S CLOSING OBLIGATIONS. The
---------------------------------------------------
obligations of Buyer to close the transactions contemplated hereby shall be
subject to the prior or concurrent satisfaction of the following conditions
precedent (the "BUYER CONDITIONS PRECEDENT"):
(a) Seller shall have delivered or caused to be delivered the funds
and documents described in Section 7.2 hereto required to be delivered by
-----------
it as and when specified therein.
20
<PAGE>
(b) Seller shall have performed, satisfied and complied with all
covenants, agreements and conditions required by this Agreement and the
Related Documents to be performed, satisfied or complied with by it on or
before the Closing Date.
(c) Each of the representations and warranties of Seller set forth
herein and in the Related Documents shall be true and correct as of the
date of this Agreement and as of the Closing Date as if made on the Closing
Date.
(d) The LLC shall be validly existing and in good standing under
the laws of the State of Delaware and shall be qualified to do business in
each state where a Property is located.
(e) No temporary restraining order or preliminary or permanent
injunction of any court or administrative agency of competent jurisdiction
prohibiting the purchase and sale of the Transferred Interest shall be in
effect.
(f) All necessary consents, approvals and waivers from third
parties and governmental authorities shall have been obtained, except where
the failure to obtain any such consent, approval or waiver would not have a
material adverse effect on the business, financial condition or results of
operations of the LLC or the Buyer.
8.2 BUYER'S CLOSING DELIVERIES. On or before the Closing Date,
--------------------------
Buyer shall deliver to Seller:
(a) An executed counterpart of the Assignment and Assumption
Agreement to which Seller is a party.
(b) A certificate, prepared as of the Closing Date, restating
the representations and warranties of Buyer through the Closing Date;
(c) Good standing certificates and certified copies of all
filed organizational documents for Buyer;
(d) Certified corporate resolutions and incumbency certificate
of Buyer confirming its authority to enter into and perform under this
Agreement; and
(e) Any other documents, instruments or agreements reasonably
necessary to close the transaction as contemplated by this Agreement,
including without limitation (i) any statements of partnership, or
amendments or modifications thereto, or fictitious business name
statements, or amendments or modifications thereto, that may be reasonably
necessary or desirable to file or record in any state or any political
subdivision thereof and (ii) evidence of satisfaction of the conditions
conformed in Section 7.1 hereof.
-----------
21
<PAGE>
8.3 PAYMENT OF PURCHASE PRICE. Upon the satisfaction of all
-------------------------
conditions precedent to Buyer's obligations to close hereunder, Buyer shall
cause an amount (the "CASH BALANCE") equal to the Purchase Price payable to each
Seller to be transferred by Federal Funds wire transfer to an account for the
benefit of such Seller as directed by such Seller.
SECTION 9 DEFAULT.
-------
(i) All obligations and liabilities of "Buyer" hereunder
(including, without limitation, the obligation to purchase the Transferred
Interests) and all obligations and liabilities of HSP or of HSP-QRS under any
Related Documents are, and shall be conclusively deemed to be for all purposes,
the joint and several obligations of HSP and HSP-QRS.
(ii) If one party hereto (the "DEFAULTING PARTY") shall fail to
consummate the sale of the Transferred Interests to Buyer in accordance with the
provisions of this Agreement for any reason except for the default of the other
party of its obligations pursuant to this Agreement, when the other party hereto
(the "NON-DEFAULTING PARTY") has fulfilled all its obligations hereunder and is
ready, willing and able to close, then the Non-Defaulting Party may, in addition
to any other remedy available to such party at law or in equity, terminate its
obligations hereunder by written notice to the Defaulting Party.
(iii) In the event of a breach by Seller of its obligations under
this Agreement, Buyer (without prejudice to any remedy which may be available at
law in conjunction with specific performance) will be entitled to specific
performance of its rights under this Agreement; provided, that Buyer agrees that
--------
specific performance shall not be available to Buyer (and Buyer unconditionally
---
waives any rights it might otherwise have, at law or in equity, to specific
performance) with respect to any breach by Seller occurring on or after
September 30, 1998. Seller agrees that, (i) monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
provision hereof and (ii) except as otherwise provided in this Section 9, in the
---------
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate in any action or
proceeding seeking specific performance of this agreement commenced on or prior
to September 30, 1998.
The provisions of this Section 9 shall survive any termination of this
---------
Agreement.
SECTION 10 BROKER'S COMMISSION.
-------------------
(i) Seller and Buyer each represent and warrant to the other that
neither has employed any agent, broker or finder in connection with the
execution of this Agreement and the sale of the Transferred Interest and each
party agrees to indemnify and hold free and harmless the other from and against
any losses, damages, costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred by such party by reason of any person or
entity claiming a brokerage commission, finder's fee or other compensation is
due or payable by reason of such indemnifying party's acts or omissions in
connection therewith.
22
<PAGE>
(ii) The provisions of this Section 10 shall survive the Closing or
----------
any earlier termination of this Agreement.
SECTION 11 ADDITIONAL AGREEMENTS.
---------------------
11.1 ADDITIONAL PURCHASE PRICE. If PaineWebber is not selected to
-------------------------
act as exclusive financial advisor, book running lead manager or private
placement agent, as applicable, on the terms set forth in the Existing Loan
Agreement and otherwise on customary terms and conditions substantially similar
to those generally available from similar underwriters for similar transactions,
in connection with (i) an IPO or (ii) a private placement of debt or equity
securities by HSP, its parent, or any direct or indirect subsidiary of HSP or
its parent, in either case on or prior to the Closing Date in whole or in part
to fund the Purchase Price, then in addition to and along with the payment of
the Purchase Price on the Closing Date, Buyer will pay Seller an additional
amount (the "Additional Purchase Price") equal to two percent (2%) of the
aggregate Class A Contributions and Class B Contributions theretofore made;
provided, however, that the Additional Purchase Price shall not be payable if
- -------- -------
Seller or any Affiliate thereof finances in whole (but not in part, unless such
other part is financed by HSP, its parent, or any direct or indirect subsidiary
of HSP or its parent, or any Person who on the date hereof is a shareholder of
HSP or its parent) the payment of the Purchase Price hereunder (it being
understood that neither Seller nor any Affiliate thereof shall be under any
obligation to provide such financing).
11.2 ACQUISITION FEE. In partial consideration for the covenants
---------------
and agreements of Seller contained herein, on the date each Class A Contribution
and Class B Contribution is made, Seller shall be entitled to an acquisition fee
(the "ACQUISITION FEE") equal to one percent (1%) of the contributions being
made on such date, such Acquisition Fee to be added to and paid out of such
contributions or, at Buyer's option, to be paid directly by Buyer to Seller;
provided, however, that Buyer shall be entitled to a credit of $300,000 against
- -------- -------
such Acquisition Fee, with $150,000 of such credit to be applied on a pro rata
--- ----
basis against the Acquisition Fee owed with respect to the contributions made in
connection with the acquisition of the first three Properties hereunder, and the
remaining $150,000 of such credit to be applied against the Acquisition Fee owed
with respect to subsequent contributions on a pro rata basis (to be calculated
--- ----
based on an assumption that the Contributed Amounts ultimately will total $112
million).
11.3 RECONSTITUTION OF CONTRIBUTIONS. Subject to Section 6.2,
------------------------------- -----------
Seller shall have the right from time to time, in its sole discretion (and at
its expense), to reconstitute all or part of the Class A Contribution or the
Class B Contribution into one or more mortgage loans of the LLC, provided that
the economic terms described above are substantially preserved. Buyer and the
LLC shall cooperate with Seller in connection with any such reconstitution, such
cooperation to include the execution and delivery of any documentation
reasonably requested by Seller to effect such reconstitution.
11.4 INTEREST RATE CAP AGREEMENT. If and to the extent requested by
---------------------------
Seller with respect to any Class A Contributions, Buyer, at its own expense, (i)
within five (5) Business
23
<PAGE>
Days of such request, shall purchase for the benefit of the LLC an Interest Rate
Cap Agreement providing for monthly payments to the LLC equal to the product of
(x) the excess or one-month LIBOR over 8.0% per annum and (y) a notional amount
of not less than the amount of all Class A Contributions (including the Class A
Contribution being made contemporaneously therewith), and (ii) thereafter, in
connection with each closing of a Property, shall purchase for the benefit of
the LLC an additional Interest Rate Cap Agreement providing for monthly payments
to the LLC equal to the product of (x) the excess of one-month LIBOR over 8.0%
per annum and (y) a notional amount of not less than the amount of the Class A
Contribution being made in connection with such closing. To the extent requested
by Buyer (and to the extent Contributed Amounts have not totalled $112 million
in the aggregate and the conditions set forth herein for the making of any such
contribution are satisfied), the cost of any Interest Rate Cap Agreement may be
added to and paid out of the Contributed Amounts.
11.5 EXISTING LOAN. The parties hereto acknowledge that, in
-------------
conjunction with and in partial consideration of the mutual covenants and
agreements set forth herein, PaineWebber Incorporated and Buyer are executing
the amendment to the Existing Loan Agreement attached as Exhibit G hereto.
11.6 ACQUISITION OF PROPERTIES. Buyer and Seller agree that,
-------------------------
provided all other conditions set forth herein are satisfied, if Buyer is
prohibited, as a result of a change in applicable law after the date hereof,
from purchasing the Transferred Interest, Buyer and Seller will negotiate in
good faith to effect a transfer of the Properties to Buyer on terms which
provide Seller with the same economic benefit that Seller would have derived if
Buyer could have effected a purchase of the Transferred Interest.
SECTION 12 MISCELLANEOUS.
-------------
12.1 APPRAISAL PROCEDURE. If required pursuant to the definition of
-------------------
"Aggregate Property Value" contained herein, the aggregate fair market value of
the Properties shall be determined utilizing the following Appraisal Procedure:
each of Buyer and Seller shall choose an appraiser who is a Member of the
Appraisal Institute ("MAI") with at least 10 years of experience, and
substantial experience appraising suburban office/industrial properties with a
significant laboratory component, and the two appraisers so chosen shall choose
a third such appraiser. Each appraiser shall determine independently the
aggregate fair market value of the Properties (based on the highest and best use
for such Properties conforming to MAI standards). The Aggregate Property Value
shall be deemed to be the average of the three values. The results of the
Appraisal Procedure described herein shall be final and binding upon the
parties.
12.2 ENTIRE AGREEMENT. This Agreement, together with the Related
----------------
Documents, is the entire Agreement between the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements between the
parties with respect to the matters contained in this Agreement. Any waiver,
modification, consent or acquiescence with respect to any provision of this
Agreement or with respect to any failure to perform in accordance herewith shall
be set forth in writing and duly executed by or on behalf of the party to be
bound thereby.
24
<PAGE>
No waiver by any party of any breach hereunder shall be deemed a waiver of any
other or subsequent breach.
12.3 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument. The signature page
of any counterpart may be detached therefrom without impairing the legal effect
of the signature(s) thereon provided such signature page is attached to any
other counterpart identical thereto except having additional signature pages
executed by other parties to this Agreement attached thereto.
12.4 TIME OF THE ESSENCE. Time is of the essence in the performance
-------------------
of and compliance with each of the provisions and conditions of this Agreement.
12.5 NOTICES. Any communication, notice or demand of any kind
-------
whatsoever which either party may be required or may desire to give to or serve
upon the other shall be in writing and delivered by personal service (including
express or courier service), by electronic communication, whether by telex,
telegram or telecopying (if confirmed in writing sent by registered or certified
mail, postage prepaid, return receipt requested or by personal service), or by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
Seller: Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
19th Floor
New York, New York 10019
Attention: William W. Evans III
Telecopy No.: 212-713-7949
With a copy to: O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attention: Robert S. Insolia, Esq.
Telecopy No.: 212-326-2061
Buyer: HSP-QRS CORP.
251 South Lake Avenue, Suite 700
Pasadena, California 91101
Attention: Joel S. Marcus
Telecopy No.:
25
<PAGE>
With a copy to: Skadden Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Rand S. April
Telecopy No.:
Any party may change its address for notice by written notice given to the other
in the manner provided in this Section 12.5. Any such communication, notice or
------------
demand shall be deemed to have been duly given or served on the date personally
served, if by personal service, on the date of confirmed dispatch, if by
electronic communication, or on the date shown on the return receipt or other
evidence of delivery, if mailed.
12.6 FURTHER ASSURANCES. The parties agree to execute such
------------------
instruments and to do such further acts as may be reasonably necessary to carry
out the provisions of this Agreement and the Related Documents and the
transactions contemplated hereby and thereby, including (without limitation) to
execute such instruments and to do such further acts as may be necessary in
connection with the preparation of audited financial statements and other
financial data of the LLC which are, or are required to be, included in any
registration statement prepared in connection with an IPO.
12.7 NO REPRESENTATIONS EXCEPT AS SET FORTH HEREIN. The making,
---------------------------------------------
execution and delivery of this Agreement by the parties hereto has been induced
by no representations, statements, warranties or agreements other than those
expressly set forth herein and in the Related Documents.
12.8 "AS IS" BASIS. The parties hereto acknowledge that the
-------------
Transferred Interests are being sold on an "as is" basis, without any
representations as to Seller, the LLC or the Properties, except as otherwise
expressly provided herein.
12.9 SEVERABILITY OF PROVISIONS. Wherever possible, each provision
--------------------------
of this Agreement shall be interpreted in such a manner as to be valid under
applicable law, but, if any provision of this Agreement shall be invalid or
prohibited thereunder, such invalidity or prohibition shall be construed as if
such invalid or prohibited provision had not been inserted herein and shall not
affect the remainder of such provision or the remaining provisions of this
Agreement.
12.10 CONSTRUCTION. The language in all parts of this Agreement
------------
shall be in all cases construed simply according to its fair meaning and not
strictly for or against any of the parties hereto for any reason (including,
without limitation, by virtue of the fact that this Agreement may have been
drafted or prepared by counsel for one of the parties, it being recognized that
both Buyer and Seller, and their respective counsel, contributed materially and
substantially to the preparation of this Agreement). Section headings of this
Agreement are solely
26
<PAGE>
for convenience of reference and shall not govern the interpretation of any of
the provisions of this Agreement.
12.11 GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
reference to conflicts of laws principles.
12.12 EXPENSES; INDEMNITY. (a) Buyer covenants and agrees to
-------------------
reimburse Seller upon receipt of written notice from Seller for all loss,
damage, liability or reasonable out-of-pocket expense or cost (including
reasonable attorneys' fees and disbursements in connection with any then pending
or potential suit, action, proceeding, appellate proceeding or post-judgment
action and all required service or use taxes) incurred by Seller in connection
with (i) the preparation, negotiation, execution and delivery of this Agreement
and the Related Documents and the consummation of the transactions contemplated
hereby and thereby and all the reasonable costs of obtaining all opinions of
counsel (including any opinions reasonably requested by Seller as to any legal
matters arising under this Agreement or the Related Documents or with respect to
the Properties), in each case other than amounts funded through the contribution
of Contributed Amounts; (ii) the negotiation, preparation, execution and
delivery of any amendments or other modifications to this Agreement or the
Related Documents, and any other documents or matters if requested by Buyer
(including reasonable attorney's fees and expenses), in each case other than
amounts funded through the contribution of Contributed Amounts; (iii) the filing
and recording fees and expenses, title insurance and reasonable fees and
expenses of counsel for providing to Seller all required legal opinions, and
other similar expenses incurred in selling the Transferred Interests to Buyer
pursuant to the Related Documents, in each case other than amounts funded
through the contribution of Contributed Amounts; (iv) enforcing or preserving
any rights in response to third party claims or prosecuting or defending any
action or proceeding or other litigation, in each case against, under, affecting
or relating to Buyer, the LLC (other than as may, consistent with the terms
hereof or of the Management Agreement, be funded from cash flow from the
Properties, this Agreement or the Related Documents or the Properties), in each
case other than amounts funded through the contribution of Contributed Amounts;
and (v) enforcing any obligations of Buyer under this Agreement or the Related
Documents or with respect to the Properties or in connection with any
refinancing or restructuring of the arrangements provided under this Agreement
in connection with any insolvency, bankruptcy, rehabilitation or similar
proceedings in respect of either Buyer or any of their respective successors, or
an assignment by any of the foregoing for the benefit of its creditors;
provided, however, that Buyer shall not be liable for the payment of any costs
- -------- -------
and expenses described in clauses (i) through (v) above to the extent the same
----------- ---
arise by reason of the gross negligence, illegal acts, fraud or willful
misconduct of Seller, its Affiliates, agents, officers, directors, contractors
or employees, or with respect to costs incurred in connection with an exercise
by Seller of reconstitution rights under Section 11.3 hereof; provided further,
------------ -------- -------
however, that Buyer shall not be obligated to reimburse Seller for legal fees
- -------
(other than reasonable out-of-pocket disbursements of legal counsel) in an
amount greater than $220,000 for work relating to the negotiation and execution
of this Agreement (including the Exhibits hereto) and the acquisition of no more
than two Properties so long as (A) this Agreement is executed and one Property
is acquired by January 10, 1997 and (B) the second Property is
27
<PAGE>
acquired on or before January 15, 1997 (it being understood that all other fees
and expenses incurred by Seller, including fees and expenses incurred after
January 15, 1997, will be reimbursed without regard to this proviso); provided,
--------
further, however, that with respect to each subsequent acquisition of a Property
- ------- -------
legal fees of Seller (other than reasonable out-of-pocket disbursements of legal
counsel) reimbursable hereunder shall not exceed $20,000.
(b) In addition to but without duplication of the payment of
expenses pursuant to Section 12.12(a) above, whether or not the transactions
----------------
contemplated hereby shall be consummated, Buyer agrees to indemnify, pay and
hold harmless the Indemnitees, and each of them, from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including the reasonable fees and disbursements of counsel for such
Indemnitee in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto), that may be imposed on, incurred by, or asserted
against such Indemnitee in any manner relating to or arising out of any breach
by Buyer of its obligations under, or any material misrepresentation by Buyer
contained in this Agreement or the Related Documents (collectively, the
"INDEMNIFIED LIABILITIES"); provided, however, that Buyer shall not have any
-------- -------
obligation to an Indemnitee hereunder to the extent that such Indemnified
Liabilities arise from gross negligence, illegal acts, fraud or willful
misconduct of such Indemnitee, its Affiliates, agents, officers, directors,
contractors or employees or with respect to Indemnified Liabilities directly
attributable to an exercise by Seller of reconstitution rights under Section
-------
11.3 hereof. To the extent that the undertaking to indemnify, pay and hold
- ----
harmless set forth in the preceding sentence may be unenforceable because it
violates any law or public policy, Buyer shall contribute the maximum portion
that it is permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them.
(c) Buyer hereby acknowledges and agrees that each Indemnitee
(other than Seller) is an intended third-party beneficiary of this Section 12.12
-------------
(it being understood and agreed, however, that Buyer and Seller may amend this
Agreement without the consent of such third-party beneficiaries).
Promptly after receipt by an Indemnitee of notice of any claim or the
commencement of any action for which indemnity may be sought against Buyer under
this Agreement or any other Transaction Document, such Indemnitee shall notify
Buyer in writing of the receipt of such claim. Buyer shall be entitled to
assume the defense of any claim with counsel reasonably satisfactory to such
Indemnitee, and after notice from Buyer to such Indemnitee of its election so to
assume and actual assumption of the defense thereof with counsel reasonably
satisfactory to such Indemnitee, Buyer shall not be liable to such Indemnitee
under any indemnity agreement set forth herein or in any other Transaction
Document for any legal or other expense subsequently incurred by such Indemnitee
in connection with the defense thereof other than reasonable fees and expenses
of separate counsel retained by such Indemnitee if (a) Buyer and such Indemnitee
shall have agreed to the retention of such counsel or (b) such Indemnitee shall
have reasonably concluded that representation of Buyer and such Indemnitee by
the same counsel
28
<PAGE>
would be inappropriate due to actual or potential conflicting interests between
them. Buyer shall have no liability for any settlement of any action or claim
effected without its consent, but if settled with such consent or if there be a
final judgment for the plaintiff not stayed by appeal, Buyer agrees to indemnify
the Indemnitee from and against any loss or liability required to be paid by the
Indemnitee by reason of such settlement or judgment if and to the extent
required by, and subject to the limitations of, the terms of this Agreement.
Buyer agrees to consult in advance with Seller with respect to the terms of any
proposed waiver, release or settlement of any claim, liability, proceeding or
other action against Buyer to which any Indemnitee may also be subject, and to
use reasonable efforts to afford Seller and any such Indemnitee the opportunity
to join in such waiver, release or settlement.
12.13 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
----------------------
and inure to the benefit of each of the parties hereto and to their respective
transferees, successors, and assigns; provided, however, that neither this
Agreement nor any of the rights or obligations of a party hereunder shall be
transferred or assigned by a party without the prior written consent of the
other party hereunder except that Buyer may transfer this Agreement and its
rights and obligations hereunder to an entity controlled by the Buyer without
Seller's consent.
12.14 EXHIBITS, SCHEDULES AND SECTION REFERENCES. All Exhibits and
------------------------------------------
Schedules attached hereto are incorporated herein by this reference. Unless the
context requires otherwise, any references in this Agreement to Exhibits or
Sections shall be deemed to refer to the exhibits and paragraphs to this
Agreement. When a reference is made in this Agreement to a Section, it shall be
deemed to include all subparagraphs to such Section unless the context requires
otherwise. The words "herein", "hereof", "hereunder" and "hereto" shall refer to
this Agreement unless the context otherwise requires. The headings in this
Agreement are intended for convenience of reference only and shall not in any
way limit, amplify or be used in interpreting the terms of this Agreement.
12.15 NO PARTNERSHIP BETWEEN SELLER AND BUYER. Notwithstanding
---------------------------------------
anything to the contrary contained herein, this Agreement shall not be deemed or
construed to make the parties hereto partners or joint venturers, or to render
either party liable for any of the debts or obligations of the other, nor shall
this Agreement be deemed to create a relationship of borrower and lender between
Buyer and Seller. Buyer and Seller each hereby further conclusively acknowledges
and agrees that no deed or other instrument of conveyance of a Property to
Seller is intended by Buyer or Seller as a conveyance to secure any indebtedness
of Buyer to Seller. Buyer acknowledges that Seller is the owner of the LLC,
which is the owner of the Properties, and Buyer has no interest in the
Properties whatsoever. Buyer's rights are limited exclusively to its right to
purchase the Transferred Interest in accordance with this Agreement, and to
manage the Properties in accordance with the Management Agreement.
12.16 WAIVER OF TRIAL BY JURY. THE PARTIES HEREBY WAIVE TRIAL BY
-----------------------
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST
THE OTHER ON ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT. THE PARTIES ACKNOWLEDGE THAT
29
<PAGE>
THEY HAVE RETAINED COUNSEL OF THEIR OWN CHOOSING AND SUCH COUNSEL HAS FULLY
EXPLAINED THE CONTENT AND LEGAL EFFECT OF THIS PARAGRAPH.
[The remainder of this page has been intentionally left blank.]
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
BUYERS:
HEALTH SCIENCE PROPERTIES, INC., a Maryland corporation
By: /s/ Joel S. Marcus
----------------------------
Name:
Title:
HSP-QRS CORP., a Maryland corporation
By: /s/ Joel S. Marcus
----------------------------
Name:
Title:
SELLERS:
PAINEWEBBER REAL ESTATE HOLDINGS INC., a Delaware
corporation
By: /s/ Kevin D. Cox
---------------------------
Kevin D. Cox
Vice President
PW REALTY PARTNERS, LLC,
a Delaware limited liability company
By: PW ACQUISITIONS CORP.,
a Delaware corporation
By: /s/ Kevin D. Cox
---------------------------
Kevin D. Cox
Vice President
S-1
<PAGE>
EXHIBIT A
[INTENTIONALLY OMITTED]
A-S-1
<PAGE>
EXHIBIT B
FORM OF CONTRACT ASSIGNMENT
B-S-1
<PAGE>
EXHIBIT C
FORM OF MANAGEMENT AGREEMENT
C-S-1
<PAGE>
EXHIBIT D
DUE DILIGENCE DOCUMENTS
1. Current Title Commitment and Complete Set of Underlying Documents
2. Current Surveys
3. Current Engineering Reports
4. Current Environmental Reports
5. Leases (including Space and Ground Leases)
6. Certificates of Occupancy
7. Zoning Compliance Letters
8. Licenses and Permits
9. Brokerage Agreements
10. Rent Roll
11. List of All Pending Litigation (tenant disputes, "slip-and-falls", etc.)
12. Operating and Capital Budgets; Financial Statements
13. Service Contracts/Equipment Leases
14. Insurance Policies
15. Executed Purchase and Sale Contract and all Exhibits and Schedules and
Drafts of all Closing Documents
16. Tenant Estoppels, Certificates and Non-Disturbance Agreements
17. Property Agreements (including Management Agreements)
18. Any Other Information Reasonably Requested by Sellers
D-S-1
<PAGE>
EXHIBIT E
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT OF
MEMBERSHIP INTEREST
(LIMITED LIABILITY COMPANY)
This ASSIGNMENT AND ASSUMPTION AGREEMENT OF MEMBERSHIP INTEREST (this
"ASSIGNMENT") is made as of __________, 199_ by [SELLER] ("ASSIGNOR"), in favor
of HSP-QRS CORP., a Maryland corporation ("ASSIGNEE").
Assignor hereby assigns, sets over, transfers, grants and conveys unto
Assignee and Assignee hereby accepts the assignment, setting over, transfer,
grant and conveyance of, that certain membership interest in that certain
limited liability company, in each case, as more particularly described on
Exhibit A hereto (the "MEMBERSHIP INTEREST").
- ---------
The foregoing assignment, setting over, transfer, grant and conveyance
are made without representation or warranty of any kind or nature whatsoever,
except as may otherwise be expressly set forth in that certain Agreement for
Sale and Purchase of Membership Interests by and between Assignor and certain
other Seller thereto and Assignee dated as of January 13, 1997.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment
to be executed by their respective duly authorized representatives as of the
date first above written.
ASSIGNOR: [SELLER]
By: _______________________________________
Name:
Title:
ASSIGNEE: HSP-QRS CORP., a MARYLAND corporation
By: _______________________________________
Name:
Title:
E-S-1
<PAGE>
EXHIBIT F
FORM OF CERTIFICATION OF NON-FOREIGN STATUS
To inform HEALTH SCIENCE PROPERTIES, INC., a Maryland corporation, and HSP-
QRS CORP., a Maryland corporation (collectively, the "TRANSFEREES"), that
withholding of tax under Section 1445 of the Internal Revenue Code of 1986, as
amended ("CODE"), will not be required upon the transfer of certain membership
interests of PW Acquisitions I, LLC, a Delaware limited liability company, to
the Transferees by [ SELLER ] ("TRANSFEROR"), the undersigned hereby certifies
the following on behalf of the Transferor:
1. The Transferor is not a foreign corporation, foreign partnership,
foreign trust, foreign estate or foreign person (as those terms are defined in
the Code and the Income Tax Regulations promulgated thereunder);
2. The Transferor's U.S. employer or tax identification number is
__________________.
The Transferor understands that this Certification may be disclosed to
the Internal Revenue Service by the Transferees and that any false statement
contained herein could be punished by fine, imprisonment, or both.
The Transferor understands that the Transferees are relying on this
Certification in determining whether withholding is required upon said transfer.
Under penalty of perjury I declare that I have examined this
Certification and to the best of my knowledge and belief it is true and correct
and complete, and I further declare that I have authority to sign this document
on behalf of the Transferor.
Dated: As of __________ __, 199_
[SELLER]
By: ____________________________
Name:
Title:
F-S-1
<PAGE>
EXHIBIT G
FORM OF AMENDMENT TO EXISTING
LOAN AGREEMENT
G-S-1
<PAGE>
EXHIBIT H
LEGAL DESCRIPTION OF INITIAL PROPERTY
H-S-1
<PAGE>
Exhibit 10.26
EXECUTION VERSION
================================================================================
STOCKHOLDERS AGREEMENT
DATED AS OF
SEPTEMBER 9, 1996
BY AND AMONG
HEALTH SCIENCE PROPERTIES, INC.
HEALTH SCIENCE PROPERTIES HOLDING CORPORATION
AND
AEW PARTNERS II, L.P.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BACKGROUND .................................................................. 1
1. Sales By Stockholder .............................................. 1
1.1 Tag-Along Rights ............................................. 1
1.2 Investor's Exercise of Tag-Along Rights ...................... 2
1.3 Consummation of Sale by Investor ............................. 2
1.4 Subsequent Offerings ......................................... 3
1.5 Exclusions to Tag-Along Rights ............................... 3
1.6 Non-Exercise of Tag-Along Rights ............................. 3
2. Rights Upon Non-Conforming Transfers .............................. 3
2.1 Non-Conforming Transfers ..................................... 3
3. Bring-Along Rights ................................................ 4
3.1 Exercise of Rights ........................................... 4
3.2 Price and Terms of Sale ...................................... 4
3.3 No Encumbrances .............................................. 5
4. Election of Directors ............................................. 5
4.1 Directors of the Company ..................................... 5
4.2 Directors of Subsidiary ...................................... 5
4.3 Further Assurances ........................................... 5
4.4 Resignation .................................................. 5
5. Legended Certificates ............................................. 6
5.1 Legend ....................................................... 6
5.2 Removal of Legend ............................................ 6
5.3 Notation in Stock Transfer Records ........................... 6
5.4 Transferees' Execution of Stockholders Agreement ............. 7
6. Representations and Warranties .................................... 7
6.1 Representations and Warranties of Stockholder ................ 7
6.2 Representations and Warranties of the Company ................ 7
6.3 Representations and Warranties of Investor ................... 8
7. Miscellaneous ..................................................... 9
7.1 Termination .................................................. 9
7.2 Notices ...................................................... 10
7.3 Costs of Enforcement ......................................... 10
7.4 Successors and Assigns ....................................... 10
7.5 Governing Law ................................................ 11
7.6 Execution in Counterparts .................................... 11
7.7 Incorporation of Exhibits and Schedules by Reference ......... 11
7.8 Entire Agreement; Amendment .................................. 11
7.9 Binding Effect ............................................... 11
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
7.10 Further Assurances ........................................ 11
</TABLE>
-ii-
<PAGE>
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (the "Agreement") is entered into as of
this 9th day of September, 1996 by and among HEALTH SCIENCE PROPERTIES, INC., a
Maryland corporation (the "COMPANY"), HEALTH SCIENCE PROPERTIES HOLDING
-------
CORPORATION, a Maryland corporation, the undersigned holder of Common Stock, par
value $.01 per share, of the Company ("Common Stock") ("Parent" or
"Stockholder") and AEW PARTNERS II, L.P., a Delaware limited partnership
("INVESTOR"). All capitalized terms not otherwise defined herein shall have the
--------
meaning given such term in the Series V Convertible Preferred Stock Purchase
Agreement, dated September 9, 1996, between the Company and the Investor (the
"INVESTOR STOCK PURCHASE AGREEMENT").
---------------------------------
BACKGROUND
A. Concurrently herewith, the Investor is acquiring from the Company
shares of Series V Convertible Preferred Stock of the Company (the "SERIES V
--------
PREFERRED STOCK") on the terms and conditions set forth in the Investor Stock
- ---------------
Purchase Agreement.
B. The Investor has required as a condition to the purchase of the
Series V Preferred Stock that the Company and the Parent enter into this
Agreement.
C. The Company and the Stockholder wish to induce the Investor to
purchase the Series V Preferred Stock by offering the Investor the opportunity
to participate, upon the terms and conditions set forth in this Agreement, in
certain sales of the Common Stock made by the Stockholder and the opportunity to
effect a sale of the Company upon the occurrence of certain conditions.
ACCORDINGLY, THE COMPANY, THE INVESTOR AND STOCKHOLDER HEREBY AGREE AS
FOLLOWS:
1. Sales By Stockholder.
--------------------
1.1 Tag-Along Rights. Prior to the effective date of a registration
----------------
statement filed by the Company under the Securities Act of 1933, as amended (the
"Act"), Stockholder will not transfer any shares of any class of the Common
Stock now owned or hereafter acquired by such Stockholder, except as
specifically provided in this Agreement. Should Stockholder receive one or more
written bona fide offers (each, a "PURCHASE OFFER") to purchase or acquire any
--------------
of the shares of the Common Stock of the Company of which such Stockholder is
then the owner, and should such Stockholder accept or determine to accept such
Purchase Offer, then such Stockholder promptly (but not later than five Business
Days after receiving such offer) shall give written notice (the "PURCHASE
--------
NOTICE") to the Company and the Investor of the material terms and conditions of
- ------
such Purchase Offer, including the proposed
-1-
<PAGE>
date of consummation of sale, which shall be no earlier than 20 Business Days
after receipt by the Company and the Investor of the Purchase Notice.
1.2 Investor's Exercise of Tag-Along Rights. If the Investor, within
---------------------------------------
five Business Days after receipt of the Purchase Notice, delivers written notice
(the "Acceptance Notice") to the Stockholder and the Company of the Investor's
election to participate in such Stockholder's sale of Common Stock pursuant to
the specified terms and conditions of such Purchase Offer, then the Stockholder
shall reduce the number of shares of Common Stock which such Stockholder may
sell pursuant to such Purchase Offer by the number determined pursuant to
paragraph (i) below and shall make any arrangements necessary to include such
number of shares owned by the Investor in the purchase or acquisition referred
to in the Purchase Notice. The right of participation of the Investor shall be
subject to the following terms and conditions:
(i) The Stockholder shall include in its sale pursuant to
the Purchase Notice that number of shares owned by the Investor that is equal to
the product obtained by multiplying (a) the aggregate number of shares of Common
Stock covered by the Purchase Offer by (b) a fraction, the numerator of which is
the number of shares of Common Stock into which the shares of Series V Preferred
Stock owned by the Investor would be converted pursuant to the Company's
Charter, including any adjustments under the terms of the Charter (an "AS
--
CONVERTED BASIS"), and the denominator of which is the sum of shares of Common
- ---------------
Stock (a) that are or could be owned on an As Converted Basis at the time by the
Investor, (b) that are then owned by such selling Stockholder and (c) that are
then owned by all others exercising rights of co-sale in connection with such
Purchase Offer.
(ii) Before consummation of the sale, the Investor shall
deliver to such selling Stockholder one or more certificates free and clear of
all liens and encumbrances, properly endorsed for transfer, which represent (a)
the number of shares of Common Stock which the Investor elects to sell pursuant
to this Section 1.2 or (b) the number of shares of Series V Preferred Stock
which is at such time convertible into the number of shares of Common Stock
which the Investor elects to sell pursuant to this Section 1.2; provided,
however, that if the purchase offeror objects to the delivery of Series V
Preferred Stock in lieu of Common Stock, the Investor may, in accordance with
the Charter, convert into Common Stock up to that number of shares of Series V
Preferred Stock which is at such time convertible into the number of shares of
Common Stock which Investor elects to sell pursuant to this Section 1.2, which
exercise will be deemed to occur simultaneously with, and only upon, the closing
of such sale to the purchase offeror in accordance with Section 1.3 below.
Should the Investor elect such contingent exercise, the Company will use its
reasonable best efforts to provide representative Common Stock share
certificates representing such shares at such closing.
1.3 Consummation of Sale by Investor. The delivery of the stock
--------------------------------
certificate by such Stockholder to the purchase offeror in consummation of the
sale of the Common Stock
-2-
<PAGE>
pursuant to the terms and conditions specified in the Purchase Notice to the
Investor, and the payment by the purchase offeror to the Investor and such
Stockholder of that portion of the consideration to which the Investor and such
Stockholder are respectively entitled by reason of their participation in such
sale shall occur simultaneously at a closing at the principal office of the
Company, or such place as the selling and purchasing parties may agree, at a
time and at a date mutually agreeable to all of the selling and purchasing
parties.
1.4 Subsequent Offerings. The exercise or nonexercise of the rights
--------------------
of the Investor hereunder to participate in one or more sales of Common Stock
made by any Stockholder shall not affect adversely the rights of the Investor to
participate in subsequent Common Stock sales by such Stockholder or any other
stockholder.
1.5 Exclusions to Tag-Along Rights. The participation rights of the
------------------------------
Investor shall not pertain or apply to (i) any sale pursuant to a registration
statement under the Act, (ii) any subsequent transfer by transferees acquiring
shares in a transaction in connection with which the Investor had co-sale rights
hereunder, (iii) any sales or transfers of Common Stock or securities
convertible into Common Stock to an affiliate (as defined in Rule 12b under the
Securities Exchange Act of 1934) of any Stockholder, or (iv) any sales or
transfers by a Stockholder who is a natural person to (x) such Stockholder's
Immediate Family, or (y) a trust for the benefit of a Stockholder's Immediate
Family; provided that in the case of a sale or transfer pursuant to clause (iii)
or (iv) above, such pledgee or transferee shall furnish the Investor with a
written agreement to be bound by and to comply with all provisions of this
Agreement applicable to such Stockholder. For purposes of this Agreement
"Immediate Family" shall mean a stockholder's siblings, spouse, ancestors and
descendants.
1.6 Non-Exercise of Tag-Along Rights. If the Investor does not
--------------------------------
deliver the Acceptance Notice or does not otherwise exercise its rights as
contemplated by Section 1.2, then the Stockholder shall be free, for period of
90 days, to sell up to the number of shares specified in the Purchase Notice at
a price no greater than the price set forth in the Purchase Notice and on terms
not materially more favorable to such Stockholder than those set forth herein.
2. Rights Upon Non-Conforming Transfers.
------------------------------------
2.1 Non-Conforming Transfers. In the event any Stockholder should
------------------------
sell any Common Stock in contravention of the participation rights of the
Investor under this Agreement (a "Non-Conforming Transfer"), the Investor shall
have the option to sell to such Stockholder a number of shares of Common Stock
(or shares of Series V Preferred Stock convertible into such Common Stock) equal
to the number of shares the Investor should have been able to sell in connection
with the sale by such Stockholder on the following terms and conditions:
-3-
<PAGE>
(i) The price per share which the shares of Common Stock are to
be sold to such Stockholder shall be equal to the price per share paid to such
Stockholder by the third-party purchasers of such Stockholder's Common Stock;
(ii) The Investor shall deliver to such Stockholder, within sixty
days after receiving notice from such Stockholder or otherwise becoming aware of
the Non-Conforming Transfer, the certificate or certificates free and clear of
all liens and encumbrances representing shares to be sold, each certificate
being properly endorsed for transfer;
(iii) Such Stockholder, upon receipt of the share certificates
delivered pursuant to Section 2.1(ii) above, promptly shall pay in cash
(regardless of the form of consideration paid to such Stockholder by the third-
party purchaser), the aggregate Section 2.1 purchase price therefor, and shall
reimburse the Investor for any out-of-pocket additional expenses, including
reasonable legal fees and expenses, reasonably incurred in effecting such
purchase and resale.
3. Bring-Along Rights.
------------------
3.1 Exercise of Rights. If the Company has insufficient cash (and
------------------
insufficient access to funds) to fully redeem all shares owned by Investor and
required to be redeemed following a "Trigger Event" (as defined in the Company's
Charter) and at least $1,000,000 is owed but unpaid by the Company to Investor
in connection with such required redemption, then, in connection with any
transaction or series of transactions, other than a transfer to an Affiliate of
Investor, involving the sale or other transfer of beneficial ownership of 80% or
more of the number of shares of Common Stock or Series V Preferred Stock held by
Investor ("Investor Shares"), upon giving 30-days written notice thereof to the
other Stockholders (the "Noninitiating Stockholders"), each Noninitiating
Stockholder shall tender for transfer that number of shares owned by such
Noninitiating Stockholder which is determined by multiplying the total number of
shares owned by such Noninitiating Stockholder by a fraction, the numerator of
which is the aggregate number of Investors Shares actually to be transferred in
the proposed transaction and the denominator of which is the aggregate number of
Investor Shares (as calculated immediately prior to such Proposed Transaction).
3.2 Price and Terms of Sale. Any such participation by the
-----------------------
Noninitiating Stockholder shall be at the same price per share (in form and
amount) applicable to the sale of Investor Shares and otherwise shall be on the
same terms and conditions (including any with respect to deferral of payment in
whole or in part and any option as to the form and amount of consideration to be
received) as are applicable to Investor; provided, that the Noninitiating
Stockholders shall not be required to (a) make any representation or warranty to
any person in connection with such transaction other than as to (i) good title
and the absence of liens and encumbrances with respect to such Noninitiating
Stockholder's shares, (ii) the corporate or other existence of such
Noninitiating Stockholder and (iii) the authority for and the validity and
binding effect of, and the absence of any conflicts under the charter documents
and
-4-
<PAGE>
material agreements of such Noninitiating Stockholder as to, any agreements
entered into by such Noninitiating Stockholder in connection with such sale or
(b) provide any indemnities in connection with such transaction except for a
breach of the above representations and warranties.
3.3 No Encumbrances. Stockholder shall deliver certificates
---------------
representing such Stockholder's Shares free and clear of all liens or
encumbrances (other than this Agreement) in connection with disposition pursuant
to Section 3.1.
4. Election of Directors.
---------------------
4.1 Directors of the Company. The parties acknowledge that the
------------------------
holders of Series V Preferred Stock have a right to elect directors as set forth
in the Company's charter and desire to provide rights to the Investor in the
event all Series V Preferred Stock is converted to Common Stock. Accordingly, as
long as the Investor owns Common Stock representing more than 15% of the
outstanding Voting Securities the Investor shall be entitled to include two
nominees on the Company management slate of directors, and as long as the
Investor owns Common Stock representing more than 7% of the Voting Securities,
the Investor shall be entitled to include one nominee on the Company management
slate of directors. At all meetings of stockholders of the Company at which
directors are to be elected and in all actions by written consent to elect such
directors, the Stockholders and the Investor will vote their Common Stock, or
give their proxy to vote their Common Stock, for the nominees on the management
slate of directors recommended to the stockholders. This is intended to be a
power coupled with an interest and to constitute an irrevocable proxy.
4.2 Directors of Subsidiary. As long as the Investor owns Series V
-----------------------
Preferred Stock or Common Stock issued upon conversion thereof representing more
than 15% of the outstanding Voting Securities the Investor shall be entitled to
include one nominee on the Board of Directors of Subsidiary. The Company, as the
sole stockholder of Subsidiary, shall take all actions necessary to cause the
election of such nominee.
4.3 Further Assurances. The parties agree to take appropriate
------------------
action, if necessary, to comply with the requirements of the Maryland General
Corporation Law to make the provisions set forth at Sections 4.1 and 4.2 valid
and enforceable, including without limitation, to enter into a voting trust
agreement. For purposes of this Agreement, "Voting Securities" shall mean: (1)
the outstanding shares of Common Stock and (ii) securities of the Company
convertible into or exchangeable for such securities, in all cases determined on
an As Converted Basis.
4.4 Resignation. No later than 10 days following the date on which
-----------
the Investor owns Common Stock issued or issuable upon conversion of Series V
Preferred Stock representing less than 15% of the outstanding Voting Securities,
the Investor shall cause one director elected or nominated by it to resign from
the Company's board of directors and all
-5-
<PAGE>
committees thereof and from the Subsidiary's board of directors and all
committees thereof, and such vacancies shall be filled in accordance with the
bylaws of the Company and the Subsidiary, as the case may be. No later than 10
days following the date on which the Investor owns Common Stock issued or
issuable upon conversion of Series V Preferred Stock representing less than 7%
of the outstanding Voting Securities, the Investor shall cause all directors
elected or nominated by it to resign from the Company's board of directors and
all committees thereof and for the Subsidiary's board of directors and all
committees thereof, and such vacancies shall be filled in accordance with the
bylaws of the Company and the Subsidiary, as the case may be.
5. Legended Certificates.
---------------------
5.1 Legend. Each certificate representing shares of the Common Stock
------
or Preferred Stock of the Company now or hereafter owned by Stockholder shall be
endorsed with substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A VOTING AGREEMENT, A TAG-ALONG RIGHT AND A BRING-ALONG
RIGHT WHICH MAY REQUIRE DISPOSITION OF THE SECURITIES UNDER
CIRCUMSTANCES AND ON THE TERMS AND CONDITIONS SET FORTH IN A
STOCKHOLDERS AGREEMENT DATED SEPTEMBER 9, 1996 BY AND AMONG
THE HOLDER HEREOF, THE OTHER STOCKHOLDERS NAMED THEREIN, THE
CORPORATION AND AEW PARTNERS II, L.P., A COPY OF WHICH IS ON
FILE WITH THE OFFICE OF THE SECRETARY OF THE COMPANY. NO
TRANSFER OF THE CORPORATION'S COMMON STOCK WILL BE MADE ON
THE CORPORATION'S BOOKS UNLESS ACCOMPANIED BY EVIDENCE OF
COMPLIANCE WITH THE TERMS OF SUCH STOCKHOLDERS AGREEMENT, A
COPY OF WHICH AGREEMENT MAY BE OBTAINED WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
5.2 Removal of Legend. The legend described in Section 5.1 above
-----------------
shall be removed upon termination of this Agreement in accordance with the
provisions of Section 7.1.
5.3 Notation in Stock Transfer Records. The Company shall make
----------------------------------
appropriate notation in its stock transfer records of the restriction on
transfer provided for in this Agreement.
-6-
<PAGE>
5.4 Transferees' Execution of Stockholders Agreement. As a condition
------------------------------------------------
to any transfer of shares of Common Stock, securities convertible into Common
Stock or options exercisable for Common Stock by Stockholder (other than a
transfer described in Section 1.5(i) or (ii)), the Company and Stockholder shall
cause the transferee of such securities to enter into a counterpart of this
Agreement (and if such transferee is a natural person, shall cause such
transferee's spouse, if any, to (x) become a party hereto or (y) consent in
writing to this Agreement and acknowledge in writing that such spouse has no
community property interest in such securities), and any certificates
representing such shares of Common Stock or the shares of Common Stock issuable
upon the conversion of such convertible securities or the exercise of such
options, shall be endorsed with the legend provided for in Section 5.1.
6. Representations and Warranties.
------------------------------
6.1 Representations and Warranties of Stockholder. Stockholder
---------------------------------------------
hereby represents and warrants to the Company and Investor that:
6.1.1 No Conflicts. The execution, delivery and performance of
------------
this Agreement by such Stockholder will not result in the violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (i) any provision of the Stockholder's Charter or
Bylaws; (ii) any provision of any judgment, decree or order to which the
Stockholder is a party or by which it is bound, (iii) any material contract,
obligation or commitment to which such Stockholder is a party or by which it is
bound; or (iv) to the Stockholder's knowledge, any statute, rule or governmental
regulation applicable to the Stockholder.
6.1.2 Enforceability. Assuming the execution and delivery by
--------------
the Company and the Investor, this Agreement constitutes a legal, valid and
binding obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms, subject as to enforcement (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights and (ii) to general
principles of equity, whether such enforcement is considered in a proceeding in
equity or at law.
6.1.3 Consents. No consent, approval, order or authorization
--------
of, or registration, qualification, designation, declaration, or filing with,
any federal, state or local governmental authority in the United States or any
other person or entity (which has not been obtained) on the part of such
Stockholder is required in connection with such Stockholder's valid execution
and delivery of this Agreement other than those which have been or will be
obtained prior to such execution and delivery and those required under federal
and state securities laws.
6.2 Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to the Stockholder and Investor that:
-7-
<PAGE>
6.2.1 No Conflicts With Other Instruments. The execution,
-----------------------------------
delivery and performance of this Agreement will not result in any violation of,
be in conflict with, or constitute a default under, with or without the passage
of time or the giving of notice: (i) any provision of the Company's Charter or
Bylaws; (ii) any provision of any judgment, decree or order to which the Company
is a party or by which it is bound; (iii) any material contract, obligation or
commitment to which the Company is a party or which it is bound; or (iv) to the
Company's knowledge, any statute, rule or governmental regulation applicable to
the Company.
6.2.2 Enforceability. Assuming due execution and delivery by
--------------
the Stockholder and Investor, this Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject, as to enforcement, (i) to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other laws of general applicability
relating to or affecting creditors' rights, and (ii) to general principles of
equity, whether such enforcement is considered in a proceeding an equity or a
law.
6.2.3 Authorization. All corporate action on the part of the
-------------
Company, necessary for the authorization, execution, delivery and performance of
all obligations under this Agreement has been taken.
6.2.4 Consents. No consent, approval, order or authorization
--------
of, or registration, qualification, designation, declaration, or filing with any
federal, state or local governmental authority in the United States, or any
other person or entity (which has not been obtained) on the part of the Company
as required in connection with the Company's valid execution and delivery of
this Agreement other than those which have been or will be obtained prior to
such execution and delivery and those required under federal and state
securities laws.
6.2.5 Ownership of Outstanding Securities. The Stockholder owns
-----------------------------------
substantially all of the outstanding equity securities issued by the Company,
including all securities (other than stock options granted to employees and non-
employee directors of the Company and Series U Preferred Stock and Series T
Preferred Stock) convertible into equity securities other than the Series V
Preferred Stock.
6.3 Representations and Warranties of Investor. Investor hereby
------------------------------------------
represents and warrants to the Stockholders and the Company that:
6.3.1 No Conflicts. The execution, delivery and performance of
------------
the Agreement by Investor will not result in the violation or be in conflict or
constitute default under with or without the passage of time or the giving of
notice, (i) any provision of the Investor's Limited Partnership Agreement, (ii)
any provision of any judgment, decree or order to which Investor is a party or
by which it is bound, (iii) any material contract, obligation or
-8-
<PAGE>
commitment to which Investor is a party or by which it is bound, or (iv) to
Investor's knowledge, any statute, rule or governmental regulation applicable to
the Investor.
6.3.2 Enforceability. Assuming due execution and delivery by
--------------
the Stockholder and the Company, this Agreement constitutes a legal, valid and
binding obligation of the Investor, enforceable against the Investor in
accordance with its terms, subject, as to enforcement, (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium or other laws of general
applicability relating to or affecting creditors' rights and (ii) to general
principles of equity, whether such enforcement is considered in a proceeding in
equity or at law.
6.3.3 Authorization. All action on the part of the Investor,
-------------
its general partner and its officers necessary for the authorization, execution,
delivery and performance of all obligations under this Agreement have been
taken.
6.3.4 Consents. No consent, approval, order or authorization
--------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority in the United States, or of any
other person or entity (which has not been obtained) on the part of the Investor
is required in connection with the Investor's valid execution and delivery of
this Agreement.
7. Miscellaneous.
-------------
7.1 Termination. The provisions of Sections 1, 2 and 3 of this
-----------
Agreement shall terminate upon the earliest of (a) such time as AEW shall no
longer be the owner of shares of Series V Preferred Stock (or shares of Common
Stock received upon conversion of such shares) that represent at least 15% of
the total outstanding Voting Securities of the Company, (b) September 9, 2006
and (c) the consummation of an underwritten public offering of the Company's
Common Stock registered under the Act. The provisions of Sections 4 and 5 of
this Agreement shall terminate at such time as AEW shall no longer be the owner
of shares of Common Stock that represent at least 7% of the outstanding Voting
Securities of the Company. Unless sooner terminated in accordance with the
preceding sentence, this Agreement shall terminate immediately prior to the
earliest of any one of the following events: (a) any transaction or the first in
a series of related transactions (including, without limitation, any
reorganization, merger or consolidation) that will result in the Company's
stockholders immediately after such transaction not holding (by virtue of such
shares or securities issued solely with respect thereto) at least fifty percent
(50%) of the voting power of the surviving or continuing entity; or (b) a sale
of all or substantially all of the assets of the Company, unless the Company's
stockholders immediately prior to such sale will, as a result of such sale, hold
(by virtue of securities issued as consideration for the Company's sale) at
least fifty percent (50%) of the voting power of the purchasing entity. For the
purposes hereof, "Voting Securities" shall mean: (i) Common Stock and any other
-----------------
issued and outstanding securities of the Company generally entitled to vote for
the election of directors of the Company and other
-9-
<PAGE>
matters for which the shareholders of the Common Stock are entitled to vote;
(ii) securities of the Company convertible into or exchangeable for such
securities; and (iii) options, rights and warrants issued by the Company to
acquire such securities.
7.2 Notices. In order to be effective, any notice or other
-------
communication required or permitted hereunder shall, unless otherwise stated
herein, be in writing and shall be transmitted by messenger, delivery service,
mail, or telecopy to the Company and Parent at their principal executive offices
and if to the Investor:
Aldrich, Eastman & Waltch, L.P.
225 Franklin Street
Boston, Massachusetts 02110
Telecopier: (617) 261-955
Attention: Thomas H. Nolan, Jr.
with copies to:
Heller Ehrman White & McAuliffe
333 Bush Street
San Francisco, California 94104
Telecopier: (415) 772-6268
Attention: Brian Smith
or at such other address as a party shall designate in a written notice to the
other parties hereto given in accordance with this Section. All notices and
other communications shall be effective (i) if sent by messenger or delivery
service, when delivered, (ii) if sent by mail, two days after having been sent
by certified mail, with return receipt requested or (iii) if sent by telecopier,
when sent. In order to be effective, any notice transmitted to an address
outside the United States of America by any means other than telecopier shall at
the time of transmittal be duplicated by counterpart telecopier notice.
7.3 Costs of Enforcement. If any party to this Agreement seeks to
--------------------
enforce its rights under this Agreement by legal proceedings or otherwise, the
non-prevailing party shall pay all reasonable costs and expenses incurred by the
prevailing party, including, without limitation, all reasonable attorneys' fees.
7.4 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns, except that none of the Company, Investor or any Stockholder may assign
or transfer their respective rights hereunder or any interest herein or delegate
their duties hereunder without the prior written consent of the other parties
hereto.
-10-
<PAGE>
7.5 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Maryland applicable to contracts
entered into and to be performed wholly within Maryland by Maryland residents.
7.6 Execution in Counterparts. This 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, when taken together, shall constitute but one and the same agreement.
7.7 Incorporation of Exhibits and Schedules by Reference. All
----------------------------------------------------
Exhibits and Schedules to this Agreement are incorporated herein by this
reference.
7.8 Entire Agreement; Amendment. This Agreement (including the
---------------------------
Exhibits and Schedules) constitutes the entire agreement between the Company,
Investor and the Stockholders with respect to the subject matter hereof,
superseding all prior or contemporaneous negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be modified or amended or any provision hereof may be waived only
with the written consent of the Company, the Investor and the Stockholders
holding a majority of each outstanding class of Common and Preferred Stock.
7.9 Binding Effect. This Agreement shall be binding upon and shall
--------------
inure to the benefit of the executors, administrators, legal representatives,
heirs, successors and assigns of the parties to this Agreement, unless expressly
provided otherwise in this Agreement.
7.10 Further Assurances. Each party hereto shall do and perform or
------------------
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as any other party hereto reasonably may request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
[TEXT CONTINUED ON NEXT PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, this
Agreement to become effective as of the date first above written.
HEALTH SCIENCE PROPERTIES, INC.,
A Maryland Corporation
/s/ Joel S. Marcus
By: ______________________________
Name:
Title:
HEALTH SCIENCE PROPERTIES HOLDING CORPORATION,
a Maryland Corporation
/s/ Joel S. Marcus
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE>
[SIGNATURES CONTINUED]
AEW PARTNERS II, L.P.,
a Delaware limited partnership
By: AEW II, L.P.,
Its General Partner
By: PARTNERS II HOLDINGS, L.P.,
Its General Partner
By: AEW II CORPORATION,
a Massachusetts corporation
Its General Partner
/s/ Patrick J. Sullivan
By: ____________________________________
Patrick J. Sullivan
Its: Vice President
-13-
<PAGE>
Exhibit 10.27
EXECUTION VERSION
SERIES V CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
AMONG
AEW PARTNERS II, L.P.,
HEALTH SCIENCE PROPERTIES, INC.,
AND
HEALTH SCIENCE PROPERTIES HOLDING CORPORATION
SEPTEMBER 9, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS................................................................. 1
1. SALE AND PURCHASE OF SHARES............................................ 6
1.1 Sale and Purchase of Shares....................................... 6
1.2 Payment and Delivery of Shares.................................... 6
2. CLOSING................................................................ 6
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PARENT........... 7
3.1 Corporate Existence and Power..................................... 7
3.2 Corporate Authorization........................................... 7
3.3 Governmental Authorization........................................ 8
3.4 Non-Contravention................................................. 8
3.5 Capitalization.................................................... 9
3.6 Financial Statements.............................................. 9
3.7 No Material Adverse Matter........................................ 10
3.8 Litigation........................................................ 10
3.9 Compliance with Laws.............................................. 10
3.10 ERISA Plans....................................................... 11
3.11 Property Related Matters.......................................... 11
3.12 Environmental Matters............................................. 15
3.13 Contracts With Insiders........................................... 16
3.14 Tax Matters....................................................... 16
3.15 Investment Company................................................ 16
3.16 Qualification as a Real Estate Investment Trust and Real
Estate Operating Company.......................................... 16
3.17 Subsidiaries...................................................... 17
3.18 Registration Rights............................................... 17
3.19 Brokers........................................................... 17
3.20 Board Resolution.................................................. 17
3.21 HSR............................................................... 17
4. REPRESENTATIONS AND WARRANTIES OF AEW.................................. 18
4.1 Existence and Power............................................... 18
4.2 Authorization..................................................... 18
4.3 Governmental Authorization........................................ 18
4.4 Non-Contravention................................................. 18
4.5 Purchase for Investment; Legend................................... 19
4.6 Brokers........................................................... 20
4.7 Source of Funds................................................... 21
4.8 REIT Ownership.................................................... 21
5. COVENANTS OF THE COMPANY AND THE PARENT................................ 21
5.1 Qualification as a REIT and a Real Estate Operating
Company........................................................... 21
5.2 Other Offerings................................................... 22
5.3 Use of Proceeds................................................... 22
5.4 Reporting Requirements............................................ 22
5.5 Post-Closing Share Transfer Covenant.............................. 24
5.6 Series V Directors Compensation................................... 24
</TABLE>
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<PAGE>
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.7 Payments to AEW................................................... 25
5.8 Public Financing.................................................. 25
5.9 Stock of the Subsidiary........................................... 25
5.10 Series V Preferred Stock.......................................... 25
5.11 Directors......................................................... 25
6. COVENANTS OF AEW AND THE COMPANY....................................... 26
6.1 Public Announcements.............................................. 26
6.2 Brokers or Finders................................................ 26
7. SECURITIES MATTERS..................................................... 26
8. REGISTRATION RIGHTS.................................................... 27
8.1 Demand Registration............................................... 27
8.2 Piggyback Registration............................................ 30
8.3 Expenses of Registration.......................................... 32
8.4 Availability of Rule 144.......................................... 32
8.5 Registration Procedures........................................... 32
8.6 Information Furnished by Holder................................... 33
8.7 Indemnification................................................... 33
8.8 Transfer of Rights................................................ 35
8.9 Market Stand-off.................................................. 35
9. MISCELLANEOUS.......................................................... 35
9.1 Notices........................................................... 35
9.2 Amendments; No Waivers............................................ 36
9.3 Fees and Expenses................................................. 37
9.4 Successors and Assigns............................................ 37
9.5 Governing Law..................................................... 37
9.6 Counterparts; Effectiveness....................................... 37
9.7 Severability...................................................... 37
9.8 Specific Performance.............................................. 38
9.9 Survival of Representations and Warranties........................ 38
9.10 Bring-Down Certificate............................................ 38
9.11 Costs and Expenses of Litigation.................................. 38
9.12 Entire Agreement.................................................. 38
</TABLE>
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<PAGE>
THIS SERIES V CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is made as of the 9th day of September, 1996, among HEALTH SCIENCE
PROPERTIES, INC., a Maryland corporation (the "Company"), HEALTH SCIENCE
PROPERTIES HOLDING CORPORATION, a Maryland corporation (the "Parent"), and AEW
PARTNERS II, L.P., a Delaware limited partnership ("AEW").
RECITAL
Upon the terms and subject to the conditions of this Agreement, (i)
AEW desires to purchase from the Company, and the Company desires to sell to
AEW, 27,500 newly issued shares of the Company's Series V Convertible Preferred
Stock and (ii) the Company desires to grant to AEW an option (which may only be
exercised upon the Company's request) to purchase from the Company up to an
additional 22,500 shares of the Company's Series V Convertible Preferred Stock.
THE PARTIES AGREE AS FOLLOWS:
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Shares" shall mean the 11,500 shares of Series V Preferred
-----------------
Stock to be acquired by AEW pursuant to Section 1.1(a) after the Initial
Closing.
"Affiliate" shall mean with respect to any person, any other person
---------
controlling, controlled by or under direct or indirect common control with such
person (for the purposes of this definition "control," when used with respect to
any specified person, shall mean the power to direct the management and policies
of such person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing). Notwithstanding
the foregoing, a person shall not be deemed an Affiliate of the Company solely
by reason of its ownership of the Shares.
"Articles of Amendment" shall mean the Articles of Amendment and
---------------------
Restatement of the Company which, among other things, designates 50,000 shares
of Preferred Stock as Series V Convertible Preferred Stock, in the form attached
as Exhibit 3.2 hereto.
-----------
"Board of Directors" shall mean the Board of Directors of the Company
------------------
or any duly authorized committee thereof.
"Business Day" shall mean any day, Monday through Friday, on which
------------
the NYSE is open for regular trading.
<PAGE>
"Closing Memorandum" shall mean the memorandum setting forth the
------------------
documents to be delivered by the parties at the Initial Closing in the form
attached as Exhibit 1.2 hereto.
-----------
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Common Stock" shall mean the Company's common stock, par value
------------
$.01 per share.
"Disclosure Schedule" shall mean the Disclosure Schedule dated the
-------------------
same date as this Agreement furnished by the Company to AEW and attached as
Exhibit 3 hereto.
- ---------
"Environmental Claim" shall mean any claim, action, cause of action or
-------------------
notice by any person or entity alleging (i) any liability or potential liability
arising out of, based on or resulting from the presence or release into the
environment of any Materials of Environmental Concern, (ii) responsibility or
potential responsibility for the clean-up, removal, treatment or remediation of
any Materials of Environmental Concern or (iii) a violation of Environmental
Laws.
"Encumbrances" shall mean liens, encumbrances, security interests,
------------
charges, adverse claims and other exceptions to title.
"Environmental Laws" shall mean all Federal, state, and local laws and
------------------
regulations applicable to the Company and relating to pollution or protection of
human health or the environment, including, without limitation, laws and
regulations relating to emissions, discharges, releases of Materials of
Environmental Concern, or otherwise relating to the use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended, and the rules and regulations adopted under that statute.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations adopted under that statute.
"GAAP" shall mean United States generally accepted accounting
----
principles in effect as of the date of this Agreement unless otherwise provided
herein.
"Holder" shall mean any holder of outstanding Registrable Securities
------
that have not been sold to the public, but only if such holder is AEW or an
assignee or transferee of registration rights as permitted by Section 8.8.
"Initial Closing" shall mean the first closing contemplated
---------------
by Section 2.
-2-
<PAGE>
"Initiating Holders" shall mean holders of Registrable Securities that
------------------
have not been sold to the public who in the aggregate hold at least 50% of the
number of Registrable Securities that have been issued.
"Initial Shares" shall mean the 16,000 shares of the Series V
--------------
Preferred Stock to be acquired by AEW at the Initial Closing.
"Investment Rental Property" shall mean (a) real property owned by the
--------------------------
Company or the Subsidiary that (i) will not be leased to the Company, the
Parent, the Subsidiary or any Affiliate of the Company, the Parent or the
Subsidiary except for the sole purpose of maintaining, managing or supervising
the operation of the real property and (ii) will be held solely for rental or
investment purposes and (b) assets incidental to the ownership of real property,
including cash, prepaid taxes or insurance, rental receivables and the like.
"Knowledge of the Company" or "known to the Company" shall mean
------------------------ --------------------
actually known by the executive officers of the Company or should reasonably be
known by the executive officers of the Company, after diligent inquiry or
investigation.
"Leases" shall mean the real and material personal property leases
------
relating to the Properties.
"Material Adverse Matter" or "Material Adverse Effect" shall mean one
----------------------- -----------------------
or more facts or events which individually or in the aggregate represent a
material adverse effect on, or a material adverse change in, the consolidated
assets, earnings, results of operation or financial condition of the Company;
provided that for purposes of this Agreement any event or events which
individually or in the aggregate would impose a liability of, impair the
financial condition of the Company by, or require an amount to cure of, more
than $500,000 shall be conclusively deemed to be material.
"Materials of Environmental Concern" shall mean pollutants,
----------------------------------
contaminants, hazardous waste, hazardous substances, toxic substances, petroleum
and petroleum products as defined in the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and the regulations adopted by the
United States Environmental Protection Agency under that statute or in any other
environmental law.
"Montgomery" shall mean Montgomery Securities.
----------
"NYSE shall mean the New York Stock Exchange, Inc.
----
"Offering Memorandum" shall mean the Company's Confidential Offering
-------------------
Memorandum dated September 11, 1995.
"Option" shall mean the right granted to AEW pursuant to Section
------
1.1(b) to acquire the Option Shares.
-3-
<PAGE>
"Option Plan" shall mean the Health Science Properties, Inc. Amended
-----------
and Restated 1996 Stock Option Plan or any other employee stock option plan duly
adopted by the Board of Directors with the two Series V Directors voting for
adoption.
"Option Shares" shall mean 22,500 shares of Series V Preferred Stock
-------------
issuable pursuant to Section 1.1(b).
"Option Term" shall mean the period commencing on the date hereof and
-----------
ending on the earlier of (a) 18 months after the Initial Closing and (b) the
Company's filing of a registration statement with the SEC for a Qualified IPO.
"Outstanding Shares" on any date shall mean the sum of (i) all then
------------------
outstanding shares of Common Stock plus (ii) the shares of Common Stock that
would be issued upon the conversion of all then outstanding Shares plus (iii)
the shares of Common Stock that would be issued upon exercise of then
outstanding options plus (iv) the shares of Common Stock that would be issued
upon conversion of all other then outstanding convertible securities.
"Permits" shall mean licenses, permits, orders and approvals of any
-------
Federal, state or local regulatory body.
"Permitted Exceptions" shall mean, with respect to the Properties, the
--------------------
exceptions to title and survey matters approved by AEW and any immaterial
Encumbrances.
"Properties" shall mean the real property including all improvements
----------
and fixtures thereon set forth in Exhibit 3.11 hereto.
------------
"Purchase Price" shall mean $1,000 per Share.
--------------
"Qualified IPO" shall mean an initial public offering of the Common
-------------
Stock with final terms and price which satisfy the conversion and redemption
conditions set forth in Article V, Section F(5) of the Articles of Amendment.
"Realty Capital" shall mean Realty Capital International Corp.
--------------
"REIT" shall mean a real estate investment trust, as defined in
----
Section 856 of the Code.
"Registrable Securities" shall mean (i) the shares of Common Stock
----------------------
issuable upon conversion of the Shares and (ii) any shares of Common Stock
issued pursuant to stock splits, stock dividends and similar distributions with
respect to the Shares, in each case only if such Shares are held by AEW or an
assignee or transferee of registration rights as permitted by Section 8.8;
provided that if any such security is freely tradeable by the holder thereof
under Rule 144(k) under the Securities Act (or any
-4-
<PAGE>
successor provision), it shall no longer be deemed a Registrable Security.
"Registration Expenses" shall mean all reasonable out-of-pocket
---------------------
expenses (other than Selling Expenses) actually incurred in complying with
Section 8.1 or Section 8.2 of this Agreement, including, without limitation, all
required Federal and state registration, qualification and filing fees, printing
expenses, fees and disbursements of counsel for the Company and reasonable fees
and disbursements of one counsel for all of the selling shareholders.
"Rent Roll" shall mean collectively the schedule of Leases, rental and
---------
other pertinent data with respect to the Leases relating to any Property
provided to AEW by the Company and attached hereto as Exhibit 3.11.
"SDAT" shall mean the State Department of Assessments and Taxation
----
of Maryland.
"SEC" shall mean the United States Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and the rules and regulations adopted under that statute.
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions and any transfer taxes resulting from sales by Holders applicable to
the sale of Registrable Securities pursuant to Section 8 of this Agreement.
"Series V Directors" shall mean the two directors nominated by the
------------------
holders of the Shares in accordance with the Articles of Amendment.
"Series V Preferred Stock" shall mean the Company's Series V Preferred
-----------------------
Stock, par value $.01 per share.
"Shares" shall mean Shares and the Option Shares.
------
"Subsidiary" shall mean HSP-QRS Corp., a Maryland corporation.
----------
"Substitute Securities" shall mean equity securities of the Company
---------------------
issued to other investors in accordance with Section 1.1(b) if AEW does not
exercise all or any portion of the Option.
-5-
<PAGE>
1. SALE AND PURCHASE OF SHARES
1.1 Sale and Purchase of Shares.
---------------------------
(a) Upon the terms and subject to the conditions set forth in this
Agreement, (i) upon execution and delivery of this Agreement, AEW shall purchase
and accept, and the Company shall issue, sell and deliver to AEW, the Initial
Shares, and (ii) on or before December 31, 1996, AEW shall purchase and accept,
and the Company shall issue, sell and deliver to AEW, that number of Additional
Shares from time to time as necessary in the Company's sole discretion to fund
property acquisitions and debt repayment and support the Company's operations.
(b) Upon the terms and subject to the conditions set forth in this
Agreement, during the Option Term, AEW shall purchase and accept, and the
Company shall issue, sell and deliver to AEW, that number of Option Shares
requested from time to time by AEW; provided that the Company shall only be
obligated to sell to AEW (i) upon each such request, that number of Option
Shares deemed necessary by the Company in its sole discretion to fund property
acquisitions and (ii) up to 22,500 Option Shares in the aggregate. Subject to
the foregoing, the exercise of the Option shall be completely in the discretion
of AEW; provided that AEW must exercise the Option within 30 Business Days after
receipt of a request from the Company. If AEW elects not to exercise all or any
portion of the Option, following any request by the Company, upon the terms and
subject to the conditions of this Agreement, the Company may within twelve
months after AEW elects not to exercise the Option issue to any third party
Substitute Securities having an aggregate purchase price of up to (a) $22.5
million less (b) any amounts received by the Company upon exercise of the
Option.
1.2 Payment and Delivery of Shares. Upon the terms and subject to
------------------------------
the conditions set forth in this Agreement, at each closing contemplated in this
Agreement, (a) the Company shall deliver to AEW one or more share certificates,
as AEW may request in writing to the Company at least three Business Days prior
to such closing, registered in the name of AEW, representing the Shares being
acquired at such closing, (b) AEW shall deliver to the Company the aggregate
Purchase Price of the Shares being acquired by wire transfer of immediately
available funds in accordance with the Company's instructions, given to AEW in
writing at least three Business Days prior to the closing with respect to such
Shares and (c) the parties shall deliver the other certificates and documents
set forth in the Closing Memorandum in the case of the Initial Closing and
thereafter such certificates and documents as reasonably requested.
2. CLOSING
Each closing of the sale and purchase of the Shares contemplated
hereby shall take place at the offices of Heller Ehrman White & McAuliffe, 601
South Figueroa, Los Angeles,
-6-
<PAGE>
California on such dates and at such times as shall be mutually agreed upon by
the parties; provided, however, that the Initial Closing shall take place on the
date hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PARENT
The Company and the Parent jointly and severally represent and warrant
to AEW that, except as disclosed by the Company to AEW in the Disclosure
Schedule or the Rent Roll:
3.1 Corporate Existence and Power. Each of the Company, the
-----------------------------
Subsidiary and the Parent is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Maryland and is in good
standing with SDAT, and has all requisite corporate power to carry on its
business as now conducted. The Company has heretofore delivered or made
available to AEW true and complete copies of the Charter and Bylaws of the
Company, the Parent and Subsidiary as in effect on the date hereof and the
minute books of the Company, the Parent and Subsidiary. The minute books of the
Company, the Parent and Subsidiary contain true and complete records of all
meetings and consents in lieu of meeting of the respective Boards of Directors
of the Company, the Parent and Subsidiary, and of the stockholders of the
Company, the Parent and Subsidiary from October 27, 1994 (the date of inception
of the Company) until the date of this Agreement.
3.2 Corporate Authorization. Each of the Company, the Subsidiary and
-----------------------
the Parent has all requisite corporate power and all requisite corporate
authority, to execute and deliver this Agreement, and to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by the Company, the Subsidiary and the
Parent of this Agreement and the consummation by the Company, the Subsidiary and
the Parent of the transactions contemplated hereby have been duly authorized and
approved by the respective boards of directors of the Company, the Subsidiary
and the Parent, as well as by the Parent as the sole holder of Common Stock of
the Company, and no further corporate action on the part of the Company, the
Subsidiary or the Parent is necessary to authorize the execution, delivery and
performance by the Company, the Subsidiary or the Parent of this Agreement or
the consummation by the Company, the Subsidiary or the Parent of the
transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company,
the Subsidiary and the Parent and, assuming the due execution and delivery by
AEW, will constitute a valid and binding obligation of the Company, the
Subsidiary and the Parent enforceable against the Company, the Subsidiary and
the Parent in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, equity of redemption, moratorium or similar laws now
or hereafter in effect, affecting the enforcement of creditors' rights
generally, general principles of equity (regardless of whether enforcement is
sought in a
-7-
<PAGE>
proceeding at law or in equity) and to the limitations imposed by applicable law
or public policy on the enforceability of the indemnification and contribution
provisions of Section 8. The Shares will, when issued and delivered in
accordance with the terms hereof, be validly issued, fully paid and
nonassessable and free of preemptive rights and shall have the rights,
preferences and privileges set forth in the Articles of Amendment.
3.3 Governmental Authorization. The execution, delivery and
--------------------------
performance by the Company, the Subsidiary and the Parent of this Agreement and
the consummation by the Company, the Subsidiary and the Parent of the
transactions contemplated hereby require no action by or in respect of, or
filing by the Company, the Subsidiary or the Parent with, any United States
Federal or state governmental body, agency, official or authority other than:
(i) compliance with any applicable U.S. Federal or state securities laws; (ii)
filing of the Articles of Amendment with the SDAT; (iii) those that become
applicable solely as a result of the specific regulatory status of AEW; and (iv)
those the failure of which to make or obtain would not have a Material Adverse
Effect.
3.4 Non-Contravention. The execution, delivery and performance by
-----------------
the Company, the Subsidiary and the Parent of this Agreement and the
consummation by the Company, the Subsidiary and the Parent of the transactions
contemplated hereby do not (i) contravene or conflict with the Charter or Bylaws
of the Company, the Parent or Subsidiary; (ii) violate, conflict with or result
in the breach of any of the material terms of, otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time or both constitute) a material default (by way of substitution, novation
or otherwise) under, any material agreement to which the Company, the Parent or
Subsidiary is a party or by which any of their assets or Properties may be bound
(other than those for which consents have been obtained on or prior to the date
hereof); (iii) violate any order, judgment, injunction, award or decree of any
court, arbitrator or governmental or regulatory body against, or binding upon,
the Parent, Subsidiary, or the Company or upon their assets or Properties; (iv)
violate in any material respect any statute, law or regulation of the United
States or any of the several states thereof as such statute, law or regulation
relates to the Parent, Subsidiary, or the Company or to their assets or
Properties (subject to compliance with any laws, rules and regulation, and the
making of filings, as set forth in Section 3.3 and, with respect to Federal
securities laws, the continuing accuracy of AEW's representations and warranties
as set forth in Section 4); or (v) result in the creation or imposition of any
lien, encumbrance or security interest on any material assets or Properties of
the Company, the Parent or Subsidiary, except for violations, breaches,
modifications, termination rights, conflicts, defaults or liens, encumbrances or
security interests which, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect.
-8-
<PAGE>
3.5 Capitalization. As of the date hereof, the authorized shares of
--------------
stock of the Company consist of 65,000 shares of Common Stock, 70,000 shares of
Excess Stock, par value $.01 per share, and 65,000 shares of Preferred Stock,
par value $.01 per share (the "Preferred Stock"), consisting of (i) 14,625
shares of undesignated Preferred Stock, (ii) 125 shares of Series T Preferred
Stock, (iii) 250 shares of Series U Preferred Stock and (iv) 50,000 shares of
Series V Preferred Stock. As of the date hereof, there are outstanding (a)
1,000 shares of Common Stock, (b) 12 shares of Series T Preferred Stock and (c)
220 shares of Series U Preferred Stock. All outstanding shares of Common Stock,
Series U and Series T Preferred Stock have been duly authorized and validly
issued and are fully paid and nonassessable and free of preemptive rights.
Except as set forth in or contemplated by this Agreement (including,
without limitation, this Section 3.5), as of the date hereof there are no
outstanding (i) shares of stock or other securities of the Company, (ii)
securities of the Company convertible into or exchangeable for shares of stock
or other securities of the Company or (iii) options, rights, subscriptions,
warrants, calls, unsatisfied preemptive rights, or agreements to acquire or
otherwise receive from the Company, and no obligation, commitment or arrangement
of the Company to issue, transfer or sell, any shares of stock or other
securities of, or securities convertible into or exchangeable for shares of
stock or other securities of the Company, in each case other than options issued
or reserved for issuance under the Option Plans and shares of Common Stock
issuable upon exercise thereof.
As of the date hereof, the authorized shares of stock of Subsidiary
consist of 1,000 shares of common stock, 1,000 of which will be outstanding
immediately following the Initial Closing. Immediately following the Initial
Closing, all outstanding shares of Subsidiary common stock will be duly
authorized and validly issued and will be fully paid and nonassessable, free of
preemptive rights and owned of record and beneficially by the Company.
Immediately following the Initial Closing, there will be no other outstanding or
authorized (i) securities of Subsidiary, (ii) options, rights, subscriptions,
warrants, calls, unsatisfied preemptive rights or agreements to acquire or
otherwise receive from Subsidiary, and no obligation, commitment or arrangement
of Subsidiary to issue, transfer or sell, any shares of stock or other
securities of, or securities convertible into or exchangeable for shares of
stock or other securities of Subsidiary.
3.6 Financial Statements. The audited consolidated balance sheets of
--------------------
the Parent as at December 31, 1995 and 1994 and the related audited consolidated
statements of operations, changes in stockholders' equity and cash flows for the
fiscal years then ended, together with the notes thereto certified by Ernst &
Young LLP with respect to 1995 and Kenneth Leventhal & Co. with respect to 1994,
independent certified public accountants, attached as Exhibit 3.6A hereto,
------------
fairly present in all material respects, in
-9-
<PAGE>
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods covered thereby, the consolidated financial
position of the Parent as of the dates thereof and its consolidated results of
operations and cash flows for the periods then ended. The unaudited balance
sheet of the Company as at June 30, 1996 and related unaudited statement of
operations for the quarter then ended, attached as Exhibit 3.6B hereto, fairly
------------
present in all material respects the consolidated financial condition and
consolidated results of operations of the Company as of and for the period then
ended (subject to year-end adjustments consisting only of normal recurring
accruals and the absence of notes required by GAAP) on an accrual basis and
consistent with the principles applied during the fiscal years ended December
31, 1995 and 1994. The unaudited balance sheet of the Company as at June 30,
1996 sets forth all liabilities of the Company required by GAAP to be disclosed
thereon (other than liabilities that would be set forth in notes thereto
prepared in accordance with GAAP), and since June 30, 1996, the Company and
Subsidiary have not incurred any material liabilities that would be required to
be set forth thereon except (i) in the ordinary course of operations; (ii)
pursuant to the Amended and Restated Loan Agreement with Paine Webber
Incorporated, as amended, and (iii) in connection with the acquisition of real
property. All liabilities incurred since June 30, 1996 in connection with the
acquisition of real property are identified in the Disclosure Schedule.
3.7 No Material Adverse Matter. Since December 31, 1995, the Company
--------------------------
has conducted its business in the ordinary course and there has not been any
material adverse change in the financial condition or results of operations of
the Company.
3.8 Litigation. As of the date hereof, there are no outstanding
----------
orders, judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal against or involving the Company, the
Parent, or Subsidiary. As of the date hereof, there are no material actions,
suits or claims or legal, administrative or arbitral proceedings of which the
Parent, the Company, or Subsidiary has received actual notice, or, to the
knowledge of the Company, any material investigations pending or threatened
against or involving the Parent, the Company, or Subsidiary, or any of their
assets, Properties or business.
3.9 Compliance with Laws. Neither the Parent, the Company, nor
--------------------
Subsidiary is in material violation of, any material Federal, state or local
law, statute, ordinance or regulation or any other requirement of any Federal,
state or local governmental or regulatory body of competent jurisdiction
applicable to the Parent, Subsidiary or the Company, any of its assets,
Properties, or business. To the knowledge of the Company, the Company and
Subsidiary have all material Permits required as of the date hereof for the
conduct of the business of the Company as now conducted; and no proceeding is
pending of which the Company has received notice or, to the knowledge of the
Company, is
-10-
<PAGE>
threatened, to revoke or limit any Permit which revocations or limitations would
constitute, individually or in the aggregate, a Material Adverse Matter.
3.10 ERISA Plans. All Company employee benefit plans are in
-----------
compliance in all material respects with all applicable provisions of ERISA, and
the Company is not subject to any liabilities based on past non-compliance. The
Company has made or properly accounted for all contributions under each employee
benefit plan that have accrued for all periods through the date hereof. The
Company, Parent and Subsidiary have never been obligated to contribute to a
multiemployer plan as defined in Section 3(37) of ERISA. Except for certain
unfunded non-qualified arrangements for the benefit of certain executives of the
Company which arrangements have been made available to AEW prior to the date
hereof and are identified in the Disclosure Schedule, (i) the Company has not
sponsored, maintained or contributed to any employee pension benefit plan as
defined in Section 3(2) of ERISA and (ii) the Company does not maintain any
employee welfare benefit plans as defined in Section 3(1) of ERISA providing for
continued life or health benefits or coverage for any employee (or beneficiary
thereof) after the employee's termination of employment, except as required by
applicable law. Neither the Parent nor any other member of a controlled group
(as defined in Section 4001(a)(14) of ERISA) of which the Parent is or has been
a member is or has been a contributing employer to any employee pension benefit
plan that is or has been subject to Title IV of ERISA.
3.11 Property Related Matters.
-----------------------
(a) The Company (or, in the case of the property located at 1413
Research Boulevard, Rockville, Maryland, the Subsidiary) has good and marketable
title to each Property, free and clear of all Encumbrances, except for (i)
Encumbrances contained in (x) the Leases, or (y) contracts that require payments
of $50,000 or less, or contracts that require payment in excess of $50,000
delivered to AEW, (ii) all matters disclosed in the preliminary title reports
disclosed to AEW, (iii) all zoning and land use laws and all matters that an
accurate survey or inspection of the Property would disclose and (iv) Permitted
Exceptions.
(b) A list of the Leases is set forth in the Rent Roll. Except for
the Leases set forth in the Rent Roll and matters set forth in the preliminary
title reports delivered to AEW, as of the date of this Agreement, to the
knowledge of the Company, there are no other leases, licenses or other
agreements pursuant to which a party has or would have the right of occupancy of
a Property which would become an obligation of the Company (or, in the case of
the property located at 1413 Research Boulevard, Rockville, Maryland, the
Subsidiary) after the date hereof.
-11-
<PAGE>
Except as disclosed on the Rent Roll, with respect to each Lease:
(i) the Lease has been duly and validly executed and delivered by
the Company (or, in the case of the property located at 1413 Research Boulevard,
Rockville, Maryland, the Subsidiary) or, to its knowledge, its predecessor in
interest, as lessor, and, to the knowledge of the Company, each tenant;
(ii) the Lease is in full force and effect, and constitutes the
valid and binding legal obligation of the Company (or, in the case of the
property located at 1413 Research Boulevard, Rockville, Maryland, the
Subsidiary) and, to the knowledge of the Company, the respective tenant,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, equity of redemption, moratorium or
similar laws now or hereafter in effect affecting the enforcement of creditors'
rights generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity);
(iii) to the knowledge of the Company, there has been no
assignment or subletting of the tenant's interest under the Lease or release of
any guarantor of the tenant's obligations;
(iv) with respect to each Lease, the copy of such Lease delivered
by the Company to AEW is true and accurate and is unmodified except as shown
therein, and there are no other enforceable agreements, oral or written, between
the parties to such Lease that in any manner vary the material obligations or
rights of either party;
(v) the Company has not received written notice that there is a
material default by the Company (or, in the case of the property located at 1413
Research Boulevard, Rockville, Maryland, the Subsidiary) under the Lease (or
event that with the giving of notice or the passage of time or both would
constitute a material default on the part of the Company (or, in the case of the
property located at 1413 Research Boulevard, Rockville, Maryland, the
Subsidiary)), the Company (or, in the case of the property located at 1413
Research Boulevard, Rockville, Maryland, the Subsidiary) has not received or
given written notice of any material default by the tenant under the Lease, and
to the knowledge of the Company there is no event or condition that is, or would
with notice or passage of time or both, become a material default by the tenant
under such Lease;
(vi) all contributions and obligations of tenants in respect of
common area maintenance and/or any promotional association billed and presently
due and payable by such tenants are not more than 30 days past due;
(vii) all rent and additional rent presently due under the Lease
are not more than 30 days past due;
-12-
<PAGE>
(viii) the Company (or, in the case of the property located at
1413 Research Boulevard, Rockville, Maryland, the Subsidiary) and, to the
knowledge of the Company, its predecessors in title have not granted to any
tenants a currently enforceable right of refusal to purchase, purchase option
right or other right to purchase all or any portion of any Property;
(ix) any security deposit held by or for the benefit of the
Company (or, in the case of the property located at 1413 Research Boulevard,
Rockville, Maryland, the Subsidiary) under the Lease and any brokerage
commissions payable on or after the date hereof in connection with the Lease or
any extension thereof are as set forth on the Rent Roll or the Disclosure
Schedule, and
(x) no rents under the Lease have been paid for more than 30 days
in advance.
(c) Except as disclosed in the Rent Roll or otherwise disclosed in
writing to AEW, the Company has not received any written notice regarding any
material dispute between the Company and any current tenant which remains
unresolved, and, to the Company's knowledge, there is no reasonable contractual
basis therefor.
(d) To the knowledge of the Company, each Property is in compliance in
all material respects with all applicable laws, ordinances, rules and
regulations (including without limitation those relating to zoning) except where
the failure to so comply would not individually or in the aggregate have a
Material Adverse Effect. The Company has received no written notice that any
government agency considers the construction of any Property or its operation or
uses to not materially comply with any law, ordinance, regulation or order or
that any investigation has been commenced and is continuing or is contemplated
respecting any such possible failure of compliance. The Company has not
received from any insurance company or Board of Fire Underwriters any written
notice of any material defect or inadequacy in connection with any Property or
its operation.
(e) The Company has not received any written notice relating to a
material default by the Company or any other party under any material agreement
affecting a Property, and, to the knowledge of the Company, no event exists
which, with the passage of time or the giving of notice or both, will become a
material default hereunder on the part of the Company or any other party
thereto. The Company is in compliance with the material terms and provisions of
the covenants, conditions, restrictions, rights-of-way or easements affecting
each Property, except where the failure to so comply would not have a Material
Adverse Effect.
(f) The Company has not received any written notice regarding any
currently pending or proposed eminent domain or similar proceeding or private
purchase in lieu of such a
-13-
<PAGE>
proceeding, which would adversely affect any Property in any material way
whatsoever, and to the Company's knowledge, no such proceeding or purchase in
lieu thereof is planned.
(g) To the knowledge of the Company, all material building permits,
certificates of occupancy, business licenses and all other material notices,
licenses, permits, certificates and authority required to be obtained by the
Company (or, in the case of the property located at 1413 Research Boulevard,
Rockville, Maryland, the Subsidiary) (as opposed to by a tenant) in connection
with the construction, use or occupancy of each Property and customarily issued
by applicable governmental authorities on projects in the county in which the
Property is located and on projects of a level of completion similar to that of
the Property have been obtained and are in full force and effect and in good
standing. To the knowledge of the Company, each Property is presently zoned for
the buildings, business and parking included in the Property. To the knowledge
of the Company, no conditions precedent or subsequent to any development
agreement, variance, conditional use permit or similar waiver of applicable
zoning laws relating to the construction of any of the Property remain
unperformed. The Company has received no written notice regarding any currently
pending or proposed material change in the zoning classification of a Property
and, to the Company's knowledge, no such change is pending or threatened. The
Company has not entered into any agreement with a governmental agency with
respect to any Property. To the knowledge of the Company, no rights with
respect to any other property, except as may be conveyed with the Property, are
required to provide access to any Property, to meet parking requirements or to
provide structural support to the Property.
(h) All real and personal property taxes currently owing by the
Company (or, in the case of the property located at 1413 Research Boulevard,
Rockville, Maryland, the Subsidiary) relating to each Property, except those for
the current tax year which are not yet delinquent (i.e., which are still payable
without interest or penalty), have been paid in full. The Company has not
received written notice of and, to the Company's knowledge, there is not (i) any
pending, proposed or threatened increase in the assessed valuation of any
Property (except for increases resulting from construction at the Property,
increases due to a change of ownership and automatic periodic increases in real
property taxes permitted under applicable law), or (ii) except as disclosed in
the preliminary title reports, any assessment that has or may become a lien on
the Property.
(i) Each contract that requires aggregate annual payments by the
Company or the Subsidiary in excess of $50,000 relating to any of the Properties
is listed on the Disclosure Schedule.
(j) To the knowledge of the Company, there are no material physical or
structural defects in the improvements on any Property and the improvements and
tangible personal property
-14-
<PAGE>
(including without limitation plumbing equipment, HVAC, electric wiring and
fixtures, gas distribution system, and water and sewage systems presently on or
in any Property, but excluding those portions which are required to be
maintained by tenants), are in good working order and condition, normal wear and
tear excepted, except where the failure to be in such working order or condition
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
(k) Except for bills and claims the Company is currently disputing
that in the aggregate do not exceed $50,000, all bills and claims due and
payable for labor performed and materials furnished to or for the benefit of any
Property at the request of the Company or, to the Company's knowledge any other
party, are not more than 30 days past due, and there are no material mechanic's,
or materialmen's liens (whether or not perfected) on or affecting a Property,
other than the bills, claims and unperfected mechanics liens in favor of the
general contractor and any subcontractors thereof under the works of tenant
improvement commenced on or after June 30, 1996.
3.12 Environmental Matters. With respect to the Properties and
---------------------
operations of the Company's business:
(a) Except as set forth in the Disclosure Schedule and in the
environmental reports identified on the Disclosure Schedule, copies of which
have been delivered to AEW, to the Company's knowledge: (i) neither the Company,
the Subsidiary nor any previous owner, tenant, occupant or user of any Property,
nor any other person, has engaged in or permitted any operations or activities
upon, or any use or occupancy of the Property, or any portion thereof, for the
purpose of or in any way involving the handling, manufacture, treatment,
storage, use, generation, release, discharge, refining, dumping or disposal of
any Materials of Environmental Concern (whether legal or illegal, accidental or
intentional) on, under, in or about the Property, or transported any Materials
of Environmental Concern to, from or across the Property, except in all cases in
material compliance with Environmental Laws; (ii) no Materials of Environmental
Concern are presently deposited, stored, or otherwise located on, under, in or
about any Property, except to the extent that such presence would not require
reporting to any Environmental authority and is otherwise in material compliance
with Environmental Laws; (iii) no Materials of Environmental Concern have
migrated from any Property upon or beneath other properties; (iv) no Materials
of Environmental Concern have migrated or threaten to migrate from other
properties upon or beneath any Property; and (v) there are no underground
storage tanks on any Property and no underground storage tanks have been removed
from any Property. As used in Sections 3.12(a)(i) and 3.12(a)(ii), the term
"knowledge of the Company" shall mean actually known by the executive officers
of the Company or should reasonably be known by the executive officers of the
Company, after inquiry or investigation of a nature customary for prudent
institutional purchasers and owners of property leased for similar purposes
-15-
<PAGE>
(including, without limitation, to the extent customary, inquiry and monitoring
of tenant activities, permitting and reporting).
(b) To the Company's knowledge, there is no Environmental Claim
pending or threatened against the Company or the Subsidiary or relating to any
of the Properties which, either individually or in the aggregate would
constitute a Material Adverse Matter.
3.13 Contracts With Insiders. There are no executory agreements,
-----------------------
obligations, understandings or other arrangements, direct or indirect, between
the Company or Subsidiary and any director or executive officer of the Company,
the Parent or Subsidiary.
3.14 Tax Matters. The Company has filed all Federal, state and other
-----------
tax returns (including information reports) which are required to be filed and
has paid all taxes which have become due and payable, except for the failure to
file such returns (or reports) or pay such taxes as would not individually or in
the aggregate have resulted in a material adverse effect on the financial
condition or results of operation of the Company or taxes that are being
contested in good faith and for which adequate reserves have been provided on
the Financial Statements. None of such returns has been audited for any period,
and the Company has not received written notice that any such returns will be
audited for any period. The provision for taxes on the Parent's balance sheet
for the year ended December 31, 1995 is sufficient in all material respects for
the payment of all accrued and unpaid taxes with respect to the periods then
ended. Taxes include all Federal, state, county, local or foreign taxes,
charges or other assessments, including all net income, gross income, gross
receipts, excise, alternative minimum, sale and use, property, transfer, capital
stock, business and occupation, payroll and withholding taxes or charges
imposed on the Company by any government or governmental entity, as well as
penalties and interest on or additions to any taxes.
3.15 Investment Company. Neither the Parent, the Company nor
------------------
Subsidiary is required to be registered under the Investment Company Act of
1940, as amended.
3.16 Qualification as a Real Estate Investment Trust and Real Estate
---------------------------------------------------------------
Operating Company. At all times since January 1, 1996, based on the Company's
- -----------------
current and anticipated status and operations, and assuming the completion of
the transactions contemplated by this Agreement and the continuing accuracy of
the representations of AEW in Section 4.8, the Company will satisfy all
applicable organizational and operational requirements for qualification as a
REIT under Section 856 through 860 of the Code and the related regulations for
its 1996 taxable year, including the requirements relating to sources of income
and nature of assets. The Company has no reason to believe that it will be
unable to maintain such status in subsequent taxable years. The Company
represents that, upon completion of the purchase provided
-16-
<PAGE>
for in this Agreement, no "qualified trust" (other than any such trusts owning
interests directly or indirectly through AEW) will be treated as owning more
than 10% by value of the interests in the Company within the meaning of Section
856(h)(3)(D)(ii)(II) of the Code. The Company is a "real estate operating
company" within the meaning of United States Department of Labor ("DOL")
Regulation Section 2510.3-101(e), 29 C.F.R. (S) 2510.3-101(e). To the knowledge
of the Company, the Company's current status and anticipated operations will
enable it to maintain its status as such a real estate operating company in
future years, and the Company has no reason to believe that it will be unable to
maintain such status in future years.
3.17 Subsidiaries. The Parent does not directly nor indirectly own
------------
any of the capital stock of, or any joint venture, partnership or other
ownership interest in, any person except the Company and Subsidiary. The Parent
owns all of the outstanding Common Stock of the Company. The Company does not
directly or indirectly own any of the capital stock of, or any joint venture,
partnership or other ownership interest in, any other person, except Subsidiary.
3.18 Registration Rights. Except as set forth in this Agreement, the
-------------------
Company is not under any contractual obligation to register under the Securities
Act any of its presently outstanding securities or any of its securities which
may hereafter be issued.
3.19 Brokers. The Company has not engaged, consented to or
-------
authorized any broker, finder or intermediary to act on its behalf, directly or
indirectly, as a broker, finder or intermediary in connection with the
transactions contemplated by this Agreement, other than Montgomery and Realty
Capital. The Company has disclosed the terms and conditions of all agreements
with Montgomery and Realty Capital regarding the issuance of the Shares and the
transactions contemplated by this Agreement.
3.20 Board Resolution. Prior to the date hereof, the Board of
----------------
Directors has adopted an irrevocable resolution exempting from the terms of
Section 3-602 of the Maryland General Corporation Law any business combination
between AEW (or any Affiliate or permitted transferee of AEW) and the Company
and any transaction contemplated by or resulting from the exercise of any
redemption right of the Shares which may constitute a business combination.
3.21 HSR. The properties owned by the Company and the Subsidiary are
---
used and will continue to be used as Investment Rental Property. The Company
and the Subsidiary will play no active role in the business or businesses
conducted on the properties. The assets owned by the Company and all entities
controlled by the Company, including the Subsidiary, constitute Investment
Rental Property with the exception of assets with an aggregate fair market value
of less than $15 million.
-17-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF AEW
AEW represents and warrants to the Company that:
4.1 Existence and Power. AEW is a limited partnership duly organized,
-------------------
validly existing and in good standing under the laws of the State of Delaware
and has all requisite powers required to carry on its business as now conducted.
4.2 Authorization. AEW has all requisite power and authority to
-------------
execute and deliver this Agreement and to perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by AEW of this Agreement and the
consummation by AEW of the transactions contemplated hereby have been duly
authorized, and no other action on the part of AEW will be necessary to
authorize the execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by AEW and constitutes a valid and binding
obligation of AEW enforceable against AEW in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, equity of redemption,
moratorium or similar laws now or hereafter in effect, affecting the enforcement
of creditors' rights generally, general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity) and the
limitations imposed by applicable law or public policy on the enforceability of
the indemnification and contribution provisions of Section 8.
4.3 Governmental Authorization. The execution, delivery and performance
--------------------------
by AEW of this Agreement and the consummation by AEW of the transactions
contemplated hereby require no action by or in respect of, or filing by the
Company with, any United States Federal or state governmental body, agency,
official or authority other than compliance with any applicable Federal or state
securities laws.
4.4 Non-Contravention. The execution, delivery and performance by AEW of
-----------------
this Agreement and the consummation by AEW of the transactions contemplated
hereby do not and will not (i) contravene or conflict with its Certificate of
Limited Partnership; (ii) violate, conflict with or result in the breach of any
of the terms of, otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both constitute) a
default (by way of substitutions, novation or otherwise) under, any contract or
other agreement to which AEW is a party or by or to which it or any of its
assets or properties may be bound or affected; (iii) violate any order,
judgment, injunction, award or decree of any court, arbitrator or governmental
or regulatory body against, or binding upon, AEW or upon the assets or
properties of AEW; (iv) violate any statute, law or regulation of any
jurisdiction as such statute, law or regulation relates to AEW or to the
properties or business of AEW or (v) result in the creation or
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<PAGE>
imposition of any lien on any asset of AEW, except for violations, breaches,
modifications, termination rights, conflicts, defaults or liens, encumbrances or
security interests which, individually or in the aggregate, are not reasonably
likely to have a material adverse effect on the ability of AEW to consummate the
transactions contemplated hereby.
4.5 Purchase for Investment; Legend.
-------------------------------
AEW hereby:
(a) acknowledges that AEW has been advised that the Shares have not
been registered under the Securities Act or under any state securities laws and
the Company will rely upon AEW's representations in this Section 4.5 to
establish an exception from the registration requirements of the Securities Act
and any applicable state securities laws. AEW understands and acknowledges
that, as a result, it will not be permitted to sell, transfer or assign any of
the Shares acquired hereunder until such Shares are registered or an exemption
from the registration and prospectus delivery requirements of the Securities Act
is available. AEW acknowledges that there is no assurance that such an
exemption from registration will ever be available or that the Shares will ever
be able to be sold;
(b) represents and warrants that, except for any transfers to an AEW
Affiliate by AEW of Shares or the right to purchase Shares, in either case in
compliance with all applicable securities laws and the terms and conditions of
this Agreement (in which event such AEW Affiliate shall submit an officer's
certificate to the Company, in form and substance reasonably satisfactory to the
Company containing representations contained in this Section 4), the Shares are
being purchased by AEW with its own funds for its own account, and not as a
nominee or agent for any other person, for investment and not with a view to, or
for resale in connection with, a public offering or distribution thereof in any
transaction that would be in violation of the securities laws of the United
States, and it has no present intention of selling, granting participations in,
or otherwise distributing any of the Shares. It does not have any contract,
undertaking, agreement or arrangement with any person, firm or corporation to
sell, transfer or grant participations to such person, firm or corporations with
respect to any Shares;
(c) represents and warrants that AEW was not formed or capitalized
for the purpose of investing in the Shares and each general and limited partner
of AEW is an "accredited investor" as that term is defined in Regulation D under
the Securities Act; and that AEW does not require the assistance of an
investment advisor or other purchaser representative to participate in the
transactions contemplated by this Agreement; has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment in the Company; and has the ability to bear the economic
risks of its investment for an indefinite period of time;
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<PAGE>
(d) represents and warrants that it has had the opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and to obtain all information which it believes necessary
to an informed decision to purchase the Shares and has not relied upon the
Offering Memorandum;
(e) agrees that the Shares will not be sold or otherwise disposed of
except in compliance with the registration requirements of, or unless an
exemption from registration is available under, the Securities Act and any other
applicable securities laws and unless (A) it shall have notified the Company of
the proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition and (B) it shall have
furnished the Company with an opinion of counsel reasonably satisfactory in form
and content to the Company to the effect that (x) such disposition will not
require registration of such Shares under the Securities Act or compliance with
applicable state securities laws or (y) that an exemption from the registration
requirements of the Securities Act is available and that all appropriate action
necessary for compliance therewith and with the applicable state securities laws
has been taken or (C) the Company shall have waived, expressly and in writing,
its rights under clauses (A) and (B) of this subsection;
(f) consents that stop transfer instructions in respect of the Shares
may be issued to any transfer agent, registrar or other agent at any time acting
for the Company;
(g) agrees that the Shares may not be pledged, hypothecated, sold or
transferred in the absence of an effective registration statement covering the
Shares under the Securities Act or an exemption from the registration
requirements of the Securities Act and consents that the certificate or
certificates representing the Shares will bear (i) a legend in substantially the
form set forth in the Articles of Amendment, (ii) the legends required by
Section 2-211 of the Maryland General Corporation Law, and (iii) a legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE
SECURITIES ACT OF ANY STATE, BUT HAVE BEEN ISSUED IN RELIANCE UPON
EXEMPTION FROM REGISTRATION CONTAINED IN SUCH ACTS. THE SHARES MAY
NOT BE PLEDGED, HYPOTHECATED, SOLD, OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER SUCH ACTS OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.6 Brokers. AEW has not engaged, consented to or authorized any broker,
-------
finder or intermediary to act on its behalf, directly or indirectly, as a
broker, finder or
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intermediary in connection with the transactions contemplated by this Agreement.
4.7 Source of Funds. The funds being used by AEW to purchase the Shares
---------------
hereunder do not constitute the assets of (i) an employee benefit plan (as
defined in section 3(3) of ERISA), whether or not it is subject to Title I of
ERISA; (ii) a plan described in section 4975 of the Code; (iii) any entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity; or (iv) an entity that otherwise constitutes a "benefit plan investor"
within the meaning of DOL Regulation Section 2510.3-101(f)(2), 29 C.F.R. (S)
2510.3-101(f)(2).
4.8 REIT Ownership. AEW represents that: (a) it is a partnership
--------------
currently comprised of one general partner and eight limited partners, (b) the
general partner is AEW II, L.P., a limited partnership, the sole general partner
of which is Partners II Holdings, L.P. (the interests in which are held,
directly and indirectly, by Aldrich, Eastman & Waltch, L.P. and certain of its
officers and employees) and the sole limited partner of which is a corporation
wholly owned by the endowment fund of a major private university, (c) two
limited partners are retirement trusts created for the benefit of certain
employees of certain states, (d) six limited partners are separate pension
trusts created for the benefit of employees of six different Fortune 200
companies, and (e) an additional limited partner that is also a pension trust
created for the benefit of employees of another Fortune 200 company is expected
to join the partnership in the near future. Based on the foregoing and its
general knowledge of its partners, AEW believes: (a) that the actuarial
interests of the beneficiaries of these retirement plan and pension trust
partners are held by large numbers of unrelated employees, so that no particular
employee would be treated as owning a significant portion of any investment
owned by those partners, and (b) for purposes of the stock ownership rules of
Section 856(h) of the Code, AEW is a partnership and no partner of AEW (other
than a partner that is a pension plan created for the benefit of employees of a
Fortune 200 company as referenced above) would be treated as owning, directly or
indirectly through attribution or otherwise, more than a 9.9% interest in AEW.
In addition, AEW represents that AEW is not the actual owner of a 10% or more
interest in a tenant of the Company. AEW also believes, based on the character
of its partners and the list of the Company's tenants, that AEW would not be
considered the constructive owner of a 10% or more interest in a tenant of the
Company for purposes of Section 856(d)(2)(B) and (d)(5) of the Code. The
Company, without representation to AEW, is making further inquiry of its
material tenants with respect to the issue of 10% ownership.
5. COVENANTS OF THE COMPANY AND THE PARENT
5.1 Qualification as a REIT and a Real Estate Operating Company. The
-----------------------------------------------------------
Company shall at all times use its reasonable best
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efforts to meet the requirements to qualify as a REIT under the Code and as a
"real estate operating company" within the meaning of DOL Regulation Section
2510.3-101(e), 29 C.F.R. (S) 2510.3-101(e) unless and until the Board of
Directors shall determine that it is not in the best interest of the Company and
its stockholders, including AEW, to continue to meet such requirements. At the
reasonable request of AEW, the Company shall certify in writing to AEW whether
or not the Company believes that it has satisfied, and shall continue to
satisfy, such requirements for any year. Unless the Company first receives the
written consent of AEW (which consent will not be unreasonably withheld), during
the period that any "qualified trust" that is a partner of AEW is treated as
owning more than 10% by value of the interests in the Company within the meaning
of Code Section 856(h)(3)(D)(ii)(II), the Company will take all reasonable
actions to prevent issuance of shares of capital stock (or options to acquire or
rights to convert into such stock) to a "qualified trust" (whether those shares
would be held directly or indirectly by attribution or otherwise) if that
issuance would create a substantial risk that the Company would be treated as a
"pension held REIT" as defined in Section 856(h)(3)(D) of the Code. The Company
agrees that, for purposes of Article VI.A.6 of its Charter, it will only request
such additional information from AEW regarding its partners or their beneficial
owners (other than information consistent with the representations set forth in
Section 4.8 of this Agreement) that is reasonably necessary to comply with the
Code, applicable Treasury Regulations or the requirements of a governmental
authority.
5.2 Other Offerings. Neither the Parent, the Company nor any person
---------------
acting on behalf of the Company has made or will make any public or private
offer of the Shares or similar securities or warrants or options to purchase
shares of its Common Stock or similar securities (other than an initial public
offering) which, if the Shares and such other securities were being issued in
one or more private placements, would likely be integrated under Rule 502 of the
Securities Act with the offer of the Shares to AEW.
5.3 Use of Proceeds. The Company shall use the net proceeds of the sale
---------------
of the Shares as set forth on Exhibit 5.3 hereto.
-----------
5.4 Reporting Requirements. After the date hereof, the Company will
----------------------
distribute to the Series V Directors and all other members of its Board of
Directors who so request for so long as the shares of Common Stock issued or
issuable upon conversion of the Shares held by AEW or its assignee, individually
or in the aggregate, represent at least 15% of the Outstanding Shares:
(a) Company Business Plan. On or before October 31st of each year
---------------------
during the term hereof for the calendar year beginning on the next following
January 1st, the Company shall prepare a proposed business plan for the Company.
Such business plan, or any modified version thereof, shall be referred to as
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<PAGE>
the "Company Business Plan." The Company Business Plan shall set forth, in
reasonable detail, the overall strategic plan for acquiring, managing,
financing, servicing and disposing of Company and Subsidiary assets; provided,
however, that (i) the Company Business Plan shall not be required following a
Qualified IPO, and (ii) the Company shall have no liability for the accuracy or
completeness of the contents of the Company Business Plan or for the Company's
actual performance, if different.
(b) Annual Budgets. As part of each Company Business Plan, the
--------------
Company shall prepare budgets for the Company as a whole and each Property,
projecting all revenues expected to be received and projecting all costs and
expenses expected to be incurred during the following calendar year, explaining
in reasonable detail any contracts, assumptions used in projecting real estate
taxes, insurance and general and administrative costs and proposed capital
expenditures for each Property and, commencing in the budget delivered for 1997,
a comparison of projected revenues and expenses against prior year actual
(including an explanation of significant changes).
(c) Monthly Reports. The Company shall prepare for each Property and
---------------
the entire portfolio (except for the balance sheet and cash flow statements
referred to in clause (i) below, which will not be prepared for each Property,
but only for the entire portfolio) on a consolidated basis, within 30 days after
the end of each calendar month, a monthly report ("Monthly Statement"), which
will include the following:
(i) A balance sheet as of month end, prepared on an accrual
basis, showing current month and prior month balances with the change from prior
month, an accrual basis statement of income and expense and a cash flow
statement reconciling from net income to net cash flow on a monthly and year-to-
date basis. All expenses shall be included in such statements, regardless of the
source of payment;
(ii) An aged accounts receivable listing and allowance for
doubtful accounts;
(iii) A current rent roll in the form and containing the
information delivered to AEW pursuant to Section 3.11(b) (including vacancies,
lease expirations and security deposits);
(iv) A budget versus actual variance report for the Properties
for the then current month and cumulatively year-to-date, showing variances from
the Budgets and explanations of material variations.
(d) Quarterly Reports. In connection with delivery of the Monthly
-----------------
Statements for the last month of each calendar quarter and at year end, the
Company shall also furnish (to the extent not included within the Monthly
Statements): a report on the status of any proposal or offers to purchase or
sell any real
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<PAGE>
property; and a status report on all capital improvements, including analysis of
expenditures to date, costs to complete and expected completion date.
(e) Annual Reports. Within 90 days after the end of each calendar
--------------
year, annual audited consolidated financial statements certified by the Parent's
chief financial officer for such (full or partial) calendar year accurately
reflecting the financial condition and the results of operation of the Parent.
(f) Securities Filings. At such time as the Company becomes subject
------------------
to the reporting requirements of the Exchange Act, the Company shall (i) provide
to AEW, within five days following filing in accordance with the Exchange Act,
any and all reports, disclosure materials, registration statements, financial
information, applications or other documents filed with the SEC or any
securities exchange and (ii) no longer be required to furnish the annual and
quarterly reports described above.
(g) Confidentiality. AEW shall maintain as confidential all
---------------
information delivered to it pursuant to this Section 5.4 for a period of three
years after receipt or until it no longer owns any Shares, whichever is later,
except such information that (i) rightfully was or is in the possession of AEW
or any of its directors, officers, employees, agents or advisors
("Representatives") at the time of disclosure by the Company or becomes
available to AEW or any of its Representatives on a non-confidential basis from
a source not bound by a confidentiality agreement with the Company or (ii) is or
becomes available to the public other than as a result of any disclosure by AEW
or its Representatives or any other party to the knowledge of AEW bound by a
confidentiality agreement with the Company, or (iii) is approved for release by
the Company.
5.5 Post-Closing Share Transfer Covenant. After the Initial Closing, AEW
------------------------------------
shall not transfer, directly or indirectly, all or any portion of the Shares (or
the Common Stock into which the Shares are convertible), to any person if such
transfer would result in 50% in value of the stock of the Company being owned,
directly or indirectly, by five or fewer individuals as determined under section
856(h) of the Code, unless such transfer is approved in writing by the Company
in its sole and absolute discretion.
5.6 Series V Directors Compensation. The Company shall provide the Series
-------------------------------
V Directors with the same compensation (including, without limitation, equity
incentives, meeting fees and expense reimbursement) as is generally provided to
other non-management directors of the Company in their capacity as such from and
after the date hereof (other than with respect to the issuances of substitute
stock options in exchange for options granted under the Parent's non-employee
director plan on or prior to the date hereof).
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<PAGE>
5.7 Payments to AEW. The Company hereby covenants that all payments
---------------
required to be made by the Company to AEW in connection with its ownership of
the Shares including, without limitation, all redemption payments, liquidation
payments or dividend payments, shall be made by wire transfer pursuant to the
instructions provided to the Company by AEW from time to time (but in no event
later than three Business Days prior to such payment) and, if no instructions
are given, by check.
5.8 Public Financing. The Company and the Parent acknowledge that it is
----------------
the intention of such parties to publicly finance the Company or its successor
by merger if, in the sole discretion of the Parent and the Company (subject to
the rights of the holders of Series V Preferred Stock), conditions permit in the
future. The Parent and the Company agree that neither the Parent nor Subsidiary
will directly or indirectly undertake any public financing until completion of
an initial public offering of equity securities by the Company or its successor
by merger.
5.9 Stock of the Subsidiary. The Company will take such actions
-----------------------
reasonably necessary to cause the Subsidiary not to issue or sell (other than to
the Company) any shares of its stock or options, warrants or rights to purchase
stock (other than to the Company). The Company agrees that it shall not sell,
transfer, pledge, encumber or otherwise grant any interest in the stock it holds
in the Subsidiary, other than the pledge and encumbrance as required by the
Amended and Restated Loan Agreement (as amended) between the Subsidiary and
PaineWebber Incorporated and the documents contemplated thereby or the pledge
and encumbrance in connection with any other debt financing of the Company or
the Subsidiary.
5.10 Series V Preferred Stock. The Company shall not sell any shares of
------------------------
Series V Preferred Stock other than as contemplated by this Agreement.
5.11 Directors. The Company hereby agrees that the rights and obligations
---------
regarding the election of directors set forth in Article V, Section F(11) of the
Articles of Amendment are contractual obligations of the Company, and the
Company shall cause the nominees of AEW and any other AEW Affiliate that is a
transferee of such rights to be elected to the Board of Directors in accordance
with those provisions so long as AEW and any such AEW Affiliate hold shares of
capital stock of the Company sufficient to elect directors in accordance with
such provisions.
5.12 Approval Rights. The parties acknowledge that the holders of Series V
---------------
Preferred Stock or the Board of Directors, as the case may be, have certain
approval rights pursuant to Article V, Section F(8) of the Articles of
Amendment. The Company hereby agrees that, subject to the exceptions contained
therein, the holders of a majority of the shares of Common Stock issued and
issuable upon conversion of the Series V Preferred Stock or the Board of
Directors, as the case may be, shall have the right to approve the actions
referred to in Article V, Section F(8) of the
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<PAGE>
Articles of Amendment until the earlier to occur of (i) the Company having an
IPO (as defined in the Articles of Amendment) in which the Company issues
primary shares of Common Stock with an aggregate offering price of $100 million
or more of new equity or (ii) at any time prior to or following conversion into
Common Stock, the holders of Common Stock issued or issuable upon conversion of
the Series V Preferred Stock owning less than 15% of the total equity stock of
the Company assuming a conversion of Series V Preferred Stock in accordance with
Article V, Section F(4) of the Articles of Amendment. Notwithstanding the
above, the requests to obtain prior approval of certain actions and unless
otherwise required by law, no approval shall be required if the Board of
Directors determines in good faith that such action must be taken to establish
or maintain the Company's qualification as a REIT.
6. COVENANTS OF AEW AND THE COMPANY
6.1 Public Announcements. The parties will consult with each other before
--------------------
issuing any press release or making any public statement with respect to this
Agreement and the transactions contemplated hereby and will not issue any such
press release or make any such public statement prior to such consultation
unless required by law or a party has not responded to reasonable efforts to
effect such consultation.
6.2 Brokers or Finders. Each of the Company and AEW respectively agrees
------------------
to indemnify and hold the other harmless from and against any and all claims,
liabilities or obligations with respect to any broker's, finder's or similar
fees, commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or any of its Affiliates in
connection with this Agreement, or any of the transactions contemplated hereby
or thereby. The Company shall pay and indemnify and hold AEW harmless from all
amounts due (a) Montgomery in connection with the Agreement between the Company
and Montgomery dated as of May 5, 1995, as amended, and (b) Realty Capital in
connection with the Agreement between the Company and Realty Capital dated as of
April 12, 1995.
7. SECURITIES MATTERS
From and after the time that the Company becomes subject to the reporting
requirements of the Exchange Act, with a view to making available the benefits
of certain rules and regulations of the SEC which may at any time permit the
sale of the shares of Common Stock issuable upon conversion of the Shares to the
public without registration, the Company agrees to use its reasonable best
efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
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<PAGE>
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act;
(c) Furnish to AEW, within a reasonable amount of time upon written
request, a written statement by the Company as to its compliance with the public
information requirements of Rule 144 of the Securities Act and of the Exchange
Act, a copy of the most recent annual or quarterly report of the Company, and
such other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as AEW may reasonably
require to allow AEW to sell any such securities without registration.
8. REGISTRATION RIGHTS
8.1 Demand Registration.
-------------------
8.1.1 Request for Registration; Registration on Form S-3. If the
--------------------------------------------------
Company shall receive from Initiating Holders, at any time after the
consummation of a public offering of equity securities of the Company and the
expiration of any lock-up period affecting Registrable Securities in connection
with any public offering of the Common Stock, a written request that the Company
effect any registration with respect to all or a part of the Registrable
Securities for an offering of a minimum of 250 shares of Common Stock (as
adjusted for stock splits and similar events), the Company shall (i) promptly
give written notice of the proposed registration to all other Holders and shall
(ii) as soon as practicable, use its reasonable best efforts to effect
registration of the Registrable Securities specified in such request, together
with any Registrable Securities of any Holder joining in such request as are
specified in a written request given within 20 days after written notice from
the Company. The Company shall not be obligated to take any action to effect
any such registration pursuant to this Section 8.1.1 (i) after the Company has
effected five such registrations pursuant to this Section 8.1.1 and such
registrations have been declared effective or (ii) more often than once in any
12-month period. Notwithstanding the above registration requirements, if the
Company qualifies for the use of Form S-3 or any comparable or successor form of
the SEC, the Holders of Registrable Securities shall have the right at any time
after the consummation of an initial public offering prior to the seventh
anniversary of the Initial Closing date to a shelf registration of Registrable
Securities on Form S-3; provided the registration relates to at least a minimum
of 250 shares of Common Stock (as adjusted for stock splits and similar events).
Such requests shall be in writing and shall state the number of shares of
Registrable Securities to be registered.
8.1.2 Right of Deferral or Suspension of Registration. If the
-----------------------------------------------
Company shall furnish to all such Holders who joined in the request a
certificate signed by the Chief Executive Officer of the Company stating that,
in the good faith
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<PAGE>
judgment of the Board of Directors, such registration would materially interfere
with or materially adversely affect the negotiation or completion of any
transaction that is being contemplated by the Company (whether or not a final
decision has been made to undertake such transaction) at the time the right to
delay is exercised, the Company shall have the right to defer the filing of a
Registration Statement with respect to such offering (or suspend the use of a
Registration Statement) for a reasonable period (not to exceed 180 days) after
delivery of such certificate to such Holders (or after delivery of a notice of
suspension by the Company). If, after a registration statement becomes
effective, the Company advises the Holders of Registrable Securities that the
Company considers it appropriate for the registration statement to be
supplemented or amended, the Holders of such Registrable Securities shall
suspend any further sales of their Registrable Securities until the Company
advises them that the registration statement has been supplemented or amended;
provided, that the Company shall use all reasonable effort to effect such
amendment or supplement as soon as practicable; provided further that the
Company may postpone such amendment or supplement for a reasonable period (not
to exceed 90 days) if in the good faith judgment of the Board of Directors, such
registration would materially interfere with or materially adversely affect the
negotiation or completion of any transaction that is being contemplated by the
Company (whether or not a final decision has been made to undertake such
transaction).
8.1.3 Underwriting in Demand Registration.
-----------------------------------
8.1.3.1 Notice of Underwriting. If the Initiating Holders
----------------------
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 8.1, and the Company shall include such
information in the written notice referred to in Section 8.1.1. The right of any
Holder to registration pursuant to Section 8.1 shall be conditioned upon such
Holder's agreement to execute such documents customary for underwritten
offerings, to participate in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting.
8.1.3.2 Inclusion Of Other Holders In Demand Registration. If
-------------------------------------------------
the Company, officers or directors of the Company holding Common Stock other
than Registrable Securities, or holders of securities other than Registrable
Securities, request inclusion in such registration, the Initiating Holders
shall, subject to Section 8.1.3.4 below, offer to any or all of the Company,
such officers or directors, and such holders of securities other than
Registrable Securities that such securities other than Registrable Securities be
included in the underwriting and may condition such offer on the acceptance by
such persons of the terms of this Section 8.1.
8.1.3.3 Selection of Underwriter In Demand Registration. If
-----------------------------------------------
the Initiating Holders intend to distribute the
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<PAGE>
Registrable Securities covered by their request by means of an underwriting, the
Company shall (together with all holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement
containing customary terms and conditions with the representative of the
underwriter or underwriters ("Underwriters' Representative") selected for such
underwriting by AEW; provided that any such underwriter will be nationally
recognized as a qualified underwriter of real estate securities and reasonably
acceptable to the Company. The Company shall not have any obligation to provide
an underwriter for any registration hereunder.
8.1.3.4 Marketing Limitation in Demand Registration. If the
-------------------------------------------
Underwriters' Representative advises the Initiating Holders in writing that
market factors (including, without limitation, the aggregate number of shares of
Common Stock requested to be registered, the general condition of the market, or
the status of the persons proposing to sell securities pursuant to the
registration) require a limitation of the number of shares to be underwritten,
then (i) first the Common Stock other than Registrable Securities held by
officers or directors of the Company, (ii) next any other Common Stock other
than Registrable Securities, and (iii) last the Common Stock requested to be
registered by the Company, shall be excluded from such registration to the
extent required by such limitation. If a limitation of the number of shares is
still required, the Initiating Holders shall so advise all Holders and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities entitled to inclusion in such registration held by such Holders at
the time of filing the Registration Statement. No Registrable Securities or
other securities excluded from the underwriting by reason of this Section
8.1.3.4 shall be included in such Registration Statement.
8.1.4 Right of Withdrawal in Demand Registration. If any Holder of
------------------------------------------
Registrable Securities, or a holder of other securities entitled (upon request)
to be included in such registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders delivered at least seven
Business Days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
If the Holders decide to withdraw a demand after commencement by the Company of
preparation of a Registration Statement, the Holders shall (a) pay the
Registration Expenses incurred in connection with such Registration Statement
and (b) reduce by one the total number of demand registrations available
pursuant to Section 8.1.1; provided, however, that if such withdrawal results
within ten Business Days of the discovery by the Holders of a Material Adverse
Matter with respect to the condition, business or prospects of the Company that
could reasonably be expected to
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<PAGE>
impair the value of the Registrable Securities or the ability to consummate the
proposed offering and that was not known to the Holders at the time of request,
then the Holders shall not be required to pay such Registration Expenses and
shall not have the number of registration statements they can demand reduced.
8.1.5 Blue Sky in Demand Registration. In any registration pursuant
-------------------------------
to Section 8.1, the Company will exercise its reasonable best efforts to
register and qualify the securities covered by the Registration Statement under
such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of such securities; provided,
however, that (i) the Company shall not be required to qualify to do business or
to file a general consent to service of process in any such jurisdictions or to
pay any tax in any jurisdiction where it is not then so subject and (ii)
notwithstanding anything in this Agreement to the contrary, if any jurisdiction
in which the securities shall be qualified imposes a non-waivable requirement
that expenses incurred in connection with the qualification of the securities be
borne by selling shareholders, such expenses shall be payable pro rata by
selling shareholders.
8.2 Piggyback Registration.
----------------------
8.2.1 Notice of Piggyback Registration and Inclusion of Registrable
-------------------------------------------------------------
Securities. Upon the terms and subject to the conditions set forth in this
- ----------
Agreement, if the Company decides to Register the sale for cash (other than in a
Qualified IPO) of any of its shares of Common Stock (either for its own account
or the account of a security holder or holders exercising their respective
demand registration rights) on a form (other than Form S-8 or Form S-4 or any
comparable or successor forms of the SEC) that would be suitable for a
registration involving solely Registrable Securities, the Company will: (i)
promptly give each Holder who holds at least 100 Registrable Securities (as
adjusted for stock splits and similar events) written notice thereof (which
shall include a list of the jurisdictions in which the Company intends at such
time to attempt to qualify such securities under the applicable Blue Sky or
other state securities laws) and (ii) subject to Section 8.2.2.2 hereof, include
in such registration (and any related qualification under Blue Sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request delivered to the Company by any Holder
within 15 Business Days after delivery of such written notice from the Company
by any Holder so long as not less than 250 Registrable Securities (as adjusted
for stock splits and similar events) are requested to be included; provided that
the Company will not be required to include any Registrable Securities in a
Qualified IPO.
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<PAGE>
8.2.2 Underwriting in Piggyback Registration.
--------------------------------------
8.2.2.1 Notice of Underwriting in Piggyback Registration. If
------------------------------------------------
the registration of which the Company gives notice is for a public offering
(other than a Qualified IPO) involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
8.2.1. In such event the right of any Holder to participate in such registration
shall be conditioned upon such Holder's entry into an underwriting agreement in
customary form with the Underwriters' Representative for such offering. The
underwriters for an offering pursuant to this Section 8.2 shall be selected by
the Company provided that such underwriter will be nationally recognized as a
qualified underwriter of real estate securities.
8.2.2.2 Marketing Limitation in Piggyback Registration. In the
----------------------------------------------
event the Underwriters' Representative advises the Holders seeking registration
of Registrable Securities pursuant to this Section 8.2 in writing that market
factors (including, without limitation, the aggregate number of shares of Common
Stock requested to be registered, the general condition of the market, or the
status of the persons proposing to sell securities pursuant to the registration)
require a limitation of the number of shares to be underwritten, the
Underwriters' Representative may limit the number of shares of Registrable
Securities to be included by the Holders in such registration and underwriting.
8.2.2.3 Allocation of Shares in Piggyback Registration. In the
----------------------------------------------
event that the Underwriters' Representative limits the number of shares of
Registrable Securities to be included in a registration pursuant to Section
8.2.2.2, the number of shares of Registrable Securities to be included in such
registration shall be allocated (subject to Section 8.2.2.2) as follows: among
all Holders of Registrable Securities requesting to include shares in such
registration, in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities entitled to inclusion in such registration held by
such Holders. No Registrable Securities or other securities excluded from the
underwriting by reason of this Section 8.2.2.3 or Section 8.2.2.2 shall be
included in such Registration Statement.
8.2.2.4 Withdrawal in Piggyback Registration. If any Holder,
------------------------------------
or a holder of other securities entitled (upon request) to be included in such
registration, disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the underwriter
delivered at least seven Business Days prior to the effective date of the
Registration Statement. Any Registrable Securities or other securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration.
8.2.3 Blue Sky in Piggyback Registration. In the event of any
----------------------------------
registration of Registrable Securities pursuant to Section 8.2, the Company will
exercise its reasonable best
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<PAGE>
efforts to register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably appropriate for the distribution of such
securities; provided, that (i) the Company shall not be required to qualify to
do business or to file a general consent to service of process in any such
states or jurisdictions or subject the Company to any tax in any such
jurisdiction where it is not then so subject and (ii) notwithstanding anything
in this Agreement to the contrary, if any jurisdiction in which the securities
shall be qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders, such expenses shall be payable pro rata by the selling
shareholders.
8.3 Expenses of Registration. Except as set forth in Section 8.1.4, all
------------------------
Registration Expenses incurred in connection with all registrations pursuant to
Section 8.1 and 8.2 shall be borne by the Company. All Selling Expenses shall
be borne by the holders of the securities registered pro rata on the basis of
the number of shares registered.
8.4 Availability of Rule 144. Notwithstanding anything contained herein
------------------------
to the contrary, the registration rights set forth in Sections 8.1 or 8.2 shall
not be available to any Registrable Securities that are freely transferable
pursuant to Rule 144(k) of the SEC under the Securities Act.
8.5 Registration Procedures. The Company will keep each Holder whose
-----------------------
Registrable Securities are included in any registration pursuant to this Section
8 reasonably advised as to the initiation and completion of such registration.
The Company will: (a) use its reasonable best efforts to keep such registration
effective for a period of 90 days or until the Holder or Holders have completed
the distribution described in the Registration Statement relating thereto,
whichever first occurs; provided that to the extent the Company has exercised
its rights pursuant to Section 8.1.2 to suspend the use of a Registration
Statement, this period shall be extended one day for each day that the use of a
Registration Statement is suspended; (b) furnish such number of prospectuses
(including preliminary prospectuses) and other documents as a Holder from time
to time may reasonably request; (c) prepare and file with the SEC amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be reasonably necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement; and (d) notify each Holder of
Registrable Securities covered by such Registration Statement at any time when,
to the knowledge of the Company, a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
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<PAGE>
8.6 Information Furnished by Holder. It shall be a condition precedent of
-------------------------------
the Company's obligations under this Section 8 that each Holder of Registrable
Securities included in any registration (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting agreement
executed in connection with such arrangement and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements or
reasonably requested by the Company.
8.7 Indemnification.
---------------
8.7.1 Company's Indemnification of Holders. To the extent permitted
------------------------------------
by law, the Company will indemnify each Holder, each of its officers, directors
and general partners, and each person controlling such Holder (collectively
"Indemnified Parties"), with respect to any registration, qualification or
compliance of Registrable Securities effected pursuant to this Agreement,
against all claims, losses, damages, liabilities or expenses (or actions in
respect thereof) incurred by an Indemnified Party (collectively "Losses")
arising out of or based upon any untrue statement (or alleged untrue statement)
of a material fact contained in any prospectus, form of prospectus or in any
amendment or supplement thereof or in any preliminary prospectus prepared by or
on behalf of the Company (including any related Registration Statement) incident
to any such registration, qualification or compliance, or are based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act, the Exchange Act, or any
state securities law, or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law, applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, qualification or compliance; and the Company will reimburse
each such Indemnified Party for any reasonable out-of-pocket expenses actually
incurred, as incurred, in connection with investigating or defending any such
Losses (provided that the Indemnifying Party shall not be liable for legal fees
after it assumes the defense of the action in accordance with Section 8.7.3,
except to the extent that the Indemnified Party hires separate counsel as a
result of a conflict as described in Section 8.7.3); provided, however, that the
indemnity contained in this Section 8.7.1 shall not apply to amounts paid in
settlement of any Losses if settlement is effected without the consent of the
Company (which consent shall not unreasonably be withheld); provided, further,
that the Company will not be liable in any such case to the extent that any such
Losses arise out of or are based upon any untrue statement (or alleged untrue
statement) or omission based upon written information furnished to the Company
by such Holder, its officers, directors, general partners, or controlling person
for use in connection with the offering of securities of the Company; and
provided further that the Company will not be liable in any such case to the
extent any such Losses arise out of or
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<PAGE>
are based upon the failure of such Holder to comply with the prospectus delivery
requirements of the Securities Act.
8.7.2 Holder's Indemnification of Company. To the extent permitted
-----------------------------------
by law, each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected pursuant to this Agreement, indemnify the Company,
each of its stockholders, directors and officers, each underwriter, if any, of
the Company's securities covered by such a Registration Statement, each person
who controls the Company or such underwriter within the meaning of the
Securities Act, and each other such Holder, each of its officers, directors and
general partners and each person controlling such other Holder, against all
Losses arising out of or based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any such Registration Statement,
prospectus, offering circular or other document (including any related
Registration Statement) incident to any such registration, qualification or
compliance, or are based on any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by such Holder of the
Securities Act, the Exchange Act or any state securities law, or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law, applicable to such Holder and relating to action or inaction
required of such Holder in connection with any such registration, qualification
or compliance; and such Holder will reimburse the Company, such other Holders,
such stockholders, directors, officers, partners, persons, underwriters or
control persons for any legal and any other expenses reasonably incurred, as
incurred, in connection with investigating or defending any such Losses
(provided that the indemnifying party shall not be liable for legal fees after
it assumes the defense of the action in accordance with Section 8.7.3, except to
the extent that the indemnified party hires separate counsel as a result of a
conflict as described in Section 8.7.3); provided, however, that in the case of
a misstatement or omission, such obligation shall apply only to the extent that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such Registration Statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder for use in connection with the offering
of securities of the Company; provided that the indemnity contained in this
Section 8.7.2 shall not apply to amounts paid in settlement of any such Losses
if settlement is effected without the consent of the Holder (which consent shall
not unreasonably be withheld).
8.7.3 Indemnification Procedure. Promptly after receipt by an
-------------------------
Indemnified Party under this Section 8.7 of notice of the commencement of any
action, such Indemnified Party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 8.7, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall
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<PAGE>
have the right to participate in and to assume the defense of such claim,
jointly with any other indemnifying party similarly noticed; provided, however,
that the indemnifying party shall be entitled to select counsel for the defense
of such claim with the approval of any parties entitled to indemnification,
which approval shall not be unreasonably withheld; provided further, however,
that if in the opinion of counsel to the indemnified party there is a legal
conflict between the position of the Company and the Holder in conducting the
defense of such action, suit or proceeding by reason of recognized claims for
indemnity under this Section 8.7, then such party may retain separate counsel to
conduct the defense to the extent reasonably determined by such counsel to be
necessary to protect the interest of such party. The failure to notify an
Indemnifying Party promptly of the commencement of any such action, if
prejudicial to the ability of the Indemnifying Party to defend such action,
shall relieve such Indemnifying Party, to the extent so prejudiced, of any
liability to the Indemnified Party under this Section 8.7, but the omission so
to notify the Indemnifying Party will not relieve such party of any liability
that such party may have to any Indemnified Party otherwise than under this
Section 8.7.
8.8 Transfer of Rights. Subject to compliance with the transfer
------------------
restrictions on the Shares, as set forth in this Agreement and the Charter and
Bylaws of the Company, the registration rights set forth in Section 8.1 and 8.2
may be assigned by any Holder to a transferee or assignee acquiring at least 250
Registrable Securities (as adjusted for stock splits and similar events) not
sold to the public; provided, however, that the Company must receive written
notice at least five Business Days prior to said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned and a written
acknowledgement by such transferee of its rights and obligations hereunder.
8.9 Market Stand-off. AEW agrees, and AEW shall cause each assignee of
----------------
its rights under this Section 8 to so agree, that if so requested by the
underwriter in connection with any public offering of securities by the Company,
AEW (or such assignee) shall not sell, or make any short sale of, Registrable
Securities without the prior written consent of the underwriter for such period
of time not to exceed 60 days before the effective date of the registration
statement and 360 days after the effective date of the registration statement as
may be requested by the underwriter; provided that the Parent and all officers
and directors of the Company and substantially all holders of 1% or more of the
outstanding Common Stock of the Company are subject to a substantially similar
obligation.
9. MISCELLANEOUS
9.1 Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing and shall be given (and shall be deemed to have
been given upon receipt) if delivered in person and shall be deemed to have been
-35-
<PAGE>
given (a) one Business Days after transmission of a facsimile, telegram, telex,
or (b) two Business Days after deposit in United States registered or certified
mail (postage prepaid, return receipt requested) or (c) one Business Day after
delivery to a reputable overnight courier, to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 9.1):
If to AEW, to: AEW PARTNERS II, L.P.
c/o Aldrich Eastman Waltch
225 Franklin Street
Boston, Massachusetts 02110
Attn: J. Grant Mohanon, Jr.
Facsimile: (617) 261-9555
With a copy to: Patrick J. Sullivan
Aldrich Eastman Waltch
225 Franklin Street
Boston, Massachusetts 02110
Facsimile: (617) 261-9555
and
Heller Ehrman White & McAuliffe
333 Bush Street
San Francisco, California 94104
Attention: Brian Smith
Facsimile: (415) 772-6268
If to the Company, Parent Health Science Properties, Inc.
or Subsidiary, to: 251 S. Lake Avenue, Suite 535
Pasadena, California 90101
Attention: Joel S. Marcus
Facsimile: (818) 578-0770
With a copy to: Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, 34th Floor
Los Angeles, California 90071
Attention: Michael A. Woronoff
Facsimile: (213) 687-5600
All notices to AEW pursuant to Sections 7.1 and 8 shall be clearly marked on the
envelope of any letter and the cover page of any facsimile and the first page of
any notice as follows: "IMMEDIATE RESPONSE REQUIRED. DEADLINE FOR REPLY IS
_________. FAILURE TO REPLY BY SUCH DATE WILL ELIMINATE AEW'S RIGHTS TO OBJECT."
9.2 Amendments; No Waivers. Any provision of this Agreement may be
----------------------
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company and AEW or in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further
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<PAGE>
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.
9.3 Fees and Expenses. All costs and expenses incurred in connection with
-----------------
this Agreement shall be paid by the party incurring such cost or expense;
provided that the Company shall pay promptly upon submission of an invoice and
reasonably detailed statement the transaction costs, including the reasonable
legal and due diligence expenses of AEW, in an amount not to exceed $400,000.
AEW acknowledges receipt of $100,000 paid by the Company prior to the date of
this Agreement which is intended to be credited against the Company's
obligations hereunder. If such amounts are not necessary to satisfy the
obligations of the Company hereunder, AEW shall promptly return to the Company
any unused portion thereof.
9.4 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and, except as
otherwise herein provided, their respective successors and assigns. Any shares
of Series V Preferred Stock or Common Stock issuable upon conversion of Series V
Preferred Stock which are transferred to an Affiliate of AEW in accordance with
the provisions of this Agreement shall continue to be deemed to be held by AEW
for purposes of determining whether AEW owns the necessary minimum amount of
Shares (or Common Stock into which Shares are convertible) and to be subject to
the obligations and have the benefits afforded by this Agreement, provided that
such Affiliate shall agree in writing to be bound hereunder, which shall include
representations, warranties and covenants consistent herewith. The Company will
reasonably cooperate with AEW to facilitate any such assignment to an Affiliate.
This Agreement shall be binding upon and is solely for the benefit of each of
the parties hereto and their permitted respective successors and assigns, and
nothing in this Agreement is intended to confer upon any other person any rights
or remedies of any nature whatsoever under or by reason of this Agreement.
9.5 Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the law of the State of Maryland applicable to agreements made
and to be performed entirely within such state.
9.6 Counterparts; 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.
9.7 Severability. If the application of any provision hereof to either
------------
party is held invalid and such party fails to adhere to the requirements of such
provision, the other party shall thereafter be relieved of all further
obligations and covenants pursuant to this Agreement.
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<PAGE>
9.8 Specific Performance. The parties acknowledge that they would be
--------------------
irreparably damaged in the event any of the provisions of this Agreement were
not performed by the parties in accordance with their specific terms or were
otherwise breached. Accordingly, it is agreed that the parties shall be
entitled to an injunction to prevent breaches of this Agreement and to
specifically enforce this Agreement and the terms and provisions hereof in any
proceeding, in addition to any other remedy to which the parties may be entitled
at law or in equity.
9.9 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the Company and AEW set forth in this Agreement shall be true and
correct as of the Initial Closing and shall expire one year thereafter, except
for the representations and warranties set forth in Sections 4.5, 4.6, 4.7, 4.8,
3.19 and 3.21 which shall remain effective for the appropriate statute of
limitations for claims on written contracts, and the representations and
warranties set forth in Sections 3.14 and 3.16 shall remain effective until the
expiration of the appropriate statute of limitations for any applicable tax
claims. After the expiration of such periods, such representations and
warranties shall expire and be of no further force and effect, and no claim
shall be made with respect to any breach thereof unless a written notice
specifying the nature and amount of the claim or claims shall have been
delivered by AEW or the Company, as the case may be, with respect thereto on or
before the expiration of such period.
9.10 Bring-Down Certificate. Two business days prior to each closing of a
----------------------
sale of Shares to AEW under this Agreement after the closing of the Initial
Shares, the Company and Parent shall deliver to AEW a bring-down certificate in
the form attached as Exhibit 9.10 and AEW on the date of each such closing shall
------------
deliver to the Company a certificate affirming its representations and
warranties in Sections 4.4, 4.7 and 4.8 as if made on the date of such closing,
in each case subject to the exceptions set forth therein.
9.11 Costs and Expenses of Litigation. In the event that any dispute
--------------------------------
arises between the parties hereto and the parties resort to litigation to settle
such dispute, then the non-prevailing party in such litigation shall pay the
reasonable costs and expenses incurred by the prevailing party in connection
with such litigation, including, without limitation, reasonable attorney and
witness fees.
9.12 Entire Agreement. This Agreement, including the Disclosure Schedule
----------------
and Exhibits, represents the entire agreement between the parties relating to
the subject matter hereof and supersedes all prior and contemporaneous
negotiations, understandings, agreements and correspondence relating hereto.
[TEXT CONTINUED ON NEXT PAGE]
-38-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
HEALTH SCIENCE PROPERTIES, INC.,
a Maryland corporation
/s/ Joel S. Marcus
By: ______________________________________
Name: Joel S. Marcus
Title: Chief Operating Officer
HEALTH SCIENCE PROPERTIES HOLDING CORPORATION,
a Maryland corporation
/s/ Joel S. Marcus
By: ______________________________________
Name: Joel S. Marcus
Title: Chief Operating Officer
[SIGNATURES CONTINUED ON NEXT PAGE]
-39-
<PAGE>
[SIGNATURES CONTINUED]
AEW PARTNERS II, L.P.,
a Delaware limited partnership
By: AEW II, L.P.,
Its General Partner
By: PARTNERS II HOLDINGS, L.P.,
Its General Partner
By: AEW II CORPORATION,
a Massachusetts corporation
Its General Partner
/s/ Patrick J. Sullivan
By: ___________________________________
Patrick J. Sullivan
Its: Vice President
-40-
<PAGE>
EXHIBITS
--------
Exhibit 1.2 Closing Memorandum
Exhibit 3 Disclosure Schedule
Exhibits 3.2 Articles of Amendment
Exhibit 3.6A Audited Financial Statements
Exhibit 3.6B Unaudited Financial Statements
Exhibit 3.11 Rent Roll
Exhibit 5.3 Use of Proceeds
Exhibit 9.10 Bring-Down Certificate
-41-
<PAGE>
EXHIBIT 1.2
HEALTH SCIENCE PROPERTIES, INC.
SALE OF SERIES V PREFERRED STOCK
CLOSING MEMORANDUM
------------------
TIME AND PLACE OF CLOSING AND PERSONS PRESENT:
The Closing was held at the offices of Heller Ehrman White &
McAuliffe, 601 South Figueroa Street, Los Angeles, California, at 10:00 a.m.
local time on __________, 1996.
The following persons were present at the closing:
For HEALTH SCIENCE PROPERTIES, INC.
Joel Marcus
For AEW
Patrick J. Sullivan
For HELLER, EHRMAN, WHITE & McAULIFFE
Brian D. Smith
Richard Friedman
For SKADDEN, ARPS, SLATE, MEAGHER & FLOM
Lee Essner
Jennifer Bensch
For MONTGOMERY SECURITIES
DOCUMENTS DELIVERED AT THE INITIAL CLOSING:
All transactions at the Initial Closing were deemed to have taken
place simultaneously, and no transaction was deemed to have been completed until
all transactions were completed and all documents were delivered.
A. Agreements
----------
1. Series V Preferred Stock Purchase Agreement
2. Shareholders Agreement
3. Amended Credit Facility -- $XXX Million
-i-
<PAGE>
B. Documents Delivered by the Company
----------------------------------
4. Articles of Amendment
5. Amended By-Laws
6. Preferred Stock Certificate
7. Certificate of Chief Executive Officer of the Company
8. Certificate of Secretary of the Company
9. Opinion of Skadden, Arps, Slate, Meagher & Flom
10. Opinion of Ballard Spahr Andrews & Ingersoll
11. Title Insurance
C. Documents Delivered by AEW
--------------------------
12. Check or wire transfer in the amount of $xx,xxx,xxx
13. Certificate of Executive Officer of General Partner
D. Miscellaneous
-------------
14. Montgomery Release and Receipt
15. Realty Capital Release and Receipt
16. Resolution Appointing Series V Directors
-ii-
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of
the Registrant
1. ARE-QRS Corp., a Maryland corporation
2. PW Acquisitions I, LLC, a Delaware limited
liability company, upon consummation of the Offering and the Formation
Transactions
<PAGE>
EXHIBIT 23.1
CONSENT
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports on Alexandria Real Estate Equities, Inc. dated February
13, 1997 (except Note 11, as to which the date is March 13, 1997), 1413
Research Blvd. dated February 20, 1997, 300 and 401 Professional Drive dated
February 20, 1997, 25, 35 and 45 W. Watkins Mill Road dated February 20, 1997,
1311, 1401 and 1431 Harbor Bay Parkway dated February 20, 1997, and 1550 East
Gude Drive dated February 20, 1997, included in the Registration Statement
dated March 18, 1997, and related Prospectus of Alexandria Real Estate
Equities, Inc. for the registration of 6,830,000 shares of its common stock.
Ernst & Young LLP
Los Angeles, California
March 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 1,696 919
<SECURITIES> 0 0
<RECEIVABLES> 1,244 830
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,940 1,749
<PP&E> 151,154 56,254
<DEPRECIATION> 4,194 1,901
<TOTAL-ASSETS> 160,392 58,702
<CURRENT-LIABILITIES> 4,576 834
<BONDS> 0 0
24,707 0
111 1
<COMMON> 0 0
<OTHER-SE> 14,755 16,332
<TOTAL-LIABILITY-AND-EQUITY> 160,392 58,702
<SALES> 0 0
<TOTAL-REVENUES> 17,673 9,923
<CGS> 0 0
<TOTAL-COSTS> 6,766 3,836
<OTHER-EXPENSES> 2,405 1,668
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,327 3,553
<INCOME-PRETAX> 2,175 866
<INCOME-TAX> 0 105
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,175 761
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
