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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to _____________
COMMISSION FILE NUMBER: 1-13829
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CABOT INDUSTRIAL TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 04-3397866
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
TWO CENTER PLAZA, SUITE 200, BOSTON, MASSACHUSETTS 02108
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(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 723-0900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Shares of Beneficial New York Stock Exchange
Interest, par value $.01
(including related Preferred Share
Purchase Rights)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the common shares of beneficial interest held by
non-affiliates of the registrant was approximately $353,332,000 based on the
closing price ($19.00) for such shares on the New York Stock Exchange on
February 26, 1999.
As of February 26, 1999, 18,636,552 shares of the registrant's common shares of
beneficial interest were outstanding.
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TABLE OF CONTENTS
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DESCRIPTION PAGE
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PART I
Item 1. Business................................................................. 1
Item 2. Properties............................................................... 12
Item 3. Legal Proceedings........................................................ 19
Item 4. Submission of Matters to a Vote of Security Holders...................... 19
Item 4A. Executive Officers of the Registrant..................................... 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.................................................................. 20
Item 6. Selected Financial Data.................................................. 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............... 26
Item 8. Financial Statements and Supplementary Data.............................. 28
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................. 63
PART III
Item 10. Directors and Executive Officers of the Registrant....................... 63
Item 11. Executive Compensation................................................... 63
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................................... 63
Item 13. Certain Relationships and Related Transactions........................... 63
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 65
SIGNATURES.............................................................................. 64
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PART I
ITEM 1. BUSINESS
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CABOT TRUST
Cabot Industrial Trust ("Cabot Trust") was organized on October 10, 1997 as a
Maryland real estate investment trust to continue and expand the national
industrial real estate business of Cabot Partners Limited Partnership ("Cabot
Partners"). Cabot Trust is organized in what is commonly referred to as an
umbrella partnership, or "UPREIT" structure, meaning that its properties are
held and its business is conducted primarily through a limited partnership,
Cabot Industrial Properties, L.P. ("Cabot L.P."), of which Cabot Trust is the
sole general partner. At December 31, 1998, Cabot Trust held a 42.7%
partnership interest in Cabot L.P. The balance of the partnership interests in
Cabot L.P. at that date were primarily held by various investors who had
contributed properties to Cabot L.P. in connection with the commencement of the
business of Cabot Trust and Cabot L.P. in their current form, or in subsequent
transactions. See "Formation Transactions and Organizational Structure".
Cabot Trust is an internally managed, fully integrated real estate company
which, through Cabot L.P., acquires or develops, leases, manages, and holds for
investment industrial real estate properties in principal markets throughout the
United States. At December 31, 1998, Cabot L.P. owned a geographically
diversified portfolio of 206 industrial properties having an aggregate of
approximately 28 million rentable square feet, approximately 97% of which space
was leased to 414 tenants. The properties are located in 21 states in each of
the five principal regions (West, Midwest, Northeast, Southeast, and Southwest)
of the United States. As of December 31, 1998, no single tenant accounted for
more than 4.0% of Cabot L.P.'s total annualized base rent. Since December 31,
1998, and through March 8, 1999, Cabot L.P. has acquired two industrial
properties containing approximately 139,000 square feet and has also contracted
to purchase 33 additional industrial properties containing approximately
1,822,000 square feet.
Cabot Trust's goal is to be the preeminent national real estate company focused
on serving a variety of industrial space users. As of December 31, 1998, Cabot
Trust has a significant market presence across the United States, with
properties in a total of 21 markets (18 of which Cabot Trust has identified as
principal targeted markets), including ten markets with properties with more
than one million rentable square feet. Its tenant base ranges from large
national distributors using bulk warehouse and other types of industrial space
in multiple locations to small companies located in single workspace properties.
Cabot Trust believes that its geographic diversification and substantial
presence in multiple markets is a strategic advantage that allows it to serve
industrial space users with multiple site and industrial property type
requirements, to compete more effectively in its individual markets, and to
respond quickly to acquisition opportunities in markets across the country.
Cabot Trust offers a broad spectrum of industrial property types to meet the
diverse needs of its tenants. Its properties are of three general types: bulk
distribution properties, multitenant distribution properties and workspace
properties (light industrial, R&D and similar facilities).
Cabot Trust's 18 principal targeted markets and its property holdings in each
are indicated below. See "Item 2. Properties".
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In addition to acquiring existing industrial properties, Cabot Trust is engaged
in the development and construction of new properties. Its development
activities are conducted through relationships with local builders selected by
Cabot Trust. As of December 31, 1998, Cabot Trust had approved 10 development
projects with total projected development costs of approximately $78 million.
Cabot Trust currently has under active consideration 4 additional projects with
projected development costs of approximately $60 million. The projects are
located in nine of Cabot Trust's existing submarkets and involve construction of
each of Cabot Trust's principal property types.
Cabot Trust intends to be taxed as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986 (the "Code") as amended beginning with its
fiscal year ended December 31, 1998. As a REIT, Cabot Trust will not generally
be subject to Federal income tax to the extent it distributes its taxable income
to its shareholders.
Cabot Trust's principal executive offices are located at Two Center Plaza, Suite
200, Boston, Massachusetts 02108, and its telephone number is (617) 723-0900.
Cabot Trust has regional offices in the Chicago, Los Angeles, Dallas, Orlando,
and Cincinnati markets.
FORMATION TRANSACTIONS; ORGANIZATIONAL STRUCTURE
Cabot Trust completed an initial public offering of 8,625,000 common shares of
beneficial interest ("Common Shares") in February 1998 and concurrently
completed a private placement of 1,000,000 Common Shares, in each case at an
offering price of $20.00 per Common Share (collectively the "Offerings"). The
Offerings resulted in net proceeds to Cabot Trust of approximately $176.3
million. Concurrently with the completion of the Offerings, Cabot Trust also
completed a series of business combinations (the "Formation Transactions")
involving Cabot Partners and a number of property-owning entities, including
both entities organized by Cabot Partners and its institutional advisory
clients, and institutional investors that had no prior relationship with Cabot
Partners (collectively the "Contributing Investors"). The Formation
Transactions resulted, among other things, in the transfer of ownership of 122
industrial properties to Cabot L.P.
Cabot Trust's interest in Cabot L.P. entitles it to share in cash distributions
from, and in the profits and losses of, Cabot L.P. in proportion to Cabot
Trust's percentage ownership (apart from tax allocations of profits and losses
to take into account pre-contribution property appreciation). Limited
partnership interests in Cabot L.P. are convertible into Common Shares of Cabot
Trust on a one-for-one basis subject to Cabot Trust's right to redeem such
interests for cash in lieu of issuing Common Shares.
Cabot Trust holds one Unit in Cabot L.P. for each Common Share that it has
issued. The net proceeds of the issuance of Common Shares of Cabot Trust were
contributed to Cabot L.P. in exchange for a corresponding number of Units of
partnership interest. The net proceeds of future share issuances by Cabot Trust
will also be required to be contributed to Cabot L.P. in exchange for units of
partnership interest therein.
As the general partner of Cabot L.P., Cabot Trust has the exclusive power under
the agreement of limited partnership of Cabot L.P. to manage and conduct the
business of Cabot L.P. The Board of Trustees of Cabot Trust manages the affairs
of Cabot Trust by directing the affairs of Cabot L.P.
Beginning on February 4, 1999, the original Unitholders in Cabot L.P., who were
contributing investors in the Formation Transactions, have the right to convert
their Units to Common Shares.
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Cabot Trust expects that substantially all tax-exempt unitholders will convert
their interest to Common Shares (approximately 22 million shares), which would
have the effect of reducing the minority interest ownership in Cabot L.P. to
approximately 7%. Cabot Trust has filed a registration statement with the SEC,
which will permit the shareholders to sell their Common Shares in the public
market.
BUSINESS STRATEGIES
Cabot Trust's fundamental business objectives are to maximize the total return
to its shareholders through growth in its cash available for distribution per
Common Share and in the value of its portfolio of industrial properties and
operations. Cabot Trust believes that it is well positioned to take advantage
of the opportunities presented by today's changing industrial real estate
markets through the business strategies and operations described below.
Leveraging Substantial National Market Presence
Cabot Trust believes that maintaining and expanding its market presence in its
18 principal targeted markets across the country is an important factor in
achieving future growth and its targeted returns on investment.
Cabot Trust believes that its substantial presence in its principal markets
provide significant strategic advantages. Foremost among these advantages is
that Cabot Trust is well positioned to market its industrial space to national
companies and third-party logistics companies who have space requirements in
multiple markets. Cabot Trust has a national tenant marketing program that
emphasizes the advantages of dealing with a single source for a company's
industrial space needs in addition to the quality and attractive locations of
its properties. These advantages include greater efficiency of lease
negotiations and day-to-day property management, as well as better understanding
of the tenants' current needs and prospective space requirements. Cabot Trust
serves 23 tenants in multiple properties. These tenants accounted for
approximately 21% of Cabot Trust's Annualized Net Rents as of December 31, 1998.
Cabot Trust believes that having a substantial inventory of properties and
significant leasing activities within each local market increases its visibility
to prospective tenants and enables it to establish strong relationships with
leasing brokers and other local market participants. These brokers and other
local market participants serve as sources of information and potential tenant
referrals. In addition, larger inventories increase Cabot Trust's opportunities
to relocate tenants to one or more of its other properties as their needs
change. Increased size of operations in a market also enables Cabot Trust to
bear the costs of the management personnel and facilities needed to build long-
term tenant relationships in that market.
Serving a Variety of Tenants By Offering a Broad Spectrum of Industrial Property
Types
Cabot Trust believes that its strategy of offering a variety of industrial
property types provides complementary benefits in meeting Cabot Trust's growth
objectives. Offering a broad spectrum of industrial property types and Cabot
Trust's size and professional management capability enable it to provide better
service, on a more cost-efficient basis, to national customers who need various
types of workspace properties, in addition to distribution space, for their
local operations. At the same time, offering a variety of industrial property
types suitable for smaller companies enables Cabot Trust to capture a larger
share of the growth in its chosen industrial property markets. Cabot Trust's
strategy of offering diverse industrial property types also enables Cabot Trust
to pursue opportunities as they arise across its tenants mix by responding to
shifts in demand at different stages of the economic cycle.
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GROWTH STRATEGIES
Cabot Trust intends to achieve its growth objectives through a combination of
property acquisitions, development and internal growth.
Acquisitions
Cabot Trust seeks to capitalize on its competitive advantages primarily by
acquiring additional modern, high-quality properties in attractive submarkets
within the industrial markets that it currently serves. During the period from
the completion of the Offerings in February 1998 through December 31, 1998,
Cabot Trust acquired 84 properties, consisting of 9.6 million rentable square
feet in 12 targeted markets, for $426.2 million in 41 separate transactions. As
of March 8, 1999, Cabot Trust has acquired two additional properties in the
Dallas market, consisting of 139,287 rentable square feet subsequent to year
end. In addition, Cabot Trust has entered into contracts to acquire properties
consisting of 1,821,763 rentable square feet in the New York/New Jersey,
Baltimore/Washington and Cincinnati/Northern Kentucky markets and one property
in the Minnesota market. Cabot Trust expects to complete these acquisitions by
April 1999.
Investment Criteria
Cabot Trust follows a disciplined, value-oriented strategy in its property
acquisitions. Cabot Trust seeks to acquire modern, cost-efficient buildings
located in key national and regional distribution centers. Cabot Trust's
investment considerations include (i) capitalization rates, (ii) economic
fundamentals in the market, (iii) replacement costs, (iv) rent levels and
trends, (v) construction quality and property condition, (vi) historical
occupancy rates, (vii) access to transportation, (viii) proximity to housing,
(ix) operating costs, (x) location in modern industrial parks and (xi) local
crime rates.
Emphasis on Market Research
Cabot Trust's property acquisitions are based on extensive research in each
targeted market regarding (i) economic and demographic trends, (ii) the supply
of and demand for industrial space in targeted submarkets, (iii) existing and
potential tenant space requirements, (iv) rent levels and trends, and (v) the
physical characteristics of buildings within the market. Cabot Trust's research
includes extensive in-market activity by its employees, including physical site
inspections and continuing contacts with leasing brokers and other active
participants in the local markets. Cabot Trust has compiled the results of its
extensive research over the years into a proprietary database, which it updates
periodically, covering each market and submarket in which it has invested
substantially. The database contains computerized profiles, keyed to Cabot
Trust-prepared aerial maps of Cabot Trust's properties and each of the buildings
deemed most competitive to Cabot Trust's properties or attractive for
acquisition. Such profiles include information regarding the building's age,
physical characteristics (including overall dimensions, clear heights and truck
court dimensions) and current tenant and lease information.
Diversification of Industrial Property Types
To date, the majority of Cabot Trust's Properties (72% of its properties based
on Annualized Net Rents at December 31, 1998) have been bulk distribution and
multitenant distribution facilities because of the opportunities for superior
returns such properties have provided. While Cabot Trust expects that both
types of properties will continue to be an important focus of its future
acquisition program, Cabot Trust believes that workspace properties (light
industrial, R&D and similar facilities) are also attractive in selected markets
where they are in limited supply and strong demand exists. Cabot Trust
continues to increase its acquisitions of workspace properties, which
represented approximately 28% of its Properties at December 31, 1998 (based on
Annualized Net Rents).
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Relationships with Institutional Real Estate Investors
Cabot Partners' operations were focused on serving public and private pension
funds and other institutional real estate investors in connection with
investments in and management of industrial real estate. This has provided
Cabot Trust's management with an extensive knowledge of and, Cabot Trust
believes, a favorable reputation with such investors. Cabot Trust believes that
it will benefit from its relationships with these investors through further
acquisitions as they increasingly seek to securitize their direct real estate
investments.
Capital and UPREIT Structure
Cabot Trust intends to exploit its relatively unleveraged capital structure and
substantial equity base in its acquisition and development activities. Cabot
Trust believes that its ability to borrow using its $325 million revolving
credit acquisition facility will enhance its credibility with potential property
sellers. Cabot Trust's UPREIT structure, which enables it to acquire industrial
properties on a non-cash basis by exchanging Units in Cabot L.P. for properties
in a tax-deferred manner, provides an attractive alternative to a taxable cash
sale for tax-paying property owners.
Development
Cabot Trust's senior management has extensive real estate development
experience, including experience derived from the industrial park development
activities of Cabot, Cabot and Forbes, a nationwide real estate development,
investment, construction and management firm that pioneered the development of
large scale, planned industrial parks. Cabot Trust believes that in select
targeted markets there are attractive opportunities for new development with
potentially greater returns than those available from the purchase of existing
stabilized properties, and it pursues a development program where such
opportunities exist. Cabot Trust is also engaging its existing tenants in
discussions about future space needs and, based on such discussions, believes
that financially attractive build-to-suit opportunities from its tenant base may
be available over time. In order to limit initial overhead expenses, Cabot Trust
has begun its development activities by engaging local or regional builders with
whom it has established strong relationships. Cabot Trust intends to expand its
in-house development staff as Cabot Trust's development activities increase.
Internal Growth
Cabot Trust's primary internal growth strategy is to increase the cash flow
generated by its Properties, and from properties that it acquires in the future,
by renewing or replacing expiring leases with new leases at higher rental rates
and through rent increase provisions in its leases. In addition, Cabot Trust
intends to work actively to (i) maintain its historically high occupancy levels
by retaining existing tenants, thereby minimizing "down time" and re-leasing
costs, (ii) improve the occupancy levels of any newly acquired properties that
have lower occupancy levels than Cabot Trust targets for its existing
properties, (iii) capitalize on economies of scale arising from the size of its
portfolio of Properties and (iv) control costs. Cabot Trust also seeks internal
growth by converting its properties to more intensive, higher-margin uses, if
and to the extent that suitable opportunities to do so arise. Leases covering
approximately 14.3% and 12.2% of the total Annualized Net Rent of Cabot Trust's
properties will expire in 1999 and 2000, respectively.
LEASES
Cabot Trust's properties typically are leased on a triple net basis, with
tenants paying their proportionate share of real estate taxes and operating
costs. However, some of the properties are leased at higher gross rents with
Cabot Trust being responsible for paying a stated
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amount of real estate taxes and operating costs and tenants being responsible
for any and all increases in such taxes and costs above that stated amount.
Excluding lease renewal options, lease terms typically range from three to five
years or, for leases that are renewed, a shorter period of generally two to
three years. Approximately 42% (based on Annualized Net Rent) of the leases
contain a provision providing for an automatic "stepped rent" increase of a
specified amount or percentage at a certain point or points during the term of
the lease. Substantially all of the leases of the properties require the tenant
to pay, as additional rent, either all real estate taxes and operating expenses
or all increases in real estate taxes and operating expenses over a base amount.
In addition, many of such leases provide for fixed or indexed increases (based
on the consumer price index or other measures) in base rent. Management believes
that inflationary increases in operating expenses will be offset, in part, by
the expense reimbursements and contractual rent increases described above.
POLICIES
Business Policies
The following is a description of business policies that have been adopted by
the Cabot Trust Board of Trustees. These policies may be amended or revised from
time to time without shareholder approval, except that shareholder approval
would be required for Cabot Trust to change its policy of holding its assets and
conducting its business only through Cabot L.P. and its subsidiaries and other
affiliates, including Cabot Advisors, Inc. ("Cabot Advisors") and joint ventures
in which Cabot L.P. or a subsidiary may be a partner. In addition, changes in
policies with respect to conflicts of interest must be consistent with legal
requirements.
Investment Policies
Cabot Trust conducts all of its investment activities through Cabot L.P. and its
subsidiaries and other affiliates, including Cabot Advisors, and may in the
future conduct activities through joint ventures in which the Cabot L.P. or a
subsidiary may be a partner. Cabot Trust's investment policy is to purchase
income-producing industrial properties primarily for long-term capital
appreciation and rental growth, and to expand and improve its properties or to
sell them, in whole or in part, when the circumstances warrant.
Cabot Trust's property investments may be subject to existing mortgage and other
indebtedness or to indebtedness that may be incurred in connection with
acquiring or refinancing such investments. Debt service with respect to such
indebtedness will have a priority over any distributions with respect to the
Common Shares. Investments are also subject to Cabot Trust's policy not to be
treated as an investment company under the Investment Company Act of 1940.
Cabot Trust currently intends to invest primarily in existing improved
properties, but also has begun investment in development projects as well.
Future investment or development activities will not be limited to any
geographic area or product type or to a specified percentage of assets. While
Cabot Trust intends to maintain diversity in its investments in terms of
property location, size and market, Cabot Trust does not have any limit on the
amount or percentage of its assets that may be invested in any one property or
any one geographic area. Cabot Trust intends to conduct its investment and
development activities in a manner that is consistent with the maintenance of
its status as a REIT for federal income tax purposes.
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While Cabot Trust's current portfolio consists of, and its business objectives
emphasize, equity investments in industrial real estate, Cabot Trust may also
invest in loans secured by mortgages or deeds of trust that are consistent with
Cabot Trust's continued qualification as a REIT for federal income tax purposes.
These may include participating or convertible mortgage loans if Cabot Trust
concludes that it may benefit from the cash flow or any appreciation in value of
the property secured by such mortgages. Investments in real estate mortgage
loans entail the risk that one or more borrowers may default under such loans
and that the collateral securing such loans may not be sufficient to enable
Cabot Trust to recoup its full investment.
Subject to the limitations on ownership of certain types of assets and the gross
income tests imposed by the Code, Cabot Trust also may invest in the securities
of other REITs, other entities engaged in real estate activities or other
issuers, including investments made for the purpose of exercising control over
such entities. Cabot Trust may enter into joint ventures or partnerships for
the purpose of obtaining an equity interest in a particular property in
accordance with its investment policies. Such investments may permit Cabot
Trust to own interests in larger assets without unduly restricting
diversification and, therefore, add flexibility in structuring its portfolio.
Cabot Trust will not enter into a joint venture or partnership to make an
investment that would not meet its investment policies.
Financing Policies
As a general policy, Cabot Trust intends to limit its total consolidated
indebtedness incurred so that at the time any debt is incurred, Cabot Trust's
debt-to-total market capitalization ratio does not exceed 40%. Cabot Trust's
Declaration of Trust and Bylaws do not, however, limit the amount or percentage
of indebtedness that it may incur. Moreover, due to fluctuations in the value
of Cabot Trust's portfolio of properties over time, and since any determination
of its debt-to-total market capitalization ratio is made only at the time debt
is incurred, the debt-to-total market capitalization ratio could exceed the 40%
level. In addition, Cabot Trust may modify its debt policy from time to time in
light of changes in economic conditions, relative costs of debt and equity
capital, the market values of its properties, general conditions in the market
for debt and equity securities, fluctuations in the market price of its Common
Shares, growth and acquisition opportunities and other factors. If its debt
policy were changed, Cabot Trust 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 financial condition
and results of operations of Cabot Trust and its ability to make distributions
to shareholders.
Cabot Trust has not established any limit on the number or amount of mortgages
that may be placed on any single property or on its portfolio as a whole.
To the extent that its Board of Trustees decides to obtain additional capital,
Cabot Trust may raise such capital through offerings of its Common or Preferred
Shares or of partnership units which may include preferred Units of Cabot L.P.,
debt financings or retention of cash available for distribution (subject to
provisions in the Code concerning the taxability of undistributed REIT income),
or a combination of these methods. As long as Cabot L.P. is in existence, the
net proceeds of the sale of Common Shares or Preferred Shares by Cabot Trust
will be transferred to Cabot L.P. in exchange for that number of Units that
equals the number of Common Shares sold by Cabot Trust.
Cabot Trust presently anticipates that any additional borrowings would be made
through Cabot L.P., although Cabot Trust may incur indebtedness directly and
loan the proceeds to Cabot L.P. Borrowings may be unsecured or may be secured
by any or all of the assets of Cabot Trust, or any existing or new property-
owning partnership and may have full or limited recourse to all or any portion
of the assets of
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Cabot Trust, or any existing or new property-owning partnership. Indebtedness
incurred 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
borrowings may be used for working capital, to refinance existing indebtedness
or to finance acquisitions, expansions or the development of new properties, and
for the payment of distributions.
Conflict of Interest Policies
Cabot Trust has adopted policies that are intended to minimize potential
conflicts of interest. However, there can be no assurance that these policies
will be successful in eliminating the influence of such conflicts and, if they
are not successful, decisions could be made that do not fully reflect the
interests of all shareholders.
DECLARATION OF TRUST AND BYLAW PROVISIONS
Cabot Trust's Declaration of Trust requires, with limited exceptions, that a
majority of Cabot Trust's Board of Trustees be comprised of individuals who are
not officers or employees of Cabot Trust ("Independent Trustees"). This
requirement may not be amended, altered, changed or repealed without the
affirmative vote of a majority of all of the outstanding shares of Cabot Trust
entitled to vote on the matter. The Declaration of Trust also includes a
provision generally permitting Cabot Trust to enter into any agreement or
transaction with any person, including any Trustee, officer, employee or agent
of Cabot Trust.
Cabot Trust's Bylaws provide that Section 2-419 of the Maryland General
Corporation Law, relating to transactions by interested directors, will be
available for and apply to contracts and other transactions between Cabot Trust
and any of its Trustees or between Cabot Trust and any other trust, corporation
or other entity of or in which any of Cabot Trust's Trustees is a trustee or
director or has a material financial interest. Under Section 2-419, a contract
or other transaction between a corporation and any of its directors and any
other corporation, firm or other entity in which any of its directors is a
director has a material financial interest is not void or voidable solely
because of (a) the common directorship or interest, (b) the presence of the
director at the meeting of the board or a committee of the board that
authorizes, approves or ratifies the contract or transaction (c) the counting
of the vote of the director for the authorization, approval or ratification of
the contract or transaction if either (i) after disclosure of the interest, the
transaction is authorized, approved or ratified by the affirmative vote of a
majority of the disinterested directors, or by the affirmative vote of a
majority of the votes cast by shareholders entitled to vote other than the votes
of shares owned of record or beneficially by the interested director or such
corporation, firm or other entity, or (ii) the transaction is fair and
reasonable to the corporation.
CABOT L.P. PARTNERSHIP AGREEMENT
The Cabot L. P. Partnership Agreement gives Cabot Trust, in its capacity as
general partner, full and exclusive discretion in managing and controlling the
business of Cabot L.P. and in making all decisions affecting the business and
assets of the Cabot L.P., with limited exceptions. In the Partnership
Agreement, the limited partners have acknowledged and agreed that Cabot Trust is
acting on behalf of both Cabot L.P. and Cabot Trust's shareholders generally and
that, in its capacity as general partner of Cabot L.P., Cabot Trust is under no
obligation to consider separate interests of the Cabot L.P. limited partners in
deciding whether to cause Cabot L.P. to take or to decline to take, any actions
which Cabot L.P., in its capacity as general partner, has undertaken in good
faith on behalf of
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Cabot L.P. In addition, Cabot Trust in its capacity as general partner is not
responsible for any misconduct or negligence on the part of its agents, provided
that such agents were appointed in good faith. The Cabot L.P. Partnership
Agreement also provides that neither Cabot Trust nor any of its affiliates
(including its officers and Trustees) may sell, transfer or convey any property
to, or purchase any property from, Cabot L.P. except on terms that are fair and
reasonable and no less favorable than would be obtained from an unaffiliated
party.
Policies with Respect to Other Activities
Cabot Trust may, but does not presently intend to, make investments that are
different from those described herein. Cabot Trust has authority to offer its
Common Shares, other shares of beneficial interest or other securities for cash
or in exchange for property and to repurchase or otherwise reacquire its shares
or any other securities and may engage in such activities in the future. Cabot
Trust has no outstanding loans to other entities or persons, including its
officers and Trustees. Cabot Trust has not engaged in trading, underwriting or
agency distribution or sale of securities of other issuers, nor has Cabot Trust
invested in the securities of companies other than Cabot L.P. for the purpose
of exercising control over such companies and currently does not intend to do
so. Cabot Trust makes and intends to continue to make investments in such a way
that it will not be treated as an investment company under the Investment
Company Act of 1940. Its policies with respect to such activities may be
reviewed and modified or amended from time to time by the Board of Trustees
without shareholders approval.
Cabot Trust intends to make investments in a manner consistent with the
requirements of the Code for Cabot Trust to qualify as a REIT unless, because of
changing circumstances or changes in the Code or applicable Treasury
Regulations, the Board of Trustees determines that it is no longer in the best
interests of Cabot Trust to qualify as a REIT.
Working Capital Reserves
Cabot Trust intends to maintain working capital reserves in amounts that the
Board of Trustees determines to be adequate to meet normal contingencies in
connection with the operation of Cabot Trust's business and investments.
COMPETITION
Numerous industrial properties compete with Cabot Trust's properties in
attracting tenants to lease space and additional properties can be expected to
be built in the markets in which the properties are located. The number and
quality of competitive industrial properties in a particular area will have a
material effect on Cabot Trust's ability to lease space at the properties or at
newly acquired properties and on the rents charged. Some of these competing
properties may be newer or better located than Cabot Trust's properties.
In addition, the industrial real estate market has become highly competitive.
There are a significant number of buyers of industrial property, including other
publicly traded industrial REITs, many of which have significant financial
resources. This has resulted in increased competition in acquiring attractive
industrial properties. Accordingly, it is possible that Cabot Trust may not be
able to meet its targeted level of property acquisitions and developments due to
such competition or other factors which may have an adverse effect on Cabot
Trust's expected growth in Funds from Operations ("FFO"). Cabot Trust may be
competing with others that have greater resources than Cabot Trust and whose
officers and directors have more experience than Cabot Trust's officers and
trustees.
9
<PAGE>
INSURANCE
Cabot Trust carries commercial general liability insurance, standard "all-risk"
property insurance, flood, earthquake and rental loss insurance with respect to
the Properties with policy terms and conditions customarily carried for similar
properties. However, the insurance is subject to normal limitations on the
amounts of coverage and certain types of losses (such as from wars or from
earthquakes for properties located in California) may be either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of the
amount of the insurance coverage occur, Cabot Trust could lose the capital
invested in a property, as well as the anticipated future revenue from that
property, and Cabot Trust would continue to be obligated on any mortgage
indebtedness or other obligations related to the property.
In light of the California earthquake risk, California building codes have since
the early 1970's established minimum construction standards for all new
buildings and also contain guidelines for seismic upgrading of existing
buildings that are intended to reduce the possibility and severity of loss from
earthquakes. The construction standards and upgrading, however, do not eliminate
the possibility of earthquake loss. Cabot Trust's current policy is to obtain
earthquake insurance if available at acceptable cost. As of December 31, 1998,
all of our 50 properties located in California are covered by earthquake
insurance in amounts believed by management to be reasonable. At December 31,
1998, seismic upgrading had been completed on eleven of the California
properties and seismic upgrading is expected to be completed on ten additional
California properties by September 30, 1999. Cabot Trust currently maintains
blanket earthquake insurance coverage for all properties located outside
California in amounts Cabot Trust believes to be reasonable.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances.
In addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the owner's ability to
borrow using such real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of hazardous substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person.
Certain environmental laws and common law principles could be used to impose
liability for release of and exposure to hazardous substances and third parties
may seek recovery from owners or operators of real properties for personal
injury or property damage associated with exposure to released hazardous
substances. As the owner of real properties, Cabot Trust may be potentially
liable for any such costs.
Phase I environmental site assessment reports ("Phase I ESAs") were obtained by
our original contributing investors in connection with their initial
acquisitions of the properties, or were obtained by Cabot Trust in connection
with the transactions resulting in Cabot Trust's formation as a publicly traded
company. In accordance with Cabot Trust's acquisition policies, Cabot Trust has
also obtained Phase I ESAs for all of the properties acquired since the
completion of the Formation Transactions.
10
<PAGE>
The purpose of Phase I ESAs is to identify potential sources of contamination
for which Cabot Trust may be responsible and to assess the status of
environmental regulatory compliance. The earliest of the Phase I ESAs for Cabot
Trust's properties were obtained in 1988 and Phase I ESAs on approximately 19%
of the properties owned as of December 31, 1998, were obtained prior to 1995.
Commonly accepted standards and practices for Phase I ESAs have evolved to
encompass higher standards and more extensive procedures over the period of 1988
to the present.
The Phase I ESAs obtained for Cabot Trust's properties have not revealed any
environmental liability that Cabot Trust believes would have a material adverse
effect on its business, assets or results of operations, nor is Cabot Trust
aware of any such material environmental liability. It is possible, however,
that the Phase I ESAs relating to the properties do not reveal all environmental
liabilities. Moreover, future laws, ordinances or regulations may impose
material environmental liability or the properties' current environmental
condition may be affected by tenants, by the condition of land or operations in
the vicinity of the properties (such as the presence of underground storage
tanks) or by third parties unrelated to Cabot Trust.
CABOT ADVISORS
Cabot Advisors provides investment advisory and asset management services to the
former clients of Cabot Partners which elected not to contribute some or all of
their industrial properties to Cabot Trust. In addition, Cabot Advisors
provides property management services to Cabot L.P. and to the properties of
some clients that are not associated with Cabot Trust. Cabot Advisors will not
provide services relating to any industrial real estate acquisition or
development activities that would conflict with Cabot Trust's own acquisition
and development activities. Cabot Trust believes that its investment in Cabot
Advisors will help it achieve economies of scale with its property management
systems, increase market penetration and provide access to further acquisition
opportunities.
To permit Cabot Trust to share in the income of Cabot Advisors while maintaining
its status as a REIT, Cabot L.P. owns all of Cabot Advisors' non-voting
preferred stock (representing 95% of its economic interest in Cabot Advisors)
and Ferdinand Colloredo-Mansfeld, Cabot Trust's Chief Executive Officer, owns
all of Cabot Advisors' voting common stock (representing 5% of its economic
interest therein). Although Cabot Trust receives substantially all of the
economic benefit of Cabot Advisors' business through dividends from Cabot L.P.,
Cabot Trust is not able to vote on the election of Cabot Advisors' directors or
officers and, as a result, does not have the ability to control Cabot Advisors'
operations or require its board of directors to declare and pay cash dividends.
EMPLOYEES
At December 31, 1998, Cabot L.P. and Cabot Advisors employed 61 persons, none of
whom are represented by any collective bargaining organization. Cabot Trust
believes it has good relations with its employees.
11
<PAGE>
ITEM 2. PROPERTIES
----------
For descriptive purposes, Cabot Trust's properties may generally be grouped into
three property types: bulk distribution properties, multitenant distribution
properties, and workspace properties.
Bulk distribution properties are oriented primarily to large national and
regional distribution tenants. These properties generally have at least 100,000
square feet of rentable space, building depths of at least 240 feet, clear
heights of 24 feet or more, truck courts in excess of 100 feet in depth to
accommodate larger modern trucks, a ratio of loading docks to rentable space of
one or more per 10,000 square feet, and a location with good access to
interstate highways.
Multitenant distribution properties are oriented primarily to smaller regional
and local distribution tenants, and are generally designed to be subdivided to
suit tenants whose space requirements generally range from 10,000 square feet to
100,000 square feet. These properties generally have clear heights of 20 feet
or more, building depths of less than 240 feet (unless configured with loading
docks on two sides), and a location with good access to regional and interstate
highways. Both types of distribution property are used predominately for the
storage and distribution of goods.
Workspace properties are designed to serve a variety of industrial tenants with
workspace related requirements, including light manufacturing and assembly,
research, testing, re-packaging and sorting, back office and sales office
functions. Workspace tenants include smaller companies whose space requirements
generally range from 3,000 square feet to 70,000 square feet. Workspace
properties generally have clear heights of 14 to 24 feet, attractive building
exteriors, office finish of up to 30% or more, parking ratios of one to four
spaces per 1,000 rentable square feet, and locations with good access to
executive residential areas and local highways, labor supply, and dining and
shopping amenities.
The table set forth below summarizes the following information related to the
Properties as of December 31, 1998: (i) the name and location of the Properties,
identified by each of Cabot Trust's 18 principal targeted markets; (ii) the year
each property was built or substantially renovated; (iii) the number of
properties at each location; (iv) the rentable square feet at each location; (v)
the percent of the rentable square feet of each property that is currently
leased; (vi) the annualized net rent for the tenants leasing each property and
(vii) the annualized net rent per leased square foot.
PROPERTIES BY REGION AND MARKET
-------------------------------
AS OF DECEMBER 31, 1998
-----------------------
<TABLE>
<CAPTION>
RENTABLE SQ. FT. ANNUALIZED NET RENT/(1)/
---------------- ------------------------
YEAR NUMBER PER
PROPERTY TYPE AND LOCATION BUILT/ OF % % OF LEASED
- --------------------------
RENOVATED PROPERTIES Number LEASED AMOUNT TOTAL SQ. FT.
--------- ---------- ------ ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Bulk Distribution Properties:
WEST REGION
Los Angeles Market
South Vintage Avenue, Building 1, Ontario, CA 1986 1 272,448 100% $ 723,389 0.7% $2.66
South Vintage Avenue, Building 2, Ontario, CA 1986 1 248,064 32% 263,850 0.3% 3.30
South Rockefeller Avenue, Ontario, CA 1986 1 164,140 100% 551,510 0.5% 3.36
East Jurupa Street, Ontario, CA 1986 1 142,404 100% 461,388 0.4% 3.24
DeForest Circle, Mira Loma, CA 1992 1 250,584 100% 871,841 0.8% 3.48
Vintage Avenue, Ontario, CA 1988 1 284,559 100% 973,200 0.9% 3.42
San Fernando Road, Sun Valley, CA 1980 1 181,670 100% 925,792 0.9% 5.10
Rowland Street, City of Industry, CA 1998 1 181,635 30% 241,578 0.2% 4.38
Santa Anita Avenue, Rancho Cucamonga, CA 1988 1 212,300 100% 764,280 0.7% 3.60
-- --------- --- ---------- --- ------
Market Subtotal 9 1,937,804 85% $5,776,828 5.4% $3.52
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
RENTABLE SQ. FT. ANNUALIZED NET RENT(1)
---------------- ----------------------
YEAR NUMBER PER
PROPERTY TYPE AND LOCATION BUILT/ OF % % OF LEASED
- --------------------------
RENOVATED PROPERTIES NUMBER LEASED AMOUNT TOTAL SQ. FT.
--------- ---------- ------ ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
San Diego Market
Dornoch Court, San Diego, CA 1988 1 220,000 100% $ 1,035,858 1.0% $4.71
-- ---------- ----- ----------- ----- -------
Phoenix Market
North 47th Avenue, Phoenix, AZ 1986 1 163,200 100% $ 453,867 0.4% $2.78
South 63rd Avenue, Phoenix, AZ 1990 1 168,165 100% 450,494 0.4% 2.68
South 55th Avenue, Phoenix, AZ 1986 1 100,000 100% 300,000 0.3% 3.00
South 41st Avenue, Building 2, Phoenix, AZ 1985 1 223,740 100% 678,172 0.6% 3.03
South 49th Avenue, Phoenix, AZ 1989 1 114,871 100% 330,828 0.3% 2.88
North 104th Avenue, Tolleson, AZ 1995 1 279,279 100% 804,438 0.8% 2.88
West Van Buren, Tolleson, AZ 1997 1 278,142 100% 931,670 0.9% 3.35
South 84th Avenue, Tolleson, AZ 1989 1 236,007 100% 802,488 0.8% 3.40
-- ---------- ---- ---------- ----- ------
Market Subtotal 8 1,563,404 100% $ 4,751,957 4.5% $3.04
-- ---------- ---- ----------- ----- ------
WEST REGION SUBTOTAL 18 3,721,208 92% $ 11,564,643 10.9% $3.37
SOUTHWEST REGION
Dallas Market
Luna Road, Carrollton, TX 1997 1 205,400 100% $ 679,992 0.6% $3.31
DFW Trade Center, Building 1, Grapevine, TX 1996 1 540,000 100% 1,705,799 1.6% 3.16
DFW Trade Center, Building 2, Grapevine, TX 1997 1 440,000 100% 1,278,000 1.2% 2.90
Airline Drive, Building 2, Coppell, TX 1990 1 140,800 100% 492,804 0.5% 3.50
-- ---------- ---- ----------- ---- ------
SOUTHWEST REGION/MARKET SUBTOTAL 4 1,326,200 100% $ 4,156,595 3.9% $3.13
MIDWEST REGION
Chicago Market
West 73rd Street, Building 1, Bedford Park, IL 1982 1 233,282 100% $ 735,280 0.7% $3.15
West 73rd Street, Building 2, Bedford Park, IL 1986 1 380,269 100% 1,034,331 1.0% 2.72
West 73rd Street, Building 3, Bedford Park, IL 1979 1 232,000 100% 727,667 0.7% 3.14
Remington Street, Bolingbrook, IL 1996 1 212,333 100% 796,925 0.7% 3.75
Harvester Drive, Chicago, IL 1974 1 212,922 100% 628,119 0.6% 2.95
Arthur Avenue, Elk Grove, IL 1978 1 230,768 100% 699,228 0.6% 3.03
North Raddant Road, Batavia, IL 1991 1 170,462 100% 711,954 0.7% 4.18
Ambassador Road, Naperville, IL 1996 1 203,500 65% 503,366 0.5% 3.80
Mark Street, Wood Dale, IL 1985 1 234,000 100% 833,392 0.8% 3.56
-- ---------- ---- ----------- ---- ------
Market Subtotal 9 2,109,536 97% $ 6,670,262 6.3% $3.27
Cincinnati/Northern Kentucky Market
Holton Drive, Independence, KY 1996 1 352,000 100% $ 991,951 0.9% $2.82
International Way, Hebron, KY 1990 1 192,000 100% 556,800 0.5% 2.90
Kingsley Drive, Building 1, Cincinnati, OH 1981 1 154,004 100% 429,999 0.4% 2.79
Kingsley Drive, Building 2, Cincinnati, OH 1981 1 249,402 100% 710,000 0.7% 2.85
International Road, Building 1, Cincinnati, OH 1990 1 192,000 100% 528,000 0.5% 2.75
International Road, Building 2, Cincinnati, OH 1990 1 204,800 100% 721,520 0.7% 3.52
-- ---------- ---- ----------- ---- ------
Market Subtotal 6 1,344,206 100% $ 3,938,270 3.7% $2.93
Columbus Market
Westbelt Drive, Building 2, Columbus OH 1980 1 229,200 100% $ 640,552 0.6% $2.79
Equity Drive, Building 1, Columbus, OH 1980 1 227,480 79% 412,186 0.4% 2.29
-- ---------- ---- ----------- ---- ------
Market Subtotal 2 456,680 89% $ 1,052,738 1.0% $2.57
Other Market
North State Road #9, Howe, IN 1988 1 346,515 100% $ 759,125 0.7% $2.19
-- ---------- ---- ----------- ----- ------
MIDWEST REGION SUBTOTAL 18 4,256,937 97% $12,420,395 11.7% $3.00
SOUTHEAST REGION
Memphis Market
Pilot Drive, Memphis, TN 1987 1 336,080 100% $ 795,326 0.7% $2.37
-- ---------- ---- ----------- ----- ------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
RENTABLE SQ. FT. ANNUALIZED NET RENT(1)
---------------- ----------------------
YEAR NUMBER PER
PROPERTY TYPE AND LOCATION BUILT/ OF % % OF LEASED
- --------------------------
RENOVATED PROPERTIES NUMBER LEASED AMOUNT TOTAL SQ. FT.
--------- ---------- ------ ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Orlando Market
Landstreet Road, Building 1, Orlando FL 1997 1 355,732 100% $ 1,639,782 1.5% $4.61
-- --------- ---- ----------- ----- -----
Charlotte Market
Reames Road, Charlotte, NC 1994 1 105,600 100% $ 327,095 0.3% 3.10
-- --------- ---- ----------- ----- -----
Atlanta Market
Highway 316, Dacula, GA 1989 1 326,019 100% $ 1,057,413 1.0% 3.24
Westgate Parkway, Fulton County, GA 1988 1 231,835 100% 695,505 0.7% 3.00
-- --------- ---- ----------- ---- -----
Market Subtotal 2 557,854 100% $ 1,752,918 1.7% 3.14
-- --------- ---- ----------- ---- -----
SOUTHEAST REGION SUBTOTAL 5 1,355,266 100% $ 4,515,121 4.2% 3.33
NORTHEAST REGION
Baltimore/Washington Market
Tar Bay Drive, Jessup, MD 1990 1 210,000 100% $ 800,527 0.8% $3.81
Oceano Avenue, Jessup, MD 1987 1 243,500 100% 998,349 0.9% 4.10
-- ---------- ---- ----------- ----- -----
Market Subtotal 2 453,500 100% $ 1,798,876 1.7% $3.97
New York/New Jersey Market
Pepes Farm Road, Milford, CT 1980 1 200,000 100% $ 829,998 0.8% $4.15
South Middlesex Avenue, Building 1, Cranbury, NJ 1989 1 204,369 100% 735,728 0.7% 3.60
Birch Creek Road, Bridgeport, NJ 1991/1997 1 203,229 100% 792,463 0.7% 3.90
Pierce Street, Franklin Township, NJ 1984 1 182,764 100% 776,748 0.7% 4.25
Herrod Boulevard, South Brunswick, NJ 1989 1 400,000 100% 1,719,547 1.6% 4.30
-- ---------- ---- ----------- ----- -----
Market Subtotal 5 1,190,362 100% $ 4,854,484 4.5% $4.08
Harrisburg Market
Brackbill Boulevard, Building 1, Mechanicsburg, PA 1984 1 259,200 100% $ 912,384 0.8% $3.52
Brackbill Boulevard, Building 2, Mechanicsburg, PA 1994 1 235,200 100% 827,904 0.8% 3.52
Cumberland Parkway, Mechanicsburg, PA 1992 1 340,000 100% 1,144,967 1.1% 3.37
-- ---------- ---- ---------- ---- -----
Market Subtotal 3 834,400 100% $ 2,885,255 2.7% $3.46
-- ---------- ---- ----------- ---- -----
NORTHEAST REGION SUBTOTAL 10 2,478,262 100% $ 9,538,615 8.9% $3.85
-- ---------- ---- ----------- ---- -----
BULK DISTRIBUTION PROPERTIES TOTAL 55 13,137,873 97% $42,195,369 39.6% $3.32
MULTITENANT DISTRIBUTION PROPERTIES:
WEST REGION
Los Angeles Market
West Rincon Street, Corona, CA 1986 1 162,900 100% $ 729,600 0.7% $4.48
Jersey Court, Rancho Cucamonga, CA 1989 1 88,134 100% 291,000 0.3% 3.30
12th Street, Chino, CA 1990 1 104,600 100% 402,000 0.4% 3.84
Industry Circle, La Mirada, CA 1966 1 112,946 100% 474,373 0.4% 4.20
East Santa Ana Street, Building 1, Ontario, CA 1990 1 98,782 100% 355,615 0.3% 3.60
East Santa Ana Street, Building 2, Ontario, CA 1990 1 62,398 100% 224,632 0.2% 3.60
East Dyer Road, Santa Ana, CA 1954/1965 1 372,096 100% 1,363,619 1.4% 3.66
-- ---------- ---- ----------- ----- -----
Market Subtotal 7 1,001,856 100% $ 3,840,839 3.7% $3.83
San Francisco Market
Reed Avenue, Building 1, West Sacramento, CA 1988 1 103,110 100% $ 461,905 0.4% $4.48
Reed Avenue, Building 2, West Sacramento, CA 1988 1 105,600 100% 423,336 0.4% 4.01
Market Subtotal 2 208,710 100% $ 885,241 0.8% $4.24
Phoenix Market
South 40th Avenue, Building 1, Phoenix, AZ 1990 1 126,360 100% $ 338,093 0.3% $2.68
South 40th Avenue, Building 3, Phoenix, AZ 1987 1 201,600 100% 622,944 0.6% 3.09
South 41st Avenue, Building 1, Phoenix, AZ 1989 1 161,230 100% 440,157 0.4% 2.73
South 40th Avenue, Building 2, Phoenix, AZ 1989 1 127,042 100% 384,872 0.4% 3.03
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
RENTABLE SQ..FT. ANNUALIZED NET RENT (1)
---------------- -----------------------
YEAR NUMBER PER
BUILT/ OF % % OF LEASED
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER LEASED AMOUNT TOTAL SQ.FT.
- -------------------------- --------- --------- ---------- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
South 39th Avenue, Phoenix, AZ 1989 1 159,450 100% 658,368 0.6% 4.13
South 53rd Avenue, Phoenix, AZ 1987 1 127,680 100% 327,498 0.3% 2.56
South 9th Street, Phoenix, AZ 1983 1 89,423 100% 436,218 0.4% 4.88
44th Avenue, Phoenix, AZ 1997 1 144,592 100% 429,036 0.4% 2.97
-- ---------- ---- ----------- ----- ------
Market Subtotal 8 1,137,377 100% $ 3,637,185 3.4% $3.20
Seattle Market
Kent West Corporate Park II, Kent, WA 1989 1 250,820 100% $ 966,492 0.9% $3.85
-- ---------- ---- ----------- ----- ------
WEST REGION SUBTOTAL 18 2,598,763 100% $ 9,329,757 8.8% $3.59
SOUTHWEST REGION
Dallas Market
113th Street, Arlington, TX 1979 1 79,735 100% $ 291,032 0.3% $3.65
10th Street, Building 1, Plano, TX 1997 1 99,679 100% 439,824 0.4% 4.41
10th Street, Building 2, Plano, TX 1997 1 107,260 100% 423,086 0.4% 3.94
Airline Drive, Building 1, Coppell, TX 1991 1 75,000 100% 262,500 0.2% 3.50
North Lake Drive, Coppell, TX 1982 1 230,400 100% 632,376 0.6% 2.74
-- ---------- ---- ----------- ---- ------
SOUTHWEST REGION/MARKET 5 592,074 100% $ 2,048,818 1.9% $3.46
SUBTOTAL
MIDWEST REGION
Chicago Market
Medinah Road, Building 1, Chicago, IL 1986 1 319,459 100% $ 1,741,840 1.6% $5.45
Medinah Road, Building 2, Chicago, IL 1986 1 160,799 100% 876,751 0.8% 5.45
Swenson Avenue, St. Charles, IL 1988 1 81,110 100% 299,751 0.3% 3.70
High Grove Lane, Naperville, IL 1994 1 95,000 100% 392,549 0.4% 4.13
Western Avenue, Lisle, IL 1979/1985 1 67,996 100% 383,143 0.4% 5.63
-- ---------- ---- ----------- ---- ------
Market Subtotal 5 724,364 100% $ 3,694,034 3.5% $5.10
Cincinnati/Northern Kentucky Market
Lake Forest Drive, Building 1, Blue Ash,
OH 1978 1 239,891 100% $ 651,741 0.6% $2.72
Lake Forest Drive, Building 2, Blue Ash,
OH 1979 1 176,956 95% 433,055 0.4% 2.60
-- ---------- ---- ----------- ---- ------
Market Subtotal 2 416,847 98% $ 1,084,796 1.0% $2.67
Columbus Market
International Street, Columbus, OH 1988 1 152,800 100% $ 435,479 0.4% $2.85
Port Road, Building 1, Franklin County, OH 1995 1 205,109 100% 677,903 0.6% 3.31
Port Road, Building 2, Franklin County, OH 1995 1 156,000 100% 425,899 0.4% 2.73
Westbelt Drive, Building 1, Columbus, OH 1980 1 202,000 100% 1,010,000 1.0% 5.00
Dividend Drive, Columbus, OH 1979 1 144,850 100% 443,241 0.4% 3.06
Twin Creek Drive, Columbus, OH 1989 1 176,000 76% 386,256 0.4% 2.87
-- ---------- ---- ----------- ---- ------
Market Subtotal 6 1,036,759 96% $ 3,378,778 3.2% $3.40
Minneapolis Market
Woodale Drive, Building 1, Mounds View, MN 1992 1 78,016 33% $ 124,533 0.1% $4.86
-- ---------- ---- ----------- ---- ------
Other Market
Sysco Court, Grand Rapids, MI 1985 1 62,700 100% $ 366,795 0.3% $5.85
-- ---------- ---- ----------- ---- ------
MIDWEST REGION SUBTOTAL 15 2,318,686 96% $ 8,648,936 8.1% $3.91
SOUTHEAST REGION
Orlando Market
Orlando Central Park, Building 1,
Orlando, FL 1988 1 267,432 100% $ 883,879 0.8% $3.31
Orlando Central Park, Building 2,
Orlando, FL 1983 1 156,660 100% 493,476 0.5% 3.15
Orlando Central Park, Building 3,
Orlando, FL 1991 1 356,583 90% 1,401,377 1.3% 4.36
Orlando Central Park, Building 4,
Orlando, FL 1984 1 133,400 81% 386,766 0.4% 3.59
Orlando Central Park, Building 5,
Orlando, FL 1985 1 139,800 100% 492,042 0.5% 3.52
Orlando Central Park, Building 6,
Orlando, FL 1986 1 119,000 100% 397,702 0.4% 3.34
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
RENTABLE SQ.FT. ANNUALIZED NET RENT (1)
--------------- -----------------------
YEAR NUMBER PER
BUILT/ OF % % OF LEASED
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER LEASED AMOUNT TOTAL SQ.FT.
- -------------------------- --------- ---------- ---------- ------ ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Exchange Drive, Orlando, FL 1979 1 115,728 100% 320,888 0.3% 2.77
Kingspointe Parkway, Orlando, FL 1991 1 101,870 49% 197,496 0.2% 3.95
-- ---------- ---- ----------- ----- ------
Market Subtotal 8 1,390,473 92% $ 4,573,626 4.4% $3.58
Atlanta Market
Atlanta Industrial Drive, Atlanta, GA 1986 1 161,965 100% $ 408,679 0.4% $2.52
Westpark Drive, Building 1, Fulton
County, GA 1981 1 216,074 100% 539,189 0.5% 2.50
Westpark Drive, Building 2, Fulton
County, GA 1981 1 130,722 100% 268,622 0.2% 2.05
-- ---------- ---- ----------- ----- ------
Market Subtotal 3 508,761 100% $ 1,216,490 1.1% $2.39
-- ---------- ---- ----------- ----- ------
SOUTHEAST REGION SUBTOTAL 11 1,899,234 94% $ 5,790,116 5.5% $3.24
NORTHEAST REGION
Boston Market
First Avenue, Needham, MA 1961/1992 1 119,573 100% $ 693,065 0.7% $5.80
-- ---------- ---- ----------- ----- ------
Baltimore/Washington Market
Port Capital Drive, Jessup, MD 1974 1 94,381 100% $ 458,338 0.4% $4.86
-- ---------- ---- ----------- ----- ------
New York/New Jersey Market
South Middlesex Avenue, Building 2,
Cranbury, NJ 1982 1 203,404 100% $ 661,062 0.6% $3.25
Colony Road, Building 1, Jersey City, NJ 1976 1 262,453 100% 918,438 0.9% 3.50
Colony Road, Building 2, Jersey City, NJ 1974 1 124,933 100% 499,731 0.5% 4.00
Pulaski Boulevard, Port Jersey, NJ 1974 1 224,664 100% 703,139 0.6% 3.13
Port Jersey Boulevard, Building 1,
Port Jersey, NJ 1974/1982 1 425,121 100% 1,711,836 1.6% 4.03
Port Jersey Boulevard, Building 2,
Port Jersey, NJ 1974/1982 1 204,564 100% 754,841 0.7% 3.69
Industrial Drive, Building 1, Port
Jersey, NJ 1976 1 263,717 100% 1,002,124 0.9% 3.80
Industrial Drive, Building 2, Port
Jersey, NJ 1976 1 154,000 100% 615,996 0.6% 4.00
Industrial Drive, Building 3, Port
Jersey, NJ 1972 1 45,274 100% 181,095 0.2% 4.00
-- ---------- ---- ----------- ----- ------
Market Subtotal 9 1,908,130 100% $ 7,048,262 6.6% $3.69
Harrisburg Market
Ritter Road, Mechanicsburg, PA 1986 1 37,800 100% $ 248,969 0.2% $6.59
-- ---------- ---- ----------- ----- ------
NORTHEAST REGION SUBTOTAL 12 2,159,884 100% $ 8,448,634 7.9% $3.91
-- ---------- ---- ----------- ----- ------
MULTITENANT DISTRIBUTION PROPERTIES TOTAL 61 9,568,641 98% $34,266,261 32.2% $3.66
WORKSPACE PROPERTIES:
WEST REGION
Los Angeles Market
East Howell Avenue, Building 1, Anaheim,
CA 1968 1 81,475 100% $ 327,882 0.3% $4.02
East Howell Avenue, Building 2, Anaheim,
CA 1991 1 25,962 100% 109,040 0.1% 4.20
Royal Avenue, Simi Valley, CA 1988 1 26,120 100% 157,442 0.2% 6.03
Union Place, Building 1, Simi Valley, CA 1985 1 22,710 100% 145,768 0.1% 6.42
Union Place, Building 2, Simi Valley, CA 1987 1 36,538 100% 324,360 0.3% 8.88
Anza Drive, Building 1, Valencia, CA 1990 1 10,296 100% 65,121 0.1% 6.32
Anza Drive, Building 2, Valencia, CA 1990 1 7,944 100% 57,192 0.1% 7.20
Anza Drive, Building 3, Valencia, CA 1990 1 8,663 100% 62,400 0.1% 7.20
Kovacs Lane, Huntington Beach, CA 1988 1 125,000 100% 1,000,800 0.9% 8.01
Artesia Avenue, Building 1, Fullerton, CA 1991 1 55,498 100% 233,548 0.2% 4.21
Artesia Avenue, Building 2, Fullerton, CA 1991 1 60,502 100% 283,149 0.2% 4.68
Commonwealth Avenue, Fullerton, CA 1965 1 64,292 100% 250,047 0.2% 3.89
-- ---------- ---- ----------- ----- ------
Market Subtotal 12 525,000 100% $ 3,016,749 2.8% $5.75
San Diego Market
Airway Road, Building 1, Otay Mesa, CA 1996 1 44,840 100% $ 285,489 0.3% $6.37
Airway Road, Building 2, Otay Mesa, CA 1996 1 78,296 100% 449,738 0.4% 5.74
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
RENTABLE SQ. FT. ANNUALIZED NET RENT(1)
---------------- ----------------------
YEAR NUMBER PER
PROPERTY TYPE AND LOCATION BUILT/ OF % % OF LEASED
-------------------------- RENOVATED PROPERTIES NUMBER LEASED AMOUNT TOTAL SQ.FT.
--------- ---------- ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Avenida Encinas, Building 1, Carlsbad, CA 1972 1 80,000 100% 637,600 0.6% 7.97
Avenida Encinas, Building 2, Carlsbad, CA 1993 1 126,008 100% 716,846 0.7% 5.69
-- --------- ---- --------- ---- ------
Market Subtotal 4 329,144 100% 2,089,673 2.0% $ 6.35
San Francisco Market
Brisbane Industrial Park, Building 1,
Brisbane, CA 1961 1 39,800 100% $ 220,293 0.2% $ 5.54
Brisbane Industrial Park, Building 2,
Brisbane, CA 1960 1 21,186 100% 139,802 0.1% 6.60
Brisbane Industrial Park, Building 3,
Brisbane, CA 1969 1 23,586 100% 172,058 0.2% 7.29
Brisbane Industrial Park, Building 4,
Brisbane, CA 1968 1 40,680 100% 246,340 0.2% 6.06
Brisbane Industrial Park, Building 5,
Brisbane, CA 1966 1 37,040 100% 214,612 0.2% 5.79
Brisbane Industrial Park, Building 6,
Brisbane, CA 1963 1 31,745 100% 201,888 0.2% 6.36
Brisbane Industrial Park, Building 7,
Brisbane, CA 1967 1 32,211 100% 169,670 0.2% 5.27
Brisbane Industrial Park, Building 8,
Brisbane, CA 1961 1 18,600 100% 130,045 0.1% 6.99
Brisbane Industrial Park, Building 9,
Brisbane, CA 1966 1 43,500 100% 284,354 0.3% 6.54
Brisbane Industrial Park, Building 10,
Brisbane, CA 1961 1 116,400 100% 89,773 0.1% 0.77
Brisbane Industrial Park, Building 11,
Brisbane, CA 1968 1 35,744 100% 214,464 0.2% 6.00
Brisbane Industrial Park, Building 12,
Brisbane, CA 1968 1 24,786 100% 138,949 0.1% 5.61
Brisbane Industrial Park, Building 13,
Brisbane, CA 1962 1 58,000 100% 307,703 0.3% 5.31
Brisbane Industrial Park, Building 14,
Brisbane, CA 1969 1 19,100 100% 99,912 0.1% 5.23
Huntwood Avenue, Hayward, CA 1982 1 62,031 100% 477,445 0.4% 7.70
-- --------- ---- --------- ---- ------
Market Subtotal 15 604,409 100% $ 3,107,308 2.9% $ 5.14
Phoenix Market
West Alameda Drive, Building 1, Tempe, AZ 1984 1 30,606 67% $ 93,041 0.1% $ 4.56
West Alameda Drive, Building 2, Tempe, AZ 1984 1 30,606 100% 133,165 0.1% 4.35
West Alameda Drive, Building 3, Tempe, AZ 1984 1 30,606 100% 134,666 0.1% 4.40
West Alameda Drive, Building 4, Tempe, AZ 1984 1 30,606 100% 149,347 0.1% 4.88
South Priest Drive, Tempe, AZ 1998 1 54,900 100% 394,200 0.4% 7.18
East Encanto Drive, Tempe, AZ 1990 1 81,817 100% 329,950 0.3% 4.03
-- --------- ---- --------- ---- ------
Market Subtotal 6 259,141 96% $ 1,234,369 1.1% $ 4.96
Seattle Market
Kent West Corporate Park I, Building 1, Kent,
WA 1989 1 41,700 100% $ 501,984 0.5% $12.04
Kent West Corporate Park I, Building 2, Kent,
WA 1989 1 16,000 86% 93,096 0.1% 6.77
Kent West Corporate Park I, Building 3, Kent,
WA 1989 1 36,250 50% 77,064 0.1% 4.24
Kent West Corporate Park I, Building 4, Kent,
WA 1989 1 57,990 100% 225,108 0.2% 3.88
-- --------- ---- --------- ---- ------
Market Subtotal 4 151,940 87% $ 897,252 0.9% $ 6.82
-- --------- ---- --------- ---- ------
WEST REGION SUBTOTAL 41 1,869,634 98% $10,345,351 9.7% $ 5.63
SOUTHWEST REGION
Dallas Market
DFW Trade Center, Building 3, Grapevine, TX 1997 1 202,361 100% $ 1,723,670 1.6% $ 8.52
Diplomat Drive, Building 1, Farmers Branch, TX 1997 1 53,375 100% 325,044 0.3% 6.09
-- --------- ---- --------- ---- ------
SOUTHWEST REGION/MARKET SUBTOTA 2 255,736 100% $ 2,048,714 1.9% $ 8.01
MIDWEST REGION
Chicago Market
Feehanville Drive, Mount Prospect, IL 1987 1 57,150 100% $ 454,342 0.4% $ 7.95
Tower Lane, Bensenville, IL 1977 1 76,737 100% 449,872 0.4% 5.86
Business Center, Building 1, Mount Prospect,
IL 1985 1 43,250 100% 356,379 0.3% 8.24
Business Center, Building 2, Mount Prospect,
IL 1989 1 79,900 100% 777,677 0.8% 9.73
-- --------- ---- ---------- ---- ------
Market Subtotal 4 257,037 100% $ 2,038,270 1.9% $ 7.93
Cincinnati/Northern Kentucky Market
Empire Drive, Florence, KY 1991 1 101,250 100% $ 318,999 0.3% $ 3.15
Spiral Drive, Building 1, Florence, KY 1988 1 26,556 100% 236,900 0.2% 8.92
Spiral Drive, Building 2, Florence, KY 1989 1 34,999 87% 231,972 0.2% 7.64
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
RENTABLE SQ. FT. ANNUALIZED NET RENT(1)
---------------- ----------------------
YEAR NUMBER PER
PROPERTY TYPE AND LOCATION BUILT/ OF % % OF LEASED
--------------------------
RENOVATED PROPERTIES NUMBER LEASED AMOUNT TOTAL SQ.FT.
--------- ---------- ------ ------ ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Airport Exchange Drive, Erlanger, KY 1997 1 67,749 100% 462,373 0.4% 6.82
Creek Road, Blue Ash, OH 1983 1 66,095 95% 469,341 0.5% 7.49
-- --------- ---- --------- ---- ------
Market Subtotal 5 296,649 97% $1,719,585 1.6% $ 5.96
Columbus Market
Equity Drive, Building 2, Columbus, OH 1980 1 116,160 61% $ 415,371 0.4% $ 5.83
-- --------- ---- --------- ---- ------
Minneapolis Market
Woodale Drive, Building 2, Mounds View, MN 1989 1 55,742 100% $ 470,356 0.4% $ 8.44
Woodale Drive, Building 3, Mounds View, MN 1990 1 144,019 100% 844,751 0.8% 5.87
Woodale Drive, Building 4, Mounds View, MN 1992 1 42,551 100% 208,107 0.2% 4.89
-- --------- ---- --------- ---- ------
Market Subtotal 3 242,312 100% $1,523,214 1.4% $ 6.29
-- --------- ---- --------- ---- ------
MIDWEST REGION SUBTOTAL 13 912,158 94% $5,696,440 5.3% $ 6.63
SOUTHEAST REGION
Charlotte Market
Airport Road, Monroe, NC 1957/1972 1 118,930 100% $ 591,600 0.5% $ 4.97
Old Charlotte Highway, Monroe, NC 1957/1972 1 135,000 100% 394,400 0.4% 2.92
-- --------- ---- --------- ---- ------
Market Subtotal 2 253,930 100% $ 986,000 0.9% $ 3.88
Atlanta Market
Cobb International Place, Building 1,
Atlanta, GA 1996 1 60,000 100% $ 260,820 0.3% $ 4.35
Cobb International Place, Building 2,
Atlanta, GA 1996 1 68,000 100% 242,617 0.2% 3.57
Town Park Drive, Building 1, Kennesaw, GA 1995 1 65,830 100% 317,275 0.3% 4.82
Town Park Drive, Building 2, Kennesaw, GA 1995 1 55,554 100% 250,632 0.2% 4.51
South Royal Drive, Building 1, Tucker, GA 1987 1 53,402 100% 256,179 0.2% 4.80
South Royal Drive, Building 2, Tucker, GA 1987 1 43,720 100% 179,019 0.2% 4.09
South Royal Drive, Building 3, Tucker, GA 1989 1 37,041 100% 150,286 0.1% 4.06
-- --------- ---- --------- ---- ------
Market Subtotal 7 383,547 100% $1,656,828 1.5% $ 4.32
Orlando Market
Boggy Creek Road, Building 1, Orlando, FL 1992 1 52,500 85% $ 217,349 0.2% $ 4.88
Boggy Creek Road, Building 2, Orlando, FL 1996 1 55,456 100% 311,543 0.3% 5.62
Boggy Creek Road, Building 3, Orlando, FL 1998 1 55,456 81% 257,928 0.3% 5.77
Landstreet Road, Building 2, Orlando, FL 1997 1 55,456 100% 311,812 0.3% 5.62
Landstreet Road, Building 3, Orlando, FL 1996 1 50,018 100% 247,589 0.2% 4.95
-- --------- ---- --------- ---- ------
Market Subtotal 5 268,886 93% $1,346,221 1.3% $ 5.38
Other Markets
Industrial Drive South, Gluckstadt, MS 1988 1 160,000 100% $ 690,000 0.7% $ 4.31
-- --------- ---- --------- ---- ------
SOUTHEAST REGION SUBTOTAL 15 1,066,363 98% $4,679,049 4.4% $ 4.47
NORTHEAST REGION
Baltimore/Washington Market
The Crysen Center, Building 1, Jessup, MD 1985 1 75,820 100% $ 371,997 0.3% $ 4.91
The Crysen Center, Building 2, Jessup, MD 1985 1 76,043 100% 357,158 0.3% 4.70
West Nursery Road, Building 1, Linthicum, MD 1989 1 49,100 100% 343,700 0.3% 7.00
West Nursery Road, Building 2, Linthicum, MD 1989 1 39,041 100% 380,720 0.4% 9.75
Fontana Lane, Building 1, Baltimore, MD 1988 1 47,434 100% 251,103 0.2% 5.29
Fontana Lane, Building 2, Baltimore, MD 1988 1 61,320 84% 340,263 0.4% 6.58
Bristol Court, Jessup, MD 1988 1 73,071 100% 379,683 0.4% 5.20
Guilford Road, Annapolis Junction, MD 1989 1 96,686 100% 579,608 0.5% 5.99
Nokes Boulevard, Sterling, VA 1998 1 88,489 100% 726,576 0.7% 8.21
Oakville Industrial Park, Building 1,
Alexandria, VA 1949 1 67,225 100% 400,179 0.4% 5.95
Oakville Industrial Park, Building 2,
Alexandria, VA 1940 1 23,683 100% 114,883 0.1% 4.85
Oakville Industrial Park, Building 3,
Alexandria, VA 1947 1 76,089 100% 517,389 0.5% 6.80
Oakville Industrial Park, Building 4,
Alexandria, VA 1952 1 2,800 100% 18,624 0.0% 6.65
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
RENTABLE SQ. FT. ANNUALIZED NET RENT(1)
---------------- ----------------------
YEAR NUMBER PER
PROPERTY TYPE AND LOCATION BUILT/ OF % % OF LEASED
- --------------------------
RENOVATED PROPERTIES NUMBER LEASED AMOUNT TOTAL SQ. FT.
--------- ---------- ------ ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Oakville Industrial Park, Building 5,
Alexandria, VA 1955 1 56,134 98% 216,197 0.2% 3.92
Oakville Industrial Park, Building 6,
Alexandria, VA 1946 1 50,876 100% 502,253 0.5% 9.87
-- --------- ---- ------------ ----- ------
Market Subtotal 15 883,811 99% $ 5,500,333 5.2% $ 6.30
Boston Market
Technology Drive, Auburn, MA 1973 1 54,400 100% $ 194,448 0.2% $ 3.57
John Hancock Road, Taunton, MA 1986 1 34,224 100% 206,147 0.2% 6.02
-- --------- ---- ------------ ----- ------
Market Subtotal 2 88,624 100% $ 400,595 0.4% $ 4.52
New York/New Jersey Market
New England Avenue, Piscataway, NJ 1975/1995 1 101,553 100% $ 404,861 0.4% $ 3.99
Memorial Drive, Franklin Township, NJ 1988 1 148,598 100% 996,704 0.9% 6.71
-- --------- ---- ------------ ----- ------
Market Subtotal 2 250,151 100% $ 1,401,565 1.3% $ 5.60
-- --------- ---- ------------ ----- ------
NORTHEAST REGION SUBTOTAL 19 1,222,586 99% $ 7,302,493 6.9% $ 6.02
-- --------- ---- ------------ ----- ------
WORKSPACE PROPERTIES TOTAL 90 5,326,477 98% $30,072,047 28.2% $ 5.77
GRAND TOTAL 206 28,032,991 97% $106,533,677 100.0% $ 3.90
=== ========== === ============ ====== ======
</TABLE>
(1) "Annualized Net Rent" means annualized monthly net rent from leases in
effect as of December 31, 1998. Net rent means contractual rent, excluding
any reimbursements for real estate taxes or operating expenses.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Cabot Trust is not a party to any material litigation nor, to Cabot Trust's
knowledge, is any litigation threatened against Cabot Trust, other than routine
actions arising in the ordinary course of business, substantially all of which
are expected to be covered by liability insurance and which in the aggregate are
not expected to have a material adverse effect on the business, results of
operations or financial condition of Cabot Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
19
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The executive officers of the Registrant and their respective positions,
business experience and ages at March 8, 1999, are shown in the following table
below.
Term as
Trustee
Name Age Position Expires
- -------------------------------------------------------------------------------
Ferdinand Colloredo-Mansfeld/(1)/ 59 Chairman of the Board and Chief 2000
Executive Officer, Trustee
Robert E. Patterson 54 President, Trustee 2000
Franz Colloredo-Mansfeld/(1)/ 36 Senior Vice President-Chief
Financial Officer
Andrew D. Ebbott 43 Senior Vice President Director of
Acquisitions
Howard B. Hodgson, Jr. 43 Senior Vice President Director of
Real Estate Operations
Neil E. Waisnor 44 Senior Vice President Finance,
Treasurer and Secretary
Eugene F. Reilly 37 Senior Vice President Director of
Marketing and Development
(1) Messrs. Ferdinand and Franz Colloredo-Mansfeld are father and son.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
Cabot Trust's common shares began trading on the New York Stock Exchange
("NYSE") on January 30, 1998, under the symbol "CTR." The following table sets
forth the high and low sales prices per share as reported on the New York Stock
Exchange Composite Tape and the distributions paid on the Common Shares for the
periods indicated.
1998: High Low Distributions
- ----- ---- --- -------------
First Quarter (from January 30, 1998) $23.81 $20.88 $.202
Second Quarter 25.13 19.81 .325
Third Quarter 22.19 17.56 .325
Fourth Quarter 22.00 16.88 .325
1999:
- -----
First Quarter (through March 8, 1999) 20.44 18.25 --
On March 8, 1999, Cabot Trust had 18,636,552 Common Shares outstanding held of
record by 31 shareholders and beneficially by approximately 2,000 shareholders.
20
<PAGE>
The actual operating cash flow that Cabot Trust will realize and the amount
available for distributions to shareholders will be affected by a number of
factors, including the revenues received from the properties, the distributions
it receives from Cabot L.P., the operating expenses of Cabot L.P. and Cabot
Trust, the interest expense on borrowings and capital expenditures. Future
distributions by Cabot Trust will be at the discretion of the Board of Trustees
and will depend on the actual FFO of Cabot Trust, its financial condition,
capital requirements, the annual income distribution requirements under the REIT
provisions of the Code and such other factors as the Board of Trustees deems
relevant. In 1998, 100 percent of Cabot Trust's distributions to shareholders
were taxable as ordinary income.
USE OF PROCEEDS FROM SALES OF COMMON SHARES
Cabot Trust's registration statement on Form S-11 (File Number 333-38383) for
its initial public offering of 8,625,000 Common Shares was declared effective by
the Securities and Exchange Commission on January 28, 1998. The offering
commenced on January 30, 1998, and terminated on February 4, 1998, with a sale
of all the registered shares for an aggregate offering price of $172,500,000.
The managing underwriter for the public offering was J.P. Morgan Securities,
Inc.
The following table indicates the expenses incurred in connection with the
issuance and distribution of Common Shares in this offering:
<TABLE>
<CAPTION>
Description of Fees and Expenses Amount of Fees
--------------------------------- --------------
<S> <C>
Underwriting Discounts and Commissions $12,075,000
Finders' Fees -
Underwriters' Expenses 300,000
Other Expenses 3,809,000
-----------
TOTAL FEES AND EXPENSES $16,184,000
===========
</TABLE>
None of such expenses represented direct or indirect payments to (i) Trustees or
officers of Cabot Trust or their associates, (ii) persons owning 10 percent or
more of any class of Cabot Trust's equity securities or (iii) affiliates of
Cabot Trust.
The net proceeds to Cabot Trust from the above-described offering, as well as
$20 million from a concurrent private placement, after deducting the expenses
described above, were approximately $176.3 million. The net proceeds of the
offerings were applied as follows through December 31, 1998: approximately
$163.1 million for the acquisition of other properties and approximately $13.2
million for the repayment of indebtedness. None of such uses of net proceeds
represented direct or indirect payments to (i)Trustees or officers of Cabot
Trust or their associates, (ii) persons owning 10 percent or more of any class
of Cabot Trust's equity securities or (iii) affiliates of Cabot Trust.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Cabot Trust commenced operations in its current form on February 4, 1998, the
completion date of the Formation Transactions and the Offerings described
elsewhere herein. Set forth below are selected historical financial and other
data for the real estate advisory business of Cabot Partners, and for Cabot
Trust. The selected financial data presented below as of December 31, 1997 and
1996 and for the two years in the period ended December 31, 1997 have been
derived from the Cabot Partners financial
21
<PAGE>
statements that have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports included in this report on Form 10-K.
This information should be read in conjunction with such financial statements
and the notes thereto. The selected financial data presented below as of and for
the years ended December 31, 1995 and 1994 for Cabot Partners are derived from
Cabot Partners financial statements and the notes thereto not included in this
report on Form 10-K which have been audited by Arthur Andersen LLP.
The selected financial data presented below as of and for the year ended
December 31, 1998, have been derived from the financial statements of Cabot
Trust that have been audited by Arthur Andersen LLP independent public
accountants, as indicated in their report included in this report on Form 10-K.
This information should be read in conjunction with the financial statements and
notes thereto included elsewhere within this filing.
<TABLE>
<CAPTION>
CABOT TRUST CABOT PARTNERS
---------------------- ----------------------------------------------------------
AS OF AND FOR THE
YEAR ENDED YEARS ENDED DECEMBER 31,
----------------------------------------------------------
In thousands DECEMBER 31, 1998(1) 1997 1996 1995 1994
- ---------------------------------- ---------------------- ------------- ------------- ------------- -------------
OPERATING DATA
<S> <C> <C> <C> <C> <C>
Revenues $ 102,425 $ 9,080 $ 7,908 $ 6,516 $ 4,159
General and administrative expenses 6,815 7,045 5,888 5,069 4,267
Depreciation and amortization expense 20,913 977 419 453 474
Net income (loss)(3) 21,766 1,058 1,594 1,057 (536)
Net income per share 1.17
Distributions per share/unit 1,177
BALANCE SHEET DATA
Total assets $ 1,110,570 $ 5,339 $ 6,075 $ 5,628 $ 4,300
Total liabilities 293,272 760 485 563 292
Minority interest 468,311 - - - -
Total shareholders' equity/partners' 348,987 4,579 5,590 5,065 4,008
capital
OTHER DATA
Cash flows provided by (used in):
Operating activities $ 78,726 $ 1,062 $ 1,283 $ 1,351 $ (12)
Investing activities (398,795) (193) 113 (6) 40
Financing activities 322,369 (2,069) (1,069) - -
Assets under management (unaudited)(2) N/A 861,000 979,000 778,000 515,000
</TABLE>
(1) Represents activity for the period from the commencement of operations on
February 4, 1998 through December 31, 1998.
(2) Based on the estimated fair market value of the managed assets as of the
dates indicated.
(3) Net of minority interest.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The statements regarding Cabot Trust contained in this discussion and elsewhere
in this report that are not historical facts are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements are
based on current expectations, estimates and projections about the industry and
markets in which Cabot Trust operates, management's beliefs and assumptions made
by management. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates", and variations of such words and similar
expressions are intended to identify such forward-looking statements. Such
22
<PAGE>
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Therefore, actual outcomes and results may differ
materially from what is expressed or suggested by such forward-looking
statements. Cabot Trust's operating results depend primarily on income from
industrial properties, which may be affected by various factors, including
changes in national and local economic conditions, competitive market
conditions, uncertainties and costs related to and the imposition of conditions
on receipt of governmental approvals and costs of material and labor, all of
which may cause actual results to differ materially from what is expressed
herein. Capital and credit market conditions which affect Cabot Trust's cost of
capital also influence operating results.
Introduction
CABOT TRUST
Cabot Trust owns and operates a diversified portfolio of bulk distribution,
multitenant distribution and "workspace" (light industrial, R&D and similar
facilities) properties throughout the United States. At December 31, 1998, Cabot
Trust owned 206 industrial properties, 121 of which properties were acquired in
connection with the Formation Transactions described in Notes 1 and 3 to the
consolidated financial statements herein, and 84 of which properties were
acquired during the period from February 4, 1998 through December 31, 1998 (21
of the 84 properties were identified in the prospectus for Cabot Trust's initial
public offering dated January 30, 1998). In addition, Cabot Trust placed one
property included within its development program into service in 1998. Cabot
Trust was formed on October 10, 1997, but did not begin operations as a fully
integrated real estate company until the completion of the Formation
Transactions and Offerings on February 4, 1998, the closing date of Cabot
Trust's initial public offering. Cabot Trust had no operations prior to
February 4, 1998.
CABOT PARTNERS
Cabot Partners is the real estate advisory and management entity that was the
sponsor and organizer of Cabot Trust. Its revenues primarily consisted of asset
management and acquisition fees earned under advisory contracts with large
institutional investors.
Results of Operations
CABOT TRUST
Since Cabot Trust was formed in October 1997 and did not begin operations until
February 4, 1998, the results for the year ended December 31, 1998 represent
activity for 331 days (approximately 11 months) only, and no comparison of
results to prior periods are available.
Year Ended December 31, 1998
Net income attributable to common shareholders for the year ended December 31,
1998 totaled $21.8 million, or $1.17 per basic and diluted share.
23
<PAGE>
Rental revenues for the year ended December 31, 1998 were $102.4 million,
including tenant reimbursements of $13.4 million. Total rental revenue of $74.4
million was generated by the 121 properties still owned as of December 31, 1998,
which were also owned as of February 4, 1998, as a result of the Formation
Transactions (the "Baseline Properties"), $27.1 million of rental revenue was
generated by the 84 properties acquired subsequent to February 4, 1998, and the
development property placed into service in 1998 and the remaining $864,000 of
rental revenue relates to a property that was sold by Cabot Trust during 1998.
The ratio of tenant reimbursements to operating and real estate tax expenses was
approximately 73%. Depreciation and amortization related to real estate
investments totaled $20.9 million for the year ended December 31, 1998.
Interest and other income included $231,000 of earnings from Cabot Advisors. The
remainder of such income consists primarily of interest income earned on Cabot
Trust's invested cash balances. Interest expense represents $1.8 million of
interest incurred on $48.2 million of mortgage indebtedness outstanding and also
includes interest expense of $5.2 million related to borrowings under the
Acquisition Facility, net of amounts capitalized to development projects.
CABOT PARTNERS
Years Ended December 31, 1997 and 1996
Revenues, primarily consisting of asset management fees and acquisition fees,
increased by $1.2 million for the year ended December 31, 1997, or 14.8%, to
$9.1 million as compared to $7.9 million for the year ended December 31, 1996.
The increase was due to a $191 million increase in average assets under
management for the year ended December 31, 1997, as compared to the year ended
December 31, 1996, which resulted in an $850,000 increase in asset management
fees. In addition, acquisition fees increased by $262,000 in 1997 as compared to
1996 due to an increase in fee-earning acquisitions of $37 million.
General and administrative expenses increased by $1.2 million for the year ended
December 31, 1997, or 19.7%, to $7.0 million as compared to $5.9 million for the
year ended December 31, 1996. Compensation expense increases accounted for
$798,000, or 6.9%, of the increase. The remainder of the increase was primarily
due to higher professional services fees. General and administrative expenses as
a percent of revenues for 1997 and 1996 was 77.6% and 74.5%, respectively.
Depreciation and amortization expense increased by $558,000 for the year ended
December 31, 1997, to $977,000 due to increased amortization of two advisory
contracts terminated during 1997.
CAPITAL RESOURCES AND LIQUIDITY
As a result of the completion of the Offerings in February 1998, Cabot Trust
issued 8,625,000 Common Shares to the public and 1,000,000 Common Shares in a
private placement of shares. All of the Common Shares were sold at a price of
$20.00 per share. The proceeds from the Offerings, net of offering costs, were
$176.3 million.
Cabot Trust intends to rely on cash provided by operations, unsecured and
secured borrowings from institutional sources, and public debt as its primary
sources of funding for acquisition, development, expansion and renovation of
properties. Cabot Trust may also consider preferred and common equity financing
when such financing is available on attractive terms.
24
<PAGE>
In March 1998, Cabot L.P. executed the Acquisition Facility, which is a
$325 million unsecured revolving line of credit, with Morgan Guaranty Trust
Company of New York as lead agent to a syndicate of banks. The Acquisition
Facility is used to fund property acquisitions, development activities, building
expansions, tenant leasing costs and other general corporate purposes. The
Acquisition Facility contains certain restrictions and requirements such as
total debt-to-assets, debt service coverage, minimum unencumbered assets to
unsecured debt ratios and other limitations. Cabot Trust believes cash flow from
operations not distributed to shareholders and unitholders will be sufficient to
cover tenant allowances and costs associated with renewal or replacement of
current tenants as their leases expire and recurring non-incremental revenue
generating capital expenditures.
In the normal course of operations, as of March 8, 1999, Cabot Trust has
purchased approximately $5.4 million of real estate assets in 1999 and has
commitments to purchase $71.2 million of additional real estate assets. The
completed real estate assets acquisitions were primarily funded through
Acquisition Facility borrowings.
As of December 31, 1998, Cabot L.P. had $48.2 million of fixed rate debt secured
by properties, $200.0 million of unsecured variable rate borrowings under its
Acquisition Facility and a 22% debt-to-total market capitalization ratio. The
debt-to-total market capitalization ratio is calculated based on Cabot Trust's
total consolidated debt as a percentage of the market value of outstanding
Common Shares and Units (not held by Cabot Trust) plus total debt. In addition,
in February 1999, Cabot Trust borrowed $87.6 million, secured by properties, the
proceeds of which borrowing were used to repay a portion of the outstanding
balance under the Acquisition Facility.
Cabot Trust entered into an interest rate collar arrangement relating to its
LIBOR-based Acquisition Facility for a notional amount of $140 million for the
period January 1, 1999, through February 15, 1999. The arrangement is intended
to result in limiting the variable LIBOR component of Cabot Trust's interest
cost on an equivalent amount of borrowings to the range of 5.05% to 6.25% per
annum. Cabot Trust has also entered into an interest rate hedge transaction
involving the future sale of $100 million of Treasury Securities based on a rate
of approximately 5.54% for such securities in anticipation of a future debt
issuance of at least $100 million with a maturity of 10 years. Based on the rate
for 10-year Treasury Securities as of close of business on March 8, 1999, the
hedge transaction would be settled by Cabot Trust paying $2.1 million, which
would have the effect of increasing Cabot Trust's borrowing rate on $100 million
of anticipated borrowings by approximately 0.2%. If an offering of the size and
maturity contemplated is not completed by the time of, or shortly after, the
March 31, 1999 settlement date of the hedge transaction, or if for any other
reason the transaction is determined no longer to qualify for hedge accounting
treatment, Cabot Trust would be required to record an expense equal to the fair
value of the instrument (or the remaining unmatched portion thereof) as of the
earlier of the termination date of the instrument or the date of such
determination. As of March 8, 1999, the fair value of the instrument and,
accordingly, the expense that Cabot Trust would have been required to record was
$2.1 million. Such amount changes, in amounts that may be material, as the
market price and the related yield (5.261% at March 8, 1999) on 10-year Treasury
Securities varies.
Cash and cash equivalents totaled $2.3 million at December 31, 1998. This was
the result of $78.7 million of cash generated from operating activities and
$322.4 million provided by financing activities, reduced by $398.8 million used
for investing activities.
25
<PAGE>
Year 2000
Cabot Trust has assessed its Year 2000 readiness with respect to its internal
accounting and information systems. Cabot Trust also has contacted its
significant vendors, including banks and software providers, to determine
whether those vendors are satisfactorily addressing the Year 2000 problem with
respect to the products and services they provide to Cabot Trust. No significant
issues or costs of remediation have been identified with respect to such systems
or vendors. Cabot Trust has also completed its review of its other internal
systems (consisting primarily of property-related systems, such as elevators and
heating, ventilation, and air conditioning systems) and has developed a Year
2000 remedial plan to address issues identified in such review, none of which
are considered by Cabot Trust to be material. Remediation costs to date have not
been material, and Cabot Trust does not expect any significant issues or
remediation costs as a result of completion of its remedial plan due to the
relatively uncomplicated nature of its real estate assets (industrial
properties) and the general nature of its leases, which in many instances
provide for the reimbursement of costs from its tenants. Cabot Trust believes
that there will be no direct material effects on its operating performance or
results of operations from the Year 2000 problem as it relates to Cabot Trust's
internal systems and significant vendors. Cabot Trust further believes that
adequate alternative service providers will be available to it if any of its
vendors experience unexpected difficulties as a result of Year 2000 systems
failures and, accordingly, has not established any specific contingency plans in
this regard. It is not possible to quantify any potential indirect effects that
may result from the lack of Year 2000 readiness on the part of third parties,
including tenants, with whom Cabot Trust conducts its business.
INFLATION
Substantially all of the leases of the Properties require the tenant to pay, as
additional rent, either all real estate taxes and operating expenses or all
increases in real estate taxes and operating expenses over a base amount. In
addition, many of such leases provide for fixed or indexed increases (based on
the consumer price index or other measures) in base rent. Management believes
that inflationary increases in operating expenses will be off-set, in part, by
these expense reimbursements and contractual rent increases.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Cabot Trust is exposed to market risk, primarily from changes in interest rates.
To manage the volatility relating to interest rate risk exposure, Cabot Trust
enters into interest rate protection agreements which are designed to limit
Cabot Trust's exposure to interest rate risk. Cabot Trust does not hold or issue
derivative financial instruments for trading purposes.
Certain of Cabot Trust's long-term obligations and interest rate protection
agreements are sensitive to changes in interest rates. A hypothetical 100 basis
point increase in interest rates would increase the interest expense on
outstanding borrowings under the Acquisition Facility by approximately $2
million per year, based on the balance outstanding as of December 31, 1998.
Cabot Trust has entered into a treasury rate lock transaction to hedge a future
anticipated debt issuance. The settlement cost or benefit of this arrangement
will be reflected as an adjustment to interest expense over the life of the
anticipated debt issuance, if this transaction continues to qualify for hedge
26
<PAGE>
accounting treatment. Otherwise, the amount paid or received by Cabot Trust to
settle this transaction would result in a current period loss or gain recorded
in Cabot Trust's consolidated statement of operations. Based on the settlement
value of the transaction as of March 8, 1999, Cabot Trust would make a payment
of $2.1 million and would record a current period loss in that amount. A
hypothetical 10 basis point increase or decrease in interest rates would result
in an increase or decrease in the amount payable under this hedge transaction
(compared to the value at December 31, 1998) of approximately $800,000.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
CABOT INDUSTRIAL TRUST
Report of Independent Public Accountants ............................................... 29
Consolidated Balance Sheet as of December 31, 1998 and 1997............................. 30
Consolidated Statement of Operations for the year ended December 31, 1998............... 31
Consolidated Statement of Shareholders' Equity for the year ended December 31, 1998..... 32
Consolidated Statement of Cash Flows for the year ended December 31, 1998............... 33
Notes to Consolidated Financial Statements.............................................. 34
Schedule III Real Estate and Accumulated Depreciation.................................. 48
CABOT PARTNERS LIMITED PARTNERSHIP
Report of Independent Public Accountants................................................ 54
Balance Sheet as of December 31, 1997 and 1996 ......................................... 55
Statements of Operations for the years ended December 31, 1997 and 1996................. 56
Statements of Partners' Capital for the years ended December 31, 1997 and 1996.......... 57
Statements of Cash Flows for the years ended December 31, 1997 and 1996................. 58
Notes to Financial Statements........................................................... 59
</TABLE>
28
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees
of Cabot Industrial Trust:
We have audited the accompanying consolidated balance sheet of Cabot Industrial
Trust and subsidiaries (Cabot Trust), a Maryland real estate investment trust,
as of December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year ended December 31,
1998 (Note 1). These financial statements are the responsibility of Cabot
Trust's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cabot Industrial
Trust and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Boston, Massachusetts ARTHUR ANDERSEN LLP
February 9, 1999
(except with respect to the matters
discussed in Note 13, as to which
the date is March 8, 1999).
29
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
As of December 31,
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS:
INVESTMENT IN REAL ESTATE:
Land $ 199,145 $ -
Buildings 873,530 -
Less: Accumulated Depreciation (17,290) -
-------------- -------------
Net Rental Properties 1,055,385 -
Properties under Development 23,108 -
-------------- -------------
$ 1,078,493 $ -
-------------- -------------
OTHER ASSETS:
Cash and Cash Equivalents $ 2,301 $ 1
Rents and Other Receivables,
net of reserve for uncollectible accounts of $312 2,872 -
Deferred Rent Receivable 2,638 -
Deferred Lease Acquisition Costs, Net 17,362 -
Deferred Financing Costs, Net 1,255 -
Investment in and Advances to Related Party 582 -
Other Assets 5,067 3,480
-------------- -------------
TOTAL ASSETS $ 1,110,570 $ 3,481
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Mortgage Debt $ 48,206 $ -
Line of Credit Borrowings 200,000 -
Accounts Payable 511 2,255
Accrued Real Estate Taxes 7,309 -
Distributions Payable 14,134 -
Due to Related Party - 1,225
Tenant Security Deposits and Prepaid Rents 4,956 -
Other Liabilities 18,156 -
-------------- -------------
$ 293,272 $ 3,480
-------------- -------------
MINORITY INTEREST $ 468,311 $ -
-------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
SHAREHOLDERS' EQUITY:
Common Shares, $0.01 par value, 150,000,000 shares authorized;
18,586,764 shares issued and outstanding at December 31, 1998,
and 50 shares issued and outstanding at December 31, 1997 $ 186 $ -
Paid in Capital 348,912 1
Retained Deficit (111) -
-------------- -------------
TOTAL SHAREHOLDERS' EQUITY $ 348,987 $ 1
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,110,570 $ 3,481
============== =============
</TABLE>
The accompanying notes are in integral part of these consolidated financial
statements.
30
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1998
(see Note 1)
---------------------
<S> <C>
REVENUES:
Rental Income $ 89,044
Tenant Reimbursements 13,381
------------
$ 102,425
------------
EXPENSES:
Property Operating $ 6,579
Property Taxes 11,843
Depreciation and Amortization 20,913
General and Administrative 6,815
Interest 7,009
------------
Total Expenses $ 53,159
------------
Gain on Sale of Real Estate $ 572
Interest and Other Income 1,120
------------
Income before Minority Interest $ 50,958
Expense
Minority Interest Expense (29,192)
------------
Net Income $ 21,766
============
Earnings per Share:
Basic $ 1.17
============
Diluted $ 1.17
============
Weighted Average Shares:
Basic 18,586,764
============
Diluted 18,586,764
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Common
Shares of Common Capital In Retained
Beneficial Share Par Excess of Earnings
Interest Value Par Value (Deficit)
-------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 50 $ - $ 1 $ -
Issuance of Common Shares 18,586,714 186 349,116 -
Effect of Unit Transactions - - (205) -
Net income - - - 21,766
Distributions ($1.177 per share) - - - (21,877)
-------------- ---------------- ---------------- ----------
Balance, December 31, 1998 18,586,764 $ 186 $ 348,912 $ (111)
============== ================ ================ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, except share data)
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1998
(see Note 1)
----------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 21,766
Adjustments to reconcile net income to cash provided by operating activities:
Minority Interest Expense 29,192
Depreciation and Amortization 20,913
Straight Line Rent (2,638)
Amortization of Deferred Financing Costs 466
Company's Share of Net Income of Cabot Advisors (231)
Gain on Sale of Real Estate (572)
Increase in Rents and Other Receivables (2,872)
Increase in Accounts Payable 406
Increase in Other Assets (2,877)
Increase in Accrued Real Estate Taxes 7,309
Increase in Tenant Security Deposits and Prepaid Rents 4,956
Increase in Other Liabilities 2,908
-----------
Net Cash Provided by Operating Activities $ 78,726
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Investments in Real Estate $ (376,816)
Construction-in-Progress (19,532)
Purchases of Lease Acquisition Costs (3,059)
Increases in Lease Acquisition Costs (3,798)
Improvements to Real Estate (458)
Acquisition Deposits (1,579)
Proceeds from Sale of Real Estate 6,874
Advances to Management Company (351)
Purchases of Furniture, Fixtures and Equipment (76)
-----------
Net Cash Used in Investing Activities $ (398,795)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deferred Financing Costs $ (1,721)
Increase in Other Assets (490)
Debt Principal Repayments (14,232)
Line of Credit Borrowings, net 200,000
Proceeds from the Issuance of Common Shares, net 177,606
Repurchase of Partnership Units (1,718)
Distributions paid to Common Shareholders (15,836)
Distributions paid to Minority Interest (21,240)
-----------
Net Cash Provided by Financing Activities $ 322,369
-----------
Net Increase in Cash and Cash Equivalents $ 2,300
-----------
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR 1
-----------
CASH AND CASH EQUIVALENTS-END OF YEAR $ 2,301
===========
Cash paid for interest, net of amounts capitalized $ 5,771
===========
</TABLE>
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In conjunction with the Offering and Formation Transactions, Cabot Trust
assumed $18,413 of indebtedness and issued 33,850,000 Common Shares and
Partnership Units in exchange for real estate assets and the advisory business
of Cabot Partners valued at $659,021 and $77, respectively.
In conjunction with the acquisitions of certain real estate, Cabot Trust
assumed $44,025 of indebtedness and issued Units valued at $2,268.
At December 31, 1998, accrued capital expenditures (including amounts
included in accounts payable) totaled $7,243, accrued development costs totaled
$3,576 and accrued offering costs totaled $1,290.
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998
1. GENERAL
Organization
Cabot Industrial Trust (Cabot Trust), a Maryland real estate investment trust,
was formed on October 10, 1997. Cabot Trust is the managing general partner of
a limited partnership, Cabot Industrial Properties, L.P. (Cabot L.P.), and
conducts substantially all of its business through Cabot L.P. As the general
partner of Cabot L.P., Cabot Trust has the exclusive power under the agreement
of limited partnership to manage and conduct the business of Cabot L.P., and
therefore Cabot Trust consolidates the financial results of Cabot L.P. for
financial reporting purposes.
Cabot Trust is a fully integrated, internally managed real estate company formed
to continue and expand the national real estate business of Cabot Partners
Limited Partnership (Cabot Partners). Cabot Trust expects to qualify as a real
estate investment trust (a REIT) for federal income tax purposes.
Since Cabot Trust was formed on October 10, 1997, and did not begin operations
until February 4, 1998 (see The Formation Transactions below), the results for
the year ended December 31, 1998, represent activity for 331 days, or
approximately 11 months.
Initial Capitalization
The initial capitalization of Cabot Trust consisted of 50 Common Shares of
beneficial interest, par value $.01 per share (Common Shares), issued for a
total consideration of $1,000. In connection with the Formation Transactions and
Offerings (described below), Cabot Trust issued an additional 18,586,714 Common
Shares.
The Formation Transactions
On February 4, 1998, under a Contribution Agreement executed by Cabot Trust,
Cabot L.P., Cabot Partners, and various other contributors, 122 industrial real
estate properties, certain real estate advisory contracts and other assets were
(i) contributed to Cabot L.P. in exchange for Units in Cabot L.P. that may,
subject to certain restrictions, be exchanged for common shares of Cabot Trust
or (ii) contributed to Cabot Trust in exchange for common shares. The
properties contributed to Cabot Trust were concurrently contributed by it to
Cabot L.P. in exchange for the number of general partnership Units in Cabot L.P.
equal to the number of common shares exchanged for the property.
Cabot L.P. contributed the real estate advisory contracts to Cabot Advisors,
Inc. (Cabot Advisors) and received 100% of the non-voting preferred stock of
Cabot Advisors, which entitles it to 95% of Cabot Advisors' net operating cash
flow. All of the common stock of Cabot Advisors is owned by an officer of Cabot
Trust.
At December 31, 1998, Cabot Trust owned 42.7% of Cabot L.P. The remaining
57.3%, which is owned by investors that elected to receive Operating Partnership
Units, is considered minority interest.
34
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998
1. GENERAL (CONTINUED)
The Offerings
On February 4, 1998, Cabot Trust completed the offering of 8,625,000 Common
Shares at an offering price of $20.00 per share. In addition, Cabot Trust
issued 1,000,000 Common Shares in a private offering at $20.00 per share
(collectively, the Offerings). Cabot Trust contributed the net proceeds of the
Offerings to Cabot L.P. in exchange for the number of general partnership
interests in Cabot L.P. equal to the number of Common Shares sold in the
Offerings.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Cabot
Trust, Cabot L.P. and their subsidiaries over which they exercise control. The
ownership interest in Cabot L.P. which is not owned by Cabot Trust is reflected
as Minority Interest. All significant intercompany accounts and transactions
have been eliminated in consolidation.
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 the 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.
Investment in Real Estate
Investments in real estate are carried at cost, less accumulated depreciation.
It is Cabot Trust's policy to review the carrying value of long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Measurement of the
impairment loss is based on the fair value of the asset. Generally, fair value
will be determined using valuation techniques such as the present value of
expected future cash flows. No impairment adjustments have been made as a
result of this review process during 1998.
Investments in real estate are primarily depreciated over 40 years using the
straight-line method. Expenditures for ordinary maintenance and repairs are
charged to operations as incurred. Significant building renovations and
improvements that extend the useful life of or improve the assets are
capitalized.
Cash Equivalents
Cabot Trust considers all short-term investments with a maturity of three months
or less to be cash equivalents.
35
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31,1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capitalization of Costs
Cabot Trust has capitalized as deferred costs certain expenditures related to
the financing and leasing of its properties. Capitalized loan fees are
amortized over the term of the related loans and lease acquisition costs are
amortized over the term of the related leases, or the estimated useful life of
the improvement, if shorter. Deferred Lease Acquisition Costs and Deferred
Financing Costs included in the accompanying consolidated balance sheet are
presented net of accumulated amortization totaling $3,487,000 and $466,000,
respectively, as of December 31, 1998.
Investment in Cabot Advisors
Cabot Trust's investment in Cabot Advisors is accounted for using the equity
method. Under the equity method of accounting, Cabot Trust's pro rata share of
Cabot Advisors' income (loss) is recorded as an increase (decrease) in the
carrying value of its investment, and any distributions received are recorded as
decreases in the carrying value.
Rental Income
All leases are classified as operating leases. Certain leases provide for
tenant occupancy during periods for which no rent is due and minimum rent
payments that increase during the term of the lease. Cabot Trust records rental
income for the full term of each lease on a straight-line basis. The resulting
Deferred Rent Receivable represents the amount due from tenants, net of
reserves, which Cabot Trust expects to collect over the remaining life of the
leases rather than currently. Deferred rental revenue is not recognized for
income tax purposes until received.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The new statement is effective for fiscal
years beginning after June 15, 1999; earlier adoption is allowed. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. Cabot Trust is
currently evaluating the impact of this Statement and does not anticipate a
material effect on its results of operations or financial position resulting
from the adoption of SFAS No. 133 due to its relatively limited use of
derivative instruments.
3. ACQUISITIONS OF REAL ESTATE INVESTMENTS
In accordance with generally accepted accounting principles, Cabot Trust has
accounted for the Formation Transactions using the purchase method of
accounting. As such, the assets acquired and liabilities assumed in connection
with the Formation Transactions are recorded at the fair value of the
consideration surrendered and liabilities assumed, except for the net assets
contributed by Cabot Partners, the sponsor and organizer, which were recorded at
their historical
36
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1998
3. ACQUISITIONS OF REAL ESTATE INVESTMENTS (CONTINUED)
cost basis. The acquisition cost was then allocated to all identifiable assets
based upon their individual estimated fair market values.
The following is a summary of the acquisition costs recorded in connection with
the Formation Transactions:
<TABLE>
<CAPTION>
(in 000's)
-------------
<S> <C>
Fair value of Cabot Trust's Common Shares and
Cabot L.P.'s Units, based on the
February 4, 1998 value of $20 per Share/Unit, issued
to the contributing investors (except Cabot Partners) $640,608
Value of Partnership Units issued to Cabot Partners,
recorded at carryover historical cost basis 77
Mortgage debt assumed 18,413
Other acquisition costs and liabilities assumed 8,713
------------
Total acquisition cost basis $667,811
============
Acquisition cost basis allocated to:
Land $129,877
Buildings 525,471
Lease Acquisition Costs 12,412
------------
Acquisition cost basis allocated to Real Estate
as a result of the Formation Transactions $667,760
Acquisition cost basis allocated to Other Net Assets 51
------------
Total cost basis allocated $667,811
============
</TABLE>
Subsequent to the Formation Transactions, Cabot Trust acquired 84 properties
with an aggregate of approximately 9.6 million net rentable square feet. The
aggregate purchase price for the 84 properties was $426.2 million, including
$44.0 million of debt assumed and issuance of $2.3 million in Units of Cabot
L.P.
4. DEBT FACILITIES
The Acquisition Facility
On March 16, 1998, Cabot L.P. entered into a $325 million unsecured revolving
line of credit (the Acquisition Facility). The Acquisition Facility
matures on March 16, 2001, and the interest rate ranges from LIBOR plus 75
basis points to LIBOR plus 125 basis points depending on Cabot L.P.'s loan-to-
value ratio. At December 31, 1998, outstanding borrowings under the Acquisition
Facility were $200 million and the interest rate was LIBOR plus 100 basis
points, or 6.60%. The weighted average coupon interest rate on the Acquisition
Facility was 6.58% for the year ended December 31, 1998, including the effect of
the interest rate collar arrangements described below. The Acquisition Facility
is intended to be used to acquire and develop properties and for working capital
purposes.
37
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1998
4. DEBT FACILITIES (CONTINUED
Cabot Trust has entered into an interest rate collar arrangement relating to its
LIBOR-based Acquisition Facility for a notional amount of $140 million for the
period from January 1, 1999, through February 15, 1999. The arrangement is
intended to result in limiting the LIBOR component of Cabot Trust's interest
rate on an equivalent amount of borrowings to the range of 5.05% to 6.25% per
annum. Similar arrangements in effect during 1998 resulted in interest expense
of $47,000. Cabot Trust has also entered into an interest rate hedge
transaction, which expires on March 31, 1999, involving the future sale of $100
million of Treasury Securities based on a rate of approximately 5.54% for such
securities in anticipation of a future debt issuance with a maturity of 10
years. (See Notes 9 and 13.)
Mortgage Loans
Cabot Trust assumed certain loans in connection with the Formation Transactions
and has assumed certain loans in conjunction with subsequent real estate
acquisitions (the Mortgage Loans). The Mortgage Loans bear interest at annual
coupon rates ranging from 7.95% to 9.67% and are secured by certain of Cabot
Trust's properties, with a net book value of $92.6 million as of December 31,
1998. Certain of the debt assumed in conjunction with the acquisition of
properties bears a coupon interest rate which differed from the fair market
value interest rate at the date of acquisition. In accordance with generally
accepted accounting principles, such debt was recorded at fair market value and
interest expense recorded in the accompanying consolidated statement of
operations is adjusted based on the fair market interest rate at the date of
purchase.
Aggregate principal payments on mortgage notes payable at December 31, 1998, for
the five years ending December 31 and thereafter are as follows:
(in 000's)
----------
1999..........................$ 4,100
2000.......................... 4,165
2001.......................... 1,970
2002.......................... 6,648
2003.......................... 8,774
Thereafter.................... 22,549
5. FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancelable operating leases for Cabot
Trust's 206 industrial properties as of December 31, 1998, were as follows:
(in 000's)
----------
1999....................... $ 102,913
2000....................... 87,579
2001....................... 74,617
2002....................... 56,279
2003....................... 39,762
Thereafter................. 94,594
38
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1998
5. FUTURE MINIMUM RENTS (CONTINUED)
Cabot Trust is subject to the usual business risks associated with the
collection of the above-scheduled rents. The above amounts do not include
additional rental receipts that will become due as a result of the expense
reimbursement and escalation provisions in the leases. In addition, Cabot
Trust's minimum future rental receipts related to non-industrial properties
total $2.3 million.
6. INCOME TAXES
Cabot Trust 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. As a REIT, Cabot
Trust generally will not be subject to federal income tax if it distributes at
least 95% of its taxable income for each tax year to its shareholders. REITs
are also subject to a number of organizational and operational requirements. If
Cabot Trust fails to qualify as a REIT in any taxable year, Cabot Trust will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate tax rates. Even if Cabot Trust
qualifies for taxation as a REIT, Cabot Trust may be subject to state and local
income tax and to federal income tax and excise tax on its undistributed income.
7. EMPLOYEE BENEFIT PLANS
Cabot Trust has adopted the Cabot Industrial Trust Long Term Incentive Plan (the
"Plan") for the purpose of attracting and retaining highly qualified executive
officers, Trustees and employees. The Plan is administered by the Executive
Compensation Committee of the Board of Trustees, except that the Board of
Directors of Cabot Advisors or a committee thereof selects those employees of
Cabot Advisors who are eligible for awards under the Plan (in either case, the
Administrator). Officers and other employees of Cabot Trust, Cabot L.P. and
designated subsidiaries and members of the Board of Trustees who are not
employees of Cabot Trust are eligible to participate.
Options are awarded to Trustees or employees of Cabot Trust in the form of
Common Shares and to employees of Cabot L.P. or Cabot Advisors in the form of
Units. The Plan, at December 31, 1998, authorizes the issuance of up to
4,347,500 Common Shares and Units. The number of Common Shares and Units
available may increase each January 1 to an amount equal to 10% of the aggregate
number of outstanding Common Shares and Units on such date, and therefore,
currently the Plan authorizes the issuance of up to 4,349,047 Common Shares and
Units. The Plan provides for the grant of (i) Common Share options intended to
qualify as incentive options under Section 422 of the Code, (ii) Common Share
options and Unit options not intended to qualify as incentive options under
Section 422 of the Code and (iii) dividend equivalent rights and distribution
equivalent rights (collectively "DEUs") which entitle a Participant to be
credited with additional Common Share or Unit rights.
39
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
DECEMBER 31, 1998
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
In connection with the grant of options under the Plan, other than options to
Non-employee Trustees, the Administrator determines the terms of the option,
including the option exercise price, any vesting requirements and whether a DEU
shall be awarded. The Administrator has authority to award options at less than
fair market value but at this time has no intention of doing so. The options
granted under the Plan during 1998 have ten-year terms and become exercisable in
four equal annual installments commencing on the first anniversary of the date
of grant, subject to acceleration of vesting upon a change in control of Cabot
Trust (as defined in the Plan). DEUs entitle an option holder to an award of
additional shares or units with a positive intrinsic value calculated using a
formula that is based on the difference, if any, between the annual distribution
rate on the Units and Common Shares versus the average dividend rate on stocks
included in the S&P 500 index. DEUs vest on the same vesting schedule as the
underlying option and entitle the holder to a share or unit at the earlier of
the year of exercise, or the year of expiration, of the underlying option. The
options granted in 1998 were generally awarded with DEUs, which resulted in
compensation expense of approximately $400,000.
To the extent an option has not become exercisable at the time of the holder's
termination of employment, it will be forfeited unless the Administrator has
previously exercised its reasonable discretion to make such option exercisable,
and all vested options which are not exercised by the expiration date described
in the Plan will be forfeited. Any Common Shares or Units subject to an option
which is forfeited (or which expires without exercise) will again be available
for grant under the Plan.
A summary of Cabot Trust's stock option activity is as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------
Weighted Average
Number of Shares Exercise Price
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding, beginning of year - -
Granted 3,195,015 $20.04
Exercised - -
Forfeited (68,400) $20.00
---------------------------------------
Options outstanding, end of year 3,126,615 $20.04
=======================================
Distribution Equivalent Units, end of year 89,384 $ -
=======================================
Options exercisable - -
=======================================
Options available for grant 1,131,501 -
=======================================
</TABLE>
40
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998
7. Employee Benefit Plans (continued)
A summary of the status of Cabot Trust's stock options at December 31, 1998, is
as follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------------------------------
Weighted Average Weighted
Remaining Average
Range of Exercise Prices Number of Shares Contractual Life Exercise Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$17.00 - $19.99 973,015 9.95 years $19.76
$20.00 2,028,100 9.10 years $20.00
$20.01 - $24.16 125,500 9.37 years $22.90
</TABLE>
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-based Compensation," which sets forth a fair-value based
method of recognizing stock-based compensation expense. As permitted by SFAS
No. 123, Cabot Trust has elected to apply APB Opinion No. 25 to account for its
stock-based compensation plans. Accordingly, except for the distribution
equivalent units as described above, no compensation cost has been recognized
for Cabot Trust's Long Term Incentive Plan as the option prices at the date of
grant were equal to market prices. Had compensation cost for awards in 1998
under Cabot Trust's stock-based compensation plans been determined based on the
fair value at the grant dates consistent with the method set forth under SFAS
No. 123, the effect on Cabot Trust's net income and earnings per share would
have been as follows:
1998
- ----------------------------------------------------------------------
Net income:
As reported $ 21,766,000
Pro forma 21,255,000
Basic earnings per share:
As reported $ 1.17
Pro forma 1.14
Diluted earnings per share:
As reported $ 1.17
Pro forma 1.14
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
The weighted average fair value per share of options granted was $2.58 in 1998.
The fair value of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
41
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998
7. Employee Benefit Plans (continued)
1998
-----------------------------------------------
Expected volatility 20.66%
Risk-free interest rate 4.52- 5.60%
Expected life of options 7 years
Expected dividend yield 6.2%
The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions including expected stock price volatility. Because Cabot
Trust's employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of fair
value of its employee stock options.
401(k) Savings Plan
The Cabot Savings Plan 401(k) covers eligible full-time employees of Cabot Trust
and its affiliates. Contributions to the plan are made by both the employee and
employer. Employer contributions are based on the level of employee
contributions. For this plan, Cabot Trust contributed and charged to expense
$44,000 in 1998.
8. Earnings per Share
In accordance with SFAS No. 128, "Earnings per Share", basic earnings per share
have been computed by dividing net income by the weighted average number of
shares outstanding during the period subsequent to Cabot Trust's commencement of
operations (see Note 1).
Diluted earnings per share have been computed considering the dilutive effect of
the exercise of Unit options granted by Cabot L.P. Basic and diluted earnings
per share were calculated as follows:
Period ended
December 31, 1998
(see Note 1)
-----------------
Basic:
Net Income $ 21,766,000
------------
Weighted Average Shares 18,586,764
------------
Basic Earnings per Share $ 1.17
============
Diluted:
Net Income $ 21,766,000
Effect of Unit Options (35,000)
------------
Income available to Common Shareholders, as adjusted $ 21,731,000
------------
Weighted Average Shares 18,586,764
------------
Diluted Earnings per share $ 1.17
============
42
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998
9. Fair Value Of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires Cabot Trust to disclose fair value
information for all financial instruments, for which it is practicable to
estimate fair value, whether or not recognized in the balance sheet. Cabot
Trust's financial instruments, other than debt and interest rate protection
agreements are generally short-term in nature and contain minimal credit risk.
These instruments consist of cash and cash equivalents, rents and other
receivables and accounts payable. The carrying amount of these assets and
liabilities in the consolidated balance sheet approximate fair value.
The carrying amount and fair value of Cabot Trust's long-term obligations and
off-balance-sheet financial instruments as of December 31, 1998, are as follows:
Carrying Amount Fair Value
- ----------------------------------------------------------------------------
(in 000's)
Long-term obligations:
Mortgage loans payable $(48,206) $(51,450)
Off-balance-sheet financial instruments:
Interest rate protection agreements
(liability) - $( 6,734)
Cabot Trust's mortgage loans are at fixed rates, which in certain cases differ
from borrowing rates currently available to Cabot Trust with similar terms and
average maturities. The fair market values of mortgage loans payable were
estimated using a valuation technique which discounts expected future cash flows
to net present value. Cabot Trust's Acquisition Facility is at a variable rate,
which results in a carrying value that approximates its fair value. The fair
value of Cabot Trust's interest rate protection agreements is the estimated
amount that Cabot Trust would pay if it had terminated the contract as of
December 31, 1998, taking into account the change in interest rates and the
creditworthiness of the counterparties.
10. Cabot Advisors
Cabot Advisors is responsible for various activities including management of
Cabot Trust's properties and properties on behalf of third parties, as well as
providing other real estate related services for third parties. Total management
fees earned by Cabot Advisors related to Cabot Trust's properties are included
in Property Operating Expenses in the accompanying consolidated statement of
operations and amounted to $1,037,000.
43
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31,1998
10. CABOT ADVISORS (CONTINUED)
Summarized unaudited financial information for Cabot Advisors as of December 31,
1998, and for the year then ended, is as follows:
As of and for the
Year Ended December 31, 1998
- -----------------------------------------------------------------------------
(unaudited)
Total assets.................................... $1,103,553
Total revenue................................... $3,280,664
Net income...................................... $ 243,626
Company's share of net income................... $ 231,445
Cabot Advisors commenced operations on February 4, 1998, therefore, the results
for the year ended December 31, 1998 represent activity for 331 days, or
approximately 11 months. Cabot Trust's share of Cabot Advisors' net income is
included in Interest and Other Income in the accompanying consolidated statement
of operations.
11. Commitments And Contingencies
Concentration of Credit Risk
Cabot Trust maintains its cash and cash equivalents at financial institutions.
The combined account balances at each institution periodically exceed 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
of Cabot Trust believes the risk is not significant.
Environmental
Cabot Trust, as an owner of real estate, is subject to various environmental
laws of federal and local governments. All of Cabot Trust's properties were
subject to Phase I Environmental Assessments, which consist of, among other
things, a visual inspection of the property and its neighborhood and a review of
pertinent public records. Compliance by Cabot Trust with existing laws has not
had a material adverse effect on Cabot Trust's consolidated financial condition
or results of operations and management does not believe it will have such a
material adverse effect in the future.
Litigation
Management of Cabot Trust does not believe there is any litigation threatened
against it other than routine litigation arising out of the ordinary course of
business, some of which is expected to be covered by liability insurance, none
of which is expected to have a material adverse effect on the consolidated
operating results or financial position of Cabot Trust.
44
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998
11. Commitments And Contingencies (continued)
Minimum Future Lease Obligations
Minimum future lease obligations under noncancelable operating leases for each
of the next five years ending December 31 and thereafter are as follows:
1999................................. $ 588,000
2000................................. 596,000
2001................................. 590,000
Thereafter........................... -
----------
$1,774,000
Cabot Trust incurred rental expense of $192,000 for the year ended December 31,
1998. In addition, Cabot Advisors incurred rental expense of $181,000 for the
year ended December 31, 1998. Cabot Trust's only significant leases are for its
office space. The leases provide for the payment of base rent and reimbursement
of operating expenses and real estate taxes over stated base amounts.
Employment Agreements
Senior executives have entered into employment agreements with Cabot Trust and
Cabot L.P. Agreements with three of the senior executives are for an initial
term of three years, and each year the term automatically extends an additional
year unless terminated in advance. Agreements with four other senior executives
are for an initial term of two years, and each year the term automatically
extends an additional year unless terminated in advance. Each agreement provides
for annual base compensation in amounts ranging from $175,000 to $265,000
($1,385,000 in the aggregate in 1998) and an annual cash bonus to be determined
by the Board of Trustees or the Executive Compensation Committee. The base
annual compensation may be increased in subsequent years by action of the Board
of Trustees or the Executive Compensation Committee. Each of the employment
agreements provides for severance payments in the event of a change in control
of Cabot Trust equal to three times the sum of the current base salary and the
annual bonus paid for the preceding year and also provides for tax
reimbursements in certain circumstances.
Severance Agreements
On December 17, 1998, Cabot Trust's Board of Trustees approved a retention and
severance plan covering all full-time employees of Cabot Trust and its
affiliates not covered by employment agreements which will provide for six to
twenty-one months of compensation to be paid, under certain circumstances, in
the event of a change in control.
As of December 31, 1998, total costs payable under the employment and severance
agreements covering senior executives and other employees in the event of a
change in control approximated $11 million.
45
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,1998
11. Commitments And Contingencies (continued)
Shareholder Rights Plan
On June 11, 1998, the Board of Trustees adopted a Rights Agreement and declared
a dividend of one preferred share purchase right (a "Right") for each
outstanding Common Share to be distributed to all holders of record of the
Common Shares on June 15, 1998. In addition, Rights will be issued with each
Common Share to be issued in the future. Each Right entitles the registered
holder to purchase one one-hundredth of a Series A Junior Participating
Preferred Share for an exercise price of $85, subject to adjustment as provided
in the Rights Agreement. The Rights will generally be exercisable only if a
person or group acquires or announces a tender offer for 15% or more of the
Common Shares. Under certain circumstances, upon a shareholder acquisition of
15% or more of the Common Shares, each Right will entitle the holder to
purchase, at the Right's then-current exercise price, a number of Common Shares
having a market value of twice the Right's exercise price. The acquisition of
Cabot Trust pursuant to certain mergers or other business transactions will
entitle each holder of a Right to purchase, at the Right's then-current exercise
price, a number of the acquiring company's common shares having a market value
at that time equal to twice the Right's exercise price. The Rights held by
certain 15% shareholders will not be exercisable. The Rights will expire on June
11, 2008, unless the expiration date of the Rights is extended, and the Rights
are subject to redemption at a price of $0.01 per Right under certain
circumstances.
12. Supplementary Quarterly Data
<TABLE>
<CAPTION>
(Unaudited, in 000's)
March 31, 1998(1) June 30, 1998 September 30, 1998 December 31, 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rental income $14,733 $26,159 $28,417 $33,116
Gain on sale of real estate - - - 572
Net income 3,478 6,081 6,001 6,206
Earnings per share, basic .19 .33 .32 .33
Earnings per share, diluted .19 .33 .32 .33
</TABLE>
(1) Since Cabot Trust did not begin operations until February 4, 1998, the
results for the quarter ended March 31, 1998, represent activity for 56
days only.
13. Subsequent Events
In February 1999, Cabot L.P. borrowed $87.6 million secured by properties with a
net book value of approximately $130 million. The borrowing has a fixed interest
rate of 7.25% per annum and a 10-year term. Monthly installments of principal
and interest are due based on a 25-year amortization rate, and any remaining
balance outstanding is due at the end of the 10-year term. This borrowing is
subject to various customary covenants.
46
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,1998
13. Subsequent Events (continued)
The proceeds from the borrowing were used to repay a portion of the balance
outstanding under the Acquisition Facility.
Subsequent to December 31, 1998, Cabot Trust acquired the following industrial
properties, which acquisitions were funded primarily through proceeds from the
Acquisition Facility:
<TABLE>
<CAPTION>
Property Location Building Type Square Feet Acquisition Cost
----------------- ------------- ----------- ----------------
<S> <C> <C> <C>
Farmers Branch, TX Multitenant Distribution 82,756 $3,250,000
Carrollton, TX Workspace 56,531 2,180,000
</TABLE>
In addition, as of March 8, 1999, Cabot Trust has entered into separate
agreements to acquire 33 additional industrial properties with an estimated
acquisition cost of $71.2 million.
47
<PAGE>
CABOT INDUSTRIAL TRUST
SCHEDULE III - REAL ESTATE AND ACCUMILATED DEPRECIATION
DECEMBER 31, 1998
(dollar amounts 000's)
<TABLE>
<CAPTION>
Cost Capitalized
Initial Cost Subsequent to Acquisition
---------------------- -------------------------
Number of Buildings and Buildings and
Property Name(s) Buildings Location Encumbrances Land Improvements Land Improvements
- ---------------- --------- -------- ------------ ---- ------------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
North 104th Avenue 1 Tolleson, AZ $ - $ 651 $ 6,476 $ - $ 3
North 47th Avenue 1 Phoenix, AZ - 471 3,675 - -
South 55th Avenue 1 Phoenix, AZ - 334 1,953 - 31
South 63rd Avenue 1 Phoenix, AZ - 528 4,471 - -
South 84th Avenue 1 Tolleson, AZ - 553 6,067 - -
West Van Buren 1 Tolleson, AZ - 475 6,224 - -
South 41st Avenue 2 Phoenix, AZ 8,561 1,261 10,524 - -
South 49th Avenue 1 Phoenix, AZ 2,463 787 3,069 - -
44th Avenue 1 Phoenix, AZ - 575 3,629 - 121
South 9th Street 1 Phoenix, AZ 2,968 1,394 5,709 - -
South 39th Avenue 1 Phoenix, AZ 4,663 550 7,606 - -
South 40th Avenue 2 Phoenix, AZ 3,703 1,036 7,474 - -
South 53rd Avenue 1 Phoenix, AZ 2,426 226 3,667 - -
South 40th Avenue 1 Phoenix, AZ - 1,131 5,680 - -
East Encanto Drive 1 Tempe, AZ 957 460 2,906 - -
West Alameda Drive 4 Tempe, AZ - 1,000 4,572 - -
South Priest Drive 1 Tempe, AZ - 813 3,140 - 147
DeForest Circle 1 Mira Loma, CA - 1,870 7,794 - -
Santa Anita Avenue 1 Rancho Cucamonga, CA - 1,641 6,093 - -
East Jurupa Street 1 Ontario, CA - 1,256 2,702 - 24
South Rockefeller Avenue 1 Ontario, CA - 1,259 4,249 - -
South Vintage Avenue 2 Ontario, CA - 4,026 12,031 - -
Vintage Avenue 1 Ontario, CA - 2,139 7,224 - -
San Fernando Road 1 Sun Valley, CA - 2,612 7,118 - -
Rowland Street 1 City of Industry, CA - 2,000 6,102 - 165
East Dyer Road 1 Santa Ana, CA - 8,160 6,172 - -
<CAPTION>
Gross Amount Carried
as of December 31, 1998
-----------------------
Date Depreciable
Buildings and Accumulated Constructed/ Date Lives
Property Name(s) Land Improvements Total(1) Depreciation Renovated Acquired in Years
- ---------------- ---- ------------- -------- ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
North 104th Avenue $ 651 $ 6,479 $ 7,130 $ (146) 1995 02/04/98 10-40
North 47th Avenue 471 3,675 4,146 (88) 1986 02/04/98 10-40
South 55th Avenue 334 1,984 2,318 (35) 1986 02/04/98 10-40
South 63rd Avenue 528 4,471 4,999 (102) 1990 02/04/98 10-40
South 84th Avenue 553 6,067 6,620 (141) 1989 02/04/98 10-40
West Van Buren 475 6,224 6,699 (123) 1997 03/16/98 10-40
South 41st Avenue 1,261 10,524 11,785 (73) 1985 09/22/98 10-40
South 49th Avenue 787 3,069 3,856 (22) 1989 09/22/98 10-40
44th Avenue 575 3,750 4,325 (77) 1997 03/16/98 10-40
South 9th Street 1,394 5,709 7,103 (84) 1983 06/30/98 10-40
South 39th Avenue 550 7,606 8,156 (51) 1989 09/22/98 10-40
South 40th Avenue 1,036 7,474 8,510 (50) 1990 09/22/98 10-40
South 53rd Avenue 226 3,667 3,893 (25) 1987 09/22/98 10-40
South 40th Avenue 1,131 5,680 6,811 0 1987 12/29/98 10-40
East Encanto Drive 460 2,906 3,366 (57) 1990 03/17/98 10-40
West Alameda Drive 1,000 4,572 5,572 (32) 1984 09/21/98 10-40
South Priest Drive 813 3,287 4,100 (23) 1998 09/21/98 10-40
DeForest Circle 1,870 7,794 9,664 (170) 1992 02/06/98 10-40
Santa Anita Avenue 1,641 6,093 7,734 (149) 1988 02/04/98 10-40
East Jurupa Street 1,256 2,726 3,982 (80) 1986 02/04/98 10-40
South Rockefeller Avenue 1,259 4,249 5,508 (109) 1986 02/04/98 10-40
South Vintage Avenue 4,026 12,031 16,057 (308) 1986 02/04/98 10-40
Vintage Avenue 2,139 7,224 9,363 (170) 1988 02/04/98 10-40
San Fernando Road 2,612 7,118 9,730 (130) 1980 04/07/98 10-40
Rowland Street 2,000 6,267 8,267 (45) 1998 09/01/98 10-40
East Dyer Road 8,160 6,172 14,332 (138) 1954/1965 02/04/98 10-40
</TABLE>
48
<PAGE>
CABOT INDUSTRIAL TRUST
Schedule III - Real Estate and Accumulated Depreciation (continued)
December 31, 1998
(dollar amounts 000's)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------- -------------------
Buildings Buildings
Number of and and
Property Name(s) Buildings Location Encumbrances Land Improvements Land Improvements
- ---------------- --------- -------- ------------ ------ ------------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Industry Circle 1 La Mirada, CA - 1,802 3,325 - -
East Santa Ana Street 2 Ontario, CA 1,272 1,230 5,190 - -
Jersey Court 1 Rancho Cucamonga, CA - 736 2,420 - -
12th Street 1 Chino, CA - 889 3,170 - -
West Rincon Street 1 Corona, CA - 1,955 6,318 - -
Artesia Avenue 2 Fullerton, CA - 1,186 3,208 - -
Commonwealth Avenue 1 Fullerton, CA - 640 1,333 - -
East Howell Avenue 2 Anaheim, CA - 1,382 3,242 - -
Kovacs Lane 1 Huntington Beach, CA - 1,750 6,243 - -
Anza Drive 3 Valencia, CA - 588 1,460 - -
Royal Avenue 1 Simi Valley, CA - 443 1,320 - -
Union Place 2 Simi Valley, CA - 915 4,032 - 6
Dornoch Court 1 San Diego, CA - 1,870 9,030 - -
Avenida Encinas 2 Carlsbad, CA - 3,675 9,900 - -
Airway Road 2 Otay Mesa, CA - 1,301 6,460 - -
Reed Avenue 2 West Sacramento, CA - 1,837 5,843 - -
Huntwood Avenue 1 Hayward, CA - 880 3,587 - -
Brisbane Industrial Park 14 Brisbane, CA - 10,007 15,220 - 5
Pepes Farm Road 1 Milford, CT - 1,637 6,533 - -
Landstreet Road,
Building 1 1 Orlando, FL - 1,340 13,221 - 2
Kingspointe Parkway 1 Orlando, FL - 600 2,791 - 3
Orlando Central Park 6 Orlando, FL - 7,083 31,176 - 113
Exchange Drive 1 Orlando, FL - 400 3,270 - 14
Boggy Creek Road 2 Orlando, FL - 649 4,939 - -
Landstreet Road 2 Orlando, FL - 649 4,817 - -
Boggy Creek Road,
Building 3 1 Orlando, FL - 345 1,802 - -
Highway 316 1 Dacula, GA - 1,279 10,424 - -
<CAPTION>
Gross Amount Carried
as of December 31, 1998 Date Desirable
---------------------------
Buildings and Accumulated Constructed/ Date Lives
Property Name(s) Land Improvements Total(1) Depreciation Renovated Acquired in Years
- ---------------- ----- --------------- -------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Industry Circle 1,802 3,325 5,127 (17) 1966 10/21/98 10-40
East Santa Ana Street 1,230 5,190 6,420 (80) 1990 05/20/98 10-40
Jersey Court 736 2,420 3,156 (21) 1989 09/30/98 10-40
12th Street 889 3,170 4,059 (25) 1990 09/30/98 10-40
West Rincon Street 1,955 6,318 8,273 (47) 1986 09/30/98 10-40
Artesia Avenue 1,186 3,208 4,394 (73) 1991 02/04/98 10-40
Commonwealth Avenue 640 1,333 1,973 (30) 1965 02/04/98 10-40
East Howell Avenue 1,382 3,242 4,624 (75) 1968 02/04/98 10-40
Kovacs Lane 1,750 6,243 7,993 (84) 1988 06/17/98 10-40
Anza Drive 588 1,460 2,048 (20) 1990 06/29/98 10-40
Royal Avenue 443 1,320 1,763 (18) 1988 06/29/98 10-40
Union Place 915 4,038 4,953 (55) 1985 06/29/98 10-40
Dornoch Court 1,870 9,030 10,900 (197) 1988 02/06/98 10-40
Avenida Encinas 3,675 9,900 13,575 (225) 1972 02/04/98 10-40
Airway Road 1,301 6,460 7,761 (101) 1996 05/08/98 10-40
Reed Avenue 1,837 5,843 7,680 (133) 1988 02/04/98 10-40
Huntwood Avenue 880 3,587 4,467 (90) 1982 02/04/98 10-40
Brisbane Industrial Park 10,007 15,225 25,232 (350) 1968 02/04/98 10-40
Pepes Farm Road 1,637 6,533 8,170 (149) 1980 02/04/98 10-40
Landstreet Road,
Building 1 1,340 13,223 14,563 (301) 1997 02/04/98 10-40
Kingspointe Parkway 600 2,794 3,394 (64) 1991 02/04/98 10-40
Orlando Central Park 7,083 31,289 38,372 (747) 1983 02/04/98 10-40
Exchange Drive 400 3,284 3,684 (36) 1979 07/30/98 10-40
Boggy Creek Road 649 4,939 5,588 (111) 1992 02/13/98 10-40
Landstreet Road 649 4,817 5,466 (102) 1997 02/13/98 10-40
Boggy Creek Road,
Building 3 345 1,802 2,147 0 1998 03/04/98 10-40
Highway 316 1,279 10,424 11,703 (228) 1989 02/06/98 10-40
</TABLE>
49
<PAGE>
CABOT INDUSTRIAL TRUST
Schedule III - Real and Accumulated Depreciation (continued)
December 31, 1998
(dollar amounts 000's)
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent
Initial Cost to Acqusition
----------------------- ---------------
Number of Buildings and Buildings and
Property Name(s) Buildings Location Encumbrances Land Improvements Land Improvements
- ---------------- --------- -------- ------------ ---- --------------- ---- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Westgate Parkway 1 Fulton County, GA - 1,619 4,782 - 2
Atlanta Industrial Drive 1 Atlanta, GA - 1,032 2,999 - 14
Westpark Drive 2 Fulton County, GA - 1,404 7,065 - -
Cobb International Place 2 Kennesaw, GA - 750 4,605 - 2
South Royal Drive 3 Tucker, GA - 1,125 4,426 - -
Town Park Drive 2 Kennesaw, GA - 1,089 4,716 - 3
Ambassador Road 1 Naperville, IL - 1,060 6,738 - 101
Arthur Avenue 1 Elk Grove, IL - 747 5,877 - -
Harvester Drive 1 Chicago, IL - 763 6,358 - -
Mark Street 1 Wood Dale, IL - 1,570 7,541 - -
Remington Street 1 Bolingbrook, IL - 980 7,544 - -
West 73rd Street 3 Bedford Park, IL - 2,540 20,809 - 6
North Raddant Road 1 Batavia, IL - 931 5,977 - -
High Grove Lane 1 Naperville, IL - 800 3,156 - -
Medinah Road 2 Chicago, IL - 2,936 17,471 - -
Western Avenue 1 Lisle, IL - 700 2,241 - -
Swenson Avenue 1 St. Charles, IL - 650 2,479 - -
Feehanville Drive 1 Mount Prospect, IL - 1,043 3,819 - -
Business Center,
Building 1 1 Mount Prospect, IL - 757 2,867 - -
Tower Lane 1 Bensenville, IL - 740 4,040 - 1
Business Center,
Building 2 1 Mount Prospect, IL - 1,456 5,250 - -
North State Rd. #9 1 Howe, IN - 239 6,583 - 32
Holton Drive 1 Independence, KY - 2,100 8,244 - -
International Way 1 Hebron, KY - 663 4,897 - -
Empire Drive 1 Florence, KY - 403 2,563 - -
Spiral Drive 2 Florence, KY - 317 3,734 - -
Airport Exchange Drive 1 Erlanger, KY - 744 3,769 - -
<CAPTION>
Gross Amount Carried
as of December 31, 1998 Date Depreciable
------------------------
Buildings and Accumulated Constructed/ Date Lives
Property Name(s) Land Improvements Total(1) Depreciation Renovated Acquired in Years
- ---------------- ---- -------------- -------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Westgate Parkway 1,619 4,784 6,403 (109) 1988 02/04/98 10-40
Atlanta Industrial Drive 1,032 3,013 4,045 (29) 1986 09/11/98 10-40
Westpark Drive 1,404 7,065 8,469 (59) 1981 09/08/98 10-40
Cobb International Place 750 4,607 5,357 (91) 1996 03/13/98 10-40
South Royal Drive 1,125 4,426 5,551 (94) 1987 02/27/98 10-40
Town Park Drive 1,089 4,719 5,808 (73) 1995 03/31/98 10-40
Ambassador Road 1,060 6,839 7,899 (153) 1996 02/04/98 10-40
Arthur Avenue 747 5,877 6,624 (103) 1978 02/04/98 10-40
Harvester Drive 763 6,358 7,121 (145) 1974 02/04/98 10-40
Mark Street 1,570 7,541 9,111 (144) 1985 02/04/98 10-40
Remington Street 980 7,544 8,524 (171) 1996 02/04/98 10-40
West 73rd Street 2,540 20,815 23,355 (433) 1982 02/04/98 10-40
North Raddant Road 931 5,977 6,908 (58) 1991 08/31/98 10-40
High Grove Lane 800 3,156 3,956 (71) 1994 02/04/98 10-40
Medinah Road 2,936 17,471 20,407 (400) 1986 02/04/98 10-40
Western Avenue 700 2,241 2,941 (51) 1979/1985 02/04/98 10-40
Swenson Avenue 650 2,479 3,129 (18) 1988 09/24/98 10-40
Feehanville Drive 1,043 3,819 4,862 (73) 1987 03/31/98 10-40
Business Center,
Building 1 757 2,867 3,624 (44) 1985 05/26/98 10-40
Tower Lane 740 4,041 4,781 (49) 1977 07/14/98 10-40
Business Center,
Building 2 1,456 5,250 6,706 (27) 1989 10/16/98 10-40
North State Rd. #9 239 6,615 6,854 (151) 1988 02/04/98 10-40
Holton Drive 2,100 8,244 10,344 (188) 1996 02/04/98 10-40
International Way 663 4,897 5,560 (112) 1990 02/04/98 10-40
Empire Drive 403 2,563 2,966 (63) 1991 02/04/98 10-40
Spiral Drive 317 3,734 4,051 (66) 1988 03/19/98 10-40
Airport Exchange Drive 744 3,769 4,513 (27) 1997 09/18/98 10-40
</TABLE>
50
<PAGE>
CABOT INDUSTRIAL TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(dollar amounts 000's)
<TABLE>
<CAPTION>
Cost Capitalized
Initial Cost Subsequent to Acquisition
---------------------- -------------------------
Number of Buildings and Buildings and
Property Name(s) Buildings Location Encumbrances Land Improvements Land Improvements
- ---------------- --------- -------- ------------ ---- ------------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Avenue 1 Needham, MA - 2,530 4,123 - -
John Hancock Road 1 Taunton, MA 1,510 257 1,872 - -
Technology Drive 1 Auburn, MA - 663 1,269 - -
Oceano Avenue 1 Jessup, MD - 1,629 7,862 - -
Tar Bay Drive 1 Jessup, MD - 1,415 6,475 - -
Port Capital Drive 1 Jessup, MD 1,307 900 4,106 - -
The Crysen Center 2 Jessup, MD - 1,365 5,454 - -
Guilford Road 1 Annapolis Junction, MD - 1,123 4,718 - -
Bristol Court 1 Jessup, MD - 785 3,132 - -
West Nursery Road 2 Linthicum, MD 3,504 1,019 6,749 - -
Fontana Lane 2 Baltimore, MD 4,531 915 5,771 - -
Sysco Court 1 Grand Rapids, MI 2,038 354 1,788 - -
Woodale Drive 4 Mounds View, MN - 2,835 17,455 - -
Industrial Drive South 1 Gluckstadt, MS - 320 5,697 - -
Reames Road 1 Charlotte, NC - 365 2,922 - 21
Old Charlotte Highway 1 Monroe, NC - 833 4,196 - -
Airport Road 1 Monroe, NC - 555 2,793 - -
Birch Creek Road 1 Bridgeport, NJ - 862 6,900 - -
Herrod Boulevard 1 South Brunswick, NJ - 2,600 15,289 - -
Pierce Street 1 Franklin Township, NJ - 1,400 6,716 - -
South Middlesex Avenue 2 Cranbury, NJ - 2,700 12,532 - -
Colony Road 2 Port Jersey, NJ - 2,816 10,266 - -
Industrial Drive 3 Port Jersey, NJ - 3,024 13,298 - -
Port Jersey Boulevard 2 Port Jersey, NJ - 5,493 18,974 - -
Pulaski Boulevard 1 Port Jersey, NJ - 1,769 5,572 - -
Memorial Drive 1 Franklin Township, NJ - 1,859 4,844 - -
New England Avenue 1 Piscataway, NJ - 1,350 2,423 - -
<CAPTION>
Gross Amount Carried
as of December 31, 1998
-----------------------
Date Depreciable
Buildings and Accumulated Constructed/ DATE Lives
Property Name(s) Land Improvements Total(1) Depreciation Renovated Acquired in Years
- ---------------- ---- ------------- -------- ------------ --------- -------- --------
<S> <S> <C> <C> <C> <C> <C> <C>
First Avenue 2,530 4,123 6,653 (94) 1961/1992 02/04/98 10-40
John Hancock Road 257 1,872 2,129 (41) 1986 02/04/98 10-40
Technology Drive 663 1,269 1,932 (29) 1973 02/04/98 10-40
Oceano Avenue 1,629 7,862 9,491 (180) 1987 02/04/98 10-40
Tar Bay Drive 1,415 6,475 7,890 (148) 1990 02/04/98 10-40
Port Capital Drive 900 4,106 5,006 (42) 1974 08/06/98 10-40
The Crysen Center 1,365 5,454 6,819 (118) 1985 02/04/98 10-40
Guilford Road 1,123 4,718 5,841 (50) 1989 08/03/98 10-40
Bristol Court 785 3,132 3,917 (37) 1988 08/03/98 10-40
West Nursery Road 1,019 6,749 7,768 (50) 1989 08/03/98 10-40
Fontana Lane 915 5,771 6,686 (57) 1988 08/03/98 10-40
Sysco Court 354 1,788 2,142 (40) 1985 02/04/98 10-40
Woodale Drive 2,835 17,455 20,290 (347) 1992 03/31/98 10-40
Industrial Drive South 320 5,697 6,017 (130) 1988 02/04/98 10-40
Reames Road 365 2,943 3,308 (67) 1994 02/04/98 10-40
Old Charlotte Highway 833 4,196 5,029 (96) 1957/1972 02/04/98 10-40
Airport Road 555 2,793 3,348 (64) 1957/1972 02/04/98 10-40
Birch Creek Road 862 6,900 7,762 (176) 1991/1997 02/04/98 10-40
Herrod Boulevard 2,600 15,289 17,889 (350) 1989 02/04/98 10-40
Pierce Street 1,400 6,716 8,116 (153) 1984 02/04/98 10-40
South Middlesex Avenue 2,700 12,532 15,232 (286) 1989 02/04/98 10-40
Colony Road 2,816 10,266 13,082 (239) 1976 02/04/98 10-40
Industrial Drive 3,024 13,298 16,322 (310) 1976 02/04/98 10-40
Port Jersey Boulevard 5,493 18,974 24,467 (453) 1974/1982 02/04/98 10-40
Pulaski Boulevard 1,769 5,572 7,341 (145) 1974 02/04/98 10-40
Memorial Drive 1,859 4,844 6,703 (106) 1988 02/04/98 10-40
New England Avenue 1,350 2,423 3,773 (36) 1975/1995 06/26/98 10-40
</TABLE>
51
<PAGE>
CABOT INDUSTRIAL TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(dollar amounts 000's)
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent to Acquisition
---------------------- -------------------------
Number of Buildings and Buildings and
Property Name(s) Buildings Location Encumbrances Land Improvements Land Improvements
- --------------- --------- -------- ----------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Drive 2 Columbus, OH - 1,854 7,301 - 91
Westbelt Drive 2 Columbus, OH - 1,849 12,301 - 6
Dividend Drive 1 Columbus, OH - 449 3,712 - -
International Street 1 Columbus, OH - 517 2,657 - -
Port Road 2 Franklin County, OH - 1,402 10,085 - -
Twin Creek Drive 1 Columbus, OH - 702 3,416 - -
International Road 2 Cincinnati, OH - 2,041 9,833 - -
Kingsley Drive 2 Cincinnati, OH - 2,766 9,519 - 8
Lake Forest Drive 2 Blue Ash, OH - 2,320 9,482 - -
Creek Road 1 Blue Ash, OH - 902 2,790 - -
Brackbill Blvd 2 Mechanicsburg, PA 6,870 3,722 14,226 - -
Cumberland Parkway 1 Harrisburg, PA - 1,851 11,317 - -
Ritter Road 1 Mechanicsburg, PA 1,433 332 1,934 - -
Pilot Drive 1 Memphis, TN - 1,364 6,231 - -
Airline Drive 2 Coppell, TX - 1,012 5,999 - -
DFW Trade Center 3 Grapevine, TX - 5,273 45,755 - 141
Luna Road 1 Carrollton, TX - 1,020 6,097 - -
113th Street 1 Arlington, TX - 506 2,055 - -
North Lake Drive 1 Coppell, TX - 1,165 4,914 - -
10th Street 2 Plano, TX - 1,677 6,532 - -
Diplomat Drive, Building 1 1 Farmers Branch, TX - 110 2,456 - -
Oakville Industrial Park 6 Alexandria, VA - 5,720 13,736 - -
Nokes Boulevard 1 Sterling, VA - 1,344 4,799 - -
Kent West Corporate Park II 1 Kent, WA - 2,528 9,256 - 17
Kent West Corporate Park I 4 Kent, WA - 1,549 5,691 - 10
--- ------- -------- -------- ------- ------
206 $48,206 $199,145 $872,441 $ - $1,089
<CAPTION>
Gross Amount Carried
as of December 31, 1998 Date Depreciable
---------------------------
Buildings and Accumulated Constructed/ Date Lives
Property Name(s) Land Improvements Total(1) Depreciation Renovated Acquired In Years
- --------------- -------- ------------- ---------- ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Drive 1,854 7,392 9,246 (166) 1980 02/04/98 10-40
Westbelt Drive 1,849 12,307 14,156 (294) 1979 02/04/98 10-40
Dividend Drive 449 3,712 4,161 (87) 1980 02/04/98 10-40
International Street 517 2,657 3,174 (61) 1988 02/04/98 10-40
Port Road 1,402 10,085 11,487 (238) 1995 02/04/98 10-40
Twin Creek Drive 702 3,416 4,118 (78) 1989 02/04/98 10-40
International Road 2,041 9,833 11,874 (247) 1990 02/04/98 10-40
Kingsley Drive 2,766 9,527 12,293 (150) 1981 06/09/98 10-40
Lake Forest Drive 2,320 9,482 11,802 (246) 1978 02/04/98 10-40
Creek Road 902 2,790 3,692 (73) 1983 02/04/98 10-40
Brackbill Blvd 3,722 14,226 17,948 (349) 1984 02/17/98 10-40
Cumberland Parkway 1,851 11,317 13,168 (248) 1992 02/06/98 10-40
Ritter Road 332 1,934 2,266 (43) 1986 02/04/98 10-40
Pilot Drive 1,364 6,231 7,595 (143) 1987 02/04/98 10-40
Airline Drive 1,012 5,999 7,011 (137) 1990 02/04/98 10-40
DFW Trade Center 5,273 45,896 51,169 (964) 1996 02/04/98 10-40
Luna Road 1,020 6,097 7,117 (139) 1997 02/04/98 10-40
113th Street 506 2,055 2,561 (47) 1979 02/04/98 10-40
North Lake Drive 1,165 4,914 6,079 (122) 1982 02/04/98 10-40
10th Street 1,677 6,532 8,209 (91) 1997 06/10/98 10-40
Diplomat Drive, Building 1 110 2,456 2,566 (56) 1997 02/04/98 10-40
Oakville Industrial Park 5,720 13,736 19,456 (316) 1955 02/04/98 10-40
Nokes Boulevard 1,344 4,799 6,143 0 1998 12/15/98 10-40
Kent West Corporate Park II 2,528 9,273 11,801 (212) 1989 02/04/98 10-40
Kent West Corporate Park I 1,549 5,701 7,250 (130) 1989 02/04/98 10-40
-------- -------- ---------- --------
$199,145 $873,530 $1,072,675 $(17,290)
</TABLE>
(1) The aggregate cost for federal income tax purposes as of December 31, 1998
was approximately $1,057 million.
52
<PAGE>
CABOT INDUSTRIAL TRUST
SCHEDULT III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
RECONCILIATION OF REAL ESTATE
The changes in total investment in real estate assets for the year ended
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
December 31, 1998
(in 000's)
------------------
<S> <C>
Balance, Beginning of Year $ --
Acquisitions 1,077,994
Improvements 1,089
Disposition of Assets (6,408)
----------
Balance, End of Year $1,072,675
==========
</TABLE>
RECONCILIATION OF ACCUMULATED DEPRECIATION
The changes in accumulated depreciation for the year ended December 31, 1998,
are as follows:
<TABLE>
<CAPTION>
December 31, 1998
(in 000's)
-----------------
<S> <C>
Balance, Beginning of Year $ --
Depreciation Expense 17,396
Disposition of Assets (106)
--------
Balance, End of Year $ 17,290
========
</TABLE>
53
<PAGE>
Report of Independent Public Accountants
To the Partners of
Cabot Partners Limited Partnership:
We have audited the accompanying balance sheet of Cabot Partners Limited
Partnership as of December 31, 1997 and 1996, and the related statements of
operations, partners' capital, and cash flows for the years then ended. These
financial statements are the responsibility of the management of the
Partnership. 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 financial position of Cabot Partners Limited
Partnership as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Boston, Massachusetts ARTHUR ANDERSEN LLP
MARCH 27, 1998
54
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 509 $ 1,709
Accounts receivable 2,689 1,637
Accounts receivable from related party 1,225 --
Investments 39 836
Cost of investment advisory contracts acquired, net of accumulated
amortization of $824 and $2,425, respectively 780 1,729
Other assets 97 164
------- -------
Total Assets $ 5,339 $ 6,075
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accrued compensation $ 373 $ 385
Accounts payable and accrued liabilities 387 100
------- -------
Total Liabilities 760 485
------- -------
Commitments (Note 4)
Partners' capital 4,579 5,590
------- -------
Total Liabilities and Partners' Capital $ 5,339 $ 6,075
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1997 1996
---------- ----------
<S> <C> <C>
REVENUES
Advisory fees $9,010 $7,871
Other income 70 37
------ ------
Total Revenues 9,080 7,908
------ ------
EXPENSES
Compensation 4,685 3,887
Other general and administrative 2,360 2,001
Depreciation and amortization 977 419
------ ------
Total Expenses 8,022 6,307
------ ------
Income before income (loss) from
unconsolidated subsidiary 1,058 1,601
Equity in income (loss) from unconsolidated subsidiary -- (7)
------ ------
Net income $1,058 $1,594
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Limited Partners Total
General ------------------------ Partners'
Partner Class A Class B Capital
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' Capital, December 31, 1995 $ -- $ 5,065 $ -- $ 5,065
Net income for the year ended December 31, 1996 10 1,194 390 1,594
Distributions -- (1,069) -- (1,069)
-------- -------- -------- --------
Partners' Capital, December 31, 1996 10 5,190 390 5,590
Net income for the year ended December 31, 1997 -- 1,058 -- 1,058
Distributions (10) (1,669) (390) (2,069)
-------- -------- -------- --------
Partners' Capital, December 31, 1997 $ -- $ 4,579 $ -- $ 4,579
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1997 1996
----------- ---------
<S> <C> <C>
Operating activities
Net income $ 1,058 $ 1,594
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 977 419
Unrealized equity in loss of investment -- 7
(Increase) in accounts receivable (1,052) (695)
Increase (Decrease) in accrued liabilities 37 (70)
Decrease in accounts payable (5) (9)
Decrease in other assets 47 37
------- -------
Net cash provided by operating activities 1,062 1,283
------- -------
Investing activities
Increase in accounts receivable from related party (984) --
Dividends received 797 183
Purchase of furniture, fixtures and equipment (6) (50)
Additional cost-basis investments -- (20)
------- -------
Net cash provided (used in) by investing activities (193) 113
------- -------
Financing activities
Distributions to partners (2,069) (1,069)
------- -------
Net (decrease) increase in cash and cash equivalents (1,200) 327
Cash and cash equivalents, beginning of year 1,709 1,382
------- -------
Cash and cash equivalents, end of year $ 509 $ 1,709
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
1. Organization
Cabot Partners Limited Partnership (the Partnership), a Massachusetts limited
partnership, was formed as of July 11, 1990 to provide a variety of real estate
investment advisory and management services, primarily to a small number of
pension and profit-sharing plans and other institutional investors. Eight
investors represented 70% of fee revenues for 1997 and nine investors
represented 77% of fee revenues for 1996.
The Partnership has two classes of limited partners. The Class A limited
partners contributed cash on a disproportionate basis to their ownership
interest and are entitled to a cumulative guaranteed return on their Adjusted
Capital Contributions, as defined, of 10% through December 31, 1995 and 5%
thereafter, payable only out of available cash. In addition, the Class A limited
partners are entitled to a 5% return of their Adjusted Capital Contributions
prior to distributions of available cash to all the partners in accordance with
their ownership interest. As of December 31, 1997, the cumulative unpaid and
unrecognized return was $2,795.
2. Summary of Significant Accounting Policies
Income Taxes
No provision for federal and state income taxes has been recorded relating to
the Partnership, as the partners report their respective shares of the net
taxable income on their individual tax returns. The tax basis of assets and
liabilities does not significantly differ from their historical cost basis.
Furniture, Fixtures and Equipment
Furniture and equipment additions are recorded at cost and are depreciated over
an estimated useful life of five years. Fixtures include leasehold improvements
that are recorded at cost and amortized over the shorter of their useful life or
the remaining lease term.
Cost of Investment Advisory Contracts Acquired
The investment advisory contracts acquired are recorded at their fair market
value at the date of acquisition, based on independent appraisals, and are being
amortized over their estimated lives, which range from eight to sixteen years.
Allocation of Profits and Losses
Income and losses have been allocated to the partners in accordance with the
provisions of the partnership agreement.
Cash Equivalents
At December 31, 1997, the Partnership had invested excess funds in money market
mutual funds, which have an original maturity of less than three months. For
purposes of the statement of cash flows, this investment has been considered a
cash equivalent.
59
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
2. Summary of Significant Accounting Policies (continued)
Pervasiveness 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.
Fair Value of Financial Instruments
The carrying amounts reported on the accompanying balance sheets for cash and
cash equivalents, receivables, accounts payable and accrued expenses approximate
fair value, due to the short-term nature of these investments.
3. Investments
The Partnership owns a 1% managing general partnership interest in a real estate
operating company, CP Private Partners, L.P.-I (Private Partners), and accounts
for this investment under the equity method. Under this method of accounting,
the Partnership's pro rata share of Private Partners' income (loss) is recorded
each year as an increase (decrease) in the carrying value of its investment, and
any distributions received are recorded as decreases in the carrying value.
The condensed unaudited historical cost balance sheets of Private Partners at
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
As of December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 576 $ 186
Real estate assets, net 3,140 58,776
Other assets 179 18,203
------ -------
Total Assets $3,895 $77,165
====== =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 29 $ 453
PARTNERS' CAPITAL
The Partnership 39 767
Other Partners 3,827 75,945
------ -------
Total Partners' Capital 3,866 76,712
------ -------
Total Liabilities and Partners' Capital $3,895 $77,165
====== =======
</TABLE>
60
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
3. Investments (continued)
The condensed unaudited historical cost income statements of Private Partners
for the years ended December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Sale of real estate assets $ 60,268 $ 20,817
Rental revenues 6,448 11,726
Cost of real estate sold (51,728) (20,411)
Note receivable reduction (2,078) (7,688)
Operating expenses (1,213) (5,163)
Write down of real estate to net realizable value (4,860) --
-------- --------
Net income $ 6,837 $ (719)
======== ========
Dividends paid $ 79,683 $ 18,292
======== ========
The Partnership's share of:
Net income $ 68 $ (7)
======== ========
Dividends paid $ 797 $ 183
======== ========
</TABLE>
Private Partners' remaining real estate is vacant land which is held for sale.
As of December 31, 1997, its carrying cost has been reduced to its estimated net
realizable value.
4. Minimum Future Lease Obligations
Minimum future lease obligations under noncancelable operating leases for each
of the next five years ending December 31 and thereafter are as follows:
<TABLE>
<S> <C>
1998................................ $ 298
1999................................ 313
2000................................ 325
2001................................ 310
Thereafter.......................... -
------
$1,246
======
</TABLE>
The Partnership incurred rental expense of $332 and $304 for the years ended
December 31, 1997 and 1996, respectively. The Partnership's only significant
lease is for its office space. The lease provides for the payment of base rent
and operating expenses and real estate taxes over stated base amounts.
61
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
5. Related Party Transactions
Under two separate agreements, the Partnership provides acquisition, asset
management and property management services to a partnership and a company
separately controlled by two Class A limited partners. The agreements are
cancelable by either party with 30 days notice. After a recent amendment, one
agreement provides for annual fixed fees of $158. The other agreement provides
for an acquisition fee of .25% of acquisition cost and an asset management fee
of 5% of net operating income. The Partnership received acquisition fees from
related parties of $345 for the year ended December 31, 1997, and other related
party fees of $287 and $164 for the years ended December 31, 1997 and 1996,
respectively.
As of December 31, 1997, the Partnership had incurred costs related to the
Formation Transactions described below of $1,225, of which $241 is unpaid and
included in accounts payable and accrued expenses. These costs are to be
reimbursed by Cabot Industrial Trust subsequent to the Formation Transactions.
6. Subsequent Events
Formation Transactions
Under the provisions of an agreement executed by the Partnership and several
other investors, Cabot Partners contributed its Advisory Contracts and certain
of its other net assets to Cabot Industrial Properties, L.P. (Cabot L.P.), a
subsidiary partnership of Cabot Industrial Trust (Cabot Trust) and received
1,819,587 Units from Cabot L.P. The units are convertible into common shares of
Cabot Trust on a one-to-one basis subject to certain limitations. As of February
4, 1998, the common shares had a fair market value of $20 per share. The
remainder of the Partnership's net assets will be distributed to its partners.
The impact of these proposed transactions is not reflected in the accompanying
financial statements.
The cumulative unpaid and unrecognized return discussed in Note 1 was settled
through these distribution of Units received in conjunction with these
transactions.
Sales of Assets Under Management
Under the terms of the investment advisory agreements, investors have the right
to terminate the Partnership as advisor with 30 days notice. In addition, a
significant portion of the Partnership's assets under management may be
transferred to other advisors or sold as a part of the investor's investment
strategy.
During 1997, all the properties of three portfolios have been sold. These
portfolios accounted for advisory and property management fees of $2,985 and
$3,249 for the years ended December 31, 1997 and 1996, respectively.
62
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
----------------------------------------------
The information required by this Item is incorporated herein by reference to the
portions of the registrant's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A in connection with the
registrant's annual meeting of shareholders to be held on May 3, 1998, (the
"Proxy Statement") captioned "Election of Directors" and "Security Ownership of
Management and Others".
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item is incorporated herein by reference to the
portion of the Proxy Statement captioned "Executive Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this Item is incorporated herein by reference to the
portion of the Proxy Statement captioned "Security Ownership of Management and
Others".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this Item is incorporated herein by reference to the
portion of this Proxy Statement captioned "Certain Transactions".
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CABOT INDUSTRIAL TRUST
----------------------
By /s/ Robert E. Patterson
-------------------------
Title: President
-------------------------
Date: March 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Title Date
----- ----
/s/Ferdinand Colloredo-Mansfeld Chairman of the Board and March 15, 1999
- ------------------------------- Chief Executive Officer
Ferdinand Colloredo-Mansfeld
/s/Robert E. Patterson President and Trustee March 15, 1999
- -------------------------------
Robert E. Patterson
/s/Franz Colloredo-Mansfeld Senior Vice President and March 15, 1999
- ------------------------------- Chief Financial Officer
Franz Colloredo-Mansfeld
/s/Neil E. Waisnor Senior Vice President - Finance, March 15, 1999
- ------------------------------- Treasurer and Secretary
Neil E. Waisnor Chief Accounting Officer
/s/Christopher C. Milliken Trustee March 15, 1999
- -------------------------------
Christopher C. Milliken
/s/Maurice Segall Trustee March 15, 1999
- ------------------------------
Maurice Segall
/s/W. Nicholas Thorndike Trustee March 15, 1999
- ------------------------------
W. Nicholas Thorndike
/s/Ronald L. Skates Trustee March 15, 1999
- ------------------------------
Ronald L. Skates
/s/George M. Lovejoy, Jr. Trustee March 15, 1999
- ------------------------------
George M. Lovejoy, Jr.
64
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this report:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Included in Item 8 hereof.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------
3.1 Amended and Restated Cabot Trust Declaration of Trust,
dated January 26, 1998. Incorporated by reference to Exhibit 3.1 to
Cabot Trust's Form S-11 Registration Statement (File No. 333-38383);
the "Form S-11").
3.2 Amended and Restated Bylaws of Cabot Trust. Incorporated by reference
to Exhibit 2 to Cabot Trust's Current Report on Form 8-K filed on
September 16, 1998.
3.3 Form of Registration Rights and Lock-Up Agreement, dated as of
February 4, 1998, between Cabot Trust, the Contributing Investors and
various other persons identified therein (included as Exhibit B to
Exhibit 4.1).
3.4 Second Amended and Restated Agreement of Limited Partnership
Agreement of Cabot L.P., dated February 4, 1998. Incorporated by
reference to Exhibit 3.5 to the Form S-11.
4.1 Contribution Agreement relating to the Capitalization of Cabot Trust,
dated as of October 10, 1997, among Cabot Trust, Cabot L.P., Cabot
Partners and Various Contributors and Title Holding Entities
Identified Therein. Incorporated by reference to Exhibit 4.1 to the
Form S-11.
4.2 Form of Indenture by and among Cabot L.P., Cabot Trust and
_____________ as trustee. Incorporated by reference to Exhibit 4.11
to Cabot Trust's and Cabot L.P.'s Form S-3 Registration Statement
(File No. 333-71585).
4.3 Form of Mortgage, Assignment of Leases and Rents, Security Agreement
and Fixture Filing Statement of Cabot L.P., as borrower, for the
benefit of Teachers Insurance and Annuity Association of America, as
lender, used in connection with mortgage loans totaling $87.6
million.
4.4 Form of Promissory Note of Cabot L.P., as borrower, in favor of
Teachers Insurance and Annuity Association of America, as lender,
used in connection with mortgage loans totaling $87.6 million.
10.1 Form of Indemnification Agreement between Cabot Trust and the
Trustees. Incorporated by reference to Exhibit 10.1 to the Form S-11.
10.2 Form of Indemnification Agreement entered into between Cabot Trust
and the officers of Cabot Trust. Incorporated by reference to Cabot
Trust's Form S-11 Registration Statement (File No. 333-61543).
10.3 Share Purchase Agreement, dated as of December 17, 1997, between
Cabot Trust and Morgan Stanley Asset Management Inc., on behalf of
certain of its
65
<PAGE>
institutional investors. Incorporated by reference to Exhibit 10.2 to
the Form S-11.
10.4 Form of Registration Rights and Lock-Up Agreement, between Cabot
Trust and Morgan Stanley Asset Management Inc., on behalf of certain
of its institutional investors. Incorporated by reference to Exhibit
10.3 to the Form S-11.
10.5 Cabot Trust Long Term Incentive Plan. Incorporated by reference to
Exhibit 10.4 to the Form S-11.
10.6 Amended Employment Agreement between Cabot L.P. and Ferdinand
Colloredo-Mansfeld.
10.7 Amended Employment Agreement between Cabot L.P. and Robert E.
Patterson.
10.8 Amended Employment Agreement between Cabot L.P. and Franz Colloredo-
Mansfeld.
10.9 Amended Employment Agreement between Cabot L.P. and Andrew D. Ebbott.
10.10 Amended Employment Agreement between Cabot L.P. and Howard B.
Hodgson, Jr.
10.11 Amended Employment Agreement between Cabot L.P. and Neil E.Waisnor.
10.12 Amended Employment Agreement between Cabot L.P. and Eugene F. Reilly.
10.13 Revolving Credit Agreement between Cabot L.P. and Morgan
Guaranty Trust Company of New York, dated March 27, 1998.
Incorporated by reference to Exhibit 10.9 to Cabot Trust's Annual
Report on Form 10-K for the year ended December 31, 1997.
10.14 Rights Agreement, dated as of June 11, 1998, as amended, between
Cabot Trust and BankBoston, N.A., as Rights Agent, including Exhibit
A thereto (Form of Articles Supplementary relating to Series A Junior
Participating Preferred Shares) and Exhibit B. thereto (Form of Right
Certificate). Incorporated by reference to Exhibit 1 to Cabot
Trust's Current Report on Form 8-K dated September 10, 1998.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1998.
66
<PAGE>
Exhibit 4.3
[THE FOLLOWING FORM WAS USED IN CONNECTION WITH TEN CROSS-COLLATERALIZED LOANS
SECURED BY DIFFERENT REAL ESTATE ASSETS, WHICH TOTALLED APPROXIMATELY $87.6
MILLION AND INVOLVED THE SAME PARTIES]
FORM OF MORTGAGE, ASSIGNMENT OF LEASES AND RENTS
------------------------------------------------
SECURITY AGREEMENT AND FIXTURE FILING STATEMENT
-----------------------------------------------
by
CABOT INDUSTRIAL PROPERTIES, L.P.,
as Borrower
for the benefit of
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
OF AMERICA,
as Lender
Property Known As
This Mortgage Was Prepared by
And After Recordation This Mortgage Should Be Returned To:
John J. Gearen, Esquire
c/o Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS.................................................................... 1
ARTICLE I - DEFINITIONS AND RULES OF CONSTRUCTION........................... 2
Section 1.1. Definitions............................................ 2
Section 1.2. Rules of Construction.................................. 2
ARTICLE II - GRANTING CLAUSES............................................... 2
Section 2.1. Encumbered Property.................................... 2
Section 2.2. Habendum Clause........................................ 5
Section 2.3. Security Agreement..................................... 5
Section 2.4. Conditions to Grant.................................... 6
Section 2.5. Fee Joinder............................................ 7
ARTICLE III - OBLIGATIONS SECURED........................................... 7
Section 3.1. The Obligations........................................ 7
ARTICLE IV - TITLE AND AUTHORITY............................................ 7
Section 4.1. Title to the Property.................................. 7
Section 4.2. Authority.............................................. 9
Section 4.3. No Foreign Person...................................... 9
Section 4.4. Litigation............................................. 9
ARTICLE V - PROPERTY STATUS, MAINTENANCE AND LEASES......................... 10
Section 5.1. Status of the Property................................. 10
Section 5.2. Maintenance of the Property............................ 10
Section 5.3. Change in Use.......................................... 11
Section 5.4. Waste.................................................. 11
Section 5.5. Inspection of the Property............................. 11
Section 5.6. Leases and Rents....................................... 11
Section 5.7. Parking................................................ 12
Section 5.8. Separate Tax Lot....................................... 12
Section 5.9. Changes in Zoning or Restrictive Covenants............. 12
Section 5.10. Lender's Right to Appear............................... 12
ARTICLE VI - IMPOSITIONS AND ACCUMULATIONS.................................. 13
Section 6.1. Impositions............................................ 13
Section 6.2. Accumulations.......................................... 14
Section 6.3. Changes in Tax Laws.................................... 16
Section 6.4. Payment of Other Property Charges...................... 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII - INSURANCE, CASUALTY, CONDEMNATION
AND RESTORATION........................................... 17
Section 7.1. Insurance Coverages...................................... 17
Section 7.2. Casualty and Condemnation................................ 19
Section 7.3. Application of Proceeds.................................. 19
Section 7.4. Conditions to Availability of Proceeds
for Restoration.................................. 20
Section 7.5. Restoration.............................................. 21
ARTICLE VIII - COMPLIANCE WITH LAW AND AGREEMENTS........................... 24
Section 8.1. Compliance with Law...................................... 24
Section 8.2. Compliance with Agreements............................... 24
Section 8.3. ERISA Compliance......................................... 25
Section 8.4. Section 6045(e) Filing................................... 25
Section 8.5. Brokerage Fees........................................... 25
ARTICLE IX - ENVIRONMENTAL.................................................. 26
Section 9.1. Environmental Representations and Warranties............. 26
Section 9.2. Environmental Covenants.................................. 26
ARTICLE X - FINANCIAL REPORTING............................................. 28
Section 10.1. Financial Reporting..................................... 28
Section 10.2. Annual Budget........................................... 29
ARTICLE XI - EXPENSES AND DUTY TO DEFEND.................................... 30
Section 11.1. Payment of Expenses..................................... 30
Section 11.2. Duty to Defend.......................................... 31
ARTICLE XII - TRANSFERS, LIENS AND ENCUMBRANCES............................. 31
Section 12.1. Prohibitions on Transfers, Liens
and Encumbrances................................. 31
Section 12.2. Permitted Transfers..................................... 32
Section 12.3. Right to Contest Liens.................................. 35
Section 12.4. Substitution of Properties; Release of
Property......................................... 36
ARTICLE XIII - ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS........................................... 41
Section 13.1. Further Assurances...................................... 41
Section 13.2. Estoppel Certificates................................... 41
Section 13.3. Augmentation of the Portfolio........................... 42
ARTICLE XIV - DEFAULTS AND REMEDIES......................................... 42
Section 14.1. Events of Default....................................... 42
Section 14.2. Remedies................................................ 44
Section 14.3. General Provisions Pertaining to Remedies............... 45
Section 14.4. Foreclosure by Power of Sale............................ 47
Section 14.5. General Provisions Pertaining to
Mortgagee-in-Possession or Receiver............... 47
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section 14.6. General Provisions Pertaining to
<S> <C>
Foreclosures and the Power of Sale............... 48
Section 14.7. Application of Proceeds................................. 49
Section 14.8. Power of Attorney....................................... 49
Section 14.9. Tenant at Sufferance.................................... 49
Section 14.10. State Laws Pertaining to Remedies................ 50
ARTICLE XV - WAIVERS........................................................ 50
SECTION 15.1. WAIVER OF STATUTE OF LIMITATIONS........................ 50
SECTION 15.2. WAIVER OF NOTICE........................................ 50
SECTION 15.3. WAIVER OF MARSHALLING AND OTHER MATTERS................. 50
SECTION 15.4. WAIVER OF TRIAL BY JURY................................. 50
SECTION 15.5. WAIVER OF JUDICIAL NOTICE AND HEARING................ 50
SECTION 15.6. WAIVER OF SUBROGATION................................ 51
SECTION 15.7. GENERAL WAIVER.......................................... 51
ARTICLE XVI - NOTICES....................................................... 51
Section 16.1. Notices................................................. 51
Section 16.2. Change in Borrower's Name or Place
of Business...................................... 53
ARTICLE XVII - MISCELLANEOUS................................................ 53
Section 17.1. Applicable Law.......................................... 53
Section 17.2. Usury Limitations....................................... 53
Section 17.3. Lender's Discretion..................................... 54
Section 17.4. Unenforceable Provisions................................ 54
Section 17.5. Survival of Borrower's Obligations...................... 54
Section 17.6. Relationship Between Borrower and Lender;
No Third Party Beneficiaries..................... 54
Section 17.7. Partial Releases; Extensions; Waivers................... 55
Section 17.8. Service of Process...................................... 55
Section 17.9. Entire Agreement........................................ 55
Section 17.10. No Oral Amendment................................ 56
Section 17.11. Severability............................................ 56
Section 17.12. Covenants Run with the Land............................. 56
Section 17.13. Time of the Essence..................................... 56
Section 17.14. Subrogation............................................. 56
Section 17.15. Joint and Several Liability ..................... 56
Section 17.16. Successors and Assigns.................................. 56
Section 17.17. Duplicates and Counterparts............................. 57
ARTICLE XVIII - ADDITIONAL PROVISIONS PERTAINING TO STATE LAWS.............. 58
</TABLE>
<PAGE>
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
-----------------------------------------
SECURITY AGREEMENT AND FIXTURE FILING
-------------------------------------
THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT
(THIS "Mortgage") made this 12th day of February, 1999, by CABOT INDUSTRIAL
--------
PROPERTIES, L.P. ("Borrower"), a Delaware limited partnership, having its
--------
principal place of business at TWO CENTER PLAZA, SUITE 200, BOSTON,
MASSACHUSETTS 02110, for the benefit of TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA ("Lender"), a New York corporation, having an address at
------
730 Third Avenue, New York, New York 10017.
RECITALS:
---------
A. Lender agreed to make and Borrower has agreed to accept a loan
(the "Loan") in the maximum principal amount of $98,600,000.
----
B. To evidence a portion of the Loan, Borrower executed and
delivered to Lender a promissory note (the "Note"), dated the date of this
----
Mortgage, in the principal amount of __________ Dollars ($ __________)(that
amount or so much as is outstanding from time to time is referred to as the
"Principal"), promising to pay the Principal with interest thereon to the order
- ----------
of Lender as set forth in the Note and with the balance, if any, of the Debt
being due and payable on March 1, 2009 (the "Maturity Date").
-------------
C. To secure the Note, this Mortgage encumbers, among other things,
Borrower's fee interest in the real property located in the City of
_____________, County of ___________, [State] [Commonwealth] of
_________________, more particularly described in Exhibit A (the "Land").
--------- ----
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
-------------------------------------
Section 1.1. Definitions. Capitalized terms used in this Mortgage are
------------ -----------
defined in Exhibit B or in the text with a cross-reference in Exhibit B.
--------- ---------
Section 1.2. Rules of Construction. This Mortgage will be interpreted
------------ ---------------------
in accordance with the rules of construction set forth in Exhibit C.
---------
1
<PAGE>
ARTICLE II
GRANTING CLAUSES
----------------
Section 2.1. Encumbered Property. Borrower irrevocably grants,
------------ -------------------
mortgages, warrants, conveys, assigns and pledges to Lender, and grants to
Lender a security interest in, the following property, rights, interests and
estates to the extent now or in the future owned or held by Borrower (the
"Property"), to the extent assignable, for the uses and purposes set forth in
- ---------
this Mortgage forever:
(i) the Land;
(ii) all buildings and improvements located on the Land (the
"Improvements");
------------
(iii) all easements; rights of way or use, including any rights of ingress
and egress; streets, roads, ways, sidewalks, alleys and passages; strips
and gores; sewer rights; water, water rights, water courses, riparian
rights and drainage rights; air rights and development rights; oil and
mineral rights; and tenements, hereditaments and appurtenances, in each
instance adjoining or otherwise appurtenant to or benefitting the Land or
the Improvements;
(iv) all materials intended for construction, re-construction, alteration
or repair of the Improvements, such materials to be deemed included in the
Land and the Improvements immediately on delivery to the Land; all fixtures
and personal property that are attached to, contained in or used in
connection with the Land or the Improvements (in each instance to the
extent owned by Borrower and excluding personal property owned by tenants),
including: furniture; furnishings; machinery; motors; elevators; fittings;
microwave ovens; refrigerators; office systems and equipment; plumbing,
heating, ventilating and air conditioning systems and equipment;
maintenance and landscaping equipment; lighting, cooking, laundry, dry
cleaning, refrigerating, incinerating and sprinkler systems and equipment;
telecommunications systems and equipment; computer or word processing
systems and equipment; and security systems and equipment; and equipment
leases for any of the property described in this subsection (the "Fixtures
--------
and Personal Property");
---------------------
(v) all agreements, ground leases, grants of easements or rights-of-way,
permits, declarations of covenants, conditions and restrictions,
disposition and development agreements, planned unit development
agreements, cooperative, condominium or similar ownership or conversion
plans, management, leasing, brokerage or parking agreements or other
material documents affecting the Land, the Improvements or the Fixtures and
Personal Property, including, without limitation, the documents described
on Exhibit D but expressly excluding the Leases (the "Property Documents");
--------- ------------------
2
<PAGE>
(vi) all inventory (including all goods, merchandise, raw materials,
incidentals, office supplies and packaging materials) held for sale, lease
or resale or furnished or to be furnished under contracts of service for
the Land, the Improvements or the Fixtures or Personal Property, or used or
consumed in the ownership, use or operation of the Land, the Improvements
or the Fixtures and Personal Property, all documents of title evidencing
any part of any of the foregoing and all returned or repossessed goods
arising from or relating to any sale or disposition of such inventory;
(vii) all intangible personal property (if any) owned by Borrower and used
in connection with the Land, the Improvements or the Fixtures and Personal
Property, including choses in action and causes of action (except those
personal to Borrower), business records relating to the Land, the
Improvements or the Fixtures and Personal Property, promotional materials,
blueprints, plans, specifications, trade names of the Land and
Improvements, registrations, licenses, franchises, claims for refunds or
rebates of taxes, insurance surpluses, refunds or rebates of taxes and any
letter of credit, guarantee, claim, security interest or other security
held by or granted to Borrower to secure payment by an account debtor of
any of the accounts of Borrower arising out of the ownership, use or
operation of the Land, the Improvements or the Fixtures and Personal
Property, and documents covering all of the foregoing; to the extent
relating solely to the ownership, use or operation of the Land, the
Improvements or the Fixtures and Personal Property: accounts, accounts
receivable, documents and all investments of such funds and all other
general intangibles;
(viii) to the extent relating to the Land, the Improvements or the
Fixtures and Personal Property: all awards and other compensation paid
after the date of this Mortgage for any Condemnation (the "Condemnation
------------
Awards");
------
(ix) to the extent relating to the Land, the Improvements or the Fixtures
and Personal Property: all proceeds of and refunds of all unearned
premiums on the Policies (the "Insurance Proceeds");
------------------
(x) all licenses, certificates of occupancy, contracts, management
agreements, operating agreements, operating covenants, franchise
agreements, permits and variances relating to the Land, the Improvements or
the Fixtures and Personal Property;
(xi) all books, records and other information, wherever located, which are
in Borrower's possession, custody or control and which are related to the
Land, the Improvements or the Fixtures and Personal Property (the "Books
-----
and Records");
-----------
(xii) all deposits held from time to time by the Accumulations Depositary
to provide reserves for Taxes and Assessments together with interest
thereon, if any (the "Accumulations"); and
-------------
3
<PAGE>
(xiii) all after-acquired title to or remainder or reversion in any of the
property described in this Section; all additions, accessions and
extensions to, improvements of and substitutions or replacements for any of
such property; all products and all cash and non-cash proceeds, immediate
or remote, of any sale or other disposition of any of such property,
excluding sales or other dispositions of inventory in the ordinary course
of the business of operating the Land and the Improvements and proceeds of
Permitted Transfers and sales in connections with Substitutions or other
transfers permitted under Section 12.4 hereof, to the extent not required
to be delivered to Lender pursuant to Section 12.4 hereof; and all
additional lands, estates, interests, rights or other property acquired by
Borrower after the date of this Mortgage for use in connection with the
Land or the Improvements, all without the need for any additional mortgage,
assignment, pledge or conveyance to Lender but Borrower will execute and
deliver to Lender, upon Lender's request, any documents reasonably
requested by Lender to further evidence the foregoing.
Section 2.2. Habendum Clause. The Land, Improvements, Fixtures and
------------ ---------------
Personal Property are conveyed to Lender to have and to hold forever in fee
simple.
Section 2.3. Security Agreement.
------------ ------------------
(a) The Property includes both real and personal property and this Mortgage
is a real property mortgage and also a "security agreement" and a "financing
statement" within the meaning of the Uniform Commercial Code. By executing and
delivering this Mortgage, Borrower grants to Lender, as security for the
Obligations, a security interest in the Property to the full extent that any of
the Property may be subject to the Uniform Commercial Code.
(b) This Mortgage constitutes a fixture financing statement under the Laws
of the state or commonwealth in which the Property is located and for that
purpose, the following information is set forth:
(a) Name and address of Debtor:
--------------------------
as set forth in the Preamble to this document
(b) Name and address of Secured Party:
---------------------------------
as set forth in the Preamble to this document
(c) Description of the types (or items) of
--------------------------------------
property covered by this Financing Statement: all of the property
--------------------------------------------
described in section ii-xiii of the Section entitled "Encumbered
-----------
Property" described or referred to herein and included as part of the
--------
Premises.
4
<PAGE>
(d) Description of real estate to which collateral is
-------------------------------------------------
attached or upon which it is located: Described in Exhibit A.
------------------------------------ ---------
(e) The tax payer identification number of the Debtor is: 043397874.
----------------------------------------------------
Lender may file this Mortgage, or a reproduction thereof, in the real
estate records or other appropriate index, as a financing statement for any of
the items specified above as part of the Property. Any reproduction of this
Mortgage or of any other security agreement or financing statement is sufficient
as a financing statement.
Section 2.4. Conditions to Grant. This Mortgage is made on the express
------------ -------------------
condition that if Borrower pays and performs the Obligations in full in
accordance with the Loan Documents, then, unless expressly provided otherwise in
the Loan Documents, the Loan Documents will be released and satisfied at
Borrower's expense.
ARTICLE III
OBLIGATIONS SECURED
-------------------
Section 3.1. The Obligations. This Mortgage secures the Principal, the
------------ ---------------
Interest, the Late Charges, the Prepayment Premiums, the Expenses, the Release
Fee and any additional advances made by Lender in connection with the Property
or the Loan and all other amounts payable under the Loan Documents (the "Debt")
----
and also secures both the timely payment of the Debt as and when required and
the timely performance of all other obligations and covenants to be performed
under the Loan Documents but excluding the obligations and covenants of the
Borrower under the Indemnity (the "Obligations"), provided that the foregoing
----------- --------
does not limit, qualify or affect in any way the present, absolute nature of the
Assignment.
ARTICLE IV
TITLE AND AUTHORITY
-------------------
Section 4.1. Title to the Property.
------------ ---------------------
(a) Borrower represents and warrants that it has, and covenants that at all
times prior to the release of this Mortgage that it will continue to have, good
and marketable title in fee simple absolute to the Land and the Improvements and
good and marketable title to the Fixtures and Personal Property, all free and
clear of liens, encumbrances and charges except the Permitted Exceptions. To
Borrower's knowledge, there are no facts or circumstances that might give rise
to a lien, encumbrance or charge on the Property, other than Permitted
Exceptions, Leases and Subleases and other matters heretofore disclosed to
Lender in writing.
5
<PAGE>
(b) Borrower represents and warrants that it owns, and covenants that at
all times prior to the release of this Mortgage that it will continue to own
(except as otherwise provided herein), all of the other Property free and clear
of all liens, encumbrances and charges except the Permitted Exceptions, Leases
and Subleases and other matters heretofore disclosed to Lender in writing.
(c) Borrower represents and warrants that this Mortgage is, and covenants
that at all times prior to the release of this Mortgage this Mortgage that it
will remain, a valid and enforceable first lien on and security interest in the
Property, subject only to the Permitted Exceptions.
Section 4.2. Authority.
------------ ---------
Borrower represents and warrants as of the date hereof and covenants that
at all times prior to the release of this Mortgage:
(a) Borrower is and will continue to be (i) duly organized, validly
existing and in good standing under the Laws of the state or commonwealth in
which it was organized and (ii) duly qualified to conduct business, in good
standing, in the state or commonwealth where the Land and Improvements are
located;
(b) To Borrower's knowledge, Borrower has and will continue to have all
approvals required by Law or otherwise and full right, power and authority to
(i) own and operate the Property and carry on Borrower's business as now
conducted or as proposed to be conducted; (ii) execute and deliver the Loan
Documents; (iii) grant, mortgage, warrant the title to, convey, assign and
pledge the Property to Lender pursuant to the provisions of this Mortgage; and
(iv) perform the Obligations;
(c) The execution and delivery of the Loan Documents and the performance of
the Obligations do not conflict with or result in a default under any Laws (to
Borrower's knowledge) or any Leases or Property Documents and do not conflict
with or result in a default under any agreement binding upon Borrower or any
party or entity claiming by or through Borrower; and
(d) The Loan Documents constitute and will continue to constitute legal,
valid and binding obligations of all parties to the Loan Documents enforceable
in accordance with their respective terms, subject to applicable law, bankruptcy
laws, judicial or governmental orders binding upon the Borrower and other events
beyond Borrower's reasonable control.
Section 4.3. No Foreign Person. Borrower is not a "foreign person"
------------ -----------------
within the meaning of Section 1445(f)(3) of the Code.
Section 4.4. Litigation. There are no Proceedings or, to Borrower's
------------ ----------
knowledge, investigations against or, except as disclosed to Lender in writing,
affecting Borrower or the Property and, to Borrower's knowledge, there are no
facts or circumstances that might give rise
6
<PAGE>
to a Proceeding or an investigation against or affecting Borrower or the
Property such that such Proceeding or Proceedings, if determined adversely to
the interest of the Borrower, would have a material effect upon the ability of
the Borrower to perform its obligations under the Loan Documents.
ARTICLE V
PROPERTY STATUS, MAINTENANCE AND LEASES
---------------------------------------
Section 5.1. Status of the Property.
------------ ----------------------
Borrower represents and warrants as of the date hereof and covenants that
at all times prior to the release of this Mortgage:
(a) To Borrower's knowledge, Borrower has obtained and will use
commercially reasonable efforts to maintain in full force and effect all
certificates, licenses, permits and approvals that are issued or required (the
failure to obtain which would have a material and adverse effect on Borrower's
operation of the Property) (i) by Law, (ii) by any other entity having
jurisdiction over the Property or (iii) to be obtained by Borrower that are
necessary for the use, occupancy and operation of the Property, for the granting
of this Mortgage or for the conduct of Borrower's business on the Property in
accordance with the Permitted Use;
(b) To Borrower's knowledge, the Property is and will continue to be
(subject to force majeure events) serviced by all public utilities required for
the Permitted Use of the Property;
(c) To Borrower's knowledge, all roads and streets necessary for service of
and access to the Property for the current or contemplated use of the Property
have been completed and are and will continue to be (subject to force majeure
events) serviceable, physically open and dedicated to and accepted by the
Government for use by the public; and
(d) All costs and expenses of labor, materials, supplies and equipment used
in the construction of the Improvements have been paid in full or will be paid
in the ordinary course of business.
Section 5.2. Maintenance of the Property. Borrower represents and
------------ ---------------------------
warrants that as of the date hereof the Property is free from damage caused by a
Casualty, and in the event that a Casualty occurs Borrower will use commercially
reasonable efforts to cause the Property to be restored as required with
respect to Borrower's Restoration obligations as set forth in Article VII.
Borrower will maintain (or cause to be maintained) the Property in thorough
repair and good and safe condition, suitable for the Permitted Use, including,
to the extent required under any Lease, replacing the Fixtures and Personal
Property with property at least equal in quality and condition to that being
replaced. Borrower will not erect any new buildings, building
7
<PAGE>
additions or other structures on the Land or otherwise structurally alter the
Improvements without Lender's prior consent which may be withheld in Lender's
sole discretion, except to the extent required by a Lease approved by Lender (or
as to which Lender's approval is not required). Except as required by any Leases
approved by Lender (or as to which Lender's approval is not required), without
Lender's prior written consent, Borrower will not alter the Property in any
manner that would increase Borrower's responsibilities for compliance with Law.
The Property will be managed by a property manager satisfactory to Lender
pursuant to a management agreement satisfactory to Lender and terminable by
Borrower upon 30 days notice to the property manager. Lender, by its acceptance
of this Mortgage, acknowledges that the property manager and property management
agreement in effect as of the date hereof are acceptable to Lender.
Section 5.3. Change in Use. Borrower will use and permit the use of the
------------ -------------
Property for the Permitted Use and for no other purpose.
Section 5.4. Waste. Without Lender's prior consent which may be
------------ -----
withheld in Lender's sole discretion, Borrower will not commit or permit any
waste (including economic and non-physical waste), impairment or deterioration
of the Property or any demolition (except in connection with the build out of
any tenant space) of any of the Property, or removal of any Fixtures or Personal
Property from the Land and Improvements except to the extent any such Property
is replaced with items of equal or greater functionality or value.
Section 5.5. Inspection of the Property. Subject to the rights of
------------ --------------------------
tenants under the Leases (and subtenants under Subleases), Lender has the right
to enter and inspect the Land and Improvements on reasonable prior notice,
except in the case of an emergency, when no prior notice is necessary. Lender
has the right to engage an independent expert to review and report on Borrower's
compliance with Borrower's obligations under this Mortgage to maintain the
Property, comply with Law and refrain from waste, impairment or deterioration of
the Property and the alteration, demolition or removal of any of the Property
except as may be permitted by the provisions of this Mortgage. If the
independent expert's report discloses material failure to comply with such
obligations or if Lender engages the independent expert after the occurrence of
an Event of Default, then the independent expert's review and report will be at
Borrower's expense, payable on demand.
Section 5.6. Leases and Rents.
------------ ----------------
(a) Borrower assigns the Leases and the Rents to Lender absolutely and not
merely as additional collateral or security for the payment and performance of
the Obligations, but subject to a license back to Borrower of the right to
collect the Rents unless and until an Event of Default occurs at which time the
license will terminate automatically, all as more particularly set forth in the
Assignment, the provisions of which are incorporated in this Mortgage by
reference.
(b) Borrower appoints Lender as Borrower's attorney-in-fact to execute
unilaterally and to record, at Lender's election, a document subordinating this
Mortgage to the Leases,
8
<PAGE>
provided that the subordination will not affect (i) the priority of Lender's
- --------
entitlement to Insurance Proceeds or Condemnation Awards or (ii) the priority of
this Mortgage over intervening liens or liens arising under or with respect to
the Leases and Subleases.
Section 5.7. Parking. Borrower will itself (or pursuant to Lease
------------ -------
provisions require Tenants to) provide, maintain, police and light parking areas
within the Land and Improvements, including any sidewalks, aisles, streets,
driveways, sidewalk cuts and rights-of-way to and from the adjacent public
streets, in a manner consistent with the Permitted Use and sufficient to
accommodate the greater of: (i) the number of parking spaces required by Law; or
(ii) the number of parking spaces required by the Leases and the Property
Documents. The parking areas will be reserved and used exclusively for ingress,
egress and parking for Borrower and the tenants under the Leases and Subleases
and their respective employees, customers and invitees and otherwise in
accordance with the Leases and the Property Documents.
Section 5.8. Separate Tax Lot. The Land is and will remain assessed for
------------ ----------------
real estate tax purposes as one or more wholly independent tax lots, separate
from any property that is not part of the Property.
Section 5.9. Changes in Zoning or Restrictive Covenants. Borrower will
------------ ------------------------------------------
not without Lender's consent (i) initiate, join in or consent to any material
change in any Laws pertaining to zoning, any restrictive covenant or other
restriction which would restrict the permitted uses for the Land and
Improvements, (ii) permit the Land or Improvements to be used to fulfil any
requirements of Law for the construction or maintenance of improvements on
property that is not part of the Property, except to the extent required by any
Permitted Exception; (iii) permit the Land or Improvements to be used for any
purpose not included in the Permitted Use; or (iv) impair the integrity of the
Land as a single, legally subdivided zoning lot separate from all other
property.
Section 5.10. Lender's Right to Appear. After the occurrence of an
------------- ------------------------
Event of Default, Lender has the right to appear in and defend any Proceeding
brought regarding the Property and to bring any Proceeding, in the name and on
behalf of Borrower or in Lender's name, which Lender, in its sole discretion,
determines should be brought to protect Lender's interest in the Property.
ARTICLE VI
IMPOSITIONS AND ACCUMULATIONS
-----------------------------
Section 6.1. Impositions.
------------ -----------
(a) Borrower will pay (or cause to be paid) each Imposition at least 15
days before the date, or such later date permitted under any Lease providing for
direct payment of Impositions by a Tenant, that is the earlier of (i) the date
on which the Imposition becomes
9
<PAGE>
delinquent and (ii) the date on which any penalty, interest or charge for non-
payment of the Imposition accrues (such earlier date being referred to as the
"Imposition Penalty Date") .
-----------------------
(b) Within 30 days after the date of payment required by the preceding
clause (i), Borrower will deliver to Lender a receipted bill or other evidence
of payment.
(c) Borrower, at its own expense, may contest any Imposition, provided that
--------
the following conditions are met:
(i) prior to the date on which payment is required to be made pursuant to
the foregoing clause (a), Borrower delivers to Lender notice of the
proposed contest;
(ii) the contest is by a Proceeding promptly initiated and conducted
diligently and in good faith;
(iii) there is no Event of Default;
(iv) the Proceeding suspends the collection of the contested Imposition or
Borrower pays such Impositions prior to their delinquency;
(v) the Proceeding is permitted under and is conducted in accordance with
the Leases and the Property Documents;
(vi) the Proceeding precludes imposition of criminal or civil penalties and
sale or forfeiture of the Property and Lender will not be subject to any
civil suit;
(vii) Borrower pays such Impositions prior to the date of delinquency or
deposits with the Accumulations Depositary reserves or furnishes a bond or
other security satisfactory to Lender, in either case in an amount
sufficient to pay the contested Impositions, together with all interest and
penalties or Borrower pays all of the contested Impositions under protest.
(d) Installment Payments. During the continuance of an Event of Default,
--------------------
if any Imposition is payable in installments, Borrower will nevertheless pay the
Imposition in its entirety on the day the first installment becomes due and
payable or a lien, unless Lender, in its sole discretion, approves payment of
the Imposition in installments.
Section 6.2. Accumulations.
------------ -------------
(a) Borrower made an initial deposit with either Lender or a mortgage
servicer or financial institution designated or approved by Lender from time to
time to receive, hold and disburse the Accumulations in accordance with this
Section (the "Accumulations Depositary"). On the first day of each calendar
------------------------
month during the Term Borrower will deposit with the Accumulations Depositary an
amount equal to one-twelfth (1/12) of the annual Impositions and
10
<PAGE>
Insurance Premiums as determined pursuant to Section 3 of the Real Estate Tax
Escrow and Security Agreement executed by Borrower, Lender and Tax Servicer (the
"Tax Agreement"). At least 45 days before each Imposition Penalty Date, Borrower
- --------------
will deliver to the Accumulations Depositary any bills and other documents that
are necessary to pay the Impositions and Insurance Premiums. Borrower shall pay
any fees charged by the Accumulations Depositary in connection with collection
and disbursement of Impositions and Insurance Premiums.
Notwithstanding the foregoing, so long as Borrower is the owner of the
Property and each of the properties identified in the Commitment (subject to
Substitution in accordance with provisions set forth in Section 12.4 hereof and
Permitted Transfers) and so long as no Event of Default exists Borrower shall
not be required to make such monthly deposits of Insurance Premiums.
Furthermore, subject to the foregoing conditions, Borrower shall not be required
to make such deposits of funds for Impositions with respect to those portions of
the Property that are subject to Leases ("Direct Tax Payment Leases") with third
-------------------------
parties that are not Affiliates, to the extent that such Leases:
(i) require such third party tenants to make payments of Impositions
directly to the relevant taxing authorities; and
(ii) have been approved by Lender in writing (or are not required to be
approved by Lender) pursuant to the requirements of the Assignment.
To the extent that Direct Tax Payment Leases demise less than all the space
in the Property, Borrower shall be required to make deposits with the
Accumulations Depositary for any balance of Impositions that Lender reasonably
determines would be owing with respect to that portion of the Property not
subject to Direct Tax Payment Leases. In the event that (a) the Accumulations
Depositary notifies the Borrower and the Lender that, on two (2) separate
occasions, a tenant under a Direct Tax Payment Lease has failed to make any
payment of Impositions prior to the time that such payments become delinquent,
or (b) if any such tenant is in monetary default under its Lease, or (c) if such
Lease terminates, then Borrower shall promptly deposit with the Accumulations
Depositary an initial deposit and Borrower shall thereafter make monthly
deposits of funds in respect of such charges as required by Section 6.2(a)
above.
(b) The Accumulations and deposits on account of Insurance Premiums (to the
extent required to be deposited) will be applied to the payment of Impositions
and Insurance Premiums. Except during the continuance of an Event of Default,
any excess Accumulations or accrued deposits on account of Insurance Premiums
after payment of Impositions and Insurance Premiums will be returned to Borrower
or credited against future payments of the Accumulations and Insurance Premiums,
at Lender's election or as required by Law. If the Accumulations and accrued
deposits on account of Insurance Premiums are not sufficient to pay Impositions
and Insurance Premiums, Borrower will pay the deficiency to the Accumulations
Depositary within 5 days of demand. At any time after an Event of Default
occurs, Lender may apply the
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<PAGE>
Accumulations and accrued deposits on account of Insurance Premiums as a credit
against any portion of the Debt selected by Lender in its sole discretion.
(c) The Accumulations Depositary will hold the Accumulations and accrued
deposits on account of Insurance Premiums as additional security for the
Obligations until applied in accordance with the provisions of this Mortgage.
If Lender is not the Accumulations Depositary, the Accumulations Depositary will
deliver the Accumulations and accrued deposits on account of Insurance Premiums
to Lender upon Lender's demand at any time after an Event of Default.
(d) If the Property is sold or conveyed other than by foreclosure or
transfer in lieu of foreclosure and the Loan has not been paid in full, all
right, title and interest of Borrower to the Accumulations and accrued deposits
on account of Insurance Premiums will automatically, and without necessity of
further assignment, be held for the account of the new owner, subject to the
provisions of this Section and Borrower will have no further interest in the
Accumulations and accrued deposits on account of Insurance Premiums.
(e) The Accumulations Depositary has deposited the initial deposit and will
deposit the monthly deposits into a separate interest bearing account in the
name of Lender as secured party, all in accordance with the Tax Agreement.
Interest shall accrue and be credited upon such deposits in accordance with the
provisions of the Tax Agreement.
(f) Lender has the right to pay, or to direct the Accumulations Depositary
to pay, any Impositions or Insurance Premiums unless Borrower is contesting the
Impositions or Assessments in accordance with the provisions of this Mortgage,
in which event any payment of the contested Impositions will be made under
protest in the manner prescribed by Law or, at Lender's election, will be
withheld.
(g) If Lender assigns this Mortgage, Lender will pay, or cause the
Accumulations Depositary to pay, the unapplied balance of the Accumulations and
accrued deposits on account of Insurance Premiums to or at the direction of the
assignee. Simultaneously with the payment, Lender and the Accumulations
Depositary will be released from all liability with respect to the Accumulations
and accrued deposits on account of Insurance Premiums and Borrower will look
solely to the assignee with respect to the Accumulations and accrued deposits on
account of Insurance Premiums. When the Obligations have been fully satisfied,
any unapplied balance of the Accumulations and accrued deposits on account of
Insurance Premiums will be returned to Borrower.
Section 6.3. Changes in Tax Laws. If a Law requires the deduction of
------------ -------------------
the Debt from the value of the Property for the purpose of taxation or imposes a
tax, either directly or indirectly, on the Debt, any Loan Document or Lender's
interest in the Property, except a tax on Lender's income, Borrower will pay the
tax with interest and penalties, if any. If Lender determines that Borrower's
payment of the tax may be unlawful, unenforceable, usurious or taxable to
Lender, the Debt will become immediately due and payable (at par, without
12
<PAGE>
prepayment penalty) on 60 days' prior notice unless the tax must be paid within
the 60-day period, in which case, the Debt will be due and payable within the
lesser period.
Section 6.4. Payment of Other Property Charges. (a) Borrower will pay
----------- ---------------------------------
(or cause to be paid) each Other Property Charges before the date, or such later
date permitted under any Lease providing for direct payment of Other Property
Charges by a Tenant, that is the earlier of (i) the date on which the Other
Property Charge becomes delinquent and (ii) the date on which any penalty,
interest or charge for non-payment of the Other Property Charge accrues.
(b) Borrower, at its own expense, may contest any Other Property Charge
provided that such contest is conducted in accordance with the provisions of
Section 12.3 hereof.
ARTICLE VII
INSURANCE, CASUALTY, CONDEMNATION
---------------------------------
AND RESTORATION
---------------
Section 7.1. Insurance Coverages.
------------ -------------------
(a) Borrower will maintain such insurance coverages and endorsements with
respect to the Land, Improvements, Fixtures and Personal Property, in form and
substance and in amounts as Borrower may reasonably determine from time to time,
subject to Lender's reasonable approval. Borrower will maintain not less than
the insurance coverages and endorsements in effect as of the date hereof.
(b) The insurance, including renewals, required under this Section will be
issued on valid and enforceable policies and endorsements satisfactory to Lender
(in each case to the extent relating to the Land, Improvements and Fixtures, the
"Policies"). Each Policy will contain a standard waiver of subrogation and a
--------
replacement cost endorsement and will provide for Lender to receive not less
than 30 days' prior written notice of any cancellation, termination or non-
renewal of a Policy or any material change other than an increase in coverage
and that Lender will be named under a standard mortgage endorsement as loss
payee.
(c) The insurance companies issuing the Policies (the "Insurers") must be
--------
authorized to do business in the State or Commonwealth where the Property is
located, must have been in business for at least 5 years, must carry an A.M.
Best Company, Inc. policy holder rating of A or better and an A.M. Best Company,
Inc. financial category rating of Class X or better and must be otherwise
satisfactory to Lender. Lender may select an alternative credit rating agency
and may impose different credit rating standards for the Insurers.
Notwithstanding Lender's right to approve the Insurers and to establish credit
rating standards for the Insurers, Lender will not be responsible for the
solvency of any Insurer.
13
<PAGE>
(d) Notwithstanding Lender's rights under this Article, Lender will not be
liable for any loss, damage or injury resulting from the inadequacy or lack of
any insurance coverage.
(e) Borrower will comply with the provisions of the Policies and with the
requirements, notices and demands imposed by the Insurers and applicable to
Borrower or the Property.
(f) Borrower will pay the Insurance Premiums for each Policy within 30 days
of invoice therefor and in any case in such a timely manner as to prevent lapse
of the Policy being replaced or renewed (except to the extent that Borrower is
required to deposit funds for Insurance Premiums with the Accumulation
Depository, in which case such payments shall be made in accordance with the
provisions of Article VI hereof) and will deliver to Lender an original or, if a
----------
blanket policy, a certified copy of each Policy marked "Paid" not less than 30
days after payment of the Policy being replaced or renewed or other evidence of
payment of such Insurance Premiums reasonably satisfactory to Lender.
(g) Borrower will not carry separate insurance concurrent in kind or form
or contributing in the event of loss with any other insurance carried by
Borrower.
(h) Borrower may carry any of the insurance required under this Section on
a blanket or umbrella policy provided that Borrower provides Lender with an
original or copy certified by the insurer of each such policy. Each such
blanket policy shall allocate to the Property the amount of coverage required
under this Section and otherwise shall provide the same coverage and protection
as would a separate policy insuring only the Property without the possibility of
any reduction of insurance benefits by reason of any claim made against such
policy related to another property insured thereunder.
(i) Borrower will give the Insurers prompt notice of any change in
ownership or occupancy of the Property. This subsection does not abrogate the
prohibitions on transfers set forth in this Mortgage.
Section 7.2. Casualty and Condemnation.
------------ -------------------------
(a) Borrower will give Lender notice of any Casualty immediately after it
occurs and will give Lender notice of any Proceeding in Condemnation immediately
after Borrower receives notice of commencement or notice that such a Proceeding
will be commencing. Borrower immediately will deliver to Lender copies of all
documents Borrower delivers or receives relating to the Casualty or the
Proceeding, as the case may be.
(b) Subject to Subsection (c) below, Borrower authorizes Lender, at
Lender's option, to act on Borrower's behalf to collect, adjust and compromise
any claims for loss, damage or destruction under the Policies on such terms as
Lender determines in Lender's sole discretion. Subject to Subsection (c) below,
Borrower authorizes Lender to act, at Lender's option, on Borrower's behalf in
connection with any Condemnation Proceeding. Borrower will execute and
14
<PAGE>
deliver to Lender all documents requested by Lender and all documents as may be
required by Law to confirm such authorizations. Nothing in this Section will be
construed to limit or prevent Lender from joining with Borrower either as a co-
defendant or as a co-plaintiff if any Condemnation Proceeding.
(c) If Lender does not to act on Borrower's behalf as provided in this
Section, Borrower promptly will file and prosecute all claims (including
Lender's claims) relating to the Casualty and will prosecute or defend
(including defense of Lender's interest) any Condemnation Proceeding.
Notwithstanding the foregoing Subsection (b), except during the continuance of
an Event of Default, Borrower will have the authority to collect, adjust, settle
or compromise the claims or Proceeding, as the case may be, provided that Lender
--------
has approved, in Lender's reasonable discretion, any compromise or settlement
that exceeds $1,000,000.00. Any check for Insurance Proceeds or Condemnation
Awards, as the case may be (the "Proceeds") will be made payable to Lender and
--------
Borrower. Borrower will endorse the check to Lender immediately upon Lender
presenting the check to Borrower for endorsement or if Borrower receives the
check first, will endorse the check immediately upon receipt and forward it to
Lender, to the extent that the Proceeds exceed $1,000,000.00. If any Proceeds
are paid to Borrower, and such Proceeds exceed $1,000,000.00, Borrower
immediately will deposit the Proceeds with Lender, to be applied or disbursed in
accordance with the provisions of this Mortgage. Lender will be responsible for
only the Proceeds actually received by Lender. If the Proceeds are $1,000,000
or less and Borrower is otherwise entitled to hold and apply such Proceeds,
Lender will endorse the check immediately upon receipt and forward it to
Borrower.
Section 7.3. Application of Proceeds. Subject to the provisions of
------------ -----------------------
Section 7.4 below, after deducting the costs incurred by Lender in collecting
the Proceeds, Lender may, in its sole discretion, (i) apply the Proceeds as a
credit against any portion of the Debt selected by Lender in its sole
discretion; (ii) apply the Proceeds to restore the Improvements, provided that
--------
Lender will not be obligated to see to the proper application of the Proceeds
and provided further that any amounts released for Restoration will not be
-------- -------
deemed a payment on the Debt; or (iii) deliver the Proceeds to Borrower.
Section 7.4. Conditions to Availability of Proceeds for Restoration.
------------ ------------------------------------------------------
Notwithstanding the preceding Section, after a Casualty or a Condemnation (a
"Destruction Event") Lender will make the Proceeds (less any costs incurred by
- ------------------
Lender in collecting the Proceeds) available for Restoration in accordance with
the conditions for disbursements set forth in the Section entitled
"Restoration", provided that the following conditions are met:
----------- --------
(i) Cabot Industrial Properties, L.P. or the transferee under a Permitted
Transfer, if any, continues to be Borrower at the time of the Destruction
Event and at all times thereafter until the Proceeds have been fully
disbursed;
(ii) no Event of Default hereunder exists at the time of the Destruction
Event;
15
<PAGE>
(iii) all Property Documents in effect immediately prior to the
Destruction Event that are essential to the use and operation of the
Property continue in full force and effect notwithstanding the Destruction
Event;
(iv) if the Destruction Event is a Condemnation, Borrower delivers to
Lender evidence satisfactory to Lender that the Improvements can be
restored to an economically and architecturally viable unit;
(v) Borrower delivers to Lender evidence satisfactory to Lender that the
Proceeds are sufficient to complete Restoration or if the Proceeds are
insufficient to complete Restoration, Borrower first deposits with Lender,
to the extent that the Proceeds are required to be deposited with Lender,
funds ("Additional Funds") or otherwise demonstrates evidence of financial
----------------
capacity that when added to the Proceeds will be sufficient to complete
Restoration;
(vi) if the Destruction Event is a Casualty, Borrower delivers to Lender
evidence satisfactory to Lender that the Insurer under the affected Policy
has not denied liability under the Policy as to Borrower or the insured
under the Policy;
(vii) Lender is satisfied that the proceeds of any business interruption
insurance in effect together with other available gross revenues from the
Portfolio or from other sources satisfactorily demonstrated to Lender are
sufficient to pay Debt Service Payments for the Portfolio after paying the
Impositions, Insurance Premiums, Other Property Charges, reasonable and
customary operating expenses and capital expenditures until Restoration is
complete, provided, however, that if the foregoing requirement is not met
-------- -------
and a Lease of the Property requires that the Property be rebuilt, then
Lender will make not refuse to make the Proceeds available for Restoration
based upon a failure to meet the requirements of this subsection (vii) so
long as no Event of Default occurs thereafter; and
(viii) subject to force majeure, Lender is satisfied that Restoration will
be completed on or before the date (the "Restoration Completion Date") that
---------------------------
is the earliest of: (A) 12 months after the first release of Proceeds on
account of the Destruction Event; or (B) any date required by Law.
Section 7.5. Restoration.
-----------
(a) If the total Proceeds for any Destruction Event are $1,000,000.00 or
less and no Event of Default is continuing and Lender elects or is obligated by
--- ---
Law or any Lease or otherwise under this Article to make the Proceeds available
for Restoration, Lender will disburse to Borrower the entire amount received by
Lender and Borrower will commence Restoration promptly after the Destruction
Event and complete Restoration not later than the Restoration Completion Date.
16
<PAGE>
(b) If the Proceeds for any Destruction Event exceed $1,000,000.00 and
Lender elects or is obligated by Law or any Lease or otherwise under this
Article to make the Proceeds available for Restoration, Lender will disburse the
Proceeds and any Additional Funds (the "Restoration Funds") upon Borrower's
-----------------
request as Restoration progresses, generally in accordance with normal
construction lending practices for disbursing funds for construction costs and
provided that the following conditions are met:
- --------
(i) Borrower commences Restoration promptly after the Destruction Event and
completes Restoration on or before the Restoration Completion Date;
(ii) if Lender requests, Borrower delivers to Lender prior to commencing
Restoration, for Lender's approval, plans and specifications and detailed
budget for the Restoration;
(iii) Borrower delivers to Lender satisfactory evidence of the costs of
Restoration incurred prior to the date of the request, and such other
documents as Lender may reasonably request including mechanic's liens,
waivers and title insurance endorsements;
(iv) Borrower pays all costs of Restoration whether or not the Restoration
Funds are sufficient and, if at any time during Restoration, Lender
determines that the undisbursed balance of the Restoration Funds is
insufficient to complete Restoration, Borrower deposits with Lender, as
part of the Restoration Funds, an amount equal to the deficiency within 30
days of receiving notice of the deficiency from Lender or otherwise
demonstrates evidence of financial capacity; and
(v) there is no Event of Default continuing under the Loan Documents at the
time Borrower requests funds or at the time Lender disburses funds.
(c) If an Event of Default occurs at any time after the Destruction Event,
then Lender will have no further obligation to make any remaining Proceeds
available for Restoration and may apply any remaining Proceeds as a credit
against any portion of the Debt selected by Lender in its sole discretion.
(d) Lender may elect at any time prior to commencement of Restoration or
while work is in progress, to retain, at Borrower's expense, an independent
engineer or other consultant to review any plans and specifications required by
Lender, to inspect the work as it progresses and to provide reports. If any
matter included in a report by the engineer or consultant is unsatisfactory to
Lender, Lender may suspend disbursement of the Restoration Funds until the
unsatisfactory matters contained in the report are resolved to Lender's
satisfaction.
17
<PAGE>
(e) If Borrower fails to commence and complete Restoration in accordance
with the terms of this Article, then in addition to the Remedies, Lender may
elect to restore the Improvements on Borrower's behalf and reimburse itself out
of the Restoration Funds for costs and expenses incurred by Lender in restoring
the Improvements, or Lender may apply the Restoration Funds as a credit against
any portion of the Debt selected by Lender in its sole discretion.
(f) Lender may commingle the Restoration Funds with its general assets.
Lender will not hold any Restoration Funds in trust. Lender shall deposit the
Restoration Funds with a depositary satisfactory to Lender under a disbursement
and security agreement satisfactory to Lender, and such funds shall bear
interest for the account of the Borrower.
(g) Borrower will pay all of Lender's reasonable expenses incurred in
connection with a Destruction Event or Restoration. If Borrower fails to do so,
then in addition to the Remedies, Lender may from time to time reimburse itself
out of the Restoration Funds.
(h) If any excess Proceeds remain after Restoration, Lender may elect, in
its sole discretion either to apply the excess as a credit against any portion
of the Debt, at par without penalty or premium, as selected by Lender in its
sole discretion or to deliver the excess to Borrower, provided, however, that if
-------- -------
no Event of Default is continuing, all excess Proceeds remaining after
Restoration shall be paid to Borrower..
ARTICLE VIII
COMPLIANCE WITH LAW AND AGREEMENTS
----------------------------------
Section 8.1. Compliance with Law. To Borrower's knowledge, Borrower,
------------ -------------------
the Property and the use of the Property comply and Borrower will itself (or
will use reasonable efforts to require tenants to) continue to comply in all
material respects with Law and with all agreements and conditions necessary to
preserve and extend all rights, licenses, permits, privileges, franchises and
concessions (including zoning variances, special exceptions and non-conforming
uses) relating to the Property. Borrower will notify Lender of the commencement
of any investigation or Proceeding relating to a possible violation of Law
immediately after Borrower receives notice thereof and will deliver promptly to
Lender copies of all documents Borrower receives or delivers in connection with
the investigation or Proceeding.
Section 8.2. Compliance with Agreements. To Borrower's knowledge, there
------------ --------------------------
are no defaults, events of defaults or events that, with the passage of time or
the giving of notice, would constitute an event of default under the Property
Documents that would materially and adversely affect the Property. Borrower
will pay and perform all of its obligations under the Property Documents as and
when required by the Property Documents. Borrower will use commercially
reasonable efforts to cause all other parties to the Property Documents to pay
and perform their obligations under the Property Documents as and when required
by the Property Documents.
18
<PAGE>
Borrower will not amend or waive any provisions of the Property Documents;
exercise any options under the Property Documents; give any approval required or
permitted under the Property Documents that would adversely affect the Property
or Lender's rights and interests under the Loan Documents; cancel or surrender
any of the Property Documents; or release or discharge or permit the release or
discharge of any party to or entity bound by any of the Property Documents, in
each instance that would materially and adversely affect the Lender's rights or
interests under the Loan Documents, without, in each instance, Lender's prior
approval (excepting therefrom all service contracts or other agreements entered
into in the normal course of business that are cancelable upon not more than 30
days' notice). Borrower promptly will deliver to Lender copies of any notices of
default or of termination that Borrower receives or delivers relating to any
Property Document.
Section 8.3. ERISA Compliance.
------------ ----------------
(a) Borrower is not and will continue not to be an "employee benefit plan"
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA") that is subject to Title I of ERISA or a "plan" as defined in
-----
Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code, and
Borrower's assets do not and will not constitute "plan assets" of one or more
such plans for purposes of Title I of ERISA or Section 4975 of the Code.
(b) Borrower will not engage in any transaction which would cause any
obligation or any action under the Loan Documents, including Lender's exercise
of the Remedies, to be a non-exempt prohibited transaction under ERISA.
Section 8.4. Section 6045(e) Filing. Borrower will supply or cause to
------------ ----------------------
be supplied to Lender either (i) a copy of a completed Form 1099-B, Statement
for Recipients of Proceeds from Real Estate, Broker and Barter Exchange Proceeds
prepared in connection with Borrower's acquisition of the Property by Borrower's
attorney or other person responsible for the preparation of the form, together
with a certificate from the person who prepared the form to the effect that the
form has, to the best of the preparer's knowledge, been accurately prepared and
that the preparer will timely file the form; or (ii) a certification from
Borrower that the Loan is a refinancing of the Property or is otherwise not
required to be reported to the Internal Revenue Service pursuant to Section
6045(e) of the Code. Under no circumstances will Lender or Lender's counsel be
obligated to file the reports or returns.
Section 8.5. Brokerage Fees. Borrower represents and warrants to Lender
------------ --------------
that except as disclosed in writing to Lender no person or entity claiming
through Borrower, and to Borrower's knowledge, no other person or entity, has
any claim for a brokerage fee, finder's fee, commission, premium or other such
charge against the Property, with respect to Borrower's acquisition of the
Property, with respect to the making of the Loan or with respect to any leasing
of the Property. Borrower shall indemnify and hold Lender harmless from the
claim of any person or entity who asserts any such claim.
19
<PAGE>
ARTICLE IX
ENVIRONMENTAL
-------------
Section 9.1. Environmental Representations and Warranties.
----------- --------------------------------------------
(a) Except as disclosed in the Environmental Report during the period
Borrower or any affiliate of Borrower has owned the Property and as of the date
of this Mortgage:
(i) to Borrower's knowledge, no Environmental Activity has occurred or is
occurring on the Property other than the use, storage, and disposal of
Hazardous Materials in the ordinary course of business consistent with the
Permitted Use and in compliance with all Environmental Laws without release
of Hazardous Materials; and
(ii) to Borrower's knowledge, no Environmental Activity has occurred or is
occurring on any property in the vicinity of the Property from which there
is a material risk that Hazardous Materials will migrate, leach, flow,
drain, seep, blow or drift onto the Property.
(b) Except as disclosed in the Environmental Report and to Borrower's
knowledge, at all times prior to acquisition of the Property by Borrower or any
affiliate of Borrower:
(i) no Environmental Activity occurred on the Property other than the use,
storage and disposal of Hazardous Materials in the ordinary course of
business consistent with the Permitted Use and in compliance with all
Environmental Laws without release of Hazardous Materials; and
(ii) no Environmental Activity occurred on any property in the vicinity of
the Property from which there is a material risk that Hazardous Materials
will migrate, leach, flow, drain, seep, blow or drift onto the Property.
(c) For the purposes of this Section, the phrase "use of the Property"
includes use by tenants and the phrase "on the Property" means on, in, above and
below the Property.
Section 9.2. Environmental Covenants.
----------- -----------------------
(a) Without limiting the obligation of Borrower to enforce any other
provisions of the Leases, Borrower will enforce all provisions of the Leases
with respect to Environmental Activity. Without limiting the foregoing,
Borrower shall promptly inspect any portion of the Property as to which Borrower
has information or suspicion that Environmental Activity in violation of a Lease
has occurred or is threatened, and Borrower will promptly require the tenant
under any such Lease to completely remediate the effect of any such
Environmental Activity. Borrower covenants to promptly undertake such
remediation if the tenant under such Lease fails to do so.
20
<PAGE>
(b) Borrower will notify Lender immediately upon Borrower becoming aware of
(i) any actual, suspected or threatened violation of Environmental Laws with
respect to the Property or with respect to any property in the vicinity of the
Property, and (ii) any Environmental Activity with respect to the Property or
with respect to any property in the vicinity of the Property other than the use,
storage, and disposal of Hazardous Materials in the ordinary course of business
consistent with the Permitted Use and in compliance with all Environmental Laws
without release of Hazardous Materials. Borrower promptly will deliver to Lender
copies of all documents delivered to or received by Borrower regarding the
matters set forth in this subsection, including notices of Proceedings or
investigations concerning any Environmental Activity or concerning Borrower's
status as a potentially responsible party (as defined in the Environmental
Laws). Borrower's notification to Lender in accordance with the provisions of
this subsection will not be deemed to excuse any default under the Loan
Documents resulting from the Environmental Activity or the violation of
Environmental Laws that is the subject of the notice.
(c) From time to time at Lender's request, Borrower will deliver to Lender
any information known and documents available to Borrower relating to the
environmental condition of the Property.
(d) Lender may perform or engage an independent consultant to perform an
assessment of the environmental condition of the Property and of Borrower's
compliance with this Section on an annual basis or at any time for reasonable
cause or after an Event of Default. In connection with the assessment: (i)
subject to the rights of Tenants under Leases and in compliance with Laws,
Lender or consultant may enter and inspect the Property and perform tests of the
air, soil, ground water and building materials; (ii) Borrower will cooperate and
use best efforts to cause tenants and other occupants of the Property to
cooperate with Lender or consultant; (iii) Borrower will accept custody of and
arrange for lawful disposal of any Hazardous Materials required to be disposed
of as a result of the tests; and (iv) neither Lender nor consultant will have
liability to Borrower with respect to the results of the assessment, provided
that Lender or consultant will be responsible for any damage to the Property
resulting from the gross negligence or willful misconduct of Lender's
consultants in performing the tests described in this subsection. The
consultant's assessment and reports will be at Borrower's expense if the reports
disclose any material adverse change in the environmental condition of the
Property from that disclosed in the Environmental Report or if Lender engaged
the consultant when Lender had reasonable cause to believe Borrower was not in
compliance with the terms of this Article after the occurrence of an Event of
Default.
(e) If Lender has reasonable cause to believe that there is Environmental
Activity at the Property, Lender may elect in its sole discretion to release
from the lien of this Mortgage any portion of the Property affected by the
Environmental Activity and Borrower will accept the release.
21
<PAGE>
ARTICLE X
FINANCIAL REPORTING
-------------------
Section 10.1. Financial Reporting.
------------ -------------------
(a) Borrower will deliver to Lender within 120 days after the close of each
Fiscal Year an annual financial statement (the "Annual Financial Statement") for
--------------------------
the Property for the Fiscal Year, which will include a balance sheet, a
comparative balance sheet (when sufficient operating results are available to
provide such a statement), a statement reconciling cash receipts and
disbursements to income and expenses, and an income and expense statement. The
Annual Financial Statement will be certified on behalf of Borrower by an officer
of Existing General Partner.
(b) Borrower will keep full and accurate Financial Books and Records for
each Fiscal Year. Borrower will permit Lender or Lender's accountants or
auditors to inspect or audit the Financial Books and Records from time to time
and upon reasonable notice. Borrower will maintain the Financial Books and
Records for each Fiscal Year for not less than 3 years after the date Borrower
delivers to Lender the Annual Financial Statement and the other financial
certificates, statements and information to be delivered to Lender for the
Fiscal Year. Financial Books and Records will be maintained at Borrower's
address set forth in the section entitled "Notices" or at any other location as
-------
may be approved by Lender.
(c) Borrower will deliver to Lender within 90 days of the close after each
Fiscal Year, a certification of the rent roll for the Property in the form
attached hereto as Exhibit E. Such certificate shall be executed by Borrower by
---------
an officer of Existing General Partner.
Section 10.2. Annual Budget. Not later than less than 60 days after the
------------ -------------
end of each Fiscal Year, Borrower will deliver to Lender a detailed comparative
budget (the "Budget") for the Property for the next succeeding Fiscal Year
------
showing anticipated operating expenses, Insurance Premiums, Impositions, leasing
commissions, capital improvement costs, tenant improvement costs and any other
information Lender reasonably requests.
ARTICLE XI
EXPENSES AND DUTY TO DEFEND
---------------------------
Section 11.1. Payment of Expenses.
------------ -------------------
(a) Borrower is obligated to pay all reasonable fees and expenses (the
"Expenses") incurred by Lender (i) that are otherwise provided to be paid by
- ---------
Borrower in connection with the Loan pursuant to the Commitment or (ii) that are
--
otherwise payable in connection with the Property or Borrower (except to the
extent arising after Lender takes possession of the Property
22
<PAGE>
as a result of foreclosure or deed in lieu thereof and to the extent that such
fees and expenses arise solely as a result of the acts of Lender), including
reasonable attorneys' fees and expenses and any fees and expenses relating to
(1) the preparation, execution, acknowledgment, delivery and recording or filing
of the Loan Documents; (2) any Proceeding or other claim asserted against Lender
and relating to the Property; (3) any inspection, assessment, survey and test
permitted under the Loan Documents; (4) any Destruction Event; (5) the
preservation of Lender's security and the exercise of any rights or remedies
available at Law, in equity or otherwise; and (6) the Leases and the Property
Documents.
(b) Borrower will pay the Expenses (i) within 30 days of demand therefor
prior to the occurrence of an Event of Default and (ii) immediately upon demand
thereafter, together with any applicable interest, premiums or penalties. If
Lender pays any of the Expenses, Borrower will reimburse Lender the amount paid
by Lender (i) within 30 days of demand therefor prior to the occurrence of an
Event of Default and (ii) immediately upon demand thereafter, together with
interest on such amount at the Fixed Interest Rate (or, if after the occurrence
of an Event of Default, at the Default Interest Rate) from the date Lender paid
the Expenses through and including the date Borrower reimburses Lender. The
Expenses together with any applicable interest, premiums or penalties constitute
a portion of the Debt secured by this Mortgage.
Section 11.2. Duty to Defend. If Lender or any of its trustees,
------------ --------------
officers, participants, employees or affiliates is a party in any Proceeding
relating to the Property (except to the extent that such parties are joined in
any such Proceeding as a result of such parties' gross negligence or willful
misconduct), Borrower or the Loan, Borrower will indemnify and hold harmless the
party and will defend the party with attorneys and other professionals retained
by Borrower and approved by Lender. If Borrower fails to so defend and hold
Lender harmless as determined by Lender in its sole judgment, Lender may elect
to engage its own attorneys and other professionals, at Borrower's reasonable
expense, to defend or to assist in the defense of the party. Prior to the
occurrence of an Event of Default case strategy will be determined by Borrower
in reasonable consultation with Lender, and after the occurrence of an Event of
Default, case strategy will be determined by Lender if Lender so elects. In all
events, no claims against the Lender in the Proceeding will be settled without
Lender's prior approval which may be withheld in its sole discretion.
ARTICLE XII
TRANSFERS, LIENS AND ENCUMBRANCES
---------------------------------
Section 12.1. Prohibitions on Transfers, Liens and Encumbrances.
------------ -------------------------------------------------
(a) Borrower acknowledges that in making the Loan, Lender is relying to a
material extent on the business expertise and net worth of Borrower and on the
continuing interest that Borrower has in the Property. Accordingly, except as
specifically set forth in this Mortgage, Borrower (i) will not, and will not
permit its partners, members or principals to, effect a Transfer
23
<PAGE>
without Lender's prior approval, which may be withheld in Lender's sole
discretion and (ii) will keep the Property free from all liens and encumbrances
other than the lien of this Mortgage and the Permitted Exceptions. A "Transfer"
--------
is defined as any sale, grant, lease (other than bona fide third-party space
leases with tenants), conveyance, assignment or other transfer of, or any
encumbrance or pledge against, the Property, any interest in the Property, any
interest of Borrower's partners, members or principals in the Property, or any
change in Borrower's composition (except for transfers of shares in Existing
General Partner or transfers of limited partnership interests in Borrower, all
as expressly permitted herein), in each instance whether voluntary or
involuntary, direct or indirect, by operation of law or otherwise and including
the grant of an option or the execution of an agreement relating to any of the
foregoing
matters.
(b) Borrower represents, warrants and (subject to the provisions relating
to Transfers set forth below) covenants that Borrower is a Delaware limited
partnership whose managing general partner is Cabot Industrial Trust, a Maryland
Real Estate Investment Trust (the "Existing General Partner".) Borrower
------------------------
represents and warrants that as of the date hereof, Existing General Partner
owns not less than 42% of the partnership interests in Borrower. Borrower
further represents and warrants that, as of the date hereof, the remaining
interests in Borrower are limited partnership interests.
Section 12.2. Permitted Transfers.
------------ -------------------
(a) Notwithstanding any prohibitions regarding Transfers, Permitted
Transfers (defined below) set forth in subsections b(ii) and b(iii) below will
be permitted without Lender's prior consent, provided that the following
conditions regarding Permitted Transfers and proposed transferees are met:
(i) at least 60 days prior to the proposed Permitted Transfer (except for
any Permitted Transfer arising from the death of a natural person, in which
case, not more than 30 days after the death) Borrower delivers to Lender a
notice that is sufficiently detailed to enable Lender to determine that the
proposed Permitted Transfer complies with the terms of this Section.
(ii) there is no default under the Loan Documents either when Lender
receives the notice or when the proposed Permitted Transfer occurs; and
(iii) the proposed Permitted Transfer will not result in a violation of
any of the covenants contained in the Section entitled, "ERISA COMPLIANCE"
----------------
and Borrower will deliver to Lender such documentation of compliance as
Lender requests in its sole discretion.
(b) Upon compliance with the conditions described in the preceding
subsection, the following Transfers ("Permitted Transfers") may occur without
-------------------
Lender's prior consent and without payment of any transfer fee:
24
<PAGE>
(i) Transfers or issuance of shares in Existing General Partner and
transfers or issuance of limited partnership interests in Borrower or
transfers of direct or indirect interests in the entities that hold such
shares or such partnership interests, provided that at all times (a)
--------
Existing General Partner remains the managing general partner in Borrower
and Borrower delivers to Lender on a quarterly basis notice of changes in
the ownership interest of limited partners owning 1% or more in Borrower
and (b) further that the foregoing does not permit a disposition in a
single transfer or series of related transfers of all or substantially all
of the direct or indirect interests in Borrower and does not permit a
merger of Existing General Partner with one or more other entities (except
to the extent that Existing General Partner is the surviving entity after
such a merger) and (c) the proposed Permitted Transfer will not result in a
violation of any of the covenants contained in the Section entitled, "ERISA
-----
COMPLIANCE" and Borrower will deliver to Lender such documentation of
----------
compliance as Lender requests in its sole discretion.
(ii) a one-time right to sell, assign or transfer the entire portfolio of
properties securing the Loan, pledged to the Lender by the Borrower (the
"Portfolio") to a bona fide third party (the "Portfolio Transferee"),
---------- --------------------
subject to the Lender's approval of the transferee of the Portfolio, based
on the following criteria:
1. prior to the Transfer, the Portfolio Transferee has a net worth
of at least $75,000,000.00;
2. prior to the Transfer, the Portfolio Transferee is an
institutional investor or a developer or manager of first-class
commercial, office and industrial real estate comparable to the
Portfolio properties and has a reputation in good standing in the
industry as an owner and operator/manager of not less than 10
million square feet of first-class office and/or industrial
properties of similar quality of the Portfolio;
3. the Portfolio Transferee has expressly assumed the Obligations of
Borrower under the Loan Documents;
4. subsequent to the Transfer, the Portfolio is managed by a
property manager satisfactory to Lender; and
5. (i) Borrower delivers to Lender an instrument satisfactory to
Lender, from each indemnitor who is then party to the Indemnity
acknowledging the Transfer and ratifying their continued
obligations under the Indemnity, or (ii) Borrower delivers to
Lender a substitute environmental indemnity in the form of the
Indemnity or otherwise satisfactory to Lender, executed by a
substitute indemnitor, satisfactory to Lender in its sole
discretion.
(iii) A one-time right to sell, transfer or assign, in whole or in part,
Borrower's interest in the Portfolio, or any direct or indirect interest in
Borrower (other than in paragraph
25
<PAGE>
(b)(i) above) in one transaction or series of related transactions,
provided the ultimate transferee of any such interest in the Portfolio or
in Borrower is a public or private real estate investment trust (a "REIT")
----
(or an "umbrella partnership" of which a REIT is the managing general
partner) or an institutional investor or a developer or manager of first-
class commercial, office and industrial real estate comparable to the
Portfolio properties and has a reputation in good standing in the industry
as an owner and operator/manager of not less than 10 million square feet of
first-class office and/or industrial properties of similar quality of the
Portfolio, and further provided:
1. such REIT or institutional investor has a total capitalization
which is at least $1 billion after giving effect to the proposed
transaction;
2. the proposed transferee expressly assumes such obligations under
the Loan Documents, if any, as the transferor of any interests so
transferred may have pursuant to the Loan Documents, pursuant to
an assumption document reasonably satisfactory to Lender;
provided, that such assumption document shall not (a) impose
financial obligations on, or a right of personal recourse to, the
transferee, greater than the financial obligations on, or a right
of personal recourse of, the transferor under the Loan
Documents, or (b) otherwise modify the provisions of the Loan
Documents, other than the inclusion of representations and
warranties relating to the requirements of this provision and
covering customary matters relating to the transferee such as due
organization, existence, good standing, and authority and the
validity and enforceability of the assumption document and the
Loan Documents as against the transferee;
3. after such sale, assignment or transfer, the Property shall
continue to be managed by an organization which, at the time of
such transfer, is managed and operated by substantially the same
persons who then manage and operate the management firm which
managed the Property prior to such sale, assignment or transfer
or such other professional management firm reasonably acceptable
to Lender; and
4. the transferee is not an employee benefit plan subject to Section
406 of ERISA or a plan subject to Section 4975 of the Internal
Revenue Code, and is not a person acting as a fiduciary on behalf
of any such plan or who is a party-in-interest with respect to
any such plan in connection with such transaction, and such sale,
transfer or assignment will not result in a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the
Internal Revenue Code, all as determined by Lender, acting
reasonably.
(c) The following conditions must be met prior to effecting any Transfer as
expressed in b(ii) or b(iii) above:
26
<PAGE>
(i) Borrower pays all of Lender's reasonable expenses relating to the
Transfer;
(ii) Such transferee assumes all of Borrower's obligations under the
Loan Documents pursuant to an instrument in form and content
satisfactory to Lender;
(iii) Borrower delivers to Lender such opinions of counsel and
updates to title insurance policies as requested by Lender's counsel
in its reasonable discretion;
(iv) Borrower delivers to Lender such additional documentation as
Lender may determine in its reasonable discretion, consistent with the
foregoing requirements; and
(v) Approval of said transferee based on transferee's reputation or
Lender's adverse experience with such transferee in Lender's sole and
absolute discretion, provided, however, that adverse experience shall
-------- -------
mean that Lender and such prospective transferee shall have engaged in
litigation or threatened litigation one against the other.
Section 12.3. Right to Contest Liens. Borrower, at its own expense, may
------------ ----------------------
contest the amount, validity or application, in whole or in part, of any
mechanic's, materialmen's or environmental liens in which event Lender will
refrain from exercising any of the Remedies, provided that, (a) with respect to
--------
liens exceeding $100,000 the following conditions are met:
(i) Borrower delivers to Lender notice of the proposed contest not more
than 30 days after the lien is filed;
(ii) the contest is by a Proceeding promptly initiated and conducted in
good faith and with due diligence;
(iii) there is no Event of Default other than the Event of Default arising
from the filing of the lien; and
(iv) the Proceeding is permitted under and is conducted in accordance with
the Leases and the Property Documents;
and (b) further provided that for all such liens the following conditions are
----------------
met:
(i) the Proceeding suspends enforcement of collection of the lien,
imposition of criminal or civil penalties and sale or forfeiture of the
Property and Lender will not be subject to any civil suit;
(ii) Borrower sets aside reserves or furnishes a bond or other security
satisfactory to Lender, in either case in an amount sufficient to pay the
claim giving rise to the lien,
27
<PAGE>
together with all interest and penalties, or Borrower pays the contested
lien under protest; and
(iii) With respect to an environmental lien, Borrower is using best
efforts to mitigate or prevent any deterioration of the Property resulting
from the alleged violation of any Environmental Laws or the alleged
Environmental Activity.
Section 12.4. Substitution of Properties; Release of Property.
------------ -----------------------------------------------
(a) the following definitions apply
"Allocated Loan Value" means the amount of the Loan allocated to the Property by
--------------------
Lender as set forth on Exhibit F hereto.
---------
"Release Fee" shall mean one-half of one percent ( 1/2%) of the Unamortized
-----------
Allocated Loan Value.
"Substitute Leases" is defined as all leases, subleases, licenses, and other
-----------------
agreements for the use and occupancy of any Substitute Property, any related
guarantees and any use and occupancy arrangements created pursuant to Section
365(h) of the Bankruptcy Code or otherwise in connection with the commencement
or continuation 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 occupant of the
Substitute Property, in effect as of the date of the proposed Substitution.
"Substitute Mortgage" means a mortgage or deed of trust made by Borrower in
-------------------
favor of Lender, securing the Loan, encumbering Substitute Property,
substantially identical in form and substance to this Mortgage, with such
modifications as Lender shall determine are necessary to conform such document
to the laws of the State or Commonwealth in which the Substitute Property is
situated.
"Substitute Property" means real property owned by Borrower and acceptable to
-------------------
Lender applying the criteria set forth in this Section 12.4, in which a
security interest is granted to Lender as part of a Substitution.
"Substitute Rents" is defined as all rents, prepaid rents, percentage,
----------------
participation or contingent rents, issues, profits, proceeds, revenues and other
consideration accruing under the Substitute Leases or otherwise derived from the
use and occupancy of any Substitute Property, including tenant contributions to
expenses, security deposits, royalties and contingent rent, if any, all other
fees or payments paid to or for the benefit of Borrower and 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
28
<PAGE>
any tenant or other occupant of such Substitute Property and all claims as a
creditor in connection with any of the foregoing.
"Substitution" means a transaction complying with the terms and conditions of
------------
this Section 12.4, in which the Property is released from the lien of this
Mortgage (a) in exchange for which Lender is granted a lien on a Substitute
Property or Substitute Properties pursuant to a Substitute Mortgage or
Substitute Mortgages or (b) under Section 12.4(f) below.
"Substitution Loan Value" means the loan value of a Substitute Property
-----------------------
determined by multiplying by 70% the appraised value of the Substitute Property
according to an appraisal, acceptable to Lender in its sole discretion, prepared
not more than 60 days prior to the proposed Substitution by an appraiser engaged
by Lender.
"Unamortized Allocated Loan Value" means the Allocated Loan Value, reduced from
--------------------------------
time to time by the pro-rata amount of the aggregate of payments of Principal
under the Note, such payments of Principal being pro-rated according to the
proportion that the Allocated Loan Value bears to the original face amount of
the Note.
(b) Limited Right of Substitution. Commencing on the first day of the 25th
-----------------------------
month after the date in which the Closing Date (as defined in the Note) occurs,
and subject to the provisions of this Section 12.4, Borrower shall be permitted
to have the Property released from the lien of this Mortgage, provided that
Borrower provides a Substitute Mortgage or Substitute Mortgages on Substitute
Property(ies). Borrower may request that Lender permit a Substitution, but
Lender shall have no obligation to allow a Substitution prior to such date.
Borrower shall be permitted to transact not more than two Substitutions in any
calendar year and not more than four Substitutions prior to the Maturity Date.
Notwithstanding the foregoing, in the event that an existing Tenant purchases
the Property at any time, the Borrower will be allowed to effect a Substitution
therefor and such Substitution will count against the maximum property
substitution limit of four over the term of the Loan, but will not be limited by
it (i.e., if four Substitutions, possibly, but not necessarily, including sale
----
to a Tenant, have previously taken place, then a further Substitution may take
place in connection with a further sale to a Tenant, but not otherwise). A
transaction involving the simultaneous release both of the Property and other
------------
real property collateral securing the Loan coupled with the granting of a
Substitute Mortgage on one or more Substitute Properties shall constitute a
single Substitution. Any such series of transactions that does not occur within
three (3) consecutive Business Days shall constitute multiple Substitutions.
Borrower shall use its best efforts to refrain from scheduling, closing or
requiring underwriting activity to occur with respect to Substitutions during
the months of November or December. Lender may not be able, and shall have no
obligation to accommodate a Substitution during such months.
(c) Value of the Substitute Properties. Any Substitute Property or
----------------------------------
Properties shall meet the following criteria:
29
<PAGE>
(i) the Substitution Loan Value of the Substitute Property or Substitute
Properties shall be at least 90% of the amount of the Allocated Loan Value
for the Property. To the extent that the Substitution Loan Value(s) of the
Substitute Property(ies) is greater than the Allocated Loan Value, Lender
shall have no obligation to advance any additional funds. To the extent
that the Substitution Loan Value of the Substitute Property(ies) is less
than the Allocated Loan Value, Borrower shall make a partial prepayment of
the Principal of the Note (which partial prepayment shall constitute a
Permitted Partial Prepayment as defined in the Note) equal to the excess of
the Unamortized Allocated Loan Value of the Property over the Substitution
Loan Value. The Substitution Loan Value shall in no case be more than
$1,000,000 less than the Allocated Loan Value. Any such net cash Permitted
Partial Prepayment in the amount required or permitted to be paid in
accordance with Subsections (f) or (g) below (as the case may be) shall be
subject in all respects to provisions regarding prepayment expressed in
Section 3(b)(ii) applying the formulas set forth in Section 3(b)(iii) of
the Note, and the allocation of any such prepayment amount shall be as
expressed in the Note.
(ii) the annual Substitute Rents (excluding security deposits) under the
Substitute Leases in effect on the date of the Substitution shall, on a
pro-forma basis, provide debt service coverage for the annual Debt Service
Payments, with respect to the Substitution Property(ies), equal to or
greater than the debt service coverage applicable to the Property at the
time of the Substitution, all as calculated on a pro forma basis for next
consecutive three years (or such lesser period of time remaining in the
term of the Leases; provided, however, that the foregoing limitation as to
-------- -------
term shall not be construed to require Lender to accept as a Substitute
Property any property, that in Lender's reasonable judgement has inadequate
leases in effect), on the basis of Substitute Leases in place at the time
of the proposed Substitution.
(d) Requirements for Substitute Properties. All Substitute Properties must
--------------------------------------
be acceptable to Lender in all respects, as determined by Lender in its
reasonable discretion applying the following criteria:
(i) impact on the geographical concentration of the collateral held by
Lender as security for the Loan;
(ii) leasing considerations, including, without limitation, leasing pro
formas, tenant credit risk, tenant quality and lease expiration
risk;
(iii) the ability of the proposed Substitute Mortgage to be cross-
defaulted with and to serve as collateral for the other Loan
Documents; and
(iv) conformity with all the requirements set forth in the Commitment.
30
<PAGE>
In addition, all Substitutions shall also comply with the requirements set forth
above in Section 12.2 (a), (c)(i), (c)(iii) & (c)(iv) with respect to Permitted
Transfers, including without limitation, the time periods set forth therein.
(e) Costs and Expenses of Substitutions. Borrower will pay all of Lender's
-----------------------------------
reasonable costs and expenses incurred in connection with a proposed
Substitution, regardless of whether any proposed Substitution is accepted by
Lender. Borrower acknowledges that such costs and expenses include, without
limitation: Lender's administrative costs, reasonable attorneys' fees and costs,
due diligence costs and expenses, appraisal fees, title insurance fees and
surveyors' charges, all with respect to any proposed Substitution, regardless of
whether or not such proposed Substitution is ultimately closed. If Borrower
fails to pay such costs and expenses within 30 days of receipt of an invoice
therefor, then such failure shall constitute an Event of Default under Section
14.1(a) of this Mortgage.
(f) Releases in the Event that No Substitution is Effected. In the event
------------------------------------------------------
that Borrower enters into an agreement to convey the Property to a third party
that is not an Affiliate, and Borrower has diligently attempted to effect a
Substitution but is unable to secure Lender's approval of a Substitute Property,
then provided that the requirements of Section 12.2 (a), (c)(i), (c)(iii) &
(c)(iv) are met, on the closing date of the sale of the Property, provided that
Lender has been given 20 Business Days' written notice, Lender shall release the
Property from the lien of the Mortgage, provided that Borrower shall prepay to
Lender the Unamortized Allocated Loan Value, together with the Release Fee and
the applicable Prepayment Premium under Section 3(b) of the Note. The
Unamortized Allocated Loan Value so prepaid shall be allocated to the Note. Such
prepayment of the Unamortized Allocated Loan Value shall constitute a "Permitted
Partial Prepayment" as defined in the Note and shall be subject to all the
terms, limitations and conditions set forth in Section 3(b)(ii) of the Note.
Notwithstanding the foregoing, Lender's obligation to release the Property under
this Section 12.4(f) shall be conditioned upon Borrower's payment of all
Lender's reasonable costs and expenses (as set forth above in subsection (c)) in
connection with the release and in connection with evaluating any proposed
Substitutions.
(g) Allocation of Net Cash Payments among Notes. Any Substitution shall
-------------------------------------------
reduce the Principal of the Note secured by the Mortgage encumbering a Property
being released as part of the Substitution by the Unamortized Allocated Loan
Value of such Property. The Principal of the Note and any Other Note(s) which
is (are) secured by a Substitute Mortgage(s) shall be increased by the
Substitute Loan Value of the Substitute Property, provided that such increases
shall not exceed the Unamortized Allocated Loan Value of all Properties being
released as a part of such Substitution. If a Substitute Property is situated
in a state not then represented in the Portfolio, Lender may require that
Borrower execute and deliver an additional promissory note (in form identical to
the Note except for Principal amount and date of issuance) in an amount equal to
the lesser of (a) the Substitution Loan Value of such Substitute Property and
(b) the Unamortized Allocated Loan Value of the Property(ies) being released.
Nothing to the contrary withstanding, it is the intention of the Borrower and
the Lender that the Unamortized Loan Value of the Property(ies) being released
in a Substitution shall be exactly equal to (x) the amount of
-
31
<PAGE>
any Permitted Partial Prepayment calculated as set forth in Section 12.4(c)
above (but not including the associated Prepayment Premium), plus (y) the
-
increase in the Principal of the Note or any Other Notes secured by Substitute
Mortgages (including any new promissory note required to be delivered).
ARTICLE XIII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
----------------------------------------------------
Section 13.1. Further Assurances.
------------ ------------------
(a) Borrower will execute, acknowledge and deliver to Lender, or to any
other entity Lender designates, any additional or replacement documents and
perform any additional actions that Lender determines are reasonably necessary
to evidence, perfect or protect Lender's first lien on and prior security
interest in the Property or to carry out the intent or facilitate the
performance of the provisions of the Loan Documents, provided the same does not
increase the liability or obligations of Borrower.
(b) Borrower appoints Lender as Borrower's attorney-in-fact to perform, at
Lender's election, any actions and to execute and record any of the additional
or replacement documents referred to in this Section, in each instance only at
Lender's election and only to the extent Borrower has failed to comply with the
terms of this Section.
Section 13.2. Estoppel Certificates.
------------ ---------------------
(a) Within 10 days of Lender's request, Borrower will deliver to Lender, or
to any entity Lender designates, a certificate certifying (i) the original
principal amount of the Note; (ii) the unpaid principal amount of the Note;
(iii) the Fixed Interest Rate; (iv) the amount of the then current Debt Service
Payments; (v) the Maturity Date; (vi) the date a Debt Service Payment was last
made; (vii) that, to Borrower's knowledge, except as may be disclosed in the
statement, there are no defaults or events which, with the passage of time or
the giving of notice, would constitute an Event of Default; and (viii) there, to
Borrower's knowledge, are no offsets or defenses against any portion of the
Obligations except as may be disclosed in the statement.
(b) If Lender requests, Borrower promptly will request from, and upon
receipt deliver to, Lender or to any entity Lender designates a certificate from
each party to any Property Document, certifying to such party's knowledge that
the Property Document is in full force and effect with no defaults or events
which, with the passage of time or the giving of notice, would constitute an
event of default under the Property Document and that there are no defenses or
offsets against the performance of its obligations under the Property Document.
(c) If Lender requests, Borrower promptly will request from, and upon
receipt deliver to, Lender, or to any entity Lender designates, a certificate
from each tenant under a Lease then
32
<PAGE>
affecting the Property, certifying to any facts regarding the Lease as Lender
may reasonably require, including that based upon due inquiry, to such tenant's
knowledge, the Lease is in full force and effect with no defaults or events
which, with the passage of time or the giving of notice, would constitute an
event of default under the Lease by any party, that the rent has not been paid
more than one month in advance and that the tenant claims no defense or offset
against the performance of its obligations under the Lease.
ARTICLE XIV
DEFAULTS AND REMEDIES
---------------------
Section 14.1. Events of Default. The term. "Event of Default" means the
------------ ----------------- ----------------
occurrence of any of the following events:
(i) if Borrower fails to make any regularly scheduled payment of money
under the Loan Documents as and when required, or fails to pay any other
amount due under any Loan Document within 30 days of invoice therefor, and,
in either case, the failure continues for a period of 5 days;
(ii) if Borrower makes a general assignment for the benefit of creditors or
generally is not paying, or is unable to pay, or admits in writing its
inability to pay, its debts as they become due; or if Borrower or any other
party commences any Proceeding (A) relating to bankruptcy, insolvency,
reorganization, conservatorship or relief of debtors, in each instance with
respect to Borrower; (B) seeking to have an order for relief entered with
respect to Borrower; (C) seeking attachment, distraint or execution of a
judgment with respect to Borrower; (D) seeking to adjudicate Borrower as
bankrupt or insolvent; (E) seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with
respect to Borrower or Borrower's debts; or (F) seeking appointment of a
Receiver, trustee, custodian, conservator or other similar official for
Borrower or for all or any substantial part of Borrower's assets, provided
--------
that if the Proceeding is commenced by a party other than Borrower or any
of Borrower's general partners or members, Borrower will have 120 days to
have the Proceeding dismissed or discharged before an Event of Default
occurs;
(iii) if Borrower is in default beyond any applicable grace and cure
period under any other mortgage, deed of trust, deed to secure debt or
other security agreement encumbering the Property whether junior or senior
to the lien of this mortgage;
(iv) [reserved];
(v) if Borrower is in default beyond any applicable grace and cure period
under any Loan Documents;
33
<PAGE>
(vi) if a Transfer occurs except in accordance with the provisions of
this Mortgage;
(vii) if Borrower abandons the Property; or
(viii) if there is a default in the performance of any other provision of
any Loan Document or if there is any substantial inaccuracy or falsehood in
any representation or warranty contained in any Loan Document which is not
remedied within 30 days after Borrower receives notice thereof, provided
--------
that if the default, inaccuracy or falsehood is of a nature that it cannot
be cured within the 30-day period and during that period Borrower commences
to cure, and thereafter diligently continues to cure, the default,
inaccuracy or falsehood, then the 30-day period will be extended for a
reasonable period not to exceed 120 days after the notice to Borrower,
unless the period of time to cure is delayed by reason of events beyond
Borrower's control, such as labor disputes, fire, weather conditions,
casualties, governmental action, governmental requirements or
governmentally imposed time periods that Borrower does not control.
Section 14.2. Remedies.
------------ --------
(a) If an Event of Default occurs, to the extent permitted by Law Lender
may take any of the following actions (the "Remedies") without notice to
--------
Borrower:
(i) declare all or any portion of the Debt immediately due and payable
("Acceleration");
------------
(ii) pay or perform any Obligation;
(iii) institute a Proceeding for the specific performance of any
Obligation;
(iv) apply for the appointment of a Receiver to be vested with the
fullest powers permitted by Law, without bond being required, which
appointment may be made ex parte, as a matter of right and without regard
-- -----
to the value of the Property, the amount of the Debt or the solvency of
Borrower or any other person liable for the payment or performance of any
portion of the Obligations;
(v) directly, by its agents or representatives or through a Receiver
appointed by a court of competent jurisdiction, enter on the Land and
Improvements, take possession of the Property, dispossess Borrower and
exercise Borrower's rights with respect to the Property, either in
Borrower's name or otherwise;
(vi) institute a Proceeding for the foreclosure of this Mortgage or, if
applicable, sell by power of sale, all or any portion of the Property;
34
<PAGE>
(vii) institute proceedings for the partial foreclosure of this Mortgage
for the portion of the Debt then due and payable, subject to the continuing
lien of this Mortgage for the balance of the Debt not then due;
(viii) exercise any and all rights and remedies granted to a secured party
under the Uniform Commercial Code; and
(ix) pursue any other right or remedy available to Lender at Law, in
equity or otherwise.
(b) If an Event of Default occurs, the license granted to Borrower in the
Loan Documents to collect Rents will terminate automatically without any action
required of Lender.
Section 14.3. General Provisions Pertaining to Remedies.
------------ -----------------------------------------
(a) The Remedies are cumulative and may be pursued concurrently or
otherwise, at such time and in such order as Lender may determine in its sole
discretion and without presentment, demand, protest or further notice of any
kind, all of which are expressly waived by Borrower.
(b) The enumeration in the Loan Documents of specific rights or powers will
not be construed to limit any general rights or powers or impair Lender's rights
with respect to the Remedies.
(c) If Lender exercises any of the Remedies, Lender will not be deemed a
mortgagee-in-possession unless Lender has elected affirmatively to be a
mortgagee-in-possession.
(d) Lender will not be liable for any act or omission of Lender in
connection with the exercise of the Remedies, except to the extent arising from
the gross negligence or willful misconduct of the Lender.
(e) Lender's right to exercise any Remedy will not be impaired by any delay
in exercising or failure to exercise the Remedy and the delay or failure will
not be construed as extending any cure period or constitute a waiver of the
default or Event of Default.
(f) If an Event of Default occurs, Lender's payment or performance or
acceptance of payment or performance will not be deemed a waiver or cure of the
Event of Default.
(g) Lender's acceptance of partial payment or receipt of Rents will not
extend or affect any grace period, constitute a waiver of a default or Event of
Default or constitute a recision of Acceleration:
35
<PAGE>
Section 14.4. Foreclosure by Power of Sale.
------------ ----------------------------
Insert State Provisions
Section 14.5. General Provisions Pertaining to Mortgagee-in-Possession
------------ --------------------------------------------------------
or Receiver.
- -----------
(a) If an Event of Default occurs, any court of competent jurisdiction
will, upon application by Lender, appoint a Receiver as designated in the
application and issue an injunction prohibiting Borrower from interfering with
the Receiver, collecting Rents, disposing of any Rents or any part of the
Property, committing waste or doing any other act that will tend to affect the
preservation of the Leases and Subleases, the Rents and the Property and
Borrower approves the appointment of the designated Receiver or any other
Receiver appointed by the court. To the extent permitted by Law, Borrower
agrees that the appointment may be made ex parte and as a matter of right to
-- -----
Lender, either before or after sale of the Property, without further notice, and
without regard to the solvency or insolvency, at the time of application for the
Receiver, of the person or persons, if any, liable for the payment of any
portion of the Debt and the performance of any portion of the Obligations and
without regard to the value of the Property or whether the Property is occupied
as a homestead and without bond being required of the applicant.
(b) The Receiver will be vested with the fullest powers permitted by Law
including all powers necessary or usual in similar cases for the protection,
possession and operation of the Property and all the powers and duties of Lender
as a mortgagee-in-possession as provided in this Mortgage and may continue to
exercise all the usual powers and duties until the Receiver is discharged by the
court.
(c) In addition to the Remedies and all other available rights, Lender or
the Receiver may, to the extent permitted by Law, take any of the following
actions after the occurrence of and Event of Default:
(i) take exclusive possession, custody and control of the Property and
manage the Property so as to prevent waste;
(ii) require Borrower to deliver to Lender or the Receiver all keys,
security deposits, operating accounts, prepaid Rents, past due Rents, the
Books and Records and all original counterparts of the Leases and Subleases
and the Property Documents;
(iii) collect, sue for and give receipts for the Rents and, after paying
all expenses of collection, including reasonable receiver's, broker's and
attorney's fees, apply the net collections to the Debt;
(iv) make, modify, enforce, terminate or accept surrender of Leases and
evict tenants except that in the case of a Receiver, such actions may be
taken only with the written consent of Lender as provided in this Mortgage
and in the Assignment;
36
<PAGE>
(v) enter into, modify, extend, enforce, terminate or renew Property
Documents except that in the case of a Receiver, such actions may be taken
only with the written consent of Lender as provided in this Mortgage and in
the Assignment;
(vi) appear in and defend any Proceeding brought in connection with the
Property and bring any Proceeding to protect the Property as well as
Borrower's and Lender's respective interests in the Property (unless any
such Proceeding has been assigned previously to Lender in the Assignment,
or if so assigned, Lender has not expressly assigned such Proceeding to the
Receiver and consented to such appearance or defense by the Receiver); and
(vii) perform any act in the place of Borrower that Lender or the Receiver
deems necessary (A) to preserve the value, marketability or rentability of
the Property; (B) upon consent by Lender, to increase the gross receipts
from the Property; or (C) otherwise to protect Borrower's and Lender's
respective interests in the Property.
(d) Borrower appoints Lender as Borrower's attorney-in-fact, at Lender's
election to perform any actions and to execute and record any instruments
necessary to effectuate the actions described in this Section, in each instance
only at Lender's election and only to the extent Borrower has failed to comply
with the provisions of this Section.
Section 14.6. General Provisions Pertaining to Foreclosures and the
------------ -----------------------------------------------------
Power of Sale. The following provisions will, to the extent permitted by Law,
- -------------
apply to any Proceeding to foreclose and to any sale of the Property by power of
sale or pursuant to a judgment of foreclosure and sale:
(i) Lender's right to institute a Proceeding to foreclose or to sell by
power of sale will not be exhausted by a Proceeding or a sale that is
defective or not completed;
(ii) a sale pursuant to a judgment of foreclosure and sale may be
postponed or adjourned by public announcement at the time and place
appointed for the sale without further notice;
(iii) with respect to sale pursuant to a judgment of foreclosure and sale,
the Property may be sold as an entirety or in parcels, at one or more
sales, at the time and place, on terms and in the order that Lender deems
expedient in its sole discretion;
(iv) if a portion of the Property is sold pursuant to this Article, the
Loan Documents will remain in full force and effect with respect to any
unmatured portion of the Debt and this Mortgage will continue as a valid
and enforceable first lien on and security interest in the remaining
portion of the Property, subject only to the Permitted Exceptions, without
loss of priority and without impairment of any of Lender's rights and
remedies with respect to the unmatured portion of the Debt;
37
<PAGE>
(v) Lender may bid for and acquire the Property at a sale and, in lieu
of paying cash, may credit the amount of Lender's bid against any portion
of the Debt selected by Lender in its sole discretion after deducting from
the amount of Lender's bid the expenses of the sale, costs of enforcement
and other amounts that Lender is authorized to deduct at Law, in equity or
otherwise; and
(vi) Lender's receipt of the proceeds of a sale will be sufficient
consideration for the portion of the Property sold and Lender will apply
the proceeds as set forth in this Mortgage.
Section 14.7. Application of Proceeds. Lender may apply the proceeds
------------ -----------------------
of any sale of the Property by power of sale or pursuant to a judgment of
foreclosure and sale and any other amounts collected by Lender in connection
with the exercise of the Remedies to payment of the Debt in such priority and
proportions as Lender may determine in its sole discretion or in such priority
and proportions as required by Law.
Section 14.8. Power of Attorney. Borrower appoints Lender as Borrower's
------------ -----------------
attorney-in-fact to perform all actions necessary and incidental to exercising
the Remedies.
Section 14.9. Tenant at Sufferance. If Lender or a Receiver enters the
------------ --------------------
Property in the exercise of the Remedies and Borrower is allowed to remain in
occupancy of the Property, Borrower will pay to Lender or the Receiver, as the
case may be, in advance, a reasonable rent for the Property occupied by
Borrower. If Borrower fails to pay the rent, Borrower may be dispossessed by
the usual Proceedings available against defaulting tenants.
Section 14.10. State Laws Pertaining to Remedies.
------------- ---------------------------------
ARTICLE XV
LIMITATION OF LIABILITY
-----------------------
Section 15.1. Limitation of Liability.
------------ -----------------------
(a) Notwithstanding any provision in the Loan Documents to the contrary,
except as set forth in subsections (b) and (c), if Lender seeks to enforce the
collection of the Debt, Lender will foreclose this Mortgage instead of
instituting suit on the Note. If a lesser sum is realized from a foreclosure of
this Mortgage and sale of the Property than the then outstanding Debt, Lender
will not institute any Proceeding against Borrower or Borrower's general or
limited partners, or any other direct or indirect owner in Borrower, or their
respective directors, officers, members, shareholders, managers, trustees,
beneficiaries or agents if any, for or on account of the deficiency, except as
expressly set forth in subsection (c).
38
<PAGE>
(b) The limitation of liability in subsection (a) will not affect or impair
(i) the lien of this Mortgage or Lender's other rights and Remedies under the
Loan Documents, including Lender's right as mortgagee or secured party to
commence an action to foreclose any lien or security interest Lender has under
the Loan Documents; (ii) the validity of the Loan Documents or the Obligations;
or (iii) Lender's rights under the Indemnity.
(c) The following are excluded and excepted from the limitation of
liability in subsection (a) and Lender may recover personally only against
Borrower and its assets and not the assets of its general partners, if any, for
the following:
(i) all losses suffered and liabilities and expenses incurred by Lender
arising out of any fraud or intentional misrepresentation by Borrower or
any of Borrower's partners, members, officers, directors, shareholders or
principals in connection with (A) the performance of any of the conditions
to Lender making the Loan; (B) any inducements to Lender to make the Loan;
(C) the execution and delivery of the Loan Documents; (D) any certificates,
representations or warranties given in connection with the Loan; or (E)
Borrower's performance of the Obligations;
(ii) all Rents derived from the Property after a default involving
payment of money under the Loan Documents, except to the extent properly
applied to payment of Debt Service Payments, Impositions, Insurance
Premiums, and any reasonable and customary expenses incurred by Borrower in
the operation, maintenance and leasing of the Property or delivered to
Lender;
(iii) losses covered under the Indemnity;
(iv) all security deposits collected by Borrower or any of Borrower's
predecessors and not refunded to Tenants in accordance with their
respective Leases, except to the extent applied in accordance with the
Leases or Law or delivered to Lender, and all advance rents collected by
Borrower or any of Borrower's predecessors and not applied in accordance
with the Leases or delivered to Lender;
(v) the replacement cost of any Fixtures or Personal Property removed
from the Property by Borrower after a default occurs;
(vi) all losses suffered and liabilities and expenses incurred by Lender
relating to any acts or omissions by Borrower that result in waste
committed by Borrower on the Property (for purposes of this clause "waste"
does not include failure to pay real estate taxes);
(vii) all Proceeds that are not applied in accordance with this Mortgage
or not paid to Lender as required under this Mortgage;
39
<PAGE>
(viii) all losses suffered and liabilities and expenses incurred by Lender
relating to a Transfer that is not permitted under the Section entitled
"Permitted Transfers"; and
-------------------
(ix) all losses suffered and liabilities and expenses incurred by Lender
relating to any default by Borrower under any of the provisions of this
Mortgage relating to ERISA, including the prohibition on any Transfer that
results in a violation of ERISA.
(d) Nothing under subparagraph (a) above will be deemed to be a waiver of
any right which Lender may have under Section 506(a), 506(b), 1111(b) or any
other provisions of the Bankruptcy Code or under any other Law relating to
bankruptcy or insolvency to file a claim for the full amount of the Debt or to
require that all collateral will continue to secure all of the Obligations in
accordance with the Loan Documents.
ARTICLE XVI
WAIVERS
-------
SECTION 16.1. WAIVER OF STATUTE OF LIMITATIONS. BORROWER WAIVES THE
------------ --------------------------------
RIGHT TO CLAIM ANY STATUTE OF LIMITATIONS AS A DEFENSE TO BORROWER'S PAYMENT AND
PERFORMANCE OF THE OBLIGATIONS.
SECTION 16.2. WAIVER OF NOTICE. BORROWER WAIVES THE RIGHT TO RECEIVE
------------ ----------------
ANY NOTICE FROM LENDER WITH RESPECT TO THE LOAN DOCUMENTS EXCEPT FOR THOSE
NOTICES THAT LENDER IS EXPRESSLY REQUIRED TO DELIVER PURSUANT TO THE LOAN
DOCUMENTS.
SECTION 16.3. WAIVER OF MARSHALLING AND OTHER MATTERS. BORROWER WAIVES
------------ ---------------------------------------
THE BENEFIT OF ANY RIGHTS OF MARSHALLING OR ANY OTHER RIGHT TO DIRECT THE ORDER
IN WHICH ANY OF THE PROPERTY WILL BE (i) SOLD; OR (ii) MADE AVAILABLE TO ANY
ENTITY IF THE PROPERTY IS SOLD BY POWER OF SALE OR PURSUANT TO A JUDGMENT OF
FORECLOSURE AND SALE. BORROWER ALSO WAIVES THE BENEFIT OF ANY LAWS RELATING TO
APPRAISEMENT, VALUATION, STAY, EXTENSION, REINSTATEMENT, MORATORIUM, HOMESTEAD
AND EXEMPTION RIGHTS OR A SALE IN INVERSE ORDER OF ALIENATION.
SECTION 16.4. WAIVER OF TRIAL BY JURY. BORROWER WAIVES TRIAL BY JURY IN
------------ -----------------------
ANY PROCEEDING BROUGHT BY OR AGAINST, OR COUNTERCLAIM OR CROSS-COMPLAINT
ASSERTED BY OR AGAINST LENDER, THE OTHER PARTY RELATING TO THE LOAN, THE
PROPERTY DOCUMENTS OR THE LEASES.
SECTION 16.5. WAIVER OF COUNTERCLAIM. BORROWER WAIVES THE RIGHT TO
------------ ----------------------
ASSERT A COUNTERCLAIM OR CROSS-COMPLAINT, OTHER
40
<PAGE>
THAN COMPULSORY OR MANDATORY COUNTERCLAIMS OR CROSS-COMPLAINTS, IN ANY
PROCEEDING LENDER BRINGS AGAINST BORROWER RELATING TO THE LOAN, INCLUDING ANY
PROCEEDING TO ENFORCE REMEDIES.
SECTION 16.6. WAIVER OF JUDICIAL NOTICE AND HEARING.
------------- -------------------------------------
BORROWER WAIVES ANY RIGHT BORROWER MAY HAVE UNDER LAW TO NOTICE OR TO A JUDICIAL
HEARING PRIOR TO THE EXERCISE OF ANY RIGHT OR REMEDY PROVIDED BY THE LOAN
DOCUMENTS TO LENDER AND BORROWER WAIVES THE RIGHTS, IF ANY, TO SET ASIDE OR
INVALIDATE ANY SALE DULY CONSUMMATED IN ACCORDANCE WITH THE PROVISIONS OF THE
LOAN DOCUMENTS ON THE GROUND (IF SUCH BE THE CASE) THAT THE SALE WAS CONSUMMATED
WITHOUT A PRIOR JUDICIAL HEARING.
SECTION 16.7. WAIVER OF SUBROGATION. BORROWER WAIVES ALL RIGHTS OF
------------- ---------------------
SUBROGATION TO LENDER'S RIGHTS OR CLAIMS RELATED TO OR AFFECTING THE PROPERTY OR
ANY OTHER SECURITY FOR THE LOAN UNTIL THE LOAN IS PAID IN FULL AND ALL FUNDING
OBLIGATIONS UNDER THE LOAN DOCUMENTS HAVE BEEN TERMINATED.
SECTION 16.8. GENERAL WAIVER. BORROWER ACKNOWLEDGES THAT (A) BORROWER
------------- --------------
AND BORROWER'S PARTNERS, MEMBERS OR PRINCIPALS, AS THE CASE MAY BE, ARE
KNOWLEDGEABLE BORROWERS OF COMMERCIAL FUNDS AND EXPERIENCED REAL ESTATE
DEVELOPERS OR INVESTORS WHO UNDERSTAND FULLY THE EFFECT OF THE ABOVE PROVISIONS;
(B) LENDER WOULD NOT MAKE THE LOAN WITHOUT THE PROVISIONS OF THIS ARTICLE; (C)
THE LOAN IS A COMMERCIAL OR BUSINESS LOAN UNDER THE LAWS OF THE STATE OR
COMMONWEALTH WHERE THE PROPERTY IS LOCATED, NEGOTIATED BY LENDER AND BORROWER
AND THEIR RESPECTIVE ATTORNEYS AT ARMS LENGTH; AND (D) ALL WAIVERS BY BORROWER
IN THIS ARTICLE HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY, AFTER
BORROWER FIRST HAS BEEN INFORMED BY COUNSEL OF BORROWER'S OWN CHOOSING AS TO
POSSIBLE ALTERNATIVE RIGHTS, AND HAVE BEEN MADE AS AN INTENTIONAL RELINQUISHMENT
AND ABANDONMENT OF A KNOWN RIGHT AND PRIVILEGE. THE FOREGOING ACKNOWLEDGMENT IS
MADE WITH THE INTENT THAT LENDER AND ANY SUBSEQUENT HOLDER OF THE NOTE WILL RELY
ON THE ACKNOWLEDGMENT.
41
<PAGE>
ARTICLE XVII
NOTICES
-------
Section 17.1. Notices. All acceptances, approvals, consents, demands,
------------- -------
notices, requests, waivers and other communications (the "Notices") required or
-------
permitted to be given under the Loan Documents must be in writing and (a)
delivered personally by a process server providing a sworn declaration
evidencing the date of service, the individual served, and the address where the
service was made; (b) sent by certified mail, return receipt requested; or (c)
delivered by nationally recognized overnight delivery service providing evidence
of the date of delivery, with all charges prepaid, addressed to the appropriate
party at its address listed below:
If to Borrower: Cabot Industrial Properties, L.P.
Two Center Plaza, Suite 200
Boston, Massachusetts 02110
Attn: Neil E. Waisnor
TIAA Appl. #VR00002, M-000459700
with a copy to: Hill & Barlow
One International Plaza
Boston, Massachusetts 02110
Attn: William B. Forbush III
If to Lender: Teacher's Insurance and Annuity
Association
730 Third Avenue
New York, New York 10017
Attn: Director of Portfolio Management
for Mortgage and Real Estate
Division
Region: West/Midwest
TIAA Appl. #VR00002, M-000459700
42
<PAGE>
with a copy to: Teacher's Insurance and Annuity
Association
730 Third Avenue
New York, New York 10017
Attn: Vice President and Chief
Counsel in charge of Mortgage
and Real Estate Law
TIAA Appl. #VR00002, M-000459700
Lender and Borrower each may change from time to time the address to which
Notices must be sent, by notice given in accordance with the provisions of this
Section. All Notices given in accordance with the provisions of this Section
will be deemed to have been given on the earliest of (i) actual receipt; (ii)
Borrower's rejection of delivery; or (iii) 3 Business Days after having been
deposited in any mail depository regularly maintained by the United States
postal service, if sent by certified mail, or 1 Business Day after having been
deposited with a nationally recognized overnight delivery service, if sent by
overnight delivery or on the date of personal service, if served by a process
server.
Section 17.2. Change in Borrower's Name or Place of Business. Borrower
------------- ----------------------------------------------
will immediately notify Lender in writing of any change in Borrower's name or
the place of business set forth in the beginning of this Mortgage.
ARTICLE XVIII
MISCELLANEOUS
-------------
Section 18.1. Applicable Law. This instrument is to be governed by and
------------- --------------
will be construed in accordance with the Laws of the State or commonwealth where
the Property is located.
Section 18.2. Usury Limitations. Borrower and Lender intend to comply
------------- -----------------
with all Laws with respect to the charging and receiving of interest. Any
amounts charged or received by Lender for the use or forbearance of the
Principal to the extent permitted by Law, will be amortized and spread
throughout the Term until payment in full so that the rate or amount of interest
charged or received by Lender on account of the Principal does not exceed the
Maximum Interest Rate. If any amount charged or received under the Loan
Documents that is deemed to be interest is determined to be in excess of the
amount permitted to be charged or received at the Maximum Interest Rate, the
excess will be deemed to be a prepayment of Principal when paid, without
premium, and any portion of the excess not capable of being so applied will be
refunded to Borrower. If during the Term the Maximum Interest Rate, if any, is
eliminated, then for the purposes of the Loan, there will be no Maximum Interest
Rate.
43
<PAGE>
Section 18.3. Lender's Discretion. Wherever under the Loan Documents
------------- -------------------
any matter is required to be satisfactory to Lender, Lender has the right to
approve or determine any matter or Lender has an election, Lender's approval,
determination or election will be made in Lender's reasonable discretion unless
expressly provided to the contrary.
Section 18.4. Unenforceable Provisions. If any provision in the Loan
------------- ------------------------
Documents is found to be illegal or unenforceable or would operate to invalidate
any of the Loan Documents, then the provision will be deemed expunged and the
Loan Documents will be construed as though the provision was not contained in
the Loan Documents and the remainder of the Loan Documents will remain in full
force and effect.
Section 18.5. Survival of Borrower's Obligations. Borrower's
------------- ----------------------------------
representations, warranties, covenants and indemnities contained in the
Loan Documents will continue in full force and effect for the period (if
any) that is expressly provided therefor and shall survive (i) (to the
extent expressly provided for any such matter) satisfaction of the
Obligations; (ii) (to the extent expressly provided for any such matter)
release of the lien of this Mortgage; (iii) assignment or other transfer
of all or any portion of Lender's interest in the Loan Documents or the
Property; (iv) (to the extent expressly provided for any such matter)
Lender's exercise of any of the Remedies or any of Lender's other rights
under the Loan Documents; (v) except as provided in Section
-------
12.2(b)(iii)(2), a Transfer; (vi) amendments to the Loan Documents; and
--------------
(vii) any other act or omission not constituting an express release of
Borrower that might otherwise be construed as a release or discharge of
Borrower. Nothing contained in this section shall limit the rights of the
Lender under Section 15.1(c) of this Mortgage.
Section 18.6. Relationship Between Borrower and Lender; No Third Party
------------- --------------------------------------------------------
Beneficiaries.
- -------------
(a) Lender is not a partner of or joint venturer with Borrower or any other
entity as a result of the Loan or Lender's rights under the Loan Documents; the
relationship between Lender and Borrower is strictly that of creditor and
debtor. Each Loan Document is an agreement between the parties to that Loan
Document for the mutual benefit of the parties and no entities other than the
parties to that Loan Document will be a third party beneficiary or will have any
claim against Lender or Borrower by virtue of the Loan Document. As between
Lender and Borrower, any actions taken by Lender under the Loan Documents will
be taken for Lender's protection only, and Lender has not and will not be deemed
to have assumed any responsibility to Borrower or to any other entity by virtue
of Lender's actions.
(b) All conditions to Lender's performance of its obligations under the
Loan Documents are imposed solely for the benefit of Lender. No entity other
than Lender will have standing to require satisfaction of the conditions in
accordance with their provisions or will be entitled to assume that Lender will
refuse to perform its obligations in the absence of strict compliance with any
of the conditions.
44
<PAGE>
Section 18.7. Partial Releases; Extensions; Waivers. Lender may: (i)
------------- -------------------------------------
release any part of the Property or any entity obligated for any of the
Obligations; (ii) extend the time for payment or performance of any of the
Obligations or otherwise amend the provisions for payment or performance by
agreement with any entity that is obligated for the Obligations or that has an
interest in the Property; (iii) accept additional security for the payment and
performance of the Obligations; and (iv) waive any entity's performance of an
Obligation, release any entity or individual now or in the future liable for the
performance of the Obligation or waive the exercise of any Remedy or option.
Lender may exercise any of the foregoing rights without notice, without regard
to the amount of any consideration given, without effecting the priority of the
Loan Documents, without releasing any entity not specifically released from its
obligations under the Loan Documents, without releasing any guarantor(s) or
surety(ies) of any of the Obligations, without effecting a novation of the Loan
Documents and, with respect to a waiver, without waiving future performance of
the Obligation or exercise of the Remedy waived.
Section 18.8. Service of Process. Borrower irrevocably consents to
------------- ------------------
service of process by registered or certified mail, postage prepaid, return
receipt requested, to Borrower at its address set forth in the Article entitled
"Notices".
-------
Section 18.9. Entire Agreement. Oral agreements or commitments between
------------- ----------------
Borrower and Lender to lend money, to extend credit or to forbear from enforcing
repayment of a debt, including promises to extend or renew the debt, are not
enforceable. Any agreements between Borrower and Lender relating to the Loan
are contained in the Loan Documents, which contain the complete and exclusive
statement of the agreements between Borrower and Lender, except as Borrower and
Lender may later agree in writing to amend the Loan Documents. The language of
each Loan Document will be construed as a whole according to its fair meaning
and will not be construed against the draftsman.
Section 18.10. No Oral Amendment. The Loan Documents may not be
-------------- -----------------
amended, waived or terminated orally or by any act or omission made individually
by Borrower or Lender but may be amended, waived or terminated only by a written
document signed by the party against which enforcement of the amendment, waiver
or termination is sought.
Section 18.11. Severability. The invalidity, illegality or
-------------- ------------
unenforceability of any provision of any of the Loan Documents will not affect
any other provisions of the Loan Documents, which will be construed as if the
invalid, illegal or unenforceable provision never had been included.
Section 18.12. Covenants Run with the Land. Subject to the restrictions
-------------- ---------------------------
on transfer contained in the Article entitled "TRANSFERS, LIENS AND
--------------------
ENCUMBRANCES",
- ------------ all of the covenants of this Mortgage and the Assignment run with
the Land, will bind all parties hereto and their respective heirs, executors,
administrators, successors and assigns, and all subsequent owners of the
Property and all lessees of the Property after the date hereof and all
subsequent subtenants and assigns, and will inure to the benefit of Lender and
all subsequent holders of the Note and this Mortgage.
45
<PAGE>
Section 18.13. Time of the Essence. Time is of the essence with respect
-------------- -------------------
to Borrower's payment and performance of the Obligations.
Section 18.14. Subrogation. If the Principal or any other amount
-------------- -----------
advanced by Lender is used directly or indirectly to pay off, discharge or
satisfy all or any part of an encumbrance affecting the Property, then Lender is
subrogated to the encumbrance and to any security held by the holder of the
encumbrance, all of which will continue in full force and effect in favor of
Lender as additional security for the Obligations.
Section 18.15. [intentionally omitted].
--------------
Section 18.16. Successors and Assigns. The Loan Documents bind the
-------------- ----------------------
parties to the Loan Documents and their respective successors, assigns, heirs,
administrators, executors, agents and representatives and inure to the benefit
of Lender and its successors, assigns, heirs, administrators, executors, agents
and representatives.
Section 18.17. Duplicates and Counterparts. Duplicate counterparts of
-------------- ---------------------------
any Loan Documents, other than the Note, may be executed and together will
constitute a single original document.
46
<PAGE>
ARTICLE XVIII
ADDITIONAL PROVISIONS PERTAINING TO STATE LAWS
----------------------------------------------
IN WITNESS WHEREOF, Borrower has executed and delivered this Mortgage as of
the date first set forth above.
CABOT INDUSTRIAL PROPERTIES, L.P.,
a Delaware limited partnership
By: CABOT INDUSTRIAL TRUST, a
Maryland Real Estate Investment Trust, its
general partner
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Appropriate acknowledgments to be prepared
and supplied by local counsel
<PAGE>
Exhibit A
---------
LEGAL DESCRIPTION
A-1
<PAGE>
Exhibit B
---------
DEFINITIONS
"Acceleration" is defined in Section 14.2(a)(i).
------------
"Accumulations" is defined in Section 2.1(xii).
-------------
"Accumulations Depositary" is defined in Section 6.2(a).
------------------------
"Additional Funds" is defined in Section 7.4(v).
----------------
"Affiliate" means a person or entity that, directly or indirectly, is (i) under
---------
common ownership or control with the Borrower, (ii) owned or controlled by
Borrower or (iii) controls or owns Borrower.
"Annual Financial Statement" is defined in Section 10.1(a).
--------------------------
"Assessments" is defined as all assessments now or hereafter levied, assessed or
-----------
imposed against the Property.
"Assignment" is defined as the Assignment of Leases and Rents dated of even date
----------
with this Mortgage made by Borrower for the benefit of Lender.
"Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978 (11
---------------
U.S.C. (S) 101, et seq.), as amended from time to time.
------
"Books and Records" is defined in Section 2.1(xi).
-----------------
"Borrower" is defined in the introductory paragraph.
--------
"Budget" is defined in Section 10.2.
------
"Business Days" is defined as any day on which commercial banks are not
-------------
authorized or required by Law to close in New York, New York.
"Casualty" is defined as damage to or destruction of the Land, Improvements,
--------
Fixtures and Personal Property by fire or other casualty.
"Closing Date" is defined in the Note.
------------
B-1
<PAGE>
"Code" is defined as the Internal Revenue Code of 1986 and the regulations
----
promulgated thereunder.
"Commitment" means that certain Loan Application and Commitment Agreement dated
----------
December 21, 1998, from Borrower to Lender as heretofore and as may be hereafter
amended.
"Condemnation" is defined as the permanent or temporary taking of all or any
------------
portion of the Land, Improvements, Fixtures and Personal Property, or any
interest therein or right accruing thereto, by the exercise of the right of
eminent domain (including any transfer in lieu of or in anticipation of the
exercise of the right), inverse condemnation or any similar injury or damage to
or decrease in the value of such property, including severance and change in the
grade of any streets.
"Condemnation Awards" is defined in Section 2.1(viii).
-------------------
"Condemnation Proceeding" is defined as a Proceeding that could result in a
-----------------------
Condemnation.
"Debt" is defined in Section 3.1.
----
"Debt Service Payments" is defined as the monthly installments of principal and
---------------------
interest payable by Borrower to Lender as set forth in the Note, multiplied by
that fraction calculated as the Allocated Loan Value of the Property divided by
the sum of the Allocated Loan Values for all real property owned by the Borrower
and mortgaged by the Borrower to the Lender as security for the obligations
evidenced by the Note.
"Default Interest Rate" is defined as the lower of (a) 5% per annum plus the
---------------------
Fixed Interest Rate or (b) the Maximum Interest Rate, if any.
"Destruction Event" is defined in Section 7.4.
-----------------
"Environmental Activity" is defined as any actual, suspected or threatened
----------------------
abatement, cleanup, disposal, generation, handling, manufacture, possession,
release, remediation, removal, storage, transportation, treatment or use of any
Hazardous Material. The actual, suspected or threatened presence of any
Hazardous Material or the actual, suspected or threatened noncompliance with any
Environmental Laws, will be deemed Environmental Activity.
"Environmental Laws" is defined as all Laws pertaining to health, safety,
------------------
protection of the environment, natural resources, conservation, wildlife, waste
management, Environmental Activities and pollution.
"Environmental Report" is defined as all reports relating to the environmental
--------------------
condition of the Property to the extent copies thereof have been delivered to
Lender by Borrower or that have been delivered directly to Lender in connection
with the application for the Loan
B-2
<PAGE>
"ERISA" is defined in Section 8.3(a).
-----
"Event of Default" is defined in Section 14.1.
----------------
"Existing General Partner" is defined in Section 12.1.
------------------------
"Expenses" is defined in Section 11.1(a).
--------
"Financial Books and Records" is defined as detailed accounts of the income and
---------------------------
expenses relating to the Property and all other data, records and information
that either are specifically referred to in the Article entitled "FINANCIAL
---------
REPORTING" or are necessary to the preparation of any of the statements, reports
- ---------
or certificates required under such Article.
"Fiscal Year" is defined as any calendar year or partial calendar year during
-----------
the Term.
"Fixed Interest Rate" is defined as in the Note.
-------------------
"Fixtures and Personal Property" is defined in Section 2.1(iv).
------------------------------
"Government" is defined as any federal, state or municipal governmental or
----------
quasi-governmental authority including any executive, legislative or judicial
branch division, subdivision or agency of any of them and any entity to which
any of them has delegated authority.
"Hazardous Materials" is defined as any by-product, chemical, compound,
-------------------
contaminant, pollutant, product, substance, waste or other material (i) that is
hazardous or toxic or (ii) the abatement, cleanup, discharge, disposal,
emission, exposure to, generation, handling, manufacture, possession, presence,
release, removal, remediation, storage, transportation, treatment or use of
which is controlled, prohibited or regulated by any Environmental Laws,
including asbestos, petroleum and petroleum products and polychlorinated
biphenyls.
"Holding" is defined in Section 12.1(b).
-------
"Imposition Penalty Date" is defined in Section 6.1(a).
-----------------------
"Impositions" is defined as all Taxes or Assessments, in each instance whether
-----------
now or in the future, directly or indirectly, levied, assessed or imposed on the
Property or Borrower and whether levied, assessed or imposed as excise,
privilege or property taxes.
"Improvements" is defined in Section 2.1(ii).
------------
"Indemnity" means that certain Environmental Indemnity, dated as of February 12,
---------
1999, from Borrower as the same may have been and may hereafter be amended,
modified or restated from time to time.
B-3
<PAGE>
"Insurance Premiums" is defined as all present and future premiums and other
------------------
charges due and payable on policies of fire, rental value and other insurance
covering the Property and required pursuant to the provisions of this Mortgage.
"Insurance Proceeds" is defined in Section 2.1(ix).
------------------
"Insurers" is defined in Section 7.1(c).
--------
"Institutional Investor" is defined as any bank, savings institution, charitable
----------------------
foundation, insurance company, real estate investment trust, pension fund or
investment advisor registered under the Investment Advisors Act of 1940, as
amended, and acting as trustee or agent.
"Interest" is defined as the interest payable under the Note and any other sums
--------
which are deemed to be interest under Law.
"Investors" is defined in Section 12.1(b).
---------
"Land" is defined in Recital C.
----
"Late Charges" is defined in the Note.
------------
"Law" is defined as all present and future codes, constitutions, cases,
---
opinions, rules, manuals, regulations, determinations, laws, orders, ordinances,
requirements and statutes, as amended, of any Government that affect or that may
be interpreted to affect the Property, Borrower or the Loan, including
amendments and all guidance documents and publications promulgated thereunder.
"Leases" is defined as all present and future leases, licenses, and other
------
agreements for the use and occupancy of the Land and Improvement, any related
guarantees and any use and occupancy arrangements created pursuant to Section
365(h) of the Bankruptcy Code or otherwise in connection with the commencement
or continuation 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 occupant of the Land and
Improvements.
"Lender" is defined in the introductory paragraph.
------
"Loan" is defined in Recital A.
----
"Loan Documents" is defined as the Note, this Mortgage, the Assignment, any
--------------
other mortgages or deeds of trust given by Borrower to secure the Note
including, without limitation, that certain Second Mortgage, Assignment of
Leases and Rents, Security Agreement and Fixture Filing Statement of even date
herewith from Borrower to Lender and that certain Second Assignment of Leases
and Rents of even date herewith from Borrower to Lender, any promissory notes
made
B-4
<PAGE>
by Borrower to evidence any portion of the Loan, any mortgage or deed of
trust given to secure any such promissory notes, the Indemnities, and all
documents now or hereafter executed by Borrower, in respect of the Loan together
with any document given as security for any such guaranty, any indemnity of
Lender with respect to environmental matters, including all amendments,
modifications or consolidations of any of the foregoing.
"Maturity Date" is defined in Recital B.
-------------
"Maximum Interest Rate" is defined as the maximum rate of interest, if any,
---------------------
permitted by Law to be charged with respect to the Loan as the maximum rate may
be increased or decreased from time to time.
"Mortgage" is defined as this Mortgage, Assignment of Leases and Rents, Security
--------
Agreement and Fixture Filing Statement.
"Note" is defined in Recital B.
----
"Note Payments" is defined in the Note.
-------------
"Notices" is defined in Section 18.1.
-------
"Obligations" is defined in Section 3.1.
-----------
"Other Note" means a promissory note, in substantially the form of the Note,
----------
made on the date hereof by the Borrower to evidence a portion of the Loan
together with any additional promissory note by Borrower to Lender that is made
pursuant to the terms of Section 12.4(g) hereof.
"Other Property Charges" is defined as all ground rent, if any, water and sewer
----------------------
rents, fees and charges, levies, permit, inspection and license fees and other
dues, charges or impositions, including all charges and license fees for the use
of vaults, chutes and similar areas adjoining the Land, maintenance and similar
charges and charges for utility services, in each instance whether now or in the
future, directly or indirectly, charged to, levied, assessed or imposed on the
Property or Borrower with respect to the Property.
"Permitted Exceptions" is defined as the matters shown in Schedule B, Part 1 and
--------------------
2 of the title insurance policy insuring the lien of this Mortgage.
"Permitted Transfers" is defined in Section 12.2(b).
-------------------
"Permitted Use" means an industrial use with associated office space, and other
-------------
uses permitted by Law to the extent consistent with the use and zoning of the
Property as of the date hereof.
"Policies" is defined in Section 7.1(b).
--------
B-5
<PAGE>
"Portfolio" is defined in Section 12.2(b)(iii).
---------
"Principal" is defined in Recital B.
---------
"Proceeding" is defined as a pending or threatened action, claim or litigation
----------
before a legal, equitable or administrative tribunal having proper jurisdiction.
"Proceeds" is defined in Section 7.2(c).
--------
"Property" is defined in Section 2.1.
--------
"Property Documents" is defined in Section 2.1(v).
------------------
"Receiver" is defined as a receiver, custodian, trustee, liquidator or
--------
conservator of the Property.
"REIT" is defined in Section 12.2.
----
"Release Fee" is defined in Section 12.4.
-----------
"Remedies" is defined in Section 14.2(a).
--------
"Rents" is defined as any of the following paid to or for the benefit of
-----
Borrower: all rents, prepaid rents, percentage, participation or contingent
rents, issues, profits, proceeds, revenues and other consideration accruing
under the Leases and or otherwise derived from the use and occupancy of the Land
or the Improvements, including tenant contributions to expenses, security
deposits, royalties and contingent rent, if any, all other fees or payments and
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 occupant of the Land or the Improvement and all claims as a
creditor in connection with any of the foregoing.
"Restoration" is defined as the restoration of the Property after a Destruction
-----------
Event as nearly as possible to its condition immediately prior to the
Destruction Event, in accordance with the plans and specifications, in a first-
class workmanlike manner using materials substantially equivalent in quality and
character to those used for the original improvements, in accordance with Law
and free and clear of all liens, encumbrances or other charges other than this
Mortgage and the Permitted Exceptions.
"Restoration Completion Date" is defined in Section 7.4(viii).
---------------------------
"Restoration Funds" is defined in Section 7.5(b).
-----------------
"Sole Member" is defined in Section 12.1.
-----------
B-6
<PAGE>
"Subleases" means all present and future subleases for the use and occupancy of
---------
the Land and Improvement, any related guarantees and any use and occupancy
arrangements created pursuant to Section 365(h) of the Bankruptcy Code or
otherwise in connection with the commencement or continuation of any bankruptcy,
reorganization, arrangement, insolvency, dissolution, receivership or similar
Proceedings, or any assignment for the benefit of creditors, in respect of any
subtenant or other occupant of the Land and Improvements who claims right of
possession through a tenant under a Lease.
"Taxes" is defined as all present and future real estate taxes levied, assessed
-----
or imposed against the Property.
"Tax Servicer" means
------------
"Term" is defined as the scheduled term. of this Mortgage commencing on the date
----
Lender makes the first disbursement of the Loan and terminating on the Maturity
Date.
"Transfer" is defined in Section 12.1(a).
--------
"Uniform Commercial Code" is defined as the Uniform Commercial Code in effect in
-----------------------
the jurisdiction where the Land is located.
"USA" is defined in Section 12.1(b).
---
B-7
<PAGE>
Exhibit C
---------
RULES OF CONSTRUCTION
(a) References in any Loan Document to numbered Articles or Sections are
references to the Articles and Sections of that Loan Document. References in
any Loan Document to lettered Exhibits are references to the Exhibits attached
to that Loan Document, all of which are incorporated in and constitute a part of
that Loan Document. Article, Section and Exhibit captions used in any Loan
Document are for reference only and do not describe or limit the substance,
scope or intent of that Loan Document or the individual Articles, Sections or
Exhibits of that Loan Document.
(b) The terms "include", "including" and similar terms are construed as if
followed by the phrase "without limitation".
(c) The terms "Land", "Improvements", "Fixtures and Personal Property",
"Condemnation Awards", "Insurance Proceeds" and "Property" are construed as if
followed by the phrase "or any part thereof".
(d) Any agreement by or duty imposed on Borrower in any Loan Document to
perform any obligation or to refrain from any act or omission constitutes a
covenant running with the Land and the Improvements, which will bind all parties
hereto and their respective heirs, executors, administrators, successors and
assigns, and all subsequent owners of the Property and all lessees of the
Property after the date hereof and all subsequent subtenants and assigns of same
after the date hereof, and all subsequent owners of the Property, and will inure
to the benefit of Lender and all subsequent holders of the Note and this
Mortgage and includes a covenant by Borrower to cause its agents,
representatives and employees to perform the obligation or to refrain from the
act or omission in accordance with the Loan Documents. Any statement or
disclosure contained in any Loan Document about facts or circumstances relating
to the Property, Borrower or the Loan constitutes a representation and warranty
by Borrower made as of the date of the Loan Document in which the statement or
disclosure is contained.
(e) The term "to Borrower's knowledge" is construed as meaning to the best
of Borrower's knowledge after inquiry that is consistent with reasonable
commercial practice.
(f) The singular of any word includes the plural and the plural includes
the singular. The use of any gender includes all genders.
(g) The terms "person", "party" and "entity" include natural persons,
firms, partnerships, limited liability companies and partnerships, corporations
and any other public or private legal entity.
C-1
<PAGE>
(h) The term "provisions" includes terms, covenants, conditions, agreements
and requirements.
(i) The term "amend" includes modify, supplement, renew, extend, replace or
substitute and the term. "amendment" includes modification, supplement, renewal,
extension, replacement and substitution.
(j) Reference to any specific Law or to any document or agreement,
including the Note, this Mortgage, any of the other Loan Documents, the Leases
and Subleases and the Property Documents includes any future amendments to the
Law, document or agreement, as the case may be.
(k) No inference in favor of or against a party with respect to any
provision in any Loan Document may be drawn from the fact that the party drafted
the Loan Document.
(l) The term "certificate" means the sworn, notarized statement of the
entity giving the certificate, made by a duly authorized person satisfactory to
Lender affirming the truth and accuracy of every statement in the certificate.
Any document that is "certified" means the document has been appended to a
certificate of the entity certifying the document that affirms the truth and
accuracy of everything in the document being certified. In all instances the
entity issuing a certificate must be satisfactory to Lender.
(m) Any appointment of Lender as Borrower's attorney-in-fact is irrevocable
and coupled with an interest and shall be for the purposes expressly set forth
herein, in each case to the extent permitted by Law. Lender may appoint a
substitute attorney-in-fact. Borrower ratifies all actions taken by the
attorney-in-fact but, nevertheless, if Lender requests, Borrower will
specifically ratify any action taken by the attorney-in-fact by executing and
delivering to the attorney-in-fact or to any entity designated by the attorney-
in-fact all documents necessary to effect the ratification.
(n) Any document, instrument or agreement to be delivered by Borrower will
be in form and content satisfactory to Lender.
(o) All obligations, rights, remedies and waivers contained in the Loan
Documents will be construed as being limited only to the extent required to be
enforceable under the Law.
(p) The unmodified word "days" means calendar days.
C-2
<PAGE>
Exhibit D
---------
Property Documents
------------------
D-1
<PAGE>
Exhibit E
---------
Form of Rent Roll Certification
-------------------------------
[see attached]
E-1
<PAGE>
Exhibit F
---------
Allocated Loan Amounts
----------------------
[see attached]
F-1
<PAGE>
Schedule 8.5
------------
Commission
----------
<PAGE>
Exhibit 4.4
[THE FOLLOWING FORM WAS USED IN CONNECTION WITH TEN CROSS-COLLATERALIZED LOANS
SECURED BY DIFFERENT REAL ESTATE ASSETS, WHICH TOTALLED APPROXIMATELY $87.6
MILLION AND INVOLVED THE SAME PARTIES]
TIAA Appl. #VR-00002
Mortgage #000459700
FORM OF PROMISSORY NOTE
-----------------------
$_____________ New York, New York
Dated: February 12, 1999
FOR VALUE RECEIVED, CABOT INDUSTRIAL PROPERTIES, L.P. ("Borrower"), a
--------
Delaware limited partnership having its principal place of business at Two
Center Plaza, Suite 200, Boston, Massachusetts 02108, promises to pay to
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA ("Lender"), a New York
------
corporation, or order, at Lender's offices at 730 Third Avenue, New York, New
York 10017 or at such other place as Lender designates in writing, the
principal sum of ____________________________________________________________
___________________________ AND NO/100 --------------------------------------
- ----------------DOLLARS ($_____________) (the principal sum or so much of the
principal sum as may be advanced and outstanding from time to time, the
"Principal"), in lawful money of the United States of America, with interest on
- ------------
the Principal from the date of this Promissory Note (this "Note") through and
----
including March 1, 2009 (the "Maturity Date") at the fixed rate of seven and
-------------
25/100ths percent (7.25%) per annum (the "Fixed Interest Rate").
-------------------
The Loan (defined below) is secured by, among other things, one or
more Deeds of Trust (or Mortgages, as the case may be), Assignment of Leases
and Rents and Security Agreements (together with all amendments, modifications,
restatements and replacements thereof, each a "Mortgage", collectively the
--------
"Mortgages"), each dated as of the date of this Note (the "Closing Date"), each
- ---------- ------------
executed and delivered by Borrower. Each Mortgage encumbers certain real
property improved with one or more industrial buildings (each a "Property",
--------
collectively the "Properties") as identified on Exhibit B hereto as such Exhibit
---------- --------- -------
B may from time to time be amended in writing. This Note, together with nine
- -
(9) other promissory notes made by Borrower (each such promissory note, other
than this Note, being referred to as an "Other Note" and collectively as the
----------
"Other Notes"), collectively evidence a loan (the "Loan") in the maximum
- ------------ ----
principal amount of $98,600,000 (the "Loan Amount") made by Lender to Borrower.
-----------
This Note is secured by the Mortgage or Mortgages made by Borrower on certain
Properties located in the State of _________, and each of the Other Notes is
secured by one or more Mortgages on Properties made by the Borrower on certain
other Properties located in other states, all as specified on Exhibit A, as such
---------
Exhibit A may from time to time be amended in writing. All capitalized terms
- ---------
not expressly defined in this Note have the definitions set forth in the
Mortgages.
Section 1. INTENTIONALLY OMITTED
--------- ---------------------
<PAGE>
Section 2. Payments of Principal and Fixed Interest.
--------- ----------------------------------------
(a) Borrower will make monthly installment payments ("Debt Service
------------
Payments") as follows:
- --------
(i) On March 1, 1999, a payment of accrued interest on the Principal at the
Fixed Interest Rate; and
(ii) On April 1, 1999 (the "Amortization Commencement Date"), and on the
------------------------------
first day of each succeeding calendar month through and including the first
day of the calendar month immediately preceding the Maturity Date, equal
monthly payments of accrued interest and principal in the amount of
$___________________ (the "Amortizing Payment"). Each Amortizing Payment
------------------
will be applied first to interest on the Principal at the Fixed Interest
Rate and then to the Principal.
(b) On the Maturity Date, Borrower will pay the Principal in full,
together with accrued interest at the Fixed Interest Rate and all other amounts
due under the Loan Documents.
Section 3. Prepayment Provisions.
--------- ---------------------
(a) The following definitions apply:
"Discount Rate" means the yield on a U.S. Treasury issue selected by Lender, as
-------------
published in the Wall Street Journal, two weeks prior to prepayment, having a
maturity date corresponding (or most closely corresponding, if not identical) to
the Maturity Date, and a coupon rate corresponding (or most closely
corresponding, if not identical) to the Fixed Interest Rate.
"Default Discount Rate" means the Discount Rate less 300 basis points.
---------------------
"Discounted Value" means the Discounted Value of a Note Payment based on the
----------------
following formula:
<TABLE>
<S> <C> <C>
NP
- -----------
(1 + R/12)" = Discounted Value
NP = Amount of Note Payment
R = Discount Rate or Default Discount Rate as the case may be.
n = The number of months between the date of prepayment and the scheduled date of the Note Payment being discounted
rounded to the nearest integer.
</TABLE>
-2-
<PAGE>
"Note Payments" means (i) the scheduled Debt Service Payments for the period
-------------
from the date of prepayment through the Maturity Date and (ii) the scheduled
repayment of Principal, if any, on the Maturity Date.
"Prepayment Date Principal" means the Principal on the date of prepayment.
-------------------------
(b) (i) Except as permitted or required by Section 12.4 of any Mortgage,
------------
this Note may not be prepaid in full or in part before the first day of
March 2004.
(ii) Provided there is no Event of Default and only as permitted by Section
12.4 of the Mortgages, Borrower shall be permitted to make partial
prepayments of the Principal under this Note and the Other Notes (each, a
"Permitted Partial Prepayment"). Each Permitted Partial Prepayment shall
-----------------------------
be for the amount permitted or required by Section 12.4 of any Mortgage.
------------
Each Permitted Partial Prepayment shall include a Prepayment Premium
calculated in accordance with Section 3(b)(iii) below based upon (i) the
-----------------
net amount of such Permitted Partial Prepayment (instead of the Prepayment
Date Principal) and (ii) the amount of the Note Payments corresponding to
the net amount of the Permitted Partial Prepayment. The provisions of
Section 3(c) below shall not apply to such Permitted Partial Prepayment.
------------
The allocation of any such Permitted Partial Prepayments shall be made to
this Note and to any Other Note that is secured by a Property affected by
the Substitution giving rise to such Permitted Partial Prepayment, in
accordance with the provisions of Section 12.4 of the Mortgages. Nothing
to the contrary in any Loan Document withstanding, a Prepayment Premium
shall be paid only on the amount of the net cash amount of Permitted
Partial Prepayments with respect to the Loan for any given Substitution,
without regard to the amount of any Allocated Loan Value.
(iii) From the first day of March 2004 (the "Prepayment Permissibility
-------------------------
Date"), through the day that is 90 days prior to the Maturity Date,
----
Borrower may prepay this Note in full, but not in part (except as provided
in Section 3(b)(ii) above), on the first day of any calendar month, upon 90
days prior written notice to Lender and upon payment in full of the Debt
which will include a payment (the "Prepayment Premium") equal to the
------------------
greater of (1) an amount equal to the product of one percent (1%) times the
Prepayment Date Principal and (2) the amount by which the sum of the
Discounted Values of Note Payments, calculated at the Discount Rate,
exceeds the Prepayment Date Principal.
(iv) Provided there is no Event of Default, this Note may be prepaid in
full without payment of the Prepayment Premium during the last 90 days of
the Term.
(v) Nothing to the contrary in any Loan Document withstanding, no
Prepayment Premium or Evasion Premium shall be applicable to application of
any Proceeds to the Principal Amount of this Note.
Except as set forth above in Section 3(b)(ii) of this Note, this Note may not be
----------------
prepaid at any time without simultaneous prepayment in full of each of the Other
Notes.
-3-
<PAGE>
(c) After an Acceleration or upon any other prepayment not permitted or
required by the Loan Documents, any tender of payment of the amount necessary to
satisfy the Debt accelerated, any decree of foreclosure, any statement of the
amount due at the time of foreclosure (including foreclosure by power of sale)
and any tender of payment made during any redemption period after foreclosure,
will include, to the extent permitted by Law, a payment (the "Evasion Premium")
---------------
equal to the greater of (i) an amount equal to the product of 4% times the
Prepayment Date Principal, and (ii) the amount by which the sum of the
Discounted Values of the Note Payments, calculated at the Default Discount Rate,
exceeds the Prepayment Date Principal.
(d) Borrower acknowledges that:
(i) a prepayment will cause damage to Lender;
(ii) the Prepayment Premium and Evasion Premium are intended to compensate
Lender for the loss of its investment and the expense incurred and time and
effort associated with making the Loan, which will not be fully repaid if
the Loan is prepaid;
(iii) it will be extremely difficult and impractical to ascertain the
extent of Lender's damages caused by a prepayment after an Event of Default
or any other prepayment not permitted by the Loan Documents; and
(iv) the Prepayment Premium and Evasion Premium represent Lender and
Borrower's reasonable estimate of Lender's damages for the prepayment and
is not a penalty.
Section 4. Events of Default:
--------- ------------------
(a) It is an "Event of Default" under this Note:
----------------
(i) if Borrower fails to pay any amount due, as and when required, under
this Note or any other Loan Document and the failure continues for a period
of 5 days; or
(ii) if an Event of Default occurs under any Other Note or other Loan
Document.
(b) If an Event of Default occurs, Lender may declare the Debt immediately
due and payable ("Acceleration") and exercise any of the other Remedies.
------------
Section 5. Default Rate. Interest on the Principal will accrue at the
--------- ------------
Default Interest Rate from the date an Event of Default occurs.
Section 6 . Late Charges.
--------- ------------
(a) If Borrower fails to pay any Debt Service Payment when due and the
failure continues for a period of 5 days or more or fails to pay any amount due
under the Loan
-4-
<PAGE>
Documents on or before the Maturity Date (subject to the provisions of Section 3
above), Borrower agrees to pay to Lender an amount (a "Late Charge") equal to
------------
five cents ($.05) for each one dollar ($1.00) of the delinquent payment.
(b) Borrower acknowledges that:
(i) a delinquent payment will cause damage to Lender;
(ii) the Late Charge is intended to compensate Lender for loss of use of
the delinquent payment and the expense incurred and time and effort
associated with recovering the delinquent payment;
(iii) it will be extremely difficult and impractical to ascertain the
extent of Lender's damages caused by the delinquency; and
(iv) the Late Charge represents Lender and Borrower's reasonable estimate
of Lender's damages from the delinquency and is not a penalty.
Section 7. Limitation of Liability. Borrower's liability under this Note
--------- -----------------------
is subject to the limitations on liability set forth in the Article of the
Mortgage entitled "Limitation of Liability", which is hereby incorporated by
-----------------------
reference.
Section 8. WAIVERS. IN ADDITION TO THE WAIVERS SET FORTH IN THE ARTICLE
--------- -------
OF THE MORTGAGE ENTITLED "WAIVERS", BORROWER WAIVES PRESENTMENT FOR PAYMENT,
-------
DEMAND, DISHONOR AND, EXCEPT AS EXPRESSLY SET FORTH IN THE LOAN DOCUMENTS,
NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY PROTEST, LACK OF
DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT OF THE LOAN
DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES AND GUARANTORS OF THE
OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND
MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT TO THE OBLIGATIONS AND TO THE
RELEASE OF ANY SECURITY FOR THIS NOTE AND AGREE THAT ADDITIONAL MAKERS MAY
BECOME PARTIES TO THIS NOTE AND ADDITIONAL INDORSERS, GUARANTORS OR SURETIES MAY
BE ADDED WITHOUT NOTICE AND WITHOUT AFFECTING THE LIABILITY OF THE ORIGINAL
MAKER OR ANY ORIGINAL INDORSER, SURETY OR GUARANTOR.
Section 9. Commercial Loan. The Loan is made for the purpose of carrying
--------- ---------------
on a business or commercial activity or acquiring real or personal property as
an investment or carrying on an investment activity and not for personal or
household purposes.
Section 10. Usury Limitations. Borrower and Lender intend to comply with
---------- -----------------
all Laws with respect to the charging and receiving of interest. Any amounts
charged or received by
-5-
<PAGE>
Lender for the use or forbearance of the Principal to the extent permitted by
Law, will be amortized and spread throughout the Term until payment in full so
that the rate or amount of interest charged or received by Lender on account the
Principal does not exceed the Maximum Interest Rate. If any amount charged or
received under the Loan Documents that is deemed to be interest is determined to
be in excess of the amount permitted to be charged or received at the Maximum
Interest Rate, the excess will be deemed to be a prepayment of Principal when
paid, without premium, and any portion of the excess not capable of being so
applied will be refunded to Borrower. If during the Term the Maximum Interest
Rate, if any, is eliminated, then for purposes of the Loan, there will be no
Maximum Interest Rate.
Section 11. Applicable Law. This Note is governed by and will be
---------- --------------
construed in accordance with the Laws of the State of New York.
Section 12. Time of the Essence. Time is of the essence with respect to
---------- -------------------
the payment and performance of the Obligations.
Section 13. Cross-Default. An Event of Default under any of the Other
---------- -------------
Notes or an Event of Default (as defined in the respective document) under any
Loan Document constitutes an Event of Default under this Note and under all
other Loan Documents.
Section 14. Construction. Unless expressly provided otherwise in this
---------- ------------
Note, this Note will be construed in accordance with the Exhibit attached to the
Mortgage entitled "Rules of Construction".
---------------------
Section 15. Mortgage Provisions Incorporated. To the extent not
---------- --------------------------------
otherwise set forth in this Note, the provisions of the Articles of the Mortgage
entitled "Expenses and Duty to Defend", "Waivers", "Notices", and
--------------------------- ------- -------
"Miscellaneous" are applicable to this Note and deemed incorporated by reference
-------------
as if set forth at length in this Note.
Section 16. Successors and Assigns. This Note binds Borrower and
---------- ----------------------
successors, assigns, heirs, administrators, executors, agents and
representatives and inures to the benefit of Lender and its successors, assigns,
heirs, administrators, executors, agents and representatives.
Section 17. Absolute Obligation. Except for the Section of this Note
---------- -------------------
entitled "Limitation of Liability", no reference in this Note to the other Loan
Documents and no other provision of this Note or of the other Loan Documents
will impair or alter the obligation of Borrower, which is absolute and
unconditional, to pay the Principal, interest at the Fixed Interest Rate and any
other amounts due and payable under this Note, as and when required.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
date first set forth above.
CABOT INDUSTRIAL PROPERTIES, L.P.,
-6-
<PAGE>
a Delaware limited partnership
By: CABOT INDUSTRIAL TRUST, a
Maryland Real Estate Investment Trust, its
general partner
By:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
-7-
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Property Name Property Location/Address Purchase Price/Value Allocated Loan
Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. 1120 & 1150 West Alameda Drive
Tempe, AZ 85282
- ---------------------------------------------------------------------------------------------------
2. 1000 South Priest Drive
Tempe, AZ 85282
- ---------------------------------------------------------------------------------------------------
3. 10397 West Van Buren Avenue
Tolleson, AZ 85353
- ---------------------------------------------------------------------------------------------------
4. 44th Avenue & Roosevelt
Phoenix, AZ 85009
- ---------------------------------------------------------------------------------------------------
5. 9210 San Fernando Road
Sun Valley, CA 91352
- ---------------------------------------------------------------------------------------------------
6. Intentionally Deleted
- ---------------------------------------------------------------------------------------------------
7.a. 7510 Airway Road
Otay Mesa, CA 92173
- ---------------------------------------------------------------------------------------------------
7.b. 7520 Airway Road
Otay Mesa, CA 92173
- ---------------------------------------------------------------------------------------------------
8. 14489 Industrial Circle
La Mirada, CA 90638
- ---------------------------------------------------------------------------------------------------
9. 4190 East Santa Ana Drive
Ontario, CA 91761
- ---------------------------------------------------------------------------------------------------
10. 12000 Jersey Court
Rancho Cucamonga, CA 91730
- ---------------------------------------------------------------------------------------------------
11. 13602 12th Street
Chino, CA 91710
- ---------------------------------------------------------------------------------------------------
12. 350 West Rincon Street
Corona, CA 91720
- ---------------------------------------------------------------------------------------------------
13. 7500 Exchange Place
Orlando, FA 32619
- --------------------------------------------------------------------------------------------------
14. 3765 Atlanta Industrial Drive
Atlanta, GA 30066
- ---------------------------------------------------------------------------------------------------
15.a. 300 Town Park Drive Bldg. 1
Atlanta, GA 30144
- ---------------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 2
-8-
<PAGE>
<TABLE>
<CAPTION>
Property Name Property Location/Address Purchase Price/Value Allocated Loan
Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
15.b. 300 Town Park Drive Bldg. 2
Atlanta, GA 30144
- ---------------------------------------------------------------------------------------------------
16.a. 1221 Bus. Center Drive
Mount Prospect, IL 60056
- ---------------------------------------------------------------------------------------------------
16.b. 1600 Feehanville Drive
Mount Prospect, IL 60056
- ---------------------------------------------------------------------------------------------------
17. 1140 Tower Lane
Bensenville, IL 60106
- ---------------------------------------------------------------------------------------------------
18. 1825 Airport Exchange Drive
Erlanger, KY 41042
- ---------------------------------------------------------------------------------------------------
19.a. 2205 Woodale Drive
Mounds View, MN 55113
- ---------------------------------------------------------------------------------------------------
19.b. 2222-2298 Woodale Drive
Mounds View, MN 55113
- ---------------------------------------------------------------------------------------------------
19.c. 2270 Woodale Drive
Mounds View, MN 55113
- ---------------------------------------------------------------------------------------------------
19.d. 2240 Woodale Drive
Mounds View, MN 55113
- ---------------------------------------------------------------------------------------------------
20. 100 New England Avenue
Piscataway, NJ 08854
- ---------------------------------------------------------------------------------------------------
21.a. 5375 Kingsley Drive
Cincinnati, OH 45227
- ---------------------------------------------------------------------------------------------------
21.b. 5379 Kingsley Drive
Cincinnati, OH 45227
- ---------------------------------------------------------------------------------------------------
22.a. 1800 10th Street
Plano, TX 75074
- ---------------------------------------------------------------------------------------------------
22.b. 1808 10th Street
Plano, TX 75074
- ---------------------------------------------------------------------------------------------------
23. 18100 Kovacs Land , Huntington
Beach, CA
- ---------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 2
-9-
<PAGE>
Exhibit 10.6
Cabot Industrial Properties, L.P.
Two Center Plaza, Suite 200
Boston, MA 02108-1906
September 10, 1998
Ferdinand Colloredo-Mansfeld:
46 Winthrop Street
South Hamilton, MA 01982
Dear Mr. Colloredo-Mansfeld:
This letter reflects our agreement relative to your appointment as Chairman
of Cabot Industrial Trust (the "Trust") and your employment by Cabot Industrial
Properties, L.P. (the "Partnership").
The Partnership agrees to employ you in such capacity for a three-year term
(the "Term"), beginning February 4, 1998 (the "Effective Date"). After the
first anniversary of the Effective Date and on each successive anniversary
thereof, the Term shall be automatically extended for an additional twelve-month
period, unless you or the Partnership provides written notice of non-renewal to
the other at least 120 days before any such anniversary. During the Term, while
you are employed by the Partnership, you agree that you shall devote
substantially all of your business time, energies and talents to serving as
Chairman of the Trust, you shall perform your duties faithfully and efficiently
subject to the directions of the Board of Trustees of the Trust and you will not
engage, directly or indirectly, in any activities that compete with those of the
Trust or the Partnership.
During the Term while you are employed by the Partnership, you will be paid
base compensation in the amount of $265,000 per year and you will be eligible
for a cash bonus in such amount as may be determined by the Board of Trustees of
the Trust or the Compensation Committee thereof, in its sole discretion. The
amount of your base compensation and your bonus will be reviewed by the Board
each year during the Term. You also will be granted such options under the
Cabot Industrial Trust Long Term Incentive Plan (the "Plan") as the committee of
the Plan determines.
If, during the Term, after a Change in Control (as described in the Plan),
(i) the Trust or the Partnership or the successor of either (A) terminates your
employment without Cause (as defined below) or does not extend the Term or (B)
constructively terminates your employment by substantially adversely altering
either your status or responsibilities or your annual base compensation and
bonus from those in effect immediately prior to the Change in Control or by
moving the location of your office more than 50 miles from its then current
location, or (ii) if you terminate your employment on or before the first
anniversary of the Change in Control, you
<PAGE>
will be entitled to a lump sum payment as soon as practicable after the date of
such termination, subject to payroll tax withholding as required by law, in an
amount equal to three times the sum of the rate of your annual base compensation
as in effect on such date (or as in effect on the date of the Change in Control,
if higher) plus the amount of your bonus for the year prior to the year in which
your employment terminates; provided, that if termination occurs prior to the
time that a bonus has first been awarded to you hereunder the amount of the
bonus shall be deemed to be the amount of your target incentive bonus as
established by the Board of Trustees or the Compensation Committee thereof or,
if such target bonus has not then been established, 30% of the rate of your
annual base compensation as in effect on such date. In the event it is
determined that any payment or benefit (or combination thereof), including
acceleration of any share options, by the Trust to you or for your benefit would
be subject to the excise tax imposed by section 4999 of the Internal Revenue
Code, the Trust or the Partnership shall pay you a tax gross-up payment in
accordance with Exhibit A, which is attached to and forms a part of this
agreement. For purposes of this agreement, "Cause" shall mean your willful
engaging in conduct which is demonstrably monetarily injurious to the Trust or
the Partnership or your engaging in egregious misconduct involving serious moral
turpitude.
This letter amends and restates in full our prior Agreement, dated February
4, 1998. If this letter satisfactorily reflects our agreement, as amended,
please sign and return the attached copy to my attention. Thank you for your
efforts on behalf of the Trust and the Partnership.
/s/ Robert E. Patterson
_________________________
Robert E. Patterson,
President
Accepted as of this 4th day of
February, 1998.
/s/ Ferdinand Colloredo-Mansfeld
________________________________
Ferdinand Colloredo-Mansfeld
<PAGE>
Exhibit A
---------
Tax Gross-Up Payment
--------------------
1. Gross-Up Payment. In the event that it is determined that any payments,
----------------
benefits or distributions (or any combination thereof) to or for the
benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the attached letter agreement, or
otherwise) by the Trust or any of its affiliates (including the
Partnership) or by one or more trusts established by the Trust or any of
its affiliates for the benefit of their employees, are subject to the
excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), which payments are collectively referred to as
"Parachute Payments", the Trust or the Partnership shall pay to or for the
benefit of Executive a payment (a "Gross-Up Payment") equal to the sum of
the following amounts:
a. the amount of the excise tax attributable to the Parachute Payments
(referred to as the "Excise Tax") and the amount of any additional
excise tax under section 4999 of the Code imposed with respect to
additional payments, if any, made pursuant to this paragraph 1;
b. any interest or penalties incurred by Executive with respect to the
Excise Tax and other payments, if any, made pursuant to this paragraph
1; and
c. any taxes, including income taxes, incurred by Executive on the Excise
Tax and other payments, if any, made pursuant to this paragraph 1.
2. Determination and Payment of Gross-Up Payment. Subject to the provisions
---------------------------------------------
of paragraph 3 below, all determinations required to be made under this
Exhibit A, including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
certified public accounting firm as may be designated by the Trust or the
Partnership (the "Accounting Firm") which shall provide detailed supporting
calculations to the Trust, the Partnership and Executive within fifteen
(15) business days of the effective time of a Change in Control or such
earlier time as is requested by the Trust or the Partnership. All fees and
expenses of the Accounting Firm shall be borne solely by the Trust or the
Partnership. Any Gross-Up Payment, as determined pursuant to paragraph 1,
shall be paid by the Trust or the Partnership to Executive within five (5)
days after the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it
shall so indicate to Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Trust, the Partnership and
Executive. As a result of the uncertainty in the application of section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that a Gross-Up Payment which will not have
been made by the Trust or the Partnership should have been made
("Underpayment"),
<PAGE>
consistent with the calculations required to be made hereunder. In the
event that the Trust or the Partnership exhausts its remedies pursuant to
paragraph 3 and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Trust or the Partnership to or for the benefit of Executive.
3. Claims by IRS. Executive shall notify the Trust and the Partnership in
-------------
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Trust or the Partnership of the Gross-Up
Payment. Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed in writing of
such claim and shall apprise the Trust and the Partnership of the nature of
such claim and the date on which such claim is requested to be paid.
Executive shall not pay such claim prior to the expiration of the thirty
(30) day period following the date on which it gives such notice to the
Trust and the Partnership (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Trust or
the Partnership notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
a. give the Trust and the Partnership any information requested by either
relating to such claim;
b. take such action in connection with contesting such claim as the Trust
or the Partnership shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Trust or the Partnership;
c. cooperate with the Trust and the Partnership in good faith in order to
effectively contest such claim; and
d. permit the Trust and the Partnership to participate in any proceedings
relating to such claim;
provided, however, that the Trust or the Partnership shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and
hold Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this paragraph 3, the
Trust or the Partnership shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a
2
<PAGE>
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Trust or the
Partnership shall determine; provided, however, that if the Trust or the
Partnership directs Executive to pay such claim and sue for a refund, the
Trust or the Partnership shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and provided, further, that if Executive is required to
extend the statute of limitations to enable the Trust or the Partnership to
contest such claim, Executive may limit this extension solely to such
contested amount. The control of the contest by the Trust or the
Partnership shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
4. Refunds. If, after the receipt by Executive of an amount advanced by the
-------
Trust or the Partnership pursuant to paragraph 3, Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to the Trust's or the Partnership's complying with the
requirements of paragraph 3) promptly pay to the Trust or the Partnership
the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Trust or the Partnership pursuant to
paragraph 3, a determination is made that Executive shall not be entitled
to any refund with respect to such claim and the Trust or the Partnership
does not notify Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
3
<PAGE>
Exhibit 10.7
Cabot Industrial Properties, L.P.
Two Center Plaza, Suite 200
Boston, MA 02108-1906
September 10, 1998
Robert E. Patterson
370 Beacon Street
Boston, MA 02116
Dear Mr. Patterson:
This letter reflects our agreement relative to your appointment as
President of Cabot Industrial Trust (the "Trust") and your employment by Cabot
Industrial Properties, L.P. (the "Partnership").
The Partnership agrees to employ you in such capacity for a three-year term
(the "Term"), beginning February 4, 1998 (the "Effective Date"). After the
first anniversary of the Effective Date and on each successive anniversary
thereof, the Term shall be automatically extended for an additional twelve-month
period, unless you or the Partnership provides written notice of non-renewal to
the other at least 120 days before any such anniversary. During the Term, while
you are employed by the Partnership, you agree that you shall devote
substantially all of your business time, energies and talents to serving as
President of the Trust, you shall perform your duties faithfully and efficiently
subject to the directions of the Chairman of the Trust and you will not engage,
directly or indirectly, in any activities that compete with those of the Trust
or the Partnership.
During the Term while you are employed by the Partnership, you will be paid
base compensation in the amount of $245,000 per year and you will be eligible
for a cash bonus in such amount as may be determined by the Board of Trustees of
the Trust or the Compensation Committee thereof, in its sole discretion. The
amount of your base compensation and your bonus will be reviewed by the Board
each year during the Term. You also will be granted such options under the
Cabot Industrial Trust Long Term Incentive Plan (the "Plan") as the committee of
the Plan determines.
If, during the Term, after a Change in Control (as described in the Plan),
(i) the Trust or the Partnership or the successor of either (A) terminates your
employment without Cause (as defined below) or does not extend the Term or (B)
constructively terminates your employment by substantially adversely altering
either your status or responsibilities or your annual base compensation and
bonus from those in effect immediately prior to the Change in Control or by
moving the location of your office more than 50 miles from its then current
location, or (ii) if you terminate your employment on or before the first
anniversary of the Change in Control, you will be entitled to a lump sum payment
as soon as practicable after the date of such termination,
<PAGE>
subject to payroll tax withholding as required by law, in an amount equal to
three times the sum of the rate of your annual base compensation as in effect on
such date (or as in effect on the date of the Change in Control, if higher) plus
the amount of your bonus for the year prior to the year in which your employment
terminates; provided, that if termination occurs prior to the time that a bonus
has first been awarded to you hereunder the amount of the bonus shall be deemed
to be the amount of your target incentive bonus as established by the Board of
Trustees or the Compensation Committee thereof or, if such target bonus has not
then been established, 30% of the rate of your annual base compensation as in
effect on such date. In the event it is determined that any payment or benefit
(or combination thereof), including acceleration of any share options, by the
Trust to you or for your benefit would be subject to the excise tax imposed by
section 4999 of the Internal Revenue Code, the Trust or the Partnership shall
pay you a tax gross-up payment in accordance with Exhibit A, which is attached
to and forms a part of this agreement. For purposes of this agreement, "Cause"
shall mean your willful engaging in conduct which is demonstrably monetarily
injurious to the Trust or the Partnership or your engaging in egregious
misconduct involving serious moral turpitude.
This letter amends and restates in full our prior Agreement, dated February
4, 1998. If this letter satisfactorily reflects our agreement, as amended,
please sign and return the attached copy to my attention. Thank you for your
efforts on behalf of the Trust and the Partnership.
/s/ Ferdinand Colloredo-Mansfeld
_____________________________
Ferdinand Colloredo-Mansfeld,
Chairman of the Board
Accepted as of this 4th day of
February, 1998.
/s/ Robert E. Patterson
_________________________
Robert E. Patterson
<PAGE>
Exhibit A
---------
Tax Gross-Up Payment
--------------------
1. Gross-Up Payment. In the event that it is determined that any payments,
----------------
benefits or distributions (or any combination thereof) to or for the
benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the attached letter agreement, or
otherwise) by the Trust or any of its affiliates (including the
Partnership) or by one or more trusts established by the Trust or any of
its affiliates for the benefit of their employees, are subject to the
excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), which payments are collectively referred to as
"Parachute Payments", the Trust or the Partnership shall pay to or for the
benefit of Executive a payment (a "Gross-Up Payment") equal to the sum of
the following amounts:
a. the amount of the excise tax attributable to the Parachute Payments
(referred to as the "Excise Tax") and the amount of any additional
excise tax under section 4999 of the Code imposed with respect to
additional payments, if any, made pursuant to this paragraph 1;
b. any interest or penalties incurred by Executive with respect to the
Excise Tax and other payments, if any, made pursuant to this paragraph
1; and
c. any taxes, including income taxes, incurred by Executive on the Excise
Tax and other payments, if any, made pursuant to this paragraph 1.
2. Determination and Payment of Gross-Up Payment. Subject to the provisions
---------------------------------------------
of paragraph 3 below, all determinations required to be made under this
Exhibit A, including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
certified public accounting firm as may be designated by the Trust or the
Partnership (the "Accounting Firm") which shall provide detailed supporting
calculations to the Trust, the Partnership and Executive within fifteen
(15) business days of the effective time of a Change in Control or such
earlier time as is requested by the Trust or the Partnership. All fees and
expenses of the Accounting Firm shall be borne solely by the Trust or the
Partnership. Any Gross-Up Payment, as determined pursuant to paragraph 1,
shall be paid by the Trust or the Partnership to Executive within five (5)
days after the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it
shall so indicate to Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Trust, the Partnership and
Executive. As a result of the uncertainty in the application of section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that a Gross-Up Payment which will not have
been made by the Trust or the Partnership should have been made
("Underpayment"),
<PAGE>
consistent with the calculations required to be made hereunder. In the
event that the Trust or the Partnership exhausts its remedies pursuant to
paragraph 3 and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Trust or the Partnership to or for the benefit of Executive.
3. Claims by IRS. Executive shall notify the Trust and the Partnership in
-------------
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Trust or the Partnership of the Gross-Up
Payment. Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed in writing of
such claim and shall apprise the Trust and the Partnership of the nature of
such claim and the date on which such claim is requested to be paid.
Executive shall not pay such claim prior to the expiration of the thirty
(30) day period following the date on which it gives such notice to the
Trust and the Partnership (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Trust or
the Partnership notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
a. give the Trust and the Partnership any information requested by either
relating to such claim;
b. take such action in connection with contesting such claim as the Trust
or the Partnership shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Trust or the Partnership;
c. cooperate with the Trust and the Partnership in good faith in order to
effectively contest such claim; and
d. permit the Trust and the Partnership to participate in any proceedings
relating to such claim;
provided, however, that the Trust or the Partnership shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and
hold Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this paragraph 3, the
Trust or the Partnership shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a
2
<PAGE>
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Trust or the
Partnership shall determine; provided, however, that if the Trust or the
Partnership directs Executive to pay such claim and sue for a refund, the
Trust or the Partnership shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and provided, further, that if Executive is required to
extend the statute of limitations to enable the Trust or the Partnership to
contest such claim, Executive may limit this extension solely to such
contested amount. The control of the contest by the Trust or the
Partnership shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
4. Refunds. If, after the receipt by Executive of an amount advanced by the
-------
Trust or the Partnership pursuant to paragraph 3, Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to the Trust's or the Partnership's complying with the
requirements of paragraph 3) promptly pay to the Trust or the Partnership
the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Trust or the Partnership pursuant to
paragraph 3, a determination is made that Executive shall not be entitled
to any refund with respect to such claim and the Trust or the Partnership
does not notify Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
3
<PAGE>
Exhibit 10.8
Cabot Industrial Properties, L.P.
Two Center Plaza, Suite 200
Boston, MA 02108-1906
September 10, 1998
Franz Colloredo-Mansfeld
635 Highland Avenue
South Hamilton, MA 01982
Dear Mr. Colloredo-Mansfeld:
This letter reflects our agreement relative to your appointment as Chief
Financial Officer of Cabot Industrial Trust (the "Trust") and your employment by
Cabot Industrial Properties, L.P. (the "Partnership").
The Partnership agrees to employ you in such capacity for a three-year term
(the "Term"), beginning February 4, 1998 (the "Effective Date"). After the
first anniversary of the Effective Date and on each successive anniversary
thereof, the Term shall be automatically extended for an additional twelve-month
period, unless you or the Partnership provides written notice of non-renewal to
the other at least 120 days before any such anniversary. During the Term, while
you are employed by the Partnership, you agree that you shall devote
substantially all of your business time, energies and talents to serving as
Chief Financial Officer of the Trust, you shall perform your duties faithfully
and efficiently subject to the directions of the Chairman of the Trust and you
will not engage, directly or indirectly, in any activities that compete with
those of the Trust or the Partnership.
During the Term while you are employed by the Partnership, you will be paid
base compensation in the amount of $175,000 per year and you will be eligible
for a cash bonus in such amount as may be determined by the Board of Trustees of
the Trust or the Compensation Committee thereof, in its sole discretion. The
amount of your base compensation and your bonus will be reviewed by the Board
each year during the Term. You also will be granted such options under the
Cabot Industrial Trust Long Term Incentive Plan (the "Plan") as the committee of
the Plan determines.
If, during the Term, after a Change in Control (as described in the Plan),
(i) the Trust or the Partnership or the successor of either (A) terminates your
employment without Cause (as defined below) or does not extend the Term or (B)
constructively terminates your employment by substantially adversely altering
either your status or responsibilities or your annual base compensation and
bonus from those in effect immediately prior to the Change in Control or by
moving the location of your office more than 50 miles from its then current
location, or (ii) if
<PAGE>
you terminate your employment on or before the first anniversary of the Change
in Control, you will be entitled to a lump sum payment as soon as practicable
after the date of such termination, subject to payroll tax withholding as
required by law, in an amount equal to three times the sum of the rate of your
annual base compensation as in effect on such date (or as in effect on the date
of the Change in Control, if higher) plus the amount of your bonus for the year
prior to the year in which your employment terminates; provided, that if
termination occurs prior to the time that a bonus has first been awarded to you
hereunder the amount of the bonus shall be deemed to be the amount of your
target incentive bonus as established by the Board of Trustees or the
Compensation Committee thereof or, if such target bonus has not then been
established, 30% of the rate of your annual base compensation as in effect on
such date. In the event it is determined that any payment or benefit (or
combination thereof), including acceleration of any share options, by the Trust
to you or for your benefit would be subject to the excise tax imposed by section
4999 of the Internal Revenue Code, the Trust or the Partnership shall pay you a
tax gross-up payment in accordance with Exhibit A, which is attached to and
forms a part of this agreement. For purposes of this agreement, "Cause" shall
mean your willful engaging in conduct which is demonstrably monetarily injurious
to the Trust or the Partnership or your engaging in egregious misconduct
involving serious moral turpitude.
This letter amends and restates in full our prior Agreement, dated February
4, 1998. If this letter satisfactorily reflects our agreement, as amended,
please sign and return the attached copy to my attention. Thank you for your
efforts on behalf of the Trust and the Partnership.
/s/ Robert E. Patterson
_________________________
Robert E. Patterson,
President
Accepted as of this 4th day of
February, 1998.
/s/ Franz Colloredo-Mansfield
_____________________________
Franz Colloredo-Mansfeld
<PAGE>
Exhibit A
---------
Tax Gross-Up Payment
--------------------
1. Gross-Up Payment. In the event that it is determined that any payments,
----------------
benefits or distributions (or any combination thereof) to or for the
benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the attached letter agreement, or
otherwise) by the Trust or any of its affiliates (including the
Partnership) or by one or more trusts established by the Trust or any of
its affiliates for the benefit of their employees, are subject to the
excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), which payments are collectively referred to as
"Parachute Payments", the Trust or the Partnership shall pay to or for the
benefit of Executive a payment (a "Gross-Up Payment") equal to the sum of
the following amounts:
a. the amount of the excise tax attributable to the Parachute Payments
(referred to as the "Excise Tax") and the amount of any additional
excise tax under section 4999 of the Code imposed with respect to
additional payments, if any, made pursuant to this paragraph 1;
b. any interest or penalties incurred by Executive with respect to the
Excise Tax and other payments, if any, made pursuant to this paragraph
1; and
c. any taxes, including income taxes, incurred by Executive on the Excise
Tax and other payments, if any, made pursuant to this paragraph 1.
2. Determination and Payment of Gross-Up Payment. Subject to the provisions
---------------------------------------------
of paragraph 3 below, all determinations required to be made under this
Exhibit A, including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
certified public accounting firm as may be designated by the Trust or the
Partnership (the "Accounting Firm") which shall provide detailed supporting
calculations to the Trust, the Partnership and Executive within fifteen
(15) business days of the effective time of a Change in Control or such
earlier time as is requested by the Trust or the Partnership. All fees and
expenses of the Accounting Firm shall be borne solely by the Trust or the
Partnership. Any Gross-Up Payment, as determined pursuant to paragraph 1,
shall be paid by the Trust or the Partnership to Executive within five (5)
days after the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it
shall so indicate to Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Trust, the Partnership and
Executive. As a result of the uncertainty in the application of section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that a Gross-Up Payment which will not have
been made by the Trust or the Partnership should have been made
("Underpayment"),
<PAGE>
consistent with the calculations required to be made hereunder. In the
event that the Trust or the Partnership exhausts its remedies pursuant to
paragraph 3 and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Trust or the Partnership to or for the benefit of Executive.
3. Claims by IRS. Executive shall notify the Trust and the Partnership in
-------------
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Trust or the Partnership of the Gross-Up
Payment. Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed in writing of
such claim and shall apprise the Trust and the Partnership of the nature of
such claim and the date on which such claim is requested to be paid.
Executive shall not pay such claim prior to the expiration of the thirty
(30) day period following the date on which it gives such notice to the
Trust and the Partnership (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Trust or
the Partnership notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
a. give the Trust and the Partnership any information requested by either
relating to such claim;
b. take such action in connection with contesting such claim as the Trust
or the Partnership shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Trust or the Partnership;
c. cooperate with the Trust and the Partnership in good faith in order to
effectively contest such claim; and
d. permit the Trust and the Partnership to participate in any proceedings
relating to such claim;
provided, however, that the Trust or the Partnership shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and
hold Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this paragraph 3, the
Trust or the Partnership shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a
2
<PAGE>
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Trust or the
Partnership shall determine; provided, however, that if the Trust or the
Partnership directs Executive to pay such claim and sue for a refund, the
Trust or the Partnership shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and provided, further, that if Executive is required to
extend the statute of limitations to enable the Trust or the Partnership to
contest such claim, Executive may limit this extension solely to such
contested amount. The control of the contest by the Trust or the
Partnership shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
4. Refunds. If, after the receipt by Executive of an amount advanced by the
-------
Trust or the Partnership pursuant to paragraph 3, Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to the Trust's or the Partnership's complying with the
requirements of paragraph 3) promptly pay to the Trust or the Partnership
the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Trust or the Partnership pursuant to
paragraph 3, a determination is made that Executive shall not be entitled
to any refund with respect to such claim and the Trust or the Partnership
does not notify Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
3
<PAGE>
Exhibit 10.9
Cabot Industrial Properties, L.P.
Two Center Plaza, Suite 200
Boston, MA 02108-1906
September 10, 1998
Andrew D. Ebbott
7 Winthrop Street
Winchester, MA 01890
Dear Mr. Ebbott:
This letter reflects our agreement relative to your appointment as Senior
Vice President of Cabot Industrial Trust (the "Trust") and your employment by
Cabot Industrial Properties, L.P. (the "Partnership").
The Partnership agrees to employ you in such capacity for a two-year term
(the "Term"), beginning February 4, 1998 (the "Effective Date"). After the
first anniversary of the Effective Date and on each successive anniversary
thereof, the Term shall be automatically extended for an additional twelve-month
period, unless you or the Partnership provides written notice of non-renewal to
the other at least 120 days before any such anniversary. During the Term, while
you are employed by the Partnership, you agree that you shall devote
substantially all of your business time, energies and talents to serving as
Senior Vice President of the Trust, you shall perform your duties faithfully and
efficiently subject to the directions of the Chairman of the Trust and you will
not engage, directly or indirectly, in any activities that compete with those of
the Trust or the Partnership.
During the Term while you are employed by the Partnership, you will be paid
base compensation in the amount of $175,000 per year and you will be eligible
for a cash bonus in such amount as may be determined by the Board of Trustees of
the Trust or the Compensation Committee thereof, in its sole discretion. The
amount of your base compensation and your bonus will be reviewed by the Board
each year during the Term. You also will be granted such options under the
Cabot Industrial Trust Long Term Incentive Plan (the "Plan") as the committee of
the Plan determines.
If, during the Term, after a Change in Control (as described in the Plan),
(i) the Trust or the Partnership or the successor of either (A) terminates your
employment without Cause (as defined below) or does not extend the Term or (B)
constructively terminates your employment by substantially adversely altering
either your status or responsibilities or your annual base compensation and
bonus from those in effect immediately prior to the Change in Control or by
moving the location of your office more than 50 miles from its then current
location, or (ii) if you terminate your employment on or before the first
anniversary of the Change in Control, you
<PAGE>
will be entitled to a lump sum payment as soon as practicable after the date of
such termination, subject to payroll tax withholding as required by law, in an
amount equal to three times the sum of the rate of your annual base compensation
as in effect on such date (or as in effect on the date of the Change in Control,
if higher) plus the amount of your bonus for the year prior to the year in which
your employment terminates; provided, that if termination occurs prior to the
time that a bonus has first been awarded to you hereunder the amount of the
bonus shall be deemed to be the amount of your target incentive bonus as
established by the Board of Trustees or the Compensation Committee thereof or,
if such target bonus has not then been established, 30% of the rate of your
annual base compensation as in effect on such date. In the event it is
determined that any payment or benefit (or combination thereof), including
acceleration of any share options, by the Trust to you or for your benefit would
be subject to the excise tax imposed by section 4999 of the Internal Revenue
Code, the Trust or the Partnership shall pay you a tax gross-up payment in
accordance with Exhibit A, which is attached to and forms a part of this
agreement. For purposes of this agreement, "Cause" shall mean your willful
engaging in conduct which is demonstrably monetarily injurious to the Trust or
the Partnership or your engaging in egregious misconduct involving serious moral
turpitude.
This letter amends and restates in full our prior Agreement, dated February
4, 1998. If this letter satisfactorily reflects our agreement, as amended,
please sign and return the attached copy to my attention. Thank you for your
efforts on behalf of the Trust and the Partnership.
/s/ Robert E. Patterson
------------------------------
Robert E. Patterson,
President
Accepted as of this 4th day of
February, 1998.
/s/ Andrew D. Ebbott
- ------------------------------
Andrew D. Ebbott
<PAGE>
Exhibit A
---------
Tax Gross-Up Payment
--------------------
1. Gross-Up Payment. In the event that it is determined that any payments,
----------------
benefits or distributions (or any combination thereof) to or for the
benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the attached letter agreement, or
otherwise) by the Trust or any of its affiliates (including the
Partnership) or by one or more trusts established by the Trust or any of
its affiliates for the benefit of their employees, are subject to the
excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), which payments are collectively referred to as
"Parachute Payments", the Trust or the Partnership shall pay to or for the
benefit of Executive a payment (a "Gross-Up Payment") equal to the sum of
the following amounts:
a. the amount of the excise tax attributable to the Parachute Payments
(referred to as the "Excise Tax") and the amount of any additional
excise tax under section 4999 of the Code imposed with respect to
additional payments, if any, made pursuant to this paragraph 1;
b. any interest or penalties incurred by Executive with respect to the
Excise Tax and other payments, if any, made pursuant to this paragraph
1; and
c. any taxes, including income taxes, incurred by Executive on the Excise
Tax and other payments, if any, made pursuant to this paragraph 1.
2. Determination and Payment of Gross-Up Payment. Subject to the provisions
---------------------------------------------
of paragraph 3 below, all determinations required to be made under this
Exhibit A, including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
certified public accounting firm as may be designated by the Trust or the
Partnership (the "Accounting Firm") which shall provide detailed supporting
calculations to the Trust, the Partnership and Executive within fifteen
(15) business days of the effective time of a Change in Control or such
earlier time as is requested by the Trust or the Partnership. All fees and
expenses of the Accounting Firm shall be borne solely by the Trust or the
Partnership. Any Gross-Up Payment, as determined pursuant to paragraph 1,
shall be paid by the Trust or the Partnership to Executive within five (5)
days after the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it
shall so indicate to Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Trust, the Partnership and
Executive. As a result of the uncertainty in the application of section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that a Gross-Up Payment which will not have
been made by the Trust or the Partnership should have been made
("Underpayment"),
<PAGE>
consistent with the calculations required to be made hereunder. In the
event that the Trust or the Partnership exhausts its remedies pursuant to
paragraph 3 and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Trust or the Partnership to or for the benefit of Executive.
3. Claims by IRS. Executive shall notify the Trust and the Partnership in
-------------
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Trust or the Partnership of the Gross-Up
Payment. Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed in writing of
such claim and shall apprise the Trust and the Partnership of the nature of
such claim and the date on which such claim is requested to be paid.
Executive shall not pay such claim prior to the expiration of the thirty
(30) day period following the date on which it gives such notice to the
Trust and the Partnership (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Trust or
the Partnership notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
a. give the Trust and the Partnership any information requested by either
relating to such claim;
b. take such action in connection with contesting such claim as the Trust
or the Partnership shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Trust or the Partnership;
c. cooperate with the Trust and the Partnership in good faith in order to
effectively contest such claim; and
d. permit the Trust and the Partnership to participate in any proceedings
relating to such claim;
provided, however, that the Trust or the Partnership shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and
hold Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this paragraph 3, the
Trust or the Partnership shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a
2
<PAGE>
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Trust or the
Partnership shall determine; provided, however, that if the Trust or the
Partnership directs Executive to pay such claim and sue for a refund, the
Trust or the Partnership shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and provided, further, that if Executive is required to
extend the statute of limitations to enable the Trust or the Partnership to
contest such claim, Executive may limit this extension solely to such
contested amount. The control of the contest by the Trust or the
Partnership shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
4. Refunds. If, after the receipt by Executive of an amount advanced by the
-------
Trust or the Partnership pursuant to paragraph 3, Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to the Trust's or the Partnership's complying with the
requirements of paragraph 3) promptly pay to the Trust or the Partnership
the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Trust or the Partnership pursuant to
paragraph 3, a determination is made that Executive shall not be entitled
to any refund with respect to such claim and the Trust or the Partnership
does not notify Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
3
<PAGE>
Exhibit 10.10
Cabot Industrial Properties, L.P.
Two Center Plaza, Suite 200
Boston, MA 02108-1906
September 10, 1998
Howard B. Hodgson, Jr.
89 Argilla Road
Ipswich, MA 01938
Dear Mr. Hodgson:
This letter reflects our agreement relative to your appointment as Senior
Vice President of Cabot Industrial Trust (the "Trust") and your employment by
Cabot Industrial Properties, L.P. (the "Partnership").
The Partnership agrees to employ you in such capacity for a two-year term
(the "Term"), beginning February 4, 1998 (the "Effective Date"). After the first
anniversary of the Effective Date and on each successive anniversary thereof,
the Term shall be automatically extended for an additional twelve-month period,
unless you or the Partnership provides written notice of non-renewal to the
other at least 120 days before any such anniversary. During the Term, while you
are employed by the Partnership, you agree that you shall devote substantially
all of your business time, energies and talents to serving as Senior Vice
President of the Trust, you shall perform your duties faithfully and efficiently
subject to the directions of the Chairman of the Trust and you will not engage,
directly or indirectly, in any activities that compete with those of the Trust
or the Partnership.
During the Term while you are employed by the Partnership, you will be paid
base compensation in the amount of $175,000 per year and you will be eligible
for a cash bonus in such amount as may be determined by the Board of Trustees of
the Trust or the Compensation Committee thereof, in its sole discretion. The
amount of your base compensation and your bonus will be reviewed by the Board
each year during the Term. You also will be granted such options under the
Cabot Industrial Trust Long Term Incentive Plan (the "Plan") as the committee of
the Plan determines.
If, during the Term, after a Change in Control (as described in the Plan),
(i) the Trust or the Partnership or the successor of either (A) terminates your
employment without Cause (as defined below) or does not extend the Term or (B)
constructively terminates your employment by substantially adversely altering
either your status or responsibilities or your annual base compensation and
bonus from those in effect immediately prior to the Change in Control or by
moving the location of your office more than 50 miles from its then current
location, or (ii) if you terminate your employment on or before the first
anniversary of the Change in Control, you
<PAGE>
will be entitled to a lump sum payment as soon as practicable after the date of
such termination, subject to payroll tax withholding as required by law, in an
amount equal to three times the sum of the rate of your annual base compensation
as in effect on such date (or as in effect on the date of the Change in Control,
if higher) plus the amount of your bonus for the year prior to the year in which
your employment terminates; provided, that if termination occurs prior to the
time that a bonus has first been awarded to you hereunder the amount of the
bonus shall be deemed to be the amount of your target incentive bonus as
established by the Board of Trustees or the Compensation Committee thereof or,
if such target bonus has not then been established, 30% of the rate of your
annual base compensation as in effect on such date. In the event it is
determined that any payment or benefit (or combination thereof), including
acceleration of any share options, by the Trust to you or for your benefit would
be subject to the excise tax imposed by section 4999 of the Internal Revenue
Code, the Trust or the Partnership shall pay you a tax gross-up payment in
accordance with Exhibit A, which is attached to and forms a part of this
agreement. For purposes of this agreement, "Cause" shall mean your willful
engaging in conduct which is demonstrably monetarily injurious to the Trust or
the Partnership or your engaging in egregious misconduct involving serious moral
turpitude.
This letter amends and restates in full our prior Agreement, dated February
4, 1998. If this letter satisfactorily reflects our agreement, as amended,
please sign and return the attached copy to my attention. Thank you for your
efforts on behalf of the Trust and the Partnership.
/s/ Robert E. Patterson
_________________________
Robert E. Patterson,
President
Accepted as of this 4th day of
February, 1998.
/s/ Howard B. Hodgson, Jr.
_______________________
Howard B. Hodgson, Jr.
<PAGE>
Exhibit A
---------
Tax Gross-Up Payment
--------------------
1. Gross-Up Payment. In the event that it is determined that any payments,
----------------
benefits or distributions (or any combination thereof) to or for the
benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the attached letter agreement, or
otherwise) by the Trust or any of its affiliates (including the
Partnership) or by one or more trusts established by the Trust or any of
its affiliates for the benefit of their employees, are subject to the
excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), which payments are collectively referred to as
"Parachute Payments", the Trust or the Partnership shall pay to or for the
benefit of Executive a payment (a "Gross-Up Payment") equal to the sum of
the following amounts:
a. the amount of the excise tax attributable to the Parachute Payments
(referred to as the "Excise Tax") and the amount of any additional
excise tax under section 4999 of the Code imposed with respect to
additional payments, if any, made pursuant to this paragraph 1;
b. any interest or penalties incurred by Executive with respect to the
Excise Tax and other payments, if any, made pursuant to this paragraph
1; and
c. any taxes, including income taxes, incurred by Executive on the Excise
Tax and other payments, if any, made pursuant to this paragraph 1.
2. Determination and Payment of Gross-Up Payment. Subject to the provisions
---------------------------------------------
of paragraph 3 below, all determinations required to be made under this
Exhibit A, including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
certified public accounting firm as may be designated by the Trust or the
Partnership (the "Accounting Firm") which shall provide detailed supporting
calculations to the Trust, the Partnership and Executive within fifteen
(15) business days of the effective time of a Change in Control or such
earlier time as is requested by the Trust or the Partnership. All fees and
expenses of the Accounting Firm shall be borne solely by the Trust or the
Partnership. Any Gross-Up Payment, as determined pursuant to paragraph 1,
shall be paid by the Trust or the Partnership to Executive within five (5)
days after the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it
shall so indicate to Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Trust, the Partnership and
Executive. As a result of the uncertainty in the application of section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that a Gross-Up Payment which will not have
been made by the Trust or the Partnership should have been made
("Underpayment"),
<PAGE>
consistent with the calculations required to be made hereunder. In the
event that the Trust or the Partnership exhausts its remedies pursuant to
paragraph 3 and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Trust or the Partnership to or for the benefit of Executive.
3. Claims by IRS. Executive shall notify the Trust and the Partnership in
-------------
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Trust or the Partnership of the Gross-Up
Payment. Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed in writing of
such claim and shall apprise the Trust and the Partnership of the nature of
such claim and the date on which such claim is requested to be paid.
Executive shall not pay such claim prior to the expiration of the thirty
(30) day period following the date on which it gives such notice to the
Trust and the Partnership (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Trust or
the Partnership notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
a. give the Trust and the Partnership any information requested by either
relating to such claim;
b. take such action in connection with contesting such claim as the Trust
or the Partnership shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Trust or the Partnership;
c. cooperate with the Trust and the Partnership in good faith in order to
effectively contest such claim; and
d. permit the Trust and the Partnership to participate in any proceedings
relating to such claim;
provided, however, that the Trust or the Partnership shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and
hold Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this paragraph 3, the
Trust or the Partnership shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a
2
<PAGE>
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Trust or the
Partnership shall determine; provided, however, that if the Trust or the
Partnership directs Executive to pay such claim and sue for a refund, the
Trust or the Partnership shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and provided, further, that if Executive is required to
extend the statute of limitations to enable the Trust or the Partnership to
contest such claim, Executive may limit this extension solely to such
contested amount. The control of the contest by the Trust or the
Partnership shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
4. Refunds. If, after the receipt by Executive of an amount advanced by the
-------
Trust or the Partnership pursuant to paragraph 3, Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to the Trust's or the Partnership's complying with the
requirements of paragraph 3) promptly pay to the Trust or the Partnership
the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Trust or the Partnership pursuant to
paragraph 3, a determination is made that Executive shall not be entitled
to any refund with respect to such claim and the Trust or the Partnership
does not notify Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
3
<PAGE>
EXHIBIT 10.11
Cabot Industrial Properties, L.P.
Two Center Plaza, Suite 200
Boston, MA 02108-1906
September 10, 1998
Neil E. Waisnor
6 Langley Lane
Andover, MA 01810
Dear Mr. Waisnor:
This letter reflects our agreement relative to your appointment as Senior
Vice President of Cabot Industrial Trust (the "Trust") and your employment by
Cabot Industrial Properties, L.P. (the "Partnership").
The Partnership agrees to employ you in such capacity for a two-year term
(the "Term"), beginning February 4, 1998 (the "Effective Date"). After the
first anniversary of the Effective Date and on each successive anniversary
thereof, the Term shall be automatically extended for an additional twelve-month
period, unless you or the Partnership provides written notice of non-renewal to
the other at least 120 days before any such anniversary. During the Term, while
you are employed by the Partnership, you agree that you shall devote
substantially all of your business time, energies and talents to serving as
Senior Vice President of the Trust, you shall perform your duties faithfully and
efficiently subject to the directions of the Chairman of the Trust and you will
not engage, directly or indirectly, in any activities that compete with those of
the Trust or the Partnership.
During the Term while you are employed by the Partnership, you will be paid
base compensation in the amount of $175,000 per year and you will be eligible
for a cash bonus in such amount as may be determined by the Board of Trustees of
the Trust or the Compensation Committee thereof, in its sole discretion. The
amount of your base compensation and your bonus will be reviewed by the Board
each year during the Term. You also will be granted such options under the
Cabot Industrial Trust Long Term Incentive Plan (the "Plan") as the committee of
the Plan determines.
If, during the Term, after a Change in Control (as described in the Plan),
(i) the Trust or the Partnership or the successor of either (A) terminates your
employment without Cause (as defined below) or does not extend the Term or (B)
constructively terminates your employment by substantially adversely altering
either your status or responsibilities or your annual base compensation and
bonus from those in effect immediately prior to the Change in Control or by
moving the location of your office more than 50 miles from its then current
location, or (ii) if you terminate your employment on or before the first
anniversary of the Change in Control, you
<PAGE>
will be entitled to a lump sum payment as soon as practicable after the date of
such termination, subject to payroll tax withholding as required by law, in an
amount equal to three times the sum of the rate of your annual base compensation
as in effect on such date (or as in effect on the date of the Change in Control,
if higher) plus the amount of your bonus for the year prior to the year in which
your employment terminates; provided, that if termination occurs prior to the
time that a bonus has first been awarded to you hereunder the amount of the
bonus shall be deemed to be the amount of your target incentive bonus as
established by the Board of Trustees or the Compensation Committee thereof or,
if such target bonus has not then been established, 30% of the rate of your
annual base compensation as in effect on such date. In the event it is
determined that any payment or benefit (or combination thereof), including
acceleration of any share options, by the Trust to you or for your benefit would
be subject to the excise tax imposed by section 4999 of the Internal Revenue
Code, the Trust or the Partnership shall pay you a tax gross-up payment in
accordance with Exhibit A, which is attached to and forms a part of this
agreement. For purposes of this agreement, "Cause" shall mean your willful
engaging in conduct which is demonstrably monetarily injurious to the Trust or
the Partnership or your engaging in egregious misconduct involving serious moral
turpitude.
This letter amends and restates in full our prior Agreement, dated February
4, 1998. If this letter satisfactorily reflects our agreement, as amended,
please sign and return the attached copy to my attention. Thank you for your
efforts on behalf of the Trust and the Partnership.
/s/ Robert E. Patterson,
________________________
Robert E. Patterson,
President
Accepted this 4th day of
February, 1998.
/s/ Neil E. Waisnor
_______________________
Neil E. Waisnor
<PAGE>
Exhibit A
---------
Tax Gross-Up Payment
--------------------
1. Gross-Up Payment. In the event that it is determined that any payments,
----------------
benefits or distributions (or any combination thereof) to or for the
benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the attached letter agreement, or
otherwise) by the Trust or any of its affiliates (including the
Partnership) or by one or more trusts established by the Trust or any of
its affiliates for the benefit of their employees, are subject to the
excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), which payments are collectively referred to as
"Parachute Payments", the Trust or the Partnership shall pay to or for the
benefit of Executive a payment (a "Gross-Up Payment") equal to the sum of
the following amounts:
a. the amount of the excise tax attributable to the Parachute Payments
(referred to as the "Excise Tax") and the amount of any additional
excise tax under section 4999 of the Code imposed with respect to
additional payments, if any, made pursuant to this paragraph 1;
b. any interest or penalties incurred by Executive with respect to the
Excise Tax and other payments, if any, made pursuant to this paragraph
1; and
c. any taxes, including income taxes, incurred by Executive on the Excise
Tax and other payments, if any, made pursuant to this paragraph 1.
2. Determination and Payment of Gross-Up Payment. Subject to the provisions
---------------------------------------------
of paragraph 3 below, all determinations required to be made under this
Exhibit A, including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
certified public accounting firm as may be designated by the Trust or the
Partnership (the "Accounting Firm") which shall provide detailed supporting
calculations to the Trust, the Partnership and Executive within fifteen
(15) business days of the effective time of a Change in Control or such
earlier time as is requested by the Trust or the Partnership. All fees and
expenses of the Accounting Firm shall be borne solely by the Trust or the
Partnership. Any Gross-Up Payment, as determined pursuant to paragraph 1,
shall be paid by the Trust or the Partnership to Executive within five (5)
days after the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it
shall so indicate to Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Trust, the Partnership and
Executive. As a result of the uncertainty in the application of section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that a Gross-Up Payment which will not have
been made by the Trust or the Partnership should have been made
("Underpayment"),
<PAGE>
consistent with the calculations required to be made hereunder. In the
event that the Trust or the Partnership exhausts its remedies pursuant to
paragraph 3 and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Trust or the Partnership to or for the benefit of Executive.
3. Claims by IRS. Executive shall notify the Trust and the Partnership in
-------------
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Trust or the Partnership of the Gross-Up
Payment. Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed in writing of
such claim and shall apprise the Trust and the Partnership of the nature of
such claim and the date on which such claim is requested to be paid.
Executive shall not pay such claim prior to the expiration of the thirty
(30) day period following the date on which it gives such notice to the
Trust and the Partnership (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Trust or
the Partnership notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
a. give the Trust and the Partnership any information requested by either
relating to such claim;
b. take such action in connection with contesting such claim as the Trust
or the Partnership shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Trust or the Partnership;
c. cooperate with the Trust and the Partnership in good faith in order to
effectively contest such claim; and
d. permit the Trust and the Partnership to participate in any proceedings
relating to such claim;
provided, however, that the Trust or the Partnership shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and
hold Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this paragraph 3, the
Trust or the Partnership shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a
2
<PAGE>
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Trust or the
Partnership shall determine; provided, however, that if the Trust or the
Partnership directs Executive to pay such claim and sue for a refund, the
Trust or the Partnership shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and provided, further, that if Executive is required to
extend the statute of limitations to enable the Trust or the Partnership to
contest such claim, Executive may limit this extension solely to such
contested amount. The control of the contest by the Trust or the
Partnership shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
4. Refunds. If, after the receipt by Executive of an amount advanced by the
-------
Trust or the Partnership pursuant to paragraph 3, Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to the Trust's or the Partnership's complying with the
requirements of paragraph 3) promptly pay to the Trust or the Partnership
the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Trust or the Partnership pursuant to
paragraph 3, a determination is made that Executive shall not be entitled
to any refund with respect to such claim and the Trust or the Partnership
does not notify Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
3
<PAGE>
Exhibit 10.12
Cabot Industrial Properties, L.P.
Two Center Plaza, Suite 200
Boston, MA 02108-1906
September 10, 1998
Eugene F. Reilly
316 Johnson Street
North Andover, MA 01845
Dear Mr. Reilly:
This letter reflects our agreement relative to your appointment as Senior
Vice President of Cabot Industrial Trust (the "Trust") and your employment by
Cabot Industrial Properties, L.P. (the "Partnership").
The Partnership agrees to employ you in such capacity for a two-year term
(the "Term"), beginning February 4, 1998 (the "Effective Date"). After the
first anniversary of the Effective Date and on each successive anniversary
thereof, the Term shall be automatically extended for an additional twelve-month
period, unless you or the Partnership provides written notice of non-renewal to
the other at least 120 days before any such anniversary. During the Term, while
you are employed by the Partnership, you agree that you shall devote
substantially all of your business time, energies and talents to serving as
Senior Vice President of the Trust, you shall perform your duties faithfully and
efficiently subject to the directions of the Chairman of the Trust and you will
not engage, directly or indirectly, in any activities that compete with those of
the Trust or the Partnership.
During the Term while you are employed by the Partnership, you will be paid
base compensation in the amount of $175,000 per year and you will be eligible
for a cash bonus in such amount as may be determined by the Board of Trustees of
the Trust or the Compensation Committee thereof, in its sole discretion. The
amount of your base compensation and your bonus will be reviewed by the Board
each year during the Term. You also will be granted such options under the
Cabot Industrial Trust Long Term Incentive Plan (the "Plan") as the committee of
the Plan determines.
If, during the Term, after a Change in Control (as described in the Plan),
(i) the Trust or the Partnership or the successor of either (A) terminates your
employment without Cause (as defined below) or does not extend the Term or (B)
constructively terminates your employment by substantially adversely altering
either your status or responsibilities or your annual base compensation and
bonus from those in effect immediately prior to the Change in Control or by
moving the location of your office more than 50 miles from its then current
location, or (ii) if
<PAGE>
you terminate your employment on or before the first anniversary of the Change
in Control, you will be entitled to a lump sum payment as soon as practicable
after the date of such termination, subject to payroll tax withholding as
required by law, in an amount equal to three times the sum of the rate of your
annual base compensation as in effect on such date (or as in effect on the date
of the Change in Control, if higher) plus the amount of your bonus for the year
prior to the year in which your employment terminates; provided, that if
termination occurs prior to the time that a bonus has first been awarded to you
hereunder the amount of the bonus shall be deemed to be the amount of your
target incentive bonus as established by the Board of Trustees or the
Compensation Committee thereof or, if such target bonus has not then been
established, 30% of the rate of your annual base compensation as in effect on
such date. In the event it is determined that any payment or benefit (or
combination thereof), including acceleration of any share options, by the Trust
to you or for your benefit would be subject to the excise tax imposed by section
4999 of the Internal Revenue Code, the Trust or the Partnership shall pay you a
tax gross-up payment in accordance with Exhibit A, which is attached to and
forms a part of this agreement. For purposes of this agreement, "Cause" shall
mean your willful engaging in conduct which is demonstrably monetarily injurious
to the Trust or the Partnership or your engaging in egregious misconduct
involving serious moral turpitude.
This letter amends and restates in full our prior Agreement, dated February
4, 1998. If this letter satisfactorily reflects our agreement, as amended,
please sign and return the attached copy to my attention. Thank you for your
efforts on behalf of the Trust and the Partnership.
/s/ Robert E. Patterson
_________________________
Robert E. Patterson,
President
Accepted as of this 4th day of
February, 1998.
/s/ Eugene F. Reilly
_______________________
Eugene F. Reilly
<PAGE>
Exhibit A
---------
Tax Gross-Up Payment
--------------------
1. Gross-Up Payment. In the event that it is determined that any payments,
----------------
benefits or distributions (or any combination thereof) to or for the
benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the attached letter agreement, or
otherwise) by the Trust or any of its affiliates (including the
Partnership) or by one or more trusts established by the Trust or any of
its affiliates for the benefit of their employees, are subject to the
excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), which payments are collectively referred to as
"Parachute Payments", the Trust or the Partnership shall pay to or for the
benefit of Executive a payment (a "Gross-Up Payment") equal to the sum of
the following amounts:
a. the amount of the excise tax attributable to the Parachute Payments
(referred to as the "Excise Tax") and the amount of any additional
excise tax under section 4999 of the Code imposed with respect to
additional payments, if any, made pursuant to this paragraph 1;
b. any interest or penalties incurred by Executive with respect to the
Excise Tax and other payments, if any, made pursuant to this paragraph
1; and
c. any taxes, including income taxes, incurred by Executive on the Excise
Tax and other payments, if any, made pursuant to this paragraph 1.
2. Determination and Payment of Gross-Up Payment. Subject to the provisions
---------------------------------------------
of paragraph 3 below, all determinations required to be made under this
Exhibit A, including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
certified public accounting firm as may be designated by the Trust or the
Partnership (the "Accounting Firm") which shall provide detailed supporting
calculations to the Trust, the Partnership and Executive within fifteen
(15) business days of the effective time of a Change in Control or such
earlier time as is requested by the Trust or the Partnership. All fees and
expenses of the Accounting Firm shall be borne solely by the Trust or the
Partnership. Any Gross-Up Payment, as determined pursuant to paragraph 1,
shall be paid by the Trust or the Partnership to Executive within five (5)
days after the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it
shall so indicate to Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Trust, the Partnership and
Executive. As a result of the uncertainty in the application of section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that a Gross-Up Payment which will not have
been made by the Trust or the Partnership should have been made
("Underpayment"),
<PAGE>
consistent with the calculations required to be made hereunder. In the
event that the Trust or the Partnership exhausts its remedies pursuant to
paragraph 3 and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Trust or the Partnership to or for the benefit of Executive.
3. Claims by IRS. Executive shall notify the Trust and the Partnership in
-------------
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Trust or the Partnership of the Gross-Up
Payment. Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed in writing of
such claim and shall apprise the Trust and the Partnership of the nature of
such claim and the date on which such claim is requested to be paid.
Executive shall not pay such claim prior to the expiration of the thirty
(30) day period following the date on which it gives such notice to the
Trust and the Partnership (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Trust or
the Partnership notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
a. give the Trust and the Partnership any information requested by either
relating to such claim;
b. take such action in connection with contesting such claim as the Trust
or the Partnership shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Trust or the Partnership;
c. cooperate with the Trust and the Partnership in good faith in order to
effectively contest such claim; and
d. permit the Trust and the Partnership to participate in any proceedings
relating to such claim;
provided, however, that the Trust or the Partnership shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and
hold Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this paragraph 3, the
Trust or the Partnership shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a
2
<PAGE>
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Trust or the
Partnership shall determine; provided, however, that if the Trust or the
Partnership directs Executive to pay such claim and sue for a refund, the
Trust or the Partnership shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and provided, further, that if Executive is required to
extend the statute of limitations to enable the Trust or the Partnership to
contest such claim, Executive may limit this extension solely to such
contested amount. The control of the contest by the Trust or the
Partnership shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
4. Refunds. If, after the receipt by Executive of an amount advanced by the
-------
Trust or the Partnership pursuant to paragraph 3, Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to the Trust's or the Partnership's complying with the
requirements of paragraph 3) promptly pay to the Trust or the Partnership
the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Trust or the Partnership pursuant to
paragraph 3, a determination is made that Executive shall not be entitled
to any refund with respect to such claim and the Trust or the Partnership
does not notify Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
3
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K, into Cabot Trust's
previously filed Registration Statements on Form S-3 (File Nos. 333-71585, 333-
71565, 333-61543) and S-8 (File No. 333-65169).
Boston, Massachusetts ARTHUR ANDERSEN LLP
MARCH 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,301
<SECURITIES> 0
<RECEIVABLES> 5,822
<ALLOWANCES> 312
<INVENTORY> 0
<CURRENT-ASSETS> 7,811
<PP&E> 1,116,632
<DEPRECIATION> 20,777
<TOTAL-ASSETS> 1,110,570
<CURRENT-LIABILITIES> 26,910
<BONDS> 248,206
0
0
<COMMON> 186
<OTHER-SE> 348,801
<TOTAL-LIABILITY-AND-EQUITY> 1,110,570
<SALES> 0
<TOTAL-REVENUES> 102,425
<CGS> 0
<TOTAL-COSTS> 18,422
<OTHER-EXPENSES> 27,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,009
<INCOME-PRETAX> 21,766
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,766
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
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